10-Q 1 egp-20220331.htm 10-Q egp-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2022

                    
Commission File Number: 1-07094

egp-20220331_g1.jpg

EASTGROUP PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland13-2711135
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
400 W Parkway Place 
Suite 100 
Ridgeland,Mississippi39157
(Address of principal executive offices)(Zip code)

Registrant’s telephone number: (601) 354-3555

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per shareEGPNew York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No






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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   
Large Accelerated Filer Accelerated Filer
 
Non-accelerated Filer
 
Smaller Reporting CompanyEmerging Growth Company
                   
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

The number of shares of common stock, $0.0001 par value, outstanding as of April 26, 2022 was 41,680,414.
-2-


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2022 

  Page
 
   
 
   
 
   
 
   
 
   
 
  
 
   
   
   
   
 
   
   
  
   
 

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PART I.      FINANCIAL INFORMATION.

ITEM 1.      FINANCIAL STATEMENTS.

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
 March 31,
2022
December 31,
2021
ASSETS  
Real estate properties$3,637,496 3,546,711 
Development and value-add properties549,584 504,614 
 4,187,080 4,051,325 
Less accumulated depreciation(1,061,190)(1,035,617)
 3,125,890 3,015,708 
Real estate assets held for sale 5,695 
Unconsolidated investment7,598 7,320 
Cash5,718 4,393 
Other assets205,529 182,220 
TOTAL ASSETS$3,344,735 3,215,336 
LIABILITIES AND EQUITY  
LIABILITIES  
Unsecured bank credit facilities, net of debt issuance costs$195,317 207,066 
Unsecured debt, net of debt issuance costs1,267,084 1,242,570 
Secured debt, net of debt issuance costs2,115 2,142 
Accounts payable and accrued expenses126,708 109,760 
Other liabilities79,122 82,338 
Total Liabilities1,670,346 1,643,876 
EQUITY  
Stockholders’ Equity:  
Common shares; $0.0001 par value; 70,000,000 shares authorized; 41,680,414 shares issued and outstanding at March 31, 2022 and 41,268,846 at December 31, 2021
4 4 
Excess shares; $0.0001 par value; 30,000,000 shares authorized; no shares issued
  
Additional paid-in capital1,956,328 1,886,820 
Distributions in excess of earnings(300,429)(318,056)
Accumulated other comprehensive income17,130 1,302 
Total Stockholders’ Equity1,673,033 1,570,070 
Noncontrolling interest in joint ventures1,356 1,390 
Total Equity1,674,389 1,571,460 
TOTAL LIABILITIES AND EQUITY$3,344,735 3,215,336 
 
See accompanying Notes to Consolidated Financial Statements (unaudited).


-4-


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
 March 31,
 20222021
REVENUES
Income from real estate operations$112,952 97,917 
Other revenue22 14 
 112,974 97,931 
EXPENSES
Expenses from real estate operations31,064 27,820 
Depreciation and amortization36,341 30,313 
General and administrative4,310 4,036 
Indirect leasing costs175 330 
 71,890 62,499 
OTHER INCOME (EXPENSE)
Interest expense(8,110)(8,276)
Gain on sales of real estate investments30,352  
Other278 201 
NET INCOME63,604 27,357 
Net income attributable to noncontrolling interest in joint ventures(24)(18)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS63,580 27,339 
Other comprehensive income - interest rate swaps15,828 8,214 
TOTAL COMPREHENSIVE INCOME$79,408 35,553 
BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
Net income attributable to common stockholders$1.54 0.69 
Weighted average shares outstanding41,246 39,673 
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
Net income attributable to common stockholders$1.54 0.69 
Weighted average shares outstanding41,359 39,765 

