EASTGROUP PROPERTIES, INC. The following discussion and analysis of results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.
OVERVIEW
EastGroup's goal is to maximize shareholder value by being a leading provider in its markets of functional, flexible and quality business distribution space for location-sensitive customers (primarily in the 15,000 to 70,000 square foot range). The Company develops, acquires and operates distribution facilities, the majority of which are clustered around major transportation features in supply-constrained submarkets in major Sunbelt regions. The Company's core markets are in the states ofFlorida ,Texas ,Arizona ,California andNorth Carolina .
Impact of the COVID-19 Pandemic
On
During the course of the COVID-19 pandemic,the United States has experienced, and may continue to experience, significant health, social and economic impacts from COVID-19. EastGroup's operations, occupancy and rent collections have remained substantially stable during this period. As ofFebruary 16, 2021 , the Company has received rent relief requests, primarily in the form of payment deferral requests, from approximately 28% of its customers based on rental revenue. These requests have largely ended; for comparison, this is only a slight increase from 26% at the end ofApril 2020 during the beginning of the pandemic. To date, approximately 18% of these requests have been granted some form of relief, which represents approximately 5% of the Company's customers on a square foot basis. The Company has executed rent deferral agreements totaling$1.7 million , which represents approximately 0.4% of the Company's 2020 revenue. The deferrals all relate to 2020 rental income with no future period deferred rents. The terms differ for each deferral agreement, and all deferred rent payments that were due throughDecember 31, 2020 have been collected with the exception of$27,000 . As ofFebruary 16, 2021 , 59% of total deferred rent has been collected. Under modified COVID-19-related guidance provided by theFinancial Accounting Standards Board ("FASB"), rental income for the majority of these deferral agreements ($1.4 million of the$1.7 million ) qualifies to be recognized as rental income in the periods in which it was charged under the original terms of the leases. When requests were made, they were handled on a case-by-case basis, and the Company's responses were dependent on its understanding of the financial strength of the customer, the operational and earnings impacts being experienced by the customer, and the customer's ability or inability to obtain capital through debt or equity issuances, government assistance programs or by other means. As ofFebruary 16, 2021 , rent payment deferrals representing approximately 0.4% of the Company's 2020 revenue have not been significant; the Company is continuing to actively monitor the evolving COVID-19 situation and its impact on the Company's cash flows and operations. 18 --------------------------------------------------------------------------------
As of
% of Uncollected Rent % of Uncollected Rent With
Period % of Rent Collected(1) Deferred to Future Period No Deferral Agreement
Quarterly Q1 2020 99.8% 0.0% 0.2% Q2 2020 99.6% 0.3% 0.1% Q3 2020 99.5% 0.2% 0.3% Q4 2020 99.5% 0.1% 0.4% Monthly October 2020 99.3% 0.2% 0.5% November 2020 99.4% 0.1% 0.5% December 2020 99.7% 0.1% 0.2% January 2021 99.5% 0.0% 0.5% February 2021(2) 95.1% 0.0% 4.9% (1) Customer payments are received daily. The collection information presented is current throughFebruary 16, 2021 , and the Company anticipates continuing to receive payments which will increase the % of Rent Collected. (2) Represents the period of February 1, 2021 through February 16, 2021 and assumes collections from government-related tenants. For comparison, as ofFebruary 16, 2021 , February rental receipts are slightly higher than the January rental receipts were as ofJanuary 16, 2021 . We believe EastGroup's financial condition and balance sheet remain strong. As ofDecember 31, 2020 , the outstanding balance on the Company's$395 million unsecured revolving credit facilities was$125 million , providing$270 million of available capacity. During 2020, EastGroup has only drawn amounts on its unsecured revolving credit facilities for general corporate purposes in the ordinary course of business. The Company is in compliance with its debt covenants atDecember 31, 2020 and anticipates remaining in compliance for the foreseeable future. The Company's recent debt and equity activity is further described under Liquidity and Capital Resources. The Company has been continuing construction on already-active development and value-add projects. During the second and third quarters of 2020, EastGroup did not begin construction on any new development projects. During the fourth quarter of 2020, the Company started construction on three new development projects. Management will continue to monitor the economic conditions of the Company's markets to determine whether to begin construction on additional future development projects.
The future impacts of COVID-19 on the Company are largely dependent on the severity and duration of the economic uncertainty and its effect on EastGroup's customers and cannot be predicted with certainty at this time.
General
The Company believes its current operating cash flow and unsecured bank credit facilities provide the capacity to fund the operations of the Company, and the Company also believes it can issue common and/or preferred equity and obtain debt financing. During 2020, EastGroup issued 709,924 shares of common stock through its continuous common equity offering program, providing net proceeds to the Company of$92.7 million . Also during 2020, the Company closed on a private placement of$175 million of senior unsecured notes with a weighted average fixed interest rate of 2.65% and a$100 million senior unsecured term loan with an effective fixed interest rate of 2.39%. EastGroup's financing and equity issuances are further described in Liquidity and Capital Resources. The Company's primary revenue is rental income. During 2020, EastGroup executed leases on 8,118,000 square feet (18.5% of EastGroup's total square footage of 43,854,000 as ofDecember 31, 2020 ). For new and renewal leases signed during 2020, average rental rates increased by 21.7% as compared to the former leases on the same spaces. Property Net Operating Income ("PNOI") Excluding Income from Lease Terminations from same properties (defined as operating properties owned during the entire current and prior year reporting periods -January 1, 2019 throughDecember 31, 2020 ), increased 2.1% for 2020 compared to 2019. 19 -------------------------------------------------------------------------------- EastGroup's portfolio was 98.0% leased atDecember 31, 2020 compared to 97.6% atDecember 31, 2019 . As ofFebruary 16, 2021 , the portfolio was 97.9% leased and 96.7% occupied. Leases scheduled to expire in 2021 were 14.9% of the portfolio on a square foot basis atDecember 31, 2020 , and this percentage was reduced to 12.2% as ofFebruary 16, 2021 . The Company generates new sources of leasing revenue through its development and acquisition programs. The Company mitigates risks associated with development through a Board-approved maximum level of land held for development and by adjusting development start dates according to leasing activity. During 2020, EastGroup acquired 509,000 square feet of operating and value-add properties inAtlanta ,Dallas ,Austin andLos Angeles and 232.6 acres of land inOrlando ,Fort Myers ,Atlanta ,Dallas andEl Paso for a total of$122.2 million . The Company began construction of 5 development projects containing 851,000 square feet inMiami ,Fort Myers ,Charlotte ,Dallas andPhoenix . Also in 2020, the Company transferred 18 development and value-add properties (2,360,000 square feet) inTampa ,Miami ,Orlando ,Fort Myers ,Charlotte ,Dallas ,Austin ,Houston ,San Antonio ,Las Vegas andSan Diego from its development and value-add program to real estate properties with costs of$249.4 million at the date of transfer. As ofDecember 31, 2020 , EastGroup's development and value-add program consisted of 16 projects (2,741,000 square feet) located in 10 cities. The projected total cost for the development and value-add projects, which were collectively 35% leased as ofFebruary 16, 2021 , is$291.5 million , of which$65.5 million remained to be invested as ofDecember 31, 2020 .
