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 Quarterly Report on
Form 10-Q.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" (within
the meaning of the federal securities laws, Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act of
1934, as amended (the "Exchange Act")) that reflect EastGroup's expectations and
projections about the Company's future results, performance, prospects and
opportunities. The Company has attempted to identify these forward-looking
statements by the use of words such as "may," "will," "seek," "expects,"
"anticipates," "believes," "targets," "intends," "should," "estimates," "could,"
"continue," "assume," "projects," "plans" or similar expressions. These
forward-looking statements are based on information currently available to the
Company and are subject to a number of known and unknown risks, uncertainties
and other factors that may cause the Company's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, those discussed below. The Company intends
for all such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in Section 27A of the
Securities Act and Section 21E of the Exchange Act, as applicable by law. The
Company does not undertake publicly to update or revise any forward-looking
statements, whether as a result of changes in underlying assumptions or new
information, future events or otherwise, except as may be required to satisfy
the Company's obligations under federal securities law.
The following are some, but not all, of the risks, uncertainties and other
factors that could cause the Company's actual results to differ materially from
those presented in the Company's forward-looking statements (the Company refers
to itself as "we," "us" or "our" in the following):
•international, national, regional and local economic conditions;
•the duration and extent of the impact of the coronavirus ("COVID-19") pandemic,
including as a result of any COVID-19 variants or as affected by the rate and
efficacy of COVID-19 vaccines, and any related orders or other formal
recommendations for social distancing on our business operations or the business
operations of our tenants (including their ability to timely make rent payments)
and the economy generally;
•disruption in supply and delivery chains;
•the general level of interest rates and ability to raise equity capital on
attractive terms;
•financing risks, including the risks that our cash flows from operations may be
insufficient to meet required payments of principal and interest, and we may be
unable to refinance our existing debt upon maturity or obtain new financing on
attractive terms or at all;
•the competitive environment in which the Company operates;
•fluctuations of occupancy or rental rates;
•potential defaults (including bankruptcies or insolvency) on or non-renewal of
leases by tenants, or our ability to lease space at current or anticipated
rents, particularly in light of the significant uncertainty as to the conditions
under which current or potential tenants will be able to operate physical
locations in the future;
•potential changes in the law or governmental regulations and interpretations of
those laws and regulations, including changes in real estate laws or real estate
investment trust ("REIT") or corporate income tax laws, and potential increases
in real property tax rates;
•our ability to maintain our qualification as a REIT;
•acquisition and development risks, including failure of such acquisitions and
development projects to perform in accordance with projections;
•natural disasters such as fires, floods, tornadoes, hurricanes and earthquakes;
•pandemics, epidemics or other public health emergencies, such as the outbreak
of COVID-19;
•the terms of governmental regulations that affect us and interpretations of
those regulations, including the costs of compliance with those regulations,
changes in real estate and zoning laws and increases in real property tax rates;
•credit risk in the event of non-performance by the counterparties to our
interest rate swaps;
•lack of or insufficient amounts of insurance;
•litigation, including costs associated with prosecuting or defending claims and
any adverse outcomes;
•our ability to attract and retain key personnel;
•the consequences of future terrorist attacks or civil unrest; and
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•environmental liabilities, including costs, fines or penalties that may be
incurred due to necessary remediation of contamination of properties presently
owned or previously owned by us.
All forward-looking statements should be read in light of the risks identified
in Part I, Item 1A. Risk Factors within the Company's Annual Report on Form 10-K
for the year ended December 31, 2020 . In addition, the Company's current and
continuing qualification as a real estate investment trust, or REIT, involves
the application of highly technical and complex provisions of the Internal
Revenue Code of 1986, as amended, or the Code, and depends on the Company's
ability to meet the various requirements imposed by the Code through actual
operating results, distribution levels and diversity of stock ownership.
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 Global, national and local economies continue to be impacted by the COVID-19 pandemic and the mitigation efforts to combat the spread of COVID-19. During the course of the 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. The Company has executed rent deferral agreements totaling$1.7 million , which represents approximately 0.4% of the Company's 2020 revenue, and of which$1.5 million has been collected by the Company throughJuly 27, 2021 . 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 throughJune 30, 2021 have been collected with the exception of$33,000 . 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 ) qualified to be recognized as rental income in the periods in which it was charged under the original terms of the leases. Rent payment deferrals have not been significant; however, the Company is continuing to actively monitor the evolving COVID-19 situation and its impact on the Company's cash flows and operations.
