# EASTGROUP PROPERTIES INC (EGP) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EASTGROUP PROPERTIES INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/49600/000004960022000027/egp-20211231.htm
Accession: 0000049600-22-000027
Filing date: 2022-02-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EGP/
All MD&A years: /company/EGP/mda/
Next year: /company/EGP/mda/fy2022/ (FY 2022)

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

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 of Florida, Texas, Arizona, California and North Carolina.

The COVID-19 pandemic has not had a materially disruptive effect on EastGroup’s operations, occupancy or rent collections to date. However, EastGroup cannot predict the severity and duration of the economic uncertainty related to the pandemic, and the pandemic’s effect on EastGroup’s customers and on the Company’s business, future financial condition and operating results cannot be predicted with certainty at this time. We have received a limited number of, and may in the future receive additional, rent relief requests from our tenants. As of December 31, 2021, we do not believe that these rent relief requests will have a material impact on our rental revenues. The discussions below, including without limitation with respect to liquidity, are subject to the future effects of the COVID-19 pandemic and the related actions to curb its spread, which continue to evolve.

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 on currently acceptable terms. During 2021, EastGroup issued 1,551,181 shares of common stock through its continuous common equity offering program, providing net proceeds to the Company of $271.2 million. Also during 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 on June 29, 2021, expanding the capacity from $350 million and $45 million to $425 million and $50 million, respectively, and extending the maturity dates from July 30, 2022 to July 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 2021, EastGroup executed leases on 9,789,000 square feet of operating properties (20.8% of EastGroup’s total square footage of 47,019,000 as of December 31, 2021). For new and renewal leases signed during 2021, average rental rates increased by 31.2% 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, 2020 through December 31, 2021), increased 6.8% for 2021 compared to 2020.

EastGroup’s operating portfolio was 98.7% leased at December 31, 2021 compared to 98.0% at December 31, 2020.  As of February 15, 2022, the operating portfolio was 98.1% leased and 97.1% occupied. Leases scheduled to expire in 2022 were 13.1% of the operating portfolio on a square foot basis at December 31, 2021, and this percentage was reduced to 10.7% as of February 15, 2022.

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 2021, EastGroup acquired 1,806,000 square feet of operating and value-add properties in Dallas, Austin, Phoenix, San Diego, Greenville and Atlanta and 365.8 acres of land in Austin, Houston, Charlotte, Greenville and Atlanta for a total of $320.3 million. The Company began construction of 17 development projects containing 2,806,000 square feet in 12 cities. Also in 2021, the Company transferred 17 development and value-add properties (2,688,000 square feet) in 10 cities from its development and value-add program to real estate properties with costs of $272.3 million at the date of transfer. As of December 31, 2021, EastGroup’s development and value-add program consisted of 21 projects (3,905,000 square feet) located in 14 cities.  The projected total cost for the development and value-add projects, which were collectively 49% leased as of February 15, 2022, is $524.7 million, of which $148.1 million remained to be invested as of December 31, 2021.

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During 2021, EastGroup sold an operating property containing 284,000 square feet, generating gross sales proceeds of $45.1 million. The Company recognized $38.9 million in Gain on sales of real estate investments during 2021.

The Company typically initially funds its development and acquisition programs through its unsecured bank credit facilities, the total capacity of which was increased in June 2021 to $475 million (as discussed below 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. Moody's Investors Service has assigned 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, consistent with the Company’s manner of internal reporting, measurement of operating results and allocation of the Company’s resources. 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 the National 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 has 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 with U.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.

EastGroup sometimes refers to PNOI from Same 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 ended December 31, 2021, Same Properties includes properties which were included in the operating portfolio for the entire period from January 1, 2020 through December 31, 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.

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 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. These non-GAAP figures should not be considered a substitute for, and should only be considered together with and as a supplement to, the Company’s financial information presented in accordance with GAAP.

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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 fiscal years ended December 31, 2021, 2020 and 2019.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2021","","2020","","2019"],["","","(In thousands)"],["NET INCOME","$","157,638","","","108,391","","","123,340"],["Gain on sales of real estate investments","(38,859)","","","(13,145)","","","(41,068)"],["Gain on sales of non-operating real estate","\u2014","","","\u2014","","","(83)"],["Net loss on other","\u2014","","","\u2014","","","884"],["Interest income","(6)","","","(101)","","","(129)"],["Other revenue","(63)","","","(354)","","","(574)"],["Indirect leasing costs","700","","","661","","","411"],["Depreciation and amortization","127,099","","","116,359","","","104,724"],["Company\u2019s share of depreciation from unconsolidated investment","136","","","137","","","141"],["Interest expense","32,945","","","33,927","","","34,463"],["General and administrative expense","15,704","","","14,404","","","16,406"],["Noncontrolling interest in PNOI of consolidated joint ventures","(61)","","","(171)","","","(199)"],["PROPERTY NET OPERATING INCOME (\u201cPNOI\u201d)","295,233","","","260,108","","","238,316"],["PNOI from 2020 and 2021 acquisitions","(5,111)","","","(492)","","","*"],["PNOI from 2020 and 2021 development and value-add properties","(26,970)","","","(12,552)","","","*"],["PNOI from 2020 and 2021 operating property dispositions","(1,518)","","","(2,691)","","","*"],["Other PNOI","233","","","256","","","*"],["SAME PNOI","261,867","","","244,629","","","*"],["Net lease termination fee income from same properties","(1,411)","","","(709)","","","*"],["SAME PNOI EXCLUDING INCOME FROM LEASE TERMINATIONS","$","260,456","","","243,920","","","*"]]
[[/GREPCENT_TABLE]]

* Same property metrics are not applicable to the year ended December 31, 2019, as the same property metrics for 2021 and 2020 are based on operating properties owned during the entire current and prior year reporting periods (January 1, 2020 through December 31, 2021).

