FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 1-7094
EASTGROUP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-2711135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (601) 354-3555
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES (x) NO ( )
The number of shares of common stock, $.0001 par value, outstanding as of
May 10, 2000 was 15,622,736.
<PAGE>
EASTGROUP PROPERTIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<S> <C> <C>
Pages
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated balance sheets, March 31, 2000 (unaudited)
and December 31, 1999 3
Consolidated statements of income for the three months
ended March 31, 2000 and 1999 (unaudited) 4
Consolidated statement of changes in stockholders' equity
for the three months ended March 31, 2000 (unaudited) 5
Consolidated statements of cash flows for the three months
ended March 31, 2000 and 1999 (unaudited) 6
Notes to consolidated financial statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES
Authorized signatures 19
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<S> <C> <C>
March 31, 2000 December 31, 1999
--------------------- -------------------------
(Unaudited)
ASSETS
Real estate properties:
Industrial $ 602,353 580,598
Industrial development 26,779 35,480
Other 6,919 6,919
--------------------- -------------------------
636,051 622,997
Less accumulated depreciation (51,913) (46,829)
--------------------- -------------------------
584,138 576,168
--------------------- -------------------------
Real estate held for sale
13,768 18,051
Less accumulated depreciation (4,666) (4,750)
--------------------- -------------------------
9,102 13,301
--------------------- -------------------------
Mortgage loans 6,548 8,706
Investment in real estate investment trusts 9,559 15,708
Cash 2,877 2,657
Other assets 19,523 15,611
--------------------- -------------------------
TOTAL ASSETS $ 631,747 632,151
==================== =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 147,619 148,665
Notes payable to banks 100,000 95,000
Accounts payable & accrued expenses 9,147 12,170
Other liabilities 4,876 4,664
--------------------- -------------------------
261,642 260,499
--------------------- -------------------------
Minority interest in joint ventures 1,709 1,690
Minority interest in operating partnership 650 650
--------------------- -------------------------
2,359 2,340
--------------------- -------------------------
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; stated
liquidation preference of $43,125 41,357 41,357
Series B 8.75% Cumulative Convertible Preferred
Shares and additional paid-in capital; $.0001 par value;
2,800,000 shares authorized and issued; stated
liquidation preference of $70,000 67,178 67,178
Series C Preferred Shares; $.0001 par value; 600,000
shares authorized; no shares issued - -
Common shares; $.0001 par value; 64,875,000
shares authorized; 15,622,736 shares issued at
March 31, 2000 and 15,555,505 at December 31, 1999 2 2
Excess shares; $.0001 par value; 30,000,000 shares
authorized; no shares issued - -
Additional paid-in capital on common shares 234,372 233,453
Undistributed earnings 25,187 26,654
Accumulated other comprehensive income (350) 668
--------------------- -------------------------
367,746 369,312
--------------------- -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 631,747 632,151
===================== =========================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
Three Months
Ended
March 31,
----------------------------------
2000 1999
<S> <C> <C>
REVENUES
Income from real estate operations $ 21,982 20,199
Interest:
Mortgage loans 198 288
Other interest 27 34
Other 934 364
--------------- ------------
23,141 20,885
--------------- ------------
EXPENSES
Operating expenses from real
estate operations 5,196 4,994
Interest 4,134 4,351
Depreciation and amortization 5,529 4,815
General and administrative 1,219 1,121
--------------- ------------
16,078 15,281
--------------- ------------
INCOME BEFORE MINORITY INTEREST
AND GAIN ON INVESTMENTS 7,063 5,604
Minority interest in joint ventures 99 92
--------------- ------------
INCOME BEFORE GAIN ON
REAL ESTATE INVESTMENTS 6,964 5,512
Gain on real estate investments 1 1,451
--------------- ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 6,965 6,963
Cumulative effect of change in accounting principle - 418
--------------- ------------
NET INCOME 6,965 6,545
Preferred dividends-Series A 970 970
Preferred dividends-Series B 1,532 219
--------------- ------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 4,463 5,356
=============== ============
BASIC PER SHARE DATA
Net income available to common shareholders $ 0.29 0.33
=============== ============
Weighted average shares outstanding 15,569 16,303
=============== ============
DILUTED PER SHARE DATA
Net income available to common shareholders $ 0.28 0.33