As of
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
EastGroup 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 on currently acceptable terms. During the three months endedJune 30, 2021 , EastGroup issued 370,177 shares of common stock through its continuous common equity offering program, providing net proceeds to the Company of$59.3 million . During the six months endedJune 30, 2021 , EastGroup issued 687,715 shares of common stock through its continuous common equity offering program, providing net proceeds to the Company of$103.8 million . Also during the six months endedJune 30, 2021 , the Company closed a$50 million senior unsecured term loan with an effective fixed interest rate of 1.55% and the private placement of$125 million of senior unsecured notes with a fixed interest rate of 2.74%. The Company amended and restated its two unsecured bank credit facilities onJune 29, 2021 , expanding the capacity from$350 million and$45 million with maturity dates ofJuly 30, 2022 to$425 million and$50 million , respectively, with maturity dates ofJuly 30, 2025 . EastGroup's financing and equity issuances are further described in Liquidity and Capital Resources below.
The Company's primary revenue is rental income. During the six months ended
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, 2020 through June 30,
2021 ), increased 6.1% for the six months ended June 30, 2021 as compared to the
same period in 2020.
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EastGroup's portfolio was 98.3% leased and 96.8% occupied as of June 30, 2021 ,
compared to 97.5% and 97.0%, respectively, at June 30, 2020 . As of July 27,
2021 , the portfolio was 98.5% leased and 96.7% occupied. Leases scheduled to
expire for the remainder of 2021 were 5.1% of the portfolio on a square foot
basis at June 30, 2021 , and this percentage was reduced to 4.2% as of July 27,
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 the six months ended June 30, 2021 , EastGroup acquired four value-add
properties containing 499,000 square feet in Greenville and Atlanta for $36.6
million and 15.1 acres of development land in Atlanta for $289,000 . During the
same period, the Company began construction of seven development projects
containing 1,318,000 square feet in Orlando , Tampa , Fort Myers , Dallas , San
Antonio and San Diego . EastGroup also transferred 11 development projects and
value-add acquisitions (1,545,000 square feet) in Miami , Fort Myers , Dallas ,
Austin , Houston , San Antonio , Phoenix , Los Angeles and Atlanta from its
development and value-add program to real estate properties, with costs of
$164.1 million at the date of transfer. As of June 30, 2021 , EastGroup's
development and value-add program consisted of 16 projects (3,013,000 square
feet) located in 12 cities. The projected total investment for the development
and value-add projects, which were collectively 53% leased as of July 27, 2021 ,
is $329 million , of which $134 million remained to be invested as of June 30,
2021 .
During the six months ended
There were no property sales during the six months ended
The Company typically initially funds its development and acquisition programs through its unsecured bank credit facilities, the total capacity of which was increased inJune 2021 to$475 million (as discussed in Liquidity and Capital Resources). As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt, including variable-rate debt that has been swapped to an effectively fixed rate through the use of interest rate swaps, to replace short-term bank borrowings. InJune 2019 , Moody's Investors Service affirmed EastGroup'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. These 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"). Nareit's guidance 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 made the election to exclude activity related to such assets that are incidental to our business. 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. -25- -------------------------------------------------------------------------------- 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 three and six months endedJune 30, 2021 ,Same Properties includes properties which were included in the operating portfolio for the entire period fromJanuary 1, 2020 throughJune 30, 2021 . 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 and six months endedJune 30, 2021 and 2020. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (In thousands) Income from real estate operations$ 99,562 89,500 197,479 178,077 Expenses from real estate operations (28,057) (25,351) (55,877) (51,180)
Noncontrolling interest in PNOI of consolidated joint ventures
(16) (41) (31) (84)
PNOI from 50% owned unconsolidated investment 241 243 475 486
PROPERTY NET OPERATING INCOME ("PNOI") $ 71,730 64,351 142,046 127,299
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.