During 2020, EastGroup sold 126,000 square feet of operating properties,
generating gross sales proceeds of
The Company typically initially funds its development and acquisition programs through its$395 million unsecured bank credit facilities (as discussed below under Liquidity and Capital Resources). As market conditions permit, EastGroup issues equity and/or employs fixed rate debt, including variable rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace short-term bank borrowings. InJune 2019 , Moody's Investors Service affirmed the Company's issuer rating of Baa2 with a stable outlook. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. For future debt issuances, the Company intends to issue primarily unsecured fixed rate debt, including variable rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps. The Company may also access the public debt market in the future as a means to raise capital. EastGroup has one reportable segment - industrial properties. The Company's properties, primarily located in major Sunbelt regions ofthe United States , have similar economic characteristics and as a result, have been aggregated into one reportable segment.
The Company's chief decision makers use two primary measures of operating results in making decisions: (1) funds from operations attributable to common stockholders ("FFO"), and (2) property net operating income ("PNOI").
FFO is computed in accordance with standards established by theNational Association of Real Estate Investment Trusts, Inc. ("Nareit"). InDecember 2018 , Nareit issued the "Nareit Funds from Operations White Paper - 2018 Restatement" (the "2018 White Paper"), which reaffirmed, and in some cases refined, Nareit's prior determinations concerning FFO. The guidance in the 2018 White Paper allows preparers an option as it pertains to whether gains or losses on sale, or impairment charges, on real estate assets incidental to a REIT's business are excluded from the calculation of FFO. EastGroup has made the election to exclude activity related to such assets that are incidental to our business. In 2019, the Company revised prior periods to reflect this guidance. FFO is calculated as net income (loss) attributable to common stockholders computed in accordance withU.S. generally accepted accounting principles ("GAAP"), excluding gains and losses from sales of real estate property (including other assets incidental to the Company's business) and impairment losses, adjusted for real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO is not considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance, nor is it a measure of the Company's liquidity or indicative of funds available to provide for the Company's cash needs, including its ability to make distributions. The Company's key drivers affecting FFO are changes in PNOI (as discussed below), interest rates, the amount of leverage the Company employs and general and administrative expenses. PNOI is defined as Income from real estate operations less Expenses from real estate operations (including market-based internal management fee expense) plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments. 20 -------------------------------------------------------------------------------- EastGroup sometimes refers to PNOI fromSame Properties as "Same PNOI"; the Company also presents Same PNOI Excluding Income from Lease Terminations.Same Properties is defined as operating properties owned during the entire current period and prior year reporting period. Properties developed or acquired are excluded until held in the operating portfolio for both the current and prior year reporting periods. Properties sold during the current or prior year reporting periods are also excluded. For the year endedDecember 31, 2020 ,Same Properties includes properties which were included in the operating portfolio for the entire period fromJanuary 1, 2019 throughDecember 31, 2020 . The Company presents Same PNOI and Same PNOI Excluding Income from Lease Terminations as a property-level supplemental measure of performance used to evaluate the performance of the Company's investments in real estate assets and its operating results on a same property basis. It is calculated on a lease-by-lease basis by averaging the customers' rent payments over the life of each individual lease. FFO and PNOI are supplemental industry reporting measurements used to evaluate the performance of the Company's investments in real estate assets and its operating results. The Company believes that the exclusion of depreciation and amortization in the industry's calculations of PNOI and FFO provides supplemental indicators of the properties' performance since real estate values have historically risen or fallen with market conditions. PNOI and FFO as calculated by the Company may not be comparable to similarly titled but differently calculated measures for other real estate investment trusts ("REITs"). Investors should be aware that items excluded from or added back to FFO are significant components in understanding and assessing the Company's financial performance.
PNOI was calculated as follows for the three fiscal years ended
Years Ended December 31,
2020 2019 2018
(In thousands)
Income from real estate operations $ 362,669 330,813 299,018
Expenses from real estate operations (103,368) (93,274) (86,394)
Noncontrolling interest in PNOI of consolidated joint ventures (171) (199) (314)
PNOI from 50% owned unconsolidated investment 978 976 869
PROPERTY NET OPERATING INCOME ("PNOI") $ 260,108 238,316 213,179
Income from real estate operations is comprised of rental income net of reserves
for uncollectible rent, expense reimbursement pass-through income and other real
estate income including lease termination fees. Expenses from real estate
operations is comprised of property taxes, insurance, utilities, repair and
maintenance expenses, management fees and other operating costs. Generally, the
Company's most significant operating expenses are property taxes and
insurance. Tenant leases may be net leases in which the total operating expenses
are recoverable, modified gross leases in which some of the operating expenses
are recoverable, or gross leases in which no expenses are recoverable (gross
leases represent only a small portion of the Company's total leases). Increases
in property operating expenses are fully recoverable under net leases and
recoverable to a high degree under modified gross leases. Modified gross leases
often include base year amounts, and expense increases over these amounts are
recoverable. The Company's exposure to property operating expenses is primarily
due to vacancies and leases for occupied space that limit the amount of expenses
that can be recovered.
21--------------------------------------------------------------------------------
The following table presents reconciliations of Net Income to PNOI, Same PNOI
and Same PNOI Excluding Income from Lease Terminations for the three fiscal
years ended
Years Ended December 31,
2020 2019 2018
(In thousands)
NET INCOME $ 108,391 123,340 88,636
Gain on sales of real estate investments (13,145) (41,068) (14,273)
Gain on sales of non-operating real estate - (83)
(86)
Gain on sales of other assets - - (427) Net loss on other - 884 497 Interest income (101) (129) (156) Other revenue (354) (574) (1,374) Indirect leasing costs 661 411 - Depreciation and amortization 116,359 104,724
91,704
Company's share of depreciation from unconsolidated investment 137 141 128 Interest expense 33,927 34,463 35,106 General and administrative expense 14,404 16,406
13,738
Noncontrolling interest in PNOI of consolidated joint ventures (171) (199)
(314)
PROPERTY NET OPERATING INCOME ("PNOI") 260,108 238,316 213,179
PNOI from 2019 and 2020 Acquisitions (8,434) (2,929)
*
PNOI from 2019 and 2020 Development and Value-Add Properties (24,050) (8,109)
*
PNOI from 2019 and 2020 Operating Property Dispositions (1,081) (4,787) * Other PNOI 257 247 * SAME PNOI 226,800 222,738 * Net lease termination fee income from same properties (709) (1,258)
*
SAME PNOI EXCLUDING INCOME FROM LEASE TERMINATIONS$ 226,091 221,480 * * Same property metrics are not applicable to the year endedDecember 31, 2018 , as the same property metrics for 2020 and 2019 are based on operating properties owned during the entire current and prior year reporting periods (January 1, 2019 throughDecember 31, 2020 ). 22 -------------------------------------------------------------------------------- The following table presents reconciliations of Net Income Attributable toEastGroup Properties, Inc. Common Stockholders to FFO Attributable to Common Stockholders for the three fiscal years endedDecember 31, 2020 , 2019 and 2018. Years Ended December 31, 2020 2019 2018 (In thousands, except per share data)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
$ 108,363 121,662 88,506 Depreciation and amortization 116,359 104,724 91,704 Company's share of depreciation from unconsolidated investment 137 141 128 Depreciation and amortization from noncontrolling interest (142) (186) (182) Gain on sales of real estate investments (13,145) (41,068) (14,273) Gain on sales of non-operating real estate - (83) (86) Gain on sales of other assets - - (427)
Noncontrolling interest in gain on sales of real estate investments of consolidated joint ventures
- 1,671 -
FUNDS FROM OPERATIONS ("FFO") ATTRIBUTABLE TO COMMON STOCKHOLDERS
$ 211,572 186,861 165,370 Net income attributable to common stockholders per diluted share$ 2.76 3.24 2.49
Funds from operations ("FFO") attributable to common stockholders
(1)
per diluted share $ 5.38 4.98 4.66
Diluted shares for earnings per share and funds from operations 39,296 37,527 35,506
(1)The Company initially reported FFO of $4.67 per share during the year ended
December 31, 2018 . In connection with the Company's adoption of the Nareit Funds
from Operations White Paper - 2018 Restatement, the Company now excludes from
FFO the gains and losses on sales of non-operating real estate and assets
incidental to the Company's business.
