1
______________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K/A
AMENDMENT TO FORM 10-K
Filed Pursuant to
THE SECURITIES EXCHANGE ACT OF 1934
EASTGROUP PROPERTIES
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 2
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Annual Report on
Form 10-K for the year ended December 31, 1994 as set forth in the pages
attached hereto:
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 14. Consolidated Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: February 21, 1996 EASTGROUP PROPERTIES
By: /s/ N. Keith McKey
----------------------
N. Keith McKey
Executive Vice President,
Chief Financial Officer and
Secretary
Page 1 of 46 Pages
2
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
SHARES OF BENEFICIAL INTEREST MARKET PRICES AND DIVIDENDS
The Trust's shares of beneficial interest are presently listed for trading
on the New York Stock Exchange under the symbol "EGP". Until May 1994, the
Trust's shares were listed on the American Stock Exchange. The following table
shows the high and low share prices for each quarter as reported in the
applicable stock exchange during the past two years and per share distributions
paid for each quarter.
Calendar 1994 Calendar 1993
----------------------------- -----------------------------
Quarter High Low Distributions High Low Distributions
- ------- ---- --- ------------- ---- --- -------------
First $21 1/8 19 $ .43 $20 1/4 16 1/2 $ .38
Second 20 7/8 18 1/4 .43 19 1/8 17 .38
Third 19 7/8 18 3/8 .43 23 5/8 18 1/4 .38
Fourth 19 3/4 16 1/2 .45 24 1/4 20 1/8 .41
----- -----
$1.74 $1.55
===== =====
As of February 15, 1995, there were 672 holders of record of the Trust's
shares of beneficial interest. Approximately 76.7% of the Trust's outstanding
shares are held by CEDE & Co., which is accounted for as a single shareholder
of record for multiple beneficial owners.
3
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for
the Trust and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.
Year Ended December 31
------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Revenues
Income from real estate operations............ $ 23,194 13,771 11,079 9,877 11,075
Land rents.................................... 398 856 979 1,271 1,345
Interest...................................... 1,054 1,174 1,305 1,946 2,172
Other......................................... 249 287 332 36 519
--------- --------- --------- --------- ---------
24,895 16,088 13,695 13,130 15,111
--------- --------- --------- --------- ---------
Expenses
Operating expenses from real estate operations 9,741 6,184 5,289 4,647 5,960
Interest expense.............................. 3,747 3,112 2,749 2,970 3,034
Depreciation and amortization................. 4,481 3,110 2,365 2,016 1,895
Minority interests in joint ventures.......... 163 78 - -
General and administrative expense............ 2,046 1,573 1,335 1,355 1,262
Stock appreciation rights and incentive
compensation expense........................ (129) 320 357 64 -
Provision for (recovery of) possible losses... - (144) 1,675 - -
--------- --------- --------- --------- ---------
20,049 14,233 13,770 11,052 12,151
Income (loss) before gains <losses> --------- --------- --------- --------- ---------
on investements ................................. 4,846 1,855 (75) 2,078 2,960
--------- --------- --------- --------- ---------
Gains (losses) on investments
Real estate................................... 2,322 3,408 (3,598) 4,367 514
Real estate investment trust securities....... - 1,152 - (745) (444)
Bond restructuring............................ - - - - (44)
--------- --------- --------- --------- ---------
Net income (loss).................................. $ 7,168 6,415 (3,673) 5,700 2,986
========= ========= ========= ======== =========
Per share data:
Net Income (loss)............................. $ 1.74 $ 2.61 (1.49) 2.28 1.19
========= ========= ========= ======== =========
Book value (at end of period)................. 19.46 19.83 19.14 22.09 21.32
Cash distributions declared................... 1.31 1.60 1.52 1.88 2.15
Cash distributions paid....................... 1.74 1.55 1.52 2.00 2.30
Weighted average number of shares outstanding..... 4,114 2,460 2,459 2,503 2,505
Balance sheet data (at end of period):
Real estate investments at cost............... 166,927 116,102 94,713 90,196 94,443
Total assets.................................. 154,860 107,508 85,529 86,514 87,751
Mortgage, bond and bank loans payable......... 68,229 53,203 35,643 30,006 32,402
Total liabilities............................. 72,684 58,707 38,496 31,730 34,340
Total shareholders' equity.................... 82,176 48,801 47,033 54,784 53,411
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
Real estate properties increased $53,832,000 during 1994. This is
primarily the result of the following acquisitions:
Acquisition
Date Acquired Property Size Location Cost
------------- -------- ---- -------- ----
(In thousands)
Industrial:
May 26, 1994 Exchange Distribution Center 139,000 sq.ft. Orlando, FL $ 3,017
May 26, 1994 JetPort 516 Commerce Park 55,000 sq.ft. Tampa, FL 1,335
Jul. 19, 1994 Phillips Distribution Center 125,000 sq.ft. Jacksonville, FL 4,336
Sep. 30, 1994 Northwest Point Business Park 232,000 sq.ft. Houston, TX 6,884
Oct. 31, 1994 Westport Commerce Center 140,000 sq.ft. Tampa, FL 4,780
Dec. 20, 1994 Baxter Warehouse 60,000 sq.ft. Oklahoma City, OK 1,274
Apartments:
Apr. 7, 1994 Plantations at Killearn 184 units Tallahassee, FL 7,206
Aug. 4, 1994 Hampton House 164 units Jackson, MS 6,281
Sep. 13, 1994 Grande Pointe 180 units Daphne, AL 6,114
Office Buildings:
Feb. 1, 1994 Santa Fe Energy 176,000 sq.ft. Houston, TX 10,416
-------
$51,643
=======
The Trust acquired 75% interests in Exchange Distribution Center
("Exchange"), JetPort 516 Commerce Park ("JetPort 516") and Westport Commerce
Center ("WestPort"). The acquisition cost listed above for these properties is
100%.
Capital improvements over $200,000 on properties are listed separately
below with all other improvements in other (in thousands).
8150 Leesburg Pike Office Building $ 1,640
Venture Distribution Center 319
Lake Pointe Business Park 396
Jetport Commerce Park 385
Other 1,662
---------
$ 4,402
=========
The improvements at 8150 Leesburg Pike Office Building ("Leesburg Pike")
included new cladding, awnings, energy-saving windows and parking lot
resurfacing that totally revitalized the 13-story, 203,000 sq. ft. building.
Total capital expenditures have been categorized as follows (in thousands):
Renovation of Leesburg Pike $ 1,420
Upgrades on acquisitions 965
Tenant improvements:
New tenants 540
Renewal tenants 588
Other 889
---------
$ 4,402
=========
Accumulated depreciation increased $1,907,000 due to depreciation and
amortization expense of $4,119,000 offset by the writeoff of fully depreciated
assets of $2,212,000. Depreciation and amortization expense includes $204,000
relating to the amortization of leasing costs and $158,000 relating to the
amortization of financing costs. The Trust expenses apartment unit turnover
costs such as carpet, painting and small appliances.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
FINANCIAL CONDITION (continued)
Mortgage loans receivable increased $934,000 during 1994. The Trust
loaned $675,000 to Exchange Partners, Ltd. which contributed those funds plus
$79,000 for its 25% interest in Exchange. Other increases were the result of
amortization of loan discounts of $154,000 and $70,000 capitalized due to the
restructuring of the Country Club mortgage note receivable effective January 1,
1994. Under the terms of this restructure, $70,000 of past due interest and
land rent was added to the outstanding mortgage balance. The interest rate on
the mortgage decreased from 9% to 8.5% beginning January 1, 1994 and will
increase to 8.75% as of January 1, 1995 and to 9% as of January 1, 1996 through
maturity. The maturity was extended from August 28, 1996 to December 31, 1999.
These increases in mortgage loans receivable were offset by the repayment of
the 56th Street mortgage loans of $520,000 and scheduled principal payments
received of $214,000. Also, the motel loans were reduced $922,000 as a result
of charging off $500,000 to the allowance and because the Trust received
$422,000 from a bankruptcy settlement related to the Trust's foreclosure on the
motels in a prior year.
Land and land purchase-leaseback investments decreased $3,441,000 during
1994, primarily as a result of the sale of the Parklane on Peachtree
("Parklane") land purchase-leaseback investment. In April 1994, the Trust sold
its Parklane land purchase-leaseback investment in Atlanta, Georgia for
$3,500,000 and acquired, through a tax deferred exchange transaction, the
Plantations at Killearn Apartments ("Plantations") in Tallahassee, Florida for
a total purchase price of $7,206,000. Also, the Trust sold its investment of
$2,053,000 in the five remaining lots at North Shore for the debt on the
property. The Trust wrote off the Bellevue land purchase-leaseback of $429,000
as a result of the move out of the properties largest tenant which resulted in
an occupancy level of 27%.
Investments in real estate investment trusts decreased from $1,067,000 at
December 31, 1993 to $954,000 at December 31, 1994. During 1994, the Trust
recognized $123,000 of equity in earnings of LNH REIT, Inc. ("LNH") and
unrealized gains of $21,000, offset by dividends received of $257,000.
Other assets increased $436,000 during 1994. Financing costs of $303,000
were capitalized which included costs of $134,000 on the $45,000,000
acquisition line of credit signed June 30, 1994 and loan fees of $169,000.
