# EASTGROUP PROPERTIES INC (EGP) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EASTGROUP PROPERTIES INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/49600/000004960023000021/egp-20221231.htm
Accession: 0000049600-23-000021
Filing date: 2023-02-15
Report date: 2022-12-31
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/
Previous year: /company/EGP/mda/fy2021/ (FY 2021)
Next year: /company/EGP/mda/fy2023/ (FY 2023)

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 20,000 to 100,000 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.

During 2022, economic uncertainty and stock market volatility increased due to a number of factors, including the ongoing COVID-19 pandemic, lingering supply chain disruptions, rising inflation, and increasing interest rates. While these factors have not had a significant adverse impact on EastGroup's operations to date, they may adversely impact the Company in the future. Most of the Company’s leases require the tenants to pay their pro rata share of operating expenses, including real estate taxes, insurance and common area maintenance, thereby reducing the Company’s exposure to increases in operating expenses resulting from inflation or other factors. Additionally, most of the Company's leases include scheduled rent increases. In the event inflation causes increases in the Company’s general and administrative expenses, or higher interest rates increase the Company’s cost of doing business, such increased costs would not be passed through to tenants and could adversely affect the Company’s results of operations. The Company continues to monitor these supply chain, inflation and interest rate factors, as well as the uncertainty resulting from the overall economic environment.

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 2022, EastGroup issued 393,406 shares of common stock through its continuous common equity offering program, providing net proceeds to the Company of $75,375,000. Also during 2022, the Company closed $525,000,000 of unsecured debt with a weighted average effectively fixed interest rate of 3.82% in four separate transactions. EastGroup’s financing and equity issuances are further described in Liquidity and Capital Resources below.

The Company’s primary revenue is rental income.  During 2022, EastGroup executed leases on 9,220,000 square feet of operating properties (17.7% of EastGroup’s total square footage of 52,003,000 as of December 31, 2022). For new and renewal leases signed during 2022, average rental rates increased by 39.0% as compared to the former leases on the same spaces.  

On a diluted per share basis, Net Income Attributable to EastGroup Properties, Inc. Common Stockholders was $4.36 for the twelve months ended December 31, 2022, compared to $3.90 for the same period of 2021, an 11.8% increase.

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, 2021 through December 31, 2022), increased 7.2% for 2022 compared to 2021.

EastGroup’s operating portfolio was 98.7% leased at December 31, 2022 and 2021. Occupancy at the end of 2022 for the operating portfolio was 98.3% compared to 97.4% at December 31, 2021. As of February 14, 2023, the operating portfolio was 98.4% leased and 98.0% occupied. As of December 31, 2022, leases scheduled to expire in 2023 were 10.3% of the operating portfolio as a percentage of total base rent of leases expiring during the year 2023, and this percentage was reduced to 8.5% as of February 14, 2023.

The Company generates new sources of leasing revenue through its acquisitions and also its development and value-add program.  The Company mitigates risks associated with development through a Board-approved maximum level of land held for development and by adjusting development start dates according to leasing activity.  

During the year ended December 31, 2022, EastGroup closed the acquisition of Tulloch Corporation, the owner of an industrial real estate portfolio that included 14 operating properties located in Sacramento and San Francisco containing 1,706,000 square feet. The portfolio also included two land parcels located in Sacramento and San Francisco totaling 10.5 acres. As consideration in connection with the acquisition, EastGroup assumed a loan with an outstanding principal balance of $60,000,000, which the Company immediately repaid with no penalty in June 2022, and issued 1,868,809 shares of the

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Company’s common stock. In connection with the acquisition, the Company recorded real estate properties and development land totaling $365,731,000.

During 2022, EastGroup also acquired 1,044,000 square feet of value-add properties in Houston, Phoenix, San Francisco and Greenville for $122,921,000. In addition to the two land parcels obtained in the acquisition of Tulloch Corporation, the Company also purchased 445.8 acres of land in eight cities for a total of $117,116,000. The Company began construction of 14 development projects containing 2,668,000 square feet in 10 cities. Also in 2022, the Company transferred 19 development and value-add properties (3,638,000 square feet) in 14 cities from its development and value-add program to real estate properties with costs of $461,329,000 at the date of transfer. As of December 31, 2022, EastGroup’s development and value-add program consisted of 20 projects (3,981,000 square feet) located in 12 cities.  The projected total cost for the development and value-add projects, which were collectively 38% leased as of February 14, 2023, is $494,100,000, of which $169,269,000 remained to be invested as of December 31, 2022.

During 2022, EastGroup sold 287,000 square feet of operating properties, generating gross sales proceeds of $52,410,000. The Company recognized $40,999,000 in Gain on sales of real estate investments during 2022.

The Company typically initially funds its development and acquisition programs through its unsecured bank credit facilities; the total capacity of which was increased in January 2023 by $200,000,000, from $475,000,000 to $675,000,000 (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, 2022, Same Properties includes properties which were included in the operating portfolio for the entire period from January 1, 2021 through December 31, 2022. 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.

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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.

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, 2022, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2022","","2021","","2020"],["","","(In thousands)"],["NET INCOME","$","186,274","","","157,638","","","108,391"],["Gain on sales of real estate investments","(40,999)","","","(38,859)","","","(13,145)"],["Interest income","(100)","","","(6)","","","(101)"],["Other revenue","(208)","","","(63)","","","(354)"],["Indirect leasing costs","546","","","700","","","661"],["Depreciation and amortization","153,638","","","127,099","","","116,359"],["Company\u2019s share of depreciation from unconsolidated investment","124","","","136","","","137"],["Interest expense","38,499","","","32,945","","","33,927"],["General and administrative expense","16,362","","","15,704","","","14,404"],["Noncontrolling interest in PNOI of consolidated joint ventures","(105)","","","(61)","","","(171)"],["PROPERTY NET OPERATING INCOME (\u201cPNOI\u201d)","354,031","","","295,233","","","260,108"],["PNOI from 2021 and 2022 acquisitions","(17,146)","","","(2,252)","","","*"],["PNOI from 2021 and 2022 development and value-add properties","(37,329)","","","(9,937)","","","*"],["PNOI from 2021 and 2022 operating property dispositions","(237)","","","(3,263)","","","*"],["Other PNOI","323","","","(223)","","","*"],["SAME PNOI","299,642","","","279,558","","","*"],["Net lease termination fee income from same properties","(1,426)","","","(1,411)","","","*"],["SAME PNOI EXCLUDING INCOME FROM LEASE TERMINATIONS","$","298,216","","","278,147","","","*"]]
[[/GREPCENT_TABLE]]

* Same property metrics are not applicable to the year ended December 31, 2020, as the same property metrics for 2022 and 2021 are based on operating properties owned during the entire current and prior year reporting periods (January 1, 2021 through December 31, 2022).

