1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): June 1, 1998
EASTGROUP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION)
1-7094 13-2711135
(Commission File Number) (IRS Employer Identification No.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
P.O. BOX 22728
JACKSON, MISSISSIPPI 39225-2728
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (601) 354-3555
(Former name or former address, if changed since last report)
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FORM 8-K
EASTGROUP PROPERTIES, INC.
ITEM 5. OTHER EVENTS
Subsequent to the year ended December 31, 1997 EastGroup has purchased
or has under contract to purchase the following properties:
Acquisition Square Acquisition % leased at
Date Property Location feet Costs acquisition
- --------------------------------------------------------------------------------------------------------------------------------
2/18/98 Estrella Distribution Center Phoenix, AZ 174,450 5,318,000 100%
3/6/98 Stemmons Distribution Center Dallas, TX 98,960 2,379,000 100%
3/9/98 51st Avenue Distribution Phoenix, AZ 79,150 2,329,000 57%
4/2/98 Air Park Distribution Center Memphis, TN 92,230 2,161,000 100%
Under Contract America Plaza Distribution Center Houston, TX 121,400 5,315,000 N/A
Under Contract Wal-Mart Distribution Center Tucson, AZ 162,478 5,754,000 N/A
Under Contract World Houston 1&2 Distribution Houston, TX 157,750 6,555,000 N/A
Center
Under Contract Industry Distribution Center Los Angeles, CA 572,224 22,567,000 N/A
Under Contract Interstate Commerce Center Ft Lauderdale, FL 84,901 3,281,000 N/A
-------------------------------
1,543,543 55,659,000
===============================
The $12,187,000 of completed purchases above were entirely funded with
funds obtained under a working capital line of credit except the purchase of
Estrella in which the Company assumed debt of approximately $2,614,000 for a
portion of the total purchase price. In the proposed purchase of World Houston
1 and 2, the Company will assume debt of approximately $4,600,000.
The remaining industrial properties under contract are expected to be
funded with funds obtained under an acquisition line of credit with a local
commercial bank with an interest rate of LIBOR plus 1.40%.
The average rental rates of the leases approximate market rates and the
Company expects minimal capital expenditures. EastGroup is not aware of any
material factors relating to the acquisitions and probable acquisitions that
would cause the reported financial information not to be necessarily indicative
of future operating results.
On June 1, 1998, EastGroup completed the acquisition of Meridian Point
Realty Trust VIII Co. ("Meridian or Meridian VIII"), an equity REIT, which
significantly expanded EastGroup's industrial portfolio. The Meridian VIII
acquisition added 18 industrial properties totaling over 2.6 million square feet
of leasable space in major Sunbelt markets. The Meridian acquisition was
completed for an aggregate consideration of approximately $103.6 million, which
included the Company's investment in Meridian VIII, estimated costs of the
merger and the assumption of approximately $33.5 million of Meridian VIII's
debt. The merger with Meridian will be accounted for using the purchase method
of accounting. See note 3 to the Pro Forma Consolidated Balance Sheet for the
details of the allocation of the purchase price. The difference between Meridian
VIII's book value and EastGroup's cost is allocated to Meridian VIII's
noncurrent assets based on a preliminary review of the respective fair values.
Final allocations will be made based upon a final review of the properties. Any
differences in the preliminary amounts and the final allocations are not
expected to be material.
The unaudited Pro Forma Consolidated Financial Statements that are
attached hereto set forth the pro forma effects of the material acquisitions,
material dispositions and the Meridian merger.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
The following audited financial statements are filed herewith.
ESTRELLA DISTRIBUTION CENTER Page
- ---------------------------- ----
Independent Auditors' Report 5
Historical Summary of Gross Income and Direct Operating Expenses - for the year 6
ended December 31, 1997 and three months ended March 31, 1998 (unaudited)
Notes to Historical Summary of Gross Income and Direct Operating Expenses 7
WAL-MART DISTRIBUTION CENTER
- ----------------------------
Independent Auditors' Report 9
Historical Summary of Gross Income and Direct Operating Expenses - for the year 10
ended December 31, 1997 and three months ended March 31, 1998 (unaudited)
Notes to Historical Summary of Gross Income and Direct Operating Expenses 11
WORLD HOUSTON 1 AND 2 DISTRIBUTION CENTER
- -----------------------------------------
Independent Auditors' Report 13
Historical Summary of Gross Income and Direct Operating Expenses - for the year 14
ended December 31, 1997 and three months ended March 31, 1998 (unaudited)
Notes to Historical Summary of Gross Income and Direct Operating Expenses 15
INDUSTRY DISTRIBUTION CENTER
- ----------------------------
Independent Auditors' Report 17
Historical Summary of Gross Income and Direct Operating Expenses - for the year 18
ended December 31, 1997 and three months ended March 31, 1998 (unaudited)
Notes to Historical Summary of Gross Income and Direct Operating Expenses 19
(B) PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
The following unaudited Pro Forma Consolidated Financial Statements are filed
herewith:
EASTGROUP PROPERTIES, INC.
- --------------------------
Pro Forma Consolidated Balance Sheet (Unaudited) - as of March 31, 1998 21
Pro Forma Consolidated Statement of Operations (Unaudited) - for the three 24
months ended March 31, 1998
Pro Forma Consolidated Statement of Operations (Unaudited) - for the year ended 27
December 31, 1997
(C) EXHIBITS.