Leasing commissions capitalized during 1994 amounted to $787,000 which include
$338,000 related to new tenants and $449,000 related to renewal tenants. Other
increases were due to escrows of real estate tax, insurance and repairs
required under mortgage notes payable. Amortization of financing costs and
leasing commissions in 1994 amounted to $158,000 and $204,000, respectively.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
FINANCIAL CONDITION (continued)
Mortgage notes payable on real estate properties, wrap mortgages and
improvement bonds increased $4,920,000 during 1994. In January 1994, the Trust
used $3,300,000 of the proceeds from the public offering described under
"Liquidity and Capital Resources" to repay the Rampart Distribution Center
("Rampart") mortgage note payable. Also, the Trust repaid the Venture Duplex
Center ("Venture Duplex") mortgage note payable of $605,000 and the Venture
Distribution Center ("Venture Distribution") mortgage note payable of
$1,537,000 with funds from its line of credit with a commercial bank. Other
reductions in mortgage notes payable on real estate and wrap mortgages were the
result of scheduled principal repayments of $805,000 and the debt of $2,211,000
assumed by the buyer of the five North Shore lots. These reductions were
offset by four new mortgages as follows:
DATE
OF INTEREST MATURITY AMOUNT
LOAN PROPERTY RATE DATE OF MORTGAGE
- ----------------------------------------------------------------------------------------
(In thousands)
5-25-94 Sutton House Apartments 8.0% 10-31-03 $6,000
5-26-94 Jetport 516 8.5% 1-1-03 657
9-30-94 Northwest Point
Business Park 7.75% 3-1-01 4,321
7-21-94 56th Street 8.88% 8-1-04 2,400
---------
$ 13,378
=========
Notes payable to banks increased from $18,565,000 at December 31, 1993 to
$28,671,000 at December 31, 1994. In January 1994, the Trust repaid with
proceeds from the public offering the acquisition line of credit. The Trust
then borrowed $24,047,000 under the $45,000,000 acquisition line of credit to
purchase Phillips Distribution Center ("Phillips"), Hampton House Apartments
("Hampton House") Grande Pointe Apartments ("Grande Pointe"), Northwest Point
Business Park ("Northwest") and Westport. The $45,000,000 acquisition line of
credit has a three year term. The Trust also borrowed $4,624,000 under the
$5,000,000 working capital line of credit to repay two mortgages that matured
in 1994, the Venture Duplex mortgage of $605,000 and the Venture Distribution
mortgage of $1,537,000; to purchase the Baxter Healthcare Warehouse ("Baxter")
of $1,280,000 and for working capital needs. On January 9, 1995, $1,280,000
was borrowed on the acquisition line and the proceeds reduced the working
capital line.
Outstanding shares of beneficial interest increased by 1,760,641 shares
and additional paid-in capital increased by $29,953,000 during the year. In
January 1994, the Trust completed the public offering of 1,750,000 shares of
beneficial interest at $20 per share and used the net proceeds from the
offering of $32,164,000 along with additional Trust funds to repay the
acquisition line of credit of $18,564,000, to purchase Santa Fe Energy Building
("Santa Fe") for $10,416,000 and to repay the Rampart mortgage of $3,300,000.
Sutton House Apartments ("Sutton House") and Lake Pointe Business Park ("Lake
Pointe") were purchased in October 1993 with funds from the acquisition line of
credit. In December 1994, Eastover Corporation merged into a wholly-owned
subsidiary of EastGroup Properties and the shareholders of Eastover received
six-tenths (.6) of one share of EastGroup for each share of Eastover owned by
them. Since Eastover Corporation owned 728,178 shares of EastGroup and these
shares were retired, this transaction resulted in a net decrease of 32,090
shares outstanding.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
FINANCIAL CONDITION (continued)
The Trust also issued 11,397 shares to officers to terminate the Incentive
Compensation Units Plan, officers exercised stock options for 78,000 shares and
the Trust purchased 46,666 shares from the officers.
Undistributed earnings increased from $8,083,000 at December 31, 1993 to
$9,723,000 at December 31, 1994 as a result of net income for financial
reporting purposes of $7,168,000 exceeding dividends declared of $5,528,000.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Property net operating income (PNOI) from real estate properties, defined
as income from real estate operations less property operating expenses (before
interest expense and depreciation) increased by $5,866,000 or 77% for 1994
compared to 1993.
Property net operating income (loss) by property type was as follows:
Year Ended
December 31,
--------------
1994 1993
---- ----
(in thousands)
Industrial $ 5,038 $ 2,385
Apartments 4,663 2,870
Office Buildings 3,776 2,312
Other (24) 20
-------- -------
Total PNOI $ 13,453 $ 7,587
======== =======
PNOI from industrial properties increased in 1994, as a result of the
acquisition of 56th Street Commerce Park ("56th Street") and JetPort Commerce
Park ("JetPort") in September 1993, Lake Pointe in October 1993, the 1994
acquisitions mentioned earlier and improved operations at Rampart, Venture
Distribution and Sunbelt Distribution Center ("Sunbelt"). Industrial
properties held throughout 1994 and 1993 showed an increase in PNOI of 23% for
1994. The Trust's apartment properties increase in PNOI in 1994 is
attributable primarily to Sutton House, which was acquired in October 1993, the
1994 acquisitions mentioned earlier and improved operations at LaVista Crossing
Apartments ("LaVista") and Garden Villa Apartments ("Garden Villa"). PNOI
from the Trust's office buildings increased for 1994 as a result of the
acquisition of Santa Fe in February 1994 and higher occupancy at Leesburg Pike.
Rental income included straight line rent of $211,000 in 1994 and $44,000 in
1993 resulting from income recorded from leases on the straight line method as
compared to when cash was actually received. Most of the straight line rent in
1994 ($174,000) was recorded on the Santa Fe Energy lease in the Santa Fe
Energy Building. The lease calls for annual rental rates of $13.00 per square
foot through July 31, 1994, with contractual step-ups of $1.00 per square foot
in each subsequent year through July 31, 1999. The Trust is recording rent at
a straight line rate of $15.00 per square foot which will amortize to the lease
rate in September 1997. The Trust will then record the contractual amount.
The Trust is recording the $15.00 straight line rate because of the probability
of renegotiating the lease for a longer term and lower contractual rates.
Equity in earnings from LNH of $123,000 was recorded during 1994, compared
to $67,000 for 1993.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
Interest income on mortgage loans decreased $115,000 for 1994 as a result
of interest income which was not accrued on four past due motel mortgage loans
during 1994 and the repayment of $956,000 in mortgage loans at September 30,
1993. This decrease was partially offset by interest on mortgage loans made by
the Trust to the co-owner of 56th Street, JetPort, Exchange and WestPort. The
Trust is negotiating a restructuring of the four past due motel mortgage loans
with the borrower. Although the Trust may restructure certain of these loans,
the Trust does not believe, based on the value of its collateral, that any
additional allowances will be required.
Interest expense to banks increased as a result of higher average bank
borrowings on the Trust's revolving line of credit (an average daily balance of
$11,086,000 during 1994 and $4,554,000 during 1993) and an increase in the
prime rate by 2.5% during the year.
At the Trust's annual meeting on December 16, 1994, the shareholders voted
to implement a new incentive compensation plan which eliminated stock
appreciation rights and incentive compensation units. Stock appreciation
rights expense (recovery), which was adjusted quarterly based on fluctuations
in the Trust's quoted share price, was ($251,000) in 1994 compared to $320,000
in 1993 and the cost to terminate the incentive compensation unit plan was
$122,000 in 1994. These amounts are shown in the category of stock
appreciation rights and incentive compensation expense on the statement of
operations and are not included in the computation of funds from operations.
General and administrative expenses increased $473,000 in 1994 as a result
of listing fees from changing from the American Stock Exchange to the New York
Stock Exchange of $93,000 and increases in other general and administrative
expenses relative to the increase in assets and the number of shareholders
after the public offering and the recent property acquisitions.
The Trust originally recorded a provision for possible loss of $175,000 on
the Madison Square land purchase-leaseback investment in 1992. The judicial
foreclosure sale of this asset was held on March 22, 1993. The Trust
successfully recovered $144,000 of its investment (net of legal expenses
incurred) in May 1993, and were recorded the amount as a recovery of a
provision for possible loss.
In April 1994, the Trust sold its Parklane on Peachtree land
purchase-leaseback investment for $3,491,000 and used the proceeds to acquire
the Plantations at Killearn Apartments through a tax deferred exchange. For
financial reporting purposes, the Trust recognized a gain of $2,494,000 on the
sale. The Trust sold the five remaining lots in North Shore for the
non-recourse debt on the property. A gain on the final disposition of the
property of $257,000 was recorded. These gains were offset by the writedown of
$429,000 on the Bellevue land purchase leaseback investment. In September
1993, the Trust sold its Kings Gate West Apartments land purchase-leaseback
investment for $4,300,000 and used the proceeds, along with cash on hand, to
purchase the 56th Street and JetPort properties through a tax deferred exchange
transaction. For financial reporting purposes, the Trust recognized a gain of
$3,408,000 on the sale. Also, in 1993, the Trust sold its investment in other
real estate investment trust securities for $1,966,000 and recognized a gain of
$1,152,000.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
Results of Operations (continued)
1993 Compared to 1992
PNOI from real estate properties increased by $1,797,000 or 31%, from
$5,790,000 for December 31, 1992 to $7,587,000 for December 31, 1993. Property
net operating income (loss) by property type was as follows:
Year ended
December 31
-------------------
1993 1992
---- ----
(In thousands)
Industrial...................................... $2,385 2,147
Apartments...................................... 2,870 1,755
Office Buildings................................ 2,312 2,151
Other........................................... 20 (263)
------ ------
Total PNOI.................................. $7,587 5,790
====== ======
PNOI from industrial properties increased $238,000, primarily as a result
of the acquisition of 56th Street and JetPort in September 1993 and Lake Pointe
in October 1993. The Trust's apartment properties had an increase in PNOI of
$1,115,000 for 1993, attributable primarily to Doral Club, which was acquired
in October 1992, improved leasing and rental rates at La Vista and the
acquisition of Sutton House in October 1993. Doral Club contributed $623,000
to the increase in PNOI, La Vista contributed $264,000 and Sutton contributed
$173,000. PNOI from the Trust's office buildings increased by $161,000, due
to higher occupancy at Leesburg Pike.
Equity in earnings from LNH of $67,000 was recorded during 1993, compared
to $153,000 in 1992. This decrease is the result of lower LNH income due
primarily to the repayment of two mortgage loans. The increase in other income
is primarily attributable to management fee income of $133,000 received during
1993, compared to management fee income of $114,000 received during 1992. This
management fee income is earned pursuant to the management agreement between
LNH REIT Managers and LNH.
Interest income on mortgage loans decreased $128,000 from $1,284,000 for
1992, to $1,156,000 for 1993, primarily as a result of interest income which
was not accrued on three past due motel mortgage loans during the year ended
December 31, 1993.