PNOI was calculated as follows for the three fiscal years ended December 31, 2022, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2022","","2021","","2020"],["(In thousands)"],["Income from real estate operations","$","486,817","","","409,412","","","362,669"],["Expenses from real estate operations","(133,915)","","","(115,078)","","","(103,368)"],["Noncontrolling interest in PNOI of consolidated joint ventures","(105)","","","(61)","","","(171)"],["PNOI from 50% owned unconsolidated investment","1,234","","","960","","","978"],["PROPERTY NET OPERATING INCOME (\u201cPNOI\u201d)","$","354,031","","","295,233","","","260,108"]]
[[/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

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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.

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, 2022, 2021 and 2020.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2022","","2021","","2020"],["(In thousands, except per share data)"],["NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS","$","186,182","","","157,557","","","108,363"],["Depreciation and amortization","153,638","","","127,099","","","116,359"],["Company\u2019s share of depreciation from unconsolidated investment","124","","","136","","","137"],["Depreciation and amortization from noncontrolling interest","(17)","","","\u2014","","","(142)"],["Gain on sales of real estate investments","(40,999)","","","(38,859)","","","(13,145)"],["FUNDS FROM OPERATIONS (\u201cFFO\u201d) ATTRIBUTABLE TO COMMON STOCKHOLDERS","$","298,928","","","245,933","","","211,572"],["Net income attributable to common stockholders per diluted share","$","4.36","","","3.90","","","2.76"],["Funds from operations (\u201cFFO\u201d) attributable to common stockholders per diluted share","$","7.00","","","6.09","","","5.38"],["Diluted shares for earnings per share and funds from operations","42,712","","","40,377","","","39,296"]]
[[/GREPCENT_TABLE]]

The Company analyzes the following performance trends in evaluating the revenues and expenses of the Company:

•On a diluted per share basis, Net Income Attributable to EastGroup Properties, Inc. Common Stockholders was $4.36 for the twelve months ended December 31, 2022, compared to $3.90 for the same period of 2021, an 11.8% increase.

•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 2022, FFO was $7.00 per share compared with $6.09 per share for 2021, an increase of 14.9%.

•For the year ended December 31, 2022, PNOI increased by $58,798,000, or 19.9%, compared to 2021. PNOI increased $27,392,000 from newly developed and value-add properties, $20,084,000 from same property operations and $14,894,000 from 2021 and 2022 acquisitions; PNOI decreased $3,026,000 from operating properties sold in 2021 and 2022.

•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, 2021 through December 31, 2022).  Same PNOI, excluding income from lease terminations, increased 7.2% for the year ended December 31, 2022, compared to 2021.

•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, 2021 through December 31, 2022). Same property average occupancy for the year ended December 31, 2022 was 98.2% compared to 97.5% for 2021.

•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, 2022 was 98.3%.  Quarter-end occupancy ranged from 97.4% to 98.5% over the previous four quarters ended December 31, 2021 to September 30, 2022.

•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 2022, rental rate increases on new and renewal leases (17.7% of total square footage) averaged 39.0%.

•Lease termination fee income is included in Income from real estate operations. For the year 2022, lease termination fee income was $2,708,000 compared to $1,411,000 for 2021.  

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•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 reserves for uncollectible rent of $138,000 in 2022 compared to net recoveries for uncollectible rent of $475,000 in 2021. 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 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, 2022.

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 $4,035,837,000 at December 31, 2022, an increase of $820,501,000 from December 31, 2021.  Total Liabilities increased $438,522,000 to $2,082,398,000, and Total Equity increased $381,979,000 to $1,953,439,000 during the same period.  The following paragraphs explain these changes in greater detail.

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Assets

Real Estate Properties

Real estate properties increased $849,261,000 during the year ended December 31, 2022. The increase was primarily due to: (i) the transfer of 19 properties from Development and value-add properties to Real estate properties (as detailed under Development and Value-Add Properties below); (ii) the acquisition of 14 operating properties; (iii) capital improvements at the Company’s properties; and (iv) costs incurred on development and value-add projects subsequent to transfer to Real estate properties discussed below. These increases were partially offset by the operating property sales discussed below.

During 2022, EastGroup acquired the following operating properties:

[[GREPCENT_TABLE]]
[["OPERATING PROPERTIES ACQUIRED IN 2022","","Location","","Size","","Date Acquired","","Cost (1)"],["","","","","(Square feet)","","","","(In thousands)"],["Cebrian Distribution Center and Reed Distribution Center (2)","","Sacramento, CA","","329,000","","","06/01/2022","","$","49,726"],["6th Street Business Center, Benicia DistributionCenter 1-5, Ettie Business Center, Laura Alice Business Center, Preston Distribution Center, Sinclair Distribution Center, Transit Distribution Center and Whipple Business Center (2)","","San Francisco, CA","","1,377,000","","","06/01/2022","","309,404"],["Total operating property acquisitions","","","","1,706,000","","","","$","359,130"]]
[[/GREPCENT_TABLE]]

(1)Cost is calculated in accordance with FASB Accounting Standards Codification (“ASC”) 805, Business Combinations, and represents the sum of the purchase price, closing costs and capitalized acquisition costs. Refer to Note 1(j) and 2 in the Notes to Consolidated Financial Statements.

(2)The Company acquired these operating properties along with two land parcels, also in Sacramento, CA and San Francisco, CA, in connection with its acquisition of Tulloch Corporation in June 2022. Size and cost are presented on an aggregate basis for the properties located in Sacramento, CA and San Francisco, CA, respectively. In consideration for this acquisition, the Company assumed a $60,000,000 loan and issued 1,868,809 shares of the Company’s common stock.

During the year ended December 31, 2022, the Company made capital improvements of $39,444,000 on existing and acquired properties (included in the Capital Expenditures table under Results of Operations).  Also, the Company incurred costs of $10,989,000 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, 2022, EastGroup sold 287,000 square feet of operating properties, generating gross sales proceeds of $52,410,000. The Company recognized $40,999,000 in Gain on sales of real estate investments during the year ended December 31, 2022.