See accompanying Notes to Consolidated Financial Statements (unaudited).
-5-


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
For the three months ended March 31, 2022:
Common SharesAdditional
Paid-In Capital
Distributions in Excess of EarningsAccumulated Other Comprehensive IncomeNoncontrolling Interest in Joint VenturesTotal
BALANCE, DECEMBER 31, 2021$4 1,886,820 (318,056)1,302 1,390 1,571,460 
Net income  63,580  24 63,604 
Net unrealized change in fair value of interest rate swaps   15,828  15,828 
Common dividends declared – $1.10 per
   share
  (45,953)  (45,953)
Stock-based compensation, net of
   forfeitures
 2,594    2,594 
Issuance of 385,538 shares of common
   stock, common stock offering, net of
   expenses
 74,179    74,179 
Withheld 34,251 shares of common stock to
   satisfy tax withholding obligations in
   connection with the vesting of restricted
   stock
 (7,265)   (7,265)
Net distributions to noncontrolling interest    (58)(58)
BALANCE, MARCH 31, 2022$4 1,956,328 (300,429)17,130 1,356 1,674,389 



For the three months ended March 31, 2021:
Common SharesAdditional
Paid-In Capital
Distributions in Excess of EarningsAccumulated Other Comprehensive LossNoncontrolling Interest in Joint VenturesTotal
BALANCE, DECEMBER 31, 2020$4 1,610,053 (329,667)(10,752)880 1,270,518 
Net income  27,339  18 27,357 
Net unrealized change in fair value of interest rate swaps   8,214  8,214 
Common dividends declared – $0.79 per
   share
  (31,672)  (31,672)
Stock-based compensation, net of
   forfeitures
 2,147    2,147 
Issuance of 317,538 shares of common
   stock, common stock offering, net of
   expenses
 44,485    44,485 
Withheld 30,252 shares of common stock to
   satisfy tax withholding obligations in
   connection with the vesting of restricted
   stock
 (4,240)   (4,240)
Net distributions to noncontrolling interest    (11)(11)
BALANCE, MARCH 31, 2021$4 1,652,445 (334,000)(2,538)887 1,316,798 

See accompanying Notes to Consolidated Financial Statements (unaudited).
-6-


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 Three Months Ended March 31,
 20222021
OPERATING ACTIVITIES  
Net income                                                                                                       $63,604 27,357 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization                                                                                                       36,341 30,313 
Stock-based compensation expense1,903 1,597 
Gain on sales of real estate investments(30,352) 
Changes in operating assets and liabilities:  
Accrued income and other assets1,372 577 
Accounts payable, accrued expenses and prepaid rent9,380 18,842 
Other                                                                                                       16 136 
NET CASH PROVIDED BY OPERATING ACTIVITIES82,264 78,822 
INVESTING ACTIVITIES  
Development and value-add properties(127,112)(47,539)
Real estate improvements(9,840)(9,128)
Net proceeds from sales of real estate investments38,133  
Leasing commissions(9,344)(6,687)
Changes in accrued development costs4,494 870 
Changes in other assets and other liabilities(10,476)(1,435)
NET CASH USED IN INVESTING ACTIVITIES(114,145)(63,919)
FINANCING ACTIVITIES  
Proceeds from unsecured bank credit facilities 217,290 96,798 
Repayments on unsecured bank credit facilities(229,187)(129,480)
Proceeds from unsecured debt100,000 50,000 
Repayments on unsecured debt(75,000) 
Repayments on secured debt(23)(42,263)
Debt issuance costs(648)(223)
Distributions paid to stockholders (not including dividends accrued)(46,033)(31,863)
Proceeds from common stock offerings74,179 46,427 
Other(7,372)(4,252)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES33,206 (14,856)
INCREASE IN CASH AND CASH EQUIVALENTS1,325 47 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD4,393 21 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$5,718 68 
SUPPLEMENTAL CASH FLOW INFORMATION  
Cash paid for interest, net of amounts capitalized of $2,244 and $2,237 for 2022 and 2021,
   respectively
$5,476 6,503 
Cash paid for operating lease liabilities515 375 
NON-CASH OPERATING ACTIVITY
  Operating lease liabilities arising from obtaining right of use assets$ 348 

See accompanying Notes to Consolidated Financial Statements (unaudited).
-7-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(1)BASIS OF PRESENTATION
The accompanying unaudited financial statements of EastGroup Properties, Inc. (“EastGroup” or “the Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In management’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The financial statements should be read in conjunction with the financial statements contained in the Company’s annual report on Form 10-K for the year ended December 31, 2021 and the notes thereto. Certain reclassifications have been made in the 2021 consolidated financial statements to conform to the 2022 presentation.

