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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, 2021

                    
Commission File Number: 1-07094


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





-1-


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 28, 2021 was 40,021,537.
-2-


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2021 

  Page
 
   
 
   
 
Consolidated Balance Sheets, March 31, 2021 and December 31, 2020 (unaudited)
   
 
Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2021 and 2020 (unaudited)
   
 
Consolidated Statements of Changes in Equity for the three months ended March 31, 2021 and 2020 (unaudited)
   
 
  
 
   
   
   
   
 
   
   
  
   
 


-3-


PART I.  FINANCIAL INFORMATION.


EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
 March 31,
2021
December 31,
2020
ASSETS  
Real estate properties$3,230,418 3,159,497 
Development and value-add properties346,245 359,588 
 3,576,663 3,519,085 
Less accumulated depreciation(979,709)(955,328)
 2,596,954 2,563,757 
Unconsolidated investment7,646 7,446 
Cash68 21 
Other assets152,253 149,579 
TOTAL ASSETS$2,756,921 2,720,803 
LIABILITIES AND EQUITY  
LIABILITIES  
Unsecured bank credit facilities$91,638 124,194 
Unsecured debt1,157,642 1,107,708 
Secured debt36,783 78,993 
Accounts payable and accrued expenses88,232 69,573 
Other liabilities65,828 69,817 
Total Liabilities1,440,123 1,450,285 
EQUITY  
Stockholders’ Equity:  
Common shares; $0.0001 par value; 70,000,000 shares authorized; 40,021,537 shares issued and outstanding at March 31, 2021 and 39,676,828 at December 31, 20204 4 
Excess shares; $0.0001 par value; 30,000,000 shares authorized; no shares issued
  
Additional paid-in capital1,652,445 1,610,053 
Distributions in excess of earnings(334,000)(329,667)
Accumulated other comprehensive loss(2,538)(10,752)
Total Stockholders’ Equity1,315,911 1,269,638 
Noncontrolling interest in joint ventures887 880 
Total Equity1,316,798 1,270,518 
TOTAL LIABILITIES AND EQUITY$2,756,921 2,720,803 
 
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,
 20212020
REVENUES  
Income from real estate operations$97,917 88,577 
Other revenue14 51 
 97,931 88,628 
EXPENSES  
Expenses from real estate operations27,820 25,829 
Depreciation and amortization30,313 27,892 
General and administrative4,036 3,281 
Indirect leasing costs330 108 
 62,499 57,110 
OTHER INCOME (EXPENSE)  
Interest expense(8,276)(8,457)
Other201 237 
NET INCOME27,357 23,298 
Net income attributable to noncontrolling interest in joint ventures(18)(1)
NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS27,339 23,297 
Other comprehensive income (loss) - interest rate swaps8,214 (15,790)
TOTAL COMPREHENSIVE INCOME$35,553 7,507 
BASIC PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS  
Net income attributable to common stockholders$0.69 0.60 
Weighted average shares outstanding39,673 38,882 
DILUTED PER COMMON SHARE DATA FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS  
Net income attributable to common stockholders$0.69 0.60 
Weighted average shares outstanding39,765 38,961 

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, 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)
Distributions to noncontrolling interest    (11)(11)
BALANCE, MARCH 31, 2021$4 1,652,445 (334,000)(2,538)887 1,316,798 


For the three months ended March 31, 2020:
Common SharesAdditional
Paid-In Capital
Distributions in Excess of EarningsAccumulated Other Comprehensive Income (Loss)Noncontrolling Interest in Joint VenturesTotal
BALANCE, DECEMBER 31, 2019$4 1,514,055 (316,302)2,807 1,765 1,202,329 
Net income  23,297  1 23,298 
Net unrealized change in fair value of interest rate swaps   (15,790) (15,790)
Common dividends declared – $0.75 per
share
  (29,366)  (29,366)
Stock-based compensation, net of
forfeitures
 1,781    1,781 
Issuance of 105,837 shares of common
stock, common stock offering, net of
expenses
 14,734    14,734 
Withheld 33,963 shares of common stock to
satisfy tax withholding obligations in
connection with the vesting of restricted
stock
 (4,589)   (4,589)
Distributions to noncontrolling interest    (34)(34)
BALANCE, MARCH 31, 2020$4 1,525,981 (322,371)(12,983)1,732 1,192,363 


