-----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, NjkvldELARWC/5yUF96vFrl9HuUUghTWkXnNBPD2E7bvZYG7sZyTAnK6Be2bCEDU 1R5E1M9NJ61k156zQZ4azw== /in/edgar/work/20000814/0000049600-00-000008/0000049600-00-000008.txt : 20000921 0000049600-00-000008.hdr.sgml : 20000921 ACCESSION NUMBER: 0000049600-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTGROUP PROPERTIES INC CENTRAL INDEX KEY: 0000049600 STANDARD INDUSTRIAL CLASSIFICATION: [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: 698134 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 0001.txt 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 JUNE 30, 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 August 9, 2000 was 15,641,676. EASTGROUP PROPERTIES, INC. FORM 10-Q TABLE OF CONTENTS FOR THE QUARTER ENDED JUNE 30, 2000 PART I. FINANCIAL INFORMATION Pages Item 1. Consolidated Financial Statements Consolidated balance sheets, June 30, 2000 (unaudited) and December 31, 1999 3 Consolidated statements of income for the three and six months ended June 30, 2000 and 1999 (unaudited) 4 Consolidated statement of changes in stockholders' equity for the six months ended June 30, 2000 (unaudited) 5 Consolidated statements of cash flows for the six months ended June 30, 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 17 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES Authorized signatures 20
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) June 30, 2000 December 31, 1999 --------------------- ------------------------- (Unaudited) ASSETS Real estate properties: Industrial $ 630,132 580,598 Industrial development 20,162 35,480 Other 6,919 6,919 --------------------- ------------------------- 657,213 622,997 Less accumulated depreciation (57,298) (46,829) --------------------- ------------------------- 599,915 576,168 --------------------- ------------------------- Real estate held for sale 13,418 18,051 Less accumulated depreciation (4,666) (4,750) --------------------- ------------------------- 8,752 13,301 --------------------- ------------------------- Mortgage loans 7,042 8,706 Investment in real estate investment trusts 12,216 15,708 Cash 3,690 2,657 Other assets 17,004 15,611 --------------------- ------------------------- TOTAL ASSETS $ 648,619 632,151 ===================== ========================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Mortgage notes payable $ 149,879 148,665 Notes payable to banks 111,847 95,000 Accounts payable & accrued expenses 10,886 12,170 Other liabilities 4,882 4,664 --------------------- ------------------------- 277,494 260,499 --------------------- ------------------------- Minority interest in joint ventures 1,701 1,690 Minority interest in operating partnership 325 650 --------------------- ------------------------- 2,026 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; 15,630,676 shares issued at June 30, 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 234,493 233,453 Undistributed earnings 23,762 26,654 Accumulated other comprehensive income 2,307 668 --------------------- ------------------------- 369,099 369,312 --------------------- ------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 648,619 632,151 ===================== ========================= See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Six Months Ended Ended June 30, June 30, ------------------- ----------------------- 2000 1999 2000 1999 REVENUES Income from real estate operations $ 23,053 20,262 45,035 40,461 Interest: Mortgage loans 185 395 383 683 Other interest 76 45 103 79 Gain on sale of securities - - 555 - Other 292 396 671 760 -------------------- ---------------------- 23,606 21,098 46,747 41,983 -------------------- ---------------------- EXPENSES Operating expenses from real estate operations 5,325 4,901 10,521 9,895 Interest 4,585 4,634 8,719 8,985 Depreciation and amortization 5,911 4,900 11,440 9,715 General and administrative 1,269 920 2,488 2,041 -------------------- ---------------------- 17,090 15,355 33,168 30,636 -------------------- ---------------------- INCOME BEFORE MINORITY INTEREST AND GAIN ON REAL ESTATE INVESTMENTS 6,516 5,743 13,579 11,347 Minority interest in joint ventures 121 114 220 206 -------------------- ---------------------- INCOME BEFORE GAIN ON REAL ESTATE INVESTMENTS 6,395 5,629 13,359 11,141 Gain on real estate investments 620 224 621 1,675 -------------------- ---------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 7,015 5,853 13,980 12,816 Cumulative effect of change in accounting principle - - - 418 -------------------- ---------------------- NET INCOME 7,015 5,853 13,980 12,398 Preferred dividends-Series A 970 970 1,940 1,940 Preferred dividends-Series B 1,532 219 3,064 438 -------------------- ---------------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 4,513 4,664 8,976 10,020 ======================== ========================== BASIC PER SHARE DATA Net income available to common shareholders $ 0.29 0.29 0.58 0.62 ======================== ========================== Weighted average shares outstanding 15,624 16,076 15,597 16,189 ======================== ========================== DILUTED PER SHARE DATA Net income available to common shareholders $ 0.29 0.29 0.57 0.61 ======================= ========================== Weighted average shares outstanding 15,785 16,245 15,760 16,336 ======================== ========================== See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) Accumulated 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 - - - 13,980 - 13,980 Net unrealized change in investment securities - - - - 1,639 1,639 ---------- Total comprehensive income 15,619 ---------- Cash dividends declared-common, $.76 per share - - - (11,868) - (11,868) Preferred stock dividends declared - - - (5,004) (5,004) Issuance of 9,638 shares of common stock, incentive compensation - - 174 - - 174 Issuance of 6,783 shares of common stock, dividend reinvestment plan - - 145 - - 145 Issuance of 82,250 shares of common stock, exercise options - - 1,161 - - 1,161 Repurchase limited partnership units - - (10) - - (10) Purchase of 23,500 common shares - - (430) - - (430) ---------------------------------------------------------------------- BALANCE, JUNE 30, 2000 $ 108,535 2 234,493 23,762 2,307 369,099 ====================================================================== See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Six Months Ended June 30, June 30, 2000 1999 ------------ -------------- OPERATING ACTIVITIES: Net income $ 13,980 12,398 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle - 418 Depreciation and amortization 11,440 9,715 Gain on real estate investments, net (621) (1,675) Gain on sale of securities (555) - Minority interest depreciation and amortization (78) (163) Changes in operating assets and liabilities: Accrued income and other assets (511) (1,960) Accounts payable, accrued expenses and prepaid rent 2,100 (148) ------------ -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 25,755 18,585 ------------ -------------- INVESTING ACTIVITIES: Payments on mortgage loans receivable, net of amortization of loan discounts 2,158 5,682 Advances on mortgage loans receivable (494) (5,266) Proceeds from sale of real estate investments 2,642 797 Real estate improvements (6,046) (3,430) Real estate development (18,242) (25,431) Purchases of real estate (7,347) (13,778) Purchases of securities - (10,171) Proceeds from sale of securities 5,826 - Changes in other assets and other liabilities (1,970) 3,484 ------------ -------------- NET CASH USED IN INVESTING ACTIVITIES (23,473) (48,113) ------------ -------------- FINANCING ACTIVITIES: Proceeds from bank borrowings 92,849 217,686 Principal payments on bank borrowings (76,002) (212,188) Proceeds from mortgage notes payable 11,500 47,000 Principal payments on mortgage notes payable (10,286) (4,574) Distributions paid to shareholders (16,872) (13,796) Purchase of limited partnership units (335) - Purchases of common shares (430) (4,774) Proceeds from exercise of stock options 1,161 289 Preferred stock issuance costs - (2) Proceeds from dividend reinvestment plan 145 145 Debt issuance costs (76) (901) Other (2,903) 2,019 ------------ -------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,249) 30,904 ------------ -------------- INCREASE IN CASH AND CASH EQUIVALENTS 1,033 1,376 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,657 2,784 ------------ -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,690 4,160 ============ ============== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest, net of amount capitalized $ 8,942 7,848 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 June 30, 2000, EastGroup purchased Broadway Industrial Park #4 (44,000 square feet) in Tempe, Arizona for $2,015,000. (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 basic and diluted earnings per share $.02 and $.03, respectively, for the six months ending June 30, 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 six months ended June 30, 2000 are presented in the Company's Consolidated Statement of Changes in Stockholders' Equity. (In thousands) ---------------- Other comprehensive income: Unrealized holding gains during the period, net of losses of $158 $ 2,194 Less reclassification adjustment for gains included in net income (555) ---------------- Net unrealized change in investment securities $ 1,639 ================