PNOI was calculated as follows for the three fiscal years ended December 31, 2021, 2020 and 2019.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2021","","2020","","2019"],["(In thousands)"],["Income from real estate operations","$","409,412","","","362,669","","","330,813"],["Expenses from real estate operations","(115,078)","","","(103,368)","","","(93,274)"],["Noncontrolling interest in PNOI of consolidated joint ventures","(61)","","","(171)","","","(199)"],["PNOI from 50% owned unconsolidated investment","960","","","978","","","976"],["PROPERTY NET OPERATING INCOME (\u201cPNOI\u201d)","$","295,233","","","260,108","","","238,316"]]
[[/GREPCENT_TABLE]]

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 Attributable to EastGroup Properties, Inc. Common Stockholders to FFO Attributable to Common Stockholders for the three fiscal years ended December 31, 2021, 2020 and 2019.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2021","","2020","","2019"],["(In thousands, except per share data)"],["NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS","$","157,557","","","108,363","","","121,662"],["Depreciation and amortization","127,099","","","116,359","","","104,724"],["Company\u2019s share of depreciation from unconsolidated investment","136","","","137","","","141"],["Depreciation and amortization from noncontrolling interest","\u2014","","","(142)","","","(186)"],["Gain on sales of real estate investments","(38,859)","","","(13,145)","","","(41,068)"],["Gain on sales of non-operating real estate","\u2014","","","\u2014","","","(83)"],["Noncontrolling interest in gain on sales of real estate investments of consolidated joint ventures","\u2014","","","\u2014","","","1,671"],["FUNDS FROM OPERATIONS (\u201cFFO\u201d) ATTRIBUTABLE TO COMMON STOCKHOLDERS","$","245,933","","","211,572","","","186,861"],["Net income attributable to common stockholders per diluted share","$","3.90","","","2.76","","","3.24"],["Funds from operations (\u201cFFO\u201d) attributable to common stockholders per diluted share","$","6.09","","","5.38","","","4.98"],["Diluted shares for earnings per share and funds from operations","40,377","","","39,296","","","37,527"]]
[[/GREPCENT_TABLE]]

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 2021, FFO was $6.09 per share compared with $5.38 per share for 2020, an increase of 13.2%.

•For the year ended December 31, 2021, PNOI increased by $35,125,000, or 13.5%, compared to 2020. PNOI increased $17,238,000 from same property operations, $14,418,000 from newly developed and value-add properties and $4,619,000 from 2020 and 2021 acquisitions; PNOI decreased $1,173,000 from operating properties sold in 2020 and 2021.

•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 through December 31, 2021).  Same PNOI, excluding income from lease terminations, increased 6.8% for the year ended December 31, 2021, compared to 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 through December 31, 2021). Same property average occupancy for the year ended December 31, 2021 was 97.6% compared to 97.0% for 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 at December 31, 2021 was 97.4%.  Quarter-end occupancy ranged from 96.8% to 97.6% over the previous four quarters ended December 31, 2020 to September 30, 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.  For the year 2021, rental rate increases on new and renewal leases (20.8% of total square footage) averaged 31.2%.

•Lease termination fee income is included in Income from real estate operations. For the year 2021, lease termination fee income was $1,411,000 compared to $709,000 for 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 $475,000 in 2021 compared to net reserves for uncollectible rent of $2,763,000 in 2020. We evaluate the collectability 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

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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, 2021 and also evaluated all deferred rent related to the COVID-19 pandemic for collectability.

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 Real Estate Properties

The Financial Accounting Standards Board (“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 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 lease intangibles 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 significance 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.

FINANCIAL CONDITION

EastGroup’s Total Assets were $3,215,336,000 at December 31, 2021, an increase of $494,533,000 from December 31, 2020.  Total Liabilities increased $193,591,000 to $1,643,876,000, and Total Equity increased $300,942,000 to $1,571,460,000 during the same period.  The following paragraphs explain these changes in greater detail.

Assets

Real Estate Properties

Real estate properties increased $387,214,000 during the year ended December 31, 2021. The increase was primarily due to: (i) the transfer of 17 properties from Development and value-add properties to Real estate properties (as detailed under Development and Value-Add Properties below); (ii) operating property acquisitions; (iii) capital improvements at the Company’s properties; (iv) costs incurred on development and value-add projects subsequent to transfer to Real estate properties discussed below; and (v) right of use assets for the Company’s ground leases. These increases were partially offset

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by the transfer of costs from Real estate properties to Development and value-add properties and Real estate assets held for sale and an operating property sale discussed below.

During 2021, EastGroup acquired the following operating properties:

[[GREPCENT_TABLE]]
[["REAL ESTATE PROPERTIES ACQUIRED IN 2021","","Location","","Size","","Date Acquired","","Cost"],["","","","","(Square feet)","","","","(In thousands)"],["Southpark Distribution Center 2","","Phoenix, AZ","","79,000","","","06/10/2021","","$","9,177"],["DFW Global Logistics Centre","","Dallas, TX","","611,000","","","08/26/2021","","89,829"],["Progress Center 3","","Atlanta, GA","","50,000","","","09/23/2021","","5,000"],["Texas Avenue","","Austin, TX","","20,000","","","10/15/2021","","4,143"],["Total operating property acquisitions","","","","760,000","","","","$","108,149"]]
[[/GREPCENT_TABLE]]

During the year ended December 31, 2021, the Company made capital improvements of $37,895,000 on existing and acquired properties (included in the Capital Expenditures table under Results of Operations).  Also, the Company incurred costs of $13,236,000 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.

Also, during the year ended December 31, 2021, EastGroup sold Jetport Commerce Park, an operating property in Tampa totaling 284,000 square feet. The property was sold for $45.1 million and the Company recognized a gain on the sale of $38.9 million.

