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REAL ESTATE PROPERTIES

12 Months Ended

Dec. 31, 2020

REAL ESTATE PROPERTIES AND DEVELOPMENT AND VALUE-ADD PROPERTIES

The Company’s Real estate properties and Development and value-add properties at December 31, 2020 and 2019 were as follows:


	December 31,
	2020		2019
	(In thousands)
Real estate properties:
Land	$	502,739	452,698
Buildings and building improvements	2,120,731		1,907,963
Tenant and other improvements	524,954		471,909
Right of use assets — Ground leases (operating) (1)	11,073		11,997
Development and value-add properties (2)	359,588		419,999
	3,519,085		3,264,566
Less accumulated depreciation	(955,328)		(871,139)
	$	2,563,757	2,393,427

(1)See Ground Leases discussion 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.

EastGroup acquired operating properties during 2020, 2019 and 2018 as discussed in Note 1(j).

The Company sold operating properties during 2020, 2019 and 2018 as shown in the table below. The results of operations and gains and losses on sales for the properties sold during the periods presented are reported in continuing operations on the

Consolidated Statements of Income and Comprehensive Income. The gains and losses on sales are included in Gain on sales of real estate investments.

The Company did not classify any properties as held for sale as of December 31, 2020 and 2019.

Sales of Real Estate

A summary of Gain on sales of real estate investments for the years ended December 31, 2020, 2019 and 2018 follows:


Real Estate Properties	Location	Size (in Square Feet)	Date Sold	Net Sales Price		Basis	Recognized Gain
				(In thousands)
2020
University Business Center 120 (1)	Santa Barbara, CA	46,000	12/01/2020	$	10,342	4,007	6,335
Central Green	Houston, TX	80,000	12/23/2020	10,168		3,358	6,810
Total for 2020				$	20,510	7,365	13,145
2019
World Houston 5	Houston, TX	51,000	01/29/2019	$	3,679	1,354	2,325
Altamonte Commerce Center	Orlando, FL	186,000	05/20/2019	14,423		5,342	9,081
University Business Center 130 (2)	Santa Barbara, CA	40,000	11/07/2019	11,083		2,729	8,354
Southpointe Distribution Center	Tucson, AZ	207,000	12/03/2019	13,699		2,281	11,418
University Business Center 125 & 175	Santa Barbara, CA	133,000	12/11/2019	23,675		13,785	9,890
Total for 2019				$	66,559	25,491	41,068
2018
World Houston 18	Houston, TX	33,000	01/26/2018	$	2,289	1,211	1,078
56 Commerce Park	Tampa, FL	181,000	03/20/2018	12,032		2,888	9,144
35th Avenue Distribution Center	Phoenix, AZ	125,000	07/26/2018	7,683		3,632	4,051
Total for 2018				$	22,004	7,731	14,273

(1)EastGroup owned 80% of University Business Center 120 through a joint venture partnership. EastGroup sold its 80% share of the joint venture, and the partnership was dissolved. The information shown for this transaction represents EastGroup's 80% ownership.

(2)EastGroup owned 80% of University Business Center 130 through a joint venture partnership. The information shown for this transaction also includes the 20% attributable to the Company's noncontrolling interest partner.

The table above includes sales of operating properties. During 2020, there were no land sales; however, the Company sold parcels of land during 2019 and 2018. During the year ended December 31, 2019, the Company sold (through eminent domain procedures) a small parcel of land (0.2 acres) in San Diego for $185,000 and recognized a gain on the sale of $83,000. During the year ended December 31, 2018, EastGroup sold a parcel of land in Houston for $2,577,000 and recognized a gain on the sale of $86,000. The net gains on sales of land are included in Other on the Consolidated Statements of Income and Comprehensive Income.

Development and Value-Add Properties

The Company’s development and value-add program as of December 31, 2020, was comprised of the properties detailed in the table below. Costs incurred include capitalization of interest costs during the period of construction. The interest costs capitalized on development projects for 2020 were $9,651,000 compared to $8,453,000 for 2019 and $6,334,000 for 2018. In addition, EastGroup capitalized internal development costs of $6,689,000 during the year ended December 31, 2020, compared to $6,918,000 during 2019 and $4,696,000 in 2018.

Total capital invested for development and value-add properties during 2020 was $195,446,000, which primarily consisted of costs of $170,418,000 as detailed in the Development and Value-Add Properties Activity table below, $18,550,000 as detailed in the Development and Value-Add Properties Transferred to the Real Estate Properties Portfolio During 2020 table below and costs of $5,743,000 on projects subsequent to transfer to Real estate properties. The capitalized costs incurred on development 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).


