10-K 1 egp1231201510k.htm 10-K 10-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015                COMMISSION FILE NUMBER 1-07094


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.)
 
 
190 EAST CAPITOL STREET
 
SUITE 400
 
JACKSON, MISSISSIPPI
39201
(Address of principal executive offices)
(Zip code)
 
 
Registrant’s telephone number:  (601) 354-3555
 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
SHARES OF COMMON STOCK, $.0001 PAR VALUE,
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES (x) NO ( )
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  YES ( ) NO (x)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES (x) NO ( )
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES (x)   NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  (x)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   (Check one):
Large Accelerated Filer (x)     Accelerated Filer ( )      Non-accelerated Filer ( )      Smaller Reporting Company ( )
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ( ) NO (x)
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2015, the last business day of the Registrant's most recently completed second fiscal quarter:  $1,747,077,000.

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The number of shares of common stock, $.0001 par value, outstanding as of February 16, 2016 was 32,383,937.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the 2016 Annual Meeting of Stockholders are incorporated by reference into Part III.

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Page
PART I
 
  
PART II
 
 
PART III
 
 
PART IV
 
 



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PART I

ITEM 1.  BUSINESS.

Organization
EastGroup Properties, Inc. (the Company or EastGroup) is an equity real estate investment trust (REIT) organized in 1969.  The Company has elected to be taxed and intends to continue to qualify as a REIT under Sections 856-860 of the Internal Revenue Code (the Code), as amended.

Available Information
The Company maintains a website at eastgroup.net.  The Company posts its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange Commission (SEC).  In addition, the Company's website includes items related to corporate governance matters, including, among other things, the Company's corporate governance guidelines, charters of various committees of the Board of Directors, and the Company's code of business conduct and ethics applicable to all employees, officers and directors.  The Company intends to disclose on its website any amendment to, or waiver of, any provision of this code of business conduct and ethics applicable to the Company's directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the New York Stock Exchange.  Copies of these reports and corporate governance documents may be obtained, free of charge, from the Company's website.  Any shareholder also may obtain copies of these documents, free of charge, by sending a request in writing to: Investor Relations, EastGroup Properties, Inc., 190 East Capitol Street, Suite 400, Jackson, MS 39201-2152.

Administration
EastGroup maintains its principal executive office and headquarters in Jackson, Mississippi.  The Company also has regional offices in Orlando, Houston and Phoenix and asset management offices in Charlotte and Dallas.  EastGroup has property management offices in Jacksonville, Tampa, Fort Lauderdale and San Antonio.  Offices at these locations allow the Company to provide property management services to all of its Florida, Texas (except Austin and El Paso), Arizona, Mississippi and North Carolina properties, which together account for 80% of the Company’s total portfolio on a square foot basis.  In addition, the Company currently provides property administration (accounting of operations) for its entire portfolio.  The regional offices in Florida, Texas and Arizona provide oversight of the Company's development program.  As of February 16, 2016, EastGroup had 70 full-time employees and 3 part-time employees.

Operations
EastGroup is focused on the development, acquisition and operation of industrial properties in major Sunbelt markets throughout the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina.  The Company’s goal is to maximize shareholder value by being a leading provider of functional, flexible and quality business distribution space for location sensitive tenants primarily in the 5,000 to 50,000 square foot range.  EastGroup’s strategy for growth is based on the ownership of premier distribution facilities generally clustered near major transportation features in supply constrained submarkets.  Over 99% of the Company’s revenue consists of rental income from real estate properties.

During 2015, EastGroup increased its holdings in real estate properties through its acquisition and development programs.  The Company purchased two warehouse distribution complexes (335,000 square feet) and 112.6 acres of development land for a total of $50.9 million.  Also during 2015, the Company began construction of 11 development projects containing 1,283,000 square feet and transferred 17 properties (1,419,000 square feet) from its development program to real estate properties with costs of $96.8 million at the date of transfer.   

Typically, the Company initially funds its development and acquisition programs through its $335 million unsecured bank credit facilities. As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace short-term bank borrowings. In March 2015, Moody's Investor Services affirmed the Company's issuer rating of Baa2 with a stable outlook. Also in March 2015, Fitch Ratings affirmed EastGroup's issuer rating of BBB with a stable outlook. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. The Company intends to issue primarily unsecured fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, in the future. The Company may also access the public debt market in the future as a means to raise capital.

EastGroup holds its properties as long-term investments but may determine to sell certain properties that no longer meet its investment criteria.  The Company may provide financing in connection with such sales of property if market conditions require.  In

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addition, the Company may provide financing to a partner or co-owner in connection with an acquisition of real estate in certain situations.

Subject to the requirements necessary to maintain EastGroup’s qualifications as a REIT, the Company may acquire securities of entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over those entities.

The Company intends to continue to qualify as a REIT under the Code.  To maintain its status as a REIT, the Company is required to distribute at least 90% of its ordinary taxable income to its stockholders.  If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company.
 
EastGroup has no present intention of acting as an underwriter of offerings of securities of other issuers.  The strategies and policies set forth above were determined and are subject to review by EastGroup's Board of Directors, which may change such strategies or policies based upon its evaluation of the state of the real estate market, the performance of EastGroup's assets, capital and credit market conditions, and other relevant factors.  EastGroup provides annual reports to its stockholders, which contain financial statements audited by the Company’s independent registered public accounting firm.

Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an owner of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property.  Many such laws impose liability without regard to whether the owner knows of, or was responsible for, the presence of such hazardous or toxic substances.  The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to use such property as collateral in its borrowings.  EastGroup’s properties have been subjected to Phase I Environmental Site Assessments (ESAs) by independent environmental consultants and as necessary, have been subjected to Phase II ESAs.  These reports have not revealed any potential significant environmental liability.  Management of EastGroup is not aware of any environmental liability that would have a material adverse effect on EastGroup’s business, assets, financial position or results of operations.

ITEM 1A.  RISK FACTORS.

In addition to the other information contained or incorporated by reference in this document, readers should carefully consider the following risk factors.  Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company's financial condition and the performance of its business.  The Company refers to itself as "we", "us" or "our" in the following risk factors.

Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where we own properties.  We may be adversely affected by general economic conditions and local real estate conditions.  For example, an oversupply of industrial properties in a local area or a decline in the attractiveness of our properties to tenants would have a negative effect on us.  Other factors that may affect general economic conditions or local real estate conditions include:

•
population and demographic trends;
•
employment and personal income trends;
•
income and other tax laws;
•
changes in interest rates and availability and costs of financing;
•
increased operating costs, including insurance premiums, utilities and real estate taxes, due to inflation and other factors which may not necessarily be offset by increased rents;
•
changes in the price of oil; and
•
construction costs.

We may be unable to compete for properties and tenants.  The real estate business is highly competitive.  We compete for interests in properties with other real estate investors and purchasers, some of whom have greater financial resources, revenues and geographical diversity than we have.  Furthermore, we compete for tenants with other property owners.  All of our industrial properties are subject to significant local competition.  We also compete with a wide variety of institutions and other investors for capital funds necessary to support our investment activities and asset growth.


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We are subject to significant regulation that constrains our activities.  Local zoning and land use laws, environmental statutes and other governmental requirements restrict our expansion, rehabilitation and reconstruction activities.  These regulations may prevent us from taking advantage of economic opportunities.  Legislation such as the Americans with Disabilities Act may require us to modify our properties, and noncompliance could result in the imposition of fines or an award of damages to private litigants.  Future legislation may impose additional requirements.  We cannot predict what requirements may be enacted or what changes may be implemented to existing legislation.

Risks Associated with Our Properties
We may be unable to lease space.  When a lease expires, a tenant may elect not to renew it.  We may not be able to re-lease the property on similar terms, if we are able to re-lease the property at all.  The terms of renewal or re-lease (including the cost of required renovations and/or concessions to tenants) may be less favorable to us than the prior lease.  We also routinely develop properties with no pre-leasing.  If we are unable to lease all or a substantial portion of our properties, or if the rental rates upon such leasing are significantly lower than expected rates, our cash generated before debt repayments and capital expenditures and our ability to make expected distributions to stockholders may be adversely affected.

We have been and may continue to be affected negatively by tenant bankruptcies and leasing delays.  At any time, a tenant may experience a downturn in its business that may weaken its financial condition.  Similarly, a general decline in the economy may result in a decline in the demand for space at our industrial properties.  As a result, our tenants may delay lease commencement, fail to make rental payments when due, or declare bankruptcy.  Any such event could result in the termination of that tenant’s lease and losses to us, and distributions to investors may decrease.  We receive a substantial portion of our income as rents under mid-term and long-term leases.  If tenants are unable to comply with the terms of their leases because of rising costs or falling sales, we may deem it advisable to modify lease terms to allow tenants to pay a lower rent or a smaller share of taxes, insurance and other operating costs.  If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to the tenant.  We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with respect to the premises.  If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict the amount and recoverability of our claims against the tenant.  A tenant’s default on its obligations to us could adversely affect our financial condition and the cash we have available for distribution.

We face risks associated with our property development.  We intend to continue to develop properties where market conditions warrant such investment.  Once made, our investments may not produce results in accordance with our expectations.  Risks associated with our current and future development and construction activities include:

•
the availability of favorable financing alternatives;
•
the risk that we may not be able to obtain land on which to develop or that due to the increased cost of land, our activities may not be as profitable;
•
construction costs exceeding original estimates due to rising interest rates and increases in the costs of materials and labor;
•
construction and lease-up delays resulting in increased debt service, fixed expenses and construction costs;
•
expenditure of funds and devotion of management's time to projects that we do not complete;
•
fluctuations of occupancy and rental rates at newly completed properties, which depend on a number of factors, including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower return on our investment; and
•
complications (including building moratoriums and anti-growth legislation) in obtaining necessary zoning, occupancy and other governmental permits.

We face risks associated with property acquisitions.  We acquire individual properties and portfolios of properties and intend to continue to do so.  Our acquisition activities and their success are subject to the following risks:

•
when we are able to locate a desired property, competition from other real estate investors may significantly increase the purchase price;
•
acquired properties may fail to perform as expected;
•
the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
•
acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures;
•
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and as a result, our results of operations and financial condition could be adversely affected; and

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•
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, to the transferor with respect to unknown liabilities. As a result, if a claim were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.

Coverage under our existing insurance policies may be inadequate to cover losses.  We generally maintain insurance policies related to our business, including casualty, general liability and other policies, covering our business operations, employees and assets as appropriate for the markets where our properties and business operations are located.  However, we would be required to bear all losses that are not adequately covered by insurance.  In addition, there may be certain losses that are not generally insured against or that are not generally fully insured against because it is not deemed economically feasible or prudent to do so, including losses due to floods, wind, earthquakes, acts of war, acts of terrorism or riots.  If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, then we could lose the capital we invested in the properties, as well as the anticipated future revenue from the properties.  In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

We face risks due to lack of geographic and real estate sector diversity.  Substantially all of our properties are located in the Sunbelt region of the United States with an emphasis in the states of Florida, Texas, Arizona, California and North Carolina. As of December 31, 2015, we owned operating properties totaling 6.6 million square feet in Houston, which represents 19.1% of the Company's total Real estate properties on a square foot basis.  A downturn in general economic conditions and local real estate conditions in these geographic regions, as a result of oversupply of or reduced demand for industrial properties, local business climate, business layoffs and changing demographics, would have a particularly strong adverse effect on us.  Our investments in real estate assets are concentrated in the industrial distribution sector.  This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities included other sectors of the real estate industry.

We face risks due to the illiquidity of real estate which may limit our ability to vary our portfolio.  Real estate investments are relatively illiquid.  Our ability to vary our portfolio in response to changes in economic and other conditions will therefore be limited.  In addition, because of our status as a REIT, the Internal Revenue Code limits our ability to sell our properties.  If we must sell an investment, we cannot ensure that we will be able to dispose of the investment on terms favorable to the Company.

We are subject to environmental laws and regulations.  Current and previous real estate owners and operators may be required under various federal, state and local laws, ordinances and regulations to investigate and clean up hazardous substances released at the properties they own or operate.  They may also be liable to the government or to third parties for substantial property or natural resource damage, investigation costs and cleanup costs.  Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous substances.  In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination.  Contamination may adversely affect the owner’s ability to use, sell or lease real estate or to borrow using the real estate as collateral.  We have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we currently or formerly owned.  Environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed of, released from, or present at the property.  A conveyance of the property, therefore, may not relieve the owner or operator from liability.  Although ESAs have been conducted at our properties to identify potential sources of contamination at the properties, such ESAs do not reveal all environmental liabilities or compliance concerns that could arise from the properties.  Moreover, material environmental liabilities or compliance concerns may exist, of which we are currently unaware, that in the future may have a material adverse effect on our business, assets or results of operations.

Compliance with new laws or regulations related to climate change, including compliance with “green” building codes, may require us to make improvements to our existing properties.  Proposed legislation could also increase the costs of energy and utilities.  The cost of the proposed legislation may adversely affect our financial position, results of operations and cash flows.  We may be adversely affected by floods, hurricanes and other climate related events.

Financing Risks
We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk.  We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest.  In addition, certain of our mortgages will have significant outstanding principal balances on their maturity dates, commonly known as “balloon payments.”  Therefore, we will likely need to refinance at least a portion of our outstanding debt as it matures.  There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt.


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We face risks associated with our dependence on external sources of capital.  In order to qualify as a REIT, we are required each year to distribute to our stockholders at least 90% of our ordinary taxable income, and we are subject to tax on our income to the extent it is not distributed.  Because of this distribution requirement, we may not be able to fund all future capital needs from cash retained from operations.  As a result, to fund capital needs, we rely on third-party sources of capital, which we may not be able to obtain on favorable terms, if at all.  Our access to third-party sources of capital depends upon a number of factors, including (i) general market conditions; (ii) the market’s perception of our growth potential; (iii) our current and potential future earnings and cash distributions; and (iv) the market price of our capital stock.  Additional debt financing may substantially increase our debt-to-total market capitalization ratio.  Additional equity financing may dilute the holdings of our current stockholders.

Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition.  The terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage.  These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we had satisfied our payment obligations.  If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flow and our financial condition would be adversely affected.

Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all. Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings. In the event our current credit ratings deteriorate, it may be more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other potentially negative consequences under our current and future credit facilities and debt instruments.

Increases in interest rates would increase our interest expense. At December 31, 2015, we had $150.8 million of variable-rate debt outstanding not protected by interest rate hedge contracts. We may incur additional variable-rate debt in the future. If interest rates increase, then so would the interest expense on our unhedged variable-rate debt, which would adversely affect our financial condition and results of operations. From time to time, we manage our exposure to interest rate risk with interest rate hedge contracts that effectively fix or cap a portion of our variable-rate debt. In addition, we refinance fixed-rate debt at times when we believe rates and terms are appropriate. Our efforts to manage these exposures may not be successful. Our use of interest rate hedge contracts to manage risk associated with interest rate volatility may expose us to additional risks, including a risk that a counterparty to a hedge contract may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of interest rate hedge contracts typically involves costs, such as transaction fees or breakage costs.

A lack of any limitation on our debt could result in our becoming more highly leveraged.  Our governing documents do not limit the amount of indebtedness we may incur.  Accordingly, our Board of Directors may incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT.  We might become more highly leveraged as a result, and our financial condition and cash available for distribution to stockholders might be negatively affected and the risk of default on our indebtedness could increase.

Other Risks
The market value of our common stock could decrease based on our performance and market perception and conditions.  The market value of our common stock may be based primarily upon the market’s perception of our growth potential and current and future cash dividends and may be secondarily based upon the real estate market value of our underlying assets.  The market price of our common stock is influenced by the dividend on our common stock relative to market interest rates.  Rising interest rates may lead potential buyers of our common stock to expect a higher dividend rate, which would adversely affect the market price of our common stock.  In addition, rising interest rates would result in increased expense, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.

The state of the economy or other adverse changes in general or local economic conditions may adversely affect our operating results and financial condition. Turmoil in the global financial markets may have an adverse impact on the availability of credit to businesses generally and could lead to a further weakening of the U.S. and global economies.  Currently these conditions have not impaired our ability to access credit markets and finance our operations.  However, our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have an impact on our flexibility to react to changing economic and business conditions.  Furthermore, deteriorating economic conditions including business layoffs, downsizing, industry slowdowns and other similar factors that affect our customers could continue to negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in

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the collateral securing any loan investments we may make.  Additionally, an adverse economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us.  No assurances can be given that the effects of an adverse economic situation will not have a material adverse effect on our business, financial condition and results of operations.

We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will not be allowed to deduct distributions to stockholders in computing our taxable income and will be subject to federal income tax, including any applicable alternative minimum tax, at regular corporate rates.  In addition, we may be barred from qualification as a REIT for the four years following disqualification.  The additional tax incurred at regular corporate rates would significantly reduce the cash flow available for distribution to stockholders and for debt service.  Furthermore, we would no longer be required by the Internal Revenue Code to make any distributions to our stockholders as a condition of REIT qualification.  Any distributions to stockholders would be taxable as ordinary income to the extent of our current and accumulated earnings and profits. Corporate distributees, however, may be eligible for the dividends received deduction on the distributions, subject to limitations under the Internal Revenue Code.  To qualify as a REIT, we must comply with certain highly technical and complex requirements.  We cannot be certain we have complied with these requirements because there are few judicial and administrative interpretations of these provisions.  In addition, facts and circumstances that may be beyond our control may affect our ability to qualify as a REIT.  We cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the federal income tax consequences of qualification.  We cannot assure you that we will remain qualified as a REIT.

There is a risk of changes in the tax law applicable to real estate investment trusts.  Since the Internal Revenue Service, the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted.  Any such legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our investors.

We face possible adverse changes in tax laws.  From time to time, changes in state and local tax laws or regulations are enacted which may result in an increase in our tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition, results of operations and the amount of cash available for the payment of dividends.

Our charter contains provisions that may adversely affect the value of EastGroup stock.  Our charter prohibits any holder from acquiring more than 9.8% (in value or in number, whichever is more restrictive) of our outstanding equity stock (defined as all of our classes of capital stock, except our excess stock (of which there is none outstanding)) unless our Board of Directors grants a waiver.  The ownership limit may limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an investor were attempting to assemble a block of shares in excess of 9.8% of the outstanding shares of equity stock or otherwise effect a change in control.  Also, the request of the holders of a majority or more of our common stock is necessary for stockholders to call a special meeting.  We also require advance notice by stockholders for the nomination of directors or the proposal of business to be considered at a meeting of stockholders.

The Company faces risks in attracting and retaining key personnel.  Many of our senior executives have strong industry reputations, which aid us in identifying acquisition and development opportunities and negotiating with tenants and sellers of properties.  The loss of the services of these key personnel could affect our operations because of diminished relationships with existing and prospective tenants, property sellers and industry personnel.  In addition, attracting new or replacement personnel may be difficult in a competitive market.
 
We have severance and change in control agreements with certain of our officers that may deter changes in control of the Company.  If, within a certain time period (as set in the officer’s agreement) following a change in control, we terminate the officer's employment other than for cause, or if the officer elects to terminate his or her employment with us for reasons specified in the agreement, we will make a severance payment equal to the officer's average annual compensation times an amount specified in the officer's agreement, together with the officer's base salary and vacation pay that have accrued but are unpaid through the date of termination.  These agreements may deter a change in control because of the increased cost for a third party to acquire control of us.

Our Board of Directors may authorize and issue securities without stockholder approval.  Under our Charter, the Board has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the Board of Directors may determine.  The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests.


9


Maryland business statutes may limit the ability of a third party to acquire control of us.  Maryland law provides protection for Maryland corporations against unsolicited takeovers by limiting, among other things, the duties of the directors in unsolicited takeover situations.  The duties of directors of Maryland corporations do not require them to (a) accept, recommend or respond to any proposal by a person seeking to acquire control of the corporation, (b) authorize the corporation to redeem any rights under, or modify or render inapplicable, any stockholders rights plan, (c) make a determination under the Maryland Business Combination Act or the Maryland Control Share Acquisition Act, or (d) act or fail to act solely because of the effect of the act or failure to act may have on an acquisition or potential acquisition of control of the corporation or the amount or type of consideration that may be offered or paid to the stockholders in an acquisition.  Moreover, under Maryland law the act of a director of a Maryland corporation relating to or affecting an acquisition or potential acquisition of control is not subject to any higher duty or greater scrutiny than is applied to any other act of a director.  Maryland law also contains a statutory presumption that an act of a director of a Maryland corporation satisfies the applicable standards of conduct for directors under Maryland law.

The Maryland Business Combination Act provides that unless exempted, a Maryland corporation may not engage in business combinations, including mergers, dispositions of 10 percent or more of its assets, certain issuances of shares of stock and other specified transactions, with an "interested stockholder" or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met.  An interested stockholder is generally a person owning or controlling, directly or indirectly, 10 percent or more of the voting power of the outstanding stock of the Maryland corporation.

The Maryland Control Share Acquisition Act provides that "control shares" of a corporation acquired in a "control share acquisition" shall have no voting rights except to the extent approved by a vote of two-thirds of the votes eligible to cast on the matter.  "Control Shares" means shares of stock that, if aggregated with all other shares of stock previously acquired by the acquirer, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of the voting power:  one-tenth or more but less than one-third, one-third or more but less than a majority, or a majority or more of all voting power.  A "control share acquisition" means the acquisition of control shares, subject to certain exceptions.

If voting rights of control shares acquired in a control share acquisition are not approved at a stockholders' meeting, then subject to certain conditions and limitations, the issuer may redeem any or all of the control shares for fair value.  If voting rights of such control shares are approved at a stockholders' meeting and the acquirer becomes entitled to vote a majority of the shares of stock entitled to vote, all other stockholders may exercise appraisal rights.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, and maintaining personal identifying information and customer and lease data. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential customer data, including individually identifiable information relating to financial accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not prevent the systems' improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a materially adverse effect on our business, financial condition and results of operations.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.


10


ITEM 2.  PROPERTIES.

EastGroup owned 324 industrial properties and one office building at December 31, 2015.  These properties are located primarily in the Sunbelt states of Florida, Texas, Arizona, California and North Carolina, and the majority are clustered around major transportation features in supply constrained submarkets.  As of February 16, 2016, EastGroup’s portfolio was 96.9% leased and 95.7% occupied.  The Company has developed approximately 39% of its total portfolio (on a square foot basis), including real estate properties and development properties in lease-up and under construction.  The Company’s focus is the ownership of business distribution space (81% of the total portfolio) with the remainder in bulk distribution space (15%) and business service space (4%).  Business distribution space properties are typically multi-tenant buildings with a building depth of 200 feet or less, clear height of 24-30 feet, office finish of 10-25% and truck courts with a depth of 100-120 feet.  See Consolidated Financial Statement Schedule III – Real Estate Properties and Accumulated Depreciation for a detailed listing of the Company’s properties.

At December 31, 2015, EastGroup did not own any single property with a book value that was 10% or more of total book value or with gross revenues that were 10% or more of total gross revenues.

The Company's lease expirations, excluding month-to-month leases of 247,000 square feet, for the next ten years are detailed below:
Years Ending December 31,
 
Number of Leases Expiring
 
Total Area of Leases Expiring
(in Square Feet)
 
Annualized Current Base Rent of Leases Expiring (1)
 
% of Total Base Rent of Leases Expiring
2016
 
307
 
4,693,000

 
$
26,938,000

 
14.9%
2017
 
287
 
6,178,000

 
$
35,587,000

 
19.7%
2018
 
285
 
5,415,000

 
$
30,048,000

 
16.7%
2019
 
170
 
4,081,000

 
$
21,071,000

 
11.7%
2020
 
195
 
4,820,000

 
$
26,965,000

 
14.9%
2021
 
83
 
3,750,000

 
$
16,063,000

 
8.9%
2022
 
35
 
1,694,000

 
$
8,974,000

 
5.0%
2023
 
28
 
1,255,000

 
$
4,943,000

 
2.7%
2024
 
14
 
924,000

 
$
5,033,000

 
2.8%
2025 and beyond
 
24
 
815,000

 
$
3,442,000

 
1.9%
(1)
Represents the monthly cash rental rates, excluding tenant expense reimbursements, as of December 31, 2015, multiplied by twelve months.

ITEM 3.  LEGAL PROCEEDINGS.

The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the Company or its properties, other than routine litigation arising in the ordinary course of business or which is expected to be covered by the Company’s liability insurance.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.


11


PART II.  OTHER INFORMATION

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s shares of common stock are listed for trading on the New York Stock Exchange under the symbol “EGP.”  The following table shows the high and low share prices for each quarter reported by the New York Stock Exchange during the past two years and the per share distributions paid for each quarter.

Shares of Common Stock Market Prices and Dividends
Quarter
 
Calendar Year 2015
 
Calendar Year 2014
 
High
 
Low
 
Distributions
 
High
 
Low
 
Distributions
First
 
$
67.42

 
57.98

 
$
0.57

 
$
63.66

 
56.40

 
$
0.54

Second
 
62.11

 
55.00

 
0.57

 
66.24

 
61.06

 
0.54

Third
 
60.85

 
51.76

 
0.60

 
65.82

 
59.86

 
0.57

Fourth
 
59.51

 
53.15

 
0.60

 
69.90

 
60.05

 
0.57

 
 
 

 
 

 
$
2.34

 
 

 
 

 
$
2.22


As of February 16, 2016, there were 518 holders of record of the Company’s 32,383,937 outstanding shares of common stock.  The Company distributed all of its 2015 and 2014 taxable income to its stockholders.  Accordingly, no significant provisions for income taxes were necessary.  The following table summarizes the federal income tax treatment for all distributions by the Company for the years 2015 and 2014.

Federal Income Tax Treatment of Share Distributions
 
Years Ended December 31,
2015
 
2014
Common Share Distributions:
 
 
 
Ordinary dividends
$
2.24258

 
2.02398

Nondividend distributions
0.02774

 
0.08974

Unrecaptured Section 1250 capital gain
0.06968

 
0.09470

Other capital gain
—

 
0.01158

Total Common Distributions
$
2.34000

 
2.22000

 
Securities Authorized For Issuance Under Equity Compensation Plans
See Item 12 of this Annual Report on Form 10-K, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for certain information regarding the Company’s equity compensation plans.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No shares of common stock were purchased by the Company or withheld by the Company to satisfy any tax withholding obligations during the three month period ended December 31, 2015.

12



Performance Graph
The following graph compares, over the five years ended December 31, 2015, the cumulative total shareholder return on EastGroup’s common stock with the cumulative total return of the Standard & Poor’s 500 Total Return Index (S&P 500 Total Return) and the FTSE Equity REIT index prepared by the National Association of Real Estate Investment Trusts (FTSE NAREIT Equity REITs).

The performance graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent that the Company specifically incorporates it by reference into such filing.


 
Fiscal years ended December 31,
2010
 
2011
 
2012
 
2013
 
2014
 
2015
EastGroup
$
100.00

 
107.95

 
139.01

 
155.26

 
175.79

 
160.85

FTSE NAREIT Equity REITs
100.00

 
108.29

 
127.85

 
131.01

 
170.50

 
175.96

S&P 500 Total Return
100.00

 
102.11

 
118.45

 
156.82

 
178.29

 
180.75


The information above assumes that the value of the investment in shares of EastGroup’s common stock and each index was $100 on December 31, 2010, and that all dividends were reinvested.







13


ITEM 6.   SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the Company derived from the audited consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.
 
Years Ended December 31,
2015
 
2014
 
2013
 
2012
 
2011
OPERATING DATA
(In thousands, except per share data)
REVENUES
 
 
 
 
 
 
 
 
 
Income from real estate operations                                                                                       
$
234,918

 
219,706

 
201,849

 
185,783

 
173,008

Other income                                                                                       
90

 
123

 
322

 
61

 
142

 
235,008

 
219,829

 
202,171

 
185,844

 
173,150

Expenses
 

 
 

 
 

 
 

 
 

Expenses from real estate operations
67,402

 
62,797

 
57,885

 
52,891

 
48,911

Depreciation and amortization
73,290

 
70,314

 
65,789

 
61,345

 
56,739

General and administrative
15,091

 
12,726

 
11,725

 
10,488

 
10,691

Acquisition costs
164

 
210

 
191

 
188

 
252

 
155,947

 
146,047

 
135,590

 
124,912

 
116,593

Operating income
79,061

 
73,782

 
66,581

 
60,932

 
56,557

Other income (expense)
 

 
 

 
 

 
 

 
 

Interest expense
(34,666
)
 
(35,486
)
 
(35,192
)
 
(35,371
)
 
(34,709
)
Gain on sales of real estate investments
2,903

 
9,188

 
—

 
—

 
—

Other
1,101

 
989

 
949

 
456

 
717

Income from continuing operations
48,399

 
48,473

 
32,338

 
26,017

 
22,565

Discontinued operations
 

 
 

 
 

 
 

 
 

Income from real estate operations
—

 
—

 
89

 
360

 
269

Gain on sales of nondepreciable real estate investments
—

 
—

 
—

 
167

 
—

Gain on sales of real estate investments
—

 
—

 
798

 
6,343

 
—

Income from discontinued operations
—

 
—

 
887

 
6,870

 
269

Net income
48,399

 
48,473

 
33,225

 
32,887

 
22,834

  Net income attributable to noncontrolling interest in joint ventures
(533
)
 
(532
)
 
(610
)
 
(503
)
 
(475
)
Net income attributable to EastGroup Properties, Inc. common stockholders
47,866

 
47,941

 
32,615

 
32,384

 
22,359

Other comprehensive income (loss) - Cash flow hedges
(1,099
)
 
(3,986
)
 
2,021

 
(392
)
 
—

TOTAL COMPREHENSIVE INCOME
$
46,767

 
43,955

 
34,636

 
31,992

 
22,359

BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
1.49

 
1.53

 
1.05

 
0.89

 
0.82

Income from discontinued operations
—

 
—

 
0.03

 
0.24

 
0.01

Net income attributable to common stockholders
$
1.49

 
1.53

 
1.08

 
1.13

 
0.83

Weighted average shares outstanding
32,091

 
31,341

 
30,162

 
28,577

 
26,897

DILUTED PER COMMON SHARE DATA FOR NET INCOMEATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
1.49

 
1.52

 
1.05

 
0.89

 
0.82

Income from discontinued operations
—

 
—

 
0.03

 
0.24

 
0.01

Net income attributable to common stockholders
$
1.49

 
1.52

 
1.08

 
1.13

 
0.83

Weighted average shares outstanding
32,196

 
31,452

 
30,269

 
28,677

 
26,971

AMOUNTS ATTRIBUTABLE TO EASTGROUP
PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

 
 

 
 

Income from continuing operations
$
47,866

 
47,941

 
31,728

 
25,514

 
22,090

Income from discontinued operations
—

 
—

 
887

 
6,870

 
269

Net income attributable to common stockholders
$
47,866

 
47,941

 
32,615

 
32,384

 
22,359

OTHER PER SHARE DATA
 

 
 

 
 

 
 

 
 

Book value, at end of year
$
17.11

 
17.72

 
16.61

 
16.25

 
14.56

Common distributions declared
2.34

 
2.22

 
2.14

 
2.10

 
2.08

Common distributions paid
2.34

 
2.22

 
2.14

 
2.10

 
2.08

BALANCE SHEET DATA (AT END OF YEAR)
 

 
 

 
 

 
 

 
 

 Real estate investments, at cost (1)
$
2,232,327

 
2,087,821

 
1,938,960

 
1,780,098

 
1,669,460

 Real estate investments, net of accumulated depreciation (1)
1,574,873

 
1,487,295

 
1,388,847

 
1,283,851

 
1,217,655

Total assets
1,666,232

 
1,575,824

 
1,473,412

 
1,354,102

 
1,286,516

Secured debt, unsecured debt and unsecured bank credit facilities
1,032,237

 
933,177

 
893,745

 
813,926

 
832,686

Total liabilities
1,107,031

 
1,000,209

 
954,707

 
862,926

 
880,907

Noncontrolling interest in joint ventures
4,339

 
4,486

 
4,707

 
4,864

 
2,780

Total stockholders’ equity
554,862

 
571,129

 
513,998

 
486,312

 
402,829

(1)
Includes mortgage loans receivable and unconsolidated investment. See Notes 4 and 5 in the Notes to Consolidated Financial Statements. 