Interest expense on real estate properties increased $92,000 from
$2,479,000 for 1992 to $2,571,000 for December 31, 1993. In 1993, the Trust
obtained mortgage financing on Garden Villa and Deerwood and recorded interest
expense of $232,000 on the new mortgages. Also, the Trust refinanced Doral
Club in 1993 and recorded interest expense of $393,000 for 1993 compared to
$69,000 for 1992 due to the acquisition of the property in October 1992. This
increase in interest expense was partially offset by interest savings of
$399,000 on the undeveloped land at North Shore, as a result of the Trust's
decision to liquidate this investment.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
RESULTS OF OPERATIONS (CONTINUED)
Interest expense to banks increased as a result of higher average bank
borrowings on the Trust's revolving lines of credit (an average daily balance
of $4,554,000 during 1993 and $776,000 during 1992).
General and administrative expenses increased $238,000, primarily as a
result of increases of $65,000 in incentive compensation expense, $30,000 in
contribution expense, $29,000 in shareholder reports expense and $32,000 in
shared general and administrative expenses.
The Trust originally recorded a provision for possible loss of $175,000 on
the Madison Square land purchase-leaseback investment in 1992. The judicial
foreclosure sale of this asset was held on March 22, 1993. The Trust
successfully recovered $144,000 of this provision for possible loss (net of
legal expenses incurred) in May 1993, as a result of bidding on this investment
at the foreclosure sale above the first mortgage balance. These proceeds were
recorded as recovery of a provision for possible loss.
In September 1993, the Trust sold its Kings Gate West Apartments and
purchase-leaseback investment for $4,300,000 and used the proceeds, along with
cash on hand, to purchase the 56th Street and JetPort properties through a tax
deferred exchange transaction. For financial reporting purposes, the Trust
recognized a gain of $3,408,000 on the sale in the third quarter of 1993. The
Trust also sold its investment in Medical Resources Companies of America for
$249,000 during 1993 and recorded a gain of $126,000 on the sale. A gain on
investments of $1,022,000 was also recorded on the sale of other real estate
investment trust securities to Parkway, an affiliated company. The two cash
sales of $1,759,000 were made at the market prices on the date of sale.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8,448,000 in 1994. The
Trust distributed $7,339,000 of this amount in dividends which left $1,109,000
for other purposes. Other sources of cash were collections on mortgage loan
receivables, sales of real estate investments, bank borrowings on the
$5,000,000 working capital line and the $45,000,000 acquisition line,
borrowings on new mortgage notes and the public offering in January 1994.
Primary uses of cash were for purchases of real estate properties, capital
improvements, bank debt payments and mortgage note payments and
acquisition loans to its partners.
The Trust began 1994 with $18,565,000 borrowed on the acquisition line of
credit. In January 1994, the Trust completed the public offering of 1,750,000
shares of beneficial interest at $20 per share and used the net proceeds from
the Offering of approximately $32,164,000 along with additional Trust funds to
repay $18,564,000 on the acquisition line of credit, to purchase Santa Fe for
$10,416,000 and to repay the Rampart mortgage of $3,300,000. Sutton House and
Lake Pointe were purchased in October 1993 with funds from the acquisition line
of credit. After this, the Trust had $31,338,000 in mortgage and other debt
and $1,000 owed on the acquisition line.
The Trust implemented a property acquisition program and ended 1994 with
the following debt (in thousands):
Mortgage notes payable - fixed rate $ 37,273
Mortgage notes payable - floating rate 2,285
Bank notes payable - floating rate 28,671
--------
Total debt $ 68,229
========
A one percent increase in the prime interest rate increases interest
expense $310,000 on an annual basis. The Trust is examining several ways to
reduce its exposure to floating rate debt, including discontinuing purchases
with floating rate debt, selling properties that do not meet its continuing
strategy and obtaining fixed rate mortgage financing. The Trust does not
anticipate a return to the capital markets until its stock price improves.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Trust has a $5,000,000 revolving line of credit, which bears interest
at the prime rate and matures on April 30, 1995. Borrowings on this line were
$4,624,000 at December 31, 1994. The Trust also has a $45,000,000 acquisition
line, which bears interest at the prime rate plus .125% and matures on April
30, 1997. Borrowings on this line were $24,047,000 at December 31, 1994. On
January 9, 1995, $1,280,000 was borrowed on the acquisition line and the
proceeds reduced the working capital line. The acquisition note's principal
balance must be reduced to $1,000 by May 31, 1996 or the Trust cannot request
additional advances under the line and the total outstanding balance of the
line must be reduced to $30,000,000 by December 1, 1996.
In March 1995, the Trust entered into an agreement with Walker
Investments, and certain entities affiliated with Walker Investments, to
acquire the 383,775 shares of LNH owned by the Walker Group and to acquire the
remaining 50% of LNH Reit Managers, a Mississippi general partnership, at a
cost of $3,070,200. The Trust negotiated a credit facility of $3,000,000 with
a commercial bank to finance the purchase. The line is for one year at the
prime rate of interest and will be secured by the stock.
Capital expenditures for 1995 are budgeted to be approximately $3,413,000
and are categorized as follows (in thousands):
Upgrades on acquisitions $ 765
New development costs 957
Tenant Improvements:
New Tenants 764
Renewal Tenants 308
Other 619
--------
$ 3,413
========
The Trust anticipates that its current cash balance, operating cash flow
and borrowings (including borrowings under the revolving line of credit) will
be adequate to pay the Trust's (i) operating and administrative expenses, (ii)
debt service obligations, (iii) distributions to shareholders, (iv) capital
improvements, and (v) normal repair and maintenance expenses at its properties
both in the short and long term.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Consolidated Balance Sheets as of December 31, 1994 and
1993, and its Consolidated Statements of Operations, Changes in Shareholders'
Equity and Cash Flows and Notes to Consolidated Financial Statements for the
years ended December 31, 1994, 1993 and 1992 and the independent auditors'
report thereon are included under Item 14 of this report and are incorporated
herein by reference. Unaudited quarterly results of operations included in the
notes to the consolidated financial statements are also incorporated herein by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's definitive proxy statement which will be filed with the
Securities and Exchange Commission (the "Commission") pursuant to Regulation
14A within 120 days of the end of Registrant's calendar year is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of
Registrant's calendar year is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Page
----
(a)(1) Consolidated financial statements
Independent Auditors' Report. 18
Consolidated Balance Sheets - December 31, 1994
and 1993. 19
Consolidated Statements of Operations -
Years ended December 31, 1994, 1993 and 1992. 20
Consolidated Statements of Changes in
Shareholders' Equity - Years ended
December 31, 1994, 1993 and 1992. 21
Consolidated Statements of Cash Flows -
Years ended December 31, 1994, 1993 and 1992. 22
Notes to Consolidated Financial Statements. 23
(2)(a) Consolidated financial statement schedules
Schedule XI - Real estate properties and accumulated
depreciation. 40
Schedule XII - Mortgage loans on real estate. 45
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 the
financial statements.
(3)Form 10-K exhibits:
(3)(a)Restated Declaration of Trust dated December, 1971,
(incorporated by reference to Exhibit 3 of the
Registrant's 1980 Annual Report on Form 10-K
and to Exhibit 20 of the Registrant's May 31, 1981
Quarterly Report on Form 10-Q)
14
(b)Amendment to the Declaration of Trust effective as
of April 19, 1983 (incorporated by reference to
Exhibit 3(b) of the Registrant's 1983 Annual
Report on Form 10-K)
(c)Amendment to Registrant's Restated Declaration of
Trust, effective March 20, 1987, (incorporated
by reference to Exhibit 3(c) of the
Registrant's 1987 Annual Report on Form 10-K.)
(d)Trustees' Regulations of the Registrant, as amended
(incorporated by reference to Exhibit 3 of the
Registrant's 1980 Annual Report on Form 10-K).
(e)Amendment to Registrant's Trustees' Regulations
effective as of April 19, 1983 (incorporated
by reference to Exhibit 3(d) of the Registrant's
1983 Annual Report on Form 10-K).
(10)(a)Amendment and Restatement of the Expense-Sharing Agreement among the
Registrant, Eastover Corporation, The Parkway Company and Congress Street
Properties, Inc. dated as of September 1, 1990, *(incorporated by
reference to Exhibit 10(a) of the Registrant's 1991 Annual Report on
Form 10-K).
(b)First Amendment to Amendment and Restatement of Expense-Sharing among
Eastgroup Properties, Eastover Corporation, The Parkway Company and
Congress Street Properties, Inc. dated as of October 1, 1993 (incorporated
by reference to Exhibit 10B of Registrant's Registration Statement on Form
S-2 (No. 33-70574) filed October 19, 1993).
(c)EastGroup Properties 1994 Management Incentive Plan (incorporated by
reference to Exhibit A of the Registrant's proxy statement dated
November 11, 1994).*
(d)EastGroup Properties 1991 Trustees Stock Option Plan, As Amended
(incorporated by reference to Exhibit B of the Registrant's proxy
statement dated November 11, 1994).*
(e)Purchase and Sale Contract between TCB Voss, Inc. and EastGroup
Properties (incorporated by reference to Exhibit 10G of Amendment
No. 1 to Registrant's Registration Statement on Form S-2 (No. 33-
70574) filed December 30, 1993).
(25)Powers of attorney (incorporated by reference to EastGroup Properties
1994 Annual Report on Form 10-K)
(28)Agreement of Registrant to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of the Registrant's 1986
Annual Report on Form 10-K)
*Indicates management or compensatory agreement.