=============== ============
Weighted average shares outstanding 15,732 16,429
=============== ============
See accompanying notes to consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Shares Shares Accumulated
of of Additional Other
Preferred Common Paid-In Undistributed Comprehensive
Stock Stock Capital Earnings Income Total
------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $108,535 2 233,453 26,654 668 369,312
Comprehensive income
Net income - - - 6,965 - 6,965
Net unrealized change in investment
securities - - - - (1,018) (1,018)
------------
Total comprehensive income 5,947
------------
Cash dividends declared-common, $.38 per
share - - - (5,930) - (5,930)
Preferred stock dividends declared - - - (2,502) - (2,502)
Issuance of 9,638 shares of common stock,
incentive compensation - - 174 - 174
Issuance of 3,343 shares of common stock,
dividend reinvestment plan - - 72 - - 72
Issuance of 77,750 shares of common stock,
exercise options - - 1,103 - - 1,103
Purchase of 23,500 common shares,
options exercised - - (430) - - (430)
------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 $108,535 2 234,372 25,187 (350) 367,746
==============================================================================
See accompanying notes to consolidated
financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31, March 31,
2000 1999
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,965 6,545
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting principle - 418
Depreciation and amortization 5,529 4,815
Gain on real estate investments, net (1) (1,451)
Gain on sale of real estate investment trust shares (555) -
Minority interest depreciation and amortization (39) (92)
Changes in operating assets and liabilities:
Accrued income and other assets (1,288) (1,624)
Accounts payable, accrued expenses and prepaid rent (532) (1,048)
------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,079 7,563
------------ ----------
INVESTING ACTIVITIES:
Payments on mortgage loans receivable, net of
amortization of loan discounts 2,158 5,862
Advances on mortgage loans receivable - (1,588)
Proceeds from sale of real estate investments 1,593 436
Real estate improvements (3,101) (1,500)
Real estate development (4,776) (11,758)
Purchases of real estate (2,517) (9,217)
Purchases of real estate investment trust shares - (10,171)
Proceeds from sale of real estate investment trust shares 5,826 -
Changes in other assets and other liabilities (3,232) 4,036
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES (4,049) (23,900)
------------ ----------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 37,365 179,020
Debt issuance costs (31) (865)
Proceeds from mortgage notes payable - 47,000
Principal payments on bank borrowings (32,365) (198,129)
Principal payments on mortgage notes payable (1,046) (3,537)
Distributions paid to shareholders (8,432) (6,829)
Purchases of common shares, options exercised (430) (346)
Proceeds from exercise of stock options 1,103 -
Preferred stock issuance costs - (2)
Proceeds from dividend reinvestment plan 72 74
Other (2,046) 1,555
------------ ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,810) 17,941
------------ ----------
INCREASE IN CASH AND CASH EQUIVALENTS 220 1,604
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,657 2,784
------------ ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,877 4,388
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 4,325 4,648
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In management's opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The financial statements should be read in conjunction with the 1999
annual report and the notes thereto.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the 1999 financial statements
to conform to the 2000 presentation.
(3) SUBSEQUENT EVENTS
Subsequent to March 31, 2000, EastGroup purchased Founders Business Center
(77,000 square feet) in El Paso, Texas for $2,277,000 and 3.5 acres of land for
development of Beach Boulevard (46,000 square feet) in Jacksonville, Florida for
$485,000. Also, subsequent to March 31, 2000, the Company has entered into
contracts to purchase the following properties:
<TABLE>
<S> <C> <C> <C>
Approximate
Property Location Size Purchase Price
---------------------------------------------- -------------------- ----------------- ---------------------
(In thousands)
Interstate III Dallas, Texas 78,000 sq. ft. $2,535
Sunport Center Land for Development Orlando, Florida 19.65 acres 2,774
--------------------
$5,309
====================
</TABLE>
(4) ACCOUNTING CHANGE
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 of $418,000 were written off
in first quarter 1999 and accounted for as a cumulative effect of a change in
accounting principle. The accounting change reduced both basic and diluted
earnings per share $.03 in first quarter 1999.