14


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW
EastGroup’s goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality business distribution space for location sensitive tenants (primarily in the 5,000 to 50,000 square foot range).  The Company develops, acquires and operates distribution facilities, the majority of which are clustered around major transportation features in supply constrained submarkets in major Sunbelt regions.  The Company’s core markets are in the states of Florida, Texas, Arizona, California and North Carolina.

The Company believes its current operating cash flow and unsecured bank credit facilities provide the capacity to fund the operations of the Company.  The Company also believes it can issue common and/or preferred equity and obtain debt financing, as evidenced by the closing of a $75 million unsecured term loan in March 2015 and the issuance of $75 million of senior unsecured private placement notes in October 2015. During 2015, the continuous common equity program provided net proceeds to the Company of $6.2 million. During 2015, the Company's stock price was below previous years. As a result, the Company did not sell common stock at the same volume as in prior years. The Company continues to evaluate the effects on its financial condition of selling common stock. EastGroup's financing and equity issuances are further described in Liquidity and Capital Resources.

The Company’s primary revenue is rental income; as such, EastGroup’s greatest challenge is leasing space.  During 2015, leases expired on 6,830,000 square feet (19.6%) of EastGroup’s total square footage of 34,845,000, and the Company was successful in renewing or re-leasing 90% of the expiring square feet.  In addition, EastGroup leased 1,710,000 square feet of other vacant space during the year.  During 2015, average rental rates on new and renewal leases increased by 11.9%.  Property net operating income (PNOI) from same properties, defined as operating properties owned during the entire current period and prior year reporting period, increased 2.0% for 2015 compared to 2014.

EastGroup’s total leased percentage was 97.2% at December 31, 2015 compared to 96.7% at December 31, 2014.  Leases scheduled to expire in 2016 were 13.5% of the portfolio on a square foot basis at December 31, 2015.  As of February 16, 2016, leases scheduled to expire during the remainder of 2016 were 10.6% of the portfolio on a square foot basis.

The Company generates new sources of leasing revenue through its acquisition and development programs.  During 2015, EastGroup acquired two operating properties (four buildings totaling 335,000 square feet) in Austin for $31.6 million and 112.6 acres of development land in San Antonio, Houston, Dallas, Phoenix and Charlotte for $19.3 million.  EastGroup continues to see targeted development as a contributor to the Company’s long-term growth.  The Company mitigates risks associated with development through a Board-approved maximum level of land held for development and by adjusting development start dates according to leasing activity.  During 2015, the Company began construction of 11 development projects containing 1,283,000 square feet in Orlando, Tampa, San Antonio, Houston, Phoenix and Charlotte.  Also in 2015, EastGroup transferred 17 properties (1,419,000 square feet) in San Antonio, Houston, Orlando, Tampa, Charlotte, Phoenix and Denver from its development program to real estate properties with costs of $96.8 million at the date of transfer.  As of December 31, 2015, EastGroup’s development program consisted of 14 buildings (1,665,000 square feet) located in San Antonio, Dallas, Houston, Orlando, Tampa, Charlotte and Phoenix.  The projected total cost for the development projects, which were collectively 33% leased as of February 12, 2016, is $113.9 million, of which $34.2 million remained to be invested as of December 31, 2015.

Typically, the Company initially funds its development and acquisition programs through its $335 million unsecured bank credit facilities (as discussed in Liquidity and Capital Resources).  As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace short-term bank borrowings. In March 2015, Moody's Investor Services affirmed the Company's issuer rating of Baa2 with a stable outlook. Also in March 2015, Fitch Ratings affirmed EastGroup's issuer rating of BBB with a stable outlook. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. The Company intends to issue primarily unsecured fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, in the future. The Company may also access the public debt market in the future as a means to raise capital.

EastGroup has one reportable segment – industrial properties.  These properties are primarily located in major Sunbelt regions of the United States, have similar economic characteristics and also meet the other criteria permitting 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:  (1) property net operating income (PNOI), defined as Income from real estate operations less Expenses from real estate operations (including market-based internal management fee expense) plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments, and (2) funds from operations attributable to common

15


stockholders (FFO), defined as net income (loss) attributable to common stockholders computed in accordance with U.S. generally accepted accounting principles (GAAP), excluding gains or losses from sales of depreciable real estate property and impairment losses, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  The Company calculates FFO based on the National Association of Real Estate Investment Trusts’ (NAREIT) definition.

PNOI is a supplemental industry reporting measurement used to evaluate the performance of the Company’s real estate investments. The Company believes the exclusion of depreciation and amortization in the industry’s calculation of PNOI provides a supplemental indicator of the properties’ 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 real estate investment trusts (REITs).  The major factors influencing 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 space and to recover from tenants the operating costs associated with those leases.

PNOI is comprised of Income from real estate operations, less Expenses from real estate operations plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments.  PNOI was calculated as follows for the three fiscal years ended December 31, 2015, 2014 and 2013.
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands)
Income from real estate operations                                                                                     
$
234,918

 
219,706

 
201,849

Expenses from real estate operations                                                                                     
(67,402
)
 
(62,797
)
 
(57,885
)
Noncontrolling interest in PNOI of consolidated 80% joint ventures
(851
)
 
(848
)
 
(961
)
PNOI from 50% owned unconsolidated investment
842

 
789

 
793

PROPERTY NET OPERATING INCOME                                                                                     
$
167,507

 
156,850

 
143,796


Income from real estate operations is comprised of rental income, expense reimbursement pass-through income and other real estate income including lease termination fees.  Expenses from real estate operations is comprised of property taxes, insurance, utilities, repair and maintenance expenses, management fees, other operating costs and bad debt expense.  Generally, the Company’s most significant operating expenses are property taxes and insurance.  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 only 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 recovered.






















16


The following table presents reconciliations of Net Income to PNOI for the three fiscal years ended December 31, 2015, 2014 and 2013.
 
Years Ended December 31,
2015
 
2014
 
2013
 
 
(In thousands)
 
 
NET INCOME                                                                                     
$
48,399

 
48,473

 
33,225

Interest income                                                                                     
(258
)
 
(479
)
 
(530
)
Gain on sales of real estate investments                                                                                 
(2,903
)
 
(9,188
)
 
—

Company's share of interest expense from unconsolidated investment
—

 
242

 
293

Company's share of depreciation from unconsolidated investment
122

 
134

 
134

Other income                                                                                     
(90
)
 
(123
)
 
(322
)
Gain on sales of non-operating real estate                                                                                  
(123
)
 
(98
)
 
(24
)
Income from discontinued operations                                                                                     
—

 
—

 
(887
)
Depreciation and amortization from continuing operations
73,290

 
70,314

 
65,789

Interest expense                                                                                     
34,666

 
35,486

 
35,192

General and administrative expense                                                                                     
15,091

 
12,726

 
11,725

Acquisition costs                                                                                     
164

 
210

 
191

Interest rate swap ineffectiveness
—

 
1

 
(29
)
Noncontrolling interest in PNOI of consolidated 80% joint ventures
(851
)
 
(848
)
 
(961
)
PROPERTY NET OPERATING INCOME (PNOI)                                                                                     
$
167,507

 
156,850

 
143,796


The Company believes FFO is a meaningful supplemental measure of operating performance for equity REITs.  The Company believes excluding depreciation and amortization in the calculation of FFO is appropriate since real estate values have historically increased or decreased based on market conditions.  FFO is not considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company’s financial performance, nor is it a measure of the Company’s liquidity or indicative of funds available to provide for the Company’s cash needs, including its ability to make distributions.  In addition, FFO, as reported by the Company, may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition.  The Company’s key drivers affecting FFO are changes in PNOI (as discussed above), interest rates, the amount of leverage the Company employs and general and administrative expense.  The following table presents reconciliations of Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to FFO Attributable to Common Stockholders for the three fiscal years ended December 31, 2015, 2014 and 2013.
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands, except per share data)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS                                                                                     
$
47,866

 
47,941

 
32,615

Depreciation and amortization from continuing operations
73,290

 
70,314

 
65,789

Depreciation and amortization from discontinued operations
—

 
—

 
130

Company's share of depreciation from unconsolidated investment
122

 
134

 
134

Depreciation and amortization from noncontrolling interest                                                                                     
(206
)
 
(204
)
 
(240
)
Gain on sales of real estate investments                                                                                     
(2,903
)
 
(9,188
)
 
(798
)
FUNDS FROM OPERATIONS (FFO) ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                                                     
$
118,169

 
108,997

 
97,630

Net income attributable to common stockholders per diluted share
$
1.49

 
1.52

 
1.08

Funds from operations attributable to common stockholders per diluted share
3.67

 
3.47

 
3.23

Diluted shares for earnings per share and funds from operations
32,196

 
31,452

 
30,269









17


The Company analyzes the following performance trends in evaluating the progress of the Company:
 
•
The FFO change per share represents the increase or decrease in FFO per share from the current year compared to the prior year.  For 2015, FFO was $3.67 per share compared with $3.47 per share for 2014, an increase of 5.8% per share.

•
For the year ended December 31, 2015, PNOI increased by $10,657,000, or 6.8%, compared to 2014. PNOI increased $6,321,000 from newly developed properties, $3,030,000 from same property operations and $2,607,000 from 2014 and 2015 acquisitions; PNOI decreased $1,266,000 from properties sold in 2014 and 2015 and $68,000 from a property undergoing redevelopment.

•
The same property net operating income change represents the PNOI increase or decrease for the same operating properties owned during the entire current period and prior year reporting period.  PNOI from same properties increased 2.0% for the year ended December 31, 2015, compared to 2014.

•
Same property average occupancy represents the average month-end percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage for the same operating properties owned during the entire current period and prior year reporting period. Same property average occupancy for the year ended December 31, 2015, was 96.0% compared to 95.5% for 2014.

•
The same property average rental rate calculated in accordance with GAAP represents the average annual rental rates of leases in place for the same operating properties owned during the entire current period and prior year reporting period. The same property average rental rate was $5.39 per square foot for the year ended December 31, 2015, compared to $5.22 per square foot for 2014.

•
Occupancy is the percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage as of the close of the reporting period.  Occupancy at December 31, 2015 was 96.1%.  Quarter-end occupancy ranged from 95.8% to 96.3% over the period from December 31, 2014 to September 30, 2015.

•
Rental rate change represents the rental rate increase or decrease on new and renewal leases compared to the prior leases on the same space.  For the year 2015, rental rate increases on new and renewal leases (22.5% of total square footage) averaged 11.9%.

•
For the year 2015, lease termination fee income was $225,000 compared to $1,205,000 for 2014.  The Company recorded net bad debt expense of $747,000 in 2015 and net bad debt recoveries of $4,000 in 2014.


18


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s management considers the following accounting policies and estimates to be critical to the reported operations of the Company.

Real Estate Properties
The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on their respective fair values.  Goodwill is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired.  Factors considered by management in allocating the cost of the properties acquired include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.  The allocation to tangible assets (land, building and improvements) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models.  The purchase price is also allocated among the following categories of intangible assets:  the above or below market component of in-place leases, the value of in-place leases, and the value of customer relationships.  The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.  The amounts allocated to above and below market leases are included in Other Assets and Other Liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the respective leases.  The total amount of intangible assets is further allocated to in-place lease values and customer relationship values based upon management’s assessment of their respective values.  These intangible assets are included in Other Assets on the Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.

During the period in which a property is under development, costs associated with development (i.e., land, construction costs, interest expense, property taxes and other costs associated with development) are aggregated into the total capitalized costs of the property.  Included in these costs are management’s estimates for the portions of internal costs (primarily personnel costs) deemed related to such development activities. The internal costs are allocated to specific development properties based on development activity.

The Company reviews its real estate investments for impairment of value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If any real estate investment is considered permanently impaired, a loss is recorded to reduce the carrying value of the property to its estimated fair value.  Real estate assets to be sold are reported at the lower of the carrying amount or fair value less selling costs.  The evaluation of real estate investments involves many subjective assumptions dependent upon future economic events that affect the ultimate value of the property.  Currently, the Company’s management knows of no impairment issues nor has it experienced any impairment issues in recent years.  EastGroup currently has the intent and ability to hold its real estate investments and to hold its land inventory for future development.  In the event of impairment, the property’s basis would be reduced, and the impairment would be recognized as a current period charge on the Consolidated Statements of Income and Comprehensive Income.

Valuation of Receivables
The Company is subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables.  In order to mitigate these risks, the Company performs credit reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired.  On a quarterly basis, the Company evaluates outstanding receivables and estimates the allowance for doubtful accounts.  Management specifically analyzes aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.  The Company believes its allowance for doubtful accounts is adequate for its outstanding receivables for the periods presented.  In the event the allowance for doubtful accounts is insufficient for an account that is subsequently written off, additional bad debt expense would be recognized as a current period charge on the Consolidated Statements of Income and Comprehensive Income.

Tax Status
EastGroup, a Maryland corporation, has qualified as a real estate investment trust under Sections 856-860 of the Internal Revenue Code and intends to continue to qualify as such.  To maintain its status as a REIT, the Company is required to distribute at least 90% of its ordinary taxable income to its stockholders.  If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company.  The Company distributed all of its 2015, 2014 and 2013 taxable income to its stockholders.  Accordingly, no significant provisions for income taxes were necessary.


19


FINANCIAL CONDITION

EastGroup’s Total Assets were $1,666,232,000 at December 31, 2015, an increase of $90,408,000 from December 31, 2014.  Total Liabilities increased $106,822,000 to $1,107,031,000, and Total Equity decreased $16,414,000 to $559,201,000 during the same period.  The following paragraphs explain these changes in detail.

Assets
Real Estate Properties
Real Estate Properties increased $154,034,000 during the year ended December 31, 2015, primarily due to the transfer of 17 properties from Development, as detailed under Development below, the purchase of the operating properties detailed below and capital improvements at the Company's properties. These increases were offset by the sales of the last of the Company's three Ambassador Row Warehouse buildings (185,000 square feet) in Dallas and 1.5 acres of land in New Orleans for $5,420,000.
REAL ESTATE PROPERTIES ACQUIRED IN 2015
 
Location
 
Size
 
Date
Acquired
 
Cost (1)
 
 
 
 
(Square feet)
 
 
 
(In thousands)
Southpark Corporate Center
 
Austin, TX
 
176,000

 
10/26/2015
 
$
17,426

Springdale Business Center
 
Austin, TX
 
159,000

 
10/28/2015
 
11,222

Total Acquisitions
 
 
 
335,000

 
 
 
$
28,648


(1)
Total cost of the properties acquired was $31,574,000, of which $28,648,000 was allocated to Real Estate Properties as indicated above.  Intangibles associated with the purchases of real estate were allocated as follows:  $3,453,000 to in-place lease intangibles (included in Other Assets on the Consolidated Balance Sheets) and $527,000 to below market leases (included in Other Liabilities on the Consolidated Balance Sheets).  All of these costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.

During 2015, the Company made capital improvements of $25,778,000 on existing and acquired properties (included in the Capital Expenditures table under Results of Operations).  Also, the Company incurred costs of $7,879,000 on development properties subsequent to transfer to Real Estate Properties; the Company records these expenditures as development costs on the Consolidated Statements of Cash Flows.
 
Development
EastGroup’s investment in development at December 31, 2015 consisted of properties in lease-up and under construction of $79,705,000 and prospective development (primarily land) of $90,736,000.  The Company’s total investment in development at December 31, 2015 was $170,441,000 compared to $179,973,000 at December 31, 2014.  Total capital invested for development during 2015 was $95,032,000, which primarily consisted of costs of $66,882,000 and $20,395,000 as detailed in the development activity table below and costs of $7,879,000 on development properties subsequent to transfer to Real Estate Properties. The capitalized costs incurred on development properties subsequent to transfer to Real Estate Properties include capital improvements at the properties and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel costs).

EastGroup capitalized internal development costs of $4,467,000 during the year ended December 31, 2015, compared to $4,040,000 during 2014.

During 2015, EastGroup purchased 112.6 acres of development land in San Antonio, Houston, Dallas, Charlotte and Phoenix for $19,329,000.  Costs associated with these acquisitions are included in the development activity table.  The Company transferred 17 development properties to Real Estate Properties during 2015 with a total investment of $96,809,000 as of the date of transfer.







20


DEVELOPMENT
 
 
 
Costs Incurred
 
 
 
 
 
 
 
Costs
Transferred
 in 2015 (1)
 
For the
Year Ended
12/31/15
 
Cumulative
as of
12/31/15
 
Estimated
Total Costs (2)
 
Anticipated Building Conversion Date
 
 
 
 
(In thousands)
 
 
LEASE-UP
 
Building Size (Square feet)
 
 
 
 
 
 
 
 
 
 
Alamo Ridge I, San Antonio, TX
 
96,000

 
$
—

 
1,877

 
7,352

 
8,500

 
02/16
Alamo Ridge II, San Antonio, TX
 
62,000

 
—

 
773

 
4,139

 
4,700

 
02/16
Madison II & III, Tampa, FL
 
127,000

 
—

 
3,737

 
7,417

 
8,000

 
02/16
West Road III, Houston, TX
 
78,000

 
—

 
917

 
4,782

 
5,000

 
03/16
Ten West Crossing 7, Houston, TX
 
68,000

 
—

 
902

 
4,072

 
4,900

 
04/16
West Road IV, Houston, TX
 
65,000

 
1,292

 
3,393

 
4,685

 
5,400

 
08/16
Kyrene 202 VI, Phoenix, AZ
 
123,000

 
1,515

 
5,505

 
7,020

 
9,500

 
09/16
ParkView 1-3, Dallas, TX
 
276,000

 
—

 
13,180

 
17,256

 
19,600

 
10/16
Total Lease-Up
 
895,000

 
2,807

 
30,284

 
56,723

 
65,600

 
 
UNDER CONSTRUCTION
 
 
 
 
 
 
 
 
 
 
 
 
Alamo Ridge III, San Antonio, TX
 
135,000

 
2,120

 
260

 
2,380

 
12,200

 
10/16
South 35th Avenue, Phoenix, AZ (3)
 
124,000

 
—

 
1,171

 
1,171

 
1,200

 
01/17
Eisenhauer Point 1 & 2, San Antonio, TX
 
201,000

 
1,880

 
4,880

 
6,760

 
13,500

 
02/17
Horizon III, Orlando, FL
 
109,000

 
2,399

 
3,716

 
6,115

 
7,800

 
02/17
Ten Sky Harbor, Phoenix, AZ
 
64,000

 
1,653

 
1,999

 
3,652

 
6,000

 
03/17
Steele Creek VI, Charlotte, NC
 
137,000

 
1,273

 
1,631

 
2,904

 
7,600

 
05/17
Total Under Construction
 
770,000

 
9,325

 
13,657

 
22,982

 
48,300

 
 
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)
 
Estimated Building Size (Square feet)
 
 
 
 
 
 
 
 
 
 
Phoenix, AZ
 
261,000

 
(3,168
)
 
3,192

 
3,487

 
 
 
 
Tucson, AZ
 
70,000

 
—

 
—

 
417

 
 
 
 
Fort Myers, FL
 
663,000

 
—

 
—

 
17,858

 
 
 
 
Orlando, FL
 
912,000

 
(5,015
)
 
1,535

 
20,371

 
 
 
 
Tampa, FL
 
290,000

 
(2,255
)
 
710

 
4,639

 
 
 
 
Jackson, MS
 
28,000

 
—

 
—

 
706

 
 
 
 
Charlotte, NC
 
281,000

 
(1,273
)
 
711

 
4,421

 
 
 
 
Dallas, TX
 
519,000

 
—

 
6,477

 
8,126

 
 
 
 
El Paso, TX
 
251,000

 
—

 
—

 
2,444

 
 
 
 
Houston, TX
 
1,607,000

 
(2,581
)
 
5,458

 
24,587

 
 
 
 
San Antonio, TX
 
453,000

 
(4,000
)
 
4,858

 
3,680

 
 
 
 
Total Prospective Development
 
5,335,000

 
(18,292
)
 
22,941

 
90,736

 
 
 
 
 
 
7,000,000

 
$
(6,160
)
 
66,882

 
170,441

 
 
 
 
DEVELOPMENTS COMPLETED AND TRANSFERRED TO REAL ESTATE PROPERTIES DURING 2015
 
Building Size (Square feet)
 
 
 
 
 
 
 
 
 
Building Conversion Date
Horizon I, Orlando, FL
 
109,000

 
$
—

 
(16
)
 
7,096

 
 
 
02/15
Kyrene 202 II, Phoenix, AZ
 
45,000

 
—

 
61

 
3,470

 
 
 
02/15
Steele Creek III, Charlotte, NC
 
108,000

 
—

 
(179
)
 
7,141

 
 
 
02/15
Steele Creek II, Charlotte, NC
 
71,000

 
—

 
22

 
4,945

 
 
 
03/15
World Houston 39, Houston, TX
 
94,000

 
—

 
420

 
5,476

 
 
 
06/15
World Houston 42, Houston, TX
 
94,000

 
1,289

 
3,733

 
5,022

 
 
 
07/15
World Houston 41, Houston, TX
 
104,000

 
—

 
603

 
5,949

 
 
 
08/15
Horizon II, Orlando, FL
 
123,000

 
—

 
232

 
7,892

 
 
 
09/15
Sky Harbor 6, Phoenix, AZ
 
31,000

 
—

 
1,352

 
2,972

 
 
 
10/15
Ten West Crossing 6, Houston, TX
 
64,000

 
—

 
470

 
4,712

 
 
 
10/15
Thousand Oaks 4, San Antonio, TX
 
66,000

 
—

 
1,576

 
4,519

 
 
 
10/15
West Road I, Houston, TX
 
63,000

 
—

 
662

 
4,939

 
 
 
10/15
Kyrene 202 I, Phoenix, AZ
 
75,000

 
—

 
195

 
6,134

 
 
 
11/15
Rampart IV, Denver, CO
 
84,000

 
—

 
1,178

 
8,125

 
 
 
11/15
Oak Creek VIII, Tampa, FL
 
108,000

 
2,255

 
3,074

 
5,329

 
 
 
12/15
Steele Creek IV, Charlotte, NC
 
57,000

 
—

 
736

 
4,196

 
 
 
12/15
Horizon IV, Orlando, FL
 
123,000

 
2,616

 
6,276

 
8,892

 
 
 
12/15
Total Transferred to Real Estate Properties
 
1,419,000

 
$
6,160

 
20,395

 
96,809

 
(4) 
 
 


(1)
Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period. Negative amounts represent land inventory costs transferred to Under Construction.
(2)
Included in these costs are development obligations of $12.0 million and tenant improvement obligations of $4.3 million on properties under development.
(3)
This property is a manufacturing building undergoing redevelopment to a multi-tenant use building.
(4)
Represents cumulative costs at the date of transfer.

21


Accumulated Depreciation
Accumulated depreciation on real estate and development properties increased $56,928,000 during 2015 due primarily to depreciation expense recognized during the period, offset by accumulated depreciation on the property sold during the year.

Other Assets
Other Assets increased $2,677,000 during 2015.  A summary of Other Assets follows:
 
December 31, 2015
 
December 31, 2014
 
(In thousands)
Leasing costs (principally commissions)
$
59,043

 
56,171

Accumulated amortization of leasing costs
(23,455
)
 
(22,951
)
Leasing costs (principally commissions), net of accumulated amortization
35,588

 
33,220

 
 
 
 
Straight-line rents receivable
26,482

 
25,013

Allowance for doubtful accounts on straight-line rents receivable
(167
)
 
(102
)
Straight-line rents receivable, net of allowance for doubtful accounts
26,315

 
24,911

 
 
 
 
Accounts receivable
5,615

 
4,459

Allowance for doubtful accounts on accounts receivable
(394
)
 
(379
)
Accounts receivable, net of allowance for doubtful accounts
5,221

 
4,080

 
 
 
 
Acquired in-place lease intangibles
19,061

 
20,118

Accumulated amortization of acquired in-place lease intangibles
(8,205
)
 
(8,345
)
Acquired in-place lease intangibles, net of accumulated amortization
10,856

 
11,773

 
 
 
 
Acquired above market lease intangibles
1,337

 
1,575

Accumulated amortization of acquired above market lease intangibles
(684
)
 
(699
)
Acquired above market lease intangibles, net of accumulated amortization
653

 
876

 
 
 
 
Loan costs
8,788

 
8,166

Accumulated amortization of loan costs
(4,460
)
 
(4,454
)
Loan costs, net of accumulated amortization
4,328

 
3,712

 
 
 
 
Mortgage loans receivable
4,875

 
4,991

Interest rate swap assets
400

 
812

Goodwill
990

 
990

Escrow deposits for 1031 exchange
—

 
698

Prepaid expenses and other assets
6,960

 
7,446

 Total Other Assets
$
96,186

 
93,509


Liabilities
Secured Debt decreased $102,375,000 during the year ended December 31, 2015.  The decrease resulted from the repayment of two mortgages totaling $81,853,000, regularly scheduled principal payments of $20,484,000 and mortgage loan premium amortization of $38,000.

Unsecured Debt increased $150,000,000 during 2015 as a result of the closing of a $75 million unsecured term loan in March 2015, and the issuance of $75 million of senior unsecured private placement notes in October 2015.
 
Unsecured Bank Credit Facilities increased $51,435,000 during 2015 as a result of advances of $420,104,000 exceeding repayments of $368,669,000. The Company’s credit facilities are described in greater detail under Liquidity and Capital Resources.

22


Accounts Payable and Accrued Expenses increased $4,742,000 during 2015.  A summary of the Company’s Accounts Payable and Accrued Expenses follows:
 
December 31,
2015
 
2014
(In thousands)
Property taxes payable                                                            
$
16,055

 
15,216

Development costs payable                                                            
6,215

 
7,920

Property capital expenditures payable
2,818

 
1,554

Interest payable                                                            
3,704

 
3,500

Dividends payable on unvested restricted stock
2,157

 
2,096

Other payables and accrued expenses                                                            
13,232

 
9,153

 Total Accounts Payable and Accrued Expenses
$
44,181

 
39,439


Other Liabilities increased $3,020,000 during 2015.  A summary of the Company’s Other Liabilities follows:
 
December 31,
2015
 
2014
(In thousands)
Security deposits                                                            
$
13,943

 
12,803

Prepaid rent and other deferred income
10,003

 
8,971

 
 
 
 
Acquired below market lease intangibles
3,485

 
3,657

Accumulated amortization of acquired below market lease intangibles
(1,353
)
 
(1,380
)
Acquired below market lease intangibles, net of accumulated amortization
2,132

 
2,277

 
 
 
 
Interest rate swap liabilities
3,960

 
3,314

Prepaid tenant improvement reimbursements
493

 
212

Other liabilities                                                            
82

 
16

 Total Other Liabilities
$
30,613

 
27,593


Equity
Additional Paid-In Capital increased $12,872,000 during 2015 primarily due to the issuance of common stock under the Company's continuous common equity program and stock-based compensation. EastGroup issued 106,751 shares of common stock under its continuous common equity program with net proceeds to the Company of $6,233,000.  See the Consolidated Statements of Changes in Equity and Note 11 in the Notes to Consolidated Financial Statements for information related to the changes in Additional Paid-In Capital on common shares resulting from stock-based compensation.

During 2015, Distributions in Excess of Earnings increased $28,040,000 as a result of dividends on common stock of $75,906,000 exceeding Net Income Attributable to EastGroup Properties, Inc. Common Stockholders of $47,866,000.

Accumulated Other Comprehensive Loss increased $1,099,000 during 2015. The increase resulted from the change in fair value of the Company's interest rate swaps which are further discussed in Notes 12 and 13 in the Notes to Consolidated Financial Statements.




23


RESULTS OF OPERATIONS

2015 Compared to 2014
Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for 2015 was $47,866,000 ($1.49 per basic and diluted share) compared to $47,941,000 ($1.53 per basic and $1.52 per diluted share) for 2014.  EastGroup recognized Gain on sales of real estate investments of $2,903,000 during 2015 and $9,188,000 during 2014.

PNOI increased by $10,657,000, or 6.8%, for 2015 compared to 2014. PNOI increased $6,321,000 from newly developed properties, $3,030,000 from same property operations and $2,607,000 from 2014 and 2015 acquisitions; PNOI decreased $1,266,000 from properties sold in 2014 and 2015 and $68,000 from a property undergoing redevelopment. For the year 2015, lease termination fee income was $225,000 compared to $1,205,000 for 2014.  The Company recorded net bad debt expense of $747,000 in 2015 and net bad debt recoveries of $4,000 in 2014. Straight-lining of rent increased Income from real estate operations by $1,502,000 and $1,881,000 in 2015 and 2014, respectively.

