News Column

EASTGROUP PROPERTIES INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

July 21, 2014

OVERVIEW

EastGroup's goal is to maximize shareholder value by being the leading provider in its markets of functional, flexible and quality business distribution space for location sensitive tenants primarily in the 5,000 to 50,000 square foot range. The Company develops, acquires and operates distribution facilities, the majority of which are clustered around major transportation features in supply constrained submarkets in major Sunbelt regions. The Company's core markets are in the states of Florida, Texas, Arizona, California and North Carolina. The Company believes its current operating cash flows and unsecured bank credit facilities provide the capacity to fund the operations of the Company. The Company also believes it can issue common and/or preferred equity and obtain financing from insurance companies and financial institutions. The continuous common equity program provided net proceeds to the Company of $39.4 million in the first six months of 2014, as described in Liquidity and Capital Resources. The Company's primary revenue is rental income; as such, EastGroup's primary challenge is leasing space. During the six months ended June 30, 2014, leases expired on 2,367,000 square feet (7.2% of EastGroup's total square footage of 32,999,000), and the Company was successful in renewing or re-leasing 80% of the expiring square feet. In addition, EastGroup leased 628,000 square feet of other vacant space during this period. During the first six months of 2014, average rental rates on new and renewal leases increased by 8.9%. Property net operating income (PNOI) from same properties, defined as operating properties owned during the entire current period and prior year reporting period, increased 1.8% for the quarter ended June 30, 2014, as compared to the same quarter in 2013. For the six months ended June 30, 2014, PNOI from same properties increased 1.5% as compared to the same period last year. EastGroup's total leased percentage was 95.7% at June 30, 2014, compared to 95.5% at June 30, 2013. Leases scheduled to expire for the remainder of 2014 were 4.0% of the portfolio on a square foot basis at June 30, 2014, and this figure was reduced to 3.5% as of July 18, 2014. The Company generates new sources of leasing revenue through its development and acquisition programs. During the first six months of 2014, EastGroup acquired operating properties totaling 535,000 square feet in Charlotte and Austin for $41.8 million. EastGroup continues to see targeted development as a contributor to the Company's long-term growth. The Company mitigates risks associated with development through a Board-approved maximum level of land held for development and by adjusting development start dates according to leasing activity. During the first six months of 2014, EastGroup acquired 28.6 acres of development land in Dallas for $3,022,000. Also during the first six months of 2014, the Company began construction of 11 development projects containing 897,000 square feet in Houston, San Antonio, Charlotte, Orlando and Phoenix. EastGroup also transferred three properties (265,000 square feet) in Phoenix, Charlotte and Houston from its development program to real estate properties with costs of $17.0 million at the date of transfer. As of June 30, 2014, EastGroup's development program consisted of 21 projects (1,839,000 square feet) located in Houston, San Antonio, Orlando, Charlotte, Phoenix and Denver. The projected total cost for the development projects, which were collectively 49% leased as of July 18, 2014, is $135.2 million, of which $40.8 million remained to be invested as of June 30, 2014. Typically, the Company initially funds its development and acquisition programs through its $250 million unsecured bank credit facilities (as discussed in Liquidity and Capital Resources). As market conditions permit, EastGroup issues equity and/or employs fixed-rate debt to replace short-term bank borrowings. In March 2014, Moody's Investor Services affirmed the Company's issuer rating of Baa2 with a stable outlook. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. The Company intends to obtain primarily unsecured fixed rate debt in the future. The Company may also access the public debt market in the future as a means to raise capital. EastGroup has one reportable segment - industrial properties. These properties are primarily located in major Sunbelt regions of the United States, have similar economic characteristics and also meet the other criteria permitting the properties to be aggregated into one reportable segment. The Company's chief decision makers use two primary measures of operating results in making decisions: (1) property net operating income (PNOI), defined as Income from real estate operations less Expenses from real estate operations (including market-based internal management fee expense) plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments, and (2) funds from operations attributable to common stockholders (FFO), defined as net income (loss) attributable to common stockholders computed in accordance with U.S. generally accepted accounting principles (GAAP), excluding gains or losses from sales of depreciable real estate property and impairment losses, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO based on the National Association of Real Estate Investment Trusts' (NAREIT) definition. -17- -------------------------------------------------------------------------------- PNOI is a supplemental industry reporting measurement used to evaluate the performance of the Company's real estate investments. The Company believes the exclusion of depreciation and amortization in the industry's calculation of PNOI provides a supplemental indicator of the properties' performance since real estate values have historically risen or fallen with market conditions. PNOI as calculated by the Company may not be comparable to similarly titled but differently calculated measures for other real estate investment trusts (REITs). The major factors influencing PNOI are occupancy levels, acquisitions and sales, development properties that achieve stabilized operations, rental rate increases or decreases, and the recoverability of operating expenses. The Company's success depends largely upon its ability to lease space and to recover from tenants the operating costs associated with those leases. PNOI is comprised of Income from real estate operations, less Expenses from real estate operations plus the Company's share of income and property operating expenses from its less-than-wholly-owned real estate investments. PNOI was calculated as follows for the three and six months ended June 30, 2014 and 2013. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (In thousands) Income from real estate operations $ 53,801 48,957 106,578 97,110 Expenses from real estate operations (15,625 ) (13,663 ) (30,637 ) (27,204 ) Noncontrolling interest in PNOI of consolidated 80% joint ventures (204 ) (242 ) (427 ) (486 ) PNOI from 50% owned unconsolidated investment 198 199 396 397 PROPERTY NET OPERATING INCOME $ 38,170 35,251 75,910 69,817 Income from real estate operations is comprised of rental income, expense reimbursement pass-through income and other real estate income including lease termination fees. Expenses from real estate operations is comprised of property taxes, insurance, utilities, repair and maintenance expenses, management fees, other operating costs and bad debt expense. Generally, the Company's most significant operating expenses are property taxes and insurance. Tenant leases may be net leases in which the total operating expenses are recoverable, modified gross leases in which some of the operating expenses are recoverable, or gross leases in which no expenses are recoverable (gross leases represent only a small portion of the Company's total leases). Increases in property operating expenses are fully recoverable under net leases and recoverable to a high degree under modified gross leases. Modified gross leases often include base year amounts and expense increases over these amounts are recoverable. The Company's exposure to property operating expenses is primarily due to vacancies and leases for occupied space that limit the amount of expenses that can be recovered.