Development and Value-Add Properties

EastGroup’s investment in Development and value-add properties at December 31, 2021 consisted of properties in lease-up and under construction of $376,611,000 and prospective development (primarily land) of $128,003,000.  The Company’s total investment in Development and value-add properties at December 31, 2021 was $504,614,000 compared to $359,588,000 at December 31, 2020.  Total capital invested for development and value-add properties during 2021 was $418,855,000, which primarily consisted of costs of $348,478,000 as detailed in the Development and Value-Add Properties Activity table below, $51,082,000 as detailed in the Development and Value-Add Properties Transferred to the Real Estate Properties Portfolio During 2021 table below and costs of $13,236,000 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 $7,713,000 during the year ended December 31, 2021, compared to $6,689,000 during 2020.

During 2021, EastGroup acquired the following value-add properties:

[[GREPCENT_TABLE]]
[["VALUE-ADD PROPERTIES ACQUIRED IN 2021","","Location","","Size","","Date Acquired","","Cost"],["","","","","(Square feet)","","","","(In thousands)"],["Access Point 1","","Greenville, SC","","156,000","","","01/15/2021","","$","10,501"],["Northpoint 200","","Atlanta, GA","","79,000","","","01/21/2021","","6,516"],["Access Point 2","","Greenville, SC","","159,000","","","05/19/2021","","10,743"],["Cherokee 75 Business Center 2","","Atlanta, GA","","105,000","","","06/17/2021","","8,837"],["Siempre Viva Distribution Center 3-6","","San Diego, CA","","547,000","","","12/01/2021","","134,479"],["Total operating property acquisitions","","","","1,046,000","","","","$","171,076"]]
[[/GREPCENT_TABLE]]

Also during 2021, EastGroup purchased 365.8 acres of development land in Austin, Houston, Charlotte, Greenville and Atlanta for $41,065,000.  Costs associated with these acquisitions are included in the Development and Value-Add Properties Activity table. These increases were offset by the transfer of 17 development projects to Real estate properties during 2021 with a total investment of $272,292,000 as of the date of transfer.

23

[[GREPCENT_TABLE]]
[["DEVELOPMENT AND VALUE-ADD PROPERTIES ACTIVITY","","","","Costs Incurred","","","","Actual or Anticipated Building Conversion Date"],["","","","CostsTransferred in 2021 (1)","","For theYear Ended12/31/21","","Cumulativeas of12/31/21","","ProjectedTotal Costs (2)"],["","","","","(In thousands)"],["LEASE-UP","","Building Size (Square feet)"],["Access Point 1, Greenville, SC (3)","","156,000","","","$","\u2014","","","12,522","","","12,522","","","13,300","","","01/22"],["Access Point 2, Greenville, SC (3)","","159,000","","","\u2014","","","11,631","","","11,631","","","13,100","","","05/22"],["Grand Oaks 75 3, Tampa, FL","","136,000","","","2,198","","","7,994","","","10,192","","","12,400","","","07/22"],["Horizon West 2 & 3, Orlando, FL","","210,000","","","5,505","","","11,685","","","17,190","","","19,200","","","09/22"],["Siempre Viva 3-6, San Diego, CA (3)","","547,000","","","\u2014","","","132,688","","","132,688","","","135,600","","","12/22"],["Total Lease-Up","","1,208,000","","","7,703","","","176,520","","","184,223","","","193,600"],["UNDER CONSTRUCTION"],["Speed Distribution Center, San Diego, CA","","519,000","","","17,758","","(4)","50,060","","","67,818","","","88,600","","","03/22"],["SunCoast 12, Fort Myers, FL","","79,000","","","960","","","3,218","","","4,178","","","8,000","","","06/22"],["CreekView 9 & 10, Dallas, TX","","145,000","","","4,350","","","6,986","","","11,336","","","17,200","","","07/22"],["Steele Creek 8, Charlotte, NC","","72,000","","","1,869","","","859","","","2,728","","","8,400","","","08/22"],["Basswood 1 & 2, Fort Worth, TX","","237,000","","","\u2014","","","10,475","","","15,229","","","22,100","","","02/23"],["Gateway 3, Miami, FL","","133,000","","","6,791","","","6,375","","","13,166","","","19,100","","","04/23"],["Grand Oaks 75 4, Tampa, FL","","185,000","","","3,313","","","3,065","","","6,378","","","17,900","","","04/23"],["Tri-County Crossing 5, San Antonio, TX","","105,000","","","1,328","","","4,272","","","5,600","","","10,300","","","04/23"],["Americas Ten 2, El Paso, TX","","168,000","","","2,885","","","6,215","","","9,100","","","14,100","","","05/23"],["Grand West Crossing 1, Houston, TX","","121,000","","","3,492","","","5,377","","","8,869","","","15,700","","","05/23"],["45 Crossing, Austin, TX","","177,000","","","\u2014","","","17,060","","","17,060","","","26,200","","","06/23"],["McKinney 3 & 4, Dallas, TX","","212,000","","","5,120","","","5,318","","","10,438","","","26,300","","","06/23"],["Ridgeview 3, San Antonio, TX","","88,000","","","1,443","","","4,361","","","5,804","","","10,700","","","06/23"],["Tri-County Crossing 6, San Antonio, TX","","124,000","","","1,576","","","2,206","","","3,782","","","9,900","","","06/23"],["LakePort 4 & 5, Dallas, TX","","177,000","","","6,668","","","1,270","","","7,938","","","22,400","","","08/23"],["I-20 West Business Center, Atlanta, GA","","155,000","","","1,803","","","1,161","","","2,964","","","14,200","","","10/23"],["Total Under Construction","","2,697,000","","","59,356","","","128,278","","","192,388","","","331,100"],["PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)","","Estimated Building Size (Square feet)"],["Ft. Myers, FL","","543,000","","","(960)","","","1,392","","","8,298"],["Miami, FL","","243,000","","","(6,791)","","","826","","","14,331"],["Orlando, FL","","1,278,000","","","(5,505)","","","4,065","","","26,238"],["Tampa, FL","","32,000","","","(5,511)","","","613","","","825"],["Atlanta, GA","","580,000","","","(1,803)","","","5,469","","","5,058"],["Jackson, MS","","28,000","","","\u2014","","","\u2014","","","706"],["Charlotte, NC","","1,387,000","","","(1,869)","","","12,648","","","15,104"],["Greenville, SC","","400,000","","","\u2014","","","1,736","","","1,736"],["Austin, TX","","274,000","","","\u2014","","","6,431","","","6,431"],["Dallas, TX","","172,000","","","(16,138)","","","1,658","","","8,398"],["El Paso, TX","","\u2014","","","(2,885)","","","298","","","\u2014"],["Ft. Worth, TX","","652,000","","","\u2014","","","777","","","15,327"],["Houston, TX","","1,293,000","","","(3,492)","","","7,567","","","24,833"],["San Antonio, TX","","55,000","","","(4,347)","","","200","","","718"],["Total Prospective Development","","6,937,000","","","(49,301)","","","43,680","","","128,003"],["Total Development and Value-Add Properties","","10,842,000","","","$","17,758","","","348,478","","","504,614"],["The Development and Value-Add Properties Activity table is continued on the following page."]]
[[/GREPCENT_TABLE]]

