-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BKEehfeso9xxw9UX1ZPE33AgmMyFTEpkiSMUYg87+v8JaXirnwZ8hwgMsFdTpsjh vo527e1WHOKltEsHK569dg== 0000049600-00-000006.txt : 20000516 0000049600-00-000006.hdr.sgml : 20000516 ACCESSION NUMBER: 0000049600-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTGROUP PROPERTIES INC CENTRAL INDEX KEY: 0000049600 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 132711135 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07094 FILM NUMBER: 634570 BUSINESS ADDRESS: STREET 1: P O BOX 22728 CITY: JACKSON STATE: MS ZIP: 39225 BUSINESS PHONE: 6013543555 MAIL ADDRESS: STREET 1: P O BOX 22728 CITY: JACKSON STATE: MS ZIP: 39225 FORMER COMPANY: FORMER CONFORMED NAME: EASTGROUP PROPERTIES II INC DATE OF NAME CHANGE: 19970529 FORMER COMPANY: FORMER CONFORMED NAME: ICM REALTY DATE OF NAME CHANGE: 19830719 10-Q 1 EASTGROUP PROPERTIES, INC. 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. EASTGROUP PROPERTIES, INC. FORM 10-Q TABLE OF CONTENTS FOR THE QUARTER ENDED MARCH 31, 2000 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
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 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.
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Ended March 31, ---------------------------------- 2000 1999 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.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 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.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Three Months Ended March 31, March 31, 2000 1999 ------------ ---------- 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.
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: 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 ====================
(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: (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) ==================
(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. Three Months Ended March 31, ----------------------------- 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 ============== ============
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. Industrial Development Costs Incurred --------------------------------------- Size at For the 3 Months Cumulative as Estimated Completion Ended 3/31/00 of 3/31/00 Total Costs (1) - ----------------------------------------- ----------------- --------------------------------------------------------- (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 ================= ===================== =================
(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: Property Net Operating Income PNOI Three Months Ended Percent March 31, Leased ----------------------------- ------------------------------- 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 ============== ==============
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). A summary of gains (losses) on real estate investments for the three months ended March 31, 2000 and 1999 is detailed below. Gains (Losses) on Real Estate Investments 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 ======================================================
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: Capital Improvements 2000 ------------------------------------------------------------ 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 ============= ============= ================ =============== ==========
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: Capitalized Leasing Costs 2000 ------------------------------------------------------------ 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 =============== =========
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: As of March 31, ---------------------------------- 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 ================ =================
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: Capital Improvements -------------------------------------------------------- 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 ============= =========== ================ ===========
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. Also, subsequent to March 31, 2000, the Company entered into contracts to purchase the following properties: 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 =====================
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. 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%
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. 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. 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 EX-27 2 EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. Exhibit (27)
5 0000049600 EASTGROUP PROPERTIES, INC. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,877 9,559 0 0 0 0 649,819 (56,579) 631,747 0 247,619 0 108,535 2 259,209 631,747 0 23,141 0 5,196 10,981 0 4,134 0 0 6,965 0 0 0 6,965 .29 .28
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