The following table presents reconciliations of Net Income to PNOI for the three and six months ended June 30, 2014 and 2013.

Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (In thousands) NET INCOME $ 9,242 7,790 17,756 15,098 Interest income (125 ) (135 ) (252 ) (268 ) Gain on sales of real estate investments - - (95 ) - Company's share of interest expense from unconsolidated investment 71 74 142 148 Company's share of depreciation from unconsolidated investment 33 34 66 67 Other income (18 ) (139 ) (53 ) (186 ) Interest rate swap ineffectiveness 1 (29 ) 1 (29 ) Income from discontinued operations - (35 ) - (36 ) Depreciation and amortization from continuing operations 17,154 16,301 34,322 31,863 Interest expense 8,898 8,717 17,884 17,338 General and administrative expense 2,958 2,777 6,406 6,141 Acquisition costs 160 138 160 167 Noncontrolling interest in PNOI of consolidated 80% joint ventures (204 ) (242 ) (427 ) (486 ) PROPERTY NET OPERATING INCOME $ 38,170 35,251 75,910 69,817 -18-

-------------------------------------------------------------------------------- The Company believes FFO is a meaningful supplemental measure of operating performance for equity REITs. The Company believes excluding depreciation and amortization in the calculation of FFO is appropriate since real estate values have historically increased or decreased based on market conditions. FFO is not considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance, nor is it a measure of the Company's liquidity or indicative of funds available to provide for the Company's cash needs, including its ability to make distributions. In addition, FFO, as reported by the Company, may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition. The Company's key drivers affecting FFO are changes in PNOI (as discussed above), interest rates, the amount of leverage the Company employs and general and administrative expense. The following table presents reconciliations of Net Income Attributable to EastGroup Properties, Inc. Common Stockholders to FFO Attributable to Common Stockholders for the three and six months ended June 30, 2014 and 2013. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 (In thousands, except per share data) NET INCOME ATTRIBUTABLE TO EASTGROUP PROPERTIES, INC. COMMON STOCKHOLDERS $ 9,118 7,643 17,490 14,797 Depreciation and amortization from continuing operations 17,154 16,301 34,322 31,863 Depreciation and amortization from discontinued operations - 27 - 80 Company's share of depreciation from unconsolidated investment 33 34 66 67 Depreciation and amortization from noncontrolling interest (51 ) (66 ) (103 ) (128 ) Gain on sales of real estate investments - - (95 ) - FUNDS FROM OPERATIONS (FFO) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 26,254 23,939 51,680 46,679 Net income attributable to common stockholders per diluted share $ 0.29 0.25 0.56 0.49 Funds from operations (FFO) attributable to common stockholders per diluted share $ 0.84 0.80 1.66 1.56 Diluted shares for earnings per share and funds from operations 31,244 30,096 31,063 29,990