The Company signed 164 leases with certain free rent concessions on 3,678,000 square feet during 2015 with total free rent concessions of $4,024,000 over the lives of the leases, compared to 157 leases with free rent concessions on 3,274,000 square feet with total free rent concessions of $3,816,000 over the lives of the leases in 2014.

Property expense to revenue ratios, defined as Expenses from Real Estate Operations as a percentage of Income from Real Estate Operations, were 28.7% in 2015 compared to 28.6% in 2014.  The Company’s percentage of leased square footage was 97.2% at December 31, 2015, compared to 96.7% at December 31, 2014.  Occupancy at the end of 2015 was 96.1% compared to 96.3% at the end of 2014.

Interest Expense decreased $820,000 for 2015 compared to 2014.  The following table presents the components of Interest Expense for 2015 and 2014:
 
Years Ended December 31,
2015
 
2014
 
Increase (Decrease)
(In thousands)
VARIABLE RATE INTEREST EXPENSE
 

 
 

 
 

Unsecured bank credit facilities interest (excluding loan cost amortization)
$
2,028

 
1,843

 
185

Amortization of loan costs - unsecured bank credit facilities                                                                              
493

 
413

 
80

   Total variable rate interest expense                                                                                 
2,521

 
2,256

 
265

FIXED RATE INTEREST EXPENSE
 

 
 

 
 

Secured debt interest (excluding loan cost amortization)
21,061

 
25,700

 
(4,639
)
Unsecured debt interest (1) (excluding loan cost amortization)
15,498

 
11,649

 
3,849

Amortization of loan costs - secured debt                                                                                 
421

 
521

 
(100
)
Amortization of loan costs - unsecured debt
422

 
302

 
120

   Total fixed rate interest expense                                                                                 
37,402

 
38,172

 
(770
)
Total interest                                                                                 
39,923

 
40,428

 
(505
)
Less capitalized interest                                                                                 
(5,257
)
 
(4,942
)
 
(315
)
TOTAL INTEREST EXPENSE 
$
34,666

 
35,486

 
(820
)

(1) Includes interest on the Company's unsecured debt with fixed interest rates per the debt agreements or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements.

EastGroup's variable rate interest expense increased by $265,000 for 2015 as compared to 2014 primarily due to an increase in the Company's average unsecured bank credit facilities borrowings as shown in the following table:
 
 
Years Ended December 31,
 
 
2015
 
2014
 
Increase
(Decrease)
 
 
(In thousands, except rates of interest)
Average unsecured bank credit facilities borrowings
 
$
109,777

 
96,162

 
13,615

Weighted average variable interest rates 
     (excluding loan cost amortization) 
 
1.85
%
 
1.92
%
 
 


24


The Company's fixed rate interest expense decreased by $770,000 for 2015 as compared to 2014. The decrease was primarily due to a decrease in secured debt interest, partially offset by an increase in unsecured debt interest. These changes resulted from the Company's debt activity described below.

The decrease in secured debt interest resulted from regularly scheduled principal payments and debt repayments. Regularly scheduled principal payments on secured debt were $20,484,000 during 2015 and $22,269,000 in 2014. The details of the secured debt repaid in 2014 and 2015 are shown in the following table:
SECURED DEBT REPAID IN 2014 AND 2015
 
Interest Rate
 
Date Repaid
 
Payoff Amount
 
 
 
 
 
 
(In thousands)
Kyrene Distribution Center
 
9.00%
 
06/30/2014
 
$
11

Americas Ten I, Kirby, Palm River North I, II & III, Shady Trail,
Westlake I & II and World Houston 17
 
5.68%
 
07/10/2014
 
26,565

   Weighted Average/Total Amount for 2014
 
5.68%
 
 
 
$
26,576

Beltway II-IV, Commerce Park I, Eastlake, Fairgrounds, Nations Ford,
       Techway Southwest III, Wetmore 1-4 and World Houston 15 & 22
 
5.50%
 
03/06/2015
 
$
57,450

Country Club I, Lake Pointe, Techway Southwest II and
       World Houston 19 & 20
 
4.98%
 
11/06/2015
 
24,403

   Weighted Average/Total Amount for 2015
 
5.34%
 
 
 
$
81,853

   Weighted Average/Total Amount for 2014 and 2015
 
5.43%
 
 
 
$
108,429


During 2015, EastGroup did not obtain any new secured debt; in 2014, the Company assumed the secured debt detailed in the following table:
NEW SECURED DEBT IN 2014
 
Effective Interest Rate
 
Date Obtained
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
(In thousands)
Ramona Distribution Center (1)
 
3.85%
 
12/19/2014
 
11/30/2026
 
$
2,847


(1)
In connection with the acquisition of Ramona Distribution Center, the Company assumed a mortgage of $2,617,000 and recorded a premium of $230,000 to adjust the mortgage loan assumed to fair value. This premium is being amortized over the remaining life of the mortgage.

The decrease in secured debt interest was partially offset by increases in unsecured debt interest resulting from the Company's unsecured debt activity described below. The details of the unsecured debt obtained in 2014 and 2015 are shown in the following table:
NEW UNSECURED DEBT IN 2014 and 2015
 
Effective Interest Rate
 
Date Obtained
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
(In thousands)
$75 Million Unsecured Term Loan (1)
 
2.846%
 
07/31/2014
 
07/31/2019
 
$
75,000

$75 Million Unsecured Term Loan (2)
 
3.031%
 
03/02/2015
 
02/28/2022
 
$
75,000

$25 Million Senior Unsecured Notes
 
3.970%
 
10/01/2015
 
10/01/2025
 
25,000

$50 Million Senior Unsecured Notes
 
3.990%
 
10/07/2015
 
10/07/2025
 
50,000

   Weighted Average/Total Amount for 2015
 
3.507%
 
 
 
 
 
$
150,000

   Weighted Average/Total Amount for 2014 and 2015
 
3.287%
 
 
 
 
 
$
225,000


(1)
The interest rate on this unsecured term loan is comprised of LIBOR plus 115 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 2.846% as of December 31, 2015. See Note 13 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.
(2)
The interest rate on this unsecured term loan is comprised of LIBOR plus 140 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 3.031% as of December 31, 2015. See Note 13 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.

Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest increased $315,000 for 2015 as compared to 2014.


25


Depreciation and Amortization expense from continuing operations increased $2,976,000 for 2015 compared to 2014 primarily due to the operating properties acquired by the Company during 2014 and 2015 and the properties transferred from Development in 2014 and 2015.  

General and Administrative expense increased $2,365,000 for the year ended December 31, 2015, as compared to 2014. The increase was primarily due to accelerated restricted stock vesting for the Company's retiring Chief Executive Officer (CEO) and various costs associated with the CEO succession.

Capital Expenditures
Capital expenditures for EastGroup’s operating properties for the years ended December 31, 2015 and 2014 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2015
 
2014
 
 
(In thousands)
Upgrade on Acquisitions                                               
40 yrs
 
$
5

 
246

Tenant Improvements:
 
 
 

 
 
New Tenants                                               
Lease Life
 
9,981

 
7,984

   New Tenants (first generation) (1)
Lease Life
 
119

 
290

Renewal Tenants                                               
Lease Life
 
1,936

 
2,828

Other:
 
 
 

 
 

Building Improvements                                               
5-40 yrs
 
4,599

 
3,339

Roofs                                               
5-15 yrs
 
7,562

 
4,367

Parking Lots                                               
3-5 yrs
 
808

 
503

Other                                               
5 yrs
 
768

 
305

Total Capital Expenditures (2)
 
 
$
25,778

 
19,862


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.
(2)
Reconciliation of Total Capital Expenditures to Real Estate Improvements on the Consolidated Statements of Cash Flows:
 
 
Years Ended December 31,
 
2015
 
2014
 
(In thousands)
Total Capital Expenditures
 
$
25,778

 
19,862

Change in Real Estate Property Payables
 
(1,264
)
 
662

Real Estate Improvements
 
$
24,514

 
20,524


Capitalized Leasing Costs
The Company’s leasing costs (principally commissions) are capitalized and included in Other Assets. The costs are amortized over the terms of the associated leases and are included in Depreciation and Amortization expense.  Capitalized leasing costs for the years ended December 31, 2015 and 2014 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2015
 
2014
 
 
(In thousands)
Development                                               
Lease Life
 
$
3,824

 
2,866

New Tenants                                               
Lease Life
 
3,864

 
3,606

New Tenants (first generation) (1)
Lease Life
 
29

 
217

Renewal Tenants                                               
Lease Life
 
3,773

 
5,469

Total Capitalized Leasing Costs
 
 
$
11,490

 
12,158

Amortization of Leasing Costs
 
 
$
9,038

 
8,284


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.


26


Discontinued Operations
In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amended the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than by sale. In addition, this ASU requires additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. EastGroup performs an analysis of properties sold to determine whether the sales qualify for discontinued operations presentation. Typically, when the Company disposes of operating properties, the sales are not considered to be disposals of a component of an entity or a group of components of an entity representing a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The Company adopted the provisions of ASU 2014-08 as of January 1, 2014, and has applied the provisions prospectively.

During 2015, EastGroup sold one operating property, the last building of its three Ambassador Row Warehouses in Dallas. During 2014, the Company sold the following properties: Northpoint Commerce Center in Oklahoma City, Tampa West Distribution Center VI in Tampa, Clay Campbell Distribution Center and Kirby Business Center in Houston, and two of its three Ambassador Row Warehouses in Dallas. The results of operations and gains on sales for the properties sold during 2015 and 2014 are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income. The gains on sales are included in Gain on sales of real estate investments.

See Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and gain on sales of real estate investments.  


2014 Compared to 2013
Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for 2014 was $47,941,000 ($1.53 per basic and $1.52 per diluted share) compared to $32,615,000 ($1.08 per basic and diluted share) for 2013.  EastGroup recognized Gain on sales of real estate investments of $9,188,000 during 2014 and $798,000 during 2013.

PNOI increased by $13,054,000, or 9.1%, for 2014 compared to 2013. PNOI increased $6,710,000 from newly developed properties, $3,650,000 from 2013 and 2014 acquisitions, and $3,136,000 from same property operations; PNOI decreased $451,000 from 2014 dispositions. Lease termination fee income was $1,205,000 and $495,000 in 2014 and 2013, respectively. The Company recorded net bad debt recoveries of $4,000 in 2014 and net bad debt expense of $268,000 in 2013. Straight-lining of rent increased Income from real estate operations by $1,881,000 and $1,971,000 in 2014 and 2013, respectively.

The Company signed 157 leases with certain free rent concessions on 3,274,000 square feet during 2014 with total free rent concessions of $3,816,000 over the lives of the leases, compared to 142 leases with free rent concessions on 3,787,000 square feet with total free rent concessions of $4,723,000 over the lives of the leases in 2013.

Property expense to revenue ratios were 28.6% in 2014 compared to 28.7% in 2013.  The Company’s percentage of leased square footage was 96.7% at December 31, 2014, compared to 96.2% at December 31, 2013.  Occupancy at the end of 2014 was 96.3% compared to 95.5% at the end of 2013.















27


Interest Expense increased $294,000 in 2014 compared to 2013.  The following table presents the components of Interest Expense for 2014 and 2013:
 
Years Ended December 31,
2014
 
2013
 
Increase (Decrease)
(In thousands)
VARIABLE RATE INTEREST EXPENSE
 

 
 

 
 

Unsecured bank credit facilities interest (excluding loan cost amortization)
$
1,843

 
2,110

 
(267
)
Amortization of loan costs - unsecured bank credit facilities                                                                              
413

 
410

 
3

   Total variable rate interest expense                                                                                 
2,256

 
2,520

 
(264
)
FIXED RATE INTEREST EXPENSE
 

 
 

 
 

Secured debt interest (excluding loan cost amortization)
25,700

 
31,298

 
(5,598
)
Unsecured debt interest (1) (excluding loan cost amortization)
11,649

 
5,559

 
6,090

Amortization of loan costs - secured debt                                                                                 
521

 
706

 
(185
)
Amortization of loan costs - unsecured debt
302

 
173

 
129

   Total fixed rate interest expense                                                                                 
38,172

 
37,736

 
436

Total interest                                                                                 
40,428

 
40,256

 
172

Less capitalized interest                                                                                 
(4,942
)
 
(5,064
)
 
122

TOTAL INTEREST EXPENSE 
$
35,486

 
35,192

 
294


(1)
Includes interest on the Company's unsecured debt with fixed interest rates per the debt agreements or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements.

EastGroup's variable rate interest expense decreased by $264,000 for 2014 as compared to 2013 primarily due to a decrease in the Company's average unsecured bank credit facilities borrowings as shown in the following table:
 
 
Years Ended December 31,
 
 
2014
 
2013
 
Increase
(Decrease)
 
 
(In thousands, except rates of interest)
Average unsecured bank credit facilities borrowings
 
$
96,162

 
112,971

 
(16,809
)
Weighted average variable interest rates 
     (excluding loan cost amortization) 
 
1.92
%
 
1.87
%
 
 


The Company's fixed rate interest expense increased by $436,000 for 2014 as compared to 2013. The increase was primarily due to an increase in unsecured debt interest, offset by a decrease in secured debt interest resulting from the Company's debt activity described below.



















28


The details of the unsecured debt obtained by the Company in 2013 and 2014 are shown in the following table:
NEW UNSECURED DEBT IN 2013 AND 2014
 
Effective Interest Rate
 
Date Obtained
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
(In thousands)
$100 Million Senior Unsecured Notes:
 
 
 
 
 
 
 
 
     $30 Million Notes
 
3.800%
 
08/28/2013
 
08/28/2020
 
$
30,000

     $50 Million Notes
 
3.800%
 
08/28/2013
 
08/28/2023
 
50,000

     $20 Million Notes
 
3.800%
 
08/28/2013
 
08/28/2025
 
20,000

$75 Million Unsecured Term Loan (1)
 
3.752%
 
12/20/2013
 
12/20/2020
 
75,000

   Weighted Average/Total Amount for 2013
 
3.779%
 
 
 
 
 
$
175,000

$75 Million Unsecured Term Loan (2)
 
2.846%
 
07/31/2014
 
07/31/2019
 
$
75,000

   Weighted Average/Total Amount for 2013 and 2014
 
3.499%
 
 
 
 
 
$
250,000


(1)
The interest rate on this unsecured term loan is comprised of LIBOR plus 140 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into two interest rate swaps to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 3.752% as of December 31, 2015. See Note 13 for additional information on the interest rate swaps.
(2)
The interest rate on this unsecured term loan is comprised of LIBOR plus 115 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 2.846% as of December 31, 2015. See Note 13 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.

The increase in unsecured debt interest was partially offset by a decrease in secured debt interest resulting from regularly scheduled principal payments and debt repayments. Regularly scheduled secured debt principal payments were $22,269,000 in 2014 and $24,420,000 in 2013. The details of the secured debt repaid in 2013 and 2014 are shown in the following table:
SECURED DEBT REPAID IN 2013 AND 2014
 
Interest Rate
 
Date Repaid
 
Payoff Amount
 
 
 
 
 
 
(In thousands)
35th Avenue, Beltway I, Broadway V, Lockwood, Northwest Point,
Sunbelt, Techway Southwest I and World Houston 10, 11 & 14
 
4.75%
 
08/06/2013
 
$
33,476

Airport Commerce Center I & II, Interchange Park, Ridge Creek
Distribution Center I, Southridge XII, Waterford Distribution Center and World Houston 24, 25 & 27
 
5.75%
 
12/06/2013
 
50,057

Weighted Average/Total Amount for 2013                                                               
 
5.35%
 
 
 
83,533

Kyrene Distribution Center
 
9.00%
 
06/30/2014
 
11

Americas Ten I, Kirby, Palm River North I, II & III, Shady Trail,
    Westlake I & II and World Houston 17
 
5.68%
 
07/10/2014
 
26,565

Weighted Average/Total Amount for 2014                                                               
 
5.68%
 
 
 
26,576

Weighted Average/Total Amount for 2013 and 2014                                                         
 
5.43%
 
 
 
$
110,109


During 2013, EastGroup did not obtain any new secured debt; in 2014, the Company assumed the secured debt detailed in the following table:
NEW SECURED DEBT IN 2014
 
Effective Interest Rate
 
Date Obtained
 
Maturity Date
 
Amount
 
 
 
 
 
 
 
 
(In thousands)
Ramona Distribution Center (1)
 
3.85%
 
12/19/2014
 
11/30/2026
 
$
2,847


(1)
In connection with the acquisition of Ramona Distribution Center, the Company assumed a mortgage of $2,617,000 and recorded a premium of $230,000 to adjust the mortgage loan assumed to fair value. This premium is being amortized over the remaining life of the mortgage.

Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest decreased $122,000 for 2014 as compared to 2013.

Depreciation and Amortization expense from continuing operations increased $4,525,000 for 2014 compared to 2013 primarily due to the operating properties acquired by the Company in 2013 and 2014 and the properties transferred from Development in 2013 and 2014.  

29


Capital Expenditures
Capital expenditures for EastGroup’s operating properties for the years ended December 31, 2014 and 2013 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2014
 
2013
 
 
(In thousands)
Upgrade on Acquisitions                                               
40 yrs
 
$
246

 
459

Tenant Improvements:
 
 
 
 
 
New Tenants                                               
Lease Life
 
7,984

 
8,124

   New Tenants (first generation) (1)
Lease Life
 
290

 
110

Renewal Tenants                                               
Lease Life
 
2,828

 
2,982

Other:
 
 
 

 
 

Building Improvements                                               
5-40 yrs
 
3,339

 
4,395

Roofs                                               
5-15 yrs
 
4,367

 
4,005

Parking Lots                                               
3-5 yrs
 
503

 
852

Other                                               
5 yrs
 
305

 
511

Total Capital Expenditures (2)
 
 
$
19,862

 
21,438


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.
(2)
Reconciliation of Total Capital Expenditures to Real Estate Improvements on the Consolidated Statements of Cash Flows:
 
 
Years Ended December 31,
 
2014
 
2013
 
(In thousands)
Total Capital Expenditures
 
$
19,862

 
21,438

Change in Real Estate Property Payables
 
662

 
(631
)
Real Estate Improvements
 
$
20,524

 
20,807


Capitalized Leasing Costs
The Company’s leasing costs (principally commissions) are capitalized and included in Other Assets.  The costs are amortized over the terms of the associated leases and are included in Depreciation and Amortization expense.  Capitalized leasing costs for the years ended December 31, 2014 and 2013 were as follows:
 
Estimated
Useful Life
 
Years Ended December 31,
 
2014
 
2013
 
 
(In thousands)
Development                                               
Lease Life
 
$
2,866

 
3,895

New Tenants                                               
Lease Life
 
3,606

 
4,317

New Tenants (first generation) (1)
Lease Life
 
217

 
96

Renewal Tenants                                               
Lease Life
 
5,469

 
4,978

Total Capitalized Leasing Costs
 
 
$
12,158

 
13,286

Amortization of Leasing Costs (2)
 
 
$
8,284

 
7,354


(1)
First generation refers only to space that has never been occupied under EastGroup’s ownership.
(2)
Includes discontinued operations (applicable only for 2013).

Discontinued Operations
During 2014, the Company sold the following properties: Northpoint Commerce Center in Oklahoma City, Tampa West Distribution Center VI in Tampa, Clay Campbell Distribution Center and Kirby Business Center in Houston, and two of its three Ambassador Row Warehouses in Dallas. The results of operations and gains on sales for the properties sold during 2014 are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income. The gains on sales are included in Gain on sales of real estate investments.


30


Prior to the adoption of ASU 2014-08 effective January 1, 2014, the results of operations for the operating properties sold or held for sale during the reported periods were shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  Interest expense was not generally allocated to the properties held for sale or whose operations were included under Discontinued Operations unless the mortgage was required to be paid in full upon the sale of the property. ASU 2014-08 is described in further detail under Discontinued Operations under 2015 Compared to 2014.

The results of operations and gains on sales for the operating properties sold in 2013 are shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  During 2013, the Company sold three properties: Tampa West Distribution Center V and VII and Tampa East Distribution Center II in Tampa.

See Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and Gain on sales of real estate investments.  The following table presents the components of revenue and expense for the operating properties sold or held for sale during 2014 and 2013.
DISCONTINUED OPERATIONS
 
Years Ended December 31,
2014
 
2013
 
 
(In thousands)
Income from real estate operations                                                                            
 
$
—

 
306

Expenses from real estate operations                                                                            
 
—

 
(87
)
Property net operating income from discontinued operations
 
—

 
219

Depreciation and amortization                                                                            
 
—

 
(130
)
Income from real estate operations                                                                            
 
—

 
89

Gain on sales of real estate investments                                                                            
 
—

 
798

Income from discontinued operations                                                                            
 
$
—

 
887


RECENT ACCOUNTING PRONOUNCEMENTS

EastGroup has evaluated all ASUs released by the FASB through the date the financial statements were issued and determined that the following ASUs apply to the Company.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The effective date of ASU was extended by one year by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The new standard is effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures beginning with the Form 10-Q for the period ended March 31, 2018. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 801): Amendments to Consolidation Analysis, under which all legal entities are subject to reevaluation under the revised consolidation model. The ASU modifies whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of reporting entities that are involved with VIEs, and provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. EastGroup plans to adopt ASU 2015-02 effective January 1, 2016. The Company does not anticipate the adoption of ASU 2015-02 will have a material impact on the Company's financial condition or results of operations.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, entities are required to comply with the applicable disclosures for a change in an accounting principle. EastGroup plans to adopt ASU 2015-03 effective January 1, 2016; as such, the Company plans to present

31


debt issuance costs as a direct deduction from the carrying amounts of its debt liabilities and to provide all necessary disclosures beginning with the Form 10-Q for the period ended March 31, 2016.

In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which adds comments from the Securities and Exchange Commission (SEC) addressing ASU 2015-03, as discussed above, and debt issuance costs related to line-of-credit arrangements. The SEC commented it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. EastGroup plans to adopt ASU 2015-15 in connection with its adoption of ASU 2015-03 effective January 1, 2016. The Company does not anticipate the adoption of ASU 2015-15 will have a material impact on the Company's financial condition or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,which requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized costs on the balance sheet. EastGroup plans to adopt ASU 2016-01 effective January 1, 2018. The Company does not anticipate the adoption of ASU 2016-01 will have a material impact on the Company's financial condition or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $131,385,000 for the year ended December 31, 2015.  The primary other sources of cash were from borrowings on unsecured bank credit facilities, proceeds from unsecured debt, proceeds from common stock offerings and proceeds from sales of real estate investments.  The Company distributed $75,845,000 in common stock dividends during 2015.  Other primary uses of cash were for repayments on unsecured bank credit facilities, secured debt repayments, development of properties, purchases of real estate and capital improvements at various properties.

Total debt at December 31, 2015 and 2014 is detailed below.  The Company’s unsecured bank credit facilities and unsecured term loans have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2015 and 2014.
 
December 31,
2015
 
2014
(In thousands)
Secured debt
$
351,401

 
453,776

Unsecured debt
530,000

 
380,000

Unsecured bank credit facilities
150,836

 
99,401

Total debt                                                      
$
1,032,237

 
933,177


Until July 30, 2015, EastGroup had $225 million and $25 million unsecured bank credit facilities with margins over LIBOR of 117.5 basis points, facility fees of 22.5 basis points and maturity dates of January 5, 2017. The Company closed on amended credit facilities on July 30, 2015. The amended agreements expand the facilities to $300 million and $35 million, reduce the current applicable margins to 100 basis points and the current applicable facility fees to 20 basis points, and extend the maturity dates to July 30, 2019.

EastGroup's amended $300 million unsecured revolving credit facility is with a group of nine banks and matures on July 30, 2019. The credit facility contains an option for a one-year extension (at the Company's election) and a $150 million expansion (with agreement by all parties). The interest rate on each tranche is usually reset on a monthly basis and as of December 31, 2015, was LIBOR plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings. At December 31, 2015, the weighted average interest rate was 1.394% on a balance of $137,000,000.

The Company's amended $35 million agreement matures on July 30, 2019, and it contains a provision that the credit facility would automatically be extended for one year if the extension option in the $300 million facility is exercised. The interest rate is reset on a daily basis and as of December 31, 2015, was LIBOR plus 100 basis points with an annual facility fee of 20 basis points.

32


The margin and facility fee are subject to changes in the Company's credit ratings. At December 31, 2015, the interest rate was 1.430% on a balance of $13,836,000.

As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace the short-term bank borrowings.  The Company believes its current operating cash flow and unsecured bank credit facilities provide the capacity to fund the operations of the Company.  The Company also believes it can obtain debt financing and issue common and/or preferred equity. The Company intends to issue primarily unsecured fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, in the future. The Company may also access the public debt market in the future as a means to raise capital.

In March 2015, EastGroup closed a $75 million senior unsecured term loan with a seven-year term and interest only payments. It bears interest at the annual rate of LIBOR plus an applicable margin (currently 1.4%) based on the Company's senior unsecured long-term debt rating. The Company also entered into an interest rate swap agreement to convert the loan's LIBOR rate component to a fixed interest rate for the entire term of the loan providing a total effective fixed interest rate of 3.031%.

In October, EastGroup issued $75 million of senior unsecured private placement notes. The 10-year notes have a weighted average interest rate of 3.98% with semi-annual interest payments. The notes will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

In March 2015, EastGroup repaid (with no penalty) a mortgage loan with a balance of $57.4 million, an interest rate of 5.50%, and an original maturity date of April 5, 2015. In November 2015, the Company repaid (with no penalty) a mortgage loan with a balance of $24.4 million, an interest rate of 4.98% and an original maturity date of December 5, 2015.

On February 19, 2014, EastGroup entered into Sales Agency Financing Agreements with BNY Mellon Capital Markets, LLC, Raymond James & Associates, Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated pursuant to which it may issue and sell up to 10,000,000 shares of its common stock from time to time. During 2015, the Company issued and sold 106,751 shares of common stock under its continuous equity program at an average price of $60.26 per share with gross proceeds to the Company of $6,433,000. The Company incurred offering-related costs of $200,000 during the year, resulting in net proceeds to the Company of $6,233,000. As of February 17, 2016, the Company has 8,646,849 shares of common stock remaining to sell under the program.  

On February 10, 2016, EastGroup executed a commitment letter for a $65 million senior unsecured term loan which is expected to close on April 1, 2016. The loan will have a seven-year term and interest only payments. It will bear interest at the annual rate of LIBOR plus an applicable margin (currently 1.65%) based on the Company's senior unsecured long-term debt rating. The Company also entered into an interest rate swap agreement to convert the loan's LIBOR rate component to a fixed interest rate for the entire term of the loan providing a total effective fixed interest rate of 2.863%.


33



Contractual Obligations
EastGroup’s fixed, non-cancelable obligations as of December 31, 2015 were as follows:
 
Payments Due by Period
Total
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
More Than
5 Years
(In thousands)
Secured Debt Obligations (1) 
$
351,401

 
92,804

 
69,555

 
64,666

 
124,376

Interest on Secured Debt
56,973

 
17,889

 
22,734

 
13,264

 
3,086

Unsecured Debt (1)
530,000

 
—

 
130,000

 
180,000

 
220,000

Interest on Unsecured Debt
103,632

 
18,211

 
35,458

 
24,525

 
25,438

Unsecured Bank Credit Facilities (1) (2)
150,836

 
—

 
—

 
150,836

 
—

Interest on Unsecured Bank Credit Facilities (3)
9,985

 
2,778

 
5,555

 
1,652

 
—

Operating Lease Obligations:


 
 

 
 

 
 

 
 

Office Leases
331

 
328

 
3

 
—

 
—

Ground Leases
14,966

 
756

 
1,512

 
1,512

 
11,186

Real Estate Property Obligations (4)
2,364

 
2,364

 
—

 
—

 
—

Development Obligations (5)
11,966

 
11,966

 
—

 
—

 
—

Tenant Improvements (6)
11,428

 
11,428

 
—

 
—

 
—

Purchase Obligations
366

 
102

 
244

 
20

 
—

Total
$
1,244,248

 
158,626

 
265,061

 
436,475

 
384,086


(1)
These amounts are included on the Consolidated Balance Sheets.
(2)
The Company’s balances under its unsecured bank credit facilities change depending on the Company’s cash needs and, as such, both the principal amounts and the interest rates are subject to variability.  At December 31, 2015, the weighted average interest rate was 1.397% on the variable-rate debt that matures in July 2019. The $300 million unsecured credit facility has options for a one-year extension (at the Company's election) and a $150 million expansion (with agreement by all parties). The $35 million unsecured credit facility automatically extends for one year if the extension option in the $300 million revolving facility is exercised. As of December 31, 2015, the interest rate on the $300 million facility was LIBOR plus 1.000% (weighted average interest rate of 1.394%) with an annual facility fee of 0.200%, and the interest rate on the $35 million facility, which resets on a daily basis, was LIBOR plus 1.000% (1.430%) with an annual facility fee of 0.200%. The margin and facility fee are subject to changes in the Company's credit ratings.
(3)
Represents an estimate of interest due on the Company's unsecured credit facilities based on the outstanding unsecured credit facilities as of December 31, 2015 and interest rates and maturity dates on the facilities as of December 31, 2015 as discussed in note 2 above.
(4)
Represents commitments on real estate properties, except for tenant improvement obligations.
(5)
Represents commitments on properties under development, except for tenant improvement obligations.
(6)
Represents tenant improvement allowance obligations.

The Company anticipates that its current cash balance, operating cash flows, borrowings under its unsecured bank credit facilities, proceeds from new secured and unsecured debt and/or proceeds from the issuance of equity instruments will be adequate for (i) operating and administrative expenses, (ii) normal repair and maintenance expenses at its properties, (iii) debt service obligations, (iv) maintaining compliance with its debt covenants, (v) distributions to stockholders, (vi) capital improvements, (vii) purchases of properties, (viii) development, and (ix) any other normal business activities of the Company, both in the short-term and long-term.

INFLATION AND OTHER ECONOMIC CONSIDERATIONS

Most of the Company's leases include scheduled rent increases.  Additionally, most of the Company's leases require the tenants to pay their pro rata share of operating expenses, including real estate taxes, insurance and common area maintenance, thereby reducing the Company's exposure to increases in operating expenses resulting from inflation.  In the event inflation causes increases in the Company’s general and administrative expenses or the level of interest rates, such increased costs would not be passed through to tenants and could adversely affect the Company’s results of operations.