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The following table presents reconciliations of Net Income to PNOI, Same PNOI
and Same PNOI Excluding Income from Lease Terminations for the three and six
months ended June 30, 2021 and 2020.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
NET INCOME $ 27,578 23,487 54,935 46,785
Interest income (3) (21) (4) (50)
Other revenue (13) (215) (27) (266)
Indirect leasing costs 134 166 464 274
Depreciation and amortization 31,349 28,570 61,662 56,462
Company's share of depreciation from unconsolidated investment
34 34 68 69
Interest expense 8,181 8,346 16,457 16,803
General and administrative expense 4,486 4,025 8,522 7,306
Noncontrolling interest in PNOI of consolidated joint ventures
(16) (41) (31) (84)
PROPERTY NET OPERATING INCOME ("PNOI") 71,730 64,351 142,046 127,299
PNOI from 2020 and 2021 acquisitions (772) (130) (1,456) (171)
PNOI from 2020 and 2021 development and value-add
properties (6,249) (2,832) (11,317) (4,843)
PNOI from 2020 operating property dispositions - (310) - (544)
Other PNOI 42 57 101 104
SAME PNOI 64,751 61,136 129,374 121,845
Net lease termination fee income from same properties (18) (25) (594) (469)
SAME PNOI EXCLUDING INCOME FROM LEASE TERMINATIONS
61,111 128,780 121,376
The following table presents reconciliations of Net Income Attributable to
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands, except per share data) NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
$ 27,558 23,484 54,897 46,781 Depreciation and amortization 31,349 28,570 61,662 56,462
Company's share of depreciation from unconsolidated investment
34 34 68 69
Depreciation and amortization from noncontrolling interest - (37) - (79)
FUNDS FROM OPERATIONS ("FFO") ATTRIBUTABLE TO COMMON STOCKHOLDERS
$ 58,941 52,051 116,627 103,233
Net income attributable to common stockholders per diluted share
$ 0.69 0.60$ 1.37 1.20
Funds from operations ("FFO") attributable to common stockholders per diluted share
$ 1.47 1.33$ 2.92 2.65 Diluted shares for earnings per share and funds from operations 40,165 39,077 39,965 39,019
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 period compared to the same period in the prior year. For the three months endedJune 30, 2021 , FFO was$1.47 per share compared with$1.33 per share for the same period of 2020, an increase of 10.5%. For the six months endedJune 30, 2021 , FFO was$2.92 per share compared with$2.65 per share for the same period of 2020, an increase of 10.2%. -27- -------------------------------------------------------------------------------- •For the three months endedJune 30, 2021 , PNOI increased by$7,379,000 , or 11.5%, compared to the same period in 2020. PNOI increased$3,615,000 from same property operations,$3,417,000 from newly developed and value-add properties and$642,000 from 2020 and 2021 acquisitions; PNOI decreased$310,000 from operating properties sold in 2020. For the six months endedJune 30, 2021 , PNOI increased by$14,747,000 , or 11.6%, compared to the same period in 2020. PNOI increased$7,529,000 from same property operations,$6,474,000 from newly developed and value-add properties and$1,285,000 from 2020 and 2021 acquisitions; PNOI decreased$544,000 from operating properties sold in 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, 2020 throughJune 30, 2021 ). Same PNOI, excluding income from lease terminations, increased 5.9% and 6.1% for the three and six months endedJune 30, 2021 , respectively, as compared to the same periods in 2020. •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, 2020 throughJune 30, 2021 ). Same property average occupancy was 97.3% for the three months endedJune 30, 2021 , compared to 96.8% for the same period of 2020. Same property average occupancy was 97.4% for the six months endedJune 30, 2021 , compared to 96.8% for the same period of 2020. •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 atJune 30, 2021 was 96.8%. Quarter-end occupancy ranged from 96.4% to 97.3% over the previous four quarters endedJune 30, 2020 toMarch 31, 2021 . •Rental rate change represents the rental rate increase or decrease on new and renewal leases compared to the prior leases on the same space. Rental rate increases on new and renewal leases (5.2% of total square footage) averaged 31.2% for the three months endedJune 30, 2021 . For the six months endedJune 30, 2021 , rental rate increases on new and renewal leases (11.0% of total square footage) averaged 28.3%. •Lease termination fee income is included in Income from real estate operations. Lease termination fee income for the three and six months endedJune 30, 2021 was$18,000 and$594,000 , respectively, compared to$25,000 and$469,000 for the same periods of 2020. •The Company records reserves for uncollectible rent as reductions to Income from real estate operations; recoveries for uncollectible rent are recorded as additions to Income from real estate operations. The Company recorded net recoveries for uncollectible rent of$12,000 and$90,000 for the three and six months endedJune 30, 2021 , respectively, compared to net reserves for uncollectible rent of$725,000 and$1,220,000 for the same periods of 2020. We evaluate the collectibility of rents and other receivables for individual leases 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 three and six months endedJune 30, 2021 and also evaluated all deferred rent related to the COVID-19 pandemic for collectibility.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Acquisition and Development ofReal Estate Properties 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 respective fair values. 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 -28- -------------------------------------------------------------------------------- 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 properties
based on development activity.