(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 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 for the Company's cash needs, including the ability to make distributions. The table below presents on a comparative basis for the three months and six months ended June 30, 2000 and 1999 reported PNOI by operating segment, followed by reconciliations of PNOI to FFO and FFO to net income. Three Months Ended Six Months Ended June 30, June 30, ---------------- ------------- --------------- -------------- 2000 1999 2000 1999 ---------------- ------------- --------------- -------------- (In thousands) Property Revenues: Industrial $ 22,115 18,383 43,169 36,754 Office 354 1,335 711 2,619 Other 584 544 1,155 1,088 ---------------- ------------- --------------- -------------- 23,053 20,262 45,035 40,461 ---------------- ------------- --------------- -------------- Property Expenses: Industrial (4,984) (4,278) (9,869) (8,526) Office (96) (425) (197) (868) Other (245) (198) (455) (501) ---------------- ------------- --------------- -------------- (5,325) (4,901) (10,521) (9,895) ---------------- ------------- --------------- -------------- Property Net Operating Income: Industrial 17,131 14,105 33,300 28,228 Office 258 910 514 1,751 Other 339 346 700 587 ---------------- ------------- --------------- -------------- Total Property Net Operating Income 17,728 15,361 34,514 30,566 ---------------- ------------- --------------- -------------- Gain on sale of securities - - 555 - Gain on nondepreciable real estate investments 620 - 620 - Other income 553 836 1,157 1,522 Interest expense (4,585) (4,634) (8,719) (8,985) General and administrative (1,269) (920) (2,488) (2,041) Minority interest in earnings (160) (185) (298) (369) Dividends on Series A preferred shares (970) (970) (1,940) (1,940) Limited partnership unit distributions 6 - 18 - ---------------- ------------- --------------- -------------- Funds From Operations 11,923 9,488 23,419 18,753 Depreciation and amortization (5,911) (4,900) (11,440) (9,715) Share of joint venture depreciation and amortization 39 71 78 163 Gain on depreciable real estate investments - 224 1 1,675 Limited partnership unit distributions (6) - (18) - Dividends on Series B convertible preferred shares (1,532) (219) (3,064) (438) Cumulative effect of change in accounting principle - - - (418) ---------------- ------------- --------------- -------------- Net Income Available to Common Shareholders 4,513 4,664 8,976 10,020 Dividends on preferred shares 2,502 1,189 5,004 2,378 ---------------- ------------- --------------- -------------- NET INCOME $ 7,015 5,853 13,980 12,398 ================ ============= =============== ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION (Comments are for the balance sheet dated June 30, 2000 compared to December 31, 1999.) Assets of EastGroup were $648,619,000 at June 30, 2000, an increase of $16,468,000 from December 31, 1999. Liabilities (excluding minority interests) increased $16,995,000 to $277,494,000; minority interests decreased $314,000 to $2,026,000 and stockholders' equity decreased $213,000 to $369,099,000 during the same period. Book value per common share decreased from $16.47 at December 31, 1999 to $16.38 at June 30, 2000. The paragraphs that follow explain these changes in greater detail. Industrial properties increased $49,534,000 during the six months ended June 30, 2000. This increase was primarily due to the acquisition of three industrial properties for $7,347,000, as detailed below; capital improvements of $5,878,000 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 eight industrial properties from industrial development with total costs of $33,560,000. Industrial Properties Acquired Size Date Acquired Cost in 2000 Location (Square Feet) (In thousands) - ---------------------------------- ------------------------- ----------------- ----------------- ------------------- Wilson Distribution Center Tempe, Arizona 56,000 01-13-00 $2,517 Founders Business Center El Paso, Texas 77,000 04-11-00 2,302 Interstate Distribution Center III Dallas, Texas 78,000 05-19-00 2,528 ------------------- Total Industrial Acquisitions $7,347 ===================
