-----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, AD7PxrHV31Top+CJfu3TvZZZuNLKKgVdA70ZcorWp2MRB69U8g24f9J81U3J+fSI 56c9dfa2Asj5ZBD+naiJmw== 0000049600-02-000013.txt : 20021114 0000049600-02-000013.hdr.sgml : 20021114 20021114104110 ACCESSION NUMBER: 0000049600-02-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 1934 Act SEC FILE NUMBER: 001-07094 FILM NUMBER: 02822425 BUSINESS ADDRESS: STREET 1: P O BOX 22728 CITY: JACKSON STATE: MS ZIP: 39202 BUSINESS PHONE: 6013543555 MAIL ADDRESS: STREET 1: P O BOX 22728 CITY: JACKSON STATE: MS ZIP: 39202 FORMER COMPANY: FORMER CONFORMED NAME: ICM REALTY DATE OF NAME CHANGE: 19830719 FORMER COMPANY: FORMER CONFORMED NAME: EASTGROUP PROPERTIES II INC DATE OF NAME CHANGE: 19970529 10-Q 1 form10q3qtr02.txt FORM 10-Q 3RD QUARTER 2002 FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2002 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 39201-2195 (Address of principal executive offices) (Zip code) Registrant's telephone number: (601) 354-3555 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES (x) NO ( ) The number of shares of common stock, $.0001 par value, outstanding as of November 12, 2002 was 16,094,399. EASTGROUP PROPERTIES, INC. FORM 10-Q TABLE OF CONTENTS FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION Pages Item 1. Consolidated Financial Statements Consolidated balance sheets, September 30, 2002 (unaudited) and December 31, 2001 3 Consolidated statements of income for the three and nine months ended September 30, 2002 and 2001 (unaudited) 4 Consolidated statement of changes in stockholders' equity for the nine months ended September 30, 2002 (unaudited) 5 Consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001 (unaudited) 6 Notes to consolidated financial statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION Item 4. Controls and Procedures 20 SIGNATURES Authorized signatures 21 CERTIFICATIONS 22
EASTGROUP PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
September 30, 2002 December 31, 2001 ---------------------------------------------------- (Unaudited) ASSETS Real estate properties $ 733,429 696,829 Development 36,214 37,504 ---------------------------------------------------- 769,643 734,333 Less accumulated depreciation (111,118) (92,060) ---------------------------------------------------- 658,525 642,273 ---------------------------------------------------- Real estate held for sale 9,210 1,907 Less accumulated depreciation (903) (141) ---------------------------------------------------- 8,307 1,766 ---------------------------------------------------- Mortgage loans 14 5,515 Investment in real estate investment trusts 1,607 6,452 Cash 1,472 1,767 Other assets 23,032 26,009 ---------------------------------------------------- TOTAL ASSETS $ 692,957 683,782 ==================================================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Mortgage notes payable $ 241,240 205,014 Notes payable to banks 65,073 86,058 Accounts payable & accrued expenses 17,751 12,801 Other liabilities 6,096 7,460 ---------------------------------------------------- 330,160 311,333 ---------------------------------------------------- ---------------------------------------------------- Minority interest in joint ventures 1,759 1,739 ---------------------------------------------------- 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; 16,093,899 shares issued at September 30, 2002 and 15,912,060 at December 31, 2001 2 2 Excess shares; $.0001 par value; 30,000,000 shares authorized; no shares issued - - Additional paid-in capital on common shares 243,310 240,197 Undistributed earnings 11,763 23,753 Accumulated other comprehensive income 299 1,193 Unearned compensation (2,871) (2,970) ---------------------------------------------------- 361,038 370,710 ---------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 692,957 683,782 ====================================================
See accompanying notes to consolidated financial statements. EASTGROUP PROPERTIES, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------------------- 2002 2001 2002 2001 ---------------------------------------------------- REVENUES Income from real estate operations $ 25,670 25,334 75,176 74,234 Interest: Mortgage loans 14 117 264 361 Other interest 12 60 40 546 Gain on securities 365 1,774 1,836 2,480 Other 54 161 535 549 ---------------------------------------------------- 26,115 27,446 77,851 78,170 ---------------------------------------------------- EXPENSES Operating expenses from real estate operations 7,598 6,364 21,576 18,326 Interest 4,363 4,458 12,703 13,590 Depreciation and amortization 7,736 6,810 21,958 19,574 General and administrative 1,102 1,207 3,279 3,489 Minority interest in joint ventures 103 86 286 260 ---------------------------------------------------- 20,902 18,925 59,802 55,239 ---------------------------------------------------- INCOME BEFORE GAIN (LOSS) ON SALE OF REAL ESTATE INVESTMENTS 5,213 8,521 18,049 22,931 Gain (loss) on sale of real estate investments - (35) 93 3,420 ---------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 5,213 8,486 18,142 26,351 ---------------------------------------------------- DISCONTINUED OPERATIONS Income from real estate operations 26 89 135 203 Loss on sale of real estate investments (66) - (66) - ---------------------------------------------------- INCOME (LOSS) FROM DISCONTINUED OPERATIONS (40) 89 69 203 ---------------------------------------------------- NET INCOME 5,173 8,575 18,211 26,554 Preferred dividends-Series A 970 970 2,910 2,910 Preferred dividends-Series B 1,532 1,532 4,596 4,596 ---------------------------------------------------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 2,671 6,073 