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FINANCIAL CONDITION
EastGroup's Total Assets were $2,855,622,000 at June 30, 2021 , an increase of
$134,819,000 from December 31, 2020 . Total Liabilities increased $32,006,000 to
$1,482,291,000 , and Total Equity increased $102,813,000 to $1,373,331,000 during
the same period. The following paragraphs explain these changes in detail.
Assets
Real Estate Properties Real estate properties increased$176,722,000 during the six months endedJune 30, 2021 , primarily due to: (i) the transfer of 11 projects from Development and value-add properties to Real estate properties (as detailed underDevelopment and Value-Add Properties below); (ii) capital improvements at the Company's properties; and (iii) an operating property acquisition. These increases were partially offset by the transfer of land costs from Real estate properties to Development and value-add properties. During the six months endedJune 30, 2021 , the Company made capital improvements of$18,095,000 on existing and acquired properties (included in the Real Estate Improvements table under Results of Operations). Also, the Company incurred costs of$4,244,000 on development and value-add properties 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.
During 2021, EastGroup acquired the following operating properties:
Date
OPERATING PROPERTIES ACQUIRED IN 2021 Location Size Acquired Cost
(Square feet) (In thousands)
Southpark Distribution Center 2 Phoenix, AZ 79,000 06/10/2021 $ 9,177 The Company had no stabilized operating property sales during the six months
ended
Development and Value-Add Properties EastGroup's investment in Development and value-add properties atJune 30, 2021 consisted of projects in lease-up and under construction of$194,971,000 and prospective development (primarily land) of$125,034,000 . The Company's total investment in Development and value-add properties atJune 30, 2021 was$320,005,000 compared to$359,588,000 atDecember 31, 2020 . EastGroup transferred 11 development and value-add projects to Real estate properties with a total investment of$164,090,000 as of the date of transfer. Total capital invested for development during the first six months of 2021 was$111,378,000 , which primarily consisted of costs of$93,822,000 and$12,927,000 as detailed in the Development and Value-Add Properties Activity table below and costs of$4,244,000 on properties subsequent to transfer to Real estate properties. The capitalized costs incurred on development and value-add properties subsequent to transfer to Real estate properties include capital improvements at the properties and do not include other capitalized costs associated with development (i.e., interest expense, property taxes and internal personnel costs).
The Company capitalized internal development costs of
During 2021, EastGroup acquired the following value-add properties:
Date
VALUE-ADD PROPERTIES ACQUIRED IN 2021 Location Size Acquired Cost
(Square feet) (In thousands)
Access Point 1 Greenville, SC 156,000 01/15/2021 $ 10,501
Northpoint 200 Atlanta, GA 79,000 01/21/2021 6,516
Access Point 2 Greenville, SC 159,000 05/19/2021 10,743
Cherokee 75 Business Center 2 Atlanta, GA 105,000 06/17/2021 8,837
Total value-add property acquisitions 499,000 $ 36,597 During the six months ended
Costs associated with these acquisitions are included in the Development and Value-Add Properties Activity table.
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Costs Incurred
Anticipated
DEVELOPMENT AND Building
VALUE-ADD PROPERTIES Costs Transferred For the Six Months Ended Projected Conversion
ACTIVITY in 2021 (1) 6/30/2021 Cumulative as of 6/30/2021 Total Costs Date
(In thousands)
Building Size
LEASE-UP (Square feet)
Cherokee 75 Business
Center 2, Atlanta, GA
(2) 105,000 $ - 8,972 8,972 11,000 07/21
Northwest Crossing 1-3,
Houston, TX 278,000 - 1,174 23,496 25,900 09/21
Ridgeview 1 & 2, San
Antonio, TX 226,000 - 1,380 18,473 21,000 10/21
LakePort 1-3, Dallas,
TX 194,000 - 1,041 20,822 25,300 12/21
Access Point 1,
Greenville, SC (2) 156,000 - 11,952 11,952 12,600 01/22
Access Point 2,
Greenville, SC (2) 159,000 - 10,803 10,803 12,400 05/22
Total Lease-Up 1,118,000 - 35,322 94,518 108,200
UNDER CONSTRUCTION
Gilbert Crossroads C &
D, Phoenix, AZ 178,000 - 9,819 16,436 21,900 12/21