The Company analyzes the following performance trends in evaluating the progress of the Company:

The FFO change per share represents the increase or decrease in FFO per

share from the current period compared to the same period in the prior year. FFO per share for the second quarter of 2014 was $.84 per share



compared with $.80 per share for the same period of 2013, an increase of

5.0%. For the six months ended June 30, 2014, FFO was $1.66 per share

compared with $1.56 per share for the same period of 2013, an increase of

6.4%.



For the three months ended June 30, 2014, PNOI increased by $2,919,000, or

8.3%, compared to the same period in 2013. PNOI increased $1,455,000 from newly developed properties, $912,000 from 2013 and 2014 acquisitions and $634,000 from same property operations. For the six months ended June 30, 2014, PNOI increased by $6,093,000, or 8.7%, compared to the same period in 2013. PNOI increased $3,121,000 from newly developed properties, $2,086,000 from 2013 and 2014 acquisitions and $1,003,000 from same property operations.



The same property net operating income change represents the PNOI increase

or decrease for the same operating properties owned during the entire

current period and prior year reporting period. PNOI from same properties

increased 1.8% for the three months ended June 30, 2014, and increased

1.5% for the six months compared to the same periods in 2013. Same property average occupancy represents the average month-end



percentage of leased square footage for which the lease term has commenced

as compared to the total leasable square footage for the same operating

properties owned during the entire current period and prior year reporting

period. Same property average occupancy for the three months ended

June 30, 2014, was 95.2% compared to 94.0% for the same period of 2013.

Same property average occupancy for the six months ended June 30, 2014,

was 95.0% compared to 93.8% for the same period of 2013.



The same property average rental rate represents the average annual rental

rates of leases in place for the same operating properties owned during

the entire current period and prior year reporting period. The same

property average rental rate was $5.17 per square foot for the three

months ended June 30, 2014, compared to $4.99 per square foot for the same

-19- -------------------------------------------------------------------------------- period of 2013. The same property average rental rate was $5.14 per square foot for the six months ended June 30, 2014, compared to $4.97 per square foot for the same period of 2013.



Occupancy is the percentage of leased square footage for which the lease

term has commenced as compared to the total leasable square footage as of

the close of the reporting period. Occupancy at June 30, 2014, was

95.0%. Quarter-end occupancy ranged from 94.2% to 95.7% over the period

from June 30, 2013 to March 31, 2014.



Rental rate change represents the rental rate increase or decrease on new

and renewal leases compared to the prior leases on the same space. Rental

rate increases on new and renewal leases (3.3% of total square footage)

averaged 12.9% for the second quarter of 2014. For the six months ended June 30, 2014, rental rate increases on new and renewal leases (7.7% of total square footage) averaged 8.9%.



Lease termination fee income for the three and six months ended June 30,

2014 was $19,000 and $138,000, respectively. EastGroup recorded no lease

termination fee income during the three months ended June 30, 2013; the

Company recorded termination fee income of $427,000 for the six months

ended June 30, 2013. The Company recorded net bad debt recoveries of

$20,000 and $7,000 for the three and six months ended June 30, 2014,

respectively. Bad debt expense for the same periods in 2013 were $49,000

and $96,000, respectively. -20-

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's management considers the following accounting policies and estimates to be critical to the reported operations of the Company.