The Company analyzes the following performance trends in evaluating the revenues and expenses of the Company:
•The change in FFO per share represents the increase or decrease in FFO per share from the current year compared to the prior year. For 2020, FFO was$5.38 per share compared with$4.98 per share for 2019, an increase of 8.0%. •For the year endedDecember 31, 2020 , PNOI increased by$21,792,000 , or 9.1%, compared to 2019. PNOI increased$15,941,000 from newly developed and value-add properties,$5,505,000 from 2019 and 2020 acquisitions and$4,062,000 from same property operations; PNOI decreased$3,706,000 from operating properties sold in 2019 and 2020. •The change in Same PNOI represents the PNOI increase or decrease for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2019 throughDecember 31, 2020 ). Same PNOI, excluding income from lease terminations, increased 2.1% for the year endedDecember 31, 2020 , compared to 2019. •Same property average occupancy represents the average month-end percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2019 throughDecember 31, 2020 ). Same property average occupancy was 97.0% for each of the years endedDecember 31, 2020 and 2019. •Occupancy is the percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage as of the close of the reporting period. Occupancy atDecember 31, 2020 was 97.3%. Quarter-end occupancy ranged from 96.4% to 97.1% over the previous four quarters endedDecember 31, 2019 toSeptember 30, 2020 . •Rental rate change represents the rental rate increase or decrease on new and renewal leases compared to the prior leases on the same space. For the year 2020, rental rate increases on new and renewal leases (18.5% of total square footage) averaged 21.7%.
•Lease termination fee income is included in Income from real estate operations.
For the year 2020, lease termination fee income was
23
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•The Company records reserves for uncollectible rent as reductions to Income
from real estate operations. The Company recorded reserves for uncollectible
rent of $2,763,000 in 2020 compared to $448,000 in 2019. Individual leases are
evaluated for collectibility at each reporting period. We evaluate the
collectibility of rents and other receivables at each reporting period based on
factors including, among others, tenant's payment history, the financial
condition of the tenant, business conditions and trends in the industry in which
the tenant operates and economic conditions in the geographic area where the
property is located. If evaluation of these factors or others indicates it is
not probable we will collect substantially all rent we recognize an adjustment
to rental revenue. If our judgment or estimation regarding probability of
collection changes we may adjust or record additional rental revenue in the
period such conclusion is reached. The Company followed its normal process for
recording reserves for uncollectible rent during the year ended December 31,
2020 and also evaluated all deferred rent related to the COVID-19 pandemic for
collectibility.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's management considers the following accounting policies and estimates to be critical to the reported operations of the Company.
Acquisition and Development of
The FASB Codification provides guidance on how to properly determine the allocation of the purchase price among the individual components of both the tangible and intangible assets based on their relative fair values.Goodwill for business combinations is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired. Factors considered by management in allocating the cost of the properties acquired include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. The allocation to tangible assets (land, building and improvements) is based upon management's determination of the value of the property as if it were vacant using discounted cash flow models. Land is valued using comparable land sales specific to the applicable market, provided by a third-party. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar properties. The cost of the properties acquired may be adjusted based on indebtedness assumed from the seller that is determined to be above or below market rates. The purchase price is also allocated among the following categories of intangible assets: the above or below market component of in-place leases, the value of in-place leases, and the value of customer relationships. The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management's estimate of the amounts that would be paid using current market rents over the remaining term of the lease. The amounts allocated to above and below market leases are included in Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the respective leases. The total amount of intangible assets is further allocated to in-place lease values and customer relationship values based upon management's assessment of their respective values. These intangible assets are included in Other assets on the Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.
The relevance of this accounting policy will fluctuate given the transaction activity during the period.
For properties under development and value-add properties acquired in the
development stage, costs associated with development (i.e., land, construction
costs, interest expense, property taxes and other costs associated with
development) are aggregated into the total capitalized costs of the
property. Included in these costs are management's estimates for the portions of
internal costs (primarily personnel costs) deemed related to such development
activities. The internal costs are allocated to specific development projects
based on development activity.
24
--------------------------------------------------------------------------------FINANCIAL CONDITION
EastGroup's Total Assets were$2,720,803,000 atDecember 31, 2020 , an increase of$174,725,000 fromDecember 31, 2019 . Total Liabilities increased$106,536,000 to$1,450,285,000 , and Total Equity increased$68,189,000 to$1,270,518,000 during the same period. The following paragraphs explain these changes in detail. AssetsReal Estate Properties Real estate properties increased$314,930,000 during the year endedDecember 31, 2020 . The increase was primarily due to: (i) the transfer of 18 properties from Development and value-add properties to Real estate properties (as detailed underDevelopment and Value-Add Properties below); (ii) operating property acquisitions; and (iii) capital improvements at the Company's properties. These increases were partially offset by the operating property sales discussed below.
During 2020, EastGroup acquired the following operating properties:
Date
REAL ESTATE PROPERTIES ACQUIRED IN 2020 Location Size Acquired Cost (1)
(Square feet) (In thousands)
Wells Point One Austin, TX 50,000 02/28/2020 $ 5,812
Cherokee 75 Business Center 1 Atlanta, GA 85,000 12/15/2020 7,909
The Rock Dallas, TX 212,000 12/17/2020 32,519
Total Real Estate Property Acquisitions 347,000 $ 46,240
(1)Total cost of the operating properties acquired was $48,656,000 , of which
$46,240,000 was allocated to Real estate properties as indicated above. The
Company allocated $7,385,000 of the total purchase price to land using third
party land valuations for the Atlanta , Austin and Dallas markets. The market
values are considered to be Level 3 inputs as defined by FASB Accounting
Standards Codification ("ASC") 820, Fair Value Measurement (see Note 18 in the
Notes to Consolidated Financial Statements for additional information on ASC
820). Intangibles associated with the purchases of real estate were allocated as
follows: $2,624,000 to in-place lease intangibles and $104,000 to above market
leases (both included in Other assets on the Consolidated Balance Sheets), and
$312,000 to below market leases (included in Other liabilities on the
Consolidated Balance Sheets).
During the year ended December 31, 2020 , the Company made capital improvements
of $30,255,000 on existing and acquired properties (included in the Capital
Expenditures table under Results of Operations). Also, the Company incurred
costs of $5,743,000 on development and value-add projects subsequent to transfer
to Real estate properties; the Company records these expenditures as development
and value-add costs on the Consolidated Statements of Cash Flows.