The following exhibit is included herein:
23(a) Consent of Independent Auditors 31
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FORM 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EastGroup Properties, Inc.
(Registrant)
Dated: June 1, 1998 By: /s/ N. Keith McKey
N. Keith McKey, CPA
Executive Vice President,
Chief Financial Officer,
and Secretary
/s/ Diane W. Hayman
Diane W. Hayman, CPA
Vice President and Controller
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
EASTGROUP PROPERTIES, INC.:
We have audited the accompanying historical summary of gross income
and direct operating expenses (Historical Summary) of Estrella Distribution
Center (the Property) for the year ended December 31, 1997. This Historical
Summary is the responsibility of the Property's management. Our responsibility
is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K of EastGroup Properties, Inc.) as
described in note 2 and is not intended to be a complete presentation of
revenues and expenses.
In our opinion, the historical summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses described in note 4 of Estrella Distribution Center for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
April 30, 1998
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ESTRELLA DISTRIBUTION CENTER
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
Year Ended Three Months Ended
December 31, 1997 March 31, 1998
----------------- -------------------
(unaudited)
Gross income:
Base rental income $ 484 121
Tenant expense reimbursements 193 40
-------- -------
677 161
-------- -------
Direct operating expenses:
Real estate and other taxes 148 30
Property management fees 18 4
Insurance 15 2
Repairs and maintenance 10 4
Utilities 4 1
Other 4 2
-------- -------
199 43
-------- -------
Excess of gross income over direct operating expenses $ 478 118
======== =======
See accompanying notes to historical summary.
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ESTRELLA DISTRIBUTION CENTER
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(UNAUDITED AS TO INTERIM PERIOD)
(1) BUSINESS
Estrella Distribution Center (Estrella) is an institutional quality
bulk distribution warehouse located in Phoenix, Arizona. Estrella is a single
warehouse with approximately 174,000 square feet of leasable space and is
currently 100% leased by two tenants.
(2) BASIS OF PRESENTATION
The historical summary has been prepared for the purpose of complying
with Rule 3-14 of Securities and Exchange Commission Regulation S-X (for
inclusion in the Form 8-K of EastGroup Properties, Inc.) and is not a complete
presentation of Estrella's revenues and expenses. The historical summary has
been prepared on the accrual basis of accounting.
The accompanying interim unaudited historical summary has been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments and eliminations (consisting only of normal recurring
adjustments) necessary to present fairly the historical summary for the three
months ended March 31, 1998 have been included. The results of operations for
such interim period are not necessarily indicative of the results for the full
year.
Management of Estrella has made estimates and assumptions relating to
the reporting of revenues and expenses and the disclosure of contingent assets
and liabilities to prepare the historical summary in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(3) GROSS INCOME
Estrella leases warehouse space under various operating lease
agreements with its tenants. All leases are accounted for as operating leases.
Base rental income is recognized on a straight-line basis over the terms of the
operating leases. These leases include provisions under which Estrella is
reimbursed for certain common area maintenance costs, real estate taxes,
insurance, utilities and certain other costs.
A summary of minimum rents to be received from tenants under
noncancellable operating leases in effect at December 31, 1997 follows:
YEAR ENDING
DECEMBER 31,
------------
1998 $ 512,550
1999 393,750
2000 196,875
----------
$1,103,175
==========
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(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs comparable to the
proposed future operation of Estrella. Costs such as mortgage interest,
depreciation, amortization and professional fees are excluded from the
historical summary.
During 1997, Estrella was managed by Ellman Realty Corporation for a
monthly fee of $1,500.
(5) COMMITMENTS AND CONTINGENCIES
In February 1998, EastGroup Properties, Inc. purchased Estrella.
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
EASTGROUP PROPERTIES, INC.:
We have audited the accompanying historical summary of gross income
and direct operating expenses (Historical Summary) of Wal-Mart Distribution
Center (the Property) for the year ended December 31, 1997. This Historical
Summary is the responsibility of the Property's management. Our responsibility
is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K of EastGroup Properties, Inc.) as
described in note 2 and is not intended to be a complete presentation of
revenues and expenses.
In our opinion, the historical summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses described in note 4 of Wal-Mart Distribution Center for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
April 28, 1998
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10
WAL-MART DISTRIBUTION CENTER
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
Year Ended Three Months Ended
December 31, 1997 March 31, 1998
----------------- -------------------
(unaudited)
Gross income:
Base rental income $ 601 150
Tenant expense reimbursements 23 4
-------- -------
624 154
-------- -------
Direct operating expenses:
Real estate and other taxes 19 3
Ground lease 24 6
Other 4 1
-------- -------
47 10
-------- -------
Excess of gross income over direct operating expenses $ 577 144
======== =======
See accompanying notes to historical summary.
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WAL-MART DISTRIBUTION CENTER
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(UNAUDITED AS TO INTERIM PERIOD)
(1) BUSINESS
Wal-Mart Distribution Center (Wal-Mart Center), is a cross-dock
warehouse located in southern Tucson, Arizona. Wal-Mart Center is a single
warehouse with approximately 162,000 square feet of leasable space and is
currently 100% leased by one tenant. The warehouse was not occupied during
1997; however, all rental payments were made by the tenant.