Real Estate Properties The Company allocates the purchase price of acquired properties to net tangible and identified intangible assets based on their respective fair values. Goodwill 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 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. During the period in which a property is under development, costs associated with development (i.e., land, construction costs, interest expense, property taxes and other direct and indirect 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 directly or indirectly related to such development activities. The internal costs are allocated to specific development properties based on construction activity. The Company reviews its real estate investments for impairment of value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any real estate investment is considered permanently impaired, a loss is recorded to reduce the carrying value of the property to its estimated fair value. Real estate assets to be sold are reported at the lower of the carrying amount or fair value less selling costs. The evaluation of real estate investments involves many subjective assumptions dependent upon future economic events that affect the ultimate value of the property. Currently, the Company's management knows of no impairment issues nor has it experienced any impairment issues in recent years. EastGroup currently has the intent and ability to hold its real estate investments and to hold its land inventory for future development. In the event of impairment, the property's basis would be reduced, and the impairment would be recognized as a current period charge on the Consolidated Statements of Income and Comprehensive Income. Valuation of Receivables The Company is subject to tenant defaults and bankruptcies that could affect the collection of outstanding receivables. In order to mitigate these risks, the Company performs credit reviews and analyses on prospective tenants before significant leases are executed and on existing tenants before properties are acquired. On a quarterly basis, the Company evaluates outstanding receivables and estimates the allowance for doubtful accounts. Management specifically analyzes aged receivables, customer credit-worthiness, historical bad debts and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. The Company believes its allowance for doubtful accounts is adequate for its outstanding receivables for the periods presented. In the event the allowance for doubtful accounts is insufficient for an account that is subsequently written off, additional bad debt expense would be recognized as a current period charge on the Consolidated Statements of Income and Comprehensive Income. Tax Status EastGroup, a Maryland corporation, has qualified as a real estate investment trust under Sections 856-860 of the Internal Revenue Code and intends to continue to qualify as such. To maintain its status as a REIT, the Company is required to distribute at least 90% of its ordinary taxable income to its stockholders. If the Company has a capital gain, it has the option of (i) deferring recognition of the capital gain through a tax-deferred exchange, (ii) declaring and paying a capital gain dividend on any recognized net capital gain resulting in no corporate level tax, or (iii) retaining and paying corporate income tax on its net long-term capital gain, with shareholders reporting their proportional share of the undistributed long-term capital gain and receiving a credit or refund of their share of the tax paid by the Company. The Company distributed all of its 2013 taxable income to its stockholders and expects to distribute all of its taxable income in 2014. Accordingly, no significant provision for income taxes was necessary in 2013, nor is any significant income tax provision expected to be necessary for 2014. -21- --------------------------------------------------------------------------------



FINANCIAL CONDITION

EastGroup's assets were $1,548,608,000 at June 30, 2014, an increase of $75,196,000 from December 31, 2013. Liabilities increased $53,130,000 to $1,007,837,000, and equity increased $22,066,000 to $540,771,000 during the same period. The paragraphs that follow explain these changes in detail.

Assets

Real Estate PropertiesReal Estate Properties increased $61,929,000 during the six months ended June 30, 2014, primarily due to property acquisitions (535,000 square feet), capital improvements at the Company's properties and the transfer of three properties from Development, as detailed under Development below. These increases were offset by the sale of one operating property in Oklahoma City for $3,600,000.



Date

REAL ESTATE PROPERTIES ACQUIRED IN 2014 Location Size



Acquired Cost (1)

(Square feet) (In thousands)



Ridge Creek Distribution Center III Charlotte, NC 270,000 05/12/2014 $ 13,606 Colorado Crossing Distribution Center Austin, TX

265,000 06/11/2014 24,358 Total Acquisitions 535,000 $ 37,964



(1) Total cost of the properties acquired was $41,751,000, of which

$37,964,000 was allocated to Real Estate Properties as indicated

above. Intangibles associated with the purchases of real estate were

allocated as follows: $4,660,000 to in-place lease intangibles, $4,000 to

above market leases (both included in Other Assets on the Consolidated

Balance Sheets) and $877,000 to below market leases (included in Other Liabilities on the Consolidated Balance Sheets). All of these costs are



amortized over the remaining lives of the associated leases in place at

the time of acquisition.

During the six months ended June 30, 2014, the Company made capital improvements of $9,153,000 on existing and acquired properties (included in the Capital Expenditures table under Results of Operations). Also, the Company incurred costs of $3,282,000 on development properties subsequent to transfer to Real Estate Properties; the Company records these expenditures as development costs on the Consolidated Statements of Cash Flows.