EastGroup sold the following operating properties during 2020:
Development and Value-Add Properties EastGroup's investment in Development and value-add properties atDecember 31, 2020 consisted of properties in lease-up and under construction of$225,964,000 and prospective development (primarily land) of$133,624,000 . The Company's total investment in Development and value-add properties atDecember 31, 2020 was$359,588,000 compared to$419,999,000 atDecember 31, 2019 . Total capital invested for development and value-add properties during 2020 was$195,446,000 , which primarily consisted of costs of$170,418,000 as detailed in the Development and Value-Add Properties Activity table below,$18,550,000 as detailed in the Development and Value-Add Properties Transferred to the Real Estate Properties Portfolio During 2020 table below and costs of$5,743,000 on projects subsequent to transfer to Real estate properties. The capitalized costs incurred on development and value-add projects subsequent to transfer to Real estate properties include capital improvements at the properties and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel costs).
EastGroup capitalized internal development costs of
During 2020, EastGroup acquired one value-add property,
25
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Company allocated $16,180,000 of the total purchase price to land using third
party land valuations for the Los Angeles market. The market values are
considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurement
(see Note 18 in the Notes to Consolidated Financial Statements for additional
information on ASC 820). Intangibles associated with the purchase were allocated
as follows: $633,000 to in-place lease intangibles (included in Other assets on
the Consolidated Balance Sheets) and $91,000 to below market leases (included in
Other liabilities on the Consolidated Balance Sheets). These costs are amortized
over the remaining lives of the associated leases in place at the time of
acquisition. Costs associated with the value-add property acquisition, except
for the amounts allocated to the acquired lease intangibles, are included in the
Development and Value-Add Properties Activity table below.
Also during 2020, EastGroup purchased 232.6 acres of development land in
Orlando , Fort Myers , Atlanta , Dallas and El Paso for $45,687,000 . Costs
associated with these acquisitions are included in the Development and Value-Add
Properties Activity table. These increases were offset by the transfer of 18
development projects to Real estate properties during 2020 with a total
investment of $249,379,000 as of the date of transfer.
Costs Incurred
DEVELOPMENT
AND Anticipated
VALUE-ADD Costs For the Cumulative Projected Building
PROPERTIES Transferred Year Ended as of Total Costs Conversion
ACTIVITY in 2020 (1) 12/31/20 12/31/20 (2) Date
(In thousands)
Building
Size (Square
LEASE-UP feet)
Gilbert
Crossroads A &
B, Phoenix, AZ 140,000 $ - 2,818 16,768 17,500 01/21
Rancho
Distribution
Center, Los
Angeles, CA
(3) 162,000 - 27,325 27,325 29,400 03/21
CreekView 121
7 & 8, Dallas,
TX 137,000 - 9,760 16,559 18,500 04/21
Hurricane
Shoals 3,
Atlanta, GA 101,000 - 2,182 8,811 10,800 04/21
World Houston
44, Houston,
TX 134,000 - 3,336 8,126 9,100 05/21
Gateway 4,
Miami, FL 197,000 14,895 7,152 22,047 26,000 06/21
Interstate
Commons 2,
Phoenix, AZ
(3) 142,000 - 2,359 12,241 12,500 06/21
Tri-County
Crossing 3 &
4, San
Antonio, TX 203,000 - 5,711 14,409 16,100 06/21
Northwest
Crossing 1-3,
Houston, TX 278,000 - 10,787 22,322 25,900 09/21
Ridgeview 1 &
2, San
Antonio, TX 226,000 - 10,562 17,093 19,000 10/21
Settlers
Crossing 3 &
4, Austin, TX 173,000 - 9,415 17,504 19,400 10/21
SunCoast 7,
Ft. Myers, FL 77,000 3,232 4,141 7,373 8,700 11/21
LakePort 1-3,
Dallas, TX 194,000 - 11,719 19,781 22,500 12/21
Total
Lease-Up 2,164,000 18,127 107,267 210,359 235,400
UNDER
CONSTRUCTION
Gilbert
Crossroads C &
D, Phoenix, AZ 178,000 4,974 1,643 6,617 21,400 06/22
Steele Creek
X, Charlotte,
NC 162,000 3,291 943 4,234 12,600 07/22
Basswood 1 &
2, Dallas, TX 237,000 4,580 174 4,754 22,100 10/22
Total Under
Construction 577,000 12,845 2,760 15,605 56,100
PROSPECTIVE Estimated
DEVELOPMENT Building
(PRIMARILY Size (Square
LAND) feet)
Phoenix, AZ - (4,974) 601 -
Ft. Myers, FL 622,000 (3,232) 3,595 7,866
Miami, FL 376,000 (14,895) 1,006 20,296
Orlando, FL 1,488,000 - 26,603 27,678
Tampa, FL (4) 349,000 - (78) 5,723
Atlanta, GA 120,000 - 1,392 1,392
Jackson, MS 28,000 - - 706
Charlotte, NC 313,000 (3,291) 289 4,325
Dallas, TX 1,353,000 (4,580) 22,420 37,428
El Paso, TX 168,000 - 2,587 2,587
Houston, TX 1,223,000 - 1,310 20,758
San Antonio,
TX 366,000 - 666 4,865
Total
Prospective
Development 6,406,000 (30,972) 60,391 133,624
Total
Development
and Value-Add
Properties 9,147,000 $ - 170,418 359,588The Development and Value-Add Properties Activity table is continued on the following page.
26
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DEVELOPMENT Costs Incurred
AND VALUE-ADD
PROPERTIES
TRANSFERRED TO
THE REAL
ESTATE
PROPERTIES Costs For the Cumulative
PORTFOLIO Transferred Year Ended as of
DURING 2020 in 2020 (1) 12/31/20 12/31/20
(In thousands)
Building
Size (Square
feet) Building Conversion Date
Logistics
Center 6 & 7,
Dallas, TX (3) 142,000 $ - 19 15,754 01/20
Settlers
Crossing 1,
Austin, TX 77,000 - - 9,259 01/20
Settlers
Crossing 2,
Austin, TX 83,000 - - 8,475 01/20
Parc North 5,
Dallas, TX 100,000 - 20 8,709 02/20
Airport
Commerce
Center 3,
Charlotte, NC 96,000 - 335 8,891 03/20
Horizon VIII &
IX, Orlando,
FL 216,000 - 887 17,488 04/20
Ten West
Crossing 8,
Houston, TX 132,000 - 67 9,831 04/20
Tri-County
Crossing 1 &
2, San
Antonio, TX 203,000 - 189 15,575 04/20
SunCoast 8,
Ft. Myers, FL 77,000 - 3,665 8,149 05/20
CreekView 121
5 & 6, Dallas,
TX 139,000 - 2,112 15,263 06/20
Parc North 6,
Dallas, TX 96,000 - 2,451 10,741 07/20
SunCoast 6,
Ft. Myers, FL 81,000 - 445 8,379 07/20
Arlington Tech
Centre 1 & 2,
Dallas, TX (3) 151,000 - 578 13,855 08/20
Gateway 5,
Miami, FL 187,000 - 1,664 24,769 08/20
Steele Creek
IX, Charlotte,
NC 125,000 - 1,986 11,106 08/20
Grand Oaks 75
2, Tampa, FL
(3) 150,000 - 1,777 14,892 09/20
Rocky Point 2,
San Diego, CA
(3) 109,000 - 583 19,858 09/20
Southwest
Commerce
Center, Las
Vegas, NV (3) 196,000 - 1,772 28,385 10/20
Total (5)
Transferred to
Real Estate
Properties 2,360,000 $ - 18,550 249,379
(1)Represents costs transferred from Prospective Development (primarily land) to
Under Construction during the period. Negative amounts represent land inventory
costs transferred to Under Construction .