10,705 19,048 ==================================================== BASIC PER COMMON SHARE DATA Income from continuing operations $ 0.17 0.38 0.68 1.20 Income (loss) from discontinued operations 0.00 0.01 0.00 0.01 ---------------------------------------------------- Net income available to common stockholders $ 0.17 0.39 0.68 1.21 ==================================================== Weighted average shares outstanding 15,901 15,702 15,856 15,689 ==================================================== DILUTED PER COMMON SHARE DATA Income from continuing operations $ 0.16 0.37 0.66 1.18 Income (loss) from discontinued operations 0.00 0.01 0.00 0.01 ---------------------------------------------------- Net income available to common stockholders $ 0.16 0.38 0.66 1.19 ==================================================== Weighted average shares outstanding 16,264 16,045 16,228 16,033 ====================================================
See accompanying notes to consolidated financial statements. EASTGROUP PROPERTIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Accumulated Additional Other Preferred Common Paid-In Unearned Undistributed Comprehensive Stock Stock Capital Compensation Earnings Income Total -------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 $ 108,535 2 240,197 (2,970) 23,753 1,193 370,710 Comprehensive income Net income - - - - 18,211 - 18,211 Net unrealized change in investment securities - - - - - (894) (894) -------- Total comprehensive income 17,317 -------- Cash dividends declared-common, $1.41 per share - - - - (22,695) - (22,695) Preferred stock dividends declared - - - - (7,506) - (7,506) Issuance of 6,822 shares of common stock, incentive compensation - - 151 - - - 151 Issuance of 10,848 shares of common stock, dividend reinvestment plan - - 276 - - - 276 Issuance of 154,819 shares of common stock, exercise options - - 2,438 - - - 2,438 Issuance of 18,600 shares of common stock, incentive restricted stock - - 437 (437) - - - Forfeiture of 9,250 shares of common stock, incentive restricted stock - - (189) 149 - - (40) Amortization of unearned compensation, incentive restricted stock - - - 387 - - 387 -------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2002 $ 108,535 2 243,310 (2,871) 11,763 299 361,038 ================================================================================
See accompanying notes to consolidated financial statements. EASTGROUP PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, -------------------------------------------- 2002 2001 -------------------------------------------- OPERATING ACTIVITIES: Net income $ 18,211 26,554 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization from continuing operations 21,958 19,574 Depreciation and amortization from discontinued operations 363 236 Gain on sale of real estate investments (93) (3,420) Loss on sale of real estate investments from discontinued operations 66 - Gain on real estate investment trust shares (1,836) (2,480) Amortization of unearned compensation 347 332 Minority interest depreciation and amortization (129) (121) Changes in operating assets and liabilities: Accrued income and other assets 3,448 (1,696) Accounts payable, accrued expenses and prepaid rent 3,797 3,546 -------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 46,132 42,525 -------------------------------------------- INVESTING ACTIVITIES: Payments on mortgage loans receivable 5,501 4,991 Advances on mortgage loans receivable - (926) Proceeds from sale of real estate investments 2,917 9,260 Real estate improvements (5,811) (5,100) Real estate development (27,085) (22,797) Purchases of real estate (12,935) (13,804) Purchases of real estate investment trust shares (1,308) (5,258) Proceeds from sale of real estate investment trust shares 7,095 7,444 Changes in other assets and other liabilities (1,172) 206 -------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (32,798) (25,984) -------------------------------------------- FINANCING ACTIVITIES: Proceeds from bank borrowings 163,782 101,286 Principal payments on bank borrowings (184,767) (127,963) Proceeds from mortgage notes payable 48,200 45,000 Principal payments on mortgage notes payable (11,974) (7,050) Debt issuance costs (1,473) (489) Distributions paid to stockholders (29,903) (28,699) Proceeds from exercise of stock options 2,438 511 Proceeds from dividend reinvestment plan 276 268 Other (208) (200) -------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (13,629) (17,336) -------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (295) (795) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,767 2,861 -------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,472 2,066 ============================================ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest, net of amount capitalized $ 12,068 13,063 Debt assumed by buyer of real estate - 378