Development

EastGroup's investment in development at June 30, 2014 consisted of properties in lease-up and under construction of $94,442,000 and prospective development (primarily land) of $90,176,000. The Company's total investment in development at June 30, 2014 was $184,618,000 compared to $148,767,000 at December 31, 2013. Total capital invested for development during the first six months of 2014 was $56,125,000, which consisted of costs of $52,345,000 and $498,000 as detailed in the development activity table below and costs of $3,282,000 on development properties subsequent to transfer to Real Estate Properties. The capitalized costs incurred on development properties 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). The Company capitalized internal development costs of $1,033,000 and $2,180,000 for the three and six months ended June 30, 2014, respectively, compared to $776,000 and $1,845,000 in the same periods of 2013. The increase in capitalized internal development costs in 2014 as compared to 2013 resulted from increased activity in the Company's development program in 2014. During the first six months of 2014, EastGroup purchased 28.6 acres of development land in Dallas for $3,022,000. Costs associated with development land acquisitions are included in the development activity table. The Company transferred three development properties to Real Estate Properties during the first six months of 2014 with a total investment of $16,992,000 as of the date of transfer. -22-

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Costs Incurred For the Six Cumulative Building Costs Transferred in Months Ended as of Estimated Completion DEVELOPMENT 2014 (1) 6/30/2014 6/30/2014 Total Costs Date (In thousands) Building Size (Square LEASE-UP feet) Thousand Oaks 3, San Antonio, TX 66,000 $ - 684 4,984 5,400 07/13 Ten West Crossing 2, Houston, TX 46,000 - 869 4,958 5,600 09/13 World Houston 37, Houston, TX 101,000 - 1,310 6,689 7,400 09/13 Horizon I, Orlando, FL 109,000 - 1,213 6,514 7,700 02/14 Ten West Crossing 4, Houston, TX 68,000 - 1,011 4,472 5,400 02/14 Steele Creek II, Charlotte, NC 71,000 - 1,220 4,561 5,300 03/14 World Houston 39, Houston, TX 94,000 - 3,100 4,736 5,700 06/14 Total Lease-Up 555,000 - 9,407 36,914 42,500 Anticipated Building Completion UNDER CONSTRUCTION Date Steele Creek III, Charlotte, NC 108,000 2,172 4,364 6,536 8,200 08/14 World Houston 41, Houston, TX 104,000 1,184 3,337 4,521 6,900 08/14 Kyrene 202 I, Phoenix, AZ 75,000 971 2,668 3,639 6,700 09/14 Kyrene 202 II, Phoenix, AZ 45,000 575 1,631 2,206 3,900 09/14 Rampart IV, Denver, CO 84,000 - 3,086 4,804 8,300 09/14 Ten West Crossing 5, Houston, TX 101,000 - 3,963 5,375 7,000 09/14 Ten West Crossing 6, Houston, TX 64,000 928 1,659 2,587 4,800 09/14 West Road I, Houston, TX 63,000 1,014 2,026 3,040 4,900 09/14 West Road II, Houston, TX 100,000 1,612 2,991 4,603 6,800 09/14 Horizon II, Orlando, FL 123,000 2,526 3,343 5,869 8,600 10/14 World Houston 40, Houston, TX 202,000 - 5,648 7,678 11,700 10/14 Alamo Ridge I, San Antonio, TX 96,000 1,341 1,590 2,931 6,500 11/14 Alamo Ridge II, San Antonio, TX 62,000 866 707 1,573 4,100 11/14 Steele Creek IV, Charlotte, NC 57,000 938 1,228 2,166 4,300 11/14 Total Under Construction 1,284,000 14,127 38,241



57,528 92,700

Estimated Building Size PROSPECTIVE DEVELOPMENT (Square (PRIMARILY LAND) feet) Phoenix, AZ 286,000 (1,546 ) 233 3,060 20,200 Tucson, AZ 70,000 - - 417 4,900 Fort Myers, FL 663,000 - - 17,858 50,000 Orlando, FL 1,144,000 (2,526 ) 987 23,135 82,600 Tampa, FL 519,000 - 185 7,007 31,100 Jackson, MS 28,000 - - 706 2,000 Charlotte, NC 256,000 (3,110 ) 161 4,405 17,600 Dallas, TX 445,000 - 3,267 4,516 30,800 El Paso, TX 251,000 - - 2,444 11,300 Houston, TX 1,556,000 (4,738 ) (343 ) (2) 23,078 103,000 San Antonio, TX 320,000 (2,207 ) 207 3,550 21,700 Total Prospective Development 5,538,000 (14,127 ) 4,697 90,176 375,200 7,377,000 $ - 52,345 184,618 510,400