(5) COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," which
established new rules for the reporting of comprehensive income and its
components. Comprehensive income comprises net income plus all other changes in
equity from nonowner sources. The components of comprehensive income for the
three months ended March 31, 2000 are presented in the Company's Consolidated
Statement of Changes in Stockholders' Equity. The unrealized change in
investment securities in the quarter ended March 31, 2000 is net of the realized
gain on the liquidation of the Franklin Select Realty Trust investment
securities included in net income as shown below:
<TABLE>
<S> <C>
(In thousands)
-------------------
Other comprehensive income:
Unrealized holding losses during the period $ (463)
Less reclassification adjustment for gains included in net income (555)
------------------
Net unrealized change in investment securities $ (1,018)
==================
</TABLE>
(6) BUSINESS SEGMENTS
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
sales of depreciable real estate property, plus depreciable real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that FFO is an appropriate
measure of performance for equity real estate investment trusts. 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 the ability to make distributions. The table
below presents on a comparative basis for the three months ended March 31, 2000
and 1999 reported PNOI by operating segment, followed by reconciliations of PNOI
to FFO and FFO to net income.
<PAGE>
<TABLE>
Three Months Ended
March 31,
-----------------------------
<S> <C> <C>
2000 1999
---------------- ------------
(In thousands)
Property Revenues:
Industrial $ 21,054 18,371
Office 357 1,284
Other 571 544
------------ ------------
21,982 20,199
------------ ------------
Property Expenses:
Industrial (4,885) (4,245)
Office (101) (447)
Other (210) (302)
------------- ------------
(5,196) (4,994)
------------- ------------
Property Net Operating Income:
Industrial 16,169 14,126
Office 256 837
Other 361 242
------------- ------------
Total Property Net Operating Income 16,786 15,205
------------- ------------
Other income 1,159 686
Interest expense (4,134) (4,351)
General and administrative (1,219) (1,121)
Minority interest in earnings (138) (184)
Dividends on Series A preferred shares (970) (970)
Limited partnership unit distributions 12 -
------------- ------------
Funds From Operations 11,496 9,265
Depreciation and amortization (5,529) (4,815)
Share of joint venture depreciation and amortization 39 92
Gain on real estate investments 1 1,451
Limited partnership unit distributions (12) -
Dividends on Series B convertible preferred shares (1,532) (219)
Cumulative effect of change in accounting principle - (418)
-------------- ------------
Net Income Available to Common Shareholders 4,463 5,356
Dividends on preferred shares 2,502 1,189
-------------- ------------
NET INCOME $ 6,965 6,545
============== ============
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
(Comments are for the balance sheet dated March 31, 2000 compared to December
31, 1999.)
Assets of EastGroup were $631,747,000 at March 31, 2000, a decrease of
$404,000 from December 31, 1999. Liabilities (excluding minority interests)
increased $1,143,000 to $261,642,000; minority interests increased $19,000 to
$2,359,000 and stockholders' equity decreased $1,566,000 to $367,746,000 during
the same period. Book value per common share decreased from $16.47 at December
31, 1999 to $16.30 at March 31, 2000. The paragraphs that follow explain these
changes in greater detail.
Industrial properties increased $21,755,000 during the three months ended
March 31, 2000. This increase was primarily due to the acquisition of one
industrial property, the Wilson Distribution Center, for $2,517,000; capital
improvements of $3,012,000 made on existing and acquired properties; the
reclassification of one industrial property from real estate held for sale with
costs of $2,749,000; and the reclassifications of three industrial properties
from industrial development with total costs of $13,477,000.