(2) BASIS OF PRESENTATION
The historical summary has been prepared for the purpose of complying
with Rule 3-14 of Securities and Exchange Commission Regulation S-X (for
inclusion in the Form 8-K of EastGroup Properties, Inc.) and is not a complete
presentation of Wal-Mart Center's revenues and expenses. The historical summary
has been prepared on the accrual basis of accounting.
The accompanying interim unaudited historical summary has been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments and eliminations (consisting only of normal recurring
adjustments) necessary to present fairly the historical summary for the three
months ended March 31, 1998 have been included. The results of operations for
such interim period are not necessarily indicative of the results for the full
year.
Management of Wal-Mart Center has made estimates and assumptions
relating to the reporting of revenues and expenses and the disclosure of
contingent assets and liabilities to prepare the historical summary in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(3) GROSS INCOME
Wal-Mart Center leases warehouse space under one operating lease
agreement with one tenant. The lease is accounted for as an operating lease.
Base rental income is recognized on a straight-line basis over the term of the
operating lease. During 1997 the warehouse was not occupied; however, all
rental payments were made by the tenant. The lease contains a one-time
cancellation clause effective March 2000. To cancel, the tenant must give
twelve months written notice and pay $812,000 at the time of notice. The lease
includes provisions under which Wal-Mart Center is reimbursed for certain real
estate and other taxes and other costs. Certain expenses are paid directly by
the tenant. Management of Wal-Mart Center is attempting to collect
reimbursement for prior ground lease expense from the tenant. Due to
uncertainty of collection, the annual reimbursement for 1997 of approximately
$24,000 has not been included in the historical summary.
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12
A summary of minimum rents to be received from the tenant under the
operating lease in effect at December 31, 1997 follows:
YEAR ENDING DECEMBER 31,
------------------------
1998 $ 561,784
1999 561,784
2000 626,775
2001 639,774
2002 639,774
Later years 1,386,176
----------
$4,416,067
==========
(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs comparable to the
proposed future operation of Wal-Mart Center. Costs such as mortgage interest,
depreciation, amortization and professional fees are excluded from the
historical summary.
Wal-Mart Center leases a land parcel that may be used as a parking
area for trucks and trailers under an operating lease agreement for
approximately $24,000 a year. The lease expires in February 2005 and contains
two, five-year renewal options.
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
EASTGROUP PROPERTIES, INC.:
We have audited the accompanying historical summary of gross income
and direct operating expenses (Historical Summary) of World Houston 1 and 2
(the Property) for the year ended December 31, 1997. This Historical Summary
is the responsibility of the Property's management. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K of EastGroup Properties, Inc.) as
described in note 2 and is not intended to be a complete presentation of
revenues and expenses.
In our opinion, the historical summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses described in note 4 of World Houston 1 and 2 for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
April 28, 1998
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WORLD HOUSTON 1 and 2
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
(UNAUDITED)
Gross income:
Base rental income $ 635 159
Tenant expense reimbursements 198 52
----- ----
833 211
----- ----
Direct operating expenses:
Real estate taxes 132 33
Management fees 23 6
Insurance 8 5
Utilities 11 3
Repairs and maintenance 7 3
Security 22 10
Other 3 3
----- ----
206 63
----- ----
Excess of gross income over direct operating expenses $ 627 148
===== ====
See accompanying notes to historical summary.
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WORLD HOUSTON 1 and 2
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(UNAUDITED AS TO INTERIM PERIOD)
(1) BUSINESS
World Houston 1 and 2 (World Houston) is located in Houston, Texas.
World Houston is comprised of two warehouses with approximately 158,000 square
feet of leasable space and is currently 100% leased by four tenants.
(2) BASIS OF PRESENTATION
The historical summary has been prepared for the purpose of complying
with Rule 3-14 of Securities and Exchange Commission Regulation S-X (for
inclusion in the Form 8-K of EastGroup Properties, Inc.) and is not a complete
presentation of World Houston's revenues and expenses. The historical summary
has been prepared on the accrual basis of accounting.
The accompanying interim unaudited historical summary has been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments and eliminations (consisting only of normal recurring
adjustments) necessary to present fairly the historical summary for the three
months ended March 31, 1998 have been included. The results of operations for
such interim period are not necessarily indicative of the results for the full
year.
Management of World Houston has made estimates and assumptions
relating to the reporting of revenues and expenses and the disclosure of
contingent assets and liabilities to prepare the historical summary in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(3) GROSS INCOME
World Houston leases warehouse space under various operating lease
agreements with its tenants. All leases are accounted for as operating leases.
Base rental income is recognized on a straight-line basis over the terms of the
operating leases. The leases include provisions under which World Houston is
reimbursed for certain common area maintenance costs, real estate taxes,
insurance, utilities, and certain other costs.
A summary of minimum rents to be received from tenants under
noncancellable operating leases in effect at December 31, 1997 follows:
YEAR ENDING
DECEMBER 31,
------------
1998 $ 618,804
1999 618,804
2000 618,804
2001 584,703
2002 452,845
Later years 970,274
----------
$3,864,234
==========
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(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs comparable to the
proposed future operation of World Houston. Costs such as mortgage interest,
depreciation, amortization and professional fees are excluded from the
historical summary.