(2)Included in these costs are development obligations of $33.0 million and
tenant improvement obligations of $4.9 million on properties under development.
(3)Represents value-add projects acquired by EastGroup.
(4)Negative amount represents land inventory transferred to Real Estate
Properties for trailer storage expansion.
(5)Represents cumulative costs at the date of transfer.
Accumulated Depreciation
Accumulated depreciation on real estate, development and value-add properties
increased $84,189,000 during 2020 due primarily to depreciation expense of
$96,290,000 , offset by the sale of 126,000 square feet of operating properties
during 2020.
27-------------------------------------------------------------------------------- Other Assets Other assets increased$4,957,000 during 2020. A summary of Other assets follows: December 31, 2020 2019 (In thousands) Leasing costs (principally commissions)$ 95,914
89,191
Accumulated amortization of leasing costs
(38,371) (34,963) Leasing costs (principally commissions), net of accumulated amortization
57,543 54,228
Acquired in-place lease intangibles 28,107
28,834
Accumulated amortization of acquired in-place lease intangibles
(13,554) (11,918) Acquired in-place lease intangibles, net of accumulated amortization
14,553 16,916
Acquired above market lease intangibles 1,825
1,721
Accumulated amortization of acquired above market lease intangibles
(1,231) (1,007) Acquired above market lease intangibles, net of accumulated amortization
594 714
Straight-line rents receivable 43,079 40,369 Accounts receivable 6,256 5,581 Mortgage loans receivable - 1,679 Interest rate swap assets - 3,485 Right of use assets - Office leases (operating) 2,131
2,115
Receivable for common stock offerings 1,942 - Goodwill 990
990
Prepaid expenses and other assets 22,491 18,545 Total Other assets$ 149,579 144,622 Liabilities Unsecured bank credit facilities increased$12,800,000 during 2020, mainly due to borrowings of$625,387,000 and the amortization of debt issuance costs during the period, partially offset by repayments of$613,097,000 and new debt issuance costs incurred during the period. The Company's credit facilities are described in greater detail below under Liquidity and Capital Resources. Unsecured debt increased$169,593,000 during 2020, primarily due to the closing of a$100 million senior unsecured term loan in March, closing the private placement of$175 million of senior unsecured notes in October and the amortization of debt issuance costs. These increases were offset by a$30 million principal repayment on$100 million of senior unsecured notes in August, the repayment of a$75 million senior unsecured term loan in December and new debt issuance costs incurred during the period. The borrowings and repayments on Unsecured debt are described in greater detail below under Liquidity and Capital Resources. Secured debt decreased$54,100,000 during the year endedDecember 31, 2020 . The decrease resulted from the repayment of a mortgage loan with a principal balance of$45,871,000 in October, regularly scheduled principal payments of$8,436,000 and amortization of premiums on Secured debt, offset by the amortization of debt issuance costs during the period. 28
--------------------------------------------------------------------------------
Accounts payable and accrued expenses decreased
December 31,
2020 2019
(In thousands)
Property taxes payable $ 3,524 2,696
Development costs payable 6,427 11,766
Real estate improvements and capitalized leasing costs payable 5,692 4,636
Interest payable 6,537 6,370
Dividends payable 32,677 30,714
Book overdraft (1) 5,176 25,771
Other payables and accrued expenses 9,540 10,071
Total Accounts payable and accrued expenses $ 69,573 92,024
(1)Represents checks written before the end of the period which have not cleared
the bank; therefore, the bank has not yet advanced cash to the Company. When the
checks clear the bank, they will be funded through the Company's working cash
line of credit. See Note 1(p) in the Notes to Consolidated Financial Statements.
Other liabilities increased $694,000 during 2020. A summary of the Company's
Other liabilities follows:
December 31,
2020 2019
(In thousands)
Security deposits $ 22,140 20,351
Prepaid rent and other deferred income 14,694 13,855
Operating lease liabilities - Ground leases 11,199 12,048
Operating lease liabilities - Office leases 2,167 2,141
Acquired below-market lease intangibles 9,019 8,616
Accumulated amortization of acquired below-market lease intangibles
(6,168) (4,494)
Acquired below-market lease intangibles, net of accumulated amortization
2,851 4,122
Interest rate swap liabilities 10,752 678
Prepaid tenant improvement reimbursements 364 56
Other liabilities 5,650 15,872
Total Other liabilities $ 69,817 69,123
Equity
Additional paid-in capital increased $95,998,000 during 2020 primarily due to
the issuance of common stock under the Company's continuous common equity
offering program (as discussed below under Liquidity and Capital Resources) and
stock-based compensation (as discussed in Note 11 in the Notes to Consolidated
Financial Statements). EastGroup issued 709,924 shares of common stock under its
continuous common equity offering program with net proceeds to the Company of
$92,663,000 .
During 2020, Distributions in excess of earnings increased
Accumulated other comprehensive income (loss) decreased$13,559,000 during 2020. The decrease resulted from the change in fair value of the Company's interest rate swaps (cash flow hedges) which are further discussed in Notes 12 and 13 in the Notes to Consolidated Financial Statements. 29 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
2020 Compared to 2019 Net Income Attributable toEastGroup Properties, Inc. Common Stockholders for 2020 was$108,363,000 ($2.77 per basic and$2.76 per diluted share) compared to$121,662,000 ($3.25 per basic and$3.24 per diluted share) for 2019. The following paragraphs explain the change: •PNOI increased by$21,792,000 ($0.55 per diluted share) for 2020 as compared to 2019. PNOI increased$15,941,000 from newly developed and value-add properties,$5,505,000 from 2019 and 2020 acquisitions and$4,062,000 from same property operations; PNOI decreased$3,706,000 from operating properties sold in 2019 and 2020. For the year 2020, lease termination fee income was$709,000 compared to$1,336,000 for 2019. The Company recorded reserves for uncollectible rent of$2,763,000 in 2020 and$448,000 in 2019. Straight-lining of rent increased PNOI by$4,888,000 and$4,985,000 in 2020 and 2019, respectively.
•EastGroup recognized gains on sales of real estate investments of
•Depreciation and amortization expense increased by
EastGroup entered into 179 leases with certain free rent concessions on 4,965,000 square feet during 2020 with total free rent concessions of$7,548,000 over the lives of the leases, compared to 160 leases with free rent concessions on 4,281,000 square feet with total free rent concessions of$6,114,000 over the lives of the leases in 2019.