Development and Value-Add Properties

EastGroup’s investment in Development and value-add properties at December 31, 2022 consisted of properties in lease-up and under construction of $324,831,000 and prospective development (primarily land) of $213,618,000.  The Company’s total investment in Development and value-add properties at December 31, 2022 was $538,449,000 compared to $504,614,000 at December 31, 2021.  Total capital invested for development and value-add properties during 2022 was $494,073,000, which primarily consisted of costs of $384,541,000 as detailed in the Development and Value-Add Properties Activity table below, $110,623,000 as detailed in the Development and Value-Add Properties Transferred to the Real Estate Properties Portfolio During 2022 table below and costs of $10,989,000 on projects subsequent to transfer to Real estate properties. These costs were partially offset by development spending prepaid in prior periods. Additionally, the Company acquired development land in the acquisition of Tulloch Corporation through the issuance of shares of the Company's common stock and the assumption of certain indebtedness, which was immediately repaid. 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 $9,985,000 during the year ended December 31, 2022, compared to $7,713,000 during 2021.

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During 2022, EastGroup acquired the following value-add properties:

[[GREPCENT_TABLE]]
[["VALUE-ADD PROPERTIES ACQUIRED IN 2022","","Location","","Size","","Date Acquired","","Cost (1)"],["","","","","(Square feet)","","","","(In thousands)"],["Cypress Preserve 1 & 2","","Houston, TX","","516,000","","","03/28/2022","","$","54,462"],["Zephyr Distribution Center","","San Francisco, CA","","82,000","","","04/08/2022","","29,017"],["Mesa Gateway Commerce Center","","Phoenix, AZ","","147,000","","","04/15/2022","","18,315"],["Access Point 3","","Greenville, SC","","299,000","","","07/12/2022","","21,127"],["Total value-add property acquisitions","","","","1,044,000","","","","$","122,921"]]
[[/GREPCENT_TABLE]]

(1)Cost is calculated in accordance with FASB ASC 805, Business Combinations, and represents the sum of the purchase price, closing costs and capitalized acquisition costs. Refer to Note 1(j) and 2 in the Notes to Consolidated Financial Statements.

Also during 2022, EastGroup purchased 456.3 acres of development land in 10 cities for $123,717,000.  Costs associated with these acquisitions are included in the Development and Value-Add Properties Activity table. These increases were offset by the transfer of 19 development projects to Real estate properties during 2022 with a total investment of $461,329,000 as of the date of transfer.

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The activity of the Company's Development and Value-Add Properties for the year ended December 31, 2022 follows:

[[GREPCENT_TABLE]]
[["DEVELOPMENT AND VALUE-ADD PROPERTIES ACTIVITY","","","","Costs Incurred","","","","Anticipated Building Conversion Date"],["","","","CostsTransferred in 2022 (1)","","For theYear Ended12/31/22","","Cumulativeas of12/31/22","","ProjectedTotal Costs (2)"],["","","","","(In thousands)"],["LEASE-UP","","Building Size (Square feet)"],["Cypress Preserve 1 & 2, Houston, TX (3)","","516,000","","","$","\u2014","","","54,081","","","54,081","","","57,800","","","03/23"],["Grand West Crossing 1, Houston, TX","","121,000","","","\u2014","","","4,168","","","13,037","","","15,700","","","04/23"],["Zephyr, San Francisco, CA (3)","","82,000","","","\u2014","","","29,028","","","29,028","","","29,800","","","04/23"],["Access Point 3, Greenville, SC (3)","","299,000","","","\u2014","","","22,632","","","22,632","","","25,400","","","07/23"],["McKinney 3 & 4, Dallas, TX","","212,000","","","\u2014","","","13,714","","","24,152","","","27,000","","","07/23"],["Grand Oaks 75 4, Tampa, FL","","185,000","","","\u2014","","","9,637","","","16,015","","","17,900","","","09/23"],["Total Lease-Up","","1,415,000","","","\u2014","","","133,260","","","158,945","","","173,600"],["UNDER CONSTRUCTION"],["SunCoast 11, Fort Myers, FL","","79,000","","","1,524","","","7,651","","","9,175","","","9,900","","","04/23"],["Arlington Tech 3, Fort Worth, TX","","77,000","","","1,980","","","6,420","","","8,400","","","10,300","","","02/24"],["Gateway 2, Miami, FL","","133,000","","","8,049","","","10,139","","","18,188","","","23,700","","","02/24"],["Hillside 1, Greenville, SC","","122,000","","","632","","","8,846","","","9,478","","","11,600","","","02/24"],["I-20 West Business Center, Atlanta, GA","","155,000","","","\u2014","","","10,175","","","13,139","","","15,500","","","02/24"],["LakePort 4 & 5, Dallas, TX","","177,000","","","\u2014","","","10,767","","","18,705","","","24,000","","","02/24"],["Horizon West 1, Orlando, FL","","97,000","","","3,730","","","5,839","","","9,569","","","13,200","","","03/24"],["Steele Creek 11 & 12, Charlotte, NC","","241,000","","","2,857","","","13,923","","","16,780","","","25,900","","","04/24"],["Springwood 1 & 2, Houston, TX","","292,000","","","6,741","","","16,232","","","22,973","","","33,300","","","05/24"],["Stonefield 35 1-3, Austin, TX","","274,000","","","10,279","","","6,040","","","16,319","","","35,300","","","06/24"],["SunCoast 10, Fort Myers, FL","","100,000","","","1,624","","","1,344","","","2,968","","","13,600","","","06/24"],["Basswood 3-5, Fort Worth, TX","","351,000","","","7,476","","","886","","","8,362","","","45,000","","","08/24"],["McKinney 1 & 2, Dallas, TX","","172,000","","","4,261","","","2,240","","","6,501","","","27,300","","","08/24"],["Cass White 1 & 2, Atlanta, GA","","296,000","","","3,534","","","1,795","","","5,329","","","31,900","","","10/24"],["Total Under Construction","","2,566,000","","","52,687","","","102,297","","","165,886","","","320,500"],["Total Lease-Up and Under Construction","","3,981,000","","","52,687","","","235,557","","","324,831","","","494,100"],["PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)","","Estimated Building Size (Square feet)"],["Phoenix, AZ","","655,000","","","\u2014","","","15,395","","","15,395"],["Sacramento, CA","","82,000","","","\u2014","","","3,130","","","3,130"],["San Francisco, CA","","65,000","","","\u2014","","","3,561","","","3,561"],["Fort Myers, FL","","364,000","","","(3,148)","","","2,693","","","7,843"],["Miami, FL","","510,000","","","(8,049)","","","18,035","","","24,317"],["Orlando, FL","","1,053,000","","","(9,906)","","","8,338","","","24,670"],["Tampa, FL","","32,000","","","\u2014","","","\u2014","","","825"],["Atlanta, GA","","1,490,000","","","(3,534)","","","13,189","","","14,713"],["Jackson, MS","","28,000","","","\u2014","","","\u2014","","","706"],["Charlotte, NC","","1,146,000","","","(2,857)","","","1,475","","","13,722"],["Greenville, SC","","476,000","","","(632)","","","5,353","","","6,457"],["Austin, TX","","1,557,000","","","(10,279)","","","50,699","","","46,851"],["Dallas, TX","","\u2014","","","(4,261)","","","457","","","4,594"],["Fort Worth, TX","","313,000","","","(9,456)","","","1,376","","","7,247"],["Houston, TX","","1,536,000","","","(11,247)","","","17,110","","","30,696"],["San Antonio, TX","","423,000","","","\u2014","","","8,173","","","8,891"],["Total Prospective Development","","9,730,000","","","(63,369)","","","148,984","","","213,618"],["Total Development and Value-Add Properties","","13,711,000","","","$","(10,682)","","","384,541","","","538,449"],["The Development and Value-Add Properties table is continued on the following page."]]
[[/GREPCENT_TABLE]]