DEVELOPMENTS COMPLETED Building AND TRANSFERRED TO REAL Size Building ESTATE PROPERTIES DURING (Square Completion 2014 feet) Date Chandler Freeways, Phoenix, AZ 126,000 $ - - 7,858 11/13 Steele Creek I, Charlotte, NC 71,000 - (46 ) 4,221 02/14 Ten West Crossing 3, Houston, TX 68,000 - 544 4,913 09/13 Total Transferred to Real (3) Estate Properties 265,000 $ - 498 16,992 (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) Represents year-to-date costs incurred for Houston development land, net of development infrastructure cost reimbursements received in the period. (3) Represents cumulative costs at the date of transfer. -23- -------------------------------------------------------------------------------- Accumulated Depreciation Accumulated depreciation on real estate and development properties increased $26,069,000 during the first six months of 2014 due primarily to depreciation expense, partially offset by accumulated depreciation on the property sold in the first quarter. Other Assets Other Assets increased $2,981,000 during the first six months of 2014. A summary of Other Assets follows: June 30, December 31, 2014 2013 (In thousands) Leasing costs (principally commissions) $ 50,350 48,473 Accumulated amortization of leasing costs (19,889 ) (18,855 ) Leasing costs (principally commissions), net of accumulated amortization 30,461 29,618 Straight-line rents receivable 24,886 24,030



Allowance for doubtful accounts on straight-line rents receivable

(269 ) (376 ) Straight-line rents receivable, net of allowance for doubtful accounts 24,617 23,654 Accounts receivable 3,745 4,863 Allowance for doubtful accounts on accounts receivable (343 ) (349 ) Accounts receivable, net of allowance for doubtful accounts 3,402 4,514 Acquired in-place lease intangibles 20,380 16,793



Accumulated amortization of acquired in-place lease intangibles

(6,626 ) (5,366 ) Acquired in-place lease intangibles, net of accumulated amortization 13,754 11,427 Acquired above market lease intangibles 1,623 1,835



Accumulated amortization of acquired above market lease intangibles

(610 ) (659 ) Acquired above market lease intangibles, net of accumulated amortization 1,013 1,176 Mortgage loans receivable 8,816 8,894 Discount on mortgage loans receivable (18 ) (24 ) Mortgage loans receivable, net of discount 8,798 8,870 Loan costs 8,091 8,050 Accumulated amortization of loan costs (4,207 ) (3,601 ) Loan costs, net of accumulated amortization 3,884 4,449 Interest rate swap assets 816 1,692 Goodwill 990 990 Prepaid expenses and other assets 8,673 7,037 Total Other Assets $ 96,408 93,427 Liabilities



Secured Debt decreased $11,161,000 during the six months ended June 30, 2014. The decrease resulted from regularly scheduled principal payments of $11,141,000, the repayment of a mortgage loan with a balance of $11,000 and mortgage loan premium amortization of $9,000. Unsecured Debt remained the same during the six months ended June 30, 2014.

Unsecured Bank Credit Facilities increased $53,440,000 during the six months ended June 30, 2014, as a result of advances of $165,969,000 exceeding repayments of $112,529,000. The Company's credit facilities are described in greater detail under Liquidity and Capital Resources. Accounts Payable and Accrued Expenses increased $7,913,000 during the first six months of 2014. A summary of the Company's Accounts Payable and Accrued Expenses follows: -24- --------------------------------------------------------------------------------

June 30, December 31, 2014 2013 (In thousands) Property taxes payable $ 14,870 15,507 Development costs payable 19,755 7,679 Interest payable 3,594 3,658 Dividends payable on unvested restricted stock 1,807



1,928

Other payables and accrued expenses 4,991



8,332

Total Accounts Payable and Accrued Expenses $ 45,017



37,104

Other Liabilities increased $2,938,000 during the six months ended June 30, 2014. A summary of the Company's Other Liabilities follows:

June 30, December 31, 2014 2013 (In thousands) Security deposits $ 12,086 11,359 Prepaid rent and other deferred income 8,434



10,101

Acquired below-market lease intangibles 3,649



2,972

Accumulated amortization of below-market lease intangibles (1,016 ) (874 ) Acquired below-market lease intangibles, net of accumulated amortization 2,633



2,098

Interest rate swap liabilities 2,130



244

Prepaid tenant improvement reimbursements 1,497 40 Other liabilities 16 16 Total Other Liabilities $ 26,796 23,858 Equity Additional Paid-In Capital increased $41,526,000 during the six months ended June 30, 2014. The increase primarily resulted from the issuance of 634,138 shares of common stock under EastGroup's continuous common equity program with net proceeds to the Company of $39,359,000. See Note 14 in the Notes to Consolidated Financial Statements for information related to the changes in Additional Paid-In Capital on common shares resulting from stock-based compensation.