24

[[GREPCENT_TABLE]]
[["DEVELOPMENT AND VALUE-ADD PROPERTIES TRANSFERRED TO THE REAL ESTATE PROPERTIES PORTFOLIO DURING 2021","","","","Costs Incurred"],["","","","CostsTransferred in 2021 (1)","","For theYear Ended12/31/21","","Cumulativeas of12/31/21"],["","","Building Size (Square feet)","","(In thousands)","","","","Building Conversion Date"],["Gilbert Crossroads A & B, Phoenix, AZ","","140,000","","","$","\u2014","","","\u2014","","","16,768","","","","","01/21"],["CreekView 7 & 8, Dallas, TX","","137,000","","","\u2014","","","1,099","","","17,658","","","","","03/21"],["Hurricane Shoals 3, Atlanta, GA","","101,000","","","\u2014","","","124","","","8,935","","","","","03/21"],["Northpoint 200, Atlanta, GA (3)","","79,000","","","\u2014","","","6,861","","","6,861","","","","","03/21"],["Rancho Distribution Center, Los Angeles, CA (3)","","162,000","","","\u2014","","","\u2014","","","27,325","","","","","03/21"],["World Houston 44, Houston, TX","","134,000","","","\u2014","","","399","","","8,525","","","","","05/21"],["Gateway 4, Miami, FL","","197,000","","","\u2014","","","641","","","22,688","","","","","06/21"],["Interstate Commons 2, Phoenix, AZ (3)","","142,000","","","\u2014","","","50","","","12,291","","","","","06/21"],["Settlers Crossing 3 & 4, Austin, TX","","173,000","","","\u2014","","","2,477","","","19,981","","","","","06/21"],["SunCoast 7, Fort Myers, FL","","77,000","","","\u2014","","","276","","","7,649","","","","","06/21"],["Tri-County Crossing 3 & 4, San Antonio, TX","","203,000","","","\u2014","","","1,000","","","15,409","","","","","06/21"],["Cherokee 75 Business Center 2, Atlanta, GA (3)","","105,000","","","\u2014","","","9,052","","","9,052","","","","","07/21"],["Northwest Crossing 1-3, Houston, TX","","278,000","","","\u2014","","","1,497","","","23,819","","","","","09/21"],["Ridgeview 1 & 2, San Antonio, TX","","226,000","","","\u2014","","","2,021","","","19,114","","","","","10/21"],["Gilbert Crossroads C & D, Phoenix, AZ","","178,000","","","\u2014","","","14,955","","","21,572","","","","","12/21"],["LakePort 1-3, Dallas, TX","","194,000","","","\u2014","","","3,983","","","23,764","","","","","12/21"],["Steele Creek 10, Charlotte, NC","","162,000","","","\u2014","","","6,647","","","10,881","","","","","12/21"],["Total Transferred to Real Estate Properties","","2,688,000","","","$","\u2014","","","51,082","","","272,292","","","(5)"]]
[[/GREPCENT_TABLE]]

(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 $88.7 million and tenant improvement obligations of $10.3 million on properties under development.

(3)Represents value-add properties acquired by EastGroup.

(4)Represents costs transferred from Real estate properties during the year.

(5)Represents cumulative costs at the date of transfer.

Accumulated Depreciation

Accumulated depreciation on real estate, development and value-add properties increased $80,289,000 during 2021 due primarily to depreciation expense of $104,910,000, offset by the reclassification of one operating property to Real estate assets held for sale and the sale of one operating property totaling 284,000 square feet during 2021.

Real Estate Assets Held for Sale

Real estate assets held for sale increased $5,695,000 during 2021. As of December 31, 2021, the Company owned one operating property, Metro Business Park, that was classified as held for sale on the December 31, 2021 Consolidated Balance Sheet. The property was sold in the first quarter of 2022, and the Company expects to record a gain on the sale in the three months ended March 31, 2022. The Company did not classify any properties as held for sale as of December 31, 2020.

25

Other Assets

Other assets increased $32,641,000 during 2021.  A summary of Other assets follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["2021","","2020"],["(In thousands)"],["Leasing costs (principally commissions)","$","116,772","","","95,914"],["Accumulated amortization of leasing costs","(42,193)","","","(38,371)"],["Leasing costs (principally commissions), net of accumulated amortization","74,579","","","57,543"],["Acquired in-place lease intangibles","31,561","","","28,107"],["Accumulated amortization of acquired in-place lease intangibles","(13,038)","","","(13,554)"],["Acquired in-place lease intangibles, net of accumulated amortization","18,523","","","14,553"],["Acquired above market lease intangibles","885","","","1,825"],["Accumulated amortization of acquired above market lease intangibles","(508)","","","(1,231)"],["Acquired above market lease intangibles, net of accumulated amortization","377","","","594"],["Straight-line rents receivable","51,970","","","43,079"],["Accounts receivable","7,133","","","6,064"],["Interest rate swap assets","2,237","","","\u2014"],["Right of use assets \u2013 Office leases (operating)","1,984","","","2,131"],["Receivable for common stock offerings","\u2014","","","1,942"],["Goodwill","990","","","990"],["Receivable for tenant improvement cost reimbursements","7,680","","","192"],["Prepaid expenses and other assets","16,747","","","22,491"],["Total Other assets","$","182,220","","","149,579"]]
[[/GREPCENT_TABLE]]

Liabilities

Unsecured bank credit facilities, net of debt issuance costs increased $82,872,000 during the year ended December 31, 2021, mainly due to borrowings of $625,520,000 and the amortization of debt issuance costs during the period, partially offset by repayments of $541,310,000 and new debt issuance costs incurred during the year. The Company’s credit facilities are described in greater detail below under Liquidity and Capital Resources.