Industrial development decreased $8,701,000 during the three months ended
March 31, 2000. This increase resulted primarily from year-to-date development
costs of $4,776,000 on existing and completed development properties, offset by
costs of $13,477,000 on completed development properties reclassified to
industrial properties, as detailed below.
<PAGE>
Industrial Development
<TABLE>
Costs Incurred
---------------------------------------
Size at For the 3 Months Cumulative as Estimated
Completion Ended 3/31/00 of 3/31/00 Total Costs (1)
<S> <C> <C> <C> <C>
- ----------------------------------------- ----------------- ---------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
John Young II
Orlando, Florida 47,000 $ (41) 2,521 3,024
Rampart Distribution Center III
Denver, Colorado 92,000 219 4,973 5,953
Sample 95 II
Pompano, Florida 70,000 64 3,565 3,826
Chestnut Business Center
City of Industry, California 75,000 188 4,542 5,517
Palm River North I
Tampa, Florida 96,000 (916) 3,795 5,287
----------------- --------------------- ----------------- -----------------
Total Lease-up 380,000 (486) 19,396 23,607
----------------- --------------------- ----------------- -----------------
Under Construction:
World Houston 11
Houston, Texas 126,000 325 911 5,455
Palm River North II & III
Tampa, Florida 116,000 1,238 1,238 5,287
Westlake II
Tampa, Florida 70,000 1,351 1,351 4,208
Glenmont II
Houston, Texas 104,000 468 468 3,676
Sunport I
Orlando, Florida 56,000 339 1,610 3,024
----------------- --------------------- ----------------- -----------------
Total Under Construction 472,000 3,721 5,578 21,650
----------------- --------------------- ----------------- -----------------
Prospective Development:
Phoenix, Arizona 125,000 15 975 6,200
Tampa, Florida 180,000 9 830 7,600
Jacksonville, Florida 46,000 - - 2,800
Orlando, Florida 359,000 - - 17,300
Houston, Texas 126,000 - - 5,040
----------------- --------------------- ----------------- -----------------
Total Prospective Development 836,000 24 1,805 38,940
----------------- --------------------- ----------------- -----------------
1,688,000 $ 3,259 26,779 84,197
================= ===================== ================= =================
Completed Development and
Transferred to Industrial
Properties During Three
Months Ended March 31, 2000:
Westlake I
Tampa, Florida 70,000 $ 505 4,808
Glenmont I
Houston, Texas 108,000 (43) 3,631
Main Street
Carson, California 106,000 1,055 5,038
----------------- --------------------- -----------------
Total Transferred to Industrial 284,000 $ 1,517 13,477
================= ===================== =================
</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 government 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.
Real estate held for sale decreased $4,283,000 primarily due to the sale of
one industrial property, the LeTourneau Center of Commerce with a cost of
$1,623,000 and the transfer of one property to real estate properties with a
cost of $2,749,000. These decreases were offset by capital improvements of
$89,000.
Accumulated depreciation on real estate properties and real estate held for
sale increased $5,000,000 due to depreciation expense of $5,035,000, offset by
the sale of one property with accumulated depreciation of $35,000.
Mortgage loans receivable decreased $2,158,000 during the first three
months of 2000 as a result of the repayment of $2,100,000 on one mortgage loan,
paydown of $57,000 on one mortgage loan and principal payments of $1,000.
Investments in real estate investment trusts decreased from $15,708,000 at
December 31, 1999 to $9,559,000 at March 31, 2000 as a result of the liquidation
of the Franklin Select Realty Trust securities owned by EastGroup with a
realized gain of $555,000 and a cost basis of $5,131,000. Investments in REITs
also decreased due to a change of $463,000 in unrealized losses on other real
estate investment trust securities.