See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying unaudited financial statements of EastGroup Properties, Inc. ("EastGroup" or "the Company") have been prepared in accordance with accounting principles generally accepted in the United States of America 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 2001 annual report and the notes thereto. (2) RECLASSIFICATIONS Certain reclassifications have been made in the 2001 financial statements to conform to the 2002 presentation. (3) NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement Obligations," effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company plans to adopt this statement on January 1, 2003 and believes that the effect of adoption will have no impact on its overall financial position or results of operation. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company plans to adopt this statement on January 1, 2003 and believes that the effect of adoption will have no significant impact on its overall financial position or results of operations. (4) REAL ESTATE HELD FOR SALE The Company applies SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company's real estate properties that are currently offered for sale or are under contract to sell have been shown separately on the consolidated balance sheets as "real estate held for sale." Such assets are carried at the lower of current carrying amount or fair market value less estimated selling costs and are not depreciated while they are held for sale. At September 30, 2002, the Company had two properties and three parcels of land held for sale. There can be no assurances that such properties will be sold. At December 31, 2001, the Company had one property and two parcels of land held for sale. In accordance with the guidelines established under SFAS No. 144, operations and gains and losses on sale from the properties placed in the category "held for sale" subsequent to December 31, 2001 have been classified as income from discontinued operations for the three and nine months ended September 30, 2002 and 2001. No interest expense was allocated to the properties that are held for sale. (5) GOODWILL The Company applies SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for by using the purchase method of accounting and addresses accounting for purchased goodwill and other intangibles. SFAS No. 142 addresses financial accounting and reporting for the impairment of goodwill and other intangibles and is effective for fiscal years beginning after December 15, 2001. The Company had no business combinations after June 30, 2001. At September 30, 2002 and December 31, 2001, the Company had unamortized goodwill of $990,000 resulting from the acquisition of Ensign Properties in 1998. Amortization of goodwill expense for 2001 was $61,000. Upon adoption of SFAS No. 142 on January 1, 2002, amortization of goodwill ceased. The Company periodically reviews the recoverability of goodwill for possible impairment and will continue to do so under the new statement. In management's opinion, no material impairment of goodwill existed at September 30, 2002. (6) OTHER ASSETS A summary of the Company's other assets follows:
September 30, 2002 December 31, 2001 ---------------------------------------------- (In thousands) Leasing commissions, net of accumulated amortization $ 10,235 9,313 Receivables, net of allowance for doubtful accounts 7,158 8,473 Section 1031 tax deferred exchange cash escrows - 2,074 Prepaid expenses and other assets 5,639 6,149 ---------------------------------------------- $ 23,032 26,009 ==============================================
(7) ACCOUNTS PAYABLE & ACCRUED EXPENSES A summary of the Company's accounts payable and accrued expenses follows:
September 30, 2002 December 31, 2001 ---------------------------------------------- (In thousands) Property taxes payable $ 8,972 5,170 Dividends payable 3,254 2,957 Other payables and accrued expenses 5,525 4,674 ---------------------------------------------- $ 17,751 12,801 ==============================================
(8) COMPREHENSIVE INCOME Comprehensive income is comprised of net income plus all other changes in equity from nonowner sources. The components of comprehensive income for the nine months ended September 30, 2002 are presented in the Company's Consolidated Statement of Changes in Stockholders' Equity. The unrealized change in investment securities is net of realized gains on real estate investment trust securities included in net income as shown below:
September 20, 2002 ---------------------- (In thousands) Other comprehensive income: Unrealized holding gains during the period $ 942 Less reclassification adjustment for gains included in net income (1,836) ---------------------- Net unrealized change in investment securities $ (894) ======================
(9) EARNINGS PER SHARE Basic earnings per share (EPS) represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. The Company's basic EPS is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. The Company calculates diluted EPS by totaling net income available to common stockholders plus dividends on dilutive convertible preferred shares and dividing it by the weighted average number of common shares outstanding plus the dilutive effect of stock options related to outstanding employee stock options, nonvested restricted stock and convertible preferred stock, had the options or conversions been exercised. The dilutive effect of stock options and nonvested restricted stock was determined using the treasury stock method which assumes exercise of the options as of the beginning of the period or when issued, if later, and assuming proceeds from the exercise of options are used to purchase common stock at the average market price during the period. The dilutive effect of convertible securities was determined using the if-converted method. Reconciliation of the numerators and denominators in the basic and diluted EPS computations is as follows:
Reconciliation of Numerators and Denominators Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------------------- 2002 2001 2002 2001 ----------------------------------------------- (In thousands) Basic EPS Computation Numerator-net income available to common stockholders $ 2,671 6,073 10,705 19,048 Denominator-weighted average shares outstanding 15,901 15,702 15,856 15,689 Diluted EPS Computation Numerator-net income available to common stockholders $ 2,671 6,073 10,705 19,048 Denominator: Weighted average shares outstanding 15,901 15,702 15,856 15,689 Common stock options 176 159 187 162 Nonvested restricted stock 187 184 185 182 ------------------------------------------------ Total shares 16,264 16,045 16,228 16,033 ================================================