During 1997, World Houston was managed by owners, D&W/Insite World
Houston, LP, for a fee based on three percent of gross receipts, as defined.
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INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
EASTGROUP PROPERTIES, INC.:
We have audited the accompanying historical summary of gross income
and direct operating expenses (Historical Summary) of Industry Distribution
Center (the Property) for the year ended December 31, 1997. This Historical
Summary is the responsibility of the Property's management. Our responsibility
is to express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the Form 8-K of EastGroup Properties, Inc.) as
described in note 2 and is not intended to be a complete presentation of
revenues and expenses.
In our opinion, the historical summary referred to above presents
fairly, in all material respects, the gross income and direct operating
expenses described in note 4 of Industry Distribution Center for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
May 19, 1998
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INDUSTRY DISTRIBUTION CENTER
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
(UNAUDITED)
Gross income:
Base rental income $ 598 235
Tenant expense reimbursements 18 6
Miscellaneous 4 -
------------ -----------
620 241
------------ -----------
Direct operating expenses:
Utilities 13 11
Security 61 13
Management fees 19 8
Property taxes 182 46
Insurance 60 15
Other 2 2
------------ -----------
337 95
------------ -----------
Excess of gross income over direct operating expenses $ 283 146
============ ===========
See accompanying notes to historical summary.
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INDUSTRY DISTRIBUTION CENTER
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
(UNAUDITED AS TO INTERIM PERIOD)
(1) BUSINESS
Industry Distribution Center (Industry) is located in City of Industry,
California. Industry is a multi-tenant, cross-dock warehouse which has
approximately 572,000 square feet of leasable space. The warehouse was
completely refurbished in 1997 and, therefore, was not fully leased in 1997.
Leasing activity increased in late 1997 and early 1998.
(2) BASIS OF PRESENTATION
The historical summary has been prepared for the purpose of complying
with Rule 3-14 of Securities and Exchange Commission Regulation S-X (for
inclusion in the Form 8-K of EastGroup Properties, Inc.) and is not a complete
presentation of Industry's revenues and expenses. The historical summary has
been prepared on the accrual basis of accounting.
The accompanying interim unaudited historical summary has been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments and eliminations (consisting only of normal recurring
adjustments) necessary to present fairly the historical summary for the three
months ended March 31, 1998 have been included. The results of operations for
such interim period are not necessarily indicative of the results for the full
year.
Management of Industry has made estimates and assumptions relating to
the reporting of revenues and expenses and the disclosure of contingent assets
and liabilities to prepare the historical summary in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(3) GROSS INCOME
Industry leases warehouse space under various operating lease
agreements with its tenants. All leases are accounted for as operating leases.
Base rental income is recognized on a straight-line basis over the terms of the
operating leases. These leases include provisions under which Industry is
reimbursed for certain common area maintenance costs and increases in real
estate taxes and insurance costs over base year amounts.
A summary of minimum rents to be received from tenants under
noncancellable operating leases in effect at December 31, 1997 follows:
YEAR ENDING
DECEMBER 31,
------------
1998 $1,497,533
1999 1,798,398
2000 1,755,572
2001 1,592,870
2002 1,531,828
Later years 822,282
----------
$8,998,483
==========
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(4) DIRECT OPERATING EXPENSES
Direct operating expenses include only those costs comparable to the
proposed future operation of Industry. Costs such as mortgage interest,
depreciation, amortization and professional fees are excluded from the
historical summary.
During 1997, Industry was managed by Investment Development Services,
Inc. for a fee based on the greater of $1,000 per month or three percent of
gross receipts, as defined.
(5) COMMITMENTS AND CONTINGENCIES
The owner of Industry has an indemnity agreement with the former owner
for the remediation of contaminated groundwater. The indemnity agreement covers
future owners and tenants. The owner of Industry also has a $5,000,000
environmental liability policy that runs through September 2001.
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EASTGROUP PROPERTIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF MARCH 31, 1998
The following unaudited pro forma consolidated balance sheet sets forth
the effect of the EastGroup Properties, Inc. merger with Meridian Point Realty
Trust VIII Co. ("Meridian" or Meridian VIII") as if the merger had been
consummated on March 31, 1998, and the material acquisitions of Wal-Mart
Distribution Center, World Houston 1 and 2 Distribution Center and Industry
Distribution Center as if these acquisitions had been consummated on March 31,
1998. The pro forma consolidated balance sheet includes allocations of the
purchase price to assets and liabilities of Meridian based on a preliminary
review of the respective fair values. Final allocations will be made based upon
a final review after completion of the merger. Any differences in the
preliminary amounts and final allocations are not expected to be material. The
pro forma consolidated balance sheet has been prepared by management of
EastGroup based upon the historical financial statements of EastGroup and
Meridian and the adjustments and assumptions in the accompanying notes to the
pro forma consolidated balance sheet. This pro forma consolidated balance sheet
may not be indicative of the financial position had the merger and acquisitions
been in effect on the dates indicated or which may occur in the future. The pro
forma consolidated balance sheet and notes thereto should be read in conjunction
with the other financial statements and the notes thereto of EastGroup
incorporated by reference herein.