EastGroup's financial results are affected by general economic conditions in the markets in which the Company's properties are located.  The state of the economy, or other adverse changes in general or local economic conditions, could result in the inability

34


of some of the Company's existing tenants to make lease payments and may therefore increase bad debt expense.  It may also impact the Company’s ability to (i) renew leases or re-lease space as leases expire, or (ii) lease development space.  In addition, an economic downturn or recession could also lead to an increase in overall vacancy rates or a decline in rents the Company can charge to re-lease properties upon expiration of current leases.  In all of these cases, EastGroup’s cash flows would be adversely affected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to interest rate changes primarily as a result of its unsecured bank credit facilities 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 objective for interest rate risk management is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company has two variable rate unsecured bank credit facilities as discussed under Liquidity and Capital Resources. As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace the short-term bank borrowings. The Company's interest rate swaps are discussed in Note 13 in the Notes to Consolidated Financial Statements. The table below presents the principal payments due and weighted average interest rates, which include the impact of interest rate swaps, for both the fixed-rate and variable-rate debt as of December 31, 2015.
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
Fair Value
Secured debt
   (in thousands) 
$
92,804

 
58,239

 
11,316

 
55,569

 
9,097

 
124,376

 
351,401

 
366,491 (1)
Weighted average
interest rate
5.79
%
 
5.50
%
 
5.21
%
 
7.01
%
 
4.43
%
 
4.42
%
 
5.40
%
 
 
Unsecured debt
(in thousands) 
$
—

 
—

 
130,000

 
75,000

 
105,000

 
220,000

 
530,000

 
509,326 (1)
Weighted average
interest rate
—

 
—

 
3.21
%
 
2.85
%
 
3.77
%
 
3.60
%
 
3.43
%
 
 
Unsecured bank credit facilities
(in thousands)
$
—

 
—

 
—

 
150,836

(2) 
—

 
—

 
150,836

 
150,670 (3)
Weighted average
interest rate
—

 
—

 
—

 
1.40
%
(4) 
—

 
—

 
1.40
%
 
 

(1)
The fair value of the Company’s fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers.
(2)
The variable-rate debt matures in July 2019 and is comprised of two unsecured bank credit facilities with balances of $137,000,000 on the $300 million unsecured bank credit facility and $13,836,000 on the $35 million unsecured bank credit facility as of December 31, 2015.
(3)
The fair value of the Company’s variable-rate debt is estimated by discounting expected cash flows at current market rates.
(4)
Represents the weighted average interest rate as of December 31, 2015.

As the table above incorporates only those exposures that existed as of December 31, 2015, it does not consider those exposures or positions that could arise after that date.  If the weighted average interest rate on the unsecured bank credit facilities, as shown above, changes by 10% or approximately 14 basis points, interest expense and cash flows would increase or decrease by approximately $211,000 annually. This does not include variable-rate debt that has been effectively fixed through the use of interest rate swaps.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as “will,” “anticipates,” “expects,” “believes,” “intends,” “plans,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature.  All statements that address operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to rent and occupancy growth, development activity, the acquisition or sale of properties, general conditions in the geographic areas where the Company operates and the availability of capital, are forward-looking statements.  Forward-looking statements are inherently subject to known and unknown risks and uncertainties, many of which the Company cannot predict, including, without limitation: changes in general economic conditions;

35


the extent of tenant defaults or of any early lease terminations; the Company's ability to lease or re-lease space at current or anticipated rents; the availability of financing; the failure to maintain credit ratings with rating agencies; changes in the supply of and demand for industrial/warehouse properties; increases in interest rate levels; increases in operating costs; natural disasters, terrorism, riots and acts of war, and the Company's ability to obtain adequate insurance; changes in governmental regulation, tax rates and similar matters; and other risks associated with the development and acquisition of properties, including risks that development projects may not be completed on schedule, development or operating costs may be greater than anticipated or acquisitions may not close as scheduled, and those additional factors discussed under “Item 1A. Risk Factors” in Part I of this report.  Although the Company believes the expectations reflected in the forward-looking statements are based upon reasonable assumptions at the time made, the Company can give no assurance that such expectations will be achieved.  The Company assumes no obligation whatsoever to publicly update or revise any forward-looking statements.  See also the information contained in the Company’s reports filed or to be filed from time to time with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Registrant's Consolidated Balance Sheets as of December 31, 2015 and 2014, and its Consolidated Statements of Income and Comprehensive Income, Changes in Equity and Cash Flows and Notes to Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013 and the Report of Independent Registered Public Accounting Firm thereon are included under Item 15 of this report and are incorporated herein by reference.  Unaudited quarterly results of operations included in the Notes to Consolidated Financial Statements are also incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.  CONTROLS AND PROCEDURES.

(i)
Disclosure Controls and Procedures.

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-15.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, the Company’s disclosure controls and procedures were 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.

(ii)
Internal Control Over Financial Reporting.
 
(a)
Management's annual report on internal control over financial reporting.
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  EastGroup’s Management Report on Internal Control Over Financial Reporting is set forth in Part IV, Item 15 of this Form 10-K on page 42 and is incorporated herein by reference.

(b)
Report of the independent registered public accounting firm.

The report of KPMG LLP, the Company's independent registered public accounting firm, on the Company's internal control over financial reporting is set forth in Part IV, Item 15 of this Form 10-K on page 42 and is incorporated herein by reference.

(c)
Changes in internal control over financial reporting.

There was no change in the Company's internal control over financial reporting during the Company's fourth fiscal quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION.

Not applicable.

36




PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table sets forth information regarding the Company’s executive officers and directors.
Name
Position
D. Pike Aloian
Director since 1999; Partner in Almanac Realty Investors, LLC (real estate advisory and investment management services)
H.C. Bailey, Jr.
Director since 1980; Chairman and President of H.C. Bailey Company (real estate development and investment)
H. Eric Bolton, Jr.
Director since 2013; Chairman and Chief Executive Officer of Mid-America Apartment Communities, Inc.
Hayden C. Eaves III
Director since 2002; President of Hayden Holdings, Inc. (real estate investment)
Fredric H. Gould
Director since 1998; Chairman of the General Partner of Gould Investors L.P., Chairman of BRT Realty Trust and Chairman of One Liberty Properties, Inc.
Mary E. McCormick
Director since 2005; Senior Advisor with Almanac Realty Investors, LLC (real estate advisory and investment management services)
David M. Osnos
Director since 1993; Of Counsel to the law firm of Arent Fox LLP
Leland R. Speed
Director since 1978; Chairman Emeritus of the Board of the Company since 2016; Chairman of the Board of the Company from 1983 to 2015
David H. Hoster II
Director since 1993; Chairman of the Board of the Company since 2016; President of the Company from 1993 to 2015; Chief Executive Officer of the Company from 1997 to 2015
Marshall A. Loeb
Director, President and Chief Executive Officer of the Company
N. Keith McKey
Executive Vice President, Chief Financial Officer, Secretary and Treasurer of the Company
John F. Coleman
Senior Vice President of the Company
Bruce Corkern
Senior Vice President, Chief Accounting Officer, Controller and Assistant Secretary of the Company
William D. Petsas
Senior Vice President of the Company
Brent W. Wood
Senior Vice President of the Company

All other information required by Item 10 of Part III regarding the Company’s executive officers and directors is incorporated herein by reference from the sections entitled "Corporate Governance and Board Matters" and “Executive Officers” in the Company's definitive Proxy Statement ("2016 Proxy Statement") to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for EastGroup's Annual Meeting of Stockholders to be held on May 26, 2016.  The 2016 Proxy Statement will be filed within 120 days after the end of the Company's fiscal year ended December 31, 2015.

The information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the subsection entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 2016 Proxy Statement.

Information regarding EastGroup's code of business conduct and ethics found in the subsection captioned "Available Information" in Item 1 of Part I hereof is also incorporated herein by reference into this Item 10.

The information regarding the Company's audit committee, its members and the audit committee financial experts is incorporated herein by reference from the subsection entitled "Committees and Meeting Data” in the Company's 2016 Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION.

The information included under the following captions in the Company's 2016 Proxy Statement is incorporated herein by reference: "Compensation Discussion and Analysis," "Summary Compensation Table," "Grants of Plan-Based Awards in 2015," "Outstanding Equity Awards at 2015 Fiscal Year-End," "Option Exercises and Stock Vested in 2015," "Potential Payments upon Termination or Change in Control," "Compensation of Directors" and "Compensation Committee Interlocks."  The information included under the heading "Report of the Compensation Committee" in the Company's 2016 Proxy Statement is incorporated herein by reference; however, this information shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.

37



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the subsections entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management and Directors” in the Company’s 2016 Proxy Statement.

The following table summarizes the Company’s equity compensation plan information as of December 31, 2015.
Equity Compensation Plan Information
Plan category
 
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
(b)
Weighted-average exercise price of outstanding options,
warrants and rights
 
(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
 
—

 
—

 
1,802,000

Equity compensation plans not approved by security holders
 
—

 
—

 
—

Total
 
—

 
—

 
1,802,000


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information regarding transactions with related parties and director independence is incorporated herein by reference from the subsection entitled "Independent Directors" and the section entitled “Certain Transactions and Relationships” in the Company's 2016 Proxy Statement.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information regarding principal auditor fees and services is incorporated herein by reference from the section entitled "Auditor Fees and Services" in the Company's 2016 Proxy Statement.

38


PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
 
 
Page
(1)
Consolidated Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
(2)
Consolidated Financial Statement Schedules:
 
 
 
 
 
 
 
 
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted, or the required information is included in the Notes to Consolidated Financial Statements.
 
 
 
(3)
Exhibits:
 
 
The following exhibits are filed with this Form 10-K or incorporated by reference to the listed document previously filed with the SEC:
 
              
Number
Description
(3)
Articles of Incorporation and Bylaws
(a)
Articles of Incorporation (incorporated by reference to Appendix B to the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 5, 1997).
(b)
EastGroup Properties, Inc. Bylaws, Amended through December 5, 2014 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed December 10, 2014).
 
 
(10)
Material Contracts (*Indicates management or compensatory agreement):
(a)
Form of Severance and Change in Control Agreement that the Company has entered into with Leland R. Speed, David H. Hoster II, Marshall A. Loeb and N. Keith McKey (incorporated by reference to Exhibit 10(a) to the Company's Form 8-K filed January 7, 2009).*
(b)
Form of Severance and Change in Control Agreement that the Company has entered into with John F. Coleman, William D. Petsas, Brent W. Wood and C. Bruce Corkern (incorporated by reference to Exhibit 10(b) to the Company's Form 8-K filed January 7, 2009).*
(c)
Third Amended and Restated Credit Agreement Dated January 2, 2013 among EastGroup Properties, L.P.; EastGroup Properties, Inc.; PNC Bank, National Association, as Administrative Agent; Regions Bank and SunTrust Bank as Co-Syndication Agents; U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Documentation Agents; PNC Capital Markets LLC, as Sole Lead Arranger and Sole Bookrunner; and the Lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed January 8, 2013).

39


(d)
First Amendment to Third Amended and Restated Credit Agreement, dated as of August 9, 2013, among EastGroup Properties, L.P., EastGroup Properties, Inc. and PNC Bank, National Association, as administrative agent, and each of the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed August 30, 2013).
(e)
Second Amendment to Third Amended and Restated Credit Agreement dated as of July 30, 2015 by and among EastGroup Properties, L.P.; EastGroup Properties, Inc.; PNC Bank, National Association, as Administrative Agent; and each of the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 4, 2015).
(f)
EastGroup Properties, Inc. 2013 Equity Incentive Plan (incorporated by reference to Appendix A to the proxy material for the 2013 Annual Meeting of Stockholders).*
(g)
EastGroup Properties, Inc. Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 2, 2015).*
(h)
Note Purchase Agreement, dated as of August 28, 2013, among EastGroup Properties, L.P., EastGroup Properties, Inc. and the purchasers of the notes party thereto (including the form of the 3.80% Senior Notes due August 28, 2025) (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 30, 2013).
(i)
Sales Agency Financing Agreement dated February 19, 2014 between EastGroup Properties, Inc. and BNY Mellon Capital Markets, LLC (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed February 25, 2014).
(j)
Sales Agency Financing Agreement dated February 19, 2014 between EastGroup Properties, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 1.2 to the Company's Form 8-K filed February 25, 2014).
(k)
Sales Agency Financing Agreement dated February 19, 2014 between EastGroup Properties, Inc. and Raymond James & Associates, Inc. (incorporated by reference to Exhibit 1.3 to the Company's Form 8-K filed February 25, 2014).
 
 
(12)
Statement of computation of ratio of earnings to combined fixed charges and preferred stock distributions (filed herewith)
 
 
(21)
Subsidiaries of EastGroup Properties, Inc. (filed herewith).
 
 
(23)
Consent of KPMG LLP (filed herewith).
 
 
(24)
Powers of attorney (filed herewith).
 
 
(31)
Rule 13a-14(a)/15d-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
(a)
Marshall A. Loeb, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(32)
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
(a)
Marshall A. Loeb, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(101)
The following materials from EastGroup Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income and comprehensive income, (iii) consolidated statements of changes in equity, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.

(b)
Exhibits

The exhibits required to be filed with this Report pursuant to Item 601 of Regulation S-K are listed under “Exhibits” in Part IV, Item 15(a)(3) of this Report and are incorporated herein by reference.

(c)
Financial Statement Schedules

The Financial Statement Schedules required to be filed with this Report are listed under “Consolidated Financial Statement Schedules” in Part IV, Item 15(a)(2) of this Report, and are incorporated herein by reference.

40


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES INC.:

We have audited the accompanying consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EastGroup Properties, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

As discussed in note 1(f) to the consolidated financial statements, the Company has changed its method of accounting for discontinued operations in 2014 due to the adoption of Accounting Standards Update 2014-08, Presentation of Financial Statements and Property, Plant and Equipment, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 17, 2016,  expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 
(Signed) KPMG LLP
Jackson, Mississippi
 
February 17, 2016
 


41


MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

EastGroup’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, EastGroup conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The design of any system of internal control over financial reporting is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Based on EastGroup’s evaluation under the framework in Internal Control – Integrated Framework (2013), management concluded that our internal control over financial reporting was effective as of December 31, 2015.
 
/s/ EASTGROUP PROPERTIES, INC.
Jackson, Mississippi
 
February 17, 2016
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES INC.:

We have audited EastGroup Properties, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audit also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, EastGroup Properties, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated February 17, 2016, expressed an unqualified opinion on those consolidated financial statements.
 
(Signed) KPMG LLP
Jackson, Mississippi
 
February 17, 2016
 

42

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
December 31,
2015
 
2014
(In thousands, except for share and per share data)
ASSETS
 
 
 
  Real estate properties 
$
2,049,007

 
1,894,973

  Development 
170,441

 
179,973

 
2,219,448

 
2,074,946

      Less accumulated depreciation 
(657,454
)
 
(600,526
)
 
1,561,994

 
1,474,420

  Unconsolidated investment 
8,004

 
7,884

  Cash 
48

 
11

  Other assets 
96,186

 
93,509

      TOTAL ASSETS 
$
1,666,232

 
1,575,824

LIABILITIES AND EQUITY
 

 
 

LIABILITIES
 

 
 

  Secured debt 
$
351,401

 
453,776

  Unsecured debt
530,000

 
380,000

  Unsecured bank credit facilities
150,836

 
99,401

  Accounts payable and accrued expenses 
44,181

 
39,439

  Other liabilities 
30,613

 
27,593

Total Liabilities
1,107,031

 
1,000,209

EQUITY
 

 
 

Stockholders’ Equity:
 

 
 

  Common shares; $.0001 par value; 70,000,000 shares authorized;
    32,421,460 shares issued and outstanding at December 31, 2015 and
    32,232,587 at December 31, 2014 
3

 
3

  Excess shares; $.0001 par value; 30,000,000 shares authorized;
    no shares issued
—

 
—

  Additional paid-in capital on common shares 
887,207

 
874,335

  Distributions in excess of earnings 
(328,892
)
 
(300,852
)
  Accumulated other comprehensive loss
(3,456
)
 
(2,357
)
Total Stockholders’ Equity
554,862

 
571,129

Noncontrolling interest in joint ventures
4,339

 
4,486

Total Equity
559,201

 
575,615

      TOTAL LIABILITIES AND EQUITY 
$
1,666,232

 
1,575,824

See accompanying Notes to Consolidated Financial Statements.


43

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands, except per share data)
REVENUES
 
 
 
 
 
  Income from real estate operations                                                                                       
$
234,918

 
219,706

 
201,849

  Other income                                                                                       
90

 
123

 
322

 
235,008

 
219,829

 
202,171

EXPENSES
 

 
 

 
 
  Expenses from real estate operations                                                                                       
67,402

 
62,797

 
57,885

  Depreciation and amortization                                                                                       
73,290

 
70,314

 
65,789

  General and administrative                                                                                       
15,091

 
12,726

 
11,725

  Acquisition costs                                                                                       
164

 
210

 
191

 
155,947

 
146,047

 
135,590

OPERATING INCOME                                                                                       
79,061

 
73,782

 
66,581

OTHER INCOME (EXPENSE)
 

 
 

 
 

  Interest expense                                                                                       
(34,666
)
 
(35,486
)
 
(35,192
)
  Gain on sales of real estate investments                                                                                       
2,903

 
9,188

 
—

  Other                                                                                   
1,101

 
989

 
949

INCOME FROM CONTINUING OPERATIONS                                                                                       
48,399

 
48,473

 
32,338

DISCONTINUED OPERATIONS
 

 
 

 
 

Income from real estate operations                                                                                       
—

 
—

 
89

Gain on sales of nondepreciable real estate investments                                                                                     
—

 
—

 
—

Gain on sales of real estate investments                                                                                       
—

 
—

 
798

INCOME FROM DISCONTINUED OPERATIONS                                                                                       
—

 
—

 
887

NET INCOME                                                                                       
48,399

 
48,473

 
33,225

Net income attributable to noncontrolling interest in joint ventures
(533
)
 
(532
)
 
(610
)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS                                                                                       
47,866

 
47,941

 
32,615

Other comprehensive income (loss) - cash flow hedges
(1,099
)
 
(3,986
)
 
2,021

TOTAL COMPREHENSIVE INCOME
$
46,767

 
43,955

 
34,636

BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

  Income from continuing operations                                                                                       
$
1.49

 
1.53

 
1.05

  Income from discontinued operations
—

 
—

 
0.03

  Net income attributable to common stockholders                                                                                       
$
1.49

 
1.53

 
1.08

  Weighted average shares outstanding                                                                                       
32,091

 
31,341

 
30,162

DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

  Income from continuing operations
$
1.49

 
1.52

 
1.05

  Income from discontinued operations
—

 
—

 
0.03

  Net income attributable to common stockholders                                                                                       
$
1.49

 
1.52

 
1.08

  Weighted average shares outstanding                                                                                       
32,196

 
31,452

 
30,269

AMOUNTS ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 

 
 

 
 

  Income from continuing operations                                                                                       
$
47,866

 
47,941

 
31,728

  Income from discontinued operations                                                                                       
—

 
—

 
887

  Net income attributable to common stockholders                                                                                       
$
47,866

 
47,941

 
32,615

See accompanying Notes to Consolidated Financial Statements.

44

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
Common
Stock
 
Additional
Paid-In
Capital
 
Distributions
In Excess
Of Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest in
Joint Ventures
 
Total
(In thousands, except for share and per share data)
Balance, December 31, 2012
$
3

 
731,950

 
(245,249
)
 
(392
)
 
4,864

 
491,176

Net income
—

 
—

 
32,615

 
—

 
610

 
33,225

Net unrealized change in fair value of
   interest rate swaps
—

 
—

 
—

 
2,021

 
—

 
2,021

Common dividends declared – $2.14 per share
—

 
—

 
(65,535
)
 
—

 
—

 
(65,535
)
Stock-based compensation, net of forfeitures
—

 
5,540

 
—

 
—

 
—

 
5,540

Issuance of 890,085 shares of common stock,
    common stock offering, net of expenses
—

 
53,247

 
—

 
—

 
—

 
53,247

Issuance of 4,500 shares of common stock,
    options exercised
—

 
120

 
—

 
—

 
—

 
120

Issuance of 3,577 shares of common stock,
    dividend reinvestment plan
—

 
206

 
—

 
—

 
—

 
206

Withheld 9,412 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock
—

 
(528
)
 
—

 
—

 
—

 
(528
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
(767
)
 
(767
)
Balance, December 31, 2013
3

 
790,535

 
(278,169
)
 
1,629

 
4,707

 
518,705

Net income
—

 
—

 
47,941

 
—

 
532

 
48,473

Net unrealized change in fair value of
   interest rate swaps
—

 
—

 
—

 
(3,986
)
 
—

 
(3,986
)
Common dividends declared – $2.22 per share
—

 
—

 
(70,624
)
 
—

 
—

 
(70,624
)
Stock-based compensation, net of forfeitures
—

 
6,567

 
—

 
—

 
—

 
6,567

Issuance of 1,246,400 shares of common stock,
    common stock offering, net of expenses
—

 
78,868

 
—

 
—

 
—

 
78,868

Issuance of 3,626 shares of common stock,
    dividend reinvestment plan
—

 
227

 
—

 
—

 
—

 
227

Withheld 31,673 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock
—

 
(1,862
)
 
—

 
—

 
—

 
(1,862
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
(753
)
 
(753
)
Balance, December 31, 2014
3

 
874,335

 
(300,852
)
 
(2,357
)
 
4,486

 
575,615

Net income
—

 
—

 
47,866

 
—

 
533

 
48,399

Net unrealized change in fair value of
   interest rate swaps
—

 
—

 
—

 
(1,099
)
 
—

 
(1,099
)
Common dividends declared – $2.34 per share
—

 
—

 
(75,906
)
 
—

 
—

 
(75,906
)
Stock-based compensation, net of forfeitures
—

 
8,423

 
—

 
—

 
—

 
8,423

Issuance of 106,751 shares of common stock, common stock offering, net of expenses
—

 
6,233

 
—

 
—

 
—

 
6,233

Issuance of 4,536 shares of common stock,
    dividend reinvestment plan
—

 
257

 
—

 
—

 
—

 
257

Withheld 32,409 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock
—

 
(2,041
)
 
—

 
—

 
—

 
(2,041
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
(680
)
 
(680
)
Balance, December 31, 2015
$
3

 
887,207

 
(328,892
)
 
(3,456
)
 
4,339

 
559,201

See accompanying Notes to Consolidated Financial Statements.

45

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands)
OPERATING ACTIVITIES
 
 
 
 
 
Net income                                                                                                    
$
48,399

 
48,473

 
33,225

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization from continuing operations                                                                                                    
73,290

 
70,314

 
65,789

Depreciation and amortization from discontinued operations
—

 
—

 
130

Stock-based compensation expense                                                                                                    
6,733

 
5,146

 
4,229

Gain on sales of land and real estate investments
(3,026
)
 
(9,286
)
 
(822
)
Changes in operating assets and liabilities:
 

 
 
 
 
Accrued income and other assets                                                                                                    
(782
)
 
523

 
(1,629
)
Accounts payable, accrued expenses and prepaid rent                                                                                                    
6,928

 
2,315

 
8,906

Other                                                                                                    
(157
)
 
(28
)
 
(78
)
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                                                    
131,385

 
117,457

 
109,750

INVESTING ACTIVITIES
 

 
 

 
 

Real estate development                                                                                                    
(95,032
)
 
(97,696
)
 
(76,240
)
Purchases of real estate                                                                                                    
(31,574
)
 
(48,805
)
 
(72,397
)
Real estate improvements                                                                                                    
(24,514
)
 
(20,524
)
 
(20,807
)
Proceeds from sales of real estate investments                                                                                                    
5,156

 
20,625

 
4,273

Capital contributions to unconsolidated investment                                                                                         
—

 
(5,132
)
 
—

Repayments on mortgage loans receivable                                                                                                    
116

 
3,902

 
463

Changes in accrued development costs                                                                                                    
(1,705
)
 
241

 
509

Changes in other assets and other liabilities                                                                                                    
(8,865
)
 
(12,181
)
 
(11,912
)
NET CASH USED IN INVESTING ACTIVITIES                                                                                                    
(156,418
)
 
(159,570
)
 
(176,111
)
FINANCING ACTIVITIES
 

 
 

 
 

Proceeds from unsecured bank credit facilities                                                                                                   
420,104

 
350,214

 
424,375

Repayments on unsecured bank credit facilities                                                                                                     
(368,669
)
 
(339,765
)
 
(411,583
)
Repayments on secured debt                                                                                                     
(102,337
)
 
(48,846
)
 
(107,953
)
Proceeds from unsecured debt
150,000

 
75,000

 
175,000

Debt issuance costs                                                                                                    
(1,952
)
 
(499
)
 
(2,222
)
Distributions paid to stockholders (not including dividends accrued on unvested restricted stock)                                                                                                    
(75,845
)
 
(70,456
)
 
(64,798
)
Proceeds from common stock offerings                                                                                                    
6,233

 
78,868

 
53,247

Proceeds from exercise of stock options                                                                                                    
—

 
—

 
120

Proceeds from dividend reinvestment plan                                                                                                    
256

 
216

 
206

Other                                                                                                    
(2,720
)
 
(2,616
)
 
(1,281
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
25,070

 
42,116

 
65,111

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
37

 
3

 
(1,250
)
    CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
11

 
8

 
1,258

    CASH AND CASH EQUIVALENTS AT END OF YEAR
$
48

 
11

 
8

SUPPLEMENTAL CASH FLOW INFORMATION
 

 
 

 
 

Cash paid for interest, net of amount capitalized of $5,257, $4,942, and
     $5,064 for 2015, 2014 and 2013, respectively                                                                                                    
$
33,164

 
34,426

 
32,880

Fair value of debt assumed by the Company in the purchase of
     real estate                                                                                                 
—

 
2,846

 
—

See accompanying Notes to Consolidated Financial Statements.

46
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2015, 2014 and 2013

(1)
SIGNIFICANT ACCOUNTING POLICIES

(a)
Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup Properties, Inc., its wholly owned subsidiaries and its investment in any joint ventures in which the Company has a controlling interest.  At December 31, 2015, 2014 and 2013, the Company had a controlling interest in two joint ventures: the 80% owned University Business Center and the 80% owned Castilian Research Center.  The Company records 100% of the joint ventures’ assets, liabilities, revenues and expenses with noncontrolling interests provided for in accordance with the joint venture agreements.  The equity method of accounting is used for the Company’s 50% undivided tenant-in-common interest in Industry Distribution Center II.  All significant intercompany transactions and accounts have been eliminated in consolidation.

(b)
Income Taxes
EastGroup, a Maryland corporation, has qualified as a real estate investment trust (REIT) under Sections 856-860 of the Internal Revenue Code and intends to continue to qualify as such.  To maintain its status as a REIT, the Company is required to distribute at least 90% of its ordinary taxable income to its stockholders.  If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with the shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company.  The Company distributed all of its 2015, 2014 and 2013 taxable income to its stockholders.  Accordingly, no significant provisions for income taxes were necessary.  The following table summarizes the federal income tax treatment for all distributions by the Company for the years ended 2015, 2014 and 2013.

Federal Income Tax Treatment of Share Distributions
 
Years Ended December 31,
 
2015
 
2014
 
2013
Common Share Distributions:
 
 
 
 
 
Ordinary dividends                           
$
2.24258

 
2.02398

 
1.91678

Nondividend distributions
0.02774

 
0.08974

 
0.21054

Unrecaptured Section 1250 capital gain                                                       
0.06968

 
0.09470

 
0.00270

Other capital gain                                             
—

 
0.01158

 
0.00998

Total Common Share Distributions                                      
$
2.34000

 
2.22000

 
2.14000


EastGroup applies the principles of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes, when evaluating and accounting for uncertainty in income taxes.  With few exceptions, the Company’s 2011 and earlier tax years are closed for examination by U.S. federal, state and local tax authorities.  In accordance with the provisions of ASC 740, the Company had no significant uncertain tax positions as of December 31, 2015 and 2014.

The Company’s income may differ for tax and financial reporting purposes principally because of (1) the timing of the deduction for the provision for possible losses and losses on investments, (2) the timing of the recognition of gains or losses from the sale of investments, (3) different depreciation methods and lives, (4) real estate properties having a different basis for tax and financial reporting purposes, (5) mortgage loans having a different basis for tax and financial reporting purposes, thereby producing different gains upon collection of these loans, and (6) differences in book and tax allowances and timing for stock-based compensation expense.

(c)
Income Recognition
Minimum rental income from real estate operations is recognized on a straight-line basis.  The straight-line rent calculation on leases includes the effects of rent concessions and scheduled rent increases, and the calculated straight-line rent income is recognized over the lives of the individual leases.  The Company maintains allowances for doubtful accounts receivable, including straight-line rents receivable, based upon estimates determined by management.  Management specifically analyzes aged receivables, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

Revenue is recognized on payments received from tenants for early terminations after all criteria have been met in accordance with ASC 840, Leases.

47
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company recognizes gains on sales of real estate in accordance with the principles set forth in ASC 360, Property, Plant and Equipment.  Upon closing of real estate transactions, the provisions of ASC 360 require consideration for the transfer of rights of ownership to the purchaser, receipt of an adequate cash down payment from the purchaser, adequate continuing investment by the purchaser and no substantial continuing involvement by the Company.  If the requirements for recognizing gains have not been met, the sale and related costs are recorded, but the gain is deferred and recognized by a method other than the full accrual method.

The Company recognizes interest income on mortgage loans on the accrual method unless a significant uncertainty of collection exists.  If a significant uncertainty exists, interest income is recognized as collected.  If applicable, discounts on mortgage loans receivable are amortized over the lives of the loans using a method that does not differ materially from the interest method.  The Company evaluates the collectibility of both interest and principal on each of its loans to determine whether the loans are impaired.  A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms.  When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the fair value of the underlying collateral (if the loan is collateralized) less costs to sell.  As of December 31, 2015 and 2014, there was no significant uncertainty of collection; therefore, interest income was recognized.  As of December 31, 2015 and 2014, the Company determined that no allowance for collectibility of the mortgage loans receivable was necessary.
 
(d)
Real Estate Properties
EastGroup has one reportable segment–industrial properties.  These properties are concentrated in major Sunbelt markets of the United States, primarily in the states of Florida, Texas, Arizona, California and North Carolina, have similar economic characteristics and also meet the other criteria that permit the properties to be aggregated into one reportable segment.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate 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 (including estimated future expenditures necessary to substantially complete the asset) 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 for the amount by which the carrying amount of the asset exceeds the fair value of the asset.  As of December 31, 2015 and 2014, the Company determined that no impairment charges on the Company’s real estate properties were necessary.

