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REAL ESTATE PROPERTY ACQUISITIONS AND ACQUIRED INTANGIBLES | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Real Estate Property Acquisitions and Acquired Intangibles | 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 (or disposals) 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 (or disposed of) 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 2018 and the first nine months of 2019 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 2018 and 2019 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. Goodwill for business combinations is recorded when the purchase price exceeds the fair value of the assets and liabilities acquired. 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. 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 fair market rates 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 $1,321,000 and $3,653,000 for the three and nine months ended September 30, 2019, respectively, and $1,157,000 and $3,202,000 for the same periods in 2018. Amortization of above and below market leases increased rental income by $366,000 and $842,000 for the three and nine months ended September 30, 2019, respectively, and $217,000 and $477,000 for the same periods in 2018. During the nine months ended September 30, 2019, the Company acquired the following operating properties: Airways Business Center in Denver; 385 Business Park in Greenville; and Grand Oaks 75 Business Center 1 in Tampa. The Company also acquired the following value-add properties: Logistics Center 6 & 7 in Dallas; Arlington Tech Centre 1 & 2 in Arlington (Dallas); and Grand Oaks 75 Business Center 2 in Tampa. 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 $118,591,000, of which $74,467,000 was allocated to Real estate properties and $38,035,000 was allocated to Development and value-add properties. EastGroup allocated $16,115,000 of the total purchase price to land using third party land valuations for the Denver, Greenville, Tampa and Dallas markets. Logistics Center 6 & 7 is located on land under a ground lease; therefore, no value was allocated to land for this transaction. 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). Intangibles associated with the purchase of real estate were allocated as follows: $7,406,000 to in-place lease intangibles and $312,000 to above market leases (both included in Other assets on the Consolidated Balance Sheets) and $1,629,000 to below market leases (included in Other liabilities on the Consolidated Balance Sheets). These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition. Also during the nine months ended September 30, 2019, EastGroup acquired 6.5 acres of land in San Diego for $13,386,000. In connection with the acquisition, the Company allocated value to land and below market leases. EastGroup recorded land of $13,979,000 based on third party land valuations for the San Diego market. The market values are considered to be Level 3 inputs as defined by ASC 820, Fair Value Measurement. This land, which is included in Real estate properties on the Consolidated Balance Sheets, is currently leased to a tenant that operates a parking lot on the site. The Company recorded $593,000 to below market leases in connection with this land acquisition. These costs are amortized over the remaining life of the associated lease in place at the time of acquisition. During the year ended December 31, 2018, the Company acquired the following operating properties: Gwinnett 316 in Atlanta; Eucalyptus Distribution Center in Chino (Los Angeles); Allen Station I & II in Dallas; and Greenhill Distribution Center in Austin. The Company also acquired one value-add property, Siempre Viva Distribution Center I in San Diego. At the time of acquisition, Siempre Viva I was classified in the lease-up phase. The total cost for the properties acquired by the Company was $71,086,000, of which $54,537,000 was allocated to Real estate properties and $13,934,000 was allocated to Development and value-add properties. EastGroup allocated $23,263,000 of the total purchase price to land using third party land valuations for the Atlanta, Dallas, Austin, San Diego and Chino (Los Angeles) markets. Intangibles associated with the purchase of real estate were allocated as follows: $4,350,000 to in-place lease intangibles and $21,000 to above market leases and $1,756,000 to below market leases. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition. 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 periods ended September 30, 2019 and September 30, 2018.

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