(2)PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EastGroup, its wholly owned subsidiaries and its investment in any joint ventures in which the Company has a controlling interest.

As of March 31, 2022 and December 31, 2021, EastGroup held a controlling interest in two joint venture arrangements. In 2019, the Company acquired 6.5 acres of land in San Diego, known by the Company as the Miramar land. Also in 2019, the Company acquired 41.6 acres of land in San Diego, known by the Company as the Otay Mesa land. During the year ended December 31, 2021, EastGroup began construction of Speed Distribution Center, a 519,000 square foot building on the Otay Mesa land, which was completed and transferred to the Company’s operating portfolio during the three months ended March 31, 2022. As of both March 31, 2022 and December 31, 2021, EastGroup had a 95% controlling interest in the Miramar land and a 99% controlling interest in Speed Distribution Center.

The Company records 100% of the assets, liabilities, revenues and expenses of the buildings and land held in joint ventures with the noncontrolling interests provided for in accordance with the joint venture agreements. 

The equity method of accounting is used for the Company’s 50% undivided tenant-in-common interest in Industry Distribution Center II.  All significant intercompany transactions and accounts have been eliminated in consolidation.

(3) USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period and to disclose material contingent assets and liabilities at the date of the financial statements.  Actual results could differ from those estimates.

(4)LEASE REVENUE
The Company’s primary revenue is rental income from business distribution space. The table below presents the components of Income from real estate operations for the three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
20222021
(In thousands)
Lease income — operating leases$84,945 73,382 
Variable lease income (1)
28,007 24,535 
Income from real estate operations$112,952 97,917 

(1)Primarily includes tenant reimbursements for real estate taxes, insurance and common area maintenance.

(5)REAL ESTATE PROPERTIES
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 reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows (including estimated future expenditures necessary to substantially complete the asset) expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated
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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.  During the three month periods ended March 31, 2022 and 2021, the Company did not identify any impairment charges which should be recorded.

Depreciation of buildings and other improvements is computed using the straight-line method over estimated useful lives of generally 40 years for buildings and 3 to 15 years for improvements.  Building improvements are capitalized, while maintenance and repair expenses are charged to expense as incurred.  Significant renovations and improvements that improve or extend the useful life of the assets are capitalized.  Depreciation expense was $29,392,000 and $25,147,000 for the three months ended March 31, 2022 and 2021, respectively.

The Company’s Real estate properties and Development and value-add properties at March 31, 2022 and December 31, 2021 were as follows:
 March 31,
2022
December 31,
2021
 (In thousands)
Real estate properties:  
   Land$560,512 544,505 
   Buildings and building improvements2,473,788 2,408,944 
   Tenant and other improvements582,708 570,627 
   Right of use assets — Ground leases (operating) (1)
20,488 22,635 
Development and value-add properties (2)
549,584 504,614 
 4,187,080 4,051,325 
   Less accumulated depreciation(1,061,190)(1,035,617)
 $3,125,890 3,015,708 

(1)EastGroup applies the principles of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases, and its related Accounting Standards Updates (“ASUs”) to account for its ground leases, which are classified as operating leases. The related operating lease liabilities for ground leases are included in Other liabilities on the Consolidated Balance Sheets.
(2)Value-add properties are defined as properties that are either acquired but not stabilized or can be converted to a higher and better use.  Acquired properties meeting either of the following two conditions are considered value-add properties:  (1) Less than 75% occupied as of the acquisition date (or will be less than 75% occupied within one year of acquisition date based on near term lease roll), or (2) 20% or greater of the acquisition cost will be spent to redevelop the property.