Unsecured debt, net of debt issuance costs increased $134,862,000 during the year ended December 31, 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 the repayment of a $40 million term loan in July and new debt issuance costs incurred during the year. 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 $76,851,000 during the year ended December 31, 2021.  The decrease resulted from the repayments of two mortgage loans with principal balances of $40,841,000 and $33,090,000, respectively, regularly scheduled principal payments of $2,989,000 and amortization of premiums on Secured debt, partially offset by the amortization of debt issuance costs during the year.

26

Accounts payable and accrued expenses increased $40,187,000 during 2021.  A summary of the Company’s Accounts payable and accrued expenses follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["2021","","2020"],["(In thousands)"],["Property taxes payable","$","4,494","","","3,524"],["Development costs payable","17,529","","","4,004"],["Retainage payable","10,576","","","2,423"],["Real estate improvements and capitalized leasing costs payable","5,798","","","5,692"],["Interest payable","6,547","","","6,537"],["Dividends payable","46,864","","","32,677"],["Book overdraft (1)","4,845","","","5,176"],["Other payables and accrued expenses","13,107","","","9,540"],["Total Accounts payable and accrued expenses","$","109,760","","","69,573"]]
[[/GREPCENT_TABLE]]

(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. See Note 1(p) in the Notes to Consolidated Financial Statements.

Other liabilities increased $12,521,000 during 2021.  A summary of the Company’s Other liabilities follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["2021","","2020"],["(In thousands)"],["Security deposits","$","28,343","","","22,140"],["Prepaid rent and other deferred income","16,401","","","14,694"],["Operating lease liabilities \u2014 Ground leases","22,898","","","11,199"],["Operating lease liabilities \u2014 Office leases","2,032","","","2,167"],["Acquired below market lease intangibles","8,124","","","6,472"],["Accumulated amortization of acquired below-market lease intangibles","(2,707)","","","(3,621)"],["Acquired below market lease intangibles, net of accumulated amortization","5,417","","","2,851"],["Interest rate swap liabilities","935","","","10,752"],["Tenant improvement cost liabilities","2,796","","","364"],["Other liabilities","3,516","","","5,650"],["Total Other liabilities","$","82,338","","","69,817"]]
[[/GREPCENT_TABLE]]

Equity

Additional paid-in capital increased $276,767,000 during the year ended December 31, 2021 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 10 in the Notes to Consolidated Financial Statements). EastGroup issued 1,551,181 shares of common stock under its continuous common equity offering program with net proceeds to the Company of $271,155,000.

During 2021, Distributions in excess of earnings decreased $11,611,000 as a result of Net Income Attributable to EastGroup Properties, Inc. Common Stockholders of $157,557,000 exceeding dividends on common stock of $145,946,000.

Accumulated other comprehensive income (loss) increased $12,054,000 during 2021. The increase resulted from the change in fair value of the Company’s interest rate swaps (cash flow hedges) which are further discussed in Notes 11 and 12 in the Notes to Consolidated Financial Statements.

27

RESULTS OF OPERATIONS

2021 Compared to 2020

Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for the year ended December 31, 2021 was $157,557,000 ($3.91 per basic and $3.90 per diluted share) compared to $108,363,000 ($2.77 per basic and $2.76 per diluted share) for the year ended December 31, 2020. The following paragraphs explain the change:

•PNOI increased by $35,125,000 ($0.87 per diluted share) for 2021 as compared to 2020.  PNOI increased $17,238,000 from same property operations, $14,418,000 from newly developed and value-add properties and $4,619,000 from 2020 and 2021 acquisitions; PNOI decreased $1,173,000 from operating properties sold in 2020 and 2021. For the year 2021, lease termination fee income was $1,411,000 compared to $709,000 for 2020.  The Company recorded net recoveries for uncollectible rent of $475,000 in 2021 and net reserves for uncollectible rent of $2,763,000 in 2020. Straight-lining of rent increased PNOI by $8,698,000 and $4,888,000 in 2021 and 2020, respectively.

•EastGroup recognized gains on sales of real estate investments of $38,859,000 ($0.96 per diluted share) during 2021 compared to $13,145,000 ($0.33 per diluted share) during 2020.

•Depreciation and amortization expense increased by $10,740,000 ($0.27 per diluted share) during 2021 compared to 2020.

EastGroup entered into 174 leases with certain rent concessions on 5,677,000 square feet during 2021 with total rent concessions of $11,007,000 over the lives of the leases, compared to 179 leases with rent concessions on 4,965,000 square feet with total rent concessions of $7,548,000 over the lives of the leases in 2020.

The Company’s percentage of leased square footage for the operating portfolio was 98.7% at December 31, 2021, compared to 98.0% at December 31, 2020.  Occupancy at the end of 2021 for the operating portfolio was 97.4% compared to 97.3% at December 31, 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 through December 31, 2021). Same property average occupancy for the year ended December 31, 2021, was 97.6% compared to 97.0% for the year ended December 31, 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 through December 31, 2021). The same property average rental rate was $6.55 per square foot for the year ended December 31, 2021, compared to $6.17 per square foot for the year ended December 31, 2020.