The Company's Series B Preferred Stock, which is convertible into common stock at a conversion price of $22.00 per share, was not included in the computation of diluted earnings per share for the periods presented due to its antidilutive effect. (10) SEGMENT REPORTING The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the reporting of information about operating segments in annual and interim financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. EastGroup has one reportable segment--industrial properties. These properties are concentrated in major Sunbelt regions of the United States, have similar economic characteristics and also meet the other criteria that permit the properties to be aggregated into one reportable segment. 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 income from real estate operations (REO) less property operating expenses (before interest expense and depreciation and amortization), and funds from operations (FFO), defined as net income (loss) (computed in accordance with accounting principles generally accepted in the United States of America (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. PNOI is a supplemental industry reporting measurement used to evaluate the performance of the Company's investments in real estate assets. The Company believes that the exclusion of depreciation and amortization in the industry's calculation of PNOI provides a supplemental indicator of the property's performance since real estate values have historically risen or fallen with market conditions. PNOI as calculated by the Company may not be comparable to similarly titled but differently calculated measures for other REITs. The major factors that influence PNOI are occupancy levels, acquisitions and sales, development properties that achieve stabilized operations, rental rate increases or decreases, and the recoverability of operating expenses. The Company's success depends largely upon its ability to lease warehouse space and to recover from tenants the operating costs associated with those leases. REO income is comprised of rental income including straight-line rent adjustments, pass-through income and other REO income, which includes termination fees. Property operating expenses are comprised of insurance, property taxes, repair and maintenance expenses, management fees and other operating costs. Generally, the Company's most significant operating expenses are insurance and property taxes. Tenant leases may be net leases in which the total operating expenses are recoverable, modified gross leases in which some of the operating expenses are recoverable, or gross leases in which no expenses are recoverable (gross leases represent a small portion of the Company's total leases). Increases in property operating expenses are fully recoverable under net leases and recoverable to a high degree under modified gross leases. Modified gross leases often include base year amounts and expense increases over these amounts are recoverable. The Company's exposure to property operating expenses is primarily due to vacancies and leases for occupied space that limit the amount of expenses that can be recoverable. The Company believes 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 its ability to make distributions. The table below presents on a comparative basis for the three and nine months ended September 30, 2002 and 2001 reported PNOI by operating segment, followed by reconciliations of PNOI to FFO and FFO to net income.
Three Months Ended Nine Months Ended September 30, September 30, --------------------------------------------------- 2002 2001 2002 2001 --------------------------------------------------- (In thousands) Property Revenues: Industrial $ 25,290 24,955 73,988 73,113 Other 380 379 1,188 1,121 --------------------------------------------------- 25,670 25,334 75,176 74,234 --------------------------------------------------- Property Expenses: Industrial (7,455) (6,248) (21,149) (18,010) Other (143) (116) (427) (316) --------------------------------------------------- (7,598) (6,364) (21,576) (18,326) --------------------------------------------------- Property Net Operating Income: Industrial 17,835 18,707 52,839 55,103 Other 237 263 761 805 --------------------------------------------------- Total Property Net Operating Income 18,072 18,970 53,600 55,908 --------------------------------------------------- Income from real estate operations - discontinued (before depreciation and amortization) 143 169 498 439 Gain on securities 365 1,774 1,836 2,480 Other income 80 338 839 1,456 Interest expense (4,363) (4,458) (12,703) (13,590) General and administrative expense (1,102) (1,207) (3,279) (3,489) Minority interest in earnings (140) (127) (415) (381) Dividends on Series A preferred shares (970) (970) (2,910) (2,910) -------------------------------------------------- Funds From Operations 12,085 14,489 37,466 39,913 Depreciation and amortization from continuing operations (7,736) (6,810) (21,958) (19,574) Depreciation and amortization from discontinued operations (117) (80) (363) (236) Share of joint venture depreciation and amortization 37 41 129 121 Gain (loss) on sale of depreciable real estate investments (66) (35) 27 3,420 Dividends on Series B convertible preferred shares (1,532) (1,532) (4,596) (4,596) -------------------------------------------------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS 2,671 6,073 10,705 19,048 Dividends on preferred shares 2,502 2,502 7,506 7,506 -------------------------------------------------- NET INCOME $ 5,173 8,575 18,211 26,554 ==================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION (Comments are for the balance sheet dated September 30, 2002 compared to December 31, 2001.) Assets of EastGroup were $692,957,000 at September 30, 2002, an increase of $9,175,000 from December 31, 2001. Liabilities (excluding minority interests) increased $18,827,000 to $330,160,000 and stockholders' equity decreased $9,672,000 to $361,038,000 during the same period. Book value per common share decreased from $16.19 at December 31, 2001 to $15.40 at September 30, 2002. The paragraphs that follow explain these changes in detail. Real estate properties increased $36,600,000 during the nine months ended September 30, 2002. This increase was due to the acquisition of five properties for a total of $12,935,000, as detailed below; the transfer of six properties from development with total costs of $26,766,000; capital improvements of $5,749,000; improvements on development properties transferred to the portfolio in the 12-month period following transfer of $2,187,000 and the transfer of land from development with costs of $372,000. These increases were offset by the transfer of three properties to the category "held for sale" with costs of $10,228,000 and the transfer of land into development with costs of $1,181,000. Real Estate Properties
Real Estate Properties Date Cost Acquired in 2002 Location Size Acquired (In thousands) - -------------------------------------- --------------------- ----------------- ----------------- ------------------- Broadway Industrial Park V and VI Tempe, Arizona 79,000 sq. ft. 06-07-02 $ 3,962 Freeport Tech Center I Houston, Texas 188,000 sq. ft. 07-11-02 6,357 Exchange Distribution Centers II and III Orlando, Florida 62,000 sq. ft. 08-14-02 2,616 ------------------- Total Industrial Acquisitions $12,935 ===================
During the nine months ended September 30, 2002, another property was transferred to "held for sale;" however, this property was subsequently transferred back to the portfolio as a result of a change in plans by the Company due to market conditions. Upon the reclassification of this property, depreciation was adjusted to reflect the carrying amount of this property as if it had never been classified as "held for sale." Development decreased $1,290,000 during the nine months ended September 30, 2002. This decrease was due to the transfer of six development properties to real estate properties with total costs of $26,766,000, as detailed in the table below; land transferred from development to the portfolio with costs of $372,000 and land transferred to "held for sale" with costs of $231,000. These decreases were offset by year-to-date development costs of $24,898,000 on existing and completed development properties and the transfer of land from the portfolio to development with costs of $1,181,000. Total cash outflows for development for the nine months ended September 30, 2002 were $27,085,000. In addition to the costs incurred for the nine months ended September 30, 2002 as detailed in the table below, development costs included $2,187,000 for improvements on properties transferred to the portfolio during the 12-month period following transfer. These costs are included in Real Estate Properties on the balance sheet.
Development Costs Incurred -------------------------------------- Size at For the 9 Months Cumulative as Estimated Completion Ended 9/30/02 of 9/30/02 Total Costs (1) - ------------------------------------------- ---------------- -------------------------------------------------------- (Square feet) (In thousands) Lease-Up: Sunport Center III Orlando, Florida 66,000 $ 532 3,757 4,000 World Houston XIV Houston, Texas 77,000 719 3,052 3,600 Americas 10 Business Center I El Paso, Texas 97,000 903 3,190 3,300 Metro Airport Commerce Center I Jackson, Mississippi 32,000 1,303 1,629 1,700 ------------------------------------------------------------------------- Total Lease-up 272,000 3,457 11,628 12,600 ------------------------------------------------------------------------- Under Construction: Executive Airport Commerce Center I & III Fort Lauderdale, Florida 85,000 2,204 3,650 6,000 World Houston XIX Houston, Texas 66,000 1,086 1,086 3,100 World Houston XX Houston, Texas 62,000 934 934 2,800 Chamberlain Expansion Tucson, Arizona 34,000 250 250 1,600 Expressway Commerce Center Tampa, Florida 108,000 1,657 1,657 4,300 ------------------------------------------------------------------------- Total Under Construction 355,000 6,131 7,577 17,800 ------------------------------------------------------------------------- Prospective Development: Phoenix, Arizona 103,000 88 1,342 6,000 Tucson, Arizona 70,000 - 326 3,500 Tampa, Florida 140,000 108 1,776 5,600 Orlando, Florida 249,000 386 3,210 14,900 Fort Lauderdale, Florida 55,000 482 1,410 3,300 El Paso, Texas 251,000 284 2,207 7,600 Houston, Texas 915,000 9 6,234 46,200 Jackson, Mississippi 32,000 201 504 1,700 ------------------------------------------------------------------------- Total Prospective Development 1,815,000 1,558 17,009 88,800 ------------------------------------------------------------------------- 2,442,000 $ 11,146 36,214 119,200 ========================================================================= Completed Development and Transferred To Real Estate Properties During the Nine Months Ended September 30, 2002: Tower Automotive Jackson, Mississippi 200,000 $ 9,574 9,958 Walden Distribution Center I Tampa, Florida 90,000 115 3,655 Techway Southwest I Houston, Texas 126,000 284 4,494 World Houston XII Houston, Texas 59,000 2,227 2,759 Kyrene II Tempe, Arizona 60,000 - 3,049 World Houston XIII Houston, Texas 51,000 1,552 2,851 --------------------------------------------------------- Total Transferred to Real Estate Properties 586,000 $ 13,752 26,766 =========================================================