Depreciation of buildings and other improvements is computed using the straight-line method over estimated useful lives of generally 40 years for buildings and 3 to 15 years for improvements.  Building improvements are capitalized, while maintenance and repair expenses are charged to expense as incurred.  Significant renovations and improvements that improve or extend the useful life of the assets are capitalized.  Depreciation expense for continuing and discontinued operations was $59,882,000, $57,303,000 and $54,284,000 for 2015, 2014 and 2013, respectively.

(e)
Development
During the period in which a property is under development, costs associated with development (i.e., land, construction costs, interest expense, property taxes and other costs associated with development) are aggregated into the total capitalized costs of the property. Included in these costs are management’s estimates for the portions of internal costs (primarily personnel costs) deemed related to such development activities. The internal costs are allocated to specific development properties based on development activity.  As the property becomes occupied, depreciation commences on the occupied portion of the building, and costs are capitalized only for the portion of the building that remains vacant.  When the property becomes 80% occupied or one year after completion of the shell construction (whichever comes first), capitalization of development costs, including interest expense, property taxes and internal personnel costs, ceases.  The properties are then transferred to Real estate properties, and depreciation commences on the entire property (excluding the land).

(f)
Real Estate Held for Sale
The Company considers a real estate property to be held for sale when it meets the criteria established under ASC 360, Property, Plant and Equipment, including when it is probable that the property will be sold within a year.  Real estate properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.  

In April 2014, the FASB issued Accounting Standards Update (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amended the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents

48
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets the criteria to be classified as held for sale or when the component or group of components is disposed of by sale or other than by sale. In addition, this ASU requires additional disclosures about both discontinued operations and the disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. EastGroup performs an analysis of properties sold to determine whether the sales qualify for discontinued operations presentation. Typically, when the Company disposes of operating properties, the sales are not considered to be disposals of a component of an entity or a group of components of an entity representing a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The Company adopted the provisions of ASU 2014-08 as of January 1, 2014, and has applied the provisions prospectively.

Prior to the adoption of ASU 2014-08, the results of operations for the operating properties sold or held for sale during the reported periods were shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income. Interest expense was not generally allocated to the properties held for sale or whose operations are included under Discontinued Operations unless the mortgage was required to be paid in full upon the sale of the property.

(g)
Derivative Instruments and Hedging Activities
EastGroup applies ASC 815, Derivatives and Hedging, which requires all entities with derivative instruments to disclose information regarding how and why the entity uses derivative instruments and how derivative instruments and related hedged items affect the entity’s financial position, financial performance and cash flows. See Note 13 for a discussion of the Company's derivative instruments and hedging activities.

(h)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
 
(i)
Amortization
Debt origination costs are deferred and amortized over the term of each loan using the effective interest method. Amortization of loan costs for continuing operations was $1,336,000, $1,236,000 and $1,289,000 for 2015, 2014 and 2013, respectively.
 
Leasing costs are deferred and amortized using the straight-line method over the term of the lease.  Leasing costs paid during the period are included in Changes in other assets and other liabilities in the Investing Activities section on the Consolidated Statements of Cash Flows.  Leasing costs amortization expense for continuing and discontinued operations was $9,038,000, $8,284,000 and $7,354,000 for 2015, 2014 and 2013, respectively.  

Amortization expense for in-place lease intangibles is disclosed below in Business Combinations and Acquired Intangibles.

(j)
Business Combinations and Acquired Intangibles
Upon acquisition of real estate properties, the Company applies the principles of ASC 805, Business Combinations, which requires that acquisition-related costs be recognized as expenses in the periods in which the costs are incurred and the services are received.  The Codification also provides guidance on how to properly determine the allocation of the purchase price among the individual components of both the tangible and intangible assets based on their respective fair values.  Goodwill is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired.  Factors considered by management in allocating the cost of the properties acquired include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.  The allocation to tangible assets (land, building and improvements) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar properties.  The cost of the properties acquired may be adjusted based on indebtedness assumed from the seller that is determined to be above or below market rates.  

The purchase price is also allocated among the following categories of intangible assets:  the above or below market component of in-place leases, the value of in-place leases, and the value of customer relationships.  The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.  The amounts allocated to above and below market leases are included in Other Assets and Other Liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the respective leases. The total amount of intangible assets is further allocated to in-place lease values and customer relationship values based upon management’s assessment of their respective values.  These intangible assets are included in Other Assets on the Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.

49
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Amortization of above and below market leases increased rental income by $448,000, $421,000 and $188,000 in 2015, 2014 and 2013, respectively.  Amortization expense for in-place lease intangibles for continuing and discontinued operations was $4,370,000, $4,727,000 and $4,281,000 for 2015, 2014 and 2013, respectively.  

Projected amortization of in-place lease intangibles for the next five years as of December 31, 2015 is as follows:
Years Ending December 31,
 
(In thousands)
2016
 
$
3,886

2017
 
2,540

2018
 
1,513

2019
 
1,078

2020
 
724


During 2015, the Company acquired Southpark Corporate Center and Springdale Business Center, both in Austin, Texas, for a total cost of $31,574,000, of which $28,648,000 was allocated to Real estate properties. EastGroup allocated $5,494,000 of the total purchase price to land using third party land valuations for the Austin market. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurements and Disclosures (see Note 18 for additional information on ASC 820).  Intangibles associated with the purchase of real estate were allocated as follows:  $3,453,000 to in-place lease intangibles (included in Other Assets on the Consolidated Balance Sheets) and $527,000 to below market leases (included in Other Liabilities on the Consolidated Balance Sheets).  These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.

During 2014, EastGroup acquired the following operating properties: Ridge Creek Distribution Center III in Charlotte, North Carolina; Colorado Crossing Distribution Center in Austin, Texas; and Ramona Distribution Center in Chino, California. The Company purchased these properties for a total cost of $51,652,000, of which $47,477,000 was allocated to Real estate properties.  The Company allocated $10,822,000 of the total purchase price to land using third party land valuations for the Charlotte, Austin and Chino markets.  The market values are considered to be Level 3 inputs as defined by ASC 820.  Intangibles associated with the purchase of real estate were allocated as follows:  $5,074,000 to in-place lease intangibles, $4,000 to above market leases and $903,000 to below market leases. The Company paid cash of $48,805,000 for the properties and intangibles acquired, assumed a mortgage of $2,617,000 and recorded a premium of $230,000 to adjust the mortgage loan assumed to fair value. 
  
During 2013, EastGroup acquired the following operating properties:  Northfield Distribution Center in Dallas, Texas, and Interchange Park II in Charlotte, North Carolina. The Company purchased these properties for a total cost of $72,397,000, of which $65,387,000 was allocated to Real estate properties.  The Company allocated $13,218,000 of the total purchase price to land using third party land valuations for the Dallas and Charlotte markets.  The market values are considered to be Level 3 inputs as defined by ASC 820.  Intangibles associated with the purchase of real estate were allocated as follows:  $8,399,000 to in-place lease intangibles, $158,000 to above market leases and $1,547,000 to below market leases.  

The Company periodically reviews the recoverability of goodwill (at least annually) and the recoverability of other intangibles (on a quarterly basis) for possible impairment.  In management’s opinion, no impairment of goodwill and other intangibles existed at December 31, 2015 and 2014.

(k)
Stock-Based Compensation
In May 2004, the stockholders of the Company approved the EastGroup Properties, Inc. 2004 Equity Incentive Plan ("the 2004 Plan"), which was further amended by the Board of Directors in September 2005 and December 2006.  This plan authorized the issuance of common stock to employees in the form of options, stock appreciation rights, restricted stock, deferred stock units, performance shares, bonus stock or stock in lieu of cash compensation.

In April 2013, the Board of Directors adopted the EastGroup Properties, Inc. 2013 Equity Incentive Plan (the “2013 Equity Plan”) upon the recommendation of the Compensation Committee; the 2013 Equity Plan was approved by the Company's stockholders and became effective May 29, 2013. The 2013 Equity Plan replaced the 2004 Plan and the 2005 Directors Equity Incentive Plan. Typically, the Company issues new shares to fulfill stock grants or upon the exercise of stock options.

EastGroup applies the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation plans. ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial

50
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


statements and that the cost be measured on the fair value of the equity or liability instruments issued. The cost for market-based awards and awards that only require service are expensed on a straight-line basis over the requisite service periods. The cost for performance-based awards is determined using the graded vesting attribution method which recognizes each separate vesting portion of the award as a separate award on a straight-line basis over the requisite service period.  This method accelerates the expensing of the award compared to the straight-line method.  

The total compensation expense for service and performance based awards is based upon the fair market value of the shares on the grant date, adjusted for estimated forfeitures.  The grant date fair value for awards that have been granted and are subject to a future market condition (total shareholder return) are determined using a simulation pricing model developed to specifically accommodate the unique features of the awards (the Company did not have any such awards in 2015, 2014 or 2013).

During the restricted period for awards no longer subject to contingencies, the Company accrues dividends and holds the certificates for the shares; however, the employee can vote the shares.  Share certificates and dividends are delivered to the employee as they vest.

(l)
Earnings Per Share
The Company applies ASC 260, Earnings Per Share, which requires companies to present basic and diluted earnings per share (EPS).  Basic EPS represents the amount of earnings for the period attributable to each share of common stock outstanding during the reporting period.  The Company’s basic EPS is calculated by dividing Net Income Attributable to EastGroup Properties, Inc. Common Stockholders by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested.

Diluted EPS represents the amount of earnings for the period attributable 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 dividing Net Income Attributable to EastGroup Properties, Inc. Common Stockholders by the weighted average number of common shares outstanding plus the dilutive effect of unvested restricted stock and stock options had the options been exercised.  The dilutive effect of stock options and their equivalents (such as unvested restricted stock) is 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 assumes proceeds from the exercise of options are used to purchase common stock at the average market price during the period.

(m)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting period and to disclose material contingent assets and liabilities at the date of the financial statements.  Actual results could differ from those estimates.

(n)
Risks and Uncertainties
The state of the overall economy can significantly impact the Company’s operational performance and thus impact its financial position.  Should EastGroup experience a significant decline in operational performance, it may affect the Company’s ability to make distributions to its shareholders, service debt, or meet other financial obligations.

(o)
Recent Accounting Pronouncements
EastGroup has evaluated all ASUs released by the FASB through the date the financial statements were issued and determined that the following ASUs apply to the Company.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The effective date of ASU was extended by one year by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The new standard is effective for the Company on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures beginning with the Form 10-Q for the period ended March 31, 2018. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 801): Amendments to Consolidation Analysis, under which all legal entities are subject to reevaluation under the revised consolidation model. The ASU modifies whether limited

51
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, affects the consolidation analysis of reporting entities that are involved with VIEs, and provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. EastGroup plans to adopt ASU 2015-02 effective January 1, 2016. The Company does not anticipate the adoption of ASU 2015-02 will have a material impact on the Company's financial condition or results of operations.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, entities are required to comply with the applicable disclosures for a change in an accounting principle. EastGroup plans to adopt ASU 2015-03 effective January 1, 2016; as such, the Company plans to present debt issuance costs as a direct deduction from the carrying amounts of its debt liabilities and to provide all necessary disclosures beginning with the Form 10-Q for the period ended March 31, 2016.

In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which adds comments from the Securities and Exchange Commission (SEC) addressing ASU 2015-03, as discussed above, and debt issuance costs related to line-of-credit arrangements. The SEC commented it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. EastGroup plans to adopt ASU 2015-15 in connection with its adoption of ASU 2015-03 effective January 1, 2016. The Company does not anticipate the adoption of ASU 2015-15 will have a material impact on the Company's financial condition or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,which requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized costs on the balance sheet. EastGroup plans to adopt ASU 2016-01effective January 1, 2018. The Company does not anticipate the adoption of ASU 2016-01 will have a material impact on the Company's financial condition or results of operations.

(p)
Classification of Book Overdraft on Consolidated Statements of Cash Flows
The Company classifies changes in book overdraft in which the bank has not advanced cash to the Company to cover outstanding checks as an operating activity. Such amounts are included in Accounts payable, accrued expenses and prepaid rent in the Operating Activities section on the Consolidated Statements of Cash Flows.

(q)
Reclassifications
Certain reclassifications have been made in the 2014 and 2013 consolidated financial statements to conform to the 2015 presentation.


52
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(2)
REAL ESTATE PROPERTIES

The Company’s Real estate properties and Development at December 31, 2015 and 2014 were as follows:
 
December 31,
2015
 
2014
(In thousands)
Real estate properties:
 
 
 
   Land                                                                  
$
301,435

 
283,116

   Buildings and building improvements                                                                  
1,393,688

 
1,284,961

   Tenant and other improvements                                                                  
353,884

 
326,896

Development                                                                  
170,441

 
179,973

 
2,219,448

 
2,074,946

   Less accumulated depreciation                                                                  
(657,454
)
 
(600,526
)
 
$
1,561,994

 
1,474,420


EastGroup acquired operating properties during 2015, 2014 and 2013 as discussed in Note 1(j).

Real estate properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.  In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amended the requirements for reporting discontinued operations. Prior to the adoption of ASU 2014-08, the results of operations for the operating properties sold or held for sale during the reported periods were shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  Interest expense was not generally allocated to the properties held for sale or whose operations were included under Discontinued Operations unless the mortgage was required to be paid in full upon the sale of the property. ASU 2014-08 is described in further in Note 1(f).

In 2015, EastGroup sold one operating property, the last of its three Ambassador Row Warehouses. The results of operations and gain on sale for the property sold during 2015 are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income. The gain on sale is included in Gain on sales of real estate investments.
  
In 2014, the Company sold the following operating properties: Northpoint Commerce Center, Tampa West Distribution Center VI, Clay Campbell Distribution Center, Kirby Business Center and two of its three Ambassador Row Warehouses. The results of operations and gains on sales for the properties sold during 2014 are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income. The gains on sales are included in Gain on sales of real estate investments.

In 2013, the Company sold the following operating properties: Tampa East Distribution Center II, Tampa West Distribution Center V and Tampa West Distribution Center VII. The results of operations and gains on sales for the properties sold in 2013 are reported under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.  No interest expense was allocated to the properties held for sale or whose operations are included under Discontinued Operations.

53
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Gain on Sales of Real Estate
A summary of Gain on sales of real estate investments for the years ended December 31, 2015, 2014 and 2013 follows:

Real Estate Properties
 
Location
 
Size
(in Square Feet)
 
Date Sold
 
Net Sales Price
 
Basis
 
Recognized Gain
 
 
 
 
 
 
 
 
(In thousands)
2015
 
 
 
 
 
 
 
 
 
 
 
 
Ambassador Row Warehouse
 
Dallas, TX
 
185,000

 
04/13/2015
 
$
4,998

 
2,095

 
2,903

2014
 
 
 
 
 
 
 
 
 
 
 
 
Northpoint Commerce Center
 
Oklahoma City, OK
 
58,000

 
03/28/2014
 
$
3,471

 
3,376

 
95

Tampa West Distribution Center VI
 
Tampa, FL
 
9,000

 
07/08/2014
 
682

 
446

 
236

Clay Campbell Distribution Center
 
Houston, TX
 
118,000

 
09/30/2014
 
7,690

 
2,826

 
4,864

Kirby Business Park
 
Houston, TX
 
125,000

 
09/30/2014
 
5,306

 
2,989

 
2,317

Ambassador Row Warehouses
 
Dallas, TX
 
132,000

 
12/30/2014
 
3,358

 
1,682

 
1,676

Total for 2014
 
 
 
 
 
 
 
$
20,507

 
11,319

 
9,188

2013
 
 
 
 
 
 
 
 

 
 

 
 

Tampa West Distribution Center V
 
Tampa, FL
 
12,000

 
12/20/2013
 
$
609

 
442

 
167

Tampa West Distribution Center VII
 
Tampa, FL
 
6,000

 
12/20/2013
 
422

 
417

 
5

Tampa East Distribution Center II
 
Tampa, FL
 
31,000

 
12/30/2013
 
1,929

 
1,303

 
626

Total for 2013
 
 
 
 
 
 
 
$
2,960

 
2,162

 
798



The table above includes sales of operating properties; the Company also sold parcels of land during the years presented. During the year ended December 31, 2015, EastGroup sold a small parcel of land in New Orleans for $170,000 and recognized a gain on $123,000. During the year ended December 31, 2014, EastGroup sold a small parcel of land in Orlando for a net sales price of $118,000 and recognized a gain of $98,000. During 2013, the Company sold a small parcel of land in Orlando for a net sales price of $1,313,000 and recognized a gain of $24,000. The gains on sales of land are included in Other on the Consolidated Statements of Income and Comprehensive Income.

The following table presents the components of revenues and expenses for the properties sold or held for sale during 2013.
DISCONTINUED OPERATIONS
 
Year Ended December 31, 2013
 
 
(In thousands)
Income from real estate operations
 
$
306

Expenses from real estate operations
 
(87
)
Property net operating income from discontinued operations
 
219

Depreciation and amortization                                                                            
 
(130
)
Income from real estate operations
 
89

Gain on sales of real estate investments
 
798

Income from discontinued operations
 
$
887



The Company’s development program as of December 31, 2015, was comprised of the properties detailed in the table below.  Costs incurred include capitalization of interest costs during the period of construction.  The interest costs capitalized on development properties for 2015 were $5,257,000 compared to $4,942,000 for 2014 and $5,064,000 for 2013. In addition, EastGroup capitalized internal development costs of $4,467,000 during the year ended December 31, 2015, compared to $4,040,000 during 2014 and $3,730,000 in 2013.

Total capital invested for development during 2015 was $95,032,000, which primarily consisted of costs of $66,882,000 and $20,395,000 as detailed in the development activity table below and costs of $7,879,000 on development properties subsequent to transfer to Real Estate Properties. The capitalized costs incurred on development properties subsequent to transfer to Real Estate Properties include capital improvements at the properties and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel costs).

54
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DEVELOPMENT
 
 
 
Costs Incurred
 
 
 
Anticipated Building Conversion Date
 
 
 
Costs
Transferred
 in 2015 (1)
 
For the
Year Ended
12/31/15
 
Cumulative
as of
12/31/15
 
Estimated
Total Costs (2)
 
 
 
 
 
(In thousands)
 
 
 
 
(Unaudited)
 
 
 
 
 
 
 
(Unaudited)
 
(Unaudited)
LEASE-UP
 
Building Size (Square feet)
 
 
 
 
 
 
 
 
 
 
Alamo Ridge I, San Antonio, TX
 
96,000

 
$
—

 
1,877

 
7,352

 
8,500

 
02/16
Alamo Ridge II, San Antonio, TX
 
62,000

 
—

 
773

 
4,139

 
4,700

 
02/16
Madison II & III, Tampa, FL
 
127,000

 
—

 
3,737

 
7,417

 
8,000

 
02/16
West Road III, Houston, TX
 
78,000

 
—

 
917

 
4,782

 
5,000

 
03/16
Ten West Crossing 7, Houston, TX
 
68,000

 
—

 
902

 
4,072

 
4,900

 
04/16
West Road IV, Houston, TX
 
65,000

 
1,292

 
3,393

 
4,685

 
5,400

 
08/16
Kyrene 202 VI, Phoenix, AZ
 
123,000

 
1,515

 
5,505

 
7,020

 
9,500

 
09/16
ParkView 1-3, Dallas, TX
 
276,000

 
—

 
13,180

 
17,256

 
19,600

 
10/16
Total Lease-Up
 
895,000

 
2,807

 
30,284

 
56,723

 
65,600

 
 
UNDER CONSTRUCTION
 
 

 
 

 
 

 
 

 
 

 
 
Alamo Ridge III, San Antonio, TX
 
135,000

 
2,120

 
260

 
2,380

 
12,200

 
10/16
South 35th Avenue, Phoenix, AZ (3)
 
124,000

 
—

 
1,171

 
1,171

 
1,200

 
01/17
Eisenhauer Point 1 & 2, San Antonio, TX
 
201,000

 
1,880

 
4,880

 
6,760

 
13,500

 
02/17
Horizon III, Orlando, FL
 
109,000

 
2,399

 
3,716

 
6,115

 
7,800

 
02/17
Ten Sky Harbor, Phoenix, AZ
 
64,000

 
1,653

 
1,999

 
3,652

 
6,000

 
03/17
Steele Creek VI, Charlotte, NC
 
137,000

 
1,273

 
1,631

 
2,904

 
7,600

 
05/17
Total Under Construction
 
770,000

 
9,325

 
13,657

 
22,982

 
48,300

 
 
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)
 
Estimated Building Size (Square feet)
 
 

 
 

 
 

 
 

 
 
Phoenix, AZ
 
261,000

 
(3,168
)
 
3,192

 
3,487

 
 
 
 
Tucson, AZ
 
70,000

 
—

 
—

 
417

 
 
 
 
Fort Myers, FL
 
663,000

 
—

 
—

 
17,858

 
 
 
 
Orlando, FL
 
912,000

 
(5,015
)
 
1,535

 
20,371

 
 
 
 
Tampa, FL
 
290,000

 
(2,255
)
 
710

 
4,639

 
 
 
 
Jackson, MS
 
28,000

 
—

 
—

 
706

 
 
 
 
Charlotte, NC
 
281,000

 
(1,273
)
 
711

 
4,421

 
 
 
 
Dallas, TX
 
519,000

 
—

 
6,477

 
8,126

 
 
 
 
El Paso, TX
 
251,000

 
—

 
—

 
2,444

 
 
 
 
Houston, TX
 
1,607,000

 
(2,581
)
 
5,458

 
24,587

 
 
 
 
San Antonio, TX
 
453,000

 
(4,000
)
 
4,858

 
3,680

 
 
 
 
Total Prospective Development
 
5,335,000

 
(18,292
)
 
22,941

 
90,736

 
 
 
 
 
 
7,000,000

 
$
(6,160
)
 
66,882

 
170,441

 
 
 
 
DEVELOPMENTS COMPLETED AND TRANSFERRED TO REAL ESTATE PROPERTIES DURING 2015
 
Building Size (Square feet)
 
 

 
 

 
 

 
 

 
Building Conversion Date
Horizon I, Orlando, FL
 
109,000

 
$
—

 
(16
)
 
7,096

 
 
 
02/15
Kyrene 202 II, Phoenix, AZ
 
45,000

 
—

 
61

 
3,470

 
 
 
02/15
Steele Creek III, Charlotte, NC
 
108,000

 
—

 
(179
)
 
7,141

 
 
 
02/15
Steele Creek II, Charlotte, NC
 
71,000

 
—

 
22

 
4,945

 
 
 
03/15
World Houston 39, Houston, TX
 
94,000

 
—

 
420

 
5,476

 
 
 
06/15
World Houston 42, Houston, TX
 
94,000

 
1,289

 
3,733

 
5,022

 
 
 
07/15
World Houston 41, Houston, TX
 
104,000

 
—

 
603

 
5,949

 
 
 
08/15
Horizon II, Orlando, FL
 
123,000

 
—

 
232

 
7,892

 
 
 
09/15
Sky Harbor 6, Phoenix, AZ
 
31,000

 
—

 
1,352

 
2,972

 
 
 
10/15
Ten West Crossing 6, Houston, TX
 
64,000

 
—

 
470

 
4,712

 
 

 
10/15
Thousand Oaks 4, San Antonio, TX
 
66,000

 
—

 
1,576

 
4,519

 
 
 
10/15
West Road I, Houston, TX
 
63,000

 
—

 
662

 
4,939

 
 
 
10/15
Kyrene 202 I, Phoenix, AZ
 
75,000

 
—

 
195

 
6,134

 
 
 
11/15
Rampart IV, Denver, CO
 
84,000

 
—

 
1,178

 
8,125

 
 
 
11/15
Oak Creek VIII, Tampa, FL
 
108,000

 
2,255

 
3,074

 
5,329

 
 
 
12/15
Steele Creek IV, Charlotte, NC
 
57,000

 
—

 
736

 
4,196

 
 
 
12/15
Horizon IV, Orlando, FL
 
123,000

 
2,616

 
6,276

 
8,892

 
 
 
12/15
Total Transferred to Real Estate Properties
 
1,419,000

 
$
6,160

 
20,395

 
96,809

 
(4) 
 
 

(1)
Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period. Negative amounts represent land inventory costs transferred to Under Construction.
(2)
Included in these costs are development obligations of $12.0 million and tenant improvement obligations of $4.3 million on properties under development.
(3)
This property is a manufacturing building undergoing redevelopment to a multi-tenant use building.
(4)
Represents cumulative costs at the date of transfer.

55
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following schedule indicates approximate future minimum rental receipts under non-cancelable leases for real estate properties by year as of December 31, 2015:

Future Minimum Rental Receipts Under Non-Cancelable Leases
Years Ending December 31,
 
(In thousands)
2016
 
$
176,082

2017
 
144,173

2018
 
110,845

2019
 
84,253

2020
 
58,448

Thereafter                                                  
 
87,841

   Total minimum receipts                                                  
 
$
661,642

 
Ground Leases
As of December 31, 2015, the Company owned two properties in Florida, two properties in Texas and one property in Arizona that are subject to ground leases.  These leases have terms of 40 to 50 years, expiration dates of August 2031 to November 2037, and renewal options of 15 to 35 years, except for the one lease in Arizona which is automatically and perpetually renewed annually.  Total ground lease expenditures for continuing and discontinued operations for the years ended December 31, 2015, 2014 and 2013 were $756,000, $745,000 and $740,000, respectively.  Payments are subject to increases at 3 to 10 year intervals based upon the agreed or appraised fair market value of the leased premises on the adjustment date or the Consumer Price Index percentage increase since the base rent date.  The following schedule indicates approximate future minimum ground lease payments for these properties by year as of December 31, 2015:

Future Minimum Ground Lease Payments
Years Ending December 31,
 
(In thousands)
2016
 
$
756

2017
 
756

2018
 
756

2019
 
756

2020
 
756

Thereafter                                                  
 
11,186

   Total minimum payments                                                  
 
$
14,966


(3)
UNCONSOLIDATED INVESTMENT

The Company owns a 50% undivided tenant-in-common interest in Industry Distribution Center II, a 309,000 square foot warehouse distribution building in the City of Industry (Los Angeles), California.  The building was constructed in 1998 and is 100% leased through December 2018 to a single tenant who owns the other 50% interest in the property.  This investment is accounted for under the equity method of accounting and had a carrying value of $8,004,000 at December 31, 2015, and $7,884,000 at December 31, 2014.  

(4)
MORTGAGE LOANS RECEIVABLE

As of December 31, 2015 and 2014, the Company had two mortgage loans receivable, both of which are classified as first mortgage loans, have effective interest rates of 5.25% and mature in October 2017. Mortgage loans receivable are included in Other Assets on the Consolidated Balance Sheets. See Note 5 for a summary of Other Assets.   






56
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(5)
OTHER ASSETS

A summary of the Company’s Other Assets follows:
 
December 31, 2015
 
December 31, 2014
 
(In thousands)
Leasing costs (principally commissions)                                                 
$
59,043

 
56,171

Accumulated amortization of leasing costs                                            
(23,455
)
 
(22,951
)
Leasing costs (principally commissions), net of accumulated amortization
35,588

 
33,220

 
 
 
 
Straight-line rents receivable                                                                          
26,482

 
25,013

Allowance for doubtful accounts on straight-line rents receivable
(167
)
 
(102
)
Straight-line rents receivable, net of allowance for doubtful accounts
26,315

 
24,911

 
 
 
 
Accounts receivable                                                                  
5,615

 
4,459

Allowance for doubtful accounts on accounts receivable
(394
)
 
(379
)
Accounts receivable, net of allowance for doubtful accounts
5,221

 
4,080

 
 
 
 
Acquired in-place lease intangibles                                                                      
19,061

 
20,118

Accumulated amortization of acquired in-place lease intangibles
(8,205
)
 
(8,345
)
Acquired in-place lease intangibles, net of accumulated amortization
10,856

 
11,773

 
 
 
 
Acquired above market lease intangibles                                                      
1,337

 
1,575

Accumulated amortization of acquired above market lease intangibles
(684
)
 
(699
)
Acquired above market lease intangibles, net of accumulated amortization
653

 
876

 
 
 
 
Loan costs                                                                                  
8,788

 
8,166

Accumulated amortization of loan costs                                            
(4,460
)
 
(4,454
)
Loan costs, net of accumulated amortization                                                         
4,328

 
3,712

 
 
 
 
Mortgage loans receivable                                                                   
4,875

 
4,991

Interest rate swap assets
400

 
812

Goodwill                                                                                  
990

 
990

Escrow deposits for 1031 exchange
—

 
698

Prepaid expenses and other assets                                                     
6,960

 
7,446

 Total Other Assets
$
96,186

 
93,509

 



57
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




(6)
SECURED AND UNSECURED DEBT

A summary of Secured Debt follows: 
 
 
Interest Rate
 
Monthly
P&I
Payment
 
Maturity
Date
 
Carrying Amount
of Securing
Real Estate at
December 31, 2015
 
Balance at December 31,
Property
 
 
 
 
 
2015
 
2014
 
 
 
 
 
 
 
 
(In thousands)
Beltway II-IV, Commerce Park I, Eastlake,
Fairgrounds, Nations Ford, Techway Southwest III, Wetmore 1-4 and World Houston 15 & 22
 
5.50%
 
$
536,552

 
Repaid
 
$
—

 
—

 
58,262

Country Club I, Lake Pointe, Techway
Southwest II and World Houston 19 & 20
 
4.98%
 
256,952

 
Repaid
 
—

 
—

 
26,074

Huntwood and Wiegman I
 
5.68%
 
265,275

 
09/05/2016
 
19,991

 
25,567

 
27,246

Alamo Downs, Arion 1-15 & 17, Rampart I-IV,
Santan 10 I and World Houston 16
 
5.97%
 
557,467

 
10/05/2016
 
57,654

 
53,563

 
56,945

Arion 16, Broadway VI, Chino, East
University I & II, Northpark, Santan 10 II, 55th Avenue and World Houston 1 & 2, 21 & 23
 
5.57%
 
518,885

 
09/05/2017
 
49,692

 
50,971

 
54,259

Dominguez, Industry I & III, Kingsview, Shaw,
Walnut and Washington (1) 
 
7.50%
 
539,747

 
05/05/2019
 
47,123

 
54,689

 
56,970

Blue Heron II 
 
5.39%
 
16,176

 
02/29/2020
 
4,174

 
735

 
884

40th Avenue, Beltway Crossing V, Centennial Park,
Executive Airport, Ocean View, Techway Southwest IV, Wetmore 5-8 and World Houston 26, 28, 29 & 30
 
4.39%
 
463,778

 
01/05/2021
 
68,092

 
61,312

 
64,119

America Plaza, Central Green, Glenmont,
Interstate I-III, Rojas, Stemmons Circle, Venture, West Loop and World Houston 3-9
 
4.75%
 
420,045

 
06/05/2021
 
43,369

 
55,223

 
57,579

Arion 18, Beltway Crossing VI & VII, Commerce
Park II & III, Concord, Interstate V-VII, Lakeview, Ridge Creek II, Southridge IV & V and World Houston 32
 
4.09%
 
329,796

 
01/05/2022
 
59,908

 
46,584

 
48,592

Ramona
 
3.85%
 
16,287

 
11/30/2026
 
9,344

 
2,757

 
2,846

 
 
 
 
 

 
 
 
$
359,347

 
351,401

 
453,776


(1)
This mortgage loan has a recourse liability of $5.0 million which will be released based on the secured properties generating certain base rent amounts.






