Industrial development decreased $15,318,000 during the six months ended June 30, 2000 as a result of the reclassifications of eight development properties to industrial real estate properties, offset by year-to-date development costs of $18,242,000 on existing and completed development properties, as detailed below. Industrial Development Costs Incurred --------------------------------------- Size at For the 6 Months Cumulative as Estimated Completion Ended 6/30/00 of 6/30/00 Total Costs (1) - ----------------------------------------- ----------------- --------------------------------------------------------- (Square feet) (In thousands) Lease-Up: Glenmont II Houston, Texas 104,000 $ 1,886 2,354 3,676 ----------------- --------------------- ----------------- ----------------- Total Lease-up 104,000 1,886 2,354 3,676 ----------------- --------------------- ----------------- ----------------- Under Construction: World Houston 11 Houston, Texas 126,000 1,189 1,775 5,455 Palm River North I & III Tampa, Florida 116,000 2,039 3,605 5,287 Westlake II Tampa, Florida 70,000 2,583 2,583 4,208 Sunport I Orlando, Florida 56,000 992 2,263 3,024 Beach Commerce Center Jacksonville, Florida 46,000 1,345 1,345 2,800 Interstate Commons II Phoenix, Arizona 58,000 49 369 3,000 Techway Southwest I Houston, Texas 126,000 665 665 5,040 ----------------- --------------------- ----------------- ----------------- Total Under Construction 598,000 8,862 12,605 28,814 ----------------- --------------------- ----------------- ----------------- Prospective Development: Phoenix, Arizona 60,000 - 640 3,200 Tampa, Florida 180,000 18 839 7,600 Orlando, Florida 359,000 1,962 1,962 17,300 Houston, Texas 317,000 1,762 1,762 12,300 ----------------- --------------------- ----------------- ----------------- Total Prospective Development 916,000 3,742 5,203 40,400 ----------------- --------------------- ----------------- ----------------- 1,618,000 $ 14,490 20,162 72,890 ================= ===================== ================= ================= Completed Development and Transferred to Industrial Properties During Six Months Ended June 30, 2000: John Young II Orlando, Florida 47,000 $ 315 2,877 Rampart Distribution Center III Denver, Colorado 92,000 804 5,558 Sample 95 II Pompano, Florida 70,000 271 3,772 Chestnut Business Center City of Industry, California 75,000 354 4,708 Palm River North II Tampa, Florida (2) 96,000 23 3,168 Westlake I Tampa, Florida 70,000 505 4,808 Glenmont I Houston, Texas (2) 108,000 425 3,631 Main Street Carson, California 106,000 1,055 5,038 ----------------- --------------------- ----------------- Total Transferred to Industrial 664,000 $ 3,752 33,560 ================= ===================== =================
(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 $4,633,000 primarily due to the sale of one industrial property, the LeTourneau Center of Commerce with a cost of $1,623,000, the transfer of West Palm I and II to real estate properties with a cost of $2,749,000, and the sale of Estelle land with a cost of $429,000. These decreases were offset by capital improvements of $168,000 to the properties held for sale. Accumulated depreciation on real estate properties and real estate held for sale increased $10,385,000 due to depreciation expense of $10,420,000, offset by the sale of one property with accumulated depreciation of $35,000. Mortgage loans receivable decreased $1,664,000 during the first six months of 2000 as a result of the repayment of $2,100,000 on one mortgage loan, pay down of $57,000 on one mortgage loan and principal payments of $1,000, offset by the advance of $494,000 on one mortgage loan. Investments in real estate investment trusts decreased from $15,708,000 at December 31, 1999 to $12,216,000 at June 30, 2000, primarily as a result of the first liquidating dividend of Franklin Select Realty Trust. The Company`s basis in the investment decreased from $5,844,000 to zero. This decrease was partially offset by an increase in the market value of the Company's investment in Pacific Gulf Properties of $2,352,000. Pacific Gulf Properties has announced that it is selling most of its assets (see Liquidity and Capital Resources). Other assets increased $1,393,000 during the six months ended June 30, 2000 compared to December 31, 1999 primarily as a result of increases in unamortized leasing commissions. Mortgage notes payable increased $1,214,000 during the six months ended June 30, 2000 as a result of one new note for $11,500,000, offset by regularly scheduled principal payments of $1,875,000 and the repayment of one note for $8,411,000. Notes payable to banks increased $16,847,000 as a result of borrowings of $92,849,000 offset by payments of $76,002,000. The Company's credit facilities are described in greater detail under Liquidity and Capital Resources. Accounts payable and accrued expenses decreased $1,284,000 during the six months ended June 30, 2000 compared to December 31, 1999 primarily as a result of a net decrease in payables due to timing differences. Accumulated other comprehensive income increased $1,639,000 as a result of the liquidation of Franklin Select Realty Trust securities and 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 decreased from $26,654,000 at December 31, 1999 to $23,762,000 at June 30, 2000 as a result of dividends on common