28

Interest Expense decreased $982,000 for the year ended December 31, 2021 compared to the year ended December 31, 2020.  The following table presents the components of Interest Expense for 2021 and 2020:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2021","","2020","","Increase (Decrease)"],["(In thousands)"],["VARIABLE RATE INTEREST EXPENSE"],["Unsecured bank credit facilities interest - variable rate(excluding amortization of facility fees and debt issuance costs)","$","962","","","1,620","","","(658)"],["Amortization of facility fees - unsecured bank credit facilities","751","","","790","","","(39)"],["Amortization of debt issuance costs - unsecured bank credit facilities","606","","","561","","","45"],["Total variable rate interest expense","2,319","","","2,971","","","(652)"],["FIXED RATE INTEREST EXPENSE"],["Unsecured debt interest (1) (excluding amortization of debt issuance costs)","37,443","","","34,536","","","2,907"],["Secured debt interest (excluding amortization of debt issuance costs)","1,521","","","5,214","","","(3,693)"],["Amortization of debt issuance costs - unsecured debt","589","","","624","","","(35)"],["Amortization of debt issuance costs - secured debt","101","","","233","","","(132)"],["Total fixed rate interest expense","39,654","","","40,607","","","(953)"],["Total interest","41,973","","","43,578","","","(1,605)"],["Less capitalized interest","(9,028)","","","(9,651)","","","623"],["TOTAL INTEREST EXPENSE","$","32,945","","","33,927","","","(982)"]]
[[/GREPCENT_TABLE]]

(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 12 in the Notes to Consolidated Financial Statements.

EastGroup’s variable rate interest expense decreased by $652,000 for 2021 as compared to 2020 primarily due to a decrease in the Company’s weighted average variable interest rate on its unsecured bank credit facilities as shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","2020","","Increase (Decrease)"],["","","(In thousands, except rates of interest)"],["Average borrowings on unsecured bank credit facilities - variable rate","","$","95,629","","87,095","","8,534"],["Weighted average variable interest rates (excluding amortization of facility fees and debt issuance costs)","","1.01","%","","1.86","%"]]
[[/GREPCENT_TABLE]]

The Company’s fixed rate interest expense decreased by $953,000 for 2021 as compared to 2020 as a result of the unsecured debt and secured debt described below.

29

Interest expense from fixed rate unsecured debt increased by $2,907,000 during 2021 as compared to 2020 as a result of the Company’s unsecured debt activity described below. The details of the unsecured debt obtained in 2020 and 2021 are shown in the following table:

[[GREPCENT_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"]]
[[/GREPCENT_TABLE]]

(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 of December 31, 2021. See Note 12 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 of December 31, 2021. See Note 12 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 2020 and 2021:

[[GREPCENT_TABLE]]
[["UNSECURED DEBT REPAID IN 2020 AND 2021","","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"],["$40 Million Senior Unsecured Term Loan","","2.34%","","07/30/2021","","40,000"],["Weighted Average/Total Amount for 2020 and 2021","","3.22%","","","","$","145,000"]]
[[/GREPCENT_TABLE]]

The increase in interest expense from unsecured debt was offset by a decrease in secured debt interest expense, which decreased by $3,693,000 in 2021 as compared to 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 $2,989,000 during 2021 and $8,436,000 in 2020. The details of the secured debt repaid in 2020 and 2021 are shown in the following table:

[[GREPCENT_TABLE]]
[["SECURED DEBT REPAID IN 2020 AND 2021","","Interest Rate","","Date Repaid","","Payoff Amount"],["","","","","","","(In thousands)"],["40th Avenue Distribution Center, Beltway Crossing Business Park 5, Centennial Park, Executive Airport Distribution Ctr, Interchange Park 1, Ocean View Corporate Center, Wetmore Business Center 5-8 and World Houston Int\u2019l Business Ctr 26, 28, 29 & 30","","4.39%","","10/07/2020","","$","45,871"],["Colorado Crossing Distribution Center, Interstate Warehouse 1-3, Rojas Commerce Park, Steele Creek Commerce Park 1 & 2, Venture Warehouses and World Houston Int\u2019l Business Ctr 3, 4 & 6-9","","4.75%","","03/08/2021","","40,841"],["Arion Business Park 18, Beltway Crossing Business Park 6 & 7, Commerce Park Center 2 & 3, Concord Distribution Center, Interstate Warehouse 5-7, Lakeview Business Center, Ridge Creek Distribution Center 2, Southridge Commerce Park 4 & 5 and World Houston Int\u2019l Business Ctr 32","","4.09%","","10/07/2021","","33,090"],["Weighted Average/Total Amount for 2020 and 2021","","4.43%","","","","$","119,802"]]
[[/GREPCENT_TABLE]]

EastGroup did not obtain any new secured debt during 2020 or 2021.

Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest decreased by $623,000 for 2021 as compared to 2020. The decrease is due to changes in development spending and borrowing rates.

30

Depreciation and amortization expense increased $10,740,000 for 2021 compared to 2020 primarily due to the operating properties acquired by the Company during 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 and 2021.  

Gain on sales of real estate investments, which includes gains on the sales of operating properties, increased $25,714,000 for 2021 as compared to 2020. The Company’s 2020 and 2021 sales transactions are described below in Real Estate Sold and Held for Sale.