The Company's percentage of leased square footage was 98.0% at
Same property average occupancy represents the average month-end percentage of leased square footage for which the lease term has commenced as compared to the total leasable square footage for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2019 throughDecember 31, 2020 ). Same property average occupancy for the year endedDecember 31, 2020 , was 97.0% compared to 97.0% for 2019. The same property average rental rate calculated in accordance with GAAP represents the average annual rental rates of leases in place for the same operating properties owned during the entire current and prior year reporting periods (January 1, 2019 throughDecember 31, 2020 ). The same property average rental rate was$6.09 per square foot for the year endedDecember 31, 2020 , compared to$5.95 per square foot for 2019. 30
--------------------------------------------------------------------------------
Interest Expense decreased
Years Ended December 31,
2020 2019 Increase (Decrease)
(In thousands)VARIABLE RATE INTEREST EXPENSE Unsecured bank credit facilities interest - variable rate (excluding amortization of facility fees and debt issuance costs)
$ 1,620 5,756
(4,136)
Amortization of facility fees - unsecured bank credit facilities 790 790
-
Amortization of debt issuance costs - unsecured bank credit facilities
561 556 5
Total variable rate interest expense 2,971 7,102
(4,131)
FIXED RATE INTEREST EXPENSE Unsecured debt interest (1) (excluding amortization of debt issuance costs) 34,536 28,039
6,497
Secured debt interest (excluding amortization of debt issuance costs)
5,214 6,987 (1,773)
Amortization of debt issuance costs - unsecured debt 624 539
85
Amortization of debt issuance costs - secured debt 233 249
(16)
Total fixed rate interest expense 40,607 35,814 4,793 Total interest 43,578 42,916 662 Less capitalized interest (9,651) (8,453)
(1,198)
TOTAL INTEREST EXPENSE$ 33,927 34,463 (536) (1)Includes interest on the Company's unsecured debt with fixed interest rates per the debt agreements or effectively fixed interest rates due to interest rate swaps, as discussed in Note 13 in the Notes to Consolidated Financial Statements. EastGroup's variable rate interest expense decreased by$4,131,000 for 2020 as compared to 2019 primarily due to decreases in the Company's weighted average interest rate and average borrowings on its unsecured bank credit facilities as shown in the following table: Years Ended December 31, Increase 2020 2019 (Decrease)
(In thousands, except rates of interest) Average borrowings on unsecured bank credit facilities - variable rate
$ 87,095 172,175 (85,080) Weighted average variable interest rates (excluding amortization of facility fees and debt issuance costs) 1.86 % 3.34 % 31
-------------------------------------------------------------------------------- The Company's fixed rate interest expense increased by$4,793,000 for 2020 as compared to 2019 as a result of the unsecured debt and secured debt described below. Interest expense from fixed rate unsecured debt increased by$6,497,000 during 2020 as compared to 2019 as a result of the Company's unsecured debt activity described below. The details of the unsecured debt obtained in 2019 and 2020 are shown in the following table: NEW UNSECURED DEBT IN 2019 and 2020 Effective Interest Rate Date Obtained Maturity Date Amount (In thousands)$80 Million Senior Unsecured Notes 4.27% 03/28/2019 03/28/2029$ 80,000 $35 Million Senior Unsecured Notes 3.54% 08/15/2019 08/15/2031 35,000$75 Million Senior Unsecured Notes 3.47% 08/19/2019 08/19/2029 75,000$100 Million Senior Unsecured Term Loan (1) 2.75% 10/10/2019 10/10/2026 100,000$100 Million Senior Unsecured Term Loan (2) 2.39% 03/25/2020 03/25/2027 100,000$100 Million Senior Unsecured Notes 2.61% 10/14/2020 10/14/2030 100,000$75 Million Senior Unsecured Notes 2.71% 10/14/2020 10/14/2032 75,000 Weighted Average/Total Amount for 2019 and 2020 3.02%$ 565,000 (1)The interest rate on this unsecured term loan is comprised of LIBOR plus 150 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 2.75% as ofDecember 31, 2020 . See Note 13 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps. (2)The interest rate on this unsecured term loan is comprised of LIBOR plus 145 basis points subject to a pricing grid for changes in the Company's coverage ratings. The Company entered into an interest rate swap to convert the loan's LIBOR rate to a fixed interest rate, providing the Company a weighted average effective interest rate on the term loan of 2.39% as ofDecember 31, 2020 . See Note 13 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.
The increase in interest expense from the new unsecured debt was partially offset by the repayment of the following unsecured loans during 2019 and 2020:
UNSECURED DEBT REPAID IN 2019 AND 2020 Interest Rate Date Repaid Payoff Amount
(In thousands)
$75 Million Senior Unsecured Term Loan 2.85%
$30 Million Senior Unsecured Notes 3.80% 08/28/2020 30,000$75 Million Senior Unsecured Term Loan 3.45% 12/21/2020 75,000
Weighted Average/Total Amount for
2019 and 2020 3.26%$ 180,000 The increase in interest expense from unsecured debt was partially offset by a decease in secured debt interest expense, which decreased by$1,773,000 in 2020 as compared to 2019 as a result of regularly scheduled principal payments and debt repayments. Regularly scheduled principal payments on secured debt were$8,436,000 during 2020 and$9,821,000 in 2019. The details of the secured debt repaid in 2019 and 2020 are shown in the following table: SECURED DEBT REPAID IN 2019 and 2020 Interest Rate Date Repaid Payoff Amount (In thousands)
7.50% 04/05/2019 $ 45,725
Blue Heron II 5.39% 12/16/2019 47
4.39% 10/07/2020 45,871
Weighted Average/Total Amount for 2019 and 2020 5.94% $ 91,643 EastGroup did not obtain any new secured debt during 2019 or 2020.
32
--------------------------------------------------------------------------------
Interest costs during the period of construction of real estate properties are
capitalized and offset against interest expense. Capitalized interest increased
by $1,198,000 for 2020 as compared to 2019. The increase is due to changes in
development spending and borrowing rates.
Depreciation and amortization expense increased $11,635,000 for 2020 compared to
2019 primarily due to the operating properties acquired by the Company during
2019 and 2020 and the properties transferred from Development and value-add
properties in 2019 and 2020, partially offset by operating properties sold in
2019 and 2020.
Gain on sales of real estate investments, which includes gains on the sales of
operating properties, decreased $27,923,000 for 2020 as compared to 2019. The
Company's 2019 and 2020 sales transactions are described below in Real Estate
Sold and Held for Sale/Discontinued Operations.
Real Estate Improvements
Real estate improvements for EastGroup's operating properties for the years
ended
Estimated Years Ended December 31,
Useful Life 2020 2019
(In thousands)
Upgrade on Acquisitions 40 yrs $ 298 1,863
Tenant Improvements:
New Tenants Lease Life 11,811 13,113
Renewal Tenants Lease Life 3,284 3,908
Other:
Building Improvements 5-40 yrs 4,962 5,304
Roofs 5-15 yrs 8,529 12,179
Parking Lots 3-5 yrs 568 1,455
Other 5 yrs 803 834
Total Real Estate Improvements (1) $ 30,255 38,656
(1)Reconciliation of Total Real Estate Improvements to Real Estate Improvements on the Consolidated Statements of Cash Flows:
Years Ended December 31,
2020 2019
(In thousands)
Total Real Estate Improvements $ 30,255 38,656
Change in Real Estate Property Payables (373) (876)
Change in Construction in Progress 3,249 (5)
Real Estate Improvements on the Consolidated Statements of Cash
Flows $ 33,131 37,775
Capitalized Leasing Costs
The Company's leasing costs (principally commissions) are capitalized and
included in Other assets. The costs are amortized over the terms of the
associated leases, and the amortization is included in Depreciation and
amortization expense. Capitalized leasing costs for the years ended December 31,
2020 and 2019 were as follows:
Estimated Years Ended December 31,
Useful Life 2020 2019
(In thousands)
Development and Value-Add Lease Life $ 5,223 8,065
New Tenants Lease Life 5,732 5,900
Renewal Tenants Lease Life 7,244 5,069
Total Capitalized Leasing Costs $ 18,199 19,034
Amortization of Leasing Costs $ 14,449 13,167
33-------------------------------------------------------------------------------- Real Estate Sold and Held for Sale/Discontinued OperationsThe Company considers a real estate property to be held for sale when it meets the criteria established under ASC 360, Property, Plant and Equipment, including when it is probable that the property will be sold within a year. Real estate properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale.