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EASTGROUP MERIDIAN VIII EASTGROUP
MARCH 31, 1998 MARCH 31, 1998 MATERIAL PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ACQUISITIONS ADJUSTMENTS(3) CONSOLIDATED
----------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
Real estate properties (net of
accumulated depreciation) $369,755 69,376 34,876 (1) 27,545 501,552
Real estate held for sale, net 20,033 0 0 0 20,033
Mortgage loans (net of allowance for losses) 10,868 0 0 0 10,868
Investment in real estate investment trusts 18,688 0 0 (14,788) 3,900
Cash and cash equivalents 965 7,430 0 0 8,395
Other assets 9,885 2,727 0 (804) 11,808
------------------------------------------------------------------------------------
430,194 79,533 34,876 11,953 556,556
====================================================================================
LIABILITIES
Mortgage notes payable 107,355 33,537 4,600 (2) 0 145,492
Notes payable to banks 54,042 0 30,276 (2) 52,578 136,896
Accounts payable and accrued expenses 3,938 2,098 0 0 6,036
Minority interest 2,476 0 0 0 2,476
Other liabilities 2,111 623 0 3,500(4) 6,234
------------------------------------------------------------------------------------
169,922 36,258 34,876 56,078 297,134
====================================================================================
STOCKHOLDERS' EQUITY
Common and preferred stock 2 7 0 (7) 2
Additional paid-in-capital 245,720 65,953 0 (65,953) 245,720
Undistributed earnings (deficit) 13,098 (22,685) 0 22,685 13,098
Accumulated other comprehensive income 1,452 0 0 (850) 602
------------------------------------------------------------------------------------
260,272 43,275 0 (44,125) 259,422
------------------------------------------------------------------------------------
$430,194 79,533 34,876 11,953 556,556
====================================================================================
Book value per share 15.99 15.94
================== ====================
Shares outstanding (in thousands) 16,277 16,277
================== ====================
See accompanying notes to Pro Forma Consolidated Balance Sheet (Unaudited).
22
23
EASTGROUP PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF MARCH 31, 1998
(1) Material proposed acquisitions include Wal-Mart Distribution Center for
$5,754,000, World Houston 1 and 2 Distribution Center for $6,555,000
and Industry Distribution Center for $22,567,000.
(2) EastGroup anticipates assuming a $4,600,000 non-recourse mortgage note
payable in the acquisition of World Houston 1 and 2. The 7.77% mortgage
matures April 15, 2007. The mortgage is secured by World Houston 1 and
2. EastGroup anticipates funding the acquisition of Wal-Mart
Distribution Center, Industry Distribution Center and the balance of
World Houston 1 and 2 with its acquisition line of credit.
(3) Eastgroup acquired all shares owned by Meridian VIII shareholders
(except for shares already owned by Eastgroup) for cash of $56,078,000.
The merger with Meridian VIII is accounted for under the purchase
method of accounting.
Cost of shares acquired in merger (except for shares
owned by EastGroup)
Common - 1,709,937 shares x $8.50 per share $14,534,000
Preferred - 3,804,371 shares x $10.00 per share 38,044,000
Costs of transaction - estimated 3,500,000
-----------
$56,078,000
Carrying amount of EastGroup's existing investment in
1,469,556 Meridian VIII shares 14,788,000
Eliminate unrealized gain in the investment (850,000)
-----------
Cost of net assets $70,016,000
===========
The difference between Meridian VIII's book value and EastGroup's cost
is allocated to Meridian VIII's noncurrent assets based on a
preliminary review of the respective fair values. Final allocations
will be made based upon a final review of the properties after the
companies have merged. Any differences in the preliminary amounts and
the final allocations are not expected to be material.
Cost $70,016,000
Book value 43,275,000
-----------
Difference $26,741,000
===========
Difference is allocated as follows:
Real estate $27,545,000
Other assets, no value (804,000)
-----------
$26,741,000
===========
(4) EastGroup's costs of $3,500,000 associated with the Merger are assumed
to be paid with Meridian's cash received upon completion of the Merger.
23
24
EASTGROUP PROPERTIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
The following unaudited pro forma consolidated statement of operations for the
three months ended March 31, 1998 sets forth the effect of EastGroup's merger
with Meridian VIII, the purchase of Estrella Distribution Center on February 18,
1998, and the probable purchases of Wal-Mart Distribution Center, World Houston
1 and 2 Distribution Center and Industry Distribution Center as if these
acquisitions had been consummated on January 1, 1997. The pro forma consolidated
statement of operations has been prepared by management of EastGroup based upon
historical statements of operations of EastGroup and Meridian and the
adjustments and assumptions in the accompanying notes to the consolidated
statement of operations. The pro forma statement of operations may not be
indicative of the results that actually would have occurred if the transactions
had been in effect on the dates indicated or which may be obtained in the
future. The pro forma statement of operations and the notes thereto should be
read in conjunction with the other financial statements and the notes thereto of
EastGroup incorporated by reference herein.