(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 or other natural occurrence, 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 increased $7,303,000 due to the transfer of four properties from the portfolio with total costs of $16,805,000, the transfer of land from development with costs of $231,000, and capital improvements of $62,000. These increases were offset by the sale of two properties with costs of $3,218,000 and the transfer of one property from held for sale back to the portfolio with costs of $6,577,000. Accumulated depreciation on real estate properties and real estate held for sale increased $19,820,000 primarily due to depreciation expense of $20,093,000 on real estate properties, offset by the sale of two properties with accumulated depreciation of $372,000. Mortgage loans receivable decreased $5,501,000 during 2002 primarily as a result of the repayment of a construction loan the Company made during 2000 and 2001 for the development of Freeport Tech Center I in Houston. The terms of this loan included a related option for EastGroup to purchase the property after completion. As part of the Company's purchase of Freeport in July 2002, the seller repaid the principal amount of $5,500,000 and all accrued interest on the outstanding mortgage loan receivable. Investment in real estate investment trusts (REITs) decreased from $6,452,000 at December 31, 2001 to $1,607,000 at September 30, 2002 as a result of the sale of REIT shares with a carrying value of $5,259,000 and the purchase of REIT shares for $1,308,000. Unrealized gains decreased $894,000 as a result of realized gains of $1,836,000 on REIT shares, offset by unrealized gains of $942,000. Mortgage notes payable increased $36,226,000 during the nine months ended September 30, 2002 due to two new mortgages of $48,200,000, offset by the repayment of an $8,008,000 mortgage and regularly scheduled principal payments of $3,966,000. Notes payable to banks decreased $20,985,000 as a result of payments of $184,767,000 exceeding borrowings of $163,782,000. The Company's credit facilities are described in greater detail under Liquidity and Capital Resources. Accumulated other comprehensive income decreased $894,000 as a result of realized gains of $1,836,000 on REIT shares, offset by unrealized gains of $942,000. Undistributed earnings decreased from $23,753,000 at December 31, 2001 to $11,763,000 at September 30, 2002, as a result of dividends on common and preferred stock of $30,201,000 exceeding net income for financial reporting purposes of $18,211,000. RESULTS OF OPERATIONS (Comments are for the three months and nine months ended September 30, 2002, compared to the three months and nine months ended September 30, 2001.) Net income available to common stockholders for the three months and nine months ended September 30, 2002 was $2,671,000 ($.17 per basic share and $.16 per diluted share) and $10,705,000 ($.68 per basic share and $.66 per diluted share), compared to net income available to common stockholders for the three months and nine months ended September 30, 2001 of $6,073,000 ($.39 per basic share and $.38 per diluted share) and $19,048,000 ($1.21 per basic share and $1.19 per diluted share). Income before gain (loss) on sale of real estate investments was $5,213,000 and $18,049,000 for the three months and nine months ended September 30, 2002, compared to $8,521,000 and $22,931,000 for the three months and nine months ended September 30, 2001. There was no gain or loss on sale of real estate investments from continuing operations for the three months ended September 30, 2002 and a gain of $93,000 for the nine months ended September 30, 2002, compared to a loss of $35,000 and a gain of $3,420,000 for the three months and nine months ended September 30, 2001, respectively. In accordance with the guidelines under SFAS No. 144, gains or losses on the sale of properties placed in the category "held for sale" subsequent to December 31, 2001 are included in Discontinued Operations. There was a loss of $66,000 for the three months and nine months ended September 30, 2002 and none for 2001. The paragraphs that follow describe the results of operations in detail. Property net operating income (PNOI), as defined and discussed in Note 10 in the Notes to the Consolidated Financial Statements, decreased by $898,000 or 4.7% for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. For the nine months ended September 30, 2002, PNOI decreased by $2,308,000 or 4.1% compared to the nine months ended September 30, 2001. PNOI by property type and percentage leased for industrial were as follows:
Property Net Operating Income Three Months Ended Nine Months Ended Percent September 30, September 30, Leased --------------------------------------------------------------------------- 2002 2001 2002 2001 9-30-02 9-30-01 --------------------------------------------------------------------------- (In thousands) Industrial $ 17,835 18,707 52,839 55,103 91.7% 93.2% Other 237 263 761 805 ---------------------------------------------------- Total PNOI $ 18,072 18,970 53,600 55,908 ====================================================