27

[[GREPCENT_TABLE]]
[["DEVELOPMENT AND VALUE-ADD PROPERTIES TRANSFERRED TO THE REAL ESTATE PROPERTIES PORTFOLIO DURING 2022","","","","Costs Incurred"],["","","","CostsTransferred in 2022 (1)","","For theYear Ended12/31/22","","Cumulativeas of12/31/22 (4)"],["","","Building Size (Square feet)","","(In thousands)","","","","Building Conversion Date"],["Access Point 1, Greenville, SC (3)","","156,000","","","$","\u2014","","","7","","","12,529","","","","","01/22"],["Speed Distribution Center, San Diego, CA","","519,000","","","\u2014","","","2,884","","","70,702","","","","","03/22"],["Access Point 2, Greenville, SC (3)","","159,000","","","\u2014","","","601","","","12,232","","","","","05/22"],["Grand Oaks 75 3, Tampa, FL","","136,000","","","\u2014","","","1,205","","","11,397","","","","","06/22"],["Siempre Viva 3-6, San Diego, CA (3)","","547,000","","","\u2014","","","595","","","133,283","","","","","06/22"],["Steele Creek 8, Charlotte, NC","","72,000","","","\u2014","","","5,142","","","7,870","","","","","07/22"],["CreekView 9 & 10, Dallas, TX","","145,000","","","\u2014","","","4,210","","","15,546","","","","","08/22"],["Gateway 3, Miami, FL","","133,000","","","\u2014","","","4,903","","","18,069","","","","","08/22"],["Ridgeview 3, San Antonio, TX","","88,000","","","\u2014","","","3,513","","","9,317","","","","","08/22"],["Americas Ten 2, El Paso, TX","","169,000","","","\u2014","","","5,254","","","14,354","","","","","09/22"],["Horizon West 2 & 3, Orlando, FL","","210,000","","","\u2014","","","1,597","","","18,787","","","","","09/22"],["Mesa Gateway, Phoenix, AZ (3)","","147,000","","","\u2014","","","18,696","","","18,696","","","","","11/22"],["World Houston 47, Houston, TX","","139,000","","","4,506","","","12,517","","","17,023","","","","","11/22"],["45 Crossing, Austin, TX","","177,000","","","\u2014","","","7,998","","","25,058","","","","","12/22"],["Basswood 1 & 2, Fort Worth, TX","","237,000","","","\u2014","","","7,237","","","22,466","","","","","12/22"],["Horizon West 4, Orlando, FL","","295,000","","","6,176","","","18,201","","","24,377","","","","","12/22"],["SunCoast 12, Fort Myers, FL","","79,000","","","\u2014","","","3,928","","","8,106","","","","","12/22"],["Tri-County Crossing 5, San Antonio, TX","","106,000","","","\u2014","","","5,544","","","11,144","","","","","12/22"],["Tri-County Crossing 6, San Antonio, TX","","124,000","","","\u2014","","","6,591","","","10,373","","","","","12/22"],["Total Transferred to Real Estate Properties","","3,638,000","","","$","10,682","","","110,623","","","461,329"]]
[[/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 $134.8 million and tenant improvement obligations of $15.0 million on properties under development.

(3)Represents value-add acquisitions.

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

Accumulated Depreciation

Accumulated depreciation on real estate, development and value-add properties increased $115,197,000 during 2022 due primarily to depreciation expense of $125,199,000, offset by the sale of three operating properties totaling 287,000 square feet during 2022.

Real Estate Assets Held for Sale

Real estate assets held for sale decreased $5,695,000 during 2022. 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, and a gain on the sale was recorded in the three months ended March 31, 2022. The Company did not classify any properties as held for sale as of December 31, 2022.

28

Other Assets

Other assets increased $62,724,000 during 2022.  A summary of Other assets follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["2022","","2021"],["(In thousands)"],["Leasing costs (principally commissions)","$","140,273","","","116,772"],["Accumulated amortization of leasing costs","(48,249)","","","(42,193)"],["Leasing costs (principally commissions), net of accumulated amortization","92,024","","","74,579"],["Acquired in-place lease intangibles","37,181","","","31,561"],["Accumulated amortization of acquired in-place lease intangibles","(16,276)","","","(13,038)"],["Acquired in-place lease intangibles, net of accumulated amortization","20,905","","","18,523"],["Acquired above market lease intangibles","496","","","885"],["Accumulated amortization of acquired above market lease intangibles","(251)","","","(508)"],["Acquired above market lease intangibles, net of accumulated amortization","245","","","377"],["Straight-line rents receivable","61,452","","","51,970"],["Accounts receivable","9,568","","","7,133"],["Interest rate swap assets","38,352","","","2,237"],["Right of use assets \u2013 Office leases (operating)","2,050","","","1,984"],["Escrow deposits and prepaid costs for pending transactions","2,522","","","3,864"],["Goodwill","990","","","990"],["Prepaid insurance","2,681","","","7,793"],["Receivable for tenant improvement cost reimbursements","364","","","7,680"],["Prepaid expenses and other assets","13,791","","","5,090"],["Total Other assets","$","244,944","","","182,220"]]
[[/GREPCENT_TABLE]]

Liabilities

Unsecured bank credit facilities, net of debt issuance costs decreased $38,612,000 during the year ended December 31, 2022, mainly due to repayments of $981,383,000 and new debt issuance costs incurred during the year, partially offset by borrowings of $942,173,000 and the amortization of debt issuance costs 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 $448,689,000 during the year ended December 31, 2022, primarily due to closing $525,000,000 of unsecured debt and the amortization of debt issuance costs, partially offset by the repayment of a $75,000,000 term loan in February and new debt issuance costs incurred during the period. The borrowings and repayments on Unsecured debt, net of debt issuance costs are described in greater detail under Liquidity and Capital Resources.