Speed Distribution (3)
Center, San Diego, CA 519,000 17,758 14,460 32,218 88,600 01/22
Grand Oaks 75 3, Tampa,
FL 136,000 2,198 6,625 8,823 12,000 07/22
Steele Creek X,
Charlotte, NC 162,000 - 5,956 10,190 12,600 07/22
Horizon West 2 & 3,
Orlando, FL 210,000 5,505 8,817 14,322 18,200 09/22
CreekView 9 & 10,
Dallas, TX 145,000 4,350 1,136 5,486 17,200 12/22
Tri-County Crossing 5,
San Antonio, TX 105,000 1,328 275 1,603 10,300 01/23
Basswood 1 & 2, Fort
Worth, TX 237,000 - 3,662 8,416 22,100 02/23
SunCoast 12, Fort
Myers, FL 79,000 960 250 1,210 8,000 02/23
Tri-County Crossing 6,
San Antonio, TX 124,000 1,576 173 1,749 9,900 05/23
Total Under
Construction 1,895,000 33,675 51,173 100,453 220,800
Estimated
PROSPECTIVE DEVELOPMENT Building Size
(PRIMARILY LAND) (Square feet)
Fort Myers, FL 543,000 (960) 658 7,564
Miami, FL 376,000 - 497 20,793
Orlando, FL 1,278,000 (5,505) 2,259 24,432
Tampa, FL 213,000 (2,198) 613 4,138
Atlanta, GA 155,000 - 411 1,803
Jackson, MS 28,000 - - 706
Charlotte, NC 313,000 - 113 4,438
Dallas, TX 556,000 (4,350) 1,325 19,853
El Paso, TX 168,000 - 298 2,885
Fort Worth, TX 652,000 388 14,938
Houston, TX 1,223,000 - 598 21,356
San Antonio, TX 143,000 (2,904) 167 2,128
Total Prospective
Development 5,648,000 (15,917) 7,327 125,034
8,661,000 $ 17,758 93,822 320,005
DEVELOPMENT AND
VALUE-ADD PROPERTIES
TRANSFERRED TO REAL Building
ESTATE PROPERTIES Building Size Conversion
DURING 2021 (Square feet) Date Gilbert Crossroads A & B, Phoenix, AZ 140,000 $ - - 16,768 01/21 CreekView 7 & 8, Dallas, TX 137,000 - 1,099 17,658 03/21 Hurricane Shoals 3, Atlanta, GA 101,000 - 124 8,935 03/21 Northpoint 200, Atlanta, GA (2) 79,000 - 6,861 6,861 03/21 Rancho Distribution Center,Los Angeles, CA (2) 162,000 - - 27,325 03/21 World Houston 44, Houston, TX 134,000 - 399 8,525 05/21 Gateway 4, Miami, FL 197,000 - 641 22,688 06/21Interstate Commons 2, Phoenix, AZ (2) 142,000 - 50 12,291 06/21Settlers Crossing 3 & 4, Austin, TX 173,000 - 2,477 19,981 06/21SunCoast 7, Fort Myers, FL 77,000 - 276 7,649 06/21Tri-County Crossing 3 & 4, San Antonio, TX 203,000 - 1,000 15,409 06/21 Total Transferred to (4) Real Estate Properties 1,545,000 $ - 12,927 164,090
Footnotes for this table are on the following page.
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(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) Represents value-add properties acquired by EastGroup.
(3) Represents costs transferred from Real estate properties during the year.
(4) Represents cumulative costs at the date of transfer.
Accumulated Depreciation
Accumulated depreciation on real estate, development and value-add properties
increased $49,100,000 during the six months ended June 30, 2021 , primarily due
to depreciation expense.
Other Assets
Other assets increased $8,329,000 during the six months ended June 30, 2021 . A
summary of Other assets follows:
June 30, December 31,
2021 2020
(In thousands)
Leasing costs (principally commissions) $ 106,954 95,914
Accumulated amortization of leasing costs (39,065) (38,371)
Leasing costs (principally commissions), net of accumulated amortization
67,889 57,543
Acquired in-place lease intangibles 25,862 28,107
Accumulated amortization of acquired in-place lease intangibles (13,167) (13,554)
Acquired in-place lease intangibles, net of accumulated amortization
12,695 14,553
Acquired above market lease intangibles 1,825 1,825
Accumulated amortization of acquired above market lease intangibles
(1,352) (1,231)
Acquired above market lease intangibles, net of accumulated amortization
473 594
Straight-line rents receivable 47,229 43,079
Accounts receivable 8,099 6,256
Interest rate swap assets 141 -
Right of use assets - Office leases (operating) 2,233 2,131
Receivable for common stock offerings - 1,942
Goodwill 990 990
Prepaid expenses and other assets 18,159 22,491
Total Other assets $ 157,908 149,579
Liabilities
Unsecured bank credit facilities, net of debt issuance costs decreased
$126,631,000 during the six months ended June 30, 2021 , mainly due to repayments
of $320,137,000 and new debt issuance costs incurred during the period,
partially offset by borrowings of $195,137,000 and the amortization of debt
issuance costs during the period. The Company's credit facilities are described
in greater detail under Liquidity and Capital Resources.