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,
 20212020
OPERATING ACTIVITIES  
Net income                                                                                                       $27,357 23,298 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization                                                                                                       30,313 27,892 
Stock-based compensation expense1,597 1,226 
Changes in operating assets and liabilities:  
Accrued income and other assets577 1,090 
Accounts payable, accrued expenses and prepaid rent18,842 (2,572)
Other                                                                                                       136 505 
NET CASH PROVIDED BY OPERATING ACTIVITIES78,822 51,439 
INVESTING ACTIVITIES  
Development and value-add properties(47,539)(69,687)
Purchases of real estate (6,231)
Real estate improvements(9,128)(9,396)
Repayments on mortgage loans receivable 7 
Changes in accrued development costs870 1,437 
Changes in other assets and other liabilities(8,122)(14,754)
NET CASH USED IN INVESTING ACTIVITIES(63,919)(98,624)
FINANCING ACTIVITIES  
Proceeds from unsecured bank credit facilities 96,798 221,777 
Repayments on unsecured bank credit facilities(129,480)(251,524)
Proceeds from unsecured debt50,000 100,000 
Repayments on secured debt(42,263)(2,220)
Debt issuance costs(223)(564)
Distributions paid to stockholders (not including dividends accrued)(31,863)(29,947)
Proceeds from common stock offerings46,427 14,734 
Other(4,252)(4,624)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES(14,856)47,632 
INCREASE IN CASH AND CASH EQUIVALENTS47 447 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD21 224 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$68 671 
SUPPLEMENTAL CASH FLOW INFORMATION  
Cash paid for interest, net of amounts capitalized of $2,237 and $2,561 for 2021 and 2020,
respectively
$6,503 8,181 
Cash paid for operating lease liabilities375 361 
NON-CASH OPERATING ACTIVITY
  Operating lease liabilities arising from obtaining right of use assets$348 495 

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, 2020 and the notes thereto.

(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, 2021 and December 31, 2020, 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. As of each of March 31, 2021 and December 31, 2020, EastGroup had a 95% controlling interest in the Miramar land and a 99% controlling interest in the Otay Mesa land.

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, 2021 and 2020:
Three Months Ended
March 31,
20212020
(In thousands)
Lease income — operating leases$73,382 65,963 
Variable lease income (1)
24,535 22,614 
Income from real estate operations$97,917 88,577 

(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.  These properties are primarily located in major Sunbelt regions of the United States. The Company’s properties have similar economic characteristics and as a result, have been aggregated into one reportable segment.

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 future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair
-8-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
value of the asset.  During the three month periods ended March 31, 2021 and 2020, 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 $25,147,000 and $23,089,000 for the three months ended March 31, 2021 and 2020.

The Company’s Real estate properties and Development and value-add properties at March 31, 2021 and December 31, 2020 were as follows:
 March 31,
2021
December 31,
2020
 (In thousands)
Real estate properties:  
   Land$510,838 502,739 
   Buildings and building improvements2,171,682 2,120,731 
   Tenant and other improvements537,042 524,954 
   Right of use assets — Ground leases (operating) (1)
10,856 11,073 
Development and value-add properties (2)
346,245 359,588 
 3,576,663 3,519,085 
   Less accumulated depreciation(979,709)(955,328)
 $2,596,954 2,563,757 

(1)See below for information regarding the Company’s right of use assets for ground leases.
(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. 

Ground Leases
On January 1, 2019, EastGroup adopted the principles of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases, and its related Accounting Standards Updates (“ASUs”). In connection with the adoption, the Company recorded right of use assets for its ground leases, which are classified as operating leases, using the effective date transition option; under this option, prior years are not restated. As of January 1, 2019, the Company recorded right of use assets for its ground leases of $10,226,000. In April 2019, the Company acquired Logistics Center 6 & 7 in Dallas, which is located on land under a ground lease. The Company recorded a right of use asset of $2,679,000 in connection with this acquisition. As of March 31, 2021 and December 31, 2020, the unamortized balance of the Company’s right of use assets for its ground leases was $10,856,000 and $11,073,000, respectively. The right of use assets for ground leases are included in Real estate properties on the Consolidated Balance Sheets.

As of March 31, 2021, the Company operated two properties in Florida, three properties in Texas and one property in Arizona that are subject to ground leases.  These leases have terms of 40 to 50 years, expiration dates of August 2031 to October 2058, and renewal options of 15 to 35 years, except for the one lease in Arizona which is automatically and perpetually renewed annually. The Company has included renewal options in the lease terms for calculating the ground lease assets and liabilities as the Company is reasonably certain it will exercise these options. Total ground lease expenditures for the three months ended March 31, 2021 and 2020 were $272,000 and $261,000, respectively. Payments are subject to increases at 3 to 10 year intervals based upon the agreed or appraised fair market value of the leased premises on the adjustment date or the Consumer Price Index percentage increase since the base rent date. These future changes in payments will be considered variable payments and will not impact the assessment of the asset or liability unless there is a significant event that triggers reassessment, such as amendment with a change in the terms of the lease. The weighted-average remaining lease term as of March 31, 2021 for the ground leases is 42 years.