58
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A summary of Unsecured Debt follows:
 
 
 
 
 
Balance at December 31,
 
Interest Rate
 
Maturity Date
 
2015
 
2014
 
 
 
 
 
(In thousands)
$80 Million Unsecured Term Loan (1)
2.770%
 
08/15/2018
 
$
80,000

 
80,000

$50 Million Unsecured Term Loan
3.910%
 
12/21/2018
 
50,000

 
50,000

$75 Million Unsecured Term Loan (2)
2.846%
 
07/31/2019
 
75,000

 
75,000

$75 Million Unsecured Term Loan (3)
3.752%
 
12/20/2020
 
75,000

 
75,000

$75 Million Unsecured Term Loan (4)
3.031%
 
02/28/2022
 
75,000

 
—

$100 Million Senior Unsecured Notes:
 
 
 
 
 
 
 
     $30 Million Notes
3.800%
 
08/28/2020
 
30,000

 
30,000

     $50 Million Notes
3.800%
 
08/28/2023
 
50,000

 
50,000

     $20 Million Notes
3.800%
 
08/28/2025
 
20,000

 
20,000

$25 Million Senior Unsecured Notes
3.970%
 
10/01/2025
 
25,000

 
—

$50 Million Senior Unsecured Notes
3.990%
 
10/07/2025
 
50,000

 
—

 
 
 
 
 
$
530,000

 
380,000


(1)
The interest rate on this unsecured term loan is comprised of LIBOR plus 175 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company an effective interest rate on the term loan of 2.770% as of December 31, 2015. See Note 13 for additional information on the interest rate swap.
(2)
The interest rate on this unsecured term loan is comprised of LIBOR plus 115 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 2.846% as of December 31, 2015. See Note 13 for additional information on the interest rate swap.
(3)
The interest rate on this unsecured term loan is comprised of LIBOR plus 140 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into two interest rate swaps to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 3.752% as of December 31, 2015. See Note 13 for additional information on the interest rate swaps.
(4)
The interest rate on this unsecured term loan is comprised of LIBOR plus 140 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 3.031% as of December 31, 2015. See Note 13 for additional information on the interest rate swap.

The Company’s unsecured term loans have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2015. 
 
The Company currently intends to repay its debt obligations, both in the short-term and long-term, through its operating cash flows, borrowings under its unsecured bank credit facilities, proceeds from new debt (primarily unsecured), and/or proceeds from the issuance of equity instruments.
 
Principal payments on long-term debt, including Secured Debt and Unsecured Debt (not including Unsecured Bank Credit Facilities), due during the next five years as of December 31, 2015 are as follows: 
Years Ending December 31,
 
(In thousands)
2016
 
$
92,804

2017
 
58,239

2018
 
141,316

2019
 
130,569

2020
 
114,097

 




59
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(7)
UNSECURED BANK CREDIT FACILITIES

Until July 30, 2015, EastGroup had $225 million and $25 million unsecured bank credit facilities with margins over LIBOR of 117.5 basis points, facility fees of 22.5 basis points and maturity dates of January 5, 2017. The Company closed amended credit facilities on July 30, 2015. The amended agreements expand the facilities to $300 million and $35 million, reduce the current applicable margins to 100 basis points and the current applicable facility fees to 20 basis points, and extend the maturity dates to July 30, 2019.

EastGroup's amended $300 million unsecured revolving credit facility is with a group of nine banks and matures on July 30, 2019. The credit facility contains an option for a one-year extension (at the Company's election) and a $150 million expansion (with agreement by all parties). The interest rate on each tranche is usually reset on a monthly basis and as of December 31, 2015, was LIBOR plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings. At December 31, 2015, the weighted average interest rate was 1.394% on a balance of $137,000,000.

The Company's amended $35 million agreement matures on July 30, 2019, and it contains a provision that the credit facility would automatically be extended for one year if the extension option in the $300 million facility is exercised. The interest rate is reset on a daily basis and as of December 31, 2015, was LIBOR plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings. At December 31, 2015, the interest rate was 1.430% on a balance of $13,836,000.

Average unsecured bank credit facilities borrowings were $109,777,000 in 2015 compared to $96,162,000 in 2014 with weighted average interest rates of 1.85% in 2015 compared to 1.92% in 2014.  Weighted average interest rates (including amortization of loan costs) were 2.30% for 2015 and 2.35% for 2014.  Amortization of unsecured bank credit facilities costs was $493,000, $413,000 and $410,000 for 2015, 2014 and 2013, respectively.

The Company’s unsecured bank credit facilities have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants at December 31, 2015.

(8)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES

A summary of the Company’s Accounts Payable and Accrued Expenses follows:
 
December 31,
2015
 
2014
(In thousands)
Property taxes payable                                                    
$
16,055

 
15,216

Development costs payable 
6,215

 
7,920

Property capital expenditures payable
2,818

 
1,554

Interest payable                              
3,704

 
3,500

Dividends payable on unvested restricted stock
2,157

 
2,096

Other payables and accrued expenses                   
13,232

 
9,153

 Total Accounts Payable and Accrued Expenses
$
44,181

 
39,439






60
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(9)
OTHER LIABILITIES

A summary of the Company’s Other Liabilities follows:
 
December 31,
2015
 
2014
(In thousands)
Security deposits                                                 
$
13,943

 
12,803

Prepaid rent and other deferred income
10,003

 
8,971

 
 
 
 
Acquired below-market lease intangibles
3,485

 
3,657

Accumulated amortization of below-market lease intangibles
(1,353
)
 
(1,380
)
Acquired below-market lease intangibles, net of accumulated amortization
2,132

 
2,277

 
 
 
 
Interest rate swap liabilities
3,960

 
3,314

Prepaid tenant improvement reimbursements
493

 
212

Other liabilities                                  
82

 
16

 Total Other Liabilities
$
30,613

 
27,593


(10)
COMMON STOCK ACTIVITY

The following table presents the common stock activity for the three years ended December 31, 2015:
 
Years Ended December 31,
2015
 
2014
 
2013
Common Shares
Shares outstanding at beginning of year
32,232,587

 
30,937,225

 
29,928,490

Common stock offerings                                                            
106,751

 
1,246,400

 
890,085

Stock options exercised                                                            
—

 
—

 
4,500

Dividend reinvestment plan                                                            
4,536

 
3,626

 
3,577

Incentive restricted stock granted                                                            
100,622

 
71,642

 
112,099

Incentive restricted stock forfeited                                                            
—

 
(2,375
)
 
—

Director common stock awarded                                                            
9,373

 
7,742

 
7,469

Director restricted stock granted
—

 
—

 
417

Restricted stock withheld for tax obligations
(32,409
)
 
(31,673
)
 
(9,412
)
Shares outstanding at end of year                                                            
32,421,460

 
32,232,587

 
30,937,225


Common Stock Issuances
The following table presents the common stock issuance activity for the three years ended December 31, 2015:
Years Ended December 31,
 
Number of
Common Shares Issued
 
Net Proceeds
 
 
 
 
(In thousands)
2015
 
106,751

 
$
6,233

2014
 
1,246,400

 
78,868

2013
 
890,085

 
53,247


Dividend Reinvestment Plan
The Company has a dividend reinvestment plan that allows stockholders to reinvest cash distributions in new shares of the Company.




61
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(11)
STOCK-BASED COMPENSATION

The Company follows the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation plans.  ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements and that the cost be measured on the fair value of the equity or liability instruments issued.

Equity Incentive Plan
In May 2004, the stockholders of the Company approved the EastGroup Properties, Inc. 2004 Equity Incentive Plan (the “2004 Plan”) that authorized the issuance of up to 1,900,000 shares of common stock to employees in the form of options, stock appreciation rights, restricted stock, deferred stock units, performance shares, bonus stock or stock in lieu of cash compensation.  The 2004 Plan was further amended by the Board of Directors in September 2005 and December 2006.    

In April 2013, the Board of Directors adopted the EastGroup Properties, Inc. 2013 Equity Incentive Plan (the “2013 Equity Plan”) upon the recommendation of the Compensation Committee; the 2013 Equity Plan was approved by the Company's stockholders and became effective May 29, 2013. The 2013 Equity Plan replaced the 2004 Plan and the 2005 Directors Equity Incentive Plan. The 2013 Equity Plan permits the grant of awards to employees and directors with respect to 2,000,000 shares of common stock.
There were 1,802,000, 1,900,800 and 1,971,164 total shares available for grant under the 2013 Equity Plan as of December 31, 2015, 2014, and 2013, respectively. Typically, the Company issues new shares to fulfill stock grants.
Stock-based compensation cost for employees was $7,891,000, $6,071,000 and $5,087,000 for 2015, 2014 and 2013, respectively, of which $1,672,000, $1,415,000 and $1,253,000 were capitalized as part of the Company’s development costs for the respective years.

Employee Equity Awards
The Company's restricted stock program is designed to provide incentives for management to achieve goals established by the Compensation Committee. The awards act as a retention device, as they vest over time, allowing participants to benefit from dividends on shares as well as potential stock appreciation. Equity awards align management's interests with the long-term interests of shareholders.  The vesting periods of the Company’s restricted stock plans vary, as determined by the Compensation Committee.  Restricted stock is granted to executive officers subject to both continued service and the satisfaction of certain annual performance goals and multi-year market conditions as determined by the Compensation Committee.  Restricted stock is granted to non-executive officers subject only to continued service.  The cost for market-based awards and awards that only require service is amortized on a straight-line basis over the requisite service periods. The total compensation expense for service and performance based awards is based upon the fair market value of the shares on the grant date, adjusted for estimated forfeitures.  

In March 2015, the Compensation Committee of the Company's Board of Directors (the Committee) evaluated the Company's performance compared to certain annual performance goals (primarily funds from operations (FFO) per share and total shareholder return) for the year ended December 31, 2014.  Based on the evaluation, 42,447 shares were awarded to the Company’s executive officers at a grant date fair value of $61.13 per share.  These shares vested 20% on both the dates shares were determined and awarded and on January 1, 2016, and will vest 20% per year on January 1 in years 2017, 2018 and 2019.  The shares will be expensed on a straight-line basis over the remaining service period.

Also in March 2015, the Committee evaluated the Company’s total return, both on an absolute basis for 2014 as well as on a relative basis compared to the NAREIT Equity Index, NAREIT Industrial Index and Russell 2000 Index for the five-year period ended December 31, 2014.  Based on the evaluation, 34,650 shares were awarded to the Company’s executive officers at a grant date fair value of $61.13 per share.  These shares vested 25% on both the dates shares were determined and awarded and on January 1, 2016, and will vest 25% per year on January 1 in years 2017 and 2018.  The shares will be expensed on a straight-line basis over the remaining service period.

In the second quarter of 2015, the Company’s Board of Directors approved an equity compensation plan for its executive officers based upon certain annual performance measures (primarily FFO per share and total shareholder return).  Any shares issued pursuant to this compensation plan will be determined by the Compensation Committee in its discretion and issued in the first quarter of 2016.  The number of shares to be issued on the grant date could range from zero to 49,366.  These shares will vest 20% on the date shares are determined and awarded and generally will vest 20% per year on each January 1 for the subsequent four years.

Also in the second quarter of 2015, EastGroup’s Board of Directors approved a long-term equity compensation plan for the Company’s executive officers. The awards will be based on the results of the Company's total shareholder return, both on an absolute basis for 2015 as well as on a relative basis compared to the NAREIT Equity Index, NAREIT Industrial Index and Russell

62
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2000 Index over the five-year period ended December 31, 2015. Any shares issued pursuant to this equity compensation plan will be determined by the Compensation Committee and issued in the first quarter of 2016.  The number of shares to be issued on the grant date could range from zero to 51,432.  These shares will vest 25% on the date shares are determined and awarded and generally will vest 25% per year on each January 1 for the subsequent three years.
 
Notwithstanding the foregoing, shares issued to the Company’s retiring Chief Executive Officer, David H. Hoster II, vested on January 1, 2016; the shares expected to be awarded to Mr. Hoster in the first quarter of 2016 will become fully vested on the date shares are determined and awarded. In addition, shares issued to the Company's Chief Financial Officer, N. Keith McKey, will become fully vested no later than April 6, 2016.

During the second quarter of 2015, 23,525 shares were granted to certain non-executive officers subject only to continued service as of the vesting date. These shares, which had a grant date fair value of $60.89 per share, vested 20% on January 1, 2016 and will vest 20% per year on January 1 in years 2017, 2018, 2019 and 2020.

During the restricted period for awards no longer subject to contingencies, the Company accrues dividends and holds the certificates for the shares; however, the employee can vote the shares.  For shares subject to contingencies, dividends are accrued based upon the number of shares expected to be awarded.  Share certificates and dividends are delivered to the employee as they vest.  As of December 31, 2015, there was $5,080,000 of unrecognized compensation cost related to unvested restricted stock compensation for employees and directors that is expected to be recognized over a weighted average period of 2.7 years.
 
Following is a summary of the total restricted shares granted, forfeited and delivered (vested) to employees with the related weighted average grant date fair value share prices for 2015, 2014 and 2013. Of the shares that vested in 2015, 2014 and 2013, 32,409 shares, 31,673 shares and 9,412 shares, respectively, were withheld by the Company to satisfy the tax obligations for those employees who elected this option as permitted under the applicable equity plan. The fair value of shares that were granted during 2015, 2014 and 2013 was $6,145,000, $4,439,000 and $6,364,000, respectively. As of the vesting date, the fair value of shares that vested during 2015, 2014 and 2013 was $6,664,000, $5,712,000 and $1,700,000, respectively.
Restricted Stock Activity:
Years Ended December 31,
2015
 
2014
 
2013
 
Shares
 
Weighted Average
Grant Date
Fair Value
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
Unvested at beginning of year
265,911

 
$
49.79

 
293,989

 
$
47.17

 
212,206

 
$
42.84

Granted
100,622

 
61.07

 
71,642

 
61.96

 
112,099

 
56.77

Forfeited 
—

 
—

 
(2,375
)
 
52.72

 
—

 
—

Vested 
(105,835
)
 
53.40

 
(97,345
)
 
50.76

 
(30,316
)
 
52.32

Unvested at end of year 
260,698

 
52.68

 
265,911

 
49.79

 
293,989

 
47.17


Following is a vesting schedule of the total unvested shares as of December 31, 2015:
Unvested Shares Vesting Schedule
 
Number of Shares
2016
 
139,333

2017
 
41,138

2018
 
31,215

2019
 
24,507

2020
 
24,505

Total Unvested Shares                                                  
 
260,698


Employee Stock Options
The Company has not granted stock options to employees since 2002.  Outstanding employee stock options vested equally over a two-year period; accordingly, all options are now vested.  There were no employee stock option exercises during 2015, 2014 or 2013.



63
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Directors Equity Awards
The Company previously had a directors equity plan that was approved by stockholders and adopted in 2005 (the "2005 Plan"), which authorized the issuance of up to 50,000 shares of common stock through awards of shares and restricted shares granted to non-employee directors of the Company.  The 2005 Plan was further amended by the Board of Directors in May 2006, May 2008, May 2011 and May 2012. The 2005 Plan was replaced by the 2013 Equity Plan effective May 29, 2013, and the Board of Directors has adopted a policy under the 2013 Equity Plan pursuant to which awards will be made to non-employee Directors. The current policy provides that the Company shall automatically award an annual retainer share award to each non-employee Director who has been elected or reelected as a member of the Board of Directors at the Annual Meeting. The number of shares shall be equal to $75,000 divided by the fair market value of a share on the date of such election. If a non-employee Director is elected or appointed to the Board of Directors other than at an Annual Meeting of the Company, the annual retainer share award shall be pro rated. The policy also provides that each new non-employee Director appointed or elected will receive an automatic award of restricted shares of Common Stock on the effective date of election or appointment equal to $25,000 divided by the fair market value of the Company's Common Stock on such date. These restricted shares will vest over a four-year period upon the performance of future service as a Director, subject to certain exceptions.

Directors were issued 9,373 shares, 7,742 shares and 7,469 shares of common stock as annual retainer awards for 2015, 2014 and 2013, respectively. In addition, during 2013, 417 shares were granted to a newly elected non-employee Director subject only to continued service as of the vesting date. The shares, which have a grant date fair value of $59.97 per share, vested 25% on each of December 6, 2014 and 2015 and will vest 25% per year on December 6 in years 2016 and 2017. As of the vesting date, the fair value of shares that vested during 2015 and 2014 was $6,000 and $7,000, respectively.  Stock-based compensation expense for directors was $514,000, $490,000 and $395,000 for 2015, 2014 and 2013, respectively.  

There were no director stock options exercised in 2015 or 2014. The intrinsic value realized by directors from the exercise of options was $172,000 for 2013. There were no director stock options granted or expired during the years presented below.  Following is a summary of the total director stock options exercised with related weighted average exercise share prices for 2015, 2014 and 2013. 
Stock Option Activity:
Years Ended December 31,
2015
 
2014
 
2013
 
Shares
 
Weighted Average Exercise Price
 
 
Shares
 
Weighted Average Exercise Price
 
 
Shares
 
Weighted Average Exercise Price
Outstanding at beginning of year
—

 
$
—

 
—

 
$
—

 
4,500

 
$
26.60

Exercised 
—

 
—

 
—

 
—

 
(4,500
)
 
26.60

Outstanding at end of year
—

 
—

 
—

 
—

 
—

 
—

Exercisable at end of year 
—

 
$
—

 
—

 
$
—

 
—

 
$
—


(12)
COMPREHENSIVE INCOME

Total Comprehensive Income is comprised of net income plus all other changes in equity from non-owner sources and is presented on the Consolidated Statements of Income and Comprehensive Income.  The components of Accumulated Other Comprehensive Income (Loss) for 2015, 2014 and 2013 are presented in the Company’s Consolidated Statements of Changes in Equity and are summarized below.  See Note 13 for information regarding the Company’s interest rate swaps.
 
Years Ended December 31,
 
2015
 
2014
 
2013
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
(In thousands)
Balance at beginning of year 
$
(2,357
)
 
1,629

 
(392
)
    Change in fair value of interest rate swaps
(1,099
)
 
(3,986
)
 
2,021

Balance at end of year 
$
(3,456
)
 
(2,357
)
 
1,629







64
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(13)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources, and duration of its debt funding and, to a limited extent, the use of derivative instruments.

Specifically, the Company has entered into derivative instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative instruments, described below, are used to manage differences in the amount, timing and duration of the Company's known or expected cash payments principally related to certain of the Company's borrowings.

The Company's objective in using interest rate derivatives is to change variable interest rates to fixed interest rates by using interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 

As of December 31, 2015, EastGroup had five interest rate swaps outstanding, all of which are used to hedge the variable cash flows associated with unsecured loans. All of the Company's interest rate swaps convert the related loans' LIBOR rate components to fixed interest rates for the entire terms of the loans, and the Company has concluded that each of the hedging relationships is highly effective.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives, which is immaterial for the periods reported, is recognized directly in earnings (included in Other on the Consolidated Statements of Income and Comprehensive Income).

Amounts reported in Other Comprehensive Income (Loss) related to derivatives will be reclassified to Interest Expense as interest payments are made on the Company's variable-rate debt. The Company estimates that an additional $2,934,000 will be reclassified from Other Comprehensive Income as an increase to Interest Expense over the next twelve months.

As of January 1, 2013, the Company changed its valuation methodology for over-the-counter (“OTC”) derivatives to discount cash flows based on Overnight Index Swap (“OIS”) rates.  Uncollateralized or partially-collateralized trades are discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR-OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk.  The Company made the changes to better align its inputs, assumptions, and pricing methodologies with those used in its principal market by most dealers and major market participants. As of January 1, 2015, the Company began calculating its derivative prices using mid-market prices; prior to that date, the Company used bid-market prices.  The changes in valuation methodology were applied prospectively and were considered changes in accounting estimates resulting from recent developments in the marketplace. Management has assessed the impact of the changes for all periods presented and has deemed the impact to be immaterial to the Company's financial statements.

As of December 31, 2015 and 2014, the Company had the following outstanding interest rate derivatives that are designated as cash flow hedges of interest rate risk:
Interest Rate Derivative
 
Notional Amount as of December 31, 2015
 
Notional Amount as of December 31, 2014
 
 
(In thousands)
Interest Rate Swap
 
$80,000
 
$80,000
Interest Rate Swap
 
$75,000
 
$75,000
Interest Rate Swap
 
$75,000
 
—
Interest Rate Swap
 
$60,000
 
$60,000
Interest Rate Swap
 
$15,000
 
$15,000

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2015 and 2014. See Note 18 for additional information on the fair value of the Company's interest rate swaps.

65
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
Derivatives
As of December 31, 2015
 
Derivatives
As of December 31, 2014
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
(In thousands)
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
    Interest rate swap assets
Other Assets
 
$
400

 
Other Assets
 
$
812

    Interest rate swap liabilities
Other Liabilities
 
3,960

 
Other Liabilities
 
3,314


The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2015, 2014 and 2013:
 
Years Ended December 31,
 
2015
 
2014
 
2013
 
(In thousands)
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
 
 
 
 
 
Interest Rate Swaps:
 
 
 
 
 
Amount of income (loss) recognized in Other Comprehensive Income (Loss) on derivatives                                                                                                  
$
(5,374
)
 
(6,777
)
 
1,350

Amount of loss reclassified from Accumulated Other Comprehensive Income (Loss) into Interest Expense                                                                                               
(4,275
)
 
(2,791
)
 
(671
)

See Note 12 for additional information on the Company's Accumulated Other Comprehensive Income (Loss) resulting from its interest rate swaps.

Derivative financial agreements expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with financial institutions the Company regards as credit-worthy.

The Company has an agreement with its derivative counterparties containing a provision stating that the Company could be declared in default on its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender.

As of December 31, 2015, the fair value of derivatives in an asset position related to these agreements was $400,000, and the fair value of derivatives in a liability position related to these agreements was $3,960,000. If the Company breached any of the contractual provisions of the derivative contract, it would be required to settle its obligation under the agreements at the swap termination value. As of December 31, 2015, the swap termination value of derivatives in an asset position was an asset in the amount of $407,000, and the swap termination value of derivatives in a liability position was a liability in the amount of $4,039,000.




66
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(14)
EARNINGS PER SHARE

The Company applies ASC 260, Earnings Per Share, which requires companies to present basic and diluted EPS.  Reconciliation of the numerators and denominators in the basic and diluted EPS computations is as follows:
 
2015
 
2014
 
2013
(In thousands)
BASIC EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE TO
EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 
 
 
 
 
  Numerator – net income attributable to common stockholders
$
47,866

 
47,941

 
32,615

  Denominator – weighted average shares outstanding
32,091

 
31,341

 
30,162

DILUTED EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE
TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
 
 
 
 
 
  Numerator – net income attributable to common stockholders
$
47,866

 
47,941

 
32,615

Denominator:
 
 
 
 
 
    Weighted average shares outstanding 
32,091

 
31,341

 
30,162

    Unvested restricted stock 
105

 
111

 
107

       Total Shares 
32,196

 
31,452

 
30,269

 
 
(15)
QUARTERLY RESULTS OF OPERATIONS – UNAUDITED
 
2015 Quarter Ended
 
2014 Quarter Ended
Mar 31
 
Jun 30
 
Sep 30
 
Dec 31
 
Mar 31
 
Jun 30
 
Sep 30
 
Dec 31
(In thousands, except per share data)
Revenues
$
57,959

 
60,989

 
58,795

 
61,269

 
53,128

 
54,037

 
63,693

 
59,148

Expenses
(47,898
)
 
(46,326
)
 
(46,698
)
 
(49,691
)
 
(44,614
)
 
(44,795
)
 
(45,832
)
 
(46,292
)
Net Income
10,061

 
14,663

 
12,097

 
11,578

 
8,514

 
9,242

 
17,861

 
12,856

Net income attributable to
noncontrolling interest in joint ventures
(131
)
 
(130
)
 
(129
)
 
(143
)
 
(142
)
 
(124
)
 
(132
)
 
(134
)
Net income attributable to EastGroup
Properties, Inc. common stockholders
$
9,930

 
14,533

 
11,968

 
11,435

 
8,372

 
9,118

 
17,729

 
12,722

BASIC PER SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income attributable to common
stockholders
$
0.31

 
0.45

 
0.37

 
0.36

 
0.27

 
0.29

 
0.56

 
0.40

Weighted average shares outstanding
32,032

 
32,045

 
32,126

 
32,159

 
30,806

 
31,137

 
31,515

 
31,892

DILUTED PER SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income attributable to common
stockholders
$
0.31

 
0.45

 
0.37

 
0.35

 
0.27

 
0.29

 
0.56

 
0.40

Weighted average shares outstanding
32,109

 
32,139

 
32,248

 
32,314

 
30,886

 
31,244

 
31,644

 
32,043


(1)
The above quarterly earnings per share calculations are based on the weighted average number of common shares outstanding during each quarter for basic earnings per share and the weighted average number of outstanding common shares and common share equivalents during each quarter for diluted earnings per share.  The annual earnings per share calculations in the Consolidated Statements of Income and Comprehensive Income are based on the weighted average number of common shares outstanding during each year for basic earnings per share and the weighted average number of outstanding common shares and common share equivalents during each year for diluted earnings per share.  The sum of quarterly financial data may vary from the annual data due to rounding.




67
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(16)
DEFINED CONTRIBUTION PLAN

EastGroup maintains a 401(k) plan for its employees.  The Company makes matching contributions of 50% of the employee’s contribution (limited to 10% of compensation as defined by the plan) and may also make annual discretionary contributions.  The Company’s total expense for this plan was $585,000, $457,000 and $550,000 for 2015, 2014 and 2013, respectively.

(17)
LEGAL MATTERS

The Company is not presently involved in any material litigation nor, to its knowledge, is any material litigation threatened against the Company or its properties, other than routine litigation (that is not material) arising in the ordinary course of business.

(18)
FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC 820 also provides guidance for using fair value to measure financial assets and liabilities.  The Codification requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments in accordance with ASC 820 at December 31, 2015 and 2014.
 
December 31,
2015
 
2014
Carrying
Amount (1)
 
Fair
Value
 
Carrying
Amount (1)
 
Fair
Value
(In thousands)
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
48

 
48

 
11

 
11

Cash held in escrow for 1031 exchange
—

 
—

 
698

 
698

   Mortgage loans receivable                                         
4,875

 
4,896

 
4,991

 
5,055

   Interest rate swap assets
400

 
400

 
812

 
812

Financial Liabilities:
 

 
 

 
 

 
 

 Secured debt
351,401

 
366,491

 
453,776

 
478,659

   Unsecured debt
530,000

 
509,326

 
380,000

 
364,295

 Unsecured bank credit facilities
150,836

 
150,670

 
99,401

 
99,638

   Interest rate swap liabilities
3,960

 
3,960

 
3,314

 
3,314


(1)
Carrying amounts shown in the table are included in the Consolidated Balance Sheets under the indicated captions, except as indicated in the notes below.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents:  The carrying amounts approximate fair value due to the short maturity of those instruments.
Cash held in escrow for 1031 exchange (included in Other Assets on the Consolidated Balance Sheets): The carrying amounts approximate fair value due to the short maturity of those instruments.
Mortgage loans receivable (included in Other Assets on the Consolidated Balance Sheets):  The fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities (Level 2 input).
Interest rate swap assets (included in Other Assets on the Consolidated Balances Sheets): The instruments are recorded at fair value based on models using inputs, such as interest rate yield curves, LIBOR swap curves and OIS curves, observable for substantially the full term of the contract (Level 2 input). See Note 13 for additional information on the Company's interest rate swaps.

68
EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Secured debt: The fair value of the Company’s secured debt is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input).
Unsecured debt: The fair value of the Company’s unsecured debt is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input).
Unsecured bank credit facilities: The fair value of the Company’s unsecured bank credit facilities is estimated by discounting expected cash flows at current market rates (Level 2 input).
Interest rate swap liabilities (included in Other Liabilities on the Consolidated Balance Sheets): The instruments are recorded at fair value based on models using inputs, such as interest rate yield curves, LIBOR swap curves and OIS curves, observable for substantially the full term of the contract (Level 2 input). See Note 13 for additional information on the Company's interest rate swaps.

(19)
SUBSEQUENT EVENTS

On February 12, 2016, EastGroup sold its Northwest Point Distribution and Service Centers in Houston.  The sale of the properties, which contain 232,000 square feet, generated gross sales proceeds of approximately $15.6 million.  The Company expects to record a gain on the sale in the first quarter of 2016.

On February 10, 2016, EastGroup executed a commitment letter for a $65 million senior unsecured term loan which is expected to close on April 1, 2016. The loan will have a seven-year term and interest only payments. It will bear interest at the annual rate of LIBOR plus an applicable margin (currently 1.65%) based on the Company's senior unsecured long-term debt rating. The Company also entered into an interest rate swap agreement to convert the loan's LIBOR rate component to a fixed interest rate for the entire term of the loan providing a total effective fixed interest rate of 2.863%.




69


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES

THE BOARD OF DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:

Under date of February 17, 2016, we reported on the consolidated balance sheets of EastGroup Properties, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015, which are included in the 2015 Annual Report on Form 10-K.  In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in Item 15(a)(2) of Form 10-K.  These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in note 1(f) to the consolidated financial statements, the Company elected to change its method of accounting for discontinued operations in 2014.