15
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report 18
Consolidated Balance Sheets as of December 31, 1994 and 1993 19
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 20
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1994, 1993 and 1992 21
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 22
Notes to Consolidated Financial Statements 23
16
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS
EASTGROUP PROPERTIES:
We have audited the consolidated financial statements of EastGroup Properties
and subsidiaries, a Maryland real estate investment trust, as listed in the
accompanying index. 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 generally accepted auditing
standards. 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 and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
Jackson, Mississippi
March 13, 1995 KPMG Peat Marwick LLP
17
CONSOLIDATED BALANCE SHEETS
December 31
------------------------
1994 1993
---------- ----------
Assets (In thousands, except share data)
Real estate properties:
Apartments............................................. $ 51,076 31,943
Industrial............................................. 69,214 45,984
Office Buildings....................................... 35,500 24,031
-------- --------
155,790 101,958
Less accumulated depreciation.......................... (15,888) (13,981)
-------- --------
139,902 87,977
Mortgage loans, less allowance for possible losses
of $500,000 in 1993................................... 8,817 7,883
Land and land purchase-leasebacks....................... 2,320 5,761
Investment in real estate investment trust.............. 954 1,067
Cash and cash equivalents............................... 301 2,690
Other assets............................................ 2,566 2,130
-------- --------
$154,860 107,508
======== ========
Liabilities and Shareholders' Equity
Liabilities
Mortgage notes payable.................................. $ 39,558 34,638
Notes payable to banks.................................. 28,671 18,565
Dividends payable....................................... - 1,811
Accounts payable and accrued expenses................... 1,167 2,204
Minority interests in joint ventures.................... 2,848 1,227
Other liabilities....................................... 440 262
-------- --------
72,684 58,707
-------- --------
Shareholders' Equity
Shares of beneficial interest, par value $1.00 per share;
authorized 10,000,000 shares; issued 4,221,669 shares
in 1994 and 2,461,028 shares in 1993.................. 4,222 2,461
Additional paid-in capital.............................. 68,210 38,257
Unrealized gain on securities........................... 21 -
Undistributed earnings.................................. 9,723 8,083
-------- --------
82,176 48,801
-------- --------
$154,860 107,508
======== ========
See accompanying notes to consolidated financial statements
18
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31
----------------------------------
1994 1993 1992
------ ------ ------
(In thousands, except per share data)
Revenues
Income from real estate operations.. $ 23,194 13,771 11,079
Land rents.......................... 398 856 979
Equity in earnings of real estate
investment trust.................. 123 67 153
Interest:
Mortgage loans.................... 1,041 1,156 1,284
Other............................. 13 18 21
Other............................... 126 220 179
-------- -------- --------
24,895 16,088 13,695
-------- -------- --------
Expenses
Operating expenses from real estate
operations........................ 9,741 6,184 5,289
Interest expense.................... 3,747 3,112 2,749
Depreciation and amortization....... 4,481 3,110 2,365
Minority interests in joint
ventures.......................... 163 78 -
General and administrative expense.. 2,046 1,573 1,335
Stock appreciation rights and
incentive compensation expense
(recovery)........................ (129) 320 357
Provision for (recovery of) possible
losses............................ - (144) 1,675
-------- -------- --------
20,049 14,233 13,770
Income (loss) before gains -------- -------- --------
<losses> on investments ...... 4,846 1,855 (75)
-------- -------- --------
Gains (losses) on investments
Real estate......................... 2,322 3,408 (3,598)
Real estate investment trust
securities ....................... - 1,152 -
-------- -------- --------
2,322 4,560 (3,598)
-------- -------- --------
Net income (loss).............. $ 7,168 6,415 (3,673)
======== ======== ========
Per share of beneficial interest
Net income (loss).............. $ 1.74 2.61 (1.49)
======== ======== ========
Weighted average shares outstanding... 4,114 2,460 2,459
======== ======== ========
See accompanying notes to consolidated financial statements
19
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
Shares of Additional Unrealized
Beneficial Paid-in Undistributed Treasury Gain on
Interest Capital Earnings Shares Securities Total
---------- ---------- ------------- -------- ---------- -----
(In thousands)
Balance, December 31, 1991........$ 3,011 51,945 14,108 (14,280) - 54,784
Net loss..................... - - (3,673) - - (3,673)
Cash dividends declared,
$1.52 per share............. - - (3,735) - - (3,735)
Exercise of 20,000 options... - - (274) 523 - 249
Purchase of 43,348 treasury
shares...................... - - - (592) - (592)
------- ------- ------- ------- ------- -------
Balance, December 31, 1992........ 3,011 51,945 6,426 (14,349) - 47,033
Net income................... - - 6,415 - - 6,415
Cash dividends declared,
$1.60 per share............. - - (4,690) - - (4,690)
Exercise of 5,000 options.... - - (68) 129 - 61
Purchase of 1,000 treasury
shares...................... - - - (18) - (18)
Retire 550,354 treasury
shares...................... (550) (13,688) - 14,238 - -
------- ------- ------- ------- ------- -------
Balance, December 31, 1993........$ 2,461 38,257 8,083 - - 48,801
Net income................... - - 7,168 - - 7,168
Cash dividends declared,
$1.31 per share............. - - (5,528) - - (5,528)
Exercise of 78,000 options... 78 887 - - - 965
Purchase of 46,666 shares.... (46) (778) - - - (824)
Issuance of 11,397 shares,
incentive compensation...... 11 181 - - - 192
Issuance of 1,750,000
shares in public offering... 1,750 30,414 - - - 32,164
Issuance of 696,088 shares in
Eastover Corporation merger. 696 10,993 - - - 11,689
Retire 728,178 shares in
Eastover Corporation merger. (728) (11,744) - - - (12,472)
Change in unrealized gain on
securities.................. - - - - 21 21
------- ------- ------- ------- ------- -------
Balance, December 31, 1994........$ 4,222 68,210 9,723 - 21 82,176
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
----------------------------------
1994 1993 1992
------ ------ ------
(In thousands)
Operating Activities:
Net income (loss)....................................... $ 7,168 6,415 (3,673)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 4,481 3,110 2,365
Stock appreciation rights and incentive compensation
expense (recovery).................................. (129) 320 357
(Gains) losses on investments, net.................... (2,322) (4,560) 3,598
Provision for (recovery of) possible losses........... - (144) 1,675
Real estate investment trust:
Equity in earnings.................................. (123) (67) (153)
Dividends received.................................. 60 75 72
Other................................................. (64) (18) -
Changes in operating assets and liabilities:
Accrued income and other assets..................... 93 32 113
Accounts payable, accrued expenses and
prepaid rent..................................... (716) 113 27
-------- ------- -------
Net cash provided by operating activities................ 8,448 5,276 4,381
-------- ------- -------
Investing Activities:
Advances on mortgage loans receivable................... (1,862) (1,150) -
Payments on mortgage loans receivable................... 581 1,845 835
Purchase of mortgage loan receivable.................... - - (529)
Sales of real estate investments........................ 3,491 4,351 145
Sales of real estate investment trust securities........ - 1,966 -
Real estate improvements................................ (4,241) (1,802) (1,361)
Purchases of real estate................................ (44,584) (23,193) (6,646)
Purchases of real estate investment trusts shares....... - (117) (1,450)
Return of capital dividends............................. 197 261 -
Change in other assets and other liabilities............ (297) (1,234) (220)
-------- ------- -------
Net cash used in investing activities................... (46,715) (19,073) (9,226)
-------- ------- -------
Financing Activities:
Proceeds from bank borrowings........................... 44,620 29,712 7,885
Proceeds from mortgage notes payable.................... 7,800 9,585 7,885
Principal payments on bank borrowings................... (35,152) (13,472) (5,560)
Principal payments on mortgage notes payable and
improvement bonds..................................... (6,240) (5,701) (4,218)
Distributions paid to shareholders...................... (7,339) (3,813) (3,738)
Purchases of shares of beneficial interest.............. (824) (18) (592)
Proceeds on exercise of stock options................... 965 31 225
Net proceeds from issuance of stock..................... 32,164 - -
Other................................................... (116) - -
-------- ------- -------
Net cash provided by financing activities................ 35,878 16,324 1,887
-------- ------- -------
Increase (decrease) in cash and cash equivalents......... (2,389) 2,527 (2,958)
Cash and cash equivalents at beginning of year........... 2,690 163 3,121
-------- ------- -------
Cash and cash equivalents at end of year................. $ 301 2,690 163
======== ======= =======
Supplemental Cash Flow Information:
Mortgage loans received on sales of real estate......... $ - 490 -
Debt assumed by buyer of real estate.................... 2,211 2,564 355
Cash paid for interest.................................. 3,958 3,101 2,796
Debt assumed by the Trust in purchase of real estate.... 4,813 704 -
Net liabilities assumed in Eastover merger.............. 638 - -
See accompanying notes to consolidated financial statements
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 and 1992
(1) Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup
Properties ("the Trust"), its wholly-owned subsidiaries and its investment in
five joint ventures in which the Trust has a 75% ownership interest. The five
properties included in the joint ventures are 56th Street Commerce Park,
JetPort Commerce Park, Exchange Distribution Center, Jetport 516 Commerce Park
and WestPort Commerce Center. The joint venture's assets, liabilities,
revenues and expenses are recorded by the Trust with minority interests
provided for the 25% not owned. All significant intercompany transactions and
accounts have been eliminated in consolidation.
(b) Federal Income Taxes
EastGroup Properties, a Maryland real estate investment trust, has
qualified as a real estate investment trust under Sections 856-860 of the
Internal Revenue Code, and it intends to continue to qualify as such. The
Trust distributed to its shareholders all of its 1994, 1993 and 1992 taxable
income. Accordingly, no provision for federal income taxes was necessary.
Distributions paid per share for federal income tax purposes follow:
Years Ended December 31
----------------------------
1994 1993 1992
------ ------ ------
Ordinary Income.................... $ 1.74 1.55 1.19
Capital Gains...................... - - .33
-------- -------- --------
Total.......................... $ 1.74 1.55 1.52
======== ======== ========
The Trust's income differs 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, and (4) mortgage loans having a different basis for tax and
financial reporting purposes, producing different gains upon collection of
these receivables.
(c) INCOME RECOGNITION
Income from land purchase-leaseback investments is recorded under the
operating method, and the Trust generally accrues percentage rentals as earned.
The Trust recognizes gains on sales of real estate in accordance with the
principles set forth in Statement of Financial Accounting Standards No. 66
("SFAS 66"), "Accounting for Sales of Real Estate". When sales of real estate
occur which do not meet the requirements of SFAS 66, any gains therefrom are
deferred and deducted from the investment balances for financial reporting
purposes until such gains can be recognized as income.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES (continued)
(D) LAND PURCHASE-LEASEBACKS
Land purchase-leasebacks are investments in which the Trust owns the land
underlying income producing buildings and other improvements and leases it to
the owner of the improvements. Generally, the terms of a land lease provide
for a fixed minimum rental and an additional contingent rental equal to a
percentage of the gross income of the property in excess of a base amount. In
addition, the Trust generally shares in the net proceeds of any refinancing of
mortgage indebtedness of the property, except to the extent that the proceeds
are reinvested in the property. Upon the termination of a land lease, the
improvements become the property of the Trust.