Secured debt, net of debt issuance costs decreased $111,000 during the year ended December 31, 2022.  The decrease resulted from regularly scheduled principal payments of $96,000 and amortization of premiums on Secured debt, partially offset by the amortization of debt issuance costs during the year. Also during the year ended December 31, 2022, the Company assumed a $60,000,000 loan in the acquisition of operating properties and development land, which was repaid with no penalty during the same period.

29

Accounts payable and accrued expenses increased $27,228,000 during 2022.  A summary of the Company’s Accounts payable and accrued expenses follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["2022","","2021"],["(In thousands)"],["Property taxes payable","$","6,823","","","4,494"],["Development costs payable","21,305","","","17,529"],["Retainage payable","11,011","","","10,576"],["Real estate improvements and capitalized leasing costs payable","5,182","","","5,798"],["Interest payable","9,597","","","6,547"],["Dividends payable","55,952","","","46,864"],["Book overdraft (1)","13,370","","","4,845"],["Other payables and accrued expenses","13,748","","","13,107"],["Total Accounts payable and accrued expenses","$","136,988","","","109,760"]]
[[/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 $1,328,000 during 2022.  A summary of the Company’s Other liabilities follows:

[[GREPCENT_TABLE]]
[["","December 31,"],["2022","","2021"],["(In thousands)"],["Security deposits","$","34,272","","","28,343"],["Prepaid rent and other deferred income","17,004","","","16,401"],["Operating lease liabilities \u2014 Ground leases","19,906","","","22,898"],["Operating lease liabilities \u2014 Office leases","2,139","","","2,032"],["Acquired below market lease intangibles","10,735","","","8,124"],["Accumulated amortization of acquired below-market lease intangibles","(3,957)","","","(2,707)"],["Acquired below market lease intangibles, net of accumulated amortization","6,778","","","5,417"],["Interest rate swap liabilities","1,981","","","935"],["Tenant improvement cost liabilities","1,570","","","2,796"],["Other liabilities","16","","","3,516"],["Total Other liabilities","$","83,666","","","82,338"]]
[[/GREPCENT_TABLE]]

Equity

Additional paid-in capital increased $364,701,000 during the year ended December 31, 2022 primarily due to: (i) the issuance of 1,868,809 shares of common stock in connection with the acquisition of Tulloch Corporation, the owner of an industrial real estate portfolio comprised of 14 operating properties and two parcels of land, in the net amount of $303,682,000 (see Note 2 in the Notes to Consolidated Financial Statements for details); (ii) the issuance of common stock under the Company’s continuous common equity offering program (as discussed in Liquidity and Capital Resources); and (iii) activity related to stock-based compensation (as discussed in Note 10 in the Notes to Consolidated Financial Statements). EastGroup issued 393,406 shares of common stock under its continuous common equity offering program with net proceeds to the Company of $75,375,000.

During 2022, Distributions in excess of earnings increased $16,842,000 as a result of dividends on common stock of $203,024,000 exceeding Net Income Attributable to EastGroup Properties, Inc. Common Stockholders of $186,182,000.

30

Accumulated other comprehensive income increased $35,069,000 during 2022. 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.

31

RESULTS OF OPERATIONS

2022 Compared to 2021

Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for the year ended December 31, 2022 was $186,182,000 ($4.37 per basic and $4.36 per diluted share) compared to $157,557,000 ($3.91 per basic and $3.90 per diluted share) for the year ended December 31, 2021. The following paragraphs explain the change:

•PNOI increased by $58,798,000 ($1.38 per diluted share) for 2022 as compared to 2021.  PNOI increased $27,392,000 from newly developed and value-add properties, $20,084,000 from same property operations and $14,894,000 from 2021 and 2022 acquisitions; PNOI decreased $3,026,000 from operating properties sold in 2021 and 2022. For the year 2022, lease termination fee income was $2,708,000 compared to $1,411,000 for 2021.  The Company recorded net reserves for uncollectible rent of $138,000 in 2022 and net recoveries for uncollectible rent of $475,000 in 2021. Straight-lining of rent increased PNOI by $9,991,000 and $8,698,000 in 2022 and 2021, respectively.

•EastGroup recognized gains on sales of real estate investments of $40,999,000 ($0.96 per diluted share) during 2022 compared to $38,859,000 ($0.96 per diluted share) during 2021.

•Depreciation and amortization expense increased by $26,539,000 ($0.62 per diluted share) during 2022 compared to 2021.

EastGroup entered into 114 leases with certain rent concessions on 4,798,000 square feet during 2022 with total rent concessions of $7,378,000 over the lives of the leases, compared to 174 leases with rent concessions on 5,677,000 square feet with total rent concessions of $11,007,000 over the lives of the leases in 2021.

The Company’s percentage of leased square footage for the operating portfolio was 98.7% at both December 31, 2022 and 2021.  Occupancy at the end of 2022 for the operating portfolio was 98.3% compared to 97.4% at December 31, 2021.

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, 2021 through December 31, 2022). Same property average occupancy for the year ended December 31, 2022, was 98.2% compared to 97.5% for the year ended December 31, 2021.

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, 2021 through December 31, 2022). The same property average rental rate was $7.06 per square foot for the year ended December 31, 2022, compared to $6.64 per square foot for the year ended December 31, 2021.