(6)DEVELOPMENT AND VALUE-ADD PROPERTIES
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. As the property becomes occupied, depreciation commences on the occupied portion of the building, and costs are capitalized only for the portion of the building that remains vacant. The Company transfers properties from the development and value-add program to Real estate properties as follows: (i) for development properties, at the earlier of 90% occupancy or one year after completion of the shell construction, and (ii) for value-add properties, at the earlier of 90% occupancy or one year after acquisition. Upon the earlier of 90% occupancy or one year after completion of the shell construction, capitalization of development costs, including interest expense, property taxes and internal personnel costs, ceases and depreciation commences on the entire property (excluding the land).

(7)REAL ESTATE PROPERTY ACQUISITIONS AND ACQUIRED INTANGIBLES
Upon acquisition of real estate properties, EastGroup applies the principles of FASB ASC 805, Business Combinations. The FASB Codification provides a framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. Under the guidance, companies are required to utilize an initial screening test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set is not a business. EastGroup determined that its real estate property acquisitions in 2021 and the first three months of 2022 are considered to be acquisitions of groups of similar identifiable assets; therefore, the acquisitions are not considered to be acquisitions of a business. As a result, the Company capitalized acquisition costs related to its 2021 and 2022 acquisitions.
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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The FASB Codification also 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.  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.  Factors considered by management in the allocation include an estimate of foregone rents and avoided leasing costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.  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.

Amortization expense for in-place lease intangibles was $2,465,000 and $1,431,000 for the three months ended March 31, 2022 and 2021, respectively. Amortization of above and below market lease intangibles increased rental income by $845,000 and $229,000 for the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2022, EastGroup acquired the following properties:
REAL ESTATE PROPERTY ACQUIRED IN 2022
LocationSizeDate
Acquired
Cost
  (Square feet) (In thousands)
Value-add property acquired (1)
Cypress Preserve 1 & 2Houston, TX516,000 03/28/2022$54,462 
(1)Value-add properties are defined as properties that are either acquired but not stabilized or can be converted to a higher and better use.  Acquired properties meeting either of the following two conditions are considered value-add properties:  (1) Less than 75% occupied as of the acquisition date (or will be less than 75% occupied within one year of acquisition date based on near term lease roll), or (2) 20% or greater of the acquisition cost will be spent to redevelop the property.


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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the allocation of the consideration paid for the acquired assets and assumed liabilities in connection with the acquisition identified in the table above which was acquired during the three months ended March 31, 2022.
ACQUIRED ASSETS AND ASSUMED LIABILITIES IN 2022
Cost
 (In thousands)
Land $9,952 
Buildings and building improvements42,059 
Tenant and other improvements1,382 
Total real estate properties acquired53,393 
In-place lease intangibles (1)
2,027 
Below market lease intangibles (2)
(958)
Total assets acquired, net of liabilities assumed$54,462 
(1)In-place lease intangibles and above market lease intangibles are each included in Other assets on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.
(2)Below market lease intangibles are included in Other liabilities on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.  

The leases in the properties acquired during the three months ended March 31, 2022 had a weighted average remaining lease term at acquisition of approximately 4.6 years.

During 2021, EastGroup acquired the following properties:
REAL ESTATE PROPERTIES ACQUIRED IN 2021LocationSizeDate
Acquired
Cost
(Square feet)(In thousands)
Operating properties acquired (1)
Southpark Distribution Center 2Phoenix, AZ79,000 06/10/2021$9,177 
DFW Global Logistics CentreDallas, TX611,000 08/26/202189,829 
Progress Center 3Atlanta, GA50,000 09/23/20215,000 
Texas AvenueAustin, TX20,000 10/15/20214,143 
Total operating property acquisitions760,000 108,149 
Value-add properties acquired (2)
Access Point 1Greenville, SC156,000 01/15/202110,501 
Northpoint 200Atlanta, GA79,000 01/21/20216,516 
Access Point 2Greenville, SC159,000 05/19/202110,743 
Cherokee 75 Business Center 2Atlanta, GA105,000 06/17/20218,837 
Siempre Viva Distribution Center 3-6San Diego, CA547,000 12/01/2021134,479 
Total value-add property acquisitions1,046,000 171,076 
Total acquired assets1,806,000 $279,225 
(1)Operating properties are defined as stabilized real estate properties (land including buildings and improvements) in the Company’s operating portfolio; included in Real estate properties on the Consolidated Balance Sheets.
(2)Value-add properties are defined as properties that are either acquired but not stabilized or can be converted to a higher and better use.  Acquired properties meeting either of the following two conditions are considered value-add properties:  (1) Less than 75% occupied as of the acquisition date (or will be less than 75% occupied within one year of acquisition date based on near term lease roll), or (2) 20% or greater of the acquisition cost will be spent to redevelop the property.