stock of $11,868,000 exceeding net income available to common shareholders for financial reporting purposes of $8,976,000. Results of Operations (Comments are for the three months and six months ended June 30, 2000 compared to the three months and six months ended June 30, 1999.) Net income available to common stockholders for the three months and six months ended June 30, 2000 was $4,513,000 ($.29 per basic share and diluted share) and $8,976,000 ($.58 per basic share and $.57 per diluted share), compared to net income for the three months and six months ended June 30, 1999 of $4,664,000 ($.29 per basic and diluted share) and $10,020,000 ($.62 per basic share and $.61 per diluted share). Income before gain on real estate investments was $6,395,000 and $13,359,000 for the three months and six months ended June 30, 2000, compared to $5,629,000 and $11,141,000 for the three months and six months ended June 30, 1999. Gain on real estate investments was $620,000 and $621,000 for the three months and six months ended June 30, 2000, compared to $224,000 and $1,675,000 for the three months and six months ended June 30, 1999. The cumulative effect of the change in accounting principle (described in Note 4 to the financial statements) was zero for the three months and six months ended June 30, 2000, compared to zero and $418,000 for the three months and six months ended June 30, 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 $2,367,000 or 15.4% for the three months ended June 30, 2000 compared to the three months ended June 30, 1999. For the six months ended June 30, 2000, PNOI increased by $3,948,000 or 12.9% compared to the six months ended June 30, 1999. PNOI and percentage leased by property type were as follows: Property Net Operating Income Three Months Ended Six Months Ended Percent June 30, June 30, Leased ------------- ------------ ----------- ------------- ----------- ---------- 2000 1999 2000 1999 6-30-00 6-30-99 ------------- ------------ ----------- ------------- ----------- ---------- (In thousands) Industrial $ 17,131 14,105 33,300 28,228 97% 97% Office 258 910 514 1,751 Other 339 346 700 587 ------------- ------------ ----------- ------------- Total PNOI $ 17,728 15,361 34,514 30,566 ============= ============ =========== =============
PNOI from industrial properties increased $3,026,000 and $5,072,000 for the three months and six months ended June 30, 2000, compared to June 30, 1999, primarily due to acquisitions, rental rate increases and developments. Industrial properties held throughout the three months and six months ended June 30, 2000 compared to the same period in 1999 showed an increase in PNOI of 5.2% for the three months ended June 30, 2000 and 2.4% for the six months ended June 30, 2000. PNOI from office properties decreased $652,000 and $1,237,000 for the three months and six months ended June 30, 2000, compared to June 30, 1999. These decreases were primarily the result of the sale of the 8150 Leesburg Pike Office Building in July 1999. PNOI from other properties decreased slightly for the three months ended June 30, 2000, but increased $113,000 for the six months ended June 30, 2000 due to increased occupancy at the La Vista apartment complex in Atlanta. Gain on sale of securities increased $555,000 for the six months ended June 30, 2000, compared to June 30, 1999 as a result of a gain realized on the first liquidating dividend of Franklin Select Realty Trust. Bank interest expense increased $378,000 and $432,000 for the three months and six months ended June 30, 2000 compared to 1999. Average bank borrowings were $106,045,000 and $102,349,000 for the three months and six months ended June 30, 2000 compared to $107,197,000 and $110,240,000 for the same periods of 1999. Average bank interest rates were 8.02% and 7.71% for the three months and six months ended June 30, 2000 compared to 6.56% and 6.38% for the same periods of 1999. Bank interest rates at June 30, 2000 were 7.91% on $105,000,000, 7.75% on $5,000,000 and 8.75% on $1,847,000. Bank interest rates at June 30, 1999 were 6.19% on $107,000,000, 7.75% on $4,000,000 and 7.00% on $8,820,000. 