The Company did not classify any properties as held for sale as of
In accordance with FASB Accounting Standards Update ("ASU") 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant, and
Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity, the Company would report a disposal of a
component of an entity or a group of components of an entity in discontinued
operations if the disposal represents a strategic shift that has (or will have)
a major effect on an entity's operations and financial results when the
component or group of components meets the criteria to be classified as held for
sale or when the component or group of components is disposed of by sale or
other than by sale. In addition, the Company would provide additional
disclosures about both discontinued operations and the disposal of an
individually significant component of an entity that does not qualify for
discontinued operations presentation in the financial statements. EastGroup
performs an analysis of properties sold to determine whether the sales qualify
for discontinued operations presentation.
The Company does not consider its sales in 2019 and 2020 to be disposals of a component of an entity or a group of components of an entity representing a strategic shift that has (or will have) a major effect on the entity's operations and financial results.
EastGroup sold the following operating properties during 2020:
In 2019, EastGroup sold the following operating properties: World Houston 5 inHouston ,Altamonte Commerce Center inOrlando , Southpointe Distribution Center inTucson and three of its fourUniversity Business Center buildings inSanta Barbara, California . The properties (617,000 square feet combined) were sold for$68.5 million and the Company recognized gains on the sales of$41.1 million . The Company also sold (through eminent domain procedures) a small parcel of land (0.2 acres) adjacent to its Siempre Viva Distribution Center 1 inSan Diego for$185,000 and the Company recognized a gain on the sale of$83,000 . The gains and losses on the sales of land are included in Other on the Consolidated Statements of Income and Comprehensive Income, and the gains and losses on the sales of operating properties are included in Gain on sales of real estate investments. See Notes 1(f) and 2 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and gains and losses on sales of real estate investments. 2019 Compared to 2018 A discussion of changes in the Company's results of operations between 2019 and 2018 has been omitted from this Form 10-K and can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" under "2019 Compared to 2018" of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 .
RECENT ACCOUNTING PRONOUNCEMENTS
EastGroup has evaluated all ASUs recently released by the FASB through the date the financial statements were issued and determined that the following ASUs apply to the Company.
InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequently issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses inNovember 2018 . The ASUs amend guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities (EastGroup does not currently hold any and does not intend to hold any in the future), credit losses should be measured in a similar manner to current GAAP; however, Topic 326 requires that credit losses be presented as an allowance rather than a write-down. The ASUs affect entities holding financial assets and are effective for annual periods beginning afterDecember 15, 2019 , and interim periods within those fiscal years. The Company adopted ASU 34 --------------------------------------------------------------------------------
2016-13 and ASU 2018-19 on
InAugust 2018 , the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU is intended to improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for all entities for annual periods beginning afterDecember 15, 2019 , and interim periods within those fiscal years. The Company adopted ASU 2018-13 onJanuary 1, 2020 , and the adoption did not have a material impact on its financial condition, results of operations or disclosures. InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months endedMarch 31, 2020 , the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was$196,285,000 for the year endedDecember 31, 2020 . The primary other sources of cash were from borrowings on unsecured bank credit facilities; proceeds from unsecured debt; proceeds from common stock offerings; and net proceeds from sales of real estate investments. The Company distributed$119,765,000 in common stock dividends during 2020. Other primary uses of cash were for repayments on unsecured bank credit facilities, unsecured debt and secured debt; the construction and development of properties; purchases of real estate; and capital improvements at various properties. Total debt atDecember 31, 2020 and 2019 is detailed below. The Company's unsecured bank credit facilities and unsecured debt instruments have certain restrictive covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage, and the Company was in compliance with all of its debt covenants atDecember 31, 2020 and 2019.December 31, 2020 2019 (In thousands)
Unsecured bank credit facilities - variable rate, carrying amount
$ 125,000 112,710 Unamortized debt issuance costs (806) (1,316) Unsecured bank credit facilities 124,194 111,394 Unsecured debt - fixed rate, carrying amount (1) 1,110,000 940,000 Unamortized debt issuance costs (2,292) (1,885) Unsecured debt 1,107,708 938,115 Secured debt - fixed rate, carrying amount (1) 79,096 133,422 Unamortized debt issuance costs (103) (329) Secured debt 78,993 133,093 Total debt$ 1,310,895 1,182,602
(1)These loans have a fixed interest rate or an effectively fixed interest rate due to interest rate swaps.
The Company has a
35
--------------------------------------------------------------------------------
December 31, 2020 , was LIBOR plus 100 basis points with an annual facility fee
of 20 basis points. The margin and facility fee are subject to changes in the
Company's credit ratings. As of December 31, 2020 , the Company had $125,000,000
of variable rate borrowings outstanding on this unsecured bank credit facility
with a weighted average interest rate of 1.152%. The Company has a standby
letter of credit of $674,000 pledged on this facility.
The Company also has a $45 million unsecured bank credit facility with a
maturity date of July 30, 2022 , or such later date as designated by the bank;
the Company also has two six-month extensions available if the extension options
in the $350 million facility are exercised. The interest rate is reset on a
daily basis and as of December 31, 2020 , was LIBOR plus 100 basis points with an
annual facility fee of 20 basis points. The margin and facility fee are subject
to changes in the Company's credit ratings. As of December 31, 2020 , the
interest rate was 1.144% with no outstanding balance.
As market conditions permit, EastGroup issues equity and/or employs fixed rate
debt, including variable rate debt that has been swapped to an effectively fixed
rate through the use of interest rate swaps, to replace the short-term bank
borrowings. The Company believes its current operating cash flow and unsecured
bank credit facilities provide the capacity to fund the operations of the
Company. The Company also believes it can obtain debt financing and issue common
and/or preferred equity. For future debt issuances, the Company intends to issue
primarily unsecured fixed rate debt, including variable rate debt that has been
swapped to an effectively fixed rate through the use of interest rate swaps. The
Company may also access the public debt market in the future as a means to raise
capital.
In March 2020 , the Company closed a $100 million senior unsecured term loan with
a seven-year term and interest only payments. It bears interest at the annual
rate of LIBOR plus an applicable margin (1.45% as of December 31, 2020 ) based on
the Company's senior unsecured long-term debt rating. The Company also entered
into an interest rate swap agreement to convert the loan's LIBOR rate component
to a fixed interest rate for the entire term of the loan providing a total
effective fixed interest rate of 2.39%.
In July 2020 , the Company and a group of lenders agreed to terms on the private
placement of $175 million of senior unsecured notes with a weighted average
fixed interest rate of 2.65%. The $100 million note has a 10-year term and a
fixed interest rate of 2.61%, and the $75 million note has a 12-year term and a
fixed interest rate of 2.71%. These maturity dates complement the Company's
existing debt maturity schedule. The notes dated August 17, 2020 , were issued
and sold on October 14, 2020 and require interest-only payments. The notes will
not be and have not been registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from the registration requirements.