32

Interest Expense increased $5,554,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021.  The following table presents the components of Interest Expense for 2022 and 2021:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2022","","2021","","Increase (Decrease)"],["(In thousands)"],["VARIABLE RATE INTEREST EXPENSE"],["Unsecured bank credit facilities interest - variable rate(excluding amortization of facility fees and debt issuance costs)","$","4,241","","","962","","","3,279"],["Amortization of facility fees - unsecured bank credit facilities","713","","","751","","","(38)"],["Amortization of debt issuance costs - unsecured bank credit facilities","650","","","606","","","44"],["Total variable rate interest expense","5,604","","","2,319","","","3,285"],["FIXED RATE INTEREST EXPENSE"],["Unsecured debt interest (1) (excluding amortization of debt issuance costs)","44,492","","","37,443","","","7,049"],["Secured debt interest (excluding amortization of debt issuance costs)","89","","","1,521","","","(1,432)"],["Amortization of debt issuance costs - unsecured debt","704","","","589","","","115"],["Amortization of debt issuance costs - secured debt","3","","","101","","","(98)"],["Total fixed rate interest expense","45,288","","","39,654","","","5,634"],["Total interest","50,892","","","41,973","","","8,919"],["Less capitalized interest","(12,393)","","","(9,028)","","","(3,365)"],["TOTAL INTEREST EXPENSE","$","38,499","","","32,945","","","5,554"]]
[[/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 increased by $3,285,000 for 2022 as compared to 2021 primarily due to increases in the Company’s average borrowings and weighted average variable interest rates on its unsecured bank credit facilities as shown in the following table:

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2022","","2021","","Increase (Decrease)"],["","","(In thousands, except rates of interest)"],["Average borrowings on unsecured bank credit facilities - variable rate","","$","182,478","","95,629","","86,849"],["Weighted average variable interest rates (excluding amortization of facility fees and debt issuance costs)","","2.32","%","","1.01","%"]]
[[/GREPCENT_TABLE]]

The Company’s fixed rate interest expense increased by $5,634,000 for 2022 as compared to 2021 as a result of the unsecured debt and secured debt described below.

33

Interest expense from fixed rate unsecured debt increased by $7,049,000 during 2022 as compared to 2021 as a result of the Company’s unsecured debt activity described below. The details of the unsecured debt obtained in 2021 and 2022 are shown in the following table:

[[GREPCENT_TABLE]]
[["NEW UNSECURED DEBT IN 2021 and 2022","","Effectively Fixed Interest Rate","","Date Obtained","","Maturity Date","","Amount"],["","","","","","","","","(In thousands)"],["$50 Million Senior Unsecured Term Loan (1)","","1.58%","","03/18/2021","","03/18/2025","","$","50,000"],["$125 Million Senior Unsecured Notes","","2.74%","","06/10/2021","","06/10/2031","","125,000"],["$100 Million Senior Unsecured Term Loan (2)","","3.06%","","03/31/2022","","09/29/2028","","100,000"],["$150 Million Senior Unsecured Notes","","3.03%","","04/20/2022","","04/20/2032","","150,000"],["$50 Million Senior Unsecured Term Loan (3)","","4.09%","","08/31/2022","","08/30/2024","","50,000"],["$75 Million Senior Unsecured Term Loan (4)","","4.00%","","08/31/2022","","08/31/2027","","75,000"],["$75 Million Senior Unsecured Notes","","4.90%","","10/12/2022","","10/12/2033","","75,000"],["$75 Million Senior Unsecured Notes","","4.95%","","10/12/2022","","10/12/2034","","75,000"],["Weighted Average/Total Amount for 2021 and 2022","","3.46%","","","","","","$","700,000"]]
[[/GREPCENT_TABLE]]

(1) The interest rate on this unsecured term loan is comprised of Term SOFR plus 110 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 Term SOFR rate to a fixed interest rate, providing the Company a weighted average effectively fixed interest rate on the term loan of 1.58% as of December 31, 2022. 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 Term SOFR plus 140 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 Term SOFR rate to a fixed interest rate, providing the Company an effectively fixed interest rate on the term loan of 3.06% as of December 31, 2022. See

Note 12 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.

(3) The interest rate on this unsecured term loan is comprised of Term SOFR plus 95 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 Term SOFR rate to a fixed interest rate, providing the Company an effectively fixed interest rate on the term loan of 4.09% as of December 31, 2022. See

Note 12 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps.

(4) The interest rate on this unsecured term loan is comprised of Term SOFR plus 95 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 Term SOFR rate to a fixed interest rate, providing the Company an effectively fixed interest rate on the term loan of 4.00% as of December 31, 2022. 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 2021 and 2022:

[[GREPCENT_TABLE]]
[["UNSECURED DEBT REPAID IN 2021 AND 2022","","Interest Rate","","Date Repaid","","Payoff Amount"],["","","","","","","(In thousands)"],["$40 Million Senior Unsecured Term Loan","","2.34%","","07/30/2021","","$","40,000"],["$75 Million Senior Unsecured Term Loan","","3.03%","","02/28/2022","","75,000"],["Weighted Average/Total Amount for 2021 and 2022","","2.79%","","","","$","115,000"]]
[[/GREPCENT_TABLE]]

EastGroup also closed on the refinance of a $100,000,000 senior unsecured term loan in March 2022 reducing the effectively fixed interest rate by approximately 60 basis points. This refinance partially offset the increase in interest expense from fixed rate unsecured debt.

The increase in interest expense from unsecured debt was partially offset by a decrease in secured debt interest expense, which decreased by $1,432,000 in 2022 as compared to 2021 as a result of regularly scheduled principal payments and the payoffs described in the table below. Regularly scheduled principal payments on secured debt were $96,000 during 2022 and $2,989,000 in 2021. During 2022, the Company assumed a $60,000,000 loan in partial consideration of the acquisition of operating properties and development land, which was repaid with no penalty during the same period. There was no other secured debt obtained or repaid in 2022.

34

The details of the secured debt repaid in 2021 are shown in the following table:

[[GREPCENT_TABLE]]
[["SECURED DEBT REPAID IN 2021","","Interest Rate","","Date Repaid","","Payoff Amount"],["","","","","","","(In thousands)"],["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","","$","40,841"],["Arion Business Park 18, Beltway Crossing Business Park 6 & 7, Commerce Park Center 2 & 3, Concord Distribution Center, Interstate Warehouse 5-7, Lakeview Business Center, Ridge Creek Distribution Center 2, Southridge Commerce Park 4 & 5 and World Houston Int\u2019l Business Ctr 32","","4.09%","","10/07/2021","","33,090"],["Weighted Average/Total Amount for 2021","","4.45%","","","","$","73,931"]]
[[/GREPCENT_TABLE]]

EastGroup did not obtain any new secured debt during 2021.