PNOI from industrial properties decreased $872,000 (4.7%) and $2,264,000 (4.1%) for the three months and nine months ended September 30, 2002, compared to September 30, 2001. Industrial properties held throughout the three months and nine months ended September 30, 2002 compared to the same periods in 2001 showed a decrease in PNOI of 8.6% and 5.7%, respectively. The decrease in PNOI results primarily from a decrease in the Company's portfolio occupancy level from 93.1% at September 30, 2001 to 90.7% at September 30, 2002. This decrease is primarily due to a continued slowing in the economy and the unusually high percentage of leases that expired last year (over 20%). Also, lease termination fees were $119,000 and $286,000 for the three months and nine months ended September 30, 2002 compared to $894,000 and $1,118,000 for the same periods in 2001. In addition, real estate operating expenses increased $1,234,000 (19.4%) and $3,250,000 (17.7%) for the three months and nine months ended September 30, 2002. This increase was primarily due to increases in insurance and property taxes. Because of the lower occupancy, the Company had to absorb a greater percentage of operating expenses in 2002. Gain on REIT securities was $365,000 for the three months and $1,836,000 for the nine months ended September 30, 2002. Gain on REIT securities was $1,774,000 for the three months and $2,480,000 for the nine months ended September 30, 2001. Bank interest expense before amortization of loan costs and capitalized interest was $685,000 for the three months ended September 30, 2002, a decrease of $255,000 from the three months ended September 30, 2001. Bank interest expense before amortization of loan costs and capitalized interest was $2,088,000 for the nine months ended September 30, 2002, a decrease of $1,945,000 from the nine months ended September 30, 2001. Average bank borrowings were $85,301,000 and $87,225,000 for the three months and nine months ended September 30, 2002 compared to $72,297,000 and $85,296,000 for the same periods in 2001. Average bank interest rates were 3.14% and 3.16% for the three months and nine months ended September 30, 2002 compared to 5.20% and 6.30% for the same periods in 2001. 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 nine months ended September 30, 2002 were $532,000 and $1,620,000 compared to $524,000 and $1,808,000 for the same periods in 2001. Amortization of bank loan costs was $89,000 and $287,000 for the three months and nine months ended September 30, 2002 compared to $66,000 and $198,000 for the same periods in 2001. Mortgage interest expense on real estate properties was $4,074,000 for the three months ended September 30, 2002, an increase of $149,000 from the three months ended September 30, 2001. Mortgage interest expense on real estate properties was $11,804,000 for the nine months ended September 30, 2002, an increase of $773,000 from the nine months ended September 30, 2001. The increase in interest for the nine months was primarily due to a $40,000,000 mortgage loan obtained in August 2002 and a $45,000,000 mortgage loan obtained in April 2001. Amortization of mortgage loan costs was $47,000 and $144,000 for the three months and nine months ended September 30, 2002 compared to $51,000 and $136,000 for the same periods in 2001. Depreciation and amortization increased $926,000 and $2,384,000 for the three months and nine months ended September 30, 2002 compared to the same periods in 2001. These increases were primarily due to the industrial properties acquired and development properties that achieved stabilized operations in both 2001 and 2002. These increases were offset by the sale of several properties in 2001 and 2002 and the transfer of several properties to real estate held for sale (depreciation is not taken on those properties in the category "real estate held for sale"). A summary of the gains and losses on real estate investments for the nine months ended September 30, 2002 and 2001 follows. The loss on 7th Street is recorded under Discontinued Operations in accordance with SFAS No. 144 (see Note 4 in the Notes to Consolidated Financial Statements).
Gain on Real Estate Investments Net Recognized Basis Sales Price Gain (Loss) ----------------------------------------------------- (In thousands) 2002 Real estate properties: Carpenter Duplex, Dallas, Texas $ 1,018 1,111 93 7th Street Service Center, Phoenix, AZ 1,872 1,806 (66) ----------------------------------------------------- $ 2,890 2,917 27 ===================================================== 2001 Real estate properties: Nobel Business Center, Hercules, CA $ 2,113 5,250 3,137 West Palm II, West Palm Beach, FL 1,274 1,350 76 109th Street Distribution Center, Dallas, TX 990 1,232 242 West Palm I, West Palm Beach, FL 1,463 1,428 (35) ----------------------------------------------------- $ 5,840 9,260 3,420 =====================================================
NAREIT has recommended supplemental disclosures concerning straight-line rent, capital expenditures and leasing costs. Straight-lining of rent increased rent income $473,000 and $1,006,000 for the three months and nine months ended September 30, 2002 compared to $389,000 and $1,355,000 for the same periods in 2001. The decrease for the nine months ended September 30, 2002 is primarily due to lease terminations, lease amendments and vacancies. Capital expenditures for the three months and nine months ended September 30, 2002 and 2001 were as follows:
Capital Expenditures Three Months Ended Nine Months Ended September 30, September 30, Estimated ---------------------------------------------------------- Useful Life 2002 2001 2002 2001 ------------------------------------------------------------------------- (In thousands) Upgrade on Acquisitions 40 yrs $ 8 (181) 8 257 Major Renovation/Redevelopment 40 yrs - - 53 - Tenant Improvements: New Tenants Lease Life 1,384 1,727 3,264 2,862 Renewal Tenants Lease Life 103 125 524 483 Other: Building Improvements 5-40 yrs 155 197 621 835 Roofs 5-15 yrs 765 56 1,275 399 Parking Lots 5 yrs 10 157 30 166 Other 5 yrs 5 8 36 98 ---------------------------------------------------------- Total capital expenditures $ 2,430 2,089 5,811 5,100 ==========================================================