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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following schedule indicates approximate future minimum ground lease payments for these properties by year as of March 31, 2021:

Future Minimum Ground Lease Payments
Years Ending December 31,(In thousands)
2021 - Remainder of year$727 
2022970 
2023975 
2024999 
2025999 
Thereafter                                                  37,917 
   Total minimum payments                                                  42,587 
Imputed interest (1)
(31,587)
   Total ground lease liabilities                                                  $11,000 

(1)As the Company’s leases do not provide an implicit rate, in order to calculate the present value of the remaining ground lease payments, the Company used its incremental borrowing rate, adjusted for a number of factors, including the long-term nature of the ground leases, the Company’s estimated borrowing costs, and the estimated fair value of the underlying land, to determine the imputed interest for its ground leases. The Company elected to use the portfolio approach as all of its ground leases in place as of January 1, 2019 have similar characteristics and determined 7.3% as the appropriate rate as of January 1, 2019, for all leases in place at that time. For the ground lease acquired during April 2019, the Company used a rate of 8.0%, which was its incremental borrowing rate, adjusted for the factors discussed above.

(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 2020 and the first three months of 2021 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 2020 and 2021 acquisitions.

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.  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. 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.  

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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The purchase price is also allocated among the following categories of intangible assets:  the above or below market component of in-place leases, the value of in-place leases, and the value of customer relationships.  The value allocable to the above or below market component of an acquired in-place lease is determined based upon the present value (using a discount rate reflecting the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using current market rents over the remaining term of the lease.  The amounts allocated to above and below market leases are included in Other assets and Other liabilities, respectively, on the Consolidated Balance Sheets and are amortized to rental income over the remaining terms of the respective leases. The total amount of intangible assets is further allocated to in-place lease values and customer relationship values based upon management’s assessment of their respective values.  These intangible assets are included in Other assets on the Consolidated Balance Sheets and are amortized over the remaining term of the existing lease, or the anticipated life of the customer relationship, as applicable.

Amortization expense for in-place lease intangibles was $1,431,000 and $1,334,000 for the three months ended March 31, 2021 and 2020, respectively. Amortization of above and below market leases increased rental income by $229,000 and $374,000 for the three months ended March 31, 2021 and 2020, respectively.

During the three months ended March 31, 2021, the Company acquired the following value-add properties: Access Point 1 in Greenville and Northpoint 200 in Atlanta. At the time of acquisition, these value-add properties were classified in the lease-up phase. The total cost for the properties acquired by the Company was $17,017,000, of which $16,746,000 was allocated to Development and value-add properties. EastGroup allocated $1,986,000 of the total purchase price to land using third party land valuations for the Greenville and Atlanta markets. Intangibles associated with the purchase of real estate were $271,000, which related to in-place lease intangibles (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. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurement (see Note 17 for additional information on ASC 820).

During the year ended December 31, 2020, the Company acquired the following operating properties: Wells Point One in Austin; Cherokee 75 Business Center 1 in Atlanta; and The Rock in Dallas. The Company also acquired one value-add property, Rancho Distribution Center in Los Angeles. At the time of acquisition, Rancho Distribution Center was classified in the lease-up phase. The total cost for the properties acquired by the Company was $76,518,000, of which $46,240,000 was allocated to Real estate properties and $27,320,000 was allocated to Development and value-add properties. EastGroup allocated $23,565,000 of the total purchase price to land using third party land valuations for the Atlanta, Austin, Dallas and Los Angeles markets. Intangibles associated with the purchase of real estate were allocated as follows: $3,257,000 to in-place lease intangibles, $104,000 to above market leases (included in Other assets on the Consolidated Balance Sheets) and $403,000 to below market leases (included in Other liabilities on the Consolidated Balance Sheets).

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, 2021 and 2020.

(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, 2021 and December 31, 2020.

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 had no sales during the three months ended March 31, 2021 or 2020.

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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(9)OTHER ASSETS
A summary of the Company’s Other assets follows:
 March 31,
2021
December 31,
2020
 (In thousands)
Leasing costs (principally commissions)$101,140 95,914 
Accumulated amortization of leasing costs                                                       (38,200)(38,371)
Leasing costs (principally commissions), net of accumulated amortization62,940 57,543 
Acquired in-place lease intangibles                                                                                  26,989 28,107 
Accumulated amortization of acquired in-place lease intangibles(13,596)(13,554)
Acquired in-place lease intangibles, net of accumulated amortization13,393 14,553 
Acquired above market lease intangibles                                                                                  1,825 1,825 
Accumulated amortization of acquired above market lease intangibles(1,292)(1,231)
Acquired above market lease intangibles, net of accumulated amortization533 594 
Straight-line rents receivable45,057 43,079 
Accounts receivable4,510 6,256 
Interest rate swap assets1,178  
Right of use assets — Office leases (operating)2,359 2,131 
Receivable for common stock offerings 1,942 
Goodwill                                                                                  990 990 
Prepaid expenses and other assets                                                                                  21,293 22,491 
Total Other assets
$152,253 149,579 

(10) DEBT

The Company’s debt is detailed below. EastGroup presents debt issuance costs as reductions of Unsecured bank credit facilities, Unsecured debt and Secured debt on the Consolidated Balance Sheets.
 March 31,
2021
December 31,
2020
 (In thousands)
Unsecured bank credit facilities - variable rate, carrying amount$92,318 125,000 
Unamortized debt issuance costs(680)(806)
Unsecured bank credit facilities91,638 124,194 
Unsecured debt - fixed rate, carrying amount (1)
1,160,000 1,110,000 
Unamortized debt issuance costs(2,358)(2,292)
Unsecured debt1,157,642 1,107,708 
Secured debt - fixed rate, carrying amount (1)
36,828 79,096 
Unamortized debt issuance costs(45)(103)
Secured debt36,783 78,993 
Total debt$1,286,063 1,310,895 