24
25
EastGroup EastGroup Pro Forma Meridian VIII
March 31, 1998 Material Consolidated March 31, 1998
(Historical) Acquisitions(1) Prior to Meridian (Historical)
------------ --------------- ----------------- ------------
(In thousands except per share data)
REVENUES
Income from real estate operations $15,335 688 16,023 2,596
Interest:
Mortgage loans 458 0 458 0
Other 24 0 24 0
Other 224 0 224 87
---------------------------------------------------------------------
16,041 688 16,729 2,683
=====================================================================
EXPENSES
Operating expenses from real
estate operations 3,996 197 4,193 588
Interest expense 2,939 679 (2) 3,618 704
Depreciation and amortization 3,206 201 (3) 3,407 601
Minority interest in joint ventures 106 0 106 0
General and administrative expenses 869 0 869 1,912
---------------------------------------------------------------------
11,116 1,077 12,193 3,805
---------------------------------------------------------------------
INCOME (LOSS) BEFORE GAIN IN INVESTMENTS 4,925 (389) 4,536 (1,122)
Gain on real estate and mortgage loans 73 0 73 0
---------------------------------------------------------------------
NET INCOME (LOSS) $4,998 (389) 4,609 (1,122)
=====================================================================
BASIC PER SHARE DATA
- --------------------
Net income $.31
=========
Weighted average shares outstanding 16,223
=========
Pro Forma
Pro Forma Consolidated
Adjustments After Meridian
------------ --------------
(In thousands except per share data)
REVENUES
Income from real estate operations 0 18,619
Interest:
Mortgage Loans 0 458
Other 0 24
Other (118) (4) 193
------------------------------------
(118) 19,294
====================================
EXPENSES
Operating expenses from real
estate operations 0 4,781
Interest expense 933 (5) 5,255
Depreciation and amortization 86 (7) 4,094
Minority interest in joint ventures 0 106
General and administrative expenses (1,570) (6) 1,211
------------------------------------
(551) 15,447
------------------------------------
INCOME (LOSS) BEFORE GAIN IN INVESTMENTS 433 3,847
Gain on real estate and mortgage loans 0 73
------------------------------------
NET INCOME (LOSS) 433 3,920
====================================
BASIC PER SHARE DATA
- --------------------
Net income $.24
==============
Weighted average shares outstanding 16,223
==============
Pro Forma
EastGroup Consolidated
(Historical) After Meridian
------------ --------------
DILUTED PER SHARE DATA
- ----------------------
Net income $.30 $.24
====================================
Weighted average shares outstanding 16,391 16,391
====================================
25
26
EASTGROUP PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDING MARCH 31, 1998
(1) EastGroup's material acquisitions:
REO
ACQUISITION PROPERTY INCOME DEPRECIATION INTEREST OTHER
DATE DESCRIPTION FROM REO EXPENSE EXPENSE EXPENSE TOTAL
---- ----------- -------- ------- ------- ------- -----
02/18/98 Estrella East - Phoenix, AZ 82,000 (16,000) (60,000) (29,000) (23,000)
(proposed) Industry Distribution Center - Los Angeles, CA 241,000 (120,000) (401,000) (95,000) (375,000)
(proposed) Walmart - Tuscon, AZ 154,000 (30,000) (102,000) (10,000) 12,000
(proposed) World Houston 1&2 - Houston, TX 211,000 (35,000) (116,000) (63,000) (3,000)
-----------------------------------------------------------------
TOTAL 688,000 (201,000) (679,000) (197,000) (389,000)
=================================================================
(2) Increase interest expense on bank debt for borrowings to purchase the
material acquisitions. The bank borrowings to purchase these
acquisitions were $32,932,000, at an average rate of 7.2%, and mortgages
totaling $7,262,000 were assumed on Estrella and World Houston 1 and 2.
(3) Depreciation on material acquisitions is based on an estimated life of
forty years for buildings.
(4) Eliminate EastGroup's dividend income from Meridian VIII shares.
(5) Increase interest expense for borrowings to purchase Meridian VIII
shares. The borrowings to purchase these shares was $52,571,000 at an
average rate of 7.2% for first quarter 1998. EastGroups' costs of
$3,500,000 associated with the Merger are assumed to be paid with
Meridian's cash received upon completion of the Merger.
(6) Decrease in general and administrative is primarily due to nonrecurring
costs of stock appreciation rights expense of $560,000 and an investor
advisor fee of $1,010,000, related to advisory services and a
fairness opinion relating to the Merger, which were expensed by
Meridian in the first quarter of 1998.
(7) Depreciation is based on allocation of the purchase price and an
estimated life of thirty years for buildings.
26
27
EASTGROUP PROPERTIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1997 sets forth the effect of EastGroup's merger with
Meridian VIII, the purchase of Lockwood Distribution Center on May 9, 1997,
Senator Street Distribution Center on July 16, 1997, Chamberlain Distribution
Center on July 22, 1997, Jacksonville and New Orleans Properties on September
24, 1997, Butterfield Trail Industrial Park on December 1, 1997, Eastlake
Industrial Center on December 5, 1997, Estrella Distribution Center on February
18, 1998, and the proposed purchases of Wal-Mart Distribution Center, World
Houston 1 and 2 Distribution Center and Industry Distribution Center as if these
acquisitions had been consummated on January 1, 1997. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 1997 also
sets forth the effect of EastGroup and Meridian's material dispositions and
EastGroup's equity offerings. The pro forma consolidated statement of operations
has been prepared by management of EastGroup based upon historical statements of
operations of EastGroup and Meridian and the adjustments and assumptions in the
accompanying notes to the consolidated statement of operations. The pro forma
statement of operations may not be indicative of the results that actually would
have occurred if the transactions had been in effect on the dates indicated or
which may be obtained in the future. The pro forma statement of operations and
the notes thereto should be read in conjunction with the other financial
statements and the notes thereto of EastGroup incorporated by reference herein.