Other assets increased $3,912,000 during the three months ended March 31,
2000 compared to December 31, 1999 primarily as a result of a net increase in
cash escrows for Section 1031 tax deferred exchange transactions, increases in
unamortized leasing commissions and net increases in receivables and other
prepaid costs.
Mortgage notes payable decreased $1,046,000 during the three months ended
March 31, 2000, as a result of regularly scheduled principal payments.
Notes payable to banks increased $5,000,000 as a result of borrowings of
$37,365,000 offset by payments of $32,365,000. The Company's credit facilities
are described in greater detail under Liquidity and Capital Resources.
Accounts payable and accrued expenses decreased $3,023,000 during the three
months ended March 31, 2000 compared to December 31, 1999 primarily as a result
of a net decrease in real estate operations payables, payment of 1999 accrued
compensation and payment of franchise taxes.
Accumulated other comprehensive income decreased $1,018,000 as a result of
the liquidation of Franklin Select Realty Trust securities and a decrease 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 decreased from $26,654,000 at December 31, 1999 to
$25,187,000 at March 31, 2000, as a result of dividends on common stock of
$5,930,000 exceeding net income available to common shareholders for financial
reporting purposes of $4,463,000.
Results of Operations
(Comments are for the three months ended March 31, 2000, compared to the three
months ended March 31, 1999.)
Net income available to common stockholders for the three months ended
March 31, 2000 was $4,463,000 ($.29 per basic share and $.28 per diluted share),
compared to net income for the three months ended March 31, 1999 of $5,356,000
($.33 per basic and diluted share). Income before gains on investments was
$6,964,000 for the three months ended March 31, 2000, compared to $5,512,000 for
the three months ended March 31, 1999. Gains on real estate investments were
$1,000 for the three months ended March 31, 2000, compared to $1,451,000 for the
three months ended March 31, 1999. The cumulative effect of the change in
accounting principle was zero for the three months ended March 31, 2000,
compared to $418,000 for the three months ended March 31, 1999. 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 $1,581,000 or 10.4% for the
three months ended March 31, 2000, compared to the three months ended March 31,
1999. PNOI and percentage leased by property type were as follows:
<PAGE>
Property Net Operating Income
<TABLE>
PNOI
Three Months Ended Percent
March 31, Leased
<S> <C> <C> <C> <C>
----------------------------- -------------------------------
2000 1999 3-31-00 3-31-99
-------------- -------------- ---------------- --------------
(In thousands)
Industrial $ 16,169 14,126 98% 96%
Other 617 1,079
-------------- --------------
Total PNOI $ 16,786 15,205
============== ==============
</TABLE>
PNOI from industrial properties increased $2,043,000 for the three months
ended March 31, 2000, compared to March 31, 1999 due to acquisitions and
developments. Industrial properties held throughout the three months ended March
31, 2000 compared to the same period in 1999 showed an increase in PNOI of .2%.
PNOI from other properties decreased $462,000 for the three months ended
March 31, 2000, compared to March 31, 1999. This decrease was primarily the
result of the sale of the 8150 Leesburg Pike Office Building in July 1999.
Other revenues increased $570,000 for the three months ended March 31,
2000, compared to March 31, 1999 primarily as a result of a gain realized on the
liquidation of Franklin Select Realty Trust securities owned by EastGroup.
Bank interest expense increased $44,000 from $1,841,000 for the three
months ended March 31, 1999 to $1,885,000 for the three months ended March 31,
2000. Average bank borrowings were $98,644,000 for the three months ended March
31, 2000 compared to $112,922,000 for the same period in 1999. Bank interest
rates at March 31, 2000 were 7.38% on $77,000,000, 7.25% on $8,000,000 and 7.50%
on $15,000,000. Bank interest rates at March 31, 1999 were 6.19% on $92,000,000
and 7.00% on $3,213,000. Interest costs incurred during the period of
construction of real estate properties are capitalized and offset against the
bank interest expense. The interest costs capitalized on real estate properties
for the three months ended March 31, 2000 were $644,000 compared to $278,000 for
the same period in 1999.