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

The Company has a $350 million unsecured bank credit facility with a group of nine banks; the facility has a maturity date of July 30, 2022. The credit facility contains options for two six-month extensions (at the Company’s election) and a $150 million accordion (with agreement by all parties). The interest rate on each tranche is usually reset on a monthly basis and as of
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EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021, was LIBOR plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company’s credit ratings. As of March 31, 2021, the Company had $85,000,000 of variable rate borrowings on this unsecured bank credit facility with a weighted average interest rate of 1.108%. The Company has a standby letter of credit of $674,000 pledged on this facility.

The Company also has a $45 million unsecured bank credit facility with a maturity date of July 30, 2022, or such later date as designated by the bank; the Company also has two six-month extensions available if the extension options in the $350 million facility are exercised. The interest rate is reset on a daily basis and as of March 31, 2021, was LIBOR plus 100 basis points with an annual facility fee of 20 basis points. The margin and facility fee are subject to changes in the Company’s credit ratings. As of March 31, 2021, the interest rate was 1.111% on a balance of $7,318,000.

In March 2021, the Company closed a $50 million senior unsecured term loan with a four-year term and interest only payments, which bears interest at the annual rate of LIBOR plus an applicable margin (1.00% as of March 31, 2021) based on the Company’s senior unsecured long-term debt rating. The Company also entered into an interest rate swap agreement to convert the loan’s LIBOR rate component to a fixed interest rate for the entire term of the loan providing a total effective fixed interest rate of 1.55%.

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

Also in March 2021, the Company and a group of lenders agreed to terms on the private placement of $125 million of senior unsecured notes with a fixed interest rate of 2.74% and a 10-year term. The notes dated April 8, 2021, are intended to be issued and sold in June 2021 subject to customary closing conditions and will require interest-only payments. The notes will not be and have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

Scheduled principal payments on long-term debt, including Unsecured debt and Secured debt (not including Unsecured bank credit facilities), as of March 31, 2021, are as follows: 
Years Ending December 31,(In thousands)
2021 - Remainder of year$42,016 
2022107,770 
2023115,119 
2024120,122 
2025145,128 
2026 and beyond666,673 
       Total$1,196,828 


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

(11) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of the Company’s Accounts payable and accrued expenses follows:
 March 31,
2021
December 31,
2020
 (In thousands)
Property taxes payable                                                                                  $16,339 3,524 
Development costs payable                                                                                  7,297 6,427 
Real estate improvements and capitalized leasing costs payable7,841 5,692 
Interest payable                                                                                  7,974 6,537 
Dividends payable                                                        32,486 32,677 
Book overdraft (1)
11,185 5,176 
Other payables and accrued expenses                                                                                  5,110 9,540 
 Total Accounts payable and accrued expenses
$88,232 69,573 

(1)Represents checks written before the end of the period which have not cleared the bank; therefore, the bank has not yet advanced cash to the Company. When the checks clear the bank, they will be funded through the Company’s working cash line of credit, which is included in the Company’s Unsecured bank credit facilities.

(12) OTHER LIABILITIES
A summary of the Company’s Other liabilities follows:
 March 31,
2021
December 31,
2020
 (In thousands)
Security deposits                                                                                  $24,941 22,140 
Prepaid rent and other deferred income                                                     15,393 14,694 
Operating lease liabilities — Ground leases 11,000 11,199 
Operating lease liabilities — Office leases2,402 2,167 
Acquired below-market lease intangibles8,928 9,019 
     Accumulated amortization of below-market lease intangibles(6,367)(6,168)
Acquired below-market lease intangibles, net of accumulated amortization2,561 2,851 
Interest rate swap liabilities3,716 10,752 
Prepaid tenant improvement reimbursements165 364 
Other liabilities                                                                                  5,650 5,650 
 Total Other liabilities
$65,828 69,817 



-14-

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

(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,
20212020
(In thousands)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of period$(10,752)2,807 
    Other comprehensive income (loss) - interest rate swaps8,214 (15,790)
Balance at end of period$(2,538)(12,983)

(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. 

As of March 31, 2021, the Company had six 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 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 (loss) 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 $3,993,000 will be reclassified from Other comprehensive income (loss) as an increase 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.

On March 5, 2021, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced that USD-LIBOR will no longer be published after June 30, 2023. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR.

The Company anticipates that LIBOR will continue to be available substantially in its current form at least until June 30, 2023. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden
-15-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. The Company has material contracts that are indexed to USD-LIBOR and is monitoring this activity and evaluating the related risks.

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.