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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the allocation of the consideration paid for the acquired assets and assumed liabilities in connection with the acquisitions identified in the table above which were acquired during the year ended December 31, 2021.
ACQUIRED ASSETS AND ASSUMED LIABILITIES IN 2021
Cost
 (In thousands)
Land $42,554 
Buildings and building improvements225,645 
Tenant and other improvements4,907 
Right of use assets — Ground leases (operating)12,708 
Total real estate properties acquired285,814 
In-place lease intangibles (1)
9,949 
Above market lease intangibles (1)
6 
Below market lease intangibles (2)
(3,836)
Operating lease liabilities — Ground leases (3)
(12,708)
Total assets acquired, net of liabilities assumed$279,225 
(1)In-place lease intangibles and above market lease intangibles are each included in Other assets on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.
(2)Below market lease intangibles are included in Other liabilities on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.
(3)Operating lease liabilities - Ground leases are included in Other liabilities on the Consolidated Balance Sheets.

The leases in the properties acquired during the year ended December 31, 2021 had a weighted average remaining lease term at acquisition of approximately 2.9 years.

The Company periodically reviews the recoverability of goodwill (at least annually) and the recoverability of other intangibles (on a quarterly basis) for possible impairment.  No impairment of goodwill or other intangibles existed during the three month periods ended March 31, 2022 and 2021.

(8)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 ASC 360, Property, Plant and Equipment, including when it is probable that the property will be sold within a year. Real estate properties held for sale are reported at the lower of the carrying amount or fair value less estimated costs to sell and are not depreciated while they are held for sale. The Company did not classify any properties as held for sale as of March 31, 2022. As of December 31, 2021, the Company owned one operating property that was classified as held for sale on the December 31, 2021 Consolidated Balance Sheet. The property was sold, and a gain on the sale was recorded in the three months ended March 31, 2022.

In accordance with FASB 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 sold operating properties during the three months ended March 31, 2022, as shown in the table below. The results of operations and gains and losses on sales for the properties sold are reported in continuing operations on the Consolidated Statements of Income and Comprehensive Income. The gains and losses on sales are included in Gain on sales of real estate investments. The Company did not consider its sales in 2022 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.


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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A summary of Gain on sales of real estate investments for the three months ended March 31, 2022 and the year ended December 31, 2021 follows:
REAL ESTATE PROPERTIES SOLDLocationSizeDate SoldNet Sales PriceBasisRecognized Gain
  (In square feet) (In thousands)
2022
Metro Business ParkPhoenix, AZ189,00001/06/2022$32,851 5,880 26,971 
Cypress Creek Business Park (1)
Fort Lauderdale, FL56,00003/31/20225,282 1,901 3,381 
Total for 2022245,000$38,133 7,781 30,352 
2021
Jetport Commerce ParkTampa, FL284,00011/09/2021$44,260 5,401 38,859 
(1)    Cypress Creek Business Park is located on a ground lease. In conjunction with the sale of the property, the Company fully amortized the associated right-of-use asset and liability of $1,745,000.

The Company had no sales during the three months ended March 31, 2021.