Interest expense on real estate properties increased $105,000 from
$2,788,000 for the three months ended March 31, 1999 to $2,893,000 for the three
months ended March 31, 2000, primarily as a result of the issuance of the
$47,000,000 mortgage loan with Metropolitan Life and assumption of the Kyrene
Distribution Center mortgage, both in 1999. These increases were primarily
offset by the sales of the 8150 Leesburg Pike Office Building and the
Waldenbooks/Borders Distribution Center and the payoff of the Interstate
Distribution Centers mortgages, all in 1999.
Depreciation and amortization increased $714,000 for the three months ended
March 31, 2000 compared to 1999. This increase was primarily due to the
industrial properties acquired in both 1999 and 2000, offset by the sales of
several properties in 1999 and the transfer of several properties to real estate
held for sale (depreciation not taken on those properties held in real estate
held for sale).
<PAGE>
A summary of gains (losses) on real estate investments for the three months
ended March 31, 2000 and 1999 is detailed below.
<TABLE>
Gains (Losses) on Real Estate Investments
<S> <C> <C> <C>
Net Recognized
Basis Sales Price Gain/(Loss)
------------------------------------------------------
(In thousands)
2000
Real estate properties:
LeTourneau Center of Commerce $ 1,592 1,593 1
======================================================
1999
Mortgage loans:
Country Club-deferred gain $ (1,127) - 1,127
Gainesville-deferred gain (388) - 388
Country Club land purchase-leaseback 500 500 -
Other - (64) (64)
------------------------------------------------------
$ (1,015) 436 1,451
======================================================
</TABLE>
NAREIT has recommended supplemental disclosures concerning straight-line
rent, capital expenditures and leasing costs. Straight-line rent for the three
months ended March 31, 2000 was $423,000 compared to zero for the same period in
1999. Capital expenditures for the three months ended March 31, 2000 (by
category) and 1999 are as follows:
<PAGE>
Capital Improvements
<TABLE>
2000
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Industrial 1999
Industrial Other Development Total Total
------------- ------------- ---------------- --------------- ----------
(In thousands)
Upgrade on Acquisitions $ 1,762 - - 1,762 136
Major Renovation - - - - 103
New Development - - 4,776 4,776 11,483
Tenant improvements:
New Tenants 626 - - 626 420
New Tenants (first generation) 221 - - 221 480
Renewal Tenants 61 - - 61 80
Other 352 79 - 431 556
------------- ------------- ---------------- --------------- ----------
Total capital improvements $ 3,022 79 4,776 7,877 13,258
============= ============= ================ =============== ==========
</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 three
months ended March 31, 2000 (by category) and 1999 is as follows:
<TABLE>
Capitalized Leasing Costs
2000
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Industrial 1999
Industrial Other Development Total Total
------------- ------------- ---------------- --------------- ---------
(In thousands)
Capitalized leasing costs:
New Tenants $ 233 - - 233 149
New Tenants (first generation) 36 - 1,185 1,221 76
Renewal Tenants 168 19 - 187 159
------------- ------------- ---------------- --------------- ---------
Total capitalized leasing costs $ 437 19 1,185 1,641 384
============= ============= ================ =============== =========
Amortization of leasing costs $ 478 363
=============== =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $10,079,000 for the three
months ended March 31, 2000. Other sources of cash were primarily from
collections on mortgage loan receivables, sales of real estate investments,
liquidation of real estate investment trust shares and bank borrowings. The
Company distributed $5,930,000 in common and $2,502,000 in preferred stock
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 and mortgage note payments. Total debt at March
31, 2000 and 1999 was as follows:
<TABLE>
As of March 31,
----------------------------------
<S> <C> <C>
2000 1999
---------------- -----------------
(In thousands)
Mortgage notes payable - fixed rate $ 147,619 165,957
Bank notes payable - floating rate 100,000 95,213
---------------- -----------------
Total debt $ 247,619 261,170
================ =================
</TABLE>
The Company has a three-year $150,000,000 unsecured revolving credit
facility with a group of ten banks that is due to expire in January 2002. The
interest rate is based on the Eurodollar rate plus 1.25% and was 7.38% on
$77,000,000 and 7.25% on $8,000,000 at March 31, 2000. An unused line fee of
.25% is also assessed on this note.