 
(Signed) KPMG LLP
Jackson, Mississippi
 
February 17, 2016
 


70


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Real Estate Properties (c):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FLORIDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tampa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     56th Street Commerce Park
 
$
—

 
843

 
3,567

 
4,324

 
843

 
7,891

 
8,734

 
5,568

 
1993
 
1981/86/97
Jetport Commerce Park
 
—

 
1,575

 
6,591

 
5,738

 
1,575

 
12,329

 
13,904

 
7,654

 
1993-99
 
1974-85
Westport Commerce Center
 
—

 
980

 
3,800

 
2,611

 
980

 
6,411

 
7,391

 
4,281

 
1994
 
1983/87
Benjamin Distribution Center I & II
 
—

 
843

 
3,963

 
1,490

 
883

 
5,413

 
6,296

 
3,481

 
1997
 
1996
Benjamin Distribution Center III
 
—

 
407

 
1,503

 
482

 
407

 
1,985

 
2,392

 
1,485

 
1999
 
1988
Palm River Center
 
—

 
1,190

 
4,625

 
2,493

 
1,190

 
7,118

 
8,308

 
4,330

 
1997/98
 
1990/97/98
Palm River North I & III
 
—

 
1,005

 
4,688

 
2,295

 
1,005

 
6,983

 
7,988

 
3,887

 
1998
 
2000
Palm River North II
 
—

 
634

 
4,418

 
381

 
634

 
4,799

 
5,433

 
3,254

 
1997/98
 
1999
Palm River South I
 
—

 
655

 
3,187

 
619

 
655

 
3,806

 
4,461

 
1,607

 
2000
 
2005
Palm River South II
 
—

 
655

 
—

 
4,360

 
655

 
4,360

 
5,015

 
1,951

 
2000
 
2006
Walden Distribution Center I
 
—

 
337

 
3,318

 
498

 
337

 
3,816

 
4,153

 
1,920

 
1997/98
 
2001
Walden Distribution Center II
 
—

 
465

 
3,738

 
981

 
465

 
4,719

 
5,184

 
2,517

 
1998
 
1998
Oak Creek Distribution Center I
 
—

 
1,109

 
6,126

 
1,364

 
1,109

 
7,490

 
8,599

 
3,504

 
1998
 
1998
Oak Creek Distribution Center II
 
—

 
647

 
3,603

 
1,104

 
647

 
4,707

 
5,354

 
2,193

 
2003
 
2001
Oak Creek Distribution Center III
 
—

 
439

 
—

 
3,178

 
556

 
3,061

 
3,617

 
1,020

 
2005
 
2007
Oak Creek Distribution Center IV
 
—

 
682

 
6,472

 
669

 
682

 
7,141

 
7,823

 
2,271

 
2005
 
2001
Oak Creek Distribution Center V
 
—

 
724

 
—

 
5,817

 
916

 
5,625

 
6,541

 
1,932

 
2005
 
2007
Oak Creek Distribution Center VI
 
—

 
642

 
—

 
5,039

 
812

 
4,869

 
5,681

 
1,318

 
2005
 
2008
Oak Creek Distribution Center VIII
 
—

 
843

 
—

 
6,188

 
1,051

 
5,980

 
7,031

 
15

 
2005
 
2015
Oak Creek Distribution Center IX
 
—

 
618

 
—

 
4,962

 
780

 
4,800

 
5,580

 
1,068

 
2005
 
2009
Oak Creek Distribution Center A
 
—

 
185

 
—

 
1,492

 
185

 
1,492

 
1,677

 
395

 
2005
 
2008
Oak Creek Distribution Center B
 
—

 
227

 
—

 
1,497

 
227

 
1,497

 
1,724

 
392

 
2005
 
2008
Airport Commerce Center
 
—

 
1,257

 
4,012

 
923

 
1,257

 
4,935

 
6,192

 
2,453

 
1998
 
1998
Westlake Distribution Center
 
—

 
1,333

 
6,998

 
2,150

 
1,333

 
9,148

 
10,481

 
4,851

 
1998
 
1998/99
Expressway Commerce Center I
 
—

 
915

 
5,346

 
1,044

 
915

 
6,390

 
7,305

 
2,997

 
2002
 
2004
Expressway Commerce Center II
 
—

 
1,013

 
3,247

 
385

 
1,013

 
3,632

 
4,645

 
1,743

 
2003
 
2001
Silo Bend Distribution Center
 
—

 
4,131

 
27,497

 
1,149

 
4,131

 
28,646

 
32,777

 
4,284

 
2011
 
1987/90

71


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Tampa East Distribution Center
 
—

 
791

 
4,758

 
458

 
791

 
5,216

 
6,007

 
906

 
2011
 
1984
Tampa West Distribution Center
 
—

 
2,139

 
8,502

 
1,052

 
2,140

 
9,553

 
11,693

 
1,626

 
2011
 
1975/93/94
Madison Distribution Center
 
—

 
495

 
2,779

 
381

 
495

 
3,160

 
3,655

 
521

 
2012
 
2007
Orlando
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Chancellor Center
 
—

 
291

 
1,711

 
252

 
291

 
1,963

 
2,254

 
1,122

 
1996/97
 
1996/97
Exchange Distribution Center I
 
—

 
603

 
2,414

 
2,135

 
603

 
4,549

 
5,152

 
3,059

 
1994
 
1975
Exchange Distribution Center II
 
—

 
300

 
945

 
298

 
300

 
1,243

 
1,543

 
675

 
2002
 
1976
Exchange Distribution Center III
 
—

 
320

 
997

 
403

 
320

 
1,400

 
1,720

 
811

 
2002
 
1980
Sunbelt Distribution Center
 
—

 
1,474

 
5,745

 
5,757

 
1,474

 
11,502

 
12,976

 
7,803

 
1989/97/98
 
1974/87/97/98
John Young Commerce Center I
 
—

 
497

 
2,444

 
931

 
497

 
3,375

 
3,872

 
1,804

 
1997/98
 
1997/98
John Young Commerce Center II
 
—

 
512

 
3,613

 
489

 
512

 
4,102

 
4,614

 
2,415

 
1998
 
1999
Altamonte Commerce Center I
 
—

 
1,498

 
2,661

 
2,585

 
1,498

 
5,246

 
6,744

 
3,560

 
1999
 
1980/82
Altamonte Commerce Center II
 
—

 
745

 
2,618

 
1,196

 
745

 
3,814

 
4,559

 
1,948

 
2003
 
1975
Sunport Center I
 
—

 
555

 
1,977

 
708

 
555

 
2,685

 
3,240

 
1,364

 
1999
 
1999
Sunport Center II
 
—

 
597

 
3,271

 
1,501

 
597

 
4,772

 
5,369

 
3,165

 
1999
 
2001
Sunport Center III
 
—

 
642

 
3,121

 
1,029

 
642

 
4,150

 
4,792

 
1,940

 
1999
 
2002
Sunport Center IV
 
—

 
642

 
2,917

 
1,474

 
642

 
4,391

 
5,033

 
1,953

 
1999
 
2004
Sunport Center V
 
—

 
750

 
2,509

 
2,183

 
750

 
4,692

 
5,442

 
2,478

 
1999
 
2005
Sunport Center VI
 
—

 
672

 
—

 
3,472

 
672

 
3,472

 
4,144

 
1,186

 
1999
 
2006
Southridge Commerce Park I
 
—

 
373

 
—

 
4,822

 
373

 
4,822

 
5,195

 
2,555

 
2003
 
2006
Southridge Commerce Park II
 
—

 
342

 
—

 
4,421

 
342

 
4,421

 
4,763

 
2,001

 
2003
 
2007
Southridge Commerce Park III
 
—

 
547

 
—

 
5,538

 
547

 
5,538

 
6,085

 
1,809

 
2003
 
2007
Southridge Commerce Park IV (h)
 
3,102

 
506

 
—

 
4,584

 
506

 
4,584

 
5,090

 
1,588

 
2003
 
2006
Southridge Commerce Park V (h)
 
2,980

 
382

 
—

 
4,508

 
382

 
4,508

 
4,890

 
1,828

 
2003
 
2006
Southridge Commerce Park VI
 
—

 
571

 
—

 
5,182

 
571

 
5,182

 
5,753

 
1,527

 
2003
 
2007
Southridge Commerce Park VII
 
—

 
520

 
—

 
6,727

 
520

 
6,727

 
7,247

 
1,932

 
2003
 
2008
Southridge Commerce Park VIII
 
—

 
531

 
—

 
6,343

 
531

 
6,343

 
6,874

 
1,588

 
2003
 
2008
Southridge Commerce Park IX
 
—

 
468

 
—

 
6,413

 
468

 
6,413

 
6,881

 
867

 
2003
 
2012
Southridge Commerce Park X
 
—

 
414

 
—

 
4,826

 
414

 
4,826

 
5,240

 
415

 
2003
 
2012
Southridge Commerce Park XI
 
—

 
513

 
—

 
5,870

 
513

 
5,870

 
6,383

 
653

 
2003
 
2012
Southridge Commerce Park XII
 
—

 
2,025

 
—

 
16,930

 
2,025

 
16,930

 
18,955

 
3,763

 
2005
 
2008

72


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Horizon Commerce Park I
 
—

 
991

 
—

 
6,464

 
991

 
6,464

 
7,455

 
300

 
2008
 
2014
Horizon Commerce Park II
 
—

 
1,111

 
—

 
7,114

 
1,111

 
7,114

 
8,225

 
249

 
2008
 
2014
Horizon Commerce Park IV
 
—

 
1,097

 
—

 
8,131

 
1,097

 
8,131

 
9,228

 
—

 
2008
 
2015
Jacksonville
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Deerwood Distribution Center
 
—

 
1,147

 
1,799

 
2,929

 
1,147

 
4,728

 
5,875

 
2,572

 
1989
 
1978
Phillips Distribution Center
 
—

 
1,375

 
2,961

 
4,317

 
1,375

 
7,278

 
8,653

 
4,929

 
1994
 
1984/95
Lake Pointe Business Park
 
—

 
3,442

 
6,450

 
7,607

 
3,442

 
14,057

 
17,499

 
9,915

 
1993
 
1986/87
Ellis Distribution Center
 
—

 
540

 
7,513

 
1,149

 
540

 
8,662

 
9,202

 
4,266

 
1997
 
1977
Westside Distribution Center
 
—

 
2,011

 
15,374

 
7,139

 
2,011

 
22,513

 
24,524

 
10,675

 
1997/2008
 
1984/85
Beach Commerce Center
 
—

 
476

 
1,899

 
634

 
476

 
2,533

 
3,009

 
1,270

 
2000
 
2000
Interstate Distribution Center
 
—

 
1,879

 
5,700

 
1,682

 
1,879

 
7,382

 
9,261

 
3,436

 
2005
 
1990
Fort Lauderdale/Palm Beach area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Linpro Commerce Center
 
—

 
613

 
2,243

 
1,775

 
616

 
4,015

 
4,631

 
3,023

 
1996
 
1986
Cypress Creek Business Park
 
—

 
—

 
2,465

 
1,853

 
—

 
4,318

 
4,318

 
2,710

 
1997
 
1986
Lockhart Distribution Center
 
—

 
—

 
3,489

 
2,828

 
—

 
6,317

 
6,317

 
3,795

 
1997
 
1986
Interstate Commerce Center
 
—

 
485

 
2,652

 
786

 
485

 
3,438

 
3,923

 
2,137

 
1998
 
1988
Executive Airport Distribution Center (k)
 
7,990

 
1,991

 
4,857

 
5,108

 
1,991

 
9,965

 
11,956

 
4,361

 
2001
 
2004/06
Sample 95 Business Park
 
—

 
2,202

 
8,785

 
3,052

 
2,202

 
11,837

 
14,039

 
7,242

 
1996/98
 
1990/99
Blue Heron Distribution Center
 
—

 
975

 
3,626

 
1,850

 
975

 
5,476

 
6,451

 
3,245

 
1999
 
1986
Blue Heron Distribution Center II
 
735

 
1,385

 
4,222

 
809

 
1,385

 
5,031

 
6,416

 
2,242

 
2004
 
1988
Blue Heron Distribution Center III
 
—

 
450

 
—

 
2,664

 
450

 
2,664

 
3,114

 
772

 
2004
 
2009
Fort Myers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     SunCoast Commerce Center I
 
—

 
911

 
—

 
4,768

 
928

 
4,751

 
5,679

 
1,471

 
2005
 
2008
SunCoast Commerce Center II
 
—

 
911

 
—

 
4,952

 
928

 
4,935

 
5,863

 
1,705

 
2005
 
2007
SunCoast Commerce Center III
 
—

 
1,720

 
—

 
6,556

 
1,763

 
6,513

 
8,276

 
1,746

 
2006
 
2008
CALIFORNIA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Wiegman Distribution Center I (i)
 
9,409

 
2,197

 
8,788

 
1,948

 
2,308

 
10,625

 
12,933

 
5,548

 
1996
 
1986/87
     Wiegman Distribution Center II
 
—

 
2,579

 
4,316

 
110

 
2,579

 
4,426

 
7,005

 
434

 
2012
 
1998
Huntwood Distribution Center (i)
 
16,158

 
3,842

 
15,368

 
2,987

 
3,842

 
18,355

 
22,197

 
9,591

 
1996
 
1988

73


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
San Clemente Distribution Center
 
—

 
893

 
2,004

 
852

 
893

 
2,856

 
3,749

 
1,622

 
1997
 
1978
Yosemite Distribution Center
 
—

 
259

 
7,058

 
1,329

 
259

 
8,387

 
8,646

 
4,213

 
1999
 
1974/87
Los Angeles area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Kingsview Industrial Center (e)
 
2,605

 
643

 
2,573

 
615

 
643

 
3,188

 
3,831

 
1,748

 
1996
 
1980
Dominguez Distribution Center (e)
 
7,615

 
2,006

 
8,025

 
1,170

 
2,006

 
9,195

 
11,201

 
5,128

 
1996
 
1977
Main Street Distribution Center
 
—

 
1,606

 
4,103

 
787

 
1,606

 
4,890

 
6,496

 
2,519

 
1999
 
1999
Walnut Business Center (e)
 
6,604

 
2,885

 
5,274

 
1,555

 
2,885

 
6,829

 
9,714

 
3,512

 
1996
 
1966/90
Washington Distribution Center (e)
 
4,891

 
1,636

 
4,900

 
658

 
1,636

 
5,558

 
7,194

 
2,838

 
1997
 
1996/97
Chino Distribution Center (f)
 
8,774

 
2,544

 
10,175

 
1,623

 
2,544

 
11,798

 
14,342

 
6,987

 
1998
 
1980
Ramona Distribution Center
 
2,757

 
3,761

 
5,751

 
3

 
3,761

 
5,754

 
9,515

 
171

 
2014
 
1984
Industry Distribution Center I (e)
 
18,306

 
10,230

 
12,373

 
4,323

 
10,230

 
16,696

 
26,926

 
7,547

 
1998
 
1959
Industry Distribution Center III (e)
 
1,941

 
—

 
3,012

 
(157
)
 
—

 
2,855

 
2,855

 
2,855

 
2007
 
1992
Chestnut Business Center
 
—

 
1,674

 
3,465

 
220

 
1,674

 
3,685

 
5,359

 
1,723

 
1998
 
1999
Los Angeles Corporate Center
 
—

 
1,363

 
5,453

 
3,056

 
1,363

 
8,509

 
9,872

 
5,176

 
1996
 
1986
Santa Barbara
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     University Business Center
 
—

 
5,517

 
22,067

 
5,766

 
5,519

 
27,831

 
33,350

 
15,216

 
1996
 
1987/88
Castilian Research Center
 
—

 
2,719

 
1,410

 
4,846

 
2,719

 
6,256

 
8,975

 
1,418

 
2005
 
2007
Fresno
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Shaw Commerce Center (e)
 
12,727

 
2,465

 
11,627

 
4,627

 
2,465

 
16,254

 
18,719

 
9,689

 
1998
 
1978/81/87
San Diego
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Eastlake Distribution Center
 
—

 
3,046

 
6,888

 
1,751

 
3,046

 
8,639

 
11,685

 
4,854

 
1997
 
1989
Ocean View Corporate Center (k)
 
9,603

 
6,577

 
7,105

 
686

 
6,577

 
7,791

 
14,368

 
2,143

 
2010
 
2005
TEXAS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dallas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Interstate Distribution Center  I & II (g)
 
6,114

 
1,746

 
4,941

 
3,189

 
1,746

 
8,130

 
9,876

 
5,562

 
1988
 
1978
Interstate Distribution Center III (g)
 
2,488

 
519

 
2,008

 
1,491

 
519

 
3,499

 
4,018

 
1,650

 
2000
 
1979
Interstate Distribution Center IV
 
—

 
416

 
2,481

 
456

 
416

 
2,937

 
3,353

 
1,337

 
2004
 
2002
Interstate Distribution Center V, VI &
VII (h)
 
4,646

 
1,824

 
4,106

 
1,694

 
1,824

 
5,800

 
7,624

 
2,225

 
2009
 
1979/80/81
Venture Warehouses (g)
 
4,785

 
1,452

 
3,762

 
2,515

 
1,452

 
6,277

 
7,729

 
4,628

 
1988
 
1979
Stemmons Circle (g)
 
1,899

 
363

 
2,014

 
690

 
363

 
2,704

 
3,067

 
1,699

 
1998
 
1977

74


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
North Stemmons II
 
—

 
150

 
583

 
506

 
150

 
1,089

 
1,239

 
528

 
2002
 
1971
North Stemmons III
 
—

 
380

 
2,066

 
48

 
380

 
2,114

 
2,494

 
571

 
2007
 
1974
Shady Trail Distribution Center
 
—

 
635

 
3,621

 
1,094

 
635

 
4,715

 
5,350

 
2,032

 
2003
 
1998
Valwood Distribution Center
 
—

 
4,361

 
34,405

 
1,788

 
4,361

 
36,193

 
40,554

 
4,819

 
2012
 
1986/87/97/98
Northfield Distribution Center
 
—

 
12,471

 
50,713

 
1,357

 
12,470

 
52,071

 
64,541

 
6,834

 
2013
 
1999-2001/03/04/08
Houston
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Northwest Point Business Park
 
—

 
1,243

 
5,640

 
4,703

 
1,243

 
10,343

 
11,586

 
6,916

 
1994
 
1984/85
Lockwood Distribution Center
 
—

 
749

 
5,444

 
1,985

 
749

 
7,429

 
8,178

 
4,209

 
1997
 
1968/69
West Loop Distribution Center (g)
 
4,739

 
905

 
4,383

 
2,366

 
905

 
6,749

 
7,654

 
4,149

 
1997/2000
 
1980
World Houston Int'l Business Ctr 1 & 2 (f)
 
5,143

 
660

 
5,893

 
1,854

 
660

 
7,747

 
8,407

 
4,212

 
1998
 
1996
World Houston Int'l Business Ctr 3, 4 &
5 (g)
 
5,343

 
1,025

 
6,413

 
1,193

 
1,025

 
7,606

 
8,631

 
4,127

 
1998
 
1998
World Houston Int'l Business Ctr 6 (g)
 
2,079

 
425

 
2,423

 
510

 
425

 
2,933

 
3,358

 
1,663

 
1998
 
1998
World Houston Int'l Business Ctr 7 & 8 (g)
 
5,840

 
680

 
4,584

 
4,170

 
680

 
8,754

 
9,434

 
4,940

 
1998
 
1998
World Houston Int'l Business Ctr 9 (g)
 
4,265

 
800

 
4,355

 
1,734

 
800

 
6,089

 
6,889

 
2,544

 
1998
 
1998
World Houston Int'l Business Ctr 10
 
—

 
933

 
4,779

 
349

 
933

 
5,128

 
6,061

 
2,209

 
2001
 
1999
World Houston Int'l Business Ctr 11
 
—

 
638

 
3,764

 
1,195

 
638

 
4,959

 
5,597

 
2,515

 
1999
 
1999
World Houston Int'l Business Ctr 12
 
—

 
340

 
2,419

 
383

 
340

 
2,802

 
3,142

 
1,477

 
2000
 
2002
World Houston Int'l Business Ctr 13
 
—

 
282

 
2,569

 
374

 
282

 
2,943

 
3,225

 
1,784

 
2000
 
2002
World Houston Int'l Business Ctr 14
 
—

 
722

 
2,629

 
535

 
722

 
3,164

 
3,886

 
1,600

 
2000
 
2003
World Houston Int'l Business Ctr 15
 
—

 
731

 
—

 
6,124

 
731

 
6,124

 
6,855

 
2,904

 
2000
 
2007
World Houston Int'l Business Ctr 16 (j)
 
3,373

 
519

 
4,248

 
1,144

 
519

 
5,392

 
5,911

 
2,791

 
2000
 
2005
World Houston Int'l Business Ctr 17
 
—

 
373

 
1,945

 
799

 
373

 
2,744

 
3,117

 
1,177

 
2000
 
2004
World Houston Int'l Business Ctr 18
 
—

 
323

 
1,512

 
251

 
323

 
1,763

 
2,086

 
764

 
2005
 
1995
World Houston Int'l Business Ctr 19
 
—

 
373

 
2,256

 
1,126

 
373

 
3,382

 
3,755

 
1,785

 
2000
 
2004
World Houston Int'l Business Ctr 20
 
—

 
1,008

 
1,948

 
1,307

 
1,008

 
3,255

 
4,263

 
1,758

 
2000
 
2004
World Houston Int'l Business Ctr 21 (f)
 
2,410

 
436

 
—

 
3,504

 
436

 
3,504

 
3,940

 
1,233

 
2000/03
 
2006
World Houston Int'l Business Ctr 22
 
—

 
436

 
—

 
4,537

 
436

 
4,537

 
4,973

 
1,748

 
2000
 
2007
World Houston Int'l Business Ctr 23 (f)
 
4,927

 
910

 
—

 
7,145

 
910

 
7,145

 
8,055

 
2,479

 
2000
 
2007
World Houston Int'l Business Ctr 24
 
—

 
837

 
—

 
5,516

 
837

 
5,516

 
6,353

 
2,066

 
2005
 
2008

75


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
World Houston Int'l Business Ctr 25
 
—

 
508

 
—

 
3,762

 
508

 
3,762

 
4,270

 
1,203

 
2005
 
2008
World Houston Int'l Business Ctr 26 (k)
 
2,432

 
445

 
—

 
3,194

 
445

 
3,194

 
3,639

 
978

 
2005
 
2008
World Houston Int'l Business Ctr 27
 
—

 
837

 
—

 
5,004

 
837

 
5,004

 
5,841

 
1,378

 
2005
 
2008
World Houston Int'l Business Ctr 28 (k)
 
3,176

 
550

 
—

 
4,202

 
550

 
4,202

 
4,752

 
1,134

 
2005
 
2009
World Houston Int'l Business Ctr 29 (k)
 
3,288

 
782

 
—

 
4,138

 
974

 
3,946

 
4,920

 
1,042

 
2007
 
2009
World Houston Int'l Business Ctr 30 (k)
 
4,512

 
981

 
—

 
5,771

 
1,222

 
5,530

 
6,752

 
1,754

 
2007
 
2009
World Houston Int'l Business Ctr 31A
 
—

 
684

 
—

 
3,912

 
684

 
3,912

 
4,596

 
1,078

 
2008
 
2011
World Houston Int'l Business Ctr 31B
 
—

 
546

 
—

 
3,537

 
546

 
3,537

 
4,083

 
560

 
2008
 
2012
World Houston Int'l Business Ctr 32 (h)
 
4,195

 
1,225

 
—

 
5,660

 
1,526

 
5,359

 
6,885

 
847

 
2007
 
2012
World Houston Int'l Business Ctr 33
 
—

 
1,166

 
—

 
7,859

 
1,166

 
7,859

 
9,025

 
829

 
2011
 
2013
World Houston Int'l Business Ctr 34
 
—

 
439

 
—

 
3,373

 
439

 
3,373

 
3,812

 
370

 
2005
 
2012
World Houston Int'l Business Ctr 35
 
—

 
340

 
—

 
2,475

 
340

 
2,475

 
2,815

 
227

 
2005
 
2012
World Houston Int'l Business Ctr 36
 
—

 
685

 
—

 
4,878

 
685

 
4,878

 
5,563

 
486

 
2011
 
2013
World Houston Int'l Business Ctr 37
 
—

 
759

 
—

 
6,370

 
759

 
6,370

 
7,129

 
497

 
2011
 
2013
World Houston Int'l Business Ctr 38
 
—

 
1,053

 
—

 
7,312

 
1,053

 
7,312

 
8,365

 
703

 
2011
 
2013
World Houston Int'l Business Ctr 39
 
—

 
620

 
—

 
5,199

 
620

 
5,199

 
5,819

 
154

 
2011
 
2014
World Houston Int'l Business Ctr 40
 
—

 
1,072

 
—

 
9,340

 
1,072

 
9,340

 
10,412

 
396

 
2011
 
2014
World Houston Int'l Business Ctr 41
 
—

 
649

 
—

 
5,954

 
649

 
5,954

 
6,603

 
105

 
2011
 
2014
World Houston Int'l Business Ctr 42
 
—

 
571

 
—

 
4,812

 
571

 
4,812

 
5,383

 
77

 
2011
 
2015
America Plaza (g)
 
3,910

 
662

 
4,660

 
993

 
662

 
5,653

 
6,315

 
3,129

 
1998
 
1996
Central Green Distribution Center (g)
 
2,930

 
566

 
4,031

 
135

 
566

 
4,166

 
4,732

 
2,179

 
1999
 
1998
Glenmont Business Park (g)
 
6,141

 
936

 
6,161

 
2,823

 
936

 
8,984

 
9,920

 
4,852

 
1998
 
1999/2000
Techway Southwest I
 
—

 
729

 
3,765

 
2,281

 
729

 
6,046

 
6,775

 
3,257

 
2000
 
2001
Techway Southwest II
 
—

 
550

 
3,689

 
1,283

 
550

 
4,972

 
5,522

 
2,332

 
2000
 
2004
Techway Southwest III
 
—

 
597

 
—

 
5,578

 
751

 
5,424

 
6,175

 
2,426

 
1999
 
2006
Techway Southwest IV (k)
 
4,187

 
535

 
—

 
5,730

 
674

 
5,591

 
6,265

 
1,765

 
1999
 
2008
Beltway Crossing Business Park I
 
—

 
458

 
5,712

 
2,450

 
458

 
8,162

 
8,620

 
3,678

 
2002
 
2001
Beltway Crossing Business Park II
 
—

 
415

 
—

 
2,892

 
415

 
2,892

 
3,307

 
1,092

 
2005
 
2007
Beltway Crossing Business Park III
 
—

 
460

 
—

 
3,094

 
460

 
3,094

 
3,554

 
1,216

 
2005
 
2008
Beltway Crossing Business Park IV
 
—

 
460

 
—

 
3,035

 
460

 
3,035

 
3,495

 
1,194

 
2005
 
2008
Beltway Crossing Business Park V (k)
 
3,711

 
701

 
—

 
4,852

 
701

 
4,852

 
5,553

 
1,707

 
2005
 
2008

76


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Beltway Crossing Business Park VI (h)
 
4,043

 
618

 
—

 
6,017

 
618

 
6,017

 
6,635

 
1,522

 
2005
 
2008
Beltway Crossing Business Park VII (h)
 
4,052

 
765

 
—

 
5,884

 
765

 
5,884

 
6,649

 
1,958

 
2005
 
2009
Beltway Crossing Business Park VIII
 
—

 
721

 
—

 
4,576

 
721

 
4,576

 
5,297

 
939

 
2005
 
2011
Beltway Crossing Business Park IX
 
—

 
418

 
—

 
2,113

 
418

 
2,113

 
2,531

 
282

 
2007
 
2012
Beltway Crossing Business Park X
 
—

 
733

 
—

 
3,871

 
733

 
3,871

 
4,604

 
477

 
2007
 
2012
Beltway Crossing Business Park XI
 
—

 
690

 
—

 
4,101

 
690

 
4,101

 
4,791

 
366

 
2007
 
2013
West Road Business Park I
 
—

 
621

 
—

 
4,324

 
621

 
4,324

 
4,945

 
159

 
2012
 
2014
West Road Business Park II
 
—

 
981

 
—

 
5,285

 
981

 
5,285

 
6,266

 
235

 
2012
 
2014
Ten West Crossing 1
 
—

 
566

 
—

 
2,997

 
566

 
2,997

 
3,563

 
314

 
2012
 
2013
Ten West Crossing 2
 
—

 
829

 
—

 
4,385

 
833

 
4,381

 
5,214

 
453

 
2012
 
2013
Ten West Crossing 3
 
—

 
609

 
—

 
4,357

 
613

 
4,353

 
4,966

 
446

 
2012
 
2013
Ten West Crossing 4
 
—

 
694

 
—

 
4,506

 
699

 
4,501

 
5,200

 
365

 
2012
 
2014
Ten West Crossing 5
 
—

 
933

 
—

 
5,866

 
940

 
5,859

 
6,799

 
322

 
2012
 
2014
Ten West Crossing 6
 
—

 
640

 
—

 
4,113

 
644

 
4,109

 
4,753

 
96

 
2012
 
2014
El Paso
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Butterfield Trail
 
—

 
—

 
20,725

 
8,420

 
—

 
29,145

 
29,145

 
16,841

 
1997/2000
 
1987/95
Rojas Commerce Park (g)
 
4,690

 
900

 
3,659

 
3,016

 
900

 
6,675

 
7,575

 
4,707

 
1999
 
1986
Americas Ten Business Center I
 
—

 
526

 
2,778

 
1,181

 
526

 
3,959

 
4,485

 
2,125

 
2001
 
2003
San Antonio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Alamo Downs Distribution Center (j)
 
5,077

 
1,342

 
6,338

 
1,216

 
1,342

 
7,554

 
8,896

 
3,948

 
2004
 
1986/2002
Arion Business Park 1-13, 15 (j)
 
23,508

 
4,143

 
31,432

 
5,616

 
4,143

 
37,048

 
41,191

 
15,762

 
2005
 
1988-2000/06
Arion Business Park 14 (j)
 