As of March 31, 2021 and December 31, 2020, the Company had the following outstanding interest rate derivatives that are designated as cash flow hedges of interest rate risk:
Interest Rate DerivativeNotional Amount as of March 31, 2021Notional Amount as of December 31, 2020
(In thousands)
Interest Rate Swap$75,000$75,000
Interest Rate Swap$65,000$65,000
Interest Rate Swap$40,000$40,000
Interest Rate Swap$100,000$100,000
Interest Rate Swap$100,000$100,000
Interest Rate Swap$50,000

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, 2021 and December 31, 2020. See Note 17 for additional information on the fair value of the Company’s interest rate swaps.
Derivatives
As of March 31, 2021
Derivatives
As of December 31, 2020
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
(In thousands)
Derivatives designated as cash flow hedges:
    Interest rate swap assetsOther assets$1,178 Other assets$ 
    Interest rate swap liabilitiesOther liabilities3,716 Other liabilities10,752 

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
 20212020
 (In thousands)
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Interest Rate Swaps:
Amount of income (loss) recognized in Other comprehensive income (loss) on derivatives                                                                                                     
$7,163 (15,703)
Amount of (income) loss reclassified from Accumulated other comprehensive income (loss) into Interest expense
1,051 (87)

See Note 13 for additional information on the Company’s Accumulated other comprehensive income (loss) resulting from its interest rate swaps.

-16-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Derivative financial agreements expose the Company to credit risk in the event of non-performance by the counterparties under the terms of the interest rate hedge agreements. The Company believes it minimizes the credit risk by transacting with financial institutions the Company regards as credit-worthy.

The Company has an agreement with its derivative counterparties containing a provision stating that the Company could be declared in default on its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender. If the Company breached any of these provisions it would be required to settle its obligations under the agreements at their termination value of $3,716,000 as of March 31, 2021.

(15) EARNINGS PER SHARE
The Company applies ASC 260, Earnings Per Share, which requires companies to present basic and diluted earnings per share (“EPS”).  Basic EPS represents the amount of earnings for the period attributable to each share of common stock outstanding during the reporting period.  The Company’s basic EPS is calculated by dividing Net Income Attributable to EastGroup Properties, Inc. Common Stockholders by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested.

Diluted EPS represents the amount of earnings for the period attributable to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.  The Company calculates diluted EPS by dividing Net Income Attributable to EastGroup Properties, Inc. Common Stockholders by the weighted average number of common shares outstanding plus the dilutive effect of unvested restricted stock.  The dilutive effect of unvested restricted stock is determined using the treasury stock method.

Reconciliation of the numerators and denominators in the basic and diluted EPS computations is as follows:
Three Months Ended
 March 31,
 20212020
 (In thousands)
BASIC EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
  Numerator – net income attributable to common stockholders$27,339 23,297 
  Denominator – weighted average shares outstanding39,673 38,882 
DILUTED EPS COMPUTATION FOR NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS
  Numerator – net income attributable to common stockholders$27,339 23,297 
Denominator:
    Weighted average shares outstanding39,673 38,882 
    Unvested restricted stock92 79 
      Total Shares39,765 38,961 

(16) STOCK-BASED COMPENSATION
EastGroup applies the provisions of ASC 718, Compensation - Stock Compensation, to account for its stock-based compensation awards. ASC 718 requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements and that the cost be measured on the fair value of the equity or liability instruments issued.

Stock-based compensation cost for employees was $2,144,000 for the three months ended March 31, 2021, of which $550,000 was capitalized as part of the Company’s development costs. For the three months ended March 31, 2020, stock-based compensation cost for employees was $1,779,000, of which $555,000 was capitalized as part of the Company’s development costs.

Stock-based compensation expense for directors was $3,000 and $2,000 for the three months ended March 31, 2021 and 2020, respectively.

-17-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In the second quarter of 2018, the Compensation Committee of the Company’s Board of Directors (the “Committee”) approved a long-term equity compensation award (the “2018 Long-Term Grant”) for the Company’s executive officers that included one component based on total shareholder return and one component based only on continued service as of the vesting dates.

The component of the 2018 Long-Term Grant based on total shareholder return is subject to bright-line tests that compare the Company’s total shareholder return to the Nareit Equity Index and to the member companies of the Nareit industrial index. The award measured the bright-line tests over the three-year period ended December 31, 2020. During the first quarter of 2021, the Committee measured the Company’s performance for the three-year period against bright-line tests established by the Committee on the grant date of June 1, 2018.  The number of shares determined on the measurement date was 27,086.  These shares vested 75% on February 17, 2021, the date the earned shares were determined, and will vest 25% on January 1, 2022. On the grant date of June 1, 2018, the Company began recognizing expense for this award based on the grant date fair value of the awards which was determined using a simulation pricing model developed to specifically accommodate the unique features of the award.

The component of the 2018 Long-Term Grant based only on continued service as of the vesting dates was awarded on June 1, 2018. On that date, 7,884 shares were granted to the Company’s executive officers subject only to continued service as of the vesting dates. These shares, which have a grant date fair value of $95.19, vested 25% in the first quarter of each of 2019, 2020 and 2021, and will vest 25% on January 1, 2022. The shares are being expensed on a straight-line basis over the remaining service period.