In
In
InDecember 2020 , the Company repaid a$75 million unsecured term loan at maturity with an effectively fixed interest rate of 3.45%. InJuly 2017 , theFinancial Conduct Authority ("FCA") that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, theFederal Reserve Board and theFederal Reserve Bank of New York organized the Alternative Reference Rates Committee ("ARRC") which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. InNovember 2020 , the Intercontinental Exchange ("ICE")Benchmark Administration Limited ("IBA"), the administrator of LIBOR, announced that it would consult on its intention to cease the publication of the one-week and two-month USD LIBOR settings immediately followingDecember 31, 2021 , and the remaining USD LIBOR settings immediately following the LIBOR publication onJune 30, 2023 . The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by theFCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. 36 -------------------------------------------------------------------------------- The Company's unsecured bank credit facilities, senior unsecured term loans and interest rate swap contracts are indexed to LIBOR. The Company is continuously monitoring and evaluating the related risks, which include interest on loans and amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. The value of loans or derivative instruments tied to LIBOR could also be impacted if LIBOR is limited or discontinued as interest rates may be adversely affected. While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. Each of the Company's contracts, which are indexed to LIBOR, include provisions for a replacement rate which will be substantially equivalent to the all-in LIBOR-based interest rate in effect prior to its replacement. Therefore, the Company believes the transition will not have a material impact on our consolidated financial statements. OnDecember 20, 2019 , EastGroup entered into sales agreements with each ofBNY Mellon Capital Markets, LLC ;BofA Securities, Inc. ;BTIG, LLC ;Jefferies LLC ;Raymond James & Associates, Inc. ;Regions Securities LLC ; andWells Fargo Securities, LLC in connection with the establishment of a continuous common equity offering program pursuant to which the Company may sell shares of its common stock with an aggregate gross sales price of up to$750,000,000 from time to time in transactions that are deemed to be "at the market" offerings as defined in Rule 415 of the Securities Act of 1933, as amended, or certain other transactions (the "ATM Program"). As ofFebruary 17, 2021 , the Company sold an aggregate of 709,924 shares of common stock with gross proceeds of$93,938,000 under the ATM Program; therefore, under the ATM Program, EastGroup may offer and sell shares of its common stock having an aggregate offering price of up to$656,062,000 through the sales agents. During the year endedDecember 31, 2020 , EastGroup issued and sold 709,924 shares of common stock under its ATM Program at an average price of$132.32 per share with gross proceeds to the Company of$93,938,000 . The Company incurred offering-related costs of$1,275,000 during the year, resulting in net proceeds to the Company of$92,663,000 . 37 -------------------------------------------------------------------------------- Contractual Obligations EastGroup's fixed, non-cancelable obligations as ofDecember 31, 2020 were as follows: Payments Due by Period Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years (In thousands) Unsecured Bank Credit Facilities (1) (2)$ 125,000 - 125,000 - - Interest on Unsecured Bank Credit Facilities (3) 3,577 2,230 1,347 - - Unsecured Debt (1) 1,110,000 40,000 190,000 215,000 665,000 Interest on Unsecured Debt 215,969 35,024 63,001 52,292 65,652 Secured Debt (1) 79,096 44,285 32,889 250 1,672 Interest on Secured Debt 2,921 2,451 269 139 62 Dividends Payable (4) 31,244 31,244 - - - Operating Lease Obligations: Office Leases 1,720 473 757 442 48 Ground Leases 21,489 975 1,955 2,007 16,552 Real Estate Property Obligations (5) 5,992 5,992 - - - Development and Value-Add Obligations (6) 33,026 33,026 - - - Tenant Improvements (7) 12,962 12,962 - - - Purchase Obligations 33,550 33,550 - - - Total$ 1,676,546 242,212 415,218 270,130 748,986 (1)These amounts are included on the Consolidated Balance Sheets net of unamortized debt issuance costs. (2)The Company's balances under its unsecured bank credit facilities change depending on the Company's cash needs and, as such, both the principal amounts and the interest rates are subject to variability. AtDecember 31, 2020 , the weighted average interest rate was 1.152% on the$125,000,000 of variable rate debt that matures inJuly 2022 . The$350 million unsecured credit facility has options for two six-month extensions (at the Company's election) and a$150 million accordion (with agreement by all parties). The$45 million unsecured credit facility automatically extends for two six-month terms if the extension options in the$350 million revolving facility are exercised. As ofDecember 31, 2020 , the interest rate on the$350 million facility was LIBOR plus 100 basis points (weighted average interest rate of 1.152%) with an annual facility fee of 20 basis points, and the interest rate on the$45 million facility, which resets on a daily basis, was LIBOR plus 100 basis points (1.144%) with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company's credit ratings. (3)Represents an estimate of interest due on the Company's unsecured bank credit facilities based on the outstanding unsecured credit facilities as ofDecember 31, 2020 and interest rates and maturity dates on the facilities as ofDecember 31, 2020 as discussed in note 2 above. (4)Represents dividends declared duringDecember 2020 , which were paid inJanuary 2021 . Dividends Payable excludes dividends payable on unvested restricted stock of$1,433,000 , which are subject to continued service and will be paid upon vesting in future periods. (5)Represents commitments on real estate properties, except for tenant improvement obligations. (6)Represents commitments on properties in the Company's development and value-add program, except for tenant improvement obligations. (7)Represents tenant improvement allowance obligations. The Company anticipates that its current cash balance, operating cash flows, borrowings under its unsecured bank credit facilities, proceeds from new debt and/or proceeds from the issuance of equity instruments will be adequate for (i) operating and administrative expenses, (ii) normal repair and maintenance expenses at its properties, (iii) debt service obligations, (iv) maintaining compliance with its debt covenants, (v) distributions to stockholders, (vi) capital improvements, (vii) purchases of properties, (viii) development, and (ix) any other normal business activities of the Company, both in the short-term and long-term, including after taking into account the effects of the COVID-19 pandemic. Off-Balance Sheet Arrangements The Company has no material off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
INFLATION AND OTHER ECONOMIC CONSIDERATIONS
Most of the Company's leases include scheduled rent increases. Additionally,
most of the Company's leases require the tenants to pay their pro rata share of
operating expenses, including real estate taxes, insurance and common area
maintenance, thereby reducing the Company's exposure to increases in operating
expenses resulting from inflation or other factors. In the event
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inflation causes increases in the Company's general and administrative expenses or the level of interest rates, such increased costs would not be passed through to tenants and could adversely affect the Company's results of operations. EastGroup's financial results are affected by general economic conditions in the markets in which the Company's properties are located. The state of the economy, or other adverse changes in general or local economic conditions resulting from the ongoing COVID-19 pandemic or general economic conditions, could result in the inability of some of the Company's existing tenants to make lease payments and may therefore increase the reserves for uncollectible rent. It may also impact the Company's ability to (i) renew leases or re-lease space as leases expire, or (ii) lease development space. In addition, an economic downturn or recession, including but not limited to the ongoing COVID-19 pandemic, could also lead to an increase in overall vacancy rates or a decline in rents the Company can charge to re-lease properties upon expiration of current leases. In all of these cases, EastGroup's cash flows would be adversely affected.
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