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 and six months ended June 30, 2000 were $388,000 and $1,032,000 compared to $481,000 and $759,000 for the three months and six months ended June 30, 1999. Interest expense on real estate properties decreased $511,000 and $404,000 for the three months and six months ended June 30, 2000 compared to 1999. These decreases were primarily the result of the sales of the 8150 Leesburg Pike Office Building and the Waldenbooks/Borders Distribution Center in 1999, the payoff of the Interstate Distribution Centers mortgages in 1999 and the payoff of one of the University Business Center mortgages in 2000. These decreases were partially offset by increases due to the assumption of the Kyrene mortgage in 1999 and a new mortgage for University Business Center in 2000. Depreciation and amortization increased $1,011,000 and $1,725,000 for the three months and six months ended June 30, 2000 compared to 1999. This increase was primarily due to the industrial properties acquired in both 1999 and 2000 and development properties that achieved stabilized operations in 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 on real estate investments for the six months ended June 30, 2000 and 1999 is detailed below. Gains on Real Estate Investments Net Recognized Basis Sales Price Gain ------------------------------------------------------ (In thousands) 2000 Real estate properties: LeTourneau Center of Commerce $ 1,592 1,593 1 Estelle land 429 1,049 620 ------------------------------------------------------ $ 2,021 2,642 621 ====================================================== 1999 Mortgage loans: Country Club-deferred gain $ (1,127) - 1,127 Gainesville-deferred gain (388) - 388 Country Club land purchase-leaseback 500 500 - Other 137 297 160 ------------------------------------------------------ $ (878) 797 1,675 ======================================================
NAREIT has recommended supplemental disclosures concerning straight-line rent, capital expenditures and leasing costs. Straight-line rent for the three months and six months ended June 30, 2000 was $343,000 and $766,000 compared to zero for the same periods in 1999. Capital improvements for the six months ended June 30, 2000 (by category) and 1999 are as follows: Capital Improvements 2000 ------------------------------------------ 1999 Industrial Other Total Total ------------- ------------- -------------- ---------- (In thousands) Upgrade on Acquisitions $ 2,814 - 2,814 333 Major Renovation - - - 53 New Development - - - 77 Tenant improvements: New Tenants 1,204 - 1,204 1,317 New Tenants (first generation) 521 - 521 174 Renewal Tenants 487 - 487 247 Other 866 154 1,020 1,229 ------------- ------------- -------------- ---------- Total capital improvements $ 5,892 154 6,046 3,430 ============= ============= ============== ==========
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 six months ended June 30, 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 $ 287 - - 287 179 New Tenants (first generation) 96 - 1,254 1,350 109 Renewal Tenants 544 19 - 563 411 ------------- ------------- ---------------- --------------- --------- Total capitalized leasing costs $ 927 19 1,254 2,200 699 ============= ============= ================ =============== ========= Amortization of leasing costs $ 989 739 =============== =========
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $25,755,000 for the six months ended June 30, 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, bank borrowings and a new mortgage note. The Company distributed $11,868,000 in common and $5,004,000 in preferred stock dividends. Other primary uses of cash were for capital improvements at the various properties, construction and development of properties, purchases of real estate investments, bank debt payments and mortgage note payments. Total debt at June 30, 2000 and 1999 was as follows: As of June 30, ---------------------------------- 2000 1999 ---------------- ----------------- (In thousands) Mortgage notes payable - fixed rate $ 149,879 164,920 Bank notes payable - floating rate 111,847 119,820 ---------------- ----------------- Total debt $ 261,726 284,740 ================ =================
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 7.9063% on $97,000,000 and 7.90% on $8,000,000 at June 30, 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 8.75% at June 30, 2000. The balance at June 30, 2000 was $1,847,000. 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 7.75% at June 30, 2000. At June 30, 2000, the outstanding balance for this loan was $5,000,000, payable on demand. In June 2000, EastGroup closed a mortgage loan with Metropolitan Life Insurance Company to refinance the Company's only mortgage debt maturity for 2000. A mortgage of $8.4 million at 9.06% was repaid and replaced with an $11.5 million nonrecourse mortgage at 7.98%. The loan matures in 12 years and has an amortization based on 25 years. In July 2000, EastGroup signed an application with New York Life Insurance Company for a $26.3 million nonrecourse mortgage secured by nine buildings in Houston, Texas. The note will have an interest rate of 7.92%, a 30-year amortization and a 10 1/2-year maturity. The loan is scheduled to close in October, but there can be no assurance that it will close at such time. 