Unsecured debt, net of debt issuance costs increased $174,730,000 during the six
months ended June 30, 2021 , primarily due to the closing of a $50 million senior
unsecured term loan in March, closing the private placement of $125 million of
senior unsecured notes in June and the amortization of debt issuance costs,
partially offset by new debt issuance costs incurred during the period. The
borrowings and repayments on Unsecured debt, net of debt issuance costs are
described in greater detail under Liquidity and Capital Resources.
Secured debt, net of debt issuance costs decreased $42,865,000 during the six
months ended June 30, 2021 . The decrease resulted from the repayment of a
mortgage loan with a principal balance of $40,841,000 in March, regularly
scheduled principal payments of $2,083,000 and amortization of premiums on
Secured debt, net of debt issuance costs, partially offset by the amortization
of debt issuance costs during the period.
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Accounts payable and accrued expenses increased $32,339,000 during the six
months ended June 30, 2021 . A summary of the Company's Accounts payable and
accrued expenses follows:
June 30, December 31,
2021 2020
(In thousands)
Property taxes payable $ 30,671 3,524
Development costs payable 19,553 6,427
Real estate improvements and capitalized leasing costs payable 6,398 5,692
Interest payable 6,601 6,537
Dividends payable 32,927 32,677
Book overdraft (1) - 5,176
Other payables and accrued expenses 5,762 9,540
Total Accounts payable and accrued expenses $ 101,912 69,573
(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, which is included in the Company's Unsecured bank credit
facilities, net of debt issuance costs.
Other liabilities decreased
June 30, December 31,
2021 2020
(In thousands)
Security deposits $ 25,357 22,140
Prepaid rent and other deferred income 13,600 14,694
Operating lease liabilities - Ground leases 10,803 11,199
Operating lease liabilities - Office leases 2,282 2,167
Acquired below-market lease intangibles 8,929 9,019
Accumulated amortization of below-market lease intangibles (6,673) (6,168)
Acquired below-market lease intangibles, net of accumulated amortization
2,256 2,851
Interest rate swap liabilities 3,942 10,752
Prepaid tenant improvement reimbursements 360 364
Other liabilities 5,650 5,650
Total Other liabilities $ 64,250 69,817
Equity
Additional paid-in capital increased $104,608,000 during the six months ended
June 30, 2021 , primarily due to the issuance of common stock under the Company's
continuous common equity offering program (as discussed in Liquidity and Capital
Resources) and activity related to stock-based compensation (as discussed in
Note 16 in the Notes to Consolidated Financial Statements). During the six
months ended June 30, 2021 , EastGroup issued 687,715 shares of common stock
under its continuous common equity offering program with net proceeds to the
Company of $103,803,000 .
For the six months ended
Accumulated other comprehensive loss decreased$6,951,000 during the six months endedJune 30, 2021 . The decrease resulted from the change in fair value of the Company's interest rate swaps (cash flow hedges) which are further discussed in Note 14 in the Notes to Consolidated Financial Statements. -33- -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Net Income Attributable toEastGroup Properties, Inc. Common Stockholders for the three and six months endedJune 30, 2021 was$27,558,000 ($0.69 per basic and diluted share) and$54,897,000 ($1.38 per basic share and$1.37 per diluted share), respectively, compared to$23,484,000 ($0.60 per basic and diluted share) and$46,781,000 ($1.20 per basic and diluted share) for the same periods in 2020. The following paragraphs explain the change: •PNOI increased by$7,379,000 ($0.18 per diluted share), or 11.5%, for the three months endedJune 30, 2021 , as compared to the same period of 2020. PNOI increased$3,615,000 from same property operations,$3,417,000 from newly developed and value-add properties and$642,000 from 2020 and 2021 acquisitions; PNOI decreased$310,000 from operating properties sold in 2020. Lease termination fee income was$18,000 and$25,000 for the three month periods endedJune 30, 2021 and 2020, respectively. The Company recorded net recoveries for uncollectible rent of$12,000 and net reserves for uncollectible rent of$725,000 for the three months endedJune 30, 2021 and 2020, respectively. Straight-lining of rent increased Income from real estate operations by$2,111,000 and$1,540,000 for the three months endedJune 30, 2021 and 2020, respectively. PNOI increased by$14,747,000 ($0.37 per diluted share), or 11.6%, for the six months endedJune 30, 2021 , as compared to the same period of 2020. PNOI increased$7,529,000 from same property operations,$6,474,000 from newly developed and value-add properties and$1,285,000 from 2020 and 2021 acquisitions; PNOI decreased$544,000 from operating properties sold in 2020. Lease termination fee income was$594,000 and$469,000 for the six month periods endedJune 30, 2021 and 2020, respectively. The Company recorded net recoveries for uncollectible rent of$90,000 and net reserves for uncollectible rent of$1,220,000 for the six months endedJune 30, 2021 and 2020, respectively. Straight-lining of rent increased Income from real estate operations by$3,986,000 and$2,830,000 for the six months endedJune 30, 2021 and 2020, respectively.