(E) REAL ESTATE PROPERTIES
Real estate properties are carried at cost less accumulated depreciation.
Cost includes the carrying amount of the Trust's investment plus any additional
consideration paid, liabilities assumed, costs of securing title (not to exceed
fair market value in the aggregate) and improvements made subsequent to
acquisition. Depreciation of buildings and other improvements, including
personal property, is computed using the straight-line method over estimated
useful lives of 25 to 40 years for buildings and 5 to 10 years for other
improvements and personal property. Maintenance and repair expenses are
charged to expense as incurred, while building improvements are capitalized.
Apartment turnover costs such as carpet, painting and small appliances are
expensed.
(F) INVESTMENTS IN PARTNERSHIPS AND REAL ESTATE INVESTMENT TRUSTS
The equity method of accounting is used to account for the investment in
LNH REIT, Inc. The Trust does not have voting control over this company, but
does have the ability to exercise significant influence on operating and
financial policies. Under the equity method, the Trust has picked up its share
of unrealized security gains in accordance with FASB 115, "Accounting for
Certain Investments in Debt and Equity Securities."
(G) ALLOWANCE FOR POSSIBLE LOSSES
The Trust provides an allowance for possible losses on real estate and
mortgage loan investments for financial reporting purposes which, in the
opinion of the Trustees, is adequate to absorb possible losses determined in
accordance with generally accepted accounting principles. The adequacy of the
allowance or the need for an allowance is evaluated by the Trustees quarterly
based on a review of investments and properties on an individual basis.
If the estimated net realizable value of an underlying property or
mortgage loan is less than the carrying amount of the Trust's investments, the
difference is included in the allowance. Although the assumptions and
projections upon which estimates of net realizable value or fair market value
are based reflect the Trustees' best judgment, there can be no assurance that
the projected events will actually occur. Therefore, adjustments to the
allowance for possible losses may be required in subsequent periods.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES (continued)
(H) AMORTIZATION
Loan fees are amortized using the straight-line method over the term of
the loan. Leasing commissions are amortized using the straight-line method
over the term of the respective lease.
(I) CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(J) RECLASSIFICATIONS
Certain reclassifications have been made in the 1993 and 1992 financial
statements to conform to the 1994 presentation.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) REAL ESTATE OWNED
A summary of gains (losses) on real estate investments for the years ended
December 31, 1994, 1993 and 1992 follows:
Discounted Recognized
Basis Net Sales Price Gain (Loss)
-------- --------------- -----------
(In thousands)
1994
- ----
Real estate properties:
North Shore - 5 lots $2,053 2,310 257
Land purchase - leasebacks:
Parklane on Peachtree
Apartments 997 3,491 2,494
Bellevue Plaza writedown 429 - (429)
------ ------ ------
$3,479 5,801 2,322
====== ====== ======
1993
- ----
Real estate properties:
North Shore - 7 lots $2,953 2,953 -
Land purchase - leaseback:
Kings Gate West 500 3,908 3,408
------ ------ ------
$3,453 6,861 3,408
====== ====== ======
1992
- ----
Real estate properties:
North Shore writedown $ - - (3,576)
North Shore - 1 lot 475 453 (22)
------ ------ ------
$ 475 453 (3,598)
====== ====== ======
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) REAL ESTATE INVESTMENTS (CONTINUED)
The following is a schedule by year of approximate future minimum rental
receipts under noncancelable leases for the real estate properties as of
December 31, 1994 (in thousands):
Year ending
December 31
-----------
1995 $13,334
1996 11,440
1997 8,333
1998 6,105
1999 3,267
Later Years 1,604
-------
TOTAL MINIMUM RECEIPTS $44,083
=======
In the fourth quarter of 1992, the Trust made the strategic decision to
liquidate its remaining investment in undeveloped land at North Shore and
scheduled an auction of the undeveloped land on April 7, 1993. The Trust
recorded operating losses of $596,000 in 1992 related to the undeveloped land.
As a result of the decision to liquidate this investment, the Trust recorded a
non-recurring loss of $3,576,000 and a provision for possible loss of
$1,000,000 in the fourth quarter of 1992.
In 1993, the Trust sold seven lots for a discounted net sales price of
$389,000 plus the buyer assumed improvements bonds of $2,564,000 and no gain or
loss was recorded. The Trust recorded the $1,000,000 allowance for possible
loss as a permanent impairment in value during 1993. As a result, the net
carrying value at December 31, 1993 of the undeveloped land and related assets
at North Shore represented the balance of non-recourse debt on the property and
an accrual for estimated disposition expenses. The Trust sold the remaining
five lots in 1994 for the non-recourse debt on the property. A gain on the
final disposition of the property in 1994 of $257,000 was recorded which
represented $302,000 related to expired letter of credits and $45,000 relating
to expenses that were more than the amounts estimated. Improvement bonds
payable decreased $2,267,000 to $451,000 during 1994. The decrease represents
the portion of such bonds attributable to the lots of undeveloped land at North
Shore sold in 1994.
On December 31, 1994, the Trust's only investment in North Shore is the
Nobel Center office building with a carrying value of $3,249,000. Debt related
to Nobel Center consists of a mortgage of $2,788,000 and improvement bonds of
$451,000 on the underlying land.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) LAND AND LAND PURCHASE-LEASEBACKS
Fixed land rentals required to be paid to the Trust in each of the next
five years and in the aggregate thereafter in connection with the Trust's land
purchase-leaseback investments held as of December 31, 1994 are $95,000 in
1995, $89,000 in 1996, $91,000 in 1997, $94,000 in 1998, $96,000 in 1999 and
$5,594,000 in the aggregate thereafter.
In the case of two land purchase-leaseback investments, carried at an
aggregate amount of $725,000 as of December 31, 1994, the land tenants have
options to purchase the land on a formula basis set forth in the respective
leases, but in no event would the purchase price be less than the cost of the
land to the Trust.
The Trust held a junior mortgage loan of $2,415,000 as of December 31,
1994 on a property in which the Trust had a land purchase-leaseback investment.
The Trust's land purchase-leaseback and junior mortgage loan investments
are subordinate to senior mortgage loans encumbering the properties. A loss of
$429,000 was recorded on the Bellevue Plaza land purchase-leaseback, as a
result of the move out of the properties largest tenant which resulted in an
occupancy level of 27%.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) MORTGAGE LOANS AND ALLOWANCE FOR POSSIBLE LOSSES
A summary of mortgage loans follows:
December 31
--------------------
1994 1993
--------- --------
(In thousands)
First mortgage loans:
Industrial (5 loans)................ $ 2,238 1,100
Motels (5 loans).................. 3,091 4,021
Apartments (1 loan)............... 1,009 960
Other (3 loans)................... 64 61
-------- --------
6,402 6,142
Wrap mortgage loans:
Apartments (1 loan)............... 2,415 2,241
-------- --------
$ 8,817 8,383
======== ========
In 1994, the Trust charged off $500,000 of the motel loans against the
allowance for possible losses. The net carrying value of the motel loans was
further decreased by an additional $422,000 during 1994. This decrease
represented a bankruptcy settlement accrued in 1994 and was related to the
property collateralizing the motel loans. That property was owned by the Trust
and the bankruptcy settlement was recorded as deferred income because of the
collection difficulties with the motel loans and because all gains on the sale
of the properties collateralizing the motel loans were deferred when the loans
were made because the gain recognition criteria of SFAS 66 were not met when
the properties were sold and have not been met since. Interest income on four
of the motel loans is recorded when received. Had interest income been
recorded using the accrual method, interest income would have increased by
$213,000 in 1994 and $131,000 in 1993.
In March 1995, the land tenant on the EastGate Apartment land
purchase-leaseback investment offered to give the Trust a deed in lieu of
foreclosure because of its inability to meet all of the obligations of the
property. The land purchase-leaseback has a carrying value of $225,000 and the
mortgage loan has a carrying value of $1,009,000. All income receivable from
EastGate was current as of December 31, 1994. No loss is anticipated on the
proposed transaction.
A summary of activity in the allowance for possible losses follows:
Years Ended December 31
-----------------------------
1994 1993 1992
------ ------ ------
(In thousands)
Balance at beginning of period...... $ 500 1,675 -
Increase in allowance............... - - 1,675
Amounts charged-off ................ (500) (1,175) -
------ ------ -----
Balance at end of period............ $ - 500 1,675
====== ====== =====
The allowance for possible losses at December 31, 1993 includes $500,000
applicable to mortgage loans secured by motels. The allowance for possible
losses at December 31, 1992 includes $500,000 allocated to mortgage loans,
$1,000,000 allocated to undeveloped land and $175,000 allocated to land
purchase-leaseback investments.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) MORTGAGE LOANS AND ALLOWANCE FOR POSSIBLE LOSSES (continued)
On September 30, 1993, the Trust sold a portfolio of mortgage loans to
Parkway. Parkway paid the Trust $956,251 in cash for the mortgage loans, which
represented the Trust's book value of these loans on September 30, 1993. The
Trust had no gain or loss on the sale of these mortgage loans.
(5) INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
The investment in real estate investment trust ("REIT") consists of the
following:
Ownership
Percentage
December 31 December 31, 1994 December 31, 1993
-------------- ------------------- -------------------
1994 1993 Investment Market Investment Market
----- ---- ----------- ------ ---------- ------
(In thousands)
Equity method investee:
LNH REIT, Inc........... 5.97% 5.97% $ 954 805 1,067 1,084
==== ==== ======= ===== ====== ======
The Trust sold all of its investments in real estate investment trust
securities, except LNH REIT, Inc., in 1993. These sales of $1,966,000 were
made at the market price on the date of sale. A total gain of $1,152,000 was
recorded on the above sales, including $1,022,000 on the sale of real estate
investment trust securities to the Parkway Company, an affiliated entity.
Effective January 1, 1995, the Trust, through an affiliated partnership,
provides certain management and administrative services for LNH REIT, Inc. for
an annual fee of $125,000.
During 1991, the Trust purchased 40,125 shares of LNH (formerly L & N
Housing Corp.) at a cost of $288,000. The Trust and Walker Investments
purchased 88,000 and 264,000 shares of LNH, respectively, from Lomas Financial
Corporation at a cost of $9.50 per share in February 1992. In December 1992,
the Trust purchased an additional 3,300 shares for a total cost of $29,000,
bringing the Trust's ownership to 5.97%. The Trust accounts for its investment
in LNH using the equity method because of its ability to exercise significant
influence over the operating and financial policies of LNH.