Interest costs during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest increased by $3,365,000 for 2022 as compared to 2021, due to increased borrowing rates and changes in development spending.

Depreciation and amortization expense increased $26,539,000 for 2022 compared to 2021 primarily due to the operating properties acquired by the Company during 2021 and 2022 and the properties transferred from Development and value-add properties in 2021 and 2022, partially offset by operating properties sold in 2021 and 2022.  

Gain on sales of real estate investments, which includes gains on the sales of operating properties, increased $2,140,000 for 2022 as compared to 2021. The Company’s 2021 and 2022 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, 2022 and 2021 were as follows:

[[GREPCENT_TABLE]]
[["","Estimated Useful Life","","Years Ended December 31,"],["","2022","","2021"],["","","(In thousands)"],["Upgrade on Acquisitions","40 yrs","","$","618","","","1,337"],["Tenant Improvements:"],["New Tenants","Lease Life","","13,224","","","13,603"],["Renewal Tenants","Lease Life","","3,687","","","3,935"],["Other:"],["Building Improvements","5-40 yrs","","9,853","","","8,044"],["Roofs","5-15 yrs","","6,611","","","8,007"],["Parking Lots","3-5 yrs","","3,482","","","1,570"],["Other","5 yrs","","1,969","","","1,399"],["Total Real Estate Improvements (1)","","","$","39,444","","","37,895"]]
[[/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,"],["","2022","","2021"],["","(In thousands)"],["Total Real Estate Improvements","","$","39,444","","","37,895"],["Change in Real Estate Property Payables","","197","","","(26)"],["Change in Construction in Progress","","1,210","","","(1,204)"],["Real Estate Improvements on the Consolidated Statements of Cash Flows","","$","40,851","","","36,665"]]
[[/GREPCENT_TABLE]]

35

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, 2022 and 2021 were as follows:

[[GREPCENT_TABLE]]
[["","Estimated Useful Life","","Years Ended December 31,"],["","2022","","2021"],["","","(In thousands)"],["Development and Value-Add","Lease Life","","$","14,366","","","12,280"],["New Tenants","Lease Life","","10,392","","","10,990"],["Renewal Tenants","Lease Life","","12,095","","","10,111"],["Total Capitalized Leasing Costs (1)","","","$","36,853","","","33,381"],["Amortization of Leasing Costs","","","$","18,950","","","16,209"]]
[[/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,"],["","2022","","2021"],["","(In thousands)"],["Total Capitalized Leasing Costs","","$","36,853","","","33,381"],["Change in Leasing Commissions Payables","","419","","","(80)"],["Leasing Commissions on the Consolidated Statements of Cash Flows","","$","37,272","","","33,301"]]
[[/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 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 December 31, 2022. 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 recorded a gain on the sale in the three months ended March 31, 2022.

In accordance with ASC 360 and ASC 205, 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 2021 and 2022, 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.

36

A summary of Gain on sales of real estate investments for the years ended December 31, 2022 and 2021 follows:

[[GREPCENT_TABLE]]
[["REAL ESTATE PROPERTIES SOLD","","Location","","Size","","Date Sold","","Net Sales Price","","Basis","","Recognized Gain"],["","","","","(In square feet)","","","","(In thousands)"],["2022"],["Metro Business Park","","Phoenix, AZ","","189,000","","01/06/2022","","$","32,851","","","5,880","","","26,971"],["Cypress Creek Business Park (1)","","Fort Lauderdale, FL","","56,000","","03/31/2022","","5,282","","","1,901","","","3,381"],["World Houston 15 East","","Houston, TX","","42,000","","05/11/2022","","12,873","","","2,226","","","10,647"],["Total for 2022","","","","287,000","","","","","$","51,006","","","10,007","","","40,999"],["2021"],["Jetport Commerce Park","","Tampa, FL","","284,000","","11/09/2021","","$","44,260","","","5,401","","","38,859"]]
[[/GREPCENT_TABLE]]

(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 did not sell any land during the years ended December 31, 2022 and 2021.

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.  

2021 Compared to 2020

A discussion of changes in the Company’s results of operations between 2021 and 2020 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 “2021 Compared to 2020” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and is incorporated herein by reference.

RECENT ACCOUNTING PRONOUNCEMENTS

EastGroup has evaluated all FASB Accounting Standards Updates (“ASU”) recently released by the FASB through the date the financial statements were issued and determined that the following ASUs apply to the Company.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, applies to the Company. Also, in December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of Topic 848 to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 had no impact on the Company’s consolidated financial statements for the year ended December 31, 2022. See Note 12 in the Consolidated Financial Statements for further evaluation of these ASUs.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $316,501,000 for the year ended December 31, 2022.  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 $193,936,000 in common stock dividends during 2022.  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. The Company expects liquidity sources and needs in future years to be consistent in nature with those for the year ended December 31, 2022.

37

As of December 31, 2022, the Company was contractually obligated to pay the dividend declared in December 2022, which was paid in January 2023. An amount for dividends payable of $55,952,000 was included in Accounts payable and accrued expenses at December 31, 2022, which includes dividends payable on unvested restricted stock of $1,610,000, which are subject to continued service and will be paid upon vesting in future periods.

Total debt at December 31, 2022 and 2021 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, 2022 and 2021.

[[GREPCENT_TABLE]]
[["","December 31,"],["2022","","2021"],["(In thousands)"],["Unsecured bank credit facilities - variable rate, carrying amount (1)","$","170,000","","","209,210"],["Unamortized debt issuance costs","(1,546)","","","(2,144)"],["Unsecured bank credit facilities, net of debt issuance costs","168,454","","","207,066"],["Unsecured debt - fixed rate, carrying amount (2) (3)","1,695,000","","","1,245,000"],["Unamortized debt issuance costs","(3,741)","","","(2,430)"],["Unsecured debt, net of debt issuance costs","1,691,259","","","1,242,570"],["Secured debt - fixed rate, carrying amount (2) (4)","2,041","","","2,156"],["Unamortized debt issuance costs","(10)","","","(14)"],["Secured debt, net of debt issuance costs","2,031","","","2,142"],["Total debt, net of debt issuance costs","$","1,861,744","","","1,451,778"]]
[[/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, 2022, obligations due in less than one year include maturing principal balances of $115,000,000 and interest of $53,414,000; remaining principal balances maturing in greater than one year include $1,580,000,000 and interest of $284,744,000.