DEVELOPMENT AND VALUE-ADD PROPERTIES ACTIVITY		Costs Incurred					Anticipated Building Conversion Date
		Costs Transferred in 2020 (1)		For the Year Ended 12/31/20	Cumulative as of 12/31/20	Projected Total Costs (2)
		(In thousands)
	(Unaudited)					(Unaudited)	(Unaudited)
LEASE-UP	Building Size (Square feet)
Gilbert Crossroads A & B, Phoenix, AZ	140,000	$	—	2,818	16,768	17,500	01/21
Rancho Distribution Center, Los Angeles, CA (3)	162,000	—		27,325	27,325	29,400	03/21
CreekView 121 7 & 8, Dallas, TX	137,000	—		9,760	16,559	18,500	04/21
Hurricane Shoals 3, Atlanta, GA	101,000	—		2,182	8,811	10,800	04/21
World Houston 44, Houston, TX	134,000	—		3,336	8,126	9,100	05/21
Gateway 4, Miami, FL	197,000	14,895		7,152	22,047	26,000	06/21
Interstate Commons 2, Phoenix, AZ (3)	142,000	—		2,359	12,241	12,500	06/21
Tri-County Crossing 3 & 4, San Antonio, TX	203,000	—		5,711	14,409	16,100	06/21
Northwest Crossing 1-3, Houston, TX	278,000	—		10,787	22,322	25,900	09/21
Ridgeview 1 & 2, San Antonio, TX	226,000	—		10,562	17,093	19,000	10/21
Settlers Crossing 3 & 4, Austin, TX	173,000	—		9,415	17,504	19,400	10/21
SunCoast 7, Ft. Myers, FL	77,000	3,232		4,141	7,373	8,700	11/21
LakePort 1-3, Dallas, TX	194,000	—		11,719	19,781	22,500	12/21
Total Lease-Up	2,164,000	18,127		107,267	210,359	235,400
UNDER CONSTRUCTION
Gilbert Crossroads C & D, Phoenix, AZ	178,000	4,974		1,643	6,617	21,400	06/22
Steele Creek X, Charlotte, NC	162,000	3,291		943	4,234	12,600	07/22
Basswood 1 & 2, Dallas, TX	237,000	4,580		174	4,754	22,100	10/22
Total Under Construction	577,000	12,845		2,760	15,605	56,100
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)	Estimated Building Size (Square feet)
Phoenix, AZ	—	(4,974)		601	—

Ft. Myers, FL	622,000	(3,232)		3,595	7,866
Miami, FL	376,000	(14,895)		1,006	20,296
Orlando, FL	1,488,000	—		26,603	27,678
Tampa, FL (4)	349,000	—		(78)	5,723
Atlanta, GA	120,000	—		1,392	1,392
Jackson, MS	28,000	—		—	706
Charlotte, NC	313,000	(3,291)		289	4,325
Dallas, TX	1,353,000	(4,580)		22,420	37,428
El Paso, TX	168,000	—		2,587	2,587

Houston, TX	1,223,000	—		1,310	20,758
San Antonio, TX	366,000	—		666	4,865
Total Prospective Development	6,406,000	(30,972)		60,391	133,624
Total Development and Value-Add Properties	9,147,000	$	—	170,418	359,588
The Development and Value-Add Properties Activity table is continued on the following page.


DEVELOPMENT AND VALUE-ADD PROPERTIES TRANSFERRED TO THE REAL ESTATE PROPERTIES PORTFOLIO DURING 2020		Costs Incurred
		Costs Transferred in 2020 (1)		For the Year Ended 12/31/20	Cumulative as of 12/31/20
	(Unaudited)	(In thousands)					(Unaudited)
	Building Size (Square feet)						Building Conversion Date

Logistics Center 6 & 7, Dallas, TX (3)	142,000	$	—	19	15,754		01/20
Settlers Crossing 1, Austin, TX	77,000	—		—	9,259		01/20
Settlers Crossing 2, Austin, TX	83,000	—		—	8,475		01/20
Parc North 5, Dallas, TX	100,000	—		20	8,709		02/20
Airport Commerce Center 3, Charlotte, NC	96,000	—		335	8,891		03/20
Horizon VIII & IX, Orlando, FL	216,000	—		887	17,488		04/20
Ten West Crossing 8, Houston, TX	132,000	—		67	9,831		04/20
Tri-County Crossing 1 & 2, San Antonio, TX	203,000	—		189	15,575		04/20
SunCoast 8, Ft. Myers, FL	77,000	—		3,665	8,149		05/20
CreekView 121 5 & 6, Dallas, TX	139,000	—		2,112	15,263		06/20
Parc North 6, Dallas, TX	96,000	—		2,451	10,741		07/20
SunCoast 6, Ft. Myers, FL	81,000	—		445	8,379		07/20
Arlington Tech Centre 1 & 2, Dallas, TX (3)	151,000	—		578	13,855		08/20
Gateway 5, Miami, FL	187,000	—		1,664	24,769		08/20
Steele Creek IX, Charlotte, NC	125,000	—		1,986	11,106		08/20
Grand Oaks 75 2, Tampa, FL (3)	150,000	—		1,777	14,892		09/20
Rocky Point 2, San Diego, CA (3)	109,000	—		583	19,858		09/20
Southwest Commerce Center, Las Vegas, NV (3)	196,000	—		1,772	28,385		10/20
Total Transferred to Real Estate Properties	2,360,000	$	—	18,550	249,379	(5)

(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 $33.0 million and tenant improvement obligations of $4.9 million on properties under development.

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

(4)Negative amount represents land inventory transferred to Real Estate Properties for trailer storage expansion.

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

Ground Leases

On January 1, 2019, EastGroup adopted the principles of FASB ASC 842, Leases, and its related 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. There were no new ground leases in 2020. As of December 31, 2020 and 2019, the unamortized balances of the Company’s right of use assets for its ground leases were $11,073,000 and $11,997,000, respectively. The right of use assets for ground leases are included in Real estate properties on the Consolidated Balance Sheets.

As of December 31, 2020 and 2019, 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 years ended December 31, 2020, 2019 and 2018 were $1,051,000, $966,000 and $783,000, 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 December 31, 2020, for the ground leases is 42 years.

The following schedule indicates approximate future minimum ground lease payments for these properties by year as of December 31, 2020:

Future Minimum Ground Lease Payments as of December 31, 2020


Years Ending December 31,	(In thousands)
2021	$	970
2022	970
2023	975
2024	999
2025	999
Thereafter	37,917
Total minimum payments	42,830
Imputed interest (1)	(31,631)
Total ground leases	$	11,199

(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 obtained during April 2019, the Company used its incremental borrowing rate, adjusted for the factors discussed above, which was determined to be 8.0%.