27
28
EastGroup EastGroup EastGroup EastGroup Pro Forma
December 31, 1997 Material Material Equity Consolidated
(Historical) Acquisitions(2) Dispositions(3) Offerings(9) Prior to Meridian
------------------------------------------------------------------------------------------
(In thousands except per share data)
REVENUES
Income from real estate operations $49,791 11,728 (2,162) 0 59,357
Interest:
Mortgage Loans 2,013 0 0 0 2,013
Other 558 0 0 0 558
Other 1,260 4 (548) 0 716
------------------------------------------------------------------------------------------
53,622 11,732 (2,710) 0 62,644
==========================================================================================
EXPENSES
Operating expenses from real
estate operations 14,825 2,688 (879) 0 16,634
Interest expense 10,551 9,038(7) (1,113)(8) (4,363) 14,113
Depreciation and amortization 10,409 2,681(6) (9) 0 13,081
Minority interest in joint ventures 512 0 0 0 512
General and administrative expenses 2,923 0 0 0 2,923
------------------------------------------------------------------------------------------
39,220 14,407 (2,001) (4,363) 47,263
------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE GAIN IN INVESTMENTS 14,402 (2,675) (709) 4,363 15,381
Gain (loss) on real estate and mortgage
loans 6,377 0 (6,596)(1) 0 (219)
------------------------------------------------------------------------------------------
NET INCOME (LOSS) $20,779 (2,675) (7,305) 4,363 15,162
==========================================================================================
BASIC PER SHARE DATA
- --------------------
Net income $1.58
=====
Weighted average shares outstanding 13,176
======
Meridian
Meridian Material Pro Forma
December 31, 1997 Acquisitions/ Pro Forma Consolidated
(Historical) Disposition(4) Adjustments After Meridian
----------------- ------------ ------------ --------------
(In thousands except
per share data)
REVENUES
Income from real estate operations 10,356 (274) 0 69,439
Interest:
Mortgage Loans 0 0 0 2,013
Other 214 0 0 772
Other 0 0 (217)(5) 499
--------------------------------------------------------------------------
10,570 (274) (217) 72,723
==========================================================================
EXPENSES
Operating expenses from real
estate operations 3,210 (263) 0 19,581
Interest expense 2,583 49 4,565(12) 21,310
Depreciation and amortization 2,446 (52) 300(11) 15,775
Minority interest in joint ventures 0 0 0 512
General and administrative expenses 954 0 0 3,877
--------------------------------------------------------------------------
9,193 (266) 4,865 61,055
--------------------------------------------------------------------------
INCOME (LOSS) BEFORE GAIN IN INVESTMENTS 1,377 (8) (5,082) 11,668
Gain (loss) on real estate and mortgage
loans 1,995 (1,995) 0 (219)
--------------------------------------------------------------------------
NET INCOME (LOSS) 3,372 (2,003) (5,082) 11,449
==========================================================================
BASIC PER SHARE DATA
- --------------------
Net income $ .71
=============
Weighted average shares outstanding(10) 16,178
=============
EastGroup Pro Forma
December 31, 1997 Consolidated
(Historical) After Meridian
------------ --------------
DILUTED PER SHARE DATA
- ----------------------
Net income $1.56 $ .70
===================================================
Weighted average shares outstanding 13,338 16,340
===================================================
28
29
EASTGROUP PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(1) Gain on EastGroup dispositions of $6,596,000 in 1997 has been eliminated
in determining pro forma net income.