(6) NOTES PAYABLE TO BANKS
The Trust has a line of credit from a commercial bank in the amount of
$5,000,000 which is secured by the outstanding stock of the Trust's
wholly-owned subsidiary, EastGroup Sunbelt, Inc., and is guaranteed by
EastGroup Sunbelt, Inc. Borrowings under the credit line at December 31, 1994
were $4,624,000 and bear interest at the bank's prime rate. The line of credit
expires April 30, 1995. Total loan commitment fees of $25,000 were paid in
1994 and 1993 for this line of credit.
At December 31, 1994, the Trust had $24,047,000 outstanding under a
$45,000,000 acquisition line of credit from a commercial bank. The acquisition
line has an interest rate of prime plus .125% and matures on April 30, 1997.
The principal balance on the line must be reduced to $1,000 by May 31, 1996 or
the Trust cannot request additional advances under the line and the total
outstanding balance of the line must be reduced to $30,000,000 by December 1,
1996. The line is collateralized by seven properties of the Trust with an
aggregate carrying value of $36,221,000 at December 31, 1994. Total loan
commitment fees of $169,000 were paid in 1994 for this line of credit.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) MORTGAGE NOTES PAYABLE ON REAL ESTATE OWNED AND WRAP MORTGAGES
A summary of mortgage notes payable follows:
December 31
--------------
1994 1993
---- ----
(In thousands)
Garden Villa Apartments mortgage, interest at 8.25%,
principal and interest due $24,041 monthly,
maturing July 1, 2003, secured by real estate
with a carrying amount of $2,875,000 at December
31, 1994 $ 3,163 3,188
2020/2040 and 2100 Exchange Drive Warehouse mortgage,
interest at 9.625%, principal and interest due $5,761
monthly, maturing November 1, 2009, secured by real
estate with a carrying amount of $1,523,000 at
December 31, 1994 576 589
Interstate DC #1 Warehouse mortgage, interest at 9.25%,
principal and interest due $10,827 monthly, maturing
June 1, 2009, secured by real estate with a carrying
amount of $2,879,000 at December 31, 1994 957 996
Interstate DC #2 Warehouse mortgage, interest at 9.25%,
principal and interest due $12,844 monthly, maturing
June 1, 2009, secured by real estate with a carrying
amount of $3,319,000 at December 31, 1994 1,185 1,228
Venture Distribution Center #1 mortgage, interest at
9.75%, principal and interest due $18,687 monthly,
repaid February 1994 - 1,543
Venture Duplex Warehouse mortgage, interest at 9.75%,
principal and interest due $6,444 monthly, repaid
January 1994 - 607
Rampart Warehouse mortgage, interest at 9.75%, interest
only of $26,813 due monthly, principal due at
maturity, repaid January 1994 - 3,300
8150 Leesburg Pike Office Building mortgage, interest at
8.5%, principal and interest due $52,304 monthly,
maturing June 15, 2005, secured by real estate with
a carrying amount of $13,596,000 at December 31,
1994 4,338 4,586
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) MORTGAGE NOTES PAYABLE ON REAL ESTATE OWNED AND WRAP MORTGAGES (continued)
December 31
--------------
1994 1993
---- ----
(In thousands)
Sunbelt Center Warehouse mortgage, interest at 10.00%,
principal and interest due $39,958 monthly,
maturing September 1, 1997, secured by real
estate with a carrying amount of $5,784,000 at
December 31, 1994 4,260 4,311
Deerwood Warehouse mortgage, interest at 8.375%,
principal and interest due $16,339 monthly,
maturing July 1, 2003, secured by real
estate with a carrying amount of $2,858,000 at
December 31, 1994 1,841 1,881
Doral Club Apartment mortgage, interest at 8.625%,
principal and interest due $36,494 monthly,
maturing October 31, 2003, secured by real
estate with a carrying amount of $6,487,000 at
December 31, 1994 4,418 4,476
Nobel Center Office Building mortgage, interest at
7.5%, principal amount due on January 15, 1997,
secured by real estate with a carrying amount
of $3,249,000 at December 31, 1994 2,788 2,899
North Shore Improvement Bonds, interest rates range
from 6.3% to 7.75% and mature serially in various
amounts through September 2, 2016, secured by
land underlying Nobel Center with a carrying
amount of $3,249,000 at December 31, 1994 451 2,718
Country Club Apartments wrap mortgage, interest at
prime plus 1.0%, principal and interest due
monthly based on a 25-year amortization at an
assumed rate of 10.5%, maturing September 1,
1996, secured by the property on which the Trust
has a mortgage note receivable with a carrying
amount of $2,415,000 at December 31, 1994 2,286 2,316
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) MORTGAGE NOTES PAYABLE ON REAL ESTATE OWNED AND WRAP MORTGAGES (continued)
December 31
--------------
1994 1993
---- ----
(In thousands)
Sutton House Apartments mortgage, interest at 8.0%,
principal and interest due $45,257 monthly,
maturing October 31, 2003, secured by real
estate with a carrying amount of $8,386,000 at
December 31, 1994 5,962 -
JetPort 516 Warehouse mortgage, interest at 8.5%
principal and interest due $5,857 monthly,
maturing January 1, 2003, secured by real
estate with a carrying amount of $1,329,000
at December 31, 1994 648 -
Northwest Point Warehouse mortgage interest at
7.75%, principal and interest due $32,857
monthly, maturing March 1, 2001, secured by
real estate with a carrying amount of $6,855,000
at December 31, 1994 4,301 -
56th Street Warehouse mortgage, interest at
8.88%, principal and interest due $21,816
monthly, maturing August 1, 2004, secured
by real estate with a carrying amount of
$2,773,000 at December 31, 1994 2,384 -
--------- --------
$ 39,558 34,638
========= ========
Approximate principal payments due during the next five years are as
follows: 1995, $930,000; 1996, $3,229,000; 1997, $7,504,000; 1998, $918,000;
and 1999, $999,000.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) TRUST ADMINISTRATION
On March 1, 1983, the Trust approved an agreement, which was amended
on March 1, 1984, and again on September 1, 1990, whereby the day-to-day
management was transferred from its former adviser to officers of the Trust,
who are also officers of Eastover Corporation and certain of the following
affiliates. Certain administrative expenses were allocated monthly among
Eastover Corporation, Congress Street Properties, Inc., Parkway and the Trust
based on the shared expense agreement. Effective December 31, 1994, the Trust
terminated the expense sharing agreement and will maintain its own officers and
employees.
(9) REVERSE REPURCHASE AGREEMENTS
The Trust does not in the ordinary course of business take possession of
the securities which collateralize its reverse repurchase agreements (assets
purchased under agreements to resell). The Trust has the right to demand
additional collateral or return of the invested funds at any time the
collateral value is less than the invested funds plus any accrued earnings
thereon. The Trust does, however, conduct these transactions on a short term
basis with financial institutions with which it has normal business
relationships. At December 31, 1994 and 1993, the Trust did not hold reverse
repurchase agreements with any individual counterparty or group of
counterparties in excess of 10% of shareholders' equity.
(10) SHAREHOLDERS' EQUITY
In 1994, the Trust terminated the previous incentive plans for officers
and adopted the 1994 Management Incentive Plan. The previous plan included
stock options, stock appreciation rights, incentive compensation units and a
bonus plan.
Under the plan existing prior to September 1994, officers exercised 78,000
stock options and stock appreciation rights ("SARS"). The stock option
exercise price was $12.375 per share for a total option price of $965,250.
Compensation was accrued by the Trust for SARs expense based on the excess of
the market price over the exercise price, $12.375 per share, of the SARs.
Compensation expense (recovery) for the SARs was ($251,000) in 1994, $320,000
in 1993 and $357,000 for 1992. Compensation expense for the incentive
compensation units was accrued by the Trust based on the dividends paid by the
Trust and in accordance with a vesting schedule. Compensation expense for the
units was $89,000 in 1994, $69,000 in 1993 and $37,000 in 1992. Amounts
due in 1995 and 1996 were estimated and paid in Trust's shares in 1994. The
Trust issued 11,397 shares and recorded an expense of $122,000 which is
included with stock appreciation rights and incentive compensation expense on
the 1994 statement of operations. Compensation for the bonus plan amounted to
$122,000 in 1994 and $33,000 in 1993.
The 1994 Management Incentive Plan includes stock options and an annual
incentive award. Under the plan, 182,750 shares were granted to employees at
the fair market value at the date of grant ($18.00, $18.25 and $19.00 per
share), at total option prices of $3,413,000. At December 31, 1994, there were
17,250 stock options available for grant under the plan. The annual incentive
award program will begin in 1995 and the Compensation Committee will determine
awards based on actual funds from operations per share ("FFO") compared to
goals set for the year. The award will be payable two-thirds in cash and
one-third in Shares of the Trust.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) SHAREHOLDERS' EQUITY (CONTINUED)
The Trust has a Trustees Stock Option Plan, as amended in 1994, under
which an aggregate of 100,000 shares of beneficial interest are reserved for
issuance upon exercise of any options granted. Under the Trustees plan, each
Non-Employee Trustee is granted an initial 5,000 options and 1,500 additional
options on the date of any Annual Meeting at which the Trustee is reelected to
the Board. At December 31, 1994, there were 51,000 options outstanding under
the Trustee's Plan at option prices of $16.00 to $17.50 per share (market price
at date of grant), a total option price of $838,000. All options outstanding
at December 31, 1994 were exercisable and there were 49,000 shares of
beneficial interest available for grant under the Trustee Plan.
In calculating net income per share of beneficial interest, the dilutive
effect of the various benefit plans, if any, was not significant.
In January 1994, the Trust completed the public offering of 1,750,000
shares of beneficial interest at $20 per share and received net proceeds of
$32,164,000.
(11) FUTURE ACCOUNTING CHANGES
The Financial Accounting Standards Board issued Statement (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan" and (SFAS) No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure".