In the first quarter of 2019, the Committee approved a long-term equity compensation award (the “2019 Long-Term Grant”) for the Company’s executive officers that included one component based on total shareholder return and one component based only on continued service as of the vesting dates.

The component of the 2019 Long-Term Grant based on total shareholder return is subject to bright-line tests that will compare the Company’s total shareholder return to the Nareit Equity Index and to the member companies of the Nareit industrial index. The award will measure the bright-line tests over the three-year period ending December 31, 2021. During the first quarter of 2022, the Committee will measure the Company’s performance for the three-year period against bright-line tests established by the Committee on the grant date of March 7, 2019.  The aggregate number of shares to be earned on the measurement date could range from zero to 33,442.  These shares would vest 75% on the date the earned shares are determined in the first quarter of 2022 and 25% on January 1, 2023. On the grant date of March 7, 2019, the Company began recognizing expense for this award based on the grant date fair value of the awards which was determined using a simulation pricing model developed to specifically accommodate the unique features of the award.

The component of the 2019 Long-Term Grant based only on continued service as of the vesting dates was awarded on March 7, 2019. On that date, an aggregate of 9,947 shares were granted to the Company’s executive officers subject only to continued service as of the vesting dates. These shares, which have a grant date fair value of $105.97, vested 25% in the first quarter of 2020, 25% on January 1, 2021 and will vest 25% on each January 1 in years 2022 and 2023. The shares are being expensed on a straight-line basis over the remaining service period.

In the first quarter of 2020, the Committee approved an equity compensation award (the “2020 Annual Grant”) for the Company’s executive officers based upon certain annual performance measures for 2020; the award is comprised of two components.

The first component of the 2020 Annual Grant is based upon the following Company performance measures for 2020: (i) FFO per share, (ii) same property net operating income change, (iii) debt-to EBITDAre ratio, and (iv) fixed charge coverage. On February 17, 2021, the Committee measured the Company’s performance for 2020 against bright-line tests established by the Committee on the grant date of March 6, 2020 and determined that 18,380 shares were earned. These shares, which have a grant date fair value of $131.36, vested 34% on the date shares were determined and will vest 33% per year on each January 1 in years 2022 and 2023. On the grant date of March 6, 2020, the Company began recognizing expense for its estimate of the shares that could be earned pursuant to these awards; the expense was adjusted to actual upon the determination of the awards. The shares are being expensed using the graded vesting attribution method which recognizes each separate vesting portion of the award as a separate award on a straight-line basis over the requisite service period.

The second component of the 2020 Annual Grant is based upon the achievement of individual goals for each of the officers included in the award. On February 17, 2021, the Committee evaluated the performance of the officers and, in its discretion, awarded 4,156 shares with a grant date fair value of $142.89. These shares vested 34% on the date shares were determined and awarded and will vest 33% per year on each January 1 in years 2022 and 2023. The Company began recognizing the expense
-18-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
for the shares awarded on the grant date of February 17, 2021, and the shares will be expensed on a straight-line basis over the remaining service period. 

Also in the first quarter of 2020, the Committee approved a long-term equity compensation award (the “2020 Long-Term Grant”) for the Company’s executive officers that included one component based on total shareholder return and one component based only on continued service as of the vesting dates.

The component of the 2020 Long-Term Grant based on total shareholder return is subject to bright-line tests that will compare the Company’s total shareholder return to the Nareit Equity Index and to the member companies of the Nareit industrial index. The award will measure the bright-line tests over the three-year period ending December 31, 2022. During the first quarter of 2023, the Committee will measure the Company’s performance for the three-year period against bright-line tests established by the Committee on the grant date of March 6, 2020.  The aggregate number of shares to be earned on the measurement date could range from zero to 25,261.  These shares would vest 75% on the date the earned shares are determined in the first quarter of 2023 and 25% on January 1, 2024. On the grant date of March 6, 2020, the Company began recognizing expense for this award based on the grant date fair value of the awards which was determined using a simulation pricing model developed to specifically accommodate the unique features of the award.

The component of the 2020 Long-Term Grant based only on continued service as of the vesting dates was awarded on March 6, 2020. On that date, an aggregate of 7,217 shares were granted to the Company’s executive officers subject only to continued service as of the vesting dates. These shares, which have a grant date fair value of $131.36, vested 25% in the first quarter of 2021 and will vest 25% on each January 1 in years 2022, 2023 and 2024. The shares are being expensed on a straight-line basis over the remaining service period.

In the first quarter of 2021, the Committee approved an equity compensation award (the “2021 Annual Grant”) for the Company’s executive officers based upon certain annual performance measures for 2021; the award is comprised of two components.