(9)OTHER ASSETS
A summary of the Company’s Other assets follows:
 March 31,
2022
December 31,
2021
 (In thousands)
Leasing costs (principally commissions)$124,493 116,772 
Accumulated amortization of leasing costs                                                       (43,320)(42,193)
Leasing costs (principally commissions), net of accumulated amortization81,173 74,579 
Acquired in-place lease intangibles                                                                                  32,362 31,561 
Accumulated amortization of acquired in-place lease intangibles(14,277)(13,038)
Acquired in-place lease intangibles, net of accumulated amortization18,085 18,523 
Acquired above market lease intangibles                                                                                  841 885 
Accumulated amortization of acquired above market lease intangibles(499)(508)
Acquired above market lease intangibles, net of accumulated amortization342 377 
Straight-line rents receivable54,248 51,970 
Accounts receivable3,892 7,133 
Interest rate swap assets17,130 2,237 
Right of use assets — Office leases (operating)1,861 1,984 
Escrow deposits for pending acquisitions7,275 3,050 
Prepaid insurance7,858 7,793 
Goodwill                                                                                  990 990 
Receivable for tenant improvement cost reimbursements140 7,680 
Prepaid expenses and other assets                                                                                  12,535 5,904 
Total Other assets
$205,529 182,220 

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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(10) DEBT

The Company’s debt is detailed below:
 March 31,
2022
December 31,
2021
 (In thousands)
Unsecured bank credit facilities - variable rate, carrying amount$197,313 209,210 
Unamortized debt issuance costs(1,996)(2,144)
Unsecured bank credit facilities, net of debt issuance costs195,317 207,066 
Unsecured debt - fixed rate, carrying amount (1)
1,270,000 1,245,000 
Unamortized debt issuance costs(2,916)(2,430)
Unsecured debt, net of debt issuance costs1,267,084 1,242,570 
Secured debt - fixed rate, carrying amount (1)
2,128 2,156 
Unamortized debt issuance costs(13)(14)
Secured debt, net of debt issuance costs2,115 2,142 
Total debt, net of debt issuance costs$1,464,516 1,451,778 

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

Until June 29, 2021, EastGroup had $350 million and $45 million unsecured bank credit facilities with margins over London Interbank Offered Rate (“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 $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 reset on a monthly basis and as of March 31, 2022, was LIBOR plus 77.5 basis points with an annual facility fee of 15 basis points. As of March 31, 2022, the Company had $183,000,000 of variable rate borrowings on this unsecured bank credit facility with a weighted average interest rate of 1.168%.

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 March 31, 2022, was LIBOR plus 77.5 basis points with an annual facility fee of 15 basis points. As of March 31, 2022, the interest rate was 1.227% on a balance of $14,313,000.

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.

In February 2022, EastGroup repaid a $75 million unsecured term loan at maturity with an effectively fixed interest rate of 3.03%.

In March 2022, the Company closed a $100 million senior unsecured term loan with a 6.5 year term and interest only payments, which bears interest at an annual rate of the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin (1.30% as of March 31, 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 effectively fixed interest rate of 3.06%.

Also during March 2022, the Company closed on the refinance of a $100 million senior unsecured term loan with 5 years remaining. The amended term loan provides for interest only payments currently at an interest rate of SOFR plus 85 basis points, based on the Company’s current credit ratings and consolidated leverage ratio, which is a 60 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
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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SOFR rate component to a fixed interest rate for the entire term of the loan, providing a total effectively fixed interest rate of 1.80%.

Scheduled principal payments on long-term debt, including Unsecured debt, net of debt issuance costs and Secured debt, net of debt issuance costs (not including Unsecured bank credit facilities, net of debt issuance costs), as of March 31, 2022, are as follows: 
Years Ending December 31,(In thousands)
2022 - Remainder of year$87 
2023115,119 
2024120,122 
2025145,128 
2026141,672 
2027 and beyond750,000 
       Total$1,272,128 

(11) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of the Company’s Accounts payable and accrued expenses follows:
 March 31,
2022
December 31,
2021
 (In thousands)
Property taxes payable                                                                                  $18,755 4,494 
Development costs payable                                                                                  18,820 17,529 
Retainage payable13,779 10,576 
Real estate improvements and capitalized leasing costs payable7,920 5,798 
Interest payable                                                                                  8,876 6,547 
Dividends payable                                                        46,784 46,864 
Book overdraft (1)
4,499 4,845 
Other payables and accrued expenses                                                                                  7,275 13,107 
 Total Accounts payable and accrued expenses
$126,708 109,760 

(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.