•There were no sales during the three and six months ended
•Depreciation and amortization expense increased by$2,779,000 ($0.07 per diluted share) and$5,200,000 ($0.13 per diluted share) during the three and six months endedJune 30, 2021 , respectively, as compared to the same periods of 2020. EastGroup signed 48 leases with free rent concessions on 1,718,000 square feet during the three months endedJune 30, 2021 , with total free rent concessions of$2,397,000 over the lives of the leases. During the same period of 2020, the Company signed 45 leases with free rent concessions on 1,132,000 square feet with total free rent concessions of$1,497,000 over the lives of the leases. During the six months endedJune 30, 2021 , EastGroup signed 98 leases with free rent concessions on 3,289,000 square feet with total free rent concessions of$6,712,000 over the lives of the leases. During the same period of 2020, the Company signed 83 leases with free rent concessions on 2,281,000 square feet with total free rent concessions of$3,077,000 over the lives of the leases.
The Company's percentage of leased square footage was 98.3% 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, 2020 throughJune 30, 2021 ). Same property average occupancy for the three and six months endedJune 30, 2021 , was 97.3% and 97.4%, respectively, compared to 96.8% for each of the same periods of 2020. 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, 2020 throughJune 30, 2021 ). The same property average rental rate was$6.46 and$6.43 per square foot for the three and six months endedJune 30, 2021 , respectively, compared to$6.08 and$6.10 per square foot for the same periods of 2020. -34-
-------------------------------------------------------------------------------- Interest expense decreased$165,000 and$346,000 for the three and six months endedJune 30, 2021 , compared to the same periods in 2020. The following table presents the components of Interest expense for the three and six months endedJune 30, 2021 and 2020: Three Months Ended Six Months Ended June 30, June 30, Increase Increase 2021 2020 (Decrease) 2021 2020 (Decrease) (In thousands)
VARIABLE RATE INTEREST EXPENSE Unsecured bank credit facilities interest - variable rate (excluding amortization of facility fees and debt issuance costs)
$ 217 362 (145) 592 1,316 (724) Amortization of facility fees - unsecured bank credit facilities 197 197 - 391 393 (2)
Amortization of debt issuance costs - unsecured bank credit facilities
140 140 - 280 280 -
Total variable rate interest expense 554 699 (145) 1,263 1,989 (726)
FIXED RATE INTEREST EXPENSE
Unsecured debt interest (1) (excluding amortization of debt issuance costs) 9,252 8,622 630 18,113 16,696 1,417 Secured debt interest (excluding amortization of debt issuance costs) 371 1,433 (1,062) 1,113 2,891 (1,778) Amortization of debt issuance costs - unsecured debt 151 158 (7) 288 296 (8) Amortization of debt issuance costs - secured debt 10 57 (47) 74 115 (41) Total fixed rate interest expense 9,784 10,270 (486) 19,588 19,998 (410) Total interest 10,338 10,969 (631) 20,851 21,987 (1,136) Less capitalized interest (2,157) (2,623) 466 (4,394) (5,184) 790 TOTAL INTEREST EXPENSE$ 8,181 8,346 (165) 16,457 16,803 (346) (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 14 in the Notes to Consolidated Financial Statements. The Company's variable rate interest expense decreased by$145,000 and$726,000 for the three and six months endedJune 30, 2021 , respectively, as compared to the same periods in 2020 primarily due to decreases in the Company's weighted average variable interest rates and average borrowings on its unsecured bank credit facilities as shown in the following table: Three Months Ended Six Months Ended June 30, June 30, Increase Increase 2021 2020 (Decrease) 2021 2020 (Decrease) (In thousands, except rates of interest) Average borrowings on unsecured bank credit facilities - variable rate$ 79,137 97,368 (18,231) 106,426 122,843
(16,417)