The Company's leasing costs are capitalized and included in other assets. The costs are amortized over the terms of the leases and are included in depreciation and amortization expense. Capitalized leasing costs for the three months and nine months ended September 30, 2002 and 2001 were as follows:
Capitalized Leasing Costs Three Months Ended Nine Months Ended September 30, September 30, Estimated ---------------------------------------------------------- Useful Life 2002 2001 2002 2001 ------------------------------------------------------------------------- (In thousands) Development Lease Life $ 56 595 986 1,306 New Tenants Lease Life 825 356 1,444 795 Renewal Tenants Lease Life 282 141 749 763 ---------------------------------------------------------- Total capitalized leasing costs $ 1,163 1,092 3,179 2,864 ========================================================== Amortization of leasing costs $ 895 733 2,228 1,905 ==========================================================
LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $46,132,000 for the nine months ended September 30, 2002. Other sources of cash were primarily from bank borrowings, proceeds from mortgage notes payable, sales of REIT shares, collections on mortgage loans receivable, sales of real estate investments and proceeds from exercise of stock options. The Company distributed $22,397,000 in common and $7,506,000 in preferred stock dividends. Other primary uses of cash were for bank debt payments, construction and development of properties, purchases of real estate investments, mortgage note payments, capital improvements at the various properties, debt issuance costs and purchases of REIT shares. Total debt at September 30, 2002 and December 31, 2001 is detailed below. The Company's bank credit facilities have certain restrictive covenants, and the Company was in compliance with all of its debt covenants at September 30, 2002.
September 30, 2002 December 31, 2001 --------------------------------------------------- (In thousands) Mortgage notes payable - fixed rate $ 241,240 205,014 Bank notes payable - floating rate 65,073 86,058 --------------------------------------------------- Total debt $ 306,313 291,072 ===================================================
The Company has a three-year $175,000,000 unsecured revolving credit facility with a group of ten banks that matures in January 2005. The interest rate on the facility is based on the Eurodollar rate and varies according to debt-to-total asset value ratios. At September 30, 2002, the interest rate was 3.06% on $62,000,000. The interest rate on each tranche is currently reset on a monthly basis. The Company has a one-year $12,500,000 unsecured revolving credit facility with PNC Bank, N.A. that matures in January 2003. The interest rate on this facility is based on the LIBOR rate and varies according to debt-to-total asset value ratios. The interest rate was 2.9862% on a balance of $3,073,000 at September 30, 2002. In August 2002, EastGroup obtained a $40,000,000 nonrecourse mortgage secured by 15 properties. The note has an interest rate of 6.86%, a term of 10 years, and an amortization period of 25 years. The closing of this loan was consistent with the Company's financial management goal to maintain floating rate bank debt at below 10% of total market capitalization. The Company anticipates that its current cash balance, operating cash flows, and borrowings under its 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 stock 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 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 several variable rate 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.
Oct-Dec Fair 2002 2003 2004 2005 2006 Thereafter Total Value --------------------------------------------------------------------------------------- Fixed rate debt (in thousands) $ 1,556 10,098 10,974 24,878 21,410 172,324 241,240 255,382 Weighted average interest rate 7.58% 8.05% 7.96% 7.99% 7.79% 7.23% 7.43% Variable rate debt (in thousands) - 3,073 - 62,000 - - 65,073 65,073 Weighted average interest rate - 2.99% - 3.06% - - 3.06%
As the table above incorporates only those exposures that exist as of September 30, 2002, it does not consider those exposures or positions that could arise after that date. 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. If the weighted average interest rate on the variable rate bank debt as shown above changes by 10% or approximately 31 basis points, interest expense and cash flows would increase or decrease by approximately $199,000 annually. 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 nonrenewal 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 disasters and the costs of insurance to protect from such 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. 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. PART II. OTHER INFORMATION ITEM 4. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. In addition, the Company reviewed its internal controls, and there have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: November 14, 2002 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 CERTIFICATIONS I, David H. Hoster II, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EastGroup Properties, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATED: November 14, 2002 /s/ DAVID H. HOSTER II David H. Hoster II Chief Executive Officer I, N. Keith McKey, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EastGroup Properties, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATED: November 14, 2002 /s/ N. KEITH MCKEY N. Keith McKey Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----