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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(12) OTHER LIABILITIES
A summary of the Company’s Other liabilities follows:
 March 31,
2022
December 31,
2021
 (In thousands)
Security deposits                                                                                  $30,057 28,343 
Prepaid rent and other deferred income                                                     15,083 16,401 
Operating lease liabilities — Ground leases 20,814 22,898 
Operating lease liabilities — Office leases1,909 2,032 
Acquired below market lease intangibles8,819 8,124 
     Accumulated amortization of below market lease intangibles(3,324)(2,707)
Acquired below market lease intangibles, net of accumulated amortization5,495 5,417 
Interest rate swap liabilities 935 
Tenant improvement cost liabilities2,248 2,796 
Other liabilities                                                                                  3,516 3,516 
 Total Other liabilities
$79,122 82,338 


(13) COMPREHENSIVE INCOME
Total Comprehensive Income is comprised of net income plus all other changes in equity from non-owner sources and is presented on the Consolidated Statements of Income and Comprehensive Income. The components of Accumulated other comprehensive income (loss) are presented in the Company’s Consolidated Statement of Changes in Equity and are summarized below. See Note 14 for information regarding the Company’s interest rate swaps.
Three Months Ended
March 31,
20222021
(In thousands)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period$1,302 (10,752)
    Other comprehensive income - interest rate swaps15,828 8,214 
Balance at end of period$17,130 (2,538)

(14) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and, to a limited extent, the use of derivative instruments.

Specifically, the Company has entered into derivative instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative instruments, described below, are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain of the Company’s borrowings.

The Company’s objective in using interest rate derivatives is to change variable interest rates to fixed interest rates by using interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 

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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of March 31, 2022, the Company had five interest rate swaps outstanding, all of which are used to hedge the variable cash flows associated with unsecured loans. All of the Company’s interest rate swaps convert the related loans’ LIBOR or SOFR rate components to effectively fixed interest rates, and the Company has concluded that each of the hedging relationships is highly effective.

The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in Other comprehensive income and are subsequently reclassified into earnings through Interest expense as interest payments are made or received on the Company’s variable-rate debt in the period that the hedged forecasted transaction affects earnings. The Company estimates that an additional $2,352,000 will be reclassified from Other comprehensive income as a decrease to Interest expense over the next twelve months.

The Company’s valuation methodology for over-the-counter (“OTC”) derivatives is to discount cash flows based on Overnight Index Swap (“OIS”) rates.  Uncollateralized or partially-collateralized trades are discounted at OIS rates, but include appropriate economic adjustments for funding costs (i.e., a LIBOR-OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk.  The Company calculates its derivative valuations using mid-market prices.

In July 2017, the Financial Conduct Authority 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 Alternative Reference Rates Committee, 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. During the three months ended March 31, 2022, the Company entered into a new term loan and related swap which are both indexed to SOFR. Also, during the three months ended March 31, 2022, EastGroup refinanced an existing term loan modifying the index from LIBOR to SOFR, and concurrently amended the related swap to reference SOFR rather than LIBOR. The Company’s unsecured bank credit facilities and three of its 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, management believes the transition will not have a material impact on the Company’s 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 indexed 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.

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. 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.


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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of March 31, 2022 and December 31, 2021, the Company had the following outstanding interest rate derivatives that are designated as cash flow hedges of interest rate risk:
Interest Rate Derivative
Notional Amount as of March 31, 2022
Notional Amount as of December 31, 2021
(In thousands)
Interest Rate Swap$75,000
Interest Rate Swap$65,000$65,000
Interest Rate Swap$100,000$100,000
Interest Rate Swap$100,000$100,000
Interest Rate Swap$50,000$50,000
Interest Rate Swap$100,000

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021. See Note 17 for additional information on the fair value of the Company’s interest rate swaps.
Derivatives
As of March 31, 2022
Derivatives
As of December 31, 2021
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
(In thousands)
Derivatives designated as cash flow hedges:
    Interest rate swap assetsOther assets$17,130 Other assets$2,237