Weighted average variable interest rates (excluding amortization of facility fees and debt issuance costs) 1.11 % 1.50 % 1.12 % 2.14 % The Company's fixed rate interest expense decreased by$486,000 and$410,000 for the three and six months endedJune 30, 2021 , respectively, as compared to the same periods in 2020 as a result of the unsecured debt and secured debt activity described below. Interest expense from fixed rate unsecured debt increased by$630,000 and$1,417,000 during the three and six months endedJune 30, 2021 , respectively, as compared to the same periods in 2020. The increases resulted from the Company's unsecured debt activity described below. -35- -------------------------------------------------------------------------------- The details of the unsecured debt obtained in 2020 and 2021 are shown in the following table: NEW UNSECURED DEBT IN 2020 AND 2021 Effective Interest Rate Date Obtained Maturity Date Amount (In thousands)$100 Million Senior Unsecured Term Loan (1) 2.39% 03/25/2020 03/25/2027$ 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$50 Million Senior Unsecured Term Loan (2) 1.55% 03/18/2021 03/18/2025 50,000$125 Million Senior Unsecured Notes 2.74% 06/10/2021 06/10/2031 125,000 Weighted Average/Total Amount for 2020 and 2021 2.50%$ 450,000 (1) 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 ofJune 30, 2021 . See Note 14 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 100 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 1.55% as ofJune 30, 2021 . See Note 14 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 debt during 2020: UNSECURED DEBT REPAID IN 2020
Interest Rate Date Repaid Payoff Amount
(In thousands)
$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 2020 3.55% The increase in interest expense from unsecured debt was partially offset by a decrease in secured debt interest expense. Interest expense from secured debt decreased by$1,062,000 and$1,778,000 during the three and six month periods endedJune 30, 2021 , as compared to the same periods in 2020 as a result of regularly scheduled principal payments and the payoffs described in the table below. Regularly scheduled principal payments on secured debt were$2,083,000 during the six months endedJune 30, 2021 . During the year endedDecember 31, 2020 , regularly scheduled principal payments on secured debt were$8,436,000 . The details of the secured debt repaid in 2020 and 2021 are shown in the following table:
SECURED DEBT REPAID IN 2020 AND 2021 Interest Rate Date Repaid Payoff Amount
(In thousands)
5-8 and World Houston 26, 28, 29 & 30 4.39%
Distribution Center 1-3, Rojas Commerce
Park,
Distribution Center 1 and World Houston
3, 4, 6, 7, 8 & 9 4.75% 03/08/2021 40,841
Weighted Average/Total Amount for 2020
and 2021 4.56%$ 86,712
EastGroup did not obtain any new secured debt during 2020 or the first six months of 2021.
Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest decreased$466,000 and$790,000 for the three and six months endedJune 30, 2021 , respectively, as compared to the same periods of 2020, due to changes in development spending and borrowing rates. Depreciation and amortization expense increased$2,779,000 and$5,200,000 for the three and six months endedJune 30, 2021 , respectively, as compared to the same periods in 2020, primarily due to the operating properties acquired by the Company in 2020 and 2021 and the properties transferred from Development and value-add properties in 2020 and 2021, partially offset by operating properties sold in 2020.
The Company did not sell any properties during the six months ended
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Real Estate Improvements
Real estate improvements for EastGroup's operating properties for the three and
six months ended June 30, 2021 and 2020 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
Estimated Useful Life 2021 2020 2021 2020
(In thousands)
Upgrade on Acquisitions 40 yrs $ 109 141 154 165
Tenant Improvements:
New Tenants Lease Life 2,525 2,712 5,167 5,756
Renewal Tenants Lease Life 1,507 676 2,184 2,005
Other:
Building Improvements 5-40 yrs 1,621 772 3,404 1,990
Roofs 5-15 yrs 3,047 2,645 6,062 3,582
Parking Lots 3-5 yrs 169 313 431 349
Other 5 yrs 532 6 693 353
Total Real Estate Improvements (1) $ 9,510 7,265 18,095 14,200
(1)Reconciliation of Total Real Estate Improvements to Real estate improvements on the Consolidated Statements of Cash Flows:
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