(2) EastGroup's material acquisitions:
ACQUISITION PROPERTY INCOME DEPRECIATION INTEREST OTHER
DATE DESCRIPTION FROM REO EXPENSE EXPENSE EXPENSE TOTAL
---- ----------- -------- ------- ------- ------- -----
05/09/97 Lockwood Distribution Center - Houston, TX 452,000 (66,000) (162,000) (98,000) 126,000
07/16/97 Senator Street - Memphis, TN 272,000 (40,000) (100,000) (73,000) 59,000
07/22/97 Chamberlain - Tucson, AZ 302,000 (69,000) (230,000) (84,000) (81,000)
09/24/97 Ellis, Westside, Elmwood & Riverbend
Jacksonville, FL and New Orleans, LA 4,307,000 (743,000) (3,406,000) (804,000) (646,000)
12/01/97 Butterfield Trail - El Paso, TX 2,613,000 (685,000) (1,347,000) (644,000) (63,000)
12/05/97 Eastlake Distribution Center - Chula Vista, CA 1,032,000 (223,000) (756,000) (196,000) (143,000)
02/18/98 Estrella East - Phoenix, AZ 677,000 (117,000) (442,000) (199,000) (81,000)
(proposed) Industry Distribution Center - Los Angeles, CA 620,000 (479,000) (1,670,000) (337,000) (1,866,000)
(proposed) Walmart - Tuscon, AZ 624,000 (119,000) (426,000) (47,000) 32,000
(proposed) World Houston 1 and 2 - Houston, TX 833,000 (140,000) (499,000) (206,000) (12,000)
---------------------------------------------------------------------
TOTALS 11,732,000 (2,681,000) (9,038,000) (2,688,000) (2,675,000)
=====================================================================
(3) EastGroup's material dispositions:
REO
DISPOSITION PROPERTY INCOME INCOME DEPRECIATION INTEREST
DATE DESCRIPTION FROM REO JOINT VENTURE EXPENSE EXPENSE
---- ----------- -------- ------------- ------- -------
07/31/97 Sante Fe Entergy Building - Houston, TX (1,648,000) 0 9,000 542,000
08/29/97 Liberty Corners Shopping Center - Liberty , Mo (514,000) 0 0 256,000
09/16/97 Cowesett Corners Shopping Center - Warwick, RI 0 (548,000) 0 315,000
(Joint Venture) ----------------------------------------------------------------
TOTAL (2,162,000) (548,000) 9,000 1,113,000
================================================================
DISPOSITION PROPERTY OTHER GAIN ON
DATE DESCRIPTION EXPENSE INVESTMENTS TOTAL
---- ----------- ------- ----------- -----
07/31/97 Sante Fe Entergy Building - Houston, TX 718,000 (2,306,000) (2,685,000)
08/29/97 Liberty Corners Shopping Center - Liberty , Mo 161,000 (2,614,000) (2,711,000)
09/16/97 Cowesett Corners Shopping Center - Warwick, RI 0 (1,676,000) (1,909,000)
(Joint Venture) ----------------------------------------
TOTAL 879,000 (6,596,000) (7,305,000)
========================================
(4) Meridian's material acquisitions/dispositions:
ACQUISITION/ REO GAIN
DISPOSITION PROPERTY INCOME DEPRECIATION INTEREST OTHER ON
DATE DESCRIPTION LOCATION FROM REO EXPENSE EXPENSE EXPENSE INVESTMENTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
Disposition
10/9/97 South Sayre Bedford Park, IL ($781,000) 136,000 0 345,000 (936,000) (1,236,000)
Disposition
6/13/97 Interchange D(13) Jackson, MS 0 0 0 0 (1,059,000) (1,059,000)
Acquisition
8/27/97 '49 Distributors Florida 235,000 (43,000) 0 (39,000) 0 153,000
Acquisition
8/27/97 Australian One Florida 135,000 (21,000) (49,000) (28,000) 0 37,000
Acquisition Congress
8/27/97 Crossings Florida 137,000 (20,000) 0 (15,000) 0 102,000
---------------------------------------------------------------------------------
TOTALS ($274,000) 52,000 (49,000) 263,000 (1,995,000) (2,003,000)
=================================================================================
(5) Eliminate dividend income from Meridian's shares.
(6) Depreciation on material acquisitions is based on an estimated life of
forty years for buildings.
29
30
(7) Increase interest expense on bank debt for borrowings to purchase the
material acquisitions. The bank borrowings to purchase these
acquisitions were $73,418,000, at an average rate of 7.4%, and mortgages
totaling $59,862,000 were assumed on the Jacksonville and New Orleans
properties, Chamberlain, Eastlake, World Houston 1 and 2 and Estrella.
The September 24, 1997 acquisition of the Jacksonville and New Orleans
Properties was funded with cash and two first mortgage loans totaling
$45,000,000 at 9.25% interest lent by the seller to EastGroup. The
mortgage loans matured and were repaid December 31, 1997.
(8) Decrease interest expense for the repayment of mortgage notes payable
on real estate properties and for the reduction of variable rate debt
with proceeds in excess of mortgage notes payable.
(9) In February 1997, the Company issued a total of 2,100,000 common shares
under an existing shelf registration. Net proceeds of the offering were
approximately $36,654,000, net of underwriting commissions and expenses.
In October 1997, the Company completed an offering of 3,500,000 common
shares of its common stock for net proceeds of $72,555,000.
For pro forma purposes, interest expense was reduced for the reduction
of variable rate debt as if the proceeds from the offerings had been
received on January 1, 1997. EastGroup's weighted average basic
shares outstanding were also restated to show the effect of the shares
as if they had been issued January 1, 1997 as detailed in note (10).
(10) Weighted average EastGroup shares outstanding were computed as follows:
TWELVE MONTHS ENDED
DECEMBER 31, 1997
-------------------
(IN THOUSANDS)
Historical weighted average EastGroup shares outstanding 13,176
EastGroup shares issued in February 1997 equity offering 231
EastGroup shares issued in October 1997 equity offering 2,771
---------
Pro forma weighted average EastGroup shares outstanding 16,178
=========
(11) Depreciation is based on allocation of the purchase price and an
estimated life of thirty years for buildings.
(12) Increase interest expense for borrowings to purchase Meridian VIII
shares. The borrowings to purchase these shares was $52,571,000 at an
average rate of 7.4%.
(13) Interchange D was sold by Meridian VIII to EastGroup.
(14) EastGroup's costs of $3,500,000 associated with the Merger are assumed
to be paid with Meridian's cash received upon completion of the Merger.
30