The first component of the 2021 Annual Grant is based upon the following Company performance measures for 2021: (i) FFO per share, (ii) cash same property net operating income change, (iii) debt-to EBITDAre ratio, and (iv) fixed charge coverage. During the first quarter of 2022, the Committee will measure the Company’s performance for 2021 against bright-line tests established by the Committee on the grant date of February 25, 2021. The number of shares that may be earned for the achievement of the annual performance measures could range from zero to 19,052. These shares, which have a grant date fair value of $138.93, would vest 34% on the date shares are determined and 33% per year on each January 1 in years 2023 and 2024. On the grant date of February 25, 2021, the Company began recognizing expense for its estimate of the shares that may be earned pursuant to these awards; the shares are being expensed using the graded vesting attribution method which recognizes each separate vesting portion of the award as a separate award on a straight-line basis over the requisite service period.

The second component of the 2021 Annual Grant is based upon the achievement of individual goals for each of the officers included in the award. Any shares issued pursuant to the individual goals in this compensation award will be determined by the Committee in its discretion and issued in the first quarter of 2022. The number of shares to be issued on the grant date for the achievement of individual goals could range from zero to 4,756. These shares would vest 34% on the date shares are determined and awarded and 33% per year on each January 1 in years 2023 and 2024. The Company will begin recognizing the expense for any shares awarded on the grant date in the first quarter of 2022, and the shares will be expensed on a straight-line basis over the remaining service period. 

Also in the first quarter of 2021, the Committee approved a long-term equity compensation award (the “2021 Long-Term Grant”) for the Company’s executive officers that includes one component based on total shareholder return and one component based only on continued service as of the vesting dates.

The component of the 2021 Long-Term Grant based on total shareholder return is subject to bright-line tests that will compare the Company’s total shareholder return to the Nareit Equity Index and to the member companies of the Nareit industrial index. The award will measure the bright-line tests over the three-year period ending December 31, 2023. During the first quarter of 2024, the Committee will measure the Company’s performance for the three-year period against bright-line tests established by the Committee on the grant date of February 25, 2021.  The aggregate number of shares to be earned on the measurement date could range from zero to 36,400.  These shares would vest 75% on the date the earned shares are determined in the first quarter of 2024 and 25% on January 1, 2025. On the grant date of February 25, 2021, the Company began recognizing expense for this award based on the grant date fair value of the awards which was determined using a simulation pricing model developed to specifically accommodate the unique features of the award.

-19-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The component of the 2021 Long-Term Grant based only on continued service as of the vesting dates was awarded on February 25, 2021. On that date, an aggregate of 7,801 shares were granted to the Company’s executive officers subject only to continued service as of the vesting dates. These shares, which have a grant date fair value of $138.93, will vest 25% in the first quarter of 2022 and 25% on each January 1 for the subsequent three years. The shares are being expensed on a straight-line basis over the remaining service period.

During the fourth quarter of 2019, the Committee adopted the Equity Award Retirement Policy (the “retirement policy”) which allows for accelerated vesting of unvested shares for retirement-eligible employees (defined as employees who meet certain age and years of service requirements). In order to qualify for accelerated vesting upon retirement, the eligible employees must provide required notification under the retirement policy and must retire from the Company. The Company has adjusted its stock-based compensation expense to accelerate the recognition of expense for retirement-eligible employees.

Following is a summary of the total restricted shares granted, forfeited and delivered (vested) to participants with the related weighted average grant date fair value share prices.  Of the shares that vested in the three months ended March 31, 2021, the Company withheld 30,252 shares to satisfy the tax obligations for those participants who elected this option as permitted under the applicable equity plan.  As of the vesting dates, the aggregate fair value of shares that vested during the three months ended March 31, 2021, was $10,322,000.
Three Months Ended
Award Activity:March 31, 2021
  
 
Shares
Weighted Average Grant Date Fair Value
Unvested at beginning of period113,403 $100.89 
Granted (1) (2)
57,423 106.80 
Forfeited   
Vested (73,692)91.59 
Unvested at end of period 97,134 $111.44 

(1) Includes shares granted in prior years for which performance conditions have been satisfied and the number of shares have been determined.
(2) Does not include the restricted shares that may be earned if the performance goals established in 2019 and 2020 for long-term performance and in 2021 for annual and long-term performance are achieved. Depending on the actual level of achievement of the goals at the end of the open performance periods, the number of shares earned could range from zero to 118,911.

(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC 820 also provides guidance for using fair value to measure financial assets and liabilities.  The Codification requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).


-20-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments in accordance with ASC 820 at March 31, 2021 and December 31, 2020.
 March 31, 2021December 31, 2020
 
Carrying Amount (1)
Fair Value
Carrying Amount (1)
Fair Value
 (In thousands)
Financial Assets:    
Cash and cash equivalents$68 68 21 21 
   Interest rate swap assets                             1,178 1,178   
Financial Liabilities:    
 Unsecured bank credit facilities - variable rate (2)
92,318 92,438 125,000 124,820 
Unsecured debt (2)
1,160,000 1,207,611 1,110,000 1,141,803 
Secured debt (2)
36,828 37,636 79,096 80,435 
   Interest rate swap liabilities                                     3,716 3,716 10,752 10,752 
(1) Carrying amounts shown in the table are included on the Consolidated Balance Sheets under the indicated captions, except as explained in the notes below.
(2) Carrying amounts and fair values shown in the table exclude debt issuance costs (see Note 10 for additional information).