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 six months ended June 30, 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). During the second quarter of 2000, the Company entered into a contract to purchase the Center One property in Tampa, Florida (97,000 square feet) for a cost of approximately $3,321,000. In June, the Company entered into a contract to purchase West Loop I in Houston, Texas (84,000 square feet) for $2,350,000. Also, the Company is still under contract to purchase the Sunport Center land for development (19.65 acres) for approximately $2,774,000. All of these acquisitions are expected to close during the third quarter of 2000. 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. The Company estimates an additional distribution and gain of $700,000 in the fourth quarter of 2000 based on FSN's quarterly reports. EastGroup owns 487,100 shares of Pacific Gulf Properties (PAG) with a cost basis of $9,909,000 or $20.34 per share. On June 20, 2000, PAG announced that it had entered into an agreement to sell all of its industrial properties and is marketing its multi-family assets with the disposition of its senior housing assets to be determined at a future date. Pacific Gulf also announced that the industrial and multi-family sales were scheduled to close before the end of the year and that it planned to distribute the sales proceeds of approximately $26.00 per share to shareholders in the fourth quarter of 2000. As a result of the announced PAG distribution, EastGroup expects to record a gain of approximately $2,750,000 in the fourth quarter of this year. Subsequent to June 30, 2000, EastGroup purchased Broadway Industrial Park #4 (44,000 square feet) in Tempe, Arizona for $2,015,000. Budgeted capital improvements for the year ending December 31, 2000 follow: Capital Improvements Industrial Other Total ------------- ----------- ----------- (In thousands) Upgrades on Acquisitions $ 1,236 - 1,236 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 8,010 ============= =========== ===========
Budgeted industrial development costs are estimated to be $45,000,000 for the year. The Company anticipates that its current cash balance, operating cash flows, and borrowings under the lines 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. 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 main- tain 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 several variable bank lines as discussed under Liquidity and Capital Resources. The table below presents the principal payments due and weighted average interest rates for both the fixed rate and variable rate debt. Jul-Dec Fair 2000 2001 2002 2003 2004 Thereafter Total Value ----------- ------- ---------- -------- -------- ------------ ---------- ---------- Fixed rate debt (in thousands) $ 1,865 7,886 12,329 8,116 8,851 110,832 149,879 145,333 Weighted average interest rate 7.75% 7.77% 7.59% 8.33% 8.21% 7.64% 7.72% Variable rate debt (in thousands) $ 6,847 - 105,000 - - - 111,847 111,847 Weighted average interest rate 8.02% - 7.91% - - - 7.91%
As the table above incorporates only those exposures that exist as of June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 1, 2000, the Registrant held its Annual Meeting of Shareholders. At the Annual Meeting, D. Pike Aloian, Alexander G. Anagnos, H.C. Bailey, Jr., Fredric H. Gould, David H. Hoster II, David M. Osnos, John N. Palmer and Leland R. Speed were elected directors of the Registrant, each to serve until the 2001 Annual Meeting. The following is a summary of the voting for directors: Vote Nominee Vote For Withheld -------------- ---------- -------- D. Pike Aloian 16,304,769 84,481 Alexander G. Anagnos 16,310,712 78,538 H.C. Bailey, Jr. 16,328,269 60,981 Fredric H. Gould 16,328,767 60,483 David H. Hoster II 16,320,339 68,911 David M. Osnos 16,177,383 211,867 John N. Palmer 16,319,560 69,691 Leland R. Speed 16,312,882 76,368
At the same meeting, shareholders were asked to vote on a proposal to ratify the adoption of the 2000 Directors Stock Option Plan. The Plan provides for automatic grants to directors who are not employees of options to purchase shares of Common Stock. The following is a summary of the voting: For 15,702,065 Against 539,817 Abstain 147,369 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: August 14, 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 0002.txt EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. Exhibit (27)
5 0000049600 EASTGROUP PROPERTIES, INC. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 3,690 12,216 0 0 0 0 670,631 (61,964) 648,619 0 261,726 0 108,535 2 260,562 648,619 0 46,747 0 10,521 22,867 0 8,719 0 0 13,980 0 0 0 13,980 .58 .57
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