SFAS No. 114 requires a creditor to measure impaired and restructured
loans at the present value of expected future cash flows, discounted at the
loan's effective interest rate or, as a practical expedient, at the loans
observable market price or the fair value of collateral if the loan is
collateral dependent. For purposes of this Statement, a loan is considered
impaired when it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. SFAS No.
118 addresses how interest income is recognized on impaired loans. SFAS No.
114 and SFAS No. 118 are effective for fiscal years beginning after December
15, 1994. Adoption of these statements is not expected to have a material
impact on the consolidated financial statements.
Other recently issued statements of the Financial Accounting Standards
Board are not expected to impact the Trust's consolidated financial statements
because, based on the nature of the Trust's operations, the statements will not
be applicable.
(12) EASTOVER CORPORATION MERGER
Effective December 22, 1994, the merger of Eastover Corporation
("Eastover") with Eastover Acquisition Corporation ("EAC"), a wholly-owned
subsidiary of the Trust, was completed. EAC was immediately liquidated and
distributed its assets and liabilities to EastGroup. The shareholders of
Eastover received six-tenths of one (.6) share of beneficial interest of
EastGroup for each share of beneficial interest of Eastover held by them.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) EASTOVER CORPORATION MERGER - (continued)
The merger was accounted for using the purchase method of accounting. The
following balance sheet items were recorded on December 22, 1994:
ASSETS
Mortgage loans $ 39,000
Cash 28,000
Other assets 81,000
-------------
Total $ 148,000
=============
LIABILITIES
Notes payable to banks $ 638,000
Other liabilities 148,000
-------------
Total $ 786,000
-------------
SHAREHOLDER'S EQUITY
Shares issued, 696,088 shares 11,834,000
Shares retired, 728,178 shares (12,472,000)
(Trust shares owned by
Eastover Corporation)
-------------
Net shares retired, 32,090 shares (638,000)
=============
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 148,000
=============
The operations of Eastover subsequent to December 22, 1994, have been
included in the accompanying consolidated statements of operations. The
unaudited pro-forma effects of the Trust's acquisition of Eastover as if it had
occurred on January 1, 1993, would be to increase revenues by approximately
$18,000 in 1994 and $1,296,000 in 1993 and decrease net income by $412,000 in
1994 and $314,000 in 1993 and income per share by $.08 in 1994 and $.10 in
1993.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
Calendar 1994 Calendar 1993
Quarter Ended Quarter Ended
----------------------------------- -----------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
----------------------------------- -----------------------------------
(In thousands, except per share data)
Revenues............... $ 5,395 5,965 6,373 7,162 3,744 3,856 3,845 4,643
Expenses............... (4,101) (4,634) (5,173) (6,141) (3,281) (3,245) (3,699) (4,152)
Recovery of
(provision for)
possible loss..... - - - - - 144 - -
------- ------ ------ ------ ------ ------ ------ ------
Income before gains
<losses> on
investments....... 1,294 1,331 1,200 1,021 463 755 146 491
Gains (losses) on
investments....... - 2,494 - (172) - 25 3,505 1,030
------- ------ ------ ------ ------ ------ ------ ------
Net income............. $ 1,294 3,825 1,200 849 463 780 3,651 1,521
======= ====== ====== ====== ====== ====== ====== ======
Per share of
beneficial interest:
Net income........ $ .34 .91 .28 .20 .19 .32 1.48 .62
======= ====== ====== ====== ====== ====== ====== ======
Weighted average
shares
outstanding....... 3,803 4,211 4,211 4,224 2,458 2,461 2,461 2,461
======= ====== ====== ====== ====== ====== ====== ======
(14) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair
values of the Trust's financial instruments at December 31, 1994. FASB
Statement No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
1994
-------------------------
Carrying Fair
Amount Value
-------- -------
(In thousands)
Financial Assets
Cash and cash equivalents.......$ 301 301
Investment in REIT.............. 954 805
Mortgage loans.................. 8,817 10,451
Financial Liabilities
Mortgage notes payable.......... 39,558 38,799
Notes payable to banks.......... 28,671 28,671
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The carrying amounts shown in the table are included in the balance sheet under
the indicated captions.
The following methods and assumptions were used to estimate fair value of each
class of financial instruments.
Cash and cash equivalents: The carrying amounts approximate fair value because
of the short maturity of those instruments.
Mortgage loans: The fair value of performing mortgage loans is estimated using
discounted cash flows at current interest rates for loans with similar terms
and maturities. The fair value for nonperforming loans is based on the
underlying collateral value.
Investment in REIT: The fair value of the equity investment is based on quoted
market prices at the reporting date for the investment.
Mortgage notes payable: The fair value of the Trust's mortgage notes payable
is estimated based on the quoted market prices for similar issues or by
discounting expected cash flows at the rates currently offered to the Trust for
debt of the same remaining maturities, as advised by the Trust's bankers.
Notes payable to banks: The carrying amounts approximate fair value because of
the variable rate of interest on the debt.
(15) SUBSEQUENT EVENTS (UNAUDITED)
In March 1995, the Trust entered into an agreement with Walker
Investments, and certain entities affiliated with Walker Investments, to
acquire the 383,775 shares of LNH owned by the Walker Group and to acquire the
remaining 50% of LNH Reit Managers, a Mississippi general partnership, at a
cost of $3,070,200. The Trust negotiated a credit facility of $3,000,000 with
a commercial bank to finance the purchase. The line is for one year at the
prime rate of interest and will be secured by the stock.
37
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
-------------------------------------------------------------
THE TRUSTEES AND SHAREHOLDERS
EASTGROUP PROPERTIES:
Under date of March 13, 1995, we reported on the consolidated balance sheets of
EastGroup Properties and subsidiaries, a Maryland real estate investment trust,
as of December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994, which are included in
the 1994 Annual Report on Form 10-K/A. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedules as listed in Item 14 (a)(2)
of Form 10-K/A. 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.
Jackson, Mississippi
March 13, 1995 KPMG Peat Marwick LLP
38
SCHEDULE XI
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
(In thousands)
Initial Cost to the Trust
------------------------------------------
Costs Capitalized
Buildings subsequent to acquisition
and -------------------------
Improve- Advances Capitalized
Description Encumbrances Land ments Other under lease costs Other Land
------------ ------------ ------ -------- ------ ----------- ----------- ------ ------
Acquired
- --------
Land subject to
long-term net leases:
Apartments:
Iroquois-Tennessee........... $3,063 320 - - - - - 320
Winchester Ranch-Texas ...... - 450 - - - - - 450
Country Club - Alabama (c)(i) 4,245 500 - - - - - 500
Eastgate - Kansas (c)(i)..... 2,000 225 - - - - - 225
------ ------ ------ ------ ------ ------ ------ ------
9,308 1,495 - - - - - 1,495
------ ------ ------ ------ ------ ------ ------ ------
Shopping Centers:
Bellevue Plaza-Nebraska...... 1,766 437 - - - - (g)(437) -
Taco Bell - Kentucky......... - 11 - - - - - 11
Ponderosa - Kentucky......... - 26 - - - - - 26
------ ------ ------ ------ ------ ------ ------ ------
Total land subject to
long-term leases........ 11,074 1,969 - - - - (437) 1,532
------ ------ ------ ------ ------ ------ ------ ------
Gross Amount
at which carried
at close of period
------------------ Accumulated
Buildings and Depreciation
Description Improvements Other Total 12/31/94
----------- ------------------- ----- ----- --------
Acquired
- --------
Land subject to
long-term net leases:
Apartments:
Iroquois-Tennessee........... - - 320 - 1977
Winchester Ranch-Texas ...... - - 450 - 1970
Country Club - Alabama (c)(i) - - 500 - 1973
Eastgate - Kansas (c)(i)..... - - 225 - 1970
------ ------- ----- ------
- - 1,495 -
------ ------- ----- ------
Shopping Centers:
Bellevue Plaza-Nebraska........ - - - - 1972
Taco Bell - Kentucky........... - - 11 - 1994
Ponderosa - Kentucky........... - - 26 - 1994
------ ------- ----- ------
Total land subject to
long-term leases........... - - 1,532 -
------ ------- ----- ------
39
SCHEDULE XI
Gross Amount
Costs capitalized at which carried
subsequent to acquisition at close of period
- -------------------------- -------------------
Advances Capital- Buildings Accumulated
under ized and Depreciation Year
lease costs Other Land Improvements Other Total Dec. 31, 1994 Acquired
- ------- ------- ----- ---- ------------ ----- ----- ------------- --------
- - - 320 - - 320 - 1977
- - - 450 - - 450 - 1970
- - - 500 - - 500 - 1973
- - - 225 - - 225 - 1970
----- ----- ----- ----- ----- ----- ----- -----
- - - - - -
----- ----- ----- ----- ----- ----- ----- -----
- - (h)(8) 429 - - 429 - 1972
----- ----- ----- ----- ----- ----- ----- -----
- - (8) - - -
----- ----- ----- ----- ----- ----- ----- -----
(continued)
40
SCHEDULE XI
Gross Amount
Costs capitalized at which carried
subsequent to acquisition at close of period
- ------------------------- ------------------
Capital- Buildings Accumulated
ized and Depreciation Year Year
costs Other Land Improvements Total Dec. 31, 1994 Acquired Constructed
- ------------ ---- ---- ------------ ----- -------------- --------- ------------
10 - 147 503 650 88 1988 1979
123 - 250 873 1,123 162 1988 1979
28 - 286 456 742 74 1988 1979
385 - 832 2,546 3,378 499 1988 1978
185 - 925 2,965 3,890 571 1988 1978
173 - 422 1,064 1,486 217 1988 1979
538 - 1,030 3,409 4,439 542 1988 1979
280 - 1,023 4,141 5,164 661 1988 1987
462 - 1,034 5,518 6,552 768 1989 1987
79 - 440 635 1,075 96 1989 1974
177 - 1,147 1,976 3,123 266 1989 1978
189 - 551 2,315 2,866 93 1993 1981/86
386 - 469 2,268 2,737 75 1993 1974
396 - 3,442 6,846 10,288 282 1993 1986/87
34 - 603 2,448 3,051 37 1994 1975