(4) As of December 31, 2022, obligations due in less than one year include principal amortization of $119,000 and interest of $76,000; remaining principal maturing in greater than one year includes $1,922,000 and interest of $203,000.

Until June 29, 2021, EastGroup had $350,000,000 and $45,000,000 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 $425,000,000 and $50,000,000, respectively, as detailed below.

The Company’s $425,000,000 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 $325,000,000 accordion (with agreement by all parties). The interest rate on each tranche is reset on a monthly basis and as of December 31, 2022, was LIBOR plus 77.5 basis points with an annual facility fee of 15 basis points. As of December 31, 2022, the Company had $170,000,000 of variable rate borrowings on this unsecured bank credit facility with a weighted average interest rate of 5.146%. The Company has a standby letter of credit of $67,000 pledged on this facility.

The Company’s $50,000,000 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 $425,000,000 facility are exercised. The interest rate is reset on a daily basis and as of December 31, 2022, was LIBOR plus 77.5 basis points with an annual facility fee of 15 basis points. As of December 31, 2022, the interest rate was 5.167% with no outstanding balance.

During the twelve months ended December 31, 2022, EastGroup amended its unsecured bank credit facilities, effective January 2023, to expand the total capacity on its unsecured bank credit facilities from $475,000,000 to $675,000,000 and to replace LIBOR with SOFR as the benchmark interest rate. The maturity date remains July 30, 2025.

38

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.

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 January 2022, the Company and a group of lenders agreed to terms on the private placement of $150,000,000 of senior unsecured notes with a fixed interest rate of 3.03% and a 10-year term. The notes were issued and sold on April 20, 2022 and require interest-only payments. The notes will not be and have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

In February 2022, EastGroup repaid a $75,000,000 unsecured term loan at maturity with an effectively fixed interest rate of 3.03%.

In March 2022, the Company closed a $100,000,000 senior unsecured term loan with a 6.5-year term and interest only payments, which bears interest at the annual rate of SOFR plus an applicable margin (1.40% as of December 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 SOFR 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 $100,000,000 senior unsecured term loan with five years remaining. The amended term loan provides for interest only payments currently at an interest rate of SOFR plus 95 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 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%.

In June 2022, the Company assumed a $60,000,000 loan in connection with the acquisition of Tulloch Corporation, the owner of an industrial real estate portfolio comprised of 14 operating properties and two parcels of land, which was immediately repaid with no penalty during June 2022.

In August 2022, the Company closed a $125,000,000 senior unsecured term loan with interest only payments, bearing interest at the annual rate of SOFR plus an applicable margin based on the Company’s senior unsecured long-term debt rating and consolidated leverage ratio. The loan has a $75,000,000 tranche with a five-year term and a $50,000,000 tranche with a two-year term. The Company also entered into interest rate swap agreements to convert the loans’ SOFR rate components to fixed interest rates for the entire term of the loans, providing total effectively fixed interest rates of 4.00% and 4.09% on the $75,000,000 and $50,000,000 tranches, respectively. These term loans also include 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 July 2022, the Company and a group of lenders agreed to terms on the private placement of two senior unsecured notes totaling $150,000,000. One note for $75,000,000 has an 11-year term and a fixed interest rate of 4.90% with semi-annual interest-only payments. The other $75,000,000 note has a 12-year term and a fixed interest rate of 4.95% with semi-annual interest-only payments. The notes, dated August 16, 2022, were issued and sold on October 12, 2022. The notes will not be and have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

During the year ended December 31, 2022, the Company agreed to terms on a $100,000,000 senior unsecured term loan with interest only payments, bearing interest at the annual rate of SOFR plus an applicable margin based on the Company’s senior

39

unsecured long-term debt rating. The loan closed and funded in January 2023, subsequent to year end, and has a seven-year term. The Company also entered into an interest rate swap agreement to convert the loan’s SOFR rate component to a fixed interest rate for the entire term of the loan, providing a total effectively fixed interest rate of 5.27%.

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 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 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, all of the Company’s LIBOR-based borrowings and hedges that extend beyond such date have been amended to modify the index from LIBOR to SOFR. Concurrently, the related swaps were amended to reference SOFR rather than LIBOR. The transition did not have a material impact on our consolidated financial statements. 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 may be magnified.

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 (the “Prior Program”). On July 28, 2021, the Company entered into a sales agreement (together with the December 2019 Sales Agreements, the “Prior 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 these Prior Sales Agreements, the shares could 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. Since its establishment in 2019, the Company sold an aggregate of 2,654,511 shares of common stock under the Prior Program with gross proceeds of $444,533,000.

During the year ended December 31, 2022, EastGroup issued and sold 393,406 shares of common stock under its Prior Program at an average price of $194.17 per share with gross proceeds to the Company of $76,386,000. The Company incurred offering-related costs of $1,011,000 during the year, resulting in net proceeds to the Company of $75,375,000.

On December 16, 2022, EastGroup entered into a sales agreement (the “2022 Sales Agreement”) with each of Robert W. Baird & Co. Incorporated; BNY Mellon Capital Markets, LLC; BofA Securities, Inc.; BTIG, LLC; Jefferies LLC; Raymond James & Associates, Inc.; Regions Securities LLC; Samuel A. Ramirez & Company, Inc.; TD Securities (USA) 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 (the “Current Program”). Upon entry into the 2022 Sales Agreement, EastGroup terminated the Prior Program pursuant to the Prior Sales Agreements, and the Current Program replaced the Prior Program. As of February 15, 2023, the Company has not sold any shares of common stock under the Current Program; therefore, under the Current Program, EastGroup may in the future offer and sell shares of its common stock having an aggregate offering price of up to $750,000,000 through the sales agents.

During the year ended December 31, 2022, the Company issued 1,868,809 shares of common stock in the acquisition of operating properties and development land in the gross amount of $303,756,000. The Company incurred issuance-related costs of $74,000.

40

EastGroup’s other material cash requirements from known contractual and other obligations as of December 31, 2022 were as follows:

[[GREPCENT_TABLE]]
[["","Cash Requirements (1)"],["","(In thousands)"],["Real estate property obligations (2)","$","16,097"],["Development and value-add obligations (3)","134,844"],["Tenant improvements obligations (4)","36,580"],["Total","$","187,521"]]
[[/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.

41