The Company has a one-year $10,000,000 unsecured revolving credit facility
with Chase Bank of Texas that is due to expire in January 2001. The interest
rate is based on Chase Bank of Texas, National Association's prime rate less
.75% and was 8.25% at March 31, 2000. The balance at March 31, 2000 was zero.
The Company has a $15,000,000 unsecured discretionary line of credit with
Chase Bank of Texas. The interest rate and maturity date for each loan proceeds
are by agreement between the Company and Chase and was 7.50% at March 31, 2000.
At March 31, 2000, the outstanding balance for this loan was $15,000,000,
payable on demand.
During the third quarter 1998, EastGroup's Board of Directors authorized
the repurchase of up to 500,000 shares of its outstanding common stock. In
September 1999, EastGroup's Board of Directors authorized the repurchase of
500,000 additional shares of its outstanding common stock and an additional
500,000 shares in December 1999. The shares may be purchased from time to time
in the open market or in privately negotiated transactions. The Company did not
repurchase any shares during the quarter ended March 31, 2000. Since September
30, 1998, a total of 817,700 shares have been repurchased for $13,980,000 (an
average of $17.10 per share).
Budgeted capital expenditures and development for the year ending December
31, 2000 follow:
<TABLE>
Capital Improvements
--------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial
Industrial Other Development Total
------------- ----------- ---------------- -----------
(In thousands)
Upgrades on Acquisitions $ 1,236 - - 1,236
New Development - - 45,000 45,000
Tenant Improvements:
New Tenants 3,064 60 - 3,124
New Tenants (first generation) 350 - - 350
Renewal Tenants 1,232 - - 1,232
Other 1,842 226 - 2,068
------------- ----------- ---------------- -----------
Total budgeted capital improvements $ 7,724 286 45,000 53,010
============= =========== ================ ===========
</TABLE>
The Company anticipates that its current cash balance, operating cash
flows, and borrowings under the working capital line of credit 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.
Subsequent to March 31, 2000, EastGroup purchased Founders Business Center
(77,000 square feet) in El Paso, Texas for $2,277,000 and 3.5 acres of land for
development of Beach Boulevard (46,000 square feet) in Jacksonville, Florida for
$485,000.
<PAGE>
Also, subsequent to March 31, 2000, the Company entered into contracts to
purchase the following properties:
<TABLE>
<S> <C> <C> <C>
Property Location Size Purchase Price
---------------------------------------------- -------------------- ----------------- ---------------------
(In thousands)
Interstate III Dallas, Texas 78,000 sq. ft. $ 2,535
Sunport Center Land for Development Orlando, Florida 19.65 acres 2,774
---------------------
$ 5,309
=====================
</TABLE>
In addition, EastGroup has a contract to sell the Estelle Land (610 acres)
in Jefferson Parish, Louisiana for approximately $1,129,000. The proceeds of
this sale are expected to be reinvested in properties through new acquisitions.
This transaction is expected to generate a gain of approximately $629,000 for
financial reporting purposes.
On February 10, 2000, Franklin Select Realty Trust announced the closing of
the sale of all of the company's real estate assets for an aggregate purchase
price of $131.5 million, less existing project debt assumed by the buyer of
approximately $26.5 million. Pursuant to the plan of liquidation recently
approved by Franklin's shareholders, Franklin's board of directors declared an
initial liquidating distribution of $7.11 per share, which was paid to
shareholders and received by EastGroup on March 10, 2000. The Company reported a
gain from this distribution of $555,000. It is expected that Franklin's
shareholders will receive a final liquidating distribution in the fourth quarter
of 2000, subject, however, to final court approval of settlements of pending
litigation. The total basis of EastGroup's Franklin shares was used in computing
the gain on the March 10, 2000 transaction. The amount of any final
distributions paid to EastGroup, minus certain transaction expenses, will be
recorded as an additional gain.