10 - 267 1,078 1,345 16 1994 1979/85
- - 1,375 2,961 4,336 34 1994 1984
8 - 1,243 5,648 6,891 36 1994 1984/85
24 - 980 3,824 4,804 17 1994 1983/87
- - 120 1,154 1,274 1 1994 1986
3,685 - 542 3,685 4,227 978 1987 1986
2,277 - 2,208 16,345 18,553 4,957 1975/89 1974
308 - 285 1,908 2,193 516 1984 1984
111 - 623 9,904 10,527 221 1994 1981
898 - 275 2,276 2,551 799 1980 1968
1,295 - 531 3,287 3,818 943 1986/93 1968
1,550 - 330 3,421 3,751 1,082 1987 1974
969 - 1,526 3,855 5,381 663 1991 1968
415 - 670 6,391 7,061 574 1992 1985
149 - 471 8,247 8,718 332 1993 1985
177 - 855 6,528 7,383 164 1994 1990
5 - 575 5,711 6,286 70 1994 1990
13 - 615 5,512 6,127 54 1994 1983
49 (2,541)(h) 558 - 558 - 1978 n/a
34 - 230 - 230 - 1991 n/a
------ ------ ------ ------ ------ ------
15,422 (2,541) 26,880 129,698 156,578 15,888
------ ------ ------ ------ ------- ------
15,422 (2,978) 28,412 129,698 158,110 15,888
====== ======= ====== ======= ======= ======
(a)(b) (a)
(continued)
41
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
(In thousands)
Initial Cost to the Trust
-------------------------
Buildings
and
Improve-
Description Encumbrances Land ments
----------- ------------ ---- ---------
Real estate properties (d) and (e):
Industrial:
2100 Exchange-Texas............. - 147 493
2020/2040 Exchange-Texas........ 576 250 750
401 Exchange-Texas.............. - 286 428
Interstate #1-Texas............. 957 832 2,161
Interstate #2-Texas............. 1,185 925 2,780
Venture Duplex-Texas............ - 422 891
Venture Distribution-Texas...... - 1,030 2,871
Rampart-Colorado................ - 1,023 3,861
Sunbelt-Florida................. 4,260 1,034 5,056
La Quinta-Florida............... - 421 575
Deerwood-Florida................ 1,841 1,147 1,799
56th Street - Florida........... 2,384 551 2,126
JetPort - Florida............... 648 469 1,882
Lake Pointe - Florida........... - 3,442 6,450
Exchange Dist. - Florida........ - 603 2,414
Jetport 516 - Florida........... - 267 1,068
Phillips - Florida.............. - 1,375 2,961
Northwest Point - Texas......... 4,301 1,243 5,640
Westport - Florida.............. - 980 3,800
Baxter Healthcare - Oklahoma.... - 120 1,154
Office Buildings:
Nobel Center - California....... 3,239 542 -
8150 Leesburg Pike - Virginia... 4,338 2,208 14,068
Cascade-Ohio.................... - 285 1,600
Santa Fe Energy - Texas......... - 623 9,793
Apartments:
Pin Oaks-Texas.................. - 275 1,378
Garden Villa-Washington......... 3,163 304 2,219
SunChase-Texas.................. - 330 1,871
LaVista-Georgia................. - 1,526 2,886
Doral Club-Texas................ 4,418 670 5,976
Sutton House - Texas............ 5,962 471 8,098
Plantations at Killearn - Florida - 855 6,351
Hampton House - Mississippi..... - 575 5,706
Grande Pointe - Alabama......... - 615 5,499
Land (f):
Jefferson Parish-Louisiana...... - 3,050 -
Denver-Colorado................. - 196 -
-------- ------- -------
Total real estate owned....... 37,272 29,092 114,605
-------- ------- -------
Total......................... $ 48,346 31,061 114,605
======== ======= =======
42
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION (continued)
Notes:
(a)Changes in real estate properties follow:
Year Ended December 31
--------------------------------
1994 1993 1992
---------- -------- --------
(In thousands)
Balance at beginning of year......... $ 107,719 86,125 81,302
Improvements......................... 4,402 1,802 1,361
Investment in real estate
properties (1)..................... 51,680 24,443 6,646
Writedown of real estate properties.. (429) - (2,710)
Carrying amount of investments
sold............................... (3,050) (4,651) (474)
Writeoff of fully depreciated assets. (2,212) - -
--------- -------- --------
Balance at end of year............... $ 158,110 107,719 86,125
========= ======== ========
(1) Includes minority interest in JetPort Commerce Park, 56th Street
Commerce Park, Exchange Distribution Center, JetPort 516 Commerce
Park and Westport Commerce Center of $2,283,000 in 1994.
Changes in the accumulated depreciation on real estate properties follow:
Year Ended December 31
----------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
Balance at beginning of year......... $13,981 11,130 8,802
Depreciation expense................. 4,119 2,851 2,328
Writeoff of fully depreciated assets (2,212) - -
-------- --------- ---------
Balance at end of year............... $15,888 13,981 11,130
======== ========= =========
(b) The aggregate cost for federal income tax purposes is approximately
$120,519,000. The federal income tax return for the year ended December
31, 1994 has not been filed and, accordingly, the income tax basis of real
estate properties as of December 31, 1994 is based on preliminary data.
(c) The land tenant has the option, subject to certain conditions, to
repurchase the land at a price which would not be less than the cost of
the land interest to the Trust.
(d) Reference is made to allowance for possible losses on real estate
investments in the notes to consolidated financial statements.
43
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION (continued)
(e) The Trust computes depreciation using the straight-line method over the
estimated useful lives of the buildings (25 to 40 years) and other
improvements (5 to 10 years).
(f) The investment is not producing income to the Trust as of December 31,
1994.
(g) Represents net proceeds from the condemnation of a portion of the land
underlying the shopping center of $8,000 and writedown of $429,000.
(h) Represents a writedown of $2,496,000 and income received but deferred of
$45,000.
(i) Real estate land converted to land purchase-leasebacks.
44
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
(In thousands)
Number
of Interest Final
loans rate maturity date
------- -------- -------------
First mortgage loans (c):
Motels:
Jacksonville, Florida......................... 1 10% 7/97
Nashville, Tennessee.......................... 1 9% 5/98
Nashville, Tennessee.......................... 1 10% 7/97
Gainesville, Florida.......................... 1 10% 3/93
Gainesville, Florida.......................... 1 12% 3/93
Industrial:
Tampa, Florida................................ 1 10% 9/13
Tampa, Florida................................ 1 10% 9/95
Tampa, Florida................................ 1 prime + .125% 10/01
Orlando, Florida.............................. 1 10% 5/96
Orlando, Florida.............................. 1 10% 5/1
Apartments:
Eastgate - Kansas............................. 1 12.25%(e) 12/96
Other loans...................................... 3 8.5% 5/00-3/07
---
Total first mortgage loans................. 14
===
Subordinated mortgage loans:
Apartments:
Country Club - Alabama........................ 1 8.5%-9%(d) 12/99
---
Total subordinated mortgage loans................ 1
---
Total mortgage loans....................... 15
===
45
SCHEDULE XII
Principal amount
of loans subject
Periodic Face amount Carrying to delinquent
payment Prior of mortgages amount of principal or
terms liens December 31, 1994 mortgages interest (f)
--------- -------- ----------------- ---------- -----------------
P&I monthly - 1,076 443 943
P&I monthly - 964 868 -
P&I monthly - 878 678 878
Interest monthly - 850 628 850
P&I monthly - 474 474 474
Interest monthly - 360 360 -
P&I quarterly
(fixed principal) - 72 72 -
Interest monthly - 1,187 1,187 -
P&I quarterly
(fixed principal) - 169 169 -
Interest monthly - 450 450 -
(e) - 2,000 1,009 (e) -
P&I monthly - 99 64 34
------- ------- -------- -------
- 8,579 6,402 3,179
------- ------- -------- -------
(d) 2,286 4,245 2,415 (d) -
------- ------- -------- -------
2,286 4,245 2,415 -
------- ------- -------- -------
$ 2,286 12,824 8,817 (a)(b) 3,179
======= ======= ======== =======
46
MORTGAGE LOANS ON REAL ESTATE (continued)
Notes:
(a) Changes in mortgage loans were as follows:
Year Ended December 31
-------------------------
1994 1993 1992
---- ---- ----
(In thousands)
Balance at beginning of year...................... $ 8,383 8,588 8,894
Loans to facilitate the sale of property, net of
deferred gains............................... - 491 -
Loan to facilitate the purchase of property....... 1,862 1,150 -
Purchase of mortgage note receivable.............. - - 529
Payments.......................................... (734) (2,066) (978)
Amortization of discount on loans, net............ 154 220 143
Allocation of allowance........................... (500) - -
Writedown of mortgage notes receivable............ (457) - -
Mortgage note receivable from Eastover merger..... 39 - -
Restructure of mortgage note receivable........... 70 - -
------- ------ ------
Balance at end of year............................ $ 8,817 8,383 8,588
======= ====== ======
(b) The aggregate cost for federal income tax purposes is approximately
$11,399,000. The federal income tax return for the year ended December
31, 1994 has not been filed and, accordingly,the income tax basis of
mortgage loans as of December 31, 1994 is based on preliminary data.
(c) Reference is made to allowance for possible losses on real estate
investments in the notes to consolidated financial statements.
(d) Effective January 1, 1994, this note was modified. The interest rate
decreased from 9% to 8.50% beginning January 1, 1994 and will increase to
8.75% as of January 1, 1995 and to 9% as of January 1, 1996. The past due
interest and land rent of $70,000 was added to the outstanding face value
of the mortgage balance increasing it to $4,245,000. The maturity of the
loan was extended from August 28, 1996 to December 31, 1999. Prior to
this modification, the stated rate on the note was 9%. The carrying
amount of this wraparound note is net of the deferred gain of $1,127,000
and interest valuation of $703,000. The deferred gain will be recognized
on the installment method.
(e) The stated interest rate on the note varies from 8% to 10.25%. The net
note (wraparound note receivable less the first mortgage) has been
discounted to yield 12.25%. Interest only payments at rates ranging from
8% to 10.25% are due monthly until maturity with all unpaid interest and
principal due December 1996. The carrying amount of this wraparound note
is net of the deferred gain of $931,000 and interest valuation of $60,000.
The deferred gain will be recognized on the installment method.
(f) Interest or principal in arrears for three months or less is disregarded
in computing principal amount of loans subject to delinquent principal or
interest.