Real Estate Improvements

Real estate improvements for EastGroup’s operating properties for the years ended December 31, 2021 and 2020 were as follows:

[[GREPCENT_TABLE]]
[["","Estimated Useful Life","","Years Ended December 31,"],["","2021","","2020"],["","","(In thousands)"],["Upgrade on Acquisitions","40 yrs","","$","1,337","","","298"],["Tenant Improvements:"],["New Tenants","Lease Life","","13,603","","","11,811"],["Renewal Tenants","Lease Life","","3,935","","","3,284"],["Other:"],["Building Improvements","5-40 yrs","","8,044","","","4,962"],["Roofs","5-15 yrs","","8,007","","","8,529"],["Parking Lots","3-5 yrs","","1,570","","","568"],["Other","5 yrs","","1,399","","","803"],["Total Real Estate Improvements (1)","","","$","37,895","","","30,255"]]
[[/GREPCENT_TABLE]]

(1) Reconciliation of Total Real Estate Improvements to Real Estate Improvements on the Consolidated Statements of Cash Flows:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","2021","","2020"],["","(In thousands)"],["Total Real Estate Improvements","","$","37,895","","","30,255"],["Change in Real Estate Property Payables","","(26)","","","(373)"],["Change in Construction in Progress","","(1,204)","","","3,249"],["Real Estate Improvements on the Consolidated Statements of Cash Flows","","$","36,665","","","33,131"]]
[[/GREPCENT_TABLE]]

31

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, 2021 and 2020 were as follows:

[[GREPCENT_TABLE]]
[["","Estimated Useful Life","","Years Ended December 31,"],["","2021","","2020"],["","","(In thousands)"],["Development and Value-Add","Lease Life","","$","12,280","","","5,223"],["New Tenants","Lease Life","","10,990","","","5,732"],["Renewal Tenants","Lease Life","","10,111","","","7,244"],["Total Capitalized Leasing Costs (1)","","","$","33,381","","","18,199"],["Amortization of Leasing Costs","","","$","16,209","","","14,449"]]
[[/GREPCENT_TABLE]]

(1) Reconciliation of Total Capitalized Leasing Costs to Leasing commissions on the Consolidated Statements of Cash Flows:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","2021","","2020"],["","(In thousands)"],["Total Capitalized Leasing Costs","","$","33,381","","","18,199"],["Change in Leasing Commissions Payables","","(80)","","","(683)"],["Leasing Commissions on the Consolidated Statements of Cash Flows","","$","33,301","","","17,516"]]
[[/GREPCENT_TABLE]]

Real Estate Sold and Held for Sale

The Company considers a real estate property to be held for sale when it meets the criteria established under Accounting Standards Codification (“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. As of December 31, 2021, the Company owned one operating property, Metro Business Park, that was classified as held for sale on the December 31, 2021 Consolidated Balance Sheet. The property was sold in the first quarter of 2022, and the Company expects to record a gain on the sale in the three months ended March 31, 2022. The Company did not classify any properties as held for sale as of December 31, 2020.  

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 2020 and 2021, or the property classified as held for sale as of December 31, 2021, 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.

In 2021, EastGroup sold Jetport Commerce Park, an operating property in Tampa with 284,000 square feet. The property was sold for $45.1 million and the Company recognized a gain on the sale of $38.9 million.

In 2020, EastGroup sold the following operating properties: University Business Center 120 in Santa Barbara and Central Green in Houston. The properties (126,000 square feet combined) were sold for $21.0 million and the Company recognized gains on the sales of $13.1 million.

The Company did not sell any land during the years ended December 31, 2021 and 2020.

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Gains and losses on the sales of operating properties are included in Gain on sales of real estate investments on the Consolidated Statements of Income and Comprehensive Income. 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.  

2020 Compared to 2019

A discussion of changes in the Company’s results of operations between 2020 and 2019 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 “2020 Compared to 2019” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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 ASU applies to the Company.

In March 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 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 $256,492,000 for the year ended December 31, 2021.  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 $131,759,000 in common stock dividends during 2021.  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; capital improvements at various properties; and leasing commissions.

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. The Company expects liquidity sources and needs in future years to be consistent in nature with those for the year ended December 31, 2021.

As of December 31, 2021, the Company was contractually obligated to pay the dividend declared in December 2021, which was paid in January 2022. An amount for dividends payable of $46,864,000 was included in Accounts payable and accrued expenses at December 31, 2021, which includes dividends payable on unvested restricted stock of $1,585,000, which are subject to continued service and will be paid upon vesting in future periods.

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Total debt at December 31, 2021 and 2020 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 at December 31, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","December 31,"],["2021","","2020"],["(In thousands)"],["Unsecured bank credit facilities - variable rate, carrying amount (1)","$","209,210","","","125,000"],["Unamortized debt issuance costs","(2,144)","","","(806)"],["Unsecured bank credit facilities, net of debt issuance costs","207,066","","","124,194"],["Unsecured debt - fixed rate, carrying amount (2) (3)","1,245,000","","","1,110,000"],["Unamortized debt issuance costs","(2,430)","","","(2,292)"],["Unsecured debt, net of debt issuance costs","1,242,570","","","1,107,708"],["Secured debt - fixed rate, carrying amount (2) (4)","2,156","","","79,096"],["Unamortized debt issuance costs","(14)","","","(103)"],["Secured debt, net of debt issuance costs","2,142","","","78,993"],["Total debt, net of debt issuance costs","$","1,451,778","","","1,310,895"]]
[[/GREPCENT_TABLE]]

(1) 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.

(2) These loans have a fixed interest rate or an effectively fixed interest rate due to interest rate swaps.

(3) As of December 31, 2021, obligations due in less than one year include maturing principal balances of $75,000,000 and interest of $36,776,000; remaining principal balances maturing in greater than one year include $1,170,000,000 and interest of $179,019,000.

(4) As of December 31, 2021, obligations due in less than one year include principal amortization of $115,000 and interest of $81,000; remaining principal maturing in greater than one year includes $2,041,000 and interest of $278,000.

Until June 29, 2021, EastGroup had $350 million and $45 million unsecured bank credit facilities with margins over LIBOR of 100 basis points, facility fees of 20 basis points and maturity dates of July 30, 2022. The Company amended and restated these credit facilities on June 29, 2021, expanding their capacities to $425 million and $50 million, respectively, as detailed below.

The Company’s $425 million unsecured bank credit facility is with a group of nine banks and has a maturity date of July 30, 2025. The credit facility contains options for two six-month extensions (at the Company’s election) and a $325 million accordion (with agreement by all parties). The interest rate on each tranche is usually reset on a monthly basis and as of December 31, 2021, was LIBOR plus 77.5 basis points with an annual facility fee of 15 basis points. As of December 31, 2021, the Company had $183,000,000 of variable rate borrowings on this unsecured bank credit facility with a weighted average interest rate of 0.875%. The Company has a standby letter of credit of $674,000 pledged on this facility.