INFLATION
In the last five years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate in the Company's geographic
areas of operation. Most of the leases require the tenants to pay their pro rata
share of operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing the Company's exposure to increases in
operating expenses resulting from inflation. In addition, the Company's leases
typically have three to five year terms, which may enable the Company to replace
existing leases with new leases at a higher base if rents on the existing leases
are below the then-existing market rate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to interest rate changes primarily as a result of
its lines of credit and long-term debt maturities. This debt is 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
$150,000,000 unsecured revolving credit facility with a group of ten banks which
was arranged by Chase Securities, Inc., due to expire in January 2002. The
interest rate is based on the Eurodollar rate plus 1.25% and was 7.38% on
$77,000,000 and 7.25% on $8,000,000 at March 31, 2000. In addition, the Company
has a one-year $10,000,000 unsecured revolving credit facility with Chase Bank
of Texas. The interest rate on the $10,000,000 note is based on Chase Bank of
Texas, National Association's Prime Rate less .75% and was 8.25% at March 31,
2000. This note is due to expire January 2001 and had a zero balance at March
31, 2000. Also, the Company has a $15,000,000 unsecured discretionary line of
credit with Chase Bank of Texas with an interest rate of 7.50% on $15,000,000 at
March 31, 2000, payable on demand. The table below presents the principal
payments due and weighted average interest rates for both the fixed rate and
variable rate debt.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apr-Dec 2001 2002 2003 2004 Thereafter Total Fair Value
2000
----------- ------- --------- -------- --------- ------------ ---------- ------------
Fixed rate debt (in thousands) $ 11,031 7,729 12,159 7,932 8,651 100,117 147,619 142,930
Average interest rate 8.76% 7.77% 7.59% 8.34% 8.21% 7.77% 8.03%
Variable rate debt (in thousands) $ 15,000 - 85,000 - - - 100,000 100,000
Average interest rate 7.50% - 7.36% - - - 7.38%
</TABLE>
As the table above incorporates only those exposures that exist as of March
31, 2000, it does not consider those exposures or positions that could arise
after that date. Moreover, because future commitments are not presented in the
table above, the information presented has limited predictive value. As a
result, the Company's ultimate economic impact with respect to interest rate
fluctuations will depend on the exposures that arise during the period and
interest rates.
Forward Looking Statements
In addition to historical information, certain sections of this Form 10-Q
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's hopes, expectations, intentions,
beliefs, strategies regarding the future, the anticipated performance of
development and acquisition properties, 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 Form 10-Q. 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.
<PAGE>
EASTGROUP PROPERTIES, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - 2000 Financial Data Schedule attached hereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: May 15, 2000
EASTGROUP PROPERTIES, INC.
/s/ Bruce Corkern
Bruce Corkern, CPA
Senior Vice President and Controller
/s/ N. Keith McKey
N. Keith McKey, CPA
Executive Vice President, Chief
Financial Officer and Secretary
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit (27)
<ARTICLE> 5
<CIK> 0000049600
<NAME> EASTGROUP PROPERTIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,877
<SECURITIES> 9,559
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 649,819
<DEPRECIATION> (56,579)
<TOTAL-ASSETS> 631,747
<CURRENT-LIABILITIES> 0
<BONDS> 247,619
0
108,535
<COMMON> 2
<OTHER-SE> 259,209
<TOTAL-LIABILITY-AND-EQUITY> 631,747
<SALES> 0
<TOTAL-REVENUES> 23,141
<CGS> 0
<TOTAL-COSTS> 5,196
<OTHER-EXPENSES> 10,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,134
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,965
<EPS-BASIC> .29
<EPS-DILUTED> .28
</TABLE>