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents:  The carrying amounts approximate fair value due to the short maturity of those instruments.
Interest rate swap assets (included in Other assets on the Consolidated Balance Sheets): The instruments are recorded at fair value based on models using inputs, such as interest rate yield curves, LIBOR swap curves and OIS curves, observable for substantially the full term of the contract (Level 2 input). See Note 14 for additional information on the Company’s interest rate swaps.
Unsecured bank credit facilities: The fair value of the Company’s unsecured bank credit facilities is estimated by discounting expected cash flows at current market rates (Level 2 input), excluding the effects of debt issuance costs.
Unsecured debt:  The fair value of the Company’s unsecured debt is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input), excluding the effects of debt issuance costs.
Secured debt: The fair value of the Company’s secured debt is estimated by discounting expected cash flows at the rates currently offered to the Company for debt of the same remaining maturities, as advised by the Company’s bankers (Level 2 input), excluding the effects of debt issuance costs.
Interest rate swap liabilities (included in Other liabilities on the Consolidated Balance Sheets): The instruments are recorded at fair value based on models using inputs, such as interest rate yield curves, LIBOR swap curves and OIS curves, observable for substantially the full term of the contract (Level 2 input). See Note 14 for additional information on the Company’s interest rate swaps.

(18) RISKS AND UNCERTAINTIES
The state of the overall economy can significantly impact the Company’s operational performance and thus impact its financial position.  Should EastGroup experience a significant decline in operational performance due to the current coronavirus (“COVID-19”) pandemic, as discussed below, or other general economic conditions, it may affect the Company’s ability to make distributions to its shareholders, service debt, or meet other financial obligations.

On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The United States, which is where EastGroup’s properties are located, has experienced widespread infection. Although COVID-19 vaccines are actively being administered, and state and local governments, including in those jurisdictions where EastGroup’s properties are located, have in many cases rescinded the actions (such as “stay-at-home” directives) intended to mitigate the impact of the pandemic, the impact of the rapidly changing market and economic conditions created by the pandemic remains uncertain. EastGroup remains unable to predict the ultimate impact that COVID-19 will have on its business, financial condition, results of operations and cash flows.

EastGroup’s ability to lease its properties and collect rental revenues and expense reimbursements is dependent upon national, regional and local economic conditions. The potential inability to renew leases, lease vacant space or re-lease space as leases expire on favorable terms, or at all, could cause a decline in the Company’s receipt of rental payments. The Company has been in communication with a portion of its customer base regarding rent relief requests and has executed rent deferral agreements
-21-

EASTGROUP PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
totaling $1.7 million, all of which were applicable to periods through December 31, 2020. The majority of these deferral agreements ($1.4 million of the $1.7 million) qualify under modified COVID-19-related guidance provided by the FASB for rental income to be recognized in the periods in which they were charged under the original terms of the leases. When requests were made, they were handled on a case-by-case basis, and the Company’s responses were largely dependent on its understanding of the financial strength of the customer, the operational and earnings impacts being experienced by the customer, and the customer’s ability or inability to obtain capital through debt or equity issuances, government assistance programs or by other means.
Some of the Company’s customers are experiencing a deterioration in their financial position, results of operations and cash flows; as a result, they may not be able to pay their rent and expense reimbursements, which could adversely affect EastGroup’s financial condition, results of operations and cash flows.
Federal, state and local government restrictions associated with the mitigation efforts to prevent the spread of COVID-19 could prevent EastGroup’s customers from accessing their leased space and operating their businesses; such restrictions could also impact the Company’s ability to operate its business, which may cause the business and operating results to decline or impact the Company’s ability to comply with regulatory obligations leading to reputational harm and regulatory issues or fines. Such restrictions could also inhibit the Company’s ability to lease vacant space in its operating portfolio and its development and value-add program. In addition, government restrictions could prevent construction of tenant improvements and development projects, which could delay construction completion and lease commencement dates. In each case, EastGroup may experience an adverse impact on its financial condition and results of operations.
The health and well-being of EastGroup’s customers, employees, directors and other stakeholders is of great importance to the Company. The Company is providing paid leave for employees to obtain the COVID-19 vaccine. The Company is striving to accommodate flexible working arrangements for its employees to ensure the health and safety of its team, while employees are continuing to perform job duties and provide services to the Company’s customers and other stakeholders. There are risks associated with remote working arrangements, including, but not limited to, risks related to cyber-security. EastGroup is continuing to monitor and adhere to federal, state and local government guidelines regarding its work arrangements with the goal of preventing the spread of COVID-19 to the Company’s workforce, customers and communities. There are risks and uncertainties related to the health of the Company’s employees and directors; any potential deterioration of the health of key personnel could impact EastGroup’s business operations.
(19) LEGAL MATTERS