The Company’s $50 million unsecured bank credit facility has a maturity date of July 30, 2025, or such later date as designated by the bank; the Company also has two six-month extensions available if the extension options in the $425 million facility are exercised. The interest rate is reset on a daily basis and as of December 31, 2021, was LIBOR plus 77.5 basis points with an annual facility fee of 15 basis points. As of December 31, 2021, the interest rate was 0.876% on a balance of $26,210,000.

For both facilities, the margin and facility fee are subject to changes in the Company’s credit ratings. Although the Company’s current credit rating is Baa2, given the strength of the Company’s key credit metrics, initial pricing for the credit facilities is based on the BBB+/Baa1 credit ratings level. This favorable pricing level will be retained provided that the Company’s consolidated leverage ratio, as defined in the applicable agreements, remains less than 32.5%. The facilities also include a sustainability-linked pricing component pursuant to which the applicable interest margin will be reduced by one basis point if the Company meets certain sustainability performance targets.

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.

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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 2021, the Company closed a $50 million senior unsecured term loan with a four-year term and interest only payments, which bears interest at the annual rate of LIBOR plus an applicable margin (1.00% as of each of December 31, 2021 and February 15, 2022) 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 1.55%.

Also in March 2021, EastGroup repaid (with no penalty) a mortgage loan with a balance of $40.8 million, an interest rate of 4.75% and an original maturity date of June 5, 2021.

In June 2021, the Company closed on the private placement of $125 million of senior unsecured notes with a fixed interest rate of 2.74% and a 10-year term. The notes, dated April 8, 2021, were issued and sold on June 10, 2021 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 July 2021, the Company repaid a maturing $40 million senior unsecured term loan with an effective interest rate of 2.34%.

In September 2021, the Company closed on the refinance of a $100 million senior unsecured term loan with five years remaining. The amended term loan provides for interest only payments currently at an interest rate of LIBOR plus 85 basis points, based on the Company’s current credit ratings and consolidated leverage ratio, which is a 65 basis point reduction in the credit spread compared to the original term loan. The Company has an interest rate swap agreement which converts 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 2.10%. The term loan also includes a sustainability-linked pricing component pursuant to which, if the Company meets certain sustainability performance targets, the applicable interest margin will be reduced by one basis point.

In October 2021, the Company repaid (with no penalty) a mortgage loan with a balance of $33.1 million, an interest rate of 4.09% and an original maturity date of January 5, 2022.

In July 2017, the Financial Conduct Authority (“FCA”) announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease publication of certain LIBOR settings after 2021, while continuing to publish overnight and one-, three-, six-, and twelve-month U.S. dollar LIBOR rates through June 30, 2023. While this announcement extended the transition period to June 2023, the United States Federal Reserve Board and other regulatory bodies concurrently issued guidance encouraging banks and other financial market participants to cease entering into new contracts that use U.S. dollar LIBOR as a reference rate as soon as practicable and in any event no later than December 31, 2021. In the U.S., the AARC, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended that SOFR plus a recommended spread adjustment as its preferred alternative to USD-LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

We expect that all LIBOR settings relevant to us will cease to be published or will no longer be representative after June 30, 2023. As a result, any of our LIBOR-based borrowings that extend beyond such date will need to be converted to a replacement rate. Certain risks may arise in connection with transitioning contracts to SOFR or any other alternative variable rate, including any resulting value transfer that may occur. The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted. The Company’s unsecured bank credit facilities, senior unsecured term loans and interest rate swap contracts are indexed to LIBOR and include provisions for a replacement rate which we believe 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. 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 June 30, 2023, 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.

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On December 20, 2019, EastGroup entered into sales agreements (the “December 2019 Sales Agreements”) with each of BNY Mellon Capital Markets, LLC; BofA Securities, Inc.; BTIG, LLC; Jefferies LLC; Raymond James & Associates, Inc.; Regions Securities LLC; and Wells Fargo Securities, LLC in connection with the establishment of a new 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. On July 28, 2021, the Company entered into a sales agreement (together with the December 2019 Sales Agreements, the “Sales Agreements”) with TD Securities (USA) LLC, which is substantially similar to the December 2019 Sales Agreements, and entered into corresponding amendments to the December 2019 Sales Agreements to include TD Securities (USA) LLC as a participating sales agent. Pursuant to the Sales Agreements, the shares may be offered and sold in transactions that are deemed to be “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended. As of February 16, 2022, the Company has sold an aggregate of 2,261,105 shares of common stock with gross proceeds of $368,147,000 under the Sales Agreements, and EastGroup may offer and sell additional shares of its common stock with an aggregate gross sales price of up to $381,853,000 through the sales agents.

During the year ended December 31, 2021, EastGroup issued and sold 1,551,181 shares of common stock under its continuous common equity offering program at an average price of $176.77 per share with gross proceeds to the Company of $274,209,000. The Company incurred offering-related costs of $3,054,000 during the year, resulting in net proceeds to the Company of $271,155,000.

EastGroup’s other material cash requirements from known contractual and other obligations as of December 31, 2021 were as follows:

[[GREPCENT_TABLE]]
[["","Cash Requirements (1)"],["Real estate property obligations (2)","$","10,520"],["Development and value-add obligations (3)","88,686"],["Tenant improvements (4)","27,880"],["Total","$","127,086"]]
[[/GREPCENT_TABLE]]

(1)Cash requirement due in less than one year; there were no related long-term cash requirements.

(2)Represents commitments on real estate properties, except for tenant improvement allowance obligations.

(3)Represents commitments on properties in the Company’s development and value-add program, except for tenant improvement allowance obligations.

(4)Represents tenant improvement allowance obligations.

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.

36