2,180

 
423

 
—

 
3,397

 
423

 
3,397

 
3,820

 
1,218

 
2005
 
2006
Arion Business Park 16 (f)
 
2,424

 
427

 
—

 
3,535

 
427

 
3,535

 
3,962

 
1,073

 
2005
 
2007
Arion Business Park 17 (j)
 
2,622

 
616

 
—

 
3,978

 
616

 
3,978

 
4,594

 
1,939

 
2005
 
2007
Arion Business Park 18 (h)
 
1,689

 
418

 
—

 
2,354

 
418

 
2,354

 
2,772

 
947

 
2005
 
2008
Wetmore Business Center 1-4
 
—

 
1,494

 
10,804

 
3,097

 
1,494

 
13,901

 
15,395

 
6,337

 
2005
 
1998/99
Wetmore Business Center 5 (k)
 
2,573

 
412

 
—

 
3,438

 
412

 
3,438

 
3,850

 
1,407

 
2006
 
2008
Wetmore Business Center 6 (k)
 
2,726

 
505

 
—

 
3,574

 
505

 
3,574

 
4,079

 
1,243

 
2006
 
2008
Wetmore Business Center 7 (k)
 
2,930

 
546

 
—

 
3,838

 
546

 
3,838

 
4,384

 
818

 
2006
 
2008
Wetmore Business Center 8 (k)
 
5,812

 
1,056

 
—

 
7,640

 
1,056

 
7,640

 
8,696

 
2,049

 
2006
 
2008
Fairgrounds Business Park
 
—

 
1,644

 
8,209

 
2,102

 
1,644

 
10,311

 
11,955

 
4,420

 
2007
 
1985/86

77


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Rittiman Distribution Center
 
—

 
1,083

 
6,649

 
289

 
1,083

 
6,938

 
8,021

 
957

 
2011
 
2000
Thousand Oaks Distribution Center 1
 
—

 
607

 
—

 
4,286

 
607

 
4,286

 
4,893

 
674

 
2008
 
2012
Thousand Oaks Distribution Center 2
 
—

 
794

 
—

 
4,719

 
794

 
4,719

 
5,513

 
646

 
2008
 
2012
Thousand Oaks Distribution Center 3
 
—

 
772

 
—

 
4,457

 
772

 
4,457

 
5,229

 
414

 
2008
 
2013
Thousand Oaks Distribution Center 4
 
—

 
753

 
—

 
3,953

 
753

 
3,953

 
4,706

 
24

 
2013
 
2015
Austin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Colorado Crossing Distribution Center
 
—

 
4,602

 
19,757

 
61

 
4,602

 
19,818

 
24,420

 
1,698

 
2014
 
2009
Southpark Corporate Center
 
—

 
2,670

 
14,756

 
—

 
2,670

 
14,756

 
17,426

 
268

 
2015
 
1995
Springdale Business Center
 
—

 
2,824

 
8,398

 
—

 
2,824

 
8,398

 
11,222

 
111

 
2015
 
2000
ARIZONA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Phoenix area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Broadway Industrial Park I
 
—

 
837

 
3,349

 
932

 
837

 
4,281

 
5,118

 
2,523

 
1996
 
1971
Broadway Industrial Park II
 
—

 
455

 
482

 
180

 
455

 
662

 
1,117

 
408

 
1999
 
1971
Broadway Industrial Park III
 
—

 
775

 
1,742

 
531

 
775

 
2,273

 
3,048

 
1,268

 
2000
 
1983
Broadway Industrial Park IV
 
—

 
380

 
1,652

 
783

 
380

 
2,435

 
2,815

 
1,406

 
2000
 
1986
Broadway Industrial Park V
 
—

 
353

 
1,090

 
120

 
353

 
1,210

 
1,563

 
638

 
2002
 
1980
Broadway Industrial Park VI (f)
 
1,904

 
599

 
1,855

 
658

 
599

 
2,513

 
3,112

 
1,387

 
2002
 
1979
Broadway Industrial Park VII
 
—

 
450

 
650

 
232

 
450

 
882

 
1,332

 
136

 
2011
 
1999
Kyrene Distribution Center
 
—

 
1,490

 
4,453

 
1,514

 
1,490

 
5,967

 
7,457

 
3,490

 
1999
 
1981/2001
Southpark Distribution Center
 
—

 
918

 
2,738

 
644

 
918

 
3,382

 
4,300

 
1,472

 
2001
 
2000
Santan 10 Distribution Center I (j)
 
2,176

 
846

 
2,647

 
319

 
846

 
2,966

 
3,812

 
1,306

 
2001
 
2005
Santan 10 Distribution Center II (f)
 
3,797

 
1,088

 
—

 
5,119

 
1,088

 
5,119

 
6,207

 
1,976

 
2004
 
2007
Chandler Freeways
 
—

 
1,525

 
—

 
7,381

 
1,525

 
7,381

 
8,906

 
516

 
2012
 
2013
Kyrene 202 Business Park I
 
—

 
653

 
—

 
5,777

 
653

 
5,777

 
6,430

 
145

 
2011
 
2014
Kyrene 202 Business Park II
 
—

 
387

 
—

 
3,414

 
387

 
3,414

 
3,801

 
110

 
2011
 
2014
Metro Business Park
 
—

 
1,927

 
7,708

 
6,747

 
1,927

 
14,455

 
16,382

 
9,101

 
1996
 
1977/79
35th Avenue Distribution Center (original building currently undergoing redevelopment)
 
—

 
418

 
2,381

 
206

 
418

 
2,587

 
3,005

 
1,226

 
1997
 
1967
51st Avenue Distribution Center
 
—

 
300

 
2,029

 
977

 
300

 
3,006

 
3,306

 
1,765

 
1998
 
1987
East University Distribution Center I & II (f)
 
4,365

 
1,120

 
4,482

 
1,533

 
1,120

 
6,015

 
7,135

 
3,525

 
1998
 
1987/89

78


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
East University Distribution Center III
 
—

 
444

 
698

 
208

 
444

 
906

 
1,350

 
184

 
2010
 
1981
55th Avenue Distribution Center (f)
 
3,394

 
912

 
3,717

 
919

 
917

 
4,631

 
5,548

 
2,848

 
1998
 
1987
Interstate Commons Distribution Center I
 
—

 
798

 
3,632

 
1,708

 
798

 
5,340

 
6,138

 
2,914

 
1999
 
1988
Interstate Commons Distribution Center II
 
—

 
320

 
2,448

 
429

 
320

 
2,877

 
3,197

 
1,372

 
1999
 
2000
Interstate Commons Distribution Center III
 
—

 
242

 
—

 
2,996

 
242

 
2,996

 
3,238

 
861

 
2000
 
2008
Airport Commons Distribution Center
 
—

 
1,000

 
1,510

 
1,336

 
1,000

 
2,846

 
3,846

 
1,479

 
2003
 
1971
40th Avenue Distribution Center (k)
 
4,519

 
703

 
—

 
6,059

 
703

 
6,059

 
6,762

 
1,670

 
2004
 
2008
Sky Harbor Business Park
 
—

 
5,839

 
—

 
21,324

 
5,839

 
21,324

 
27,163

 
5,785

 
2006
 
2008
Sky Harbor Business Park 6
 
—

 
807

 
—

 
2,177

 
807

 
2,177

 
2,984

 
20

 
2014
 
2015
Tucson
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Country Club Commerce Center I
 
—

 
506

 
3,564

 
2,173

 
693

 
5,550

 
6,243

 
2,338

 
1997/2003
 
1994/2003
Country Club Commerce Center II
 
—

 
442

 
3,381

 
37

 
442

 
3,418

 
3,860

 
1,056

 
2007
 
2000
Country Club Commerce Center III & IV
 
—

 
1,407

 
—

 
11,794

 
1,575

 
11,626

 
13,201

 
3,432

 
2007
 
2009
Airport Distribution Center
 
—

 
1,103

 
4,672

 
1,549

 
1,103

 
6,221

 
7,324

 
3,576

 
1998
 
1995
Southpointe Distribution Center
 
—

 
—

 
3,982

 
2,950

 
—

 
6,932

 
6,932

 
3,997

 
1999
 
1989
Benan Distribution Center
 
—

 
707

 
1,842

 
635

 
707

 
2,477

 
3,184

 
1,287

 
2005
 
2001
NORTH CAROLINA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Charlotte area
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     NorthPark Business Park (f)
 
13,833

 
2,758

 
15,932

 
3,924

 
2,758

 
19,856

 
22,614

 
7,910

 
2006
 
1987-89
Lindbergh Business Park 
 
—

 
470

 
3,401

 
444

 
470

 
3,845

 
4,315

 
1,371

 
2007
 
2001/03
Commerce Park Center I
 
—

 
765

 
4,303

 
791

 
765

 
5,094

 
5,859

 
1,687

 
2007
 
1983
Commerce Park Center II (h)
 
1,362

 
335

 
1,603

 
297

 
335

 
1,900

 
2,235

 
475

 
2010
 
1987
Commerce Park Center III (h)
 
2,225

 
558

 
2,225

 
868

 
558

 
3,093

 
3,651

 
726

 
2010
 
1981
Nations Ford Business Park
 
—

 
3,924

 
16,171

 
3,128

 
3,924

 
19,299

 
23,223

 
7,679

 
2007
 
1989/94
Airport Commerce Center
 
—

 
1,454

 
10,136

 
1,620

 
1,454

 
11,756

 
13,210

 
3,374

 
2008
 
2001/02
Interchange Park I
 
—

 
986

 
7,949

 
476

 
986

 
8,425

 
9,411

 
2,240

 
2008
 
1989
Interchange Park II
 
—

 
746

 
1,456

 
55

 
746

 
1,511

 
2,257

 
121

 
2013
 
2000
Ridge Creek Distribution Center I
 
—

 
1,284

 
13,163

 
780

 
1,284

 
13,943

 
15,227

 
3,341

 
2008
 
2006
Ridge Creek Distribution Center II (h)
 
10,142

 
3,033

 
11,497

 
2,116

 
3,033

 
13,613

 
16,646

 
1,688

 
2011
 
2003
Ridge Creek Distribution Center III
 
—

 
2,459

 
11,147

 
381

 
2,459

 
11,528

 
13,987

 
702

 
2014
 
2013

79


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Lakeview Business Center (h)
 
4,332

 
1,392

 
5,068

 
650

 
1,392

 
5,718

 
7,110

 
978

 
2011
 
1996
Steele Creek Commerce Park I
 
—

 
993

 
—

 
4,314

 
1,010

 
4,297

 
5,307

 
372

 
2013
 
2014
Steele Creek Commerce Park II
 
—

 
941

 
—

 
4,457

 
957

 
4,441

 
5,398

 
246

 
2013
 
2014
Steele Creek Commerce Park III
 
—

 
1,464

 
—

 
6,396

 
1,469

 
6,391

 
7,860

 
295

 
2013
 
2014
Steele Creek Commerce Park IV
 
—

 
684

 
—

 
3,925

 
687

 
3,922

 
4,609

 
32

 
2013
 
2015
Waterford Distribution Center
 
—

 
654

 
3,392

 
501

 
654

 
3,893

 
4,547

 
928

 
2008
 
2000
LOUISIANA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Orleans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Elmwood Business Park
 
—

 
2,861

 
6,337

 
4,264

 
2,861

 
10,601

 
13,462

 
7,125

 
1997
 
1979
Riverbend Business Park
 
—

 
2,557

 
17,623

 
6,210

 
2,557

 
23,833

 
26,390

 
12,750

 
1997
 
1984
COLORADO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denver
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Rampart Distribution Center I (j)
 
3,618

 
1,023

 
3,861

 
1,455

 
1,023

 
5,316

 
6,339

 
3,872

 
1988
 
1987
Rampart Distribution Center II (j)
 
2,494

 
230

 
2,977

 
1,164

 
230

 
4,141

 
4,371

 
2,610

 
1996/97
 
1996/97
Rampart Distribution Center III (j)
 
3,660

 
1,098

 
3,884

 
1,431

 
1,098

 
5,315

 
6,413

 
2,703

 
1997/98
 
1999
Rampart Distribution Center IV (j)
 
4,855

 
590

 
—

 
7,918

 
590

 
7,918

 
8,508

 
52

 
2012
 
2014
Concord Distribution Center (h)
 
3,816

 
1,051

 
4,773

 
439

 
1,051

 
5,212

 
6,263

 
1,760

 
2007
 
2000
Centennial Park (k)
 
3,853

 
750

 
3,319

 
1,697

 
750

 
5,016

 
5,766

 
1,579

 
2007
 
1990
NEVADA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Las Vegas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Arville Distribution Center
 
—

 
4,933

 
5,094

 
330

 
4,933

 
5,424

 
10,357

 
1,527

 
2009
 
1997
MISSISSIPPI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jackson area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Interchange Business Park
 
—

 
343

 
5,007

 
3,080

 
343

 
8,087

 
8,430

 
4,926

 
1997
 
1981
     Tower Automotive
 
—

 
—

 
9,958

 
1,228

 
17

 
11,169

 
11,186

 
4,333

 
2001
 
2002
     Metro Airport Commerce Center I
 
—

 
303

 
1,479

 
1,029

 
303

 
2,508

 
2,811

 
1,439

 
2001
 
2003
TENNESSEE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Memphis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Memphis I
 
—

 
250

 
1,916

 
1,426

 
250

 
3,342

 
3,592

 
1,868

 
1998
 
1975
 
 
351,401

 
298,884

 
965,253

 
784,870

 
301,435

 
1,747,572

 
2,049,007

 
657,292

 
 
 
 

80


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
Land
 
Buildings and Improvements
 
 
Land
 
Buildings and Improvements
 
Total
 
Industrial Development (d):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
FLORIDA
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
     Oak Creek Distribution Center land
 
—

 
1,226

 
—

 
2,345

 
1,447

 
2,124

 
3,571

 
—

 
2005
 
n/a
Madison Distribution Center II & III
 
—

 
624

 
—

 
6,793

 
624

 
6,793

 
7,417

 
61

 
2012
 
2015
Madison Distribution Center land
 
—

 
565

 
—

 
503

 
565

 
503

 
1,068

 
—

 
2012
 
n/a
Horizon Commerce Park III
 
—

 
991

 
—

 
5,124

 
991

 
5,124

 
6,115

 
—

 
2008/09
 
n/a
Horizon Commerce Park land
 
—

 
9,160

 
—

 
11,211

 
9,160

 
11,211

 
20,371

 
—

 
2008/09
 
n/a
SunCoast Commerce Center land
 
—

 
10,892

 
—

 
6,966

 
11,104

 
6,754

 
17,858

 
—

 
2006
 
n/a
TEXAS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North Stemmons land
 
—

 
537

 
—

 
276

 
537

 
276

 
813

 
—

 
2001
 
n/a
ParkView Commerce Center 1-3
 
—

 
2,663

 
—

 
14,593

 
2,663

 
14,593

 
17,256

 
—

 
2014
 
2015
ParkView Commerce Center land
 
—

 
400

 
—

 
104

 
405

 
99

 
504

 
—

 
2014
 
n/a
CreekView 121 land
 
—

 
5,874

 
—

 
499

 
5,874

 
499

 
6,373

 
—

 
2015
 
n/a
Valwood Distribution Center land
 
—

 
416

 
—

 
20

 
416

 
20

 
436

 
—

 
2012
 
n/a
World Houston Int'l Business Ctr land
 
—

 
4,617

 
—

 
3,200

 
5,351

 
2,466

 
7,817

 
—

 
2000
 
n/a
World Houston Int'l Business Ctr land - 2011 expansion
 
—

 
3,498

 
—

 
3,861

 
4,783

 
2,576

 
7,359

 
—

 
2011
 
n/a
World Houston Int'l Business Ctr land - 2015 expansion
 
—

 
6,040

 
—

 
246

 
6,040

 
246

 
6,286

 
—

 
2015
 
n/a
Ten West Crossing 7
 
—

 
584

 
—

 
3,488

 
588

 
3,484

 
4,072

 
—

 
2012
 
2015
Ten West Crossing land
 
—

 
1,127

 
—

 
797

 
1,135

 
789

 
1,924

 
—

 
2012
 
n/a
West Road Business Park III
 
—

 
597

 
—

 
4,185

 
597

 
4,185

 
4,782

 
—

 
2012
 
2015
West Road Business Park IV
 
—

 
621

 
—

 
4,064

 
621

 
4,064

 
4,685

 
5

 
2012
 
2015
West Road Business Park land
 
—

 
483

 
—

 
718

 
484

 
717

 
1,201

 
—

 
2012
 
n/a
Americas Ten Business Center II & III land
 
—

 
1,365

 
—

 
1,079

 
1,365

 
1,079

 
2,444

 
—

 
2001
 
n/a
Alamo Ridge Business Park I
 
—

 
623

 
—

 
6,729

 
623

 
6,729

 
7,352

 
96

 
2007
 
2015
Alamo Ridge Business Park II
 
—

 
402

 
—

 
3,737

 
402

 
3,737

 
4,139

 
—

 
2007
 
2015
Alamo Ridge Business Park III
 
—

 
907

 
—

 
1,473

 
907

 
1,473

 
2,380

 
—

 
2007
 
n/a
 Alamo Ridge Business Park land
 
—

 
356

 
—

 
487

 
355

 
488

 
843

 
—

 
2007
 
n/a
 Eisenhauer Point Business Park 1 & 2
 
—

 
1,881

 
—

 
4,879

 
1,881

 
4,879

 
6,760

 
—

 
2015
 
n/a
 Eisenhauer Point Business Park land
 
—

 
2,513

 
—

 
324

 
2,519

 
318

 
2,837

 
—

 
2015
 
n/a
ARIZONA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kyrene 202 Business Park VI
 
—

 
936

 
—

 
6,084

 
936

 
6,084

 
7,020

 
—

 
2011
 
2015

81


SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015 (In thousands, except footnotes)
Description
 
Encumbrances
 
Initial Cost to the Company
 
Costs
Capitalized Subsequent to Acquisition
 
Gross Amount Carried at Close of Period
 
Accumulated Depreciation
 
Year Acquired
 
Year Constructed
 
 
 
 
Land
 
Buildings and Improvements
 
 
 
Land
 
Buildings and Improvements
 
Total
 
 
 
 
 
 
Kyrene 202 Business Park land
 
—

 
1,244

 
—

 
878

 
1,244

 
878

 
2,122

 
—

 
2011
 
n/a
35th Avenue Distribution Center - redevelopment
 
—

 
—

 
—

 
1,171

 
—

 
1,171

 
1,171

 
—

 
1997
 
n/a
Ten Sky Harbor Business Center
 
—

 
1,568

 
—

 
2,084

 
1,569

 
2,083

 
3,652

 
—

 
2015
 
n/a
Falcon Field Business Center land
 
—

 
1,315

 
—

 
50

 
1,315

 
50

 
1,365

 
—

 
2015
 
n/a
     Airport Distribution Center II land
 
—

 
300

 
—

 
117

 
300

 
117

 
417

 
—

 
2000
 
n/a
NORTH CAROLINA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Steele Creek Commerce Center VI
 
—

 
867

 
—

 
2,037

 
869

 
2,035

 
2,904

 
—

 
2013/14
 
n/a
     Steele Creek Commerce Center land
 
—

 
1,804

 
—

 
999

 
1,821

 
982

 
2,803

 
—

 
2013/14/15
 
n/a
     Airport Commerce Center III land
 
—

 
855

 
—

 
763

 
855

 
763

 
1,618

 
—

 
2008
 
n/a
MISSISSIPPI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Metro Airport Commerce Center II land
 
—

 
307

 
—

 
399

 
307

 
399

 
706

 
—

 
2001
 
n/a
 
 
—

 
68,158

 
—

 
102,283

 
70,653

 
99,788

 
170,441

 
162

 
 
 
 
Total real estate owned (a)(b)
 
$
351,401

 
367,042

 
965,253

 
887,153

 
372,088

 
1,847,360

 
2,219,448

 
657,454

 
 
 
 
See accompanying Report of Independent Registered Public Accounting Firm on Financial Statement Schedules.
 
 

 
 
 
 



82


(a)  Changes in Real Estate Properties follow:                                                                                                                                                                                                                                                                                                                                                                                            
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands)
Balance at beginning of year 
$
2,074,946

 
1,927,326

 
1,768,032

Purchases of real estate properties 
28,648

 
47,477

 
65,387

Development of real estate properties
95,032

 
97,696

 
76,240

Improvements to real estate properties
25,778

 
19,862

 
21,438

Carrying amount of investments sold 
(4,750
)
 
(17,049
)
 
(3,475
)
Write-off of improvements 
(206
)
 
(366
)
 
(296
)
Balance at end of year (1) 
$
2,219,448

 
2,074,946

 
1,927,326


(1)
Includes 20% noncontrolling interests in Castilian Research Center of $1,795,000 at December 31, 2015 and $1,794,000 at December 31, 2014 and in University Business Center of $6,670,000 and $6,536,000, respectively.

Changes in the accumulated depreciation on real estate properties follow:                                                                                                                                                                                                                                                                                                                                                                                  
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands)
Balance at beginning of year 
$
600,526

 
550,113

 
496,247

Depreciation expense 
59,882

 
57,303

 
54,284

Accumulated depreciation on assets sold 
(2,748
)
 
(6,525
)
 
(126
)
Other 
(206
)
 
(365
)
 
(292
)
Balance at end of year 
$
657,454

 
600,526

 
550,113

 
 
(b)
The estimated aggregate cost of real estate properties at December 31, 2015 for federal income tax purposes was approximately $2,188,766,000 before estimated accumulated tax depreciation of $425,700,000.  The federal income tax return for the year ended December 31, 2015, has not been filed and accordingly, this estimate is based on preliminary data.

(c)
The Company computes depreciation using the straight-line method over the estimated useful lives of the buildings (generally 40 years) and improvements (generally 3 to 15 years).   

(d)
The Company transfers development properties to real estate properties the earlier of 80% occupancy or one year after completion of the shell construction.

(e)
EastGroup has a $54,689,000 limited recourse first mortgage loan with an insurance company secured by Dominguez, Industry I & III, Kingsview, Shaw, Walnut and Washington.  The loan has a recourse liability of $5 million which will be released based on the secured properties generating certain base rent amounts.

(f)
EastGroup has a $50,971,000 non-recourse first mortgage loan with an insurance company secured by Arion 16, Broadway VI, Chino, East University I & II, Northpark, Santan 10 II, 55th Avenue and World Houston 1 & 2 and 21 & 23.

(g)
EastGroup has a $55,223,000 non-recourse first mortgage loan with an insurance company secured by America Plaza, Central Green, Glenmont, Interstate I-III, Rojas, Stemmons Circle, Venture, West Loop and World Houston 3-9.

(h)
EastGroup has a $46,584,000 non-recourse first mortgage loan with an insurance company secured by Arion 18, Beltway Crossing VI & VII, Commerce Park II & III, Concord, Interstate V-VII, Lakeview, Ridge Creek II, Southridge IV & V and World Houston 32.

(i)
EastGroup has a $25,567,000 non-recourse first mortgage loan with an insurance company secured by Huntwood and Wiegman I.

83



(j)
EastGroup has a $53,563,000 non-recourse first mortgage loan with an insurance company secured by Alamo Downs, Arion 1-15 & 17, Rampart I-IV, Santan 10 I and World Houston 16.

(k)
EastGroup has a $61,312,000 non-recourse first mortgage loan with an insurance company secured by 40th Avenue, Beltway Crossing V, Centennial Park, Executive Airport, Ocean View, Techway Southwest IV, Wetmore 5-8 and World Houston 26, 28, 29 & 30.















84


SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 2015

 
Number of Loans
 
Interest
Rate
 
 
Maturity Date
 
Periodic
Payment Terms
First mortgage loans:
 
 
 
 
 
 
 
 
JCB Limited - California
1
 
5.25
%
 
 
October 2017
 
Principal and interest due monthly
JCB Limited - California
1
 
5.25
%
 
 
October 2017
 
Principal and interest due monthly
Total mortgage loans (a)
2
 
 

 
 
 
 
 

 
Face Amount
of Mortgages
Dec. 31, 2015
 
Carrying
Amount of
Mortgages
 
Principal
Amount of Loans
Subject to Delinquent
Principal or Interest (b)
 
(In thousands)
First mortgage loans:
 
 
 
 
 
JCB Limited - California
$
1,977

 
1,977

 
—

JCB Limited - California
2,898

 
2,898

 
—

Total mortgage loans
$
4,875

 
4,875
 (c)(d)
 
—

 

(a)
Reference is made to allowance for possible losses on mortgage loans receivable in the Notes to Consolidated Financial Statements.
(b)
Interest in arrears for three months or less is disregarded in computing principal amount of loans subject to delinquent interest.
(c)
Changes in mortgage loans follow:
 
Years Ended December 31,
2015
 
2014
 
2013
(In thousands)
Balance at beginning of year
$
4,991

 
8,870

 
9,323

Advances on mortgage loans receivable
—

 
—

 
—

Payments on mortgage loans receivable
(116
)
 
(3,902
)
 
(463
)
Amortization of discount on mortgage loan receivable
—

 
23

 
10

Balance at end of year
$
4,875

 
4,991

 
8,870

 
(d)  The aggregate cost for federal income tax purposes is approximately $4.88 million.  The federal income tax return for the year ended December 31, 2015, has not been filed and, accordingly, the income tax basis of mortgage loans as of December 31, 2015, is based on preliminary data.



See accompanying Report of Independent Registered Public Accounting Firm on Financial Statement Schedules.

85


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
EASTGROUP PROPERTIES, INC.
 
 
 
 
 
By: /s/ MARSHALL A. LOEB 
 
 
Marshall A. Loeb, Chief Executive Officer, President & Director
 
 
February 17, 2016
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
* 
 
* 
D. Pike Aloian, Director
 
H. C. Bailey, Jr., Director
February 17, 2016
 
February 17, 2016
 
 
 
* 
 
* 
H. Eric Bolton, Jr., Director
 
Hayden C. Eaves III, Director
February 17, 2016
 
February 17, 2016
 
 
 
* 
 
* 
Fredric H. Gould, Director
 
Mary Elizabeth McCormick, Director
February 17, 2016
 
February 17, 2016
 
 
 
* 
 
* 
David M. Osnos, Director
 
Leland R. Speed, Chairman Emeritus of the Board
February 17, 2016
 
February 17, 2016
 
 
 
* 
 
/s/ N. KEITH MCKEY 
David H. Hoster II, Chairman of the Board
 
* By N. Keith McKey, Attorney-in-fact
February 17, 2016
 
February 17, 2016
 

/s/ MARSHALL A. LOEB
 
Marshall A. Loeb, Chief Executive Officer,
 
President & Director
 
(Principal Executive Officer)
 
February 17, 2016
 
 
 
/s/ BRUCE CORKERN 
 
Bruce Corkern, Sr. Vice-President, Controller and
 
Chief Accounting Officer
 
(Principal Accounting Officer)
 
February 17, 2016
 
 
 
/s/ N. KEITH MCKEY 
 
N. Keith McKey, Executive Vice-President,
 
Chief Financial Officer, Treasurer and Secretary
 
(Principal Financial Officer)
 
February 17, 2016
 


86


EXHIBIT INDEX
 
(3)
Exhibits:

The following exhibits are filed with this Form 10-K or incorporated by reference to the listed document previously filed with the SEC:

Number
Description
(3)
Articles of Incorporation and Bylaws
(a)
Articles of Incorporation (incorporated by reference to Appendix B to the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 5, 1997).
(b)
EastGroup Properties, Inc. Bylaws, Amended through December 5, 2014 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed December 10, 2014).
 
 
(10)
Material Contracts (*Indicates management or compensatory agreement):
(a)
Form of Severance and Change in Control Agreement that the Company has entered into with Leland R. Speed, David H. Hoster II, Marshall A. Loeb and N. Keith McKey (incorporated by reference to Exhibit 10(a) to the Company's Form 8-K filed January 7, 2009).*
(b)
Form of Severance and Change in Control Agreement that the Company has entered into with John F. Coleman, William D. Petsas, Brent W. Wood and C. Bruce Corkern (incorporated by reference to Exhibit 10(b) to the Company's Form 8-K filed January 7, 2009).*
(c)
Third Amended and Restated Credit Agreement Dated January 2, 2013 among EastGroup Properties, L.P.; EastGroup Properties, Inc.; PNC Bank, National Association, as Administrative Agent; Regions Bank and SunTrust Bank as Co-Syndication Agents; U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Documentation Agents; PNC Capital Markets LLC, as Sole Lead Arranger and Sole Bookrunner; and the Lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed January 8, 2013).
(d)
First Amendment to Third Amended and Restated Credit Agreement, dated as of August 9, 2013, among EastGroup Properties, L.P., EastGroup Properties, Inc. and PNC Bank, National Association, as administrative agent, and each of the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed August 30, 2013).
(e)
Second Amendment to Third Amended and Restated Credit Agreement dated as of July 30, 2015 by and among EastGroup Properties, L.P.; EastGroup Properties, Inc.; PNC Bank, National Association, as Administrative Agent; and each of the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 4, 2015).
(f)
EastGroup Properties, Inc. 2013 Equity Incentive Plan (incorporated by reference to Appendix A to the proxy material for the 2013 Annual Meeting of Stockholders).*
(g)
EastGroup Properties, Inc. Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 2, 2015).*
(h)
Note Purchase Agreement, dated as of August 28, 2013, among EastGroup Properties, L.P., EastGroup Properties, Inc. and the purchasers of the notes party thereto (including the form of the 3.80% Senior Notes due August 28, 2025) (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 30, 2013).
(i)
Sales Agency Financing Agreement dated February 19, 2014 between EastGroup Properties, Inc. and BNY Mellon Capital Markets, LLC (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed February 25, 2014).
(j)
Sales Agency Financing Agreement dated February 19, 2014 between EastGroup Properties, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 1.2 to the Company's Form 8-K filed February 25, 2014).
(k)
Sales Agency Financing Agreement dated February 19, 2014 between EastGroup Properties, Inc. and Raymond James & Associates, Inc. (incorporated by reference to Exhibit 1.3 to the Company's Form 8-K filed February 25, 2014).
 
 
(12)
Statement of computation of ratio of earnings to combined fixed charges and preferred stock distributions (filed herewith)
 
 
(21)
Subsidiaries of EastGroup Properties, Inc. (filed herewith).

87


 
 
(23)
Consent of KPMG LLP (filed herewith).
 
 
(24)
Powers of attorney (filed herewith).
 
 
(31)
Rule 13a-14(a)/15d-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
(a)
Marshall A. Loeb, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(32)
Section 1350 Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
(a)
Marshall A. Loeb, Chief Executive Officer
(b)
N. Keith McKey, Chief Financial Officer
 
 
(101)
The following materials from EastGroup Properties, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of income and comprehensive income, (iii) consolidated statements of changes in equity, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.





88