For the six months ended June 30, 2014, Distributions in Excess of Earnings increased $16,572,000 as a result of dividends on common stock of $34,062,000 exceeding Net Income Attributable to EastGroup Properties, Inc. Common Stockholders of $17,490,000.

Accumulated Other Comprehensive Income (Loss) decreased $2,777,000 during the six months ended June 30, 2014. The decrease resulted from the change in fair value of the Company's interest rate swaps which are further discussed in Note 12 in the Notes to Consolidated Financial Statements. -25- -------------------------------------------------------------------------------- RESULTS OF OPERATIONS (Comments are for the three and six months ended June 30, 2014, compared to the three and six months ended June 30, 2013.) Net Income Attributable to EastGroup Properties, Inc. Common Stockholders for the three and six months ended June 30, 2014, was $9,118,000 ($0.29 per basic and diluted share) and $17,490,000 ($0.56 per basic and diluted share), respectively, compared to $7,643,000 ($0.25 per basic and diluted share) and $14,797,000 ($0.49 per basic and diluted share) for the same periods in 2013. PNOI for the three months ended June 30, 2014, increased by $2,919,000, or 8.3%, compared to the same period in 2013. PNOI increased $1,455,000 from newly developed properties, $912,000 from 2013 and 2014 acquisitions and $634,000 from same property operations. Lease termination fee income was $19,000 for the three months ended June 30, 2014; EastGroup recorded no lease termination fee income during the three months ended June 30, 2013. The Company recorded net bad debt recoveries of $20,000 during the three months ended June 30, 2014, and net bad debt expense of $49,000 during the same period of 2013. Straight-lining of rent increased Income from real estate operations by $347,000 and $285,000 for the three months ended June 30, 2014 and 2013, respectively. PNOI for the six months ended June 30, 2014, increased by $6,093,000, or 8.7%, compared to the same period in 2013. PNOI increased $3,121,000 from newly developed properties, $2,086,000 from 2013 and 2014 acquisitions and $1,003,000 from same property operations. Lease termination fee income was $138,000 and $427,000 for the six months ended June 30, 2014 and 2013, respectively. The Company recorded net bad debt recoveries of $7,000 during the six months ended June 30, 2014, and net bad debt expense of $96,000 during the same period of 2013. Straight-lining of rent increased Income from real estate operations by $1,048,000 and $445,000 for the six months ended June 30, 2014 and 2013, respectively. EastGroup signed 40 leases with free rent concessions on 850,000 square feet during the three months ended June 30, 2014, with total free rent concessions of $838,000 over the lives of the leases. During the same period of 2013, the Company signed 49 leases with free rent concessions on 1,282,000 square feet with total free rent concessions of $1,693,000 over the lives of the leases. During the six months ended June 30, 2014, EastGroup signed 79 leases with free rent concessions on 1,686,000 square feet, with total free rent concessions of $2,096,000 over the lives of the leases. During the same period of 2013, the Company signed 91 leases with free rent concessions on 2,132,000 square feet with total free rent concessions of $2,432,000 over the lives of the leases. Property expense to revenue ratios, defined as Expenses from Real Estate Operations as a percentage of Income from Real Estate Operations, were 29.0% and 28.7% for the three and six months ended June 30, 2014, respectively, compared to 27.9% and 28.0% for the same periods in 2013. The Company's percentage of leased square footage was 95.7% at June 30, 2014, compared to 95.5% at June 30, 2013. Occupancy at June 30, 2014 was 95.0% compared to 94.2% at June 30, 2013. -26-

-------------------------------------------------------------------------------- Interest Expense increased $181,000 and $546,000 for the three and six months ended June 30, 2014, compared to the same periods in 2013. The following table presents the components of Interest Expense for the three and six months ended June 30, 2014 and 2013: Three Months Ended Six Months Ended June 30, June 30, Increase Increase 2014 2013 (Decrease) 2014 2013 (Decrease) (In thousands, except rates of interest) Average unsecured bank credit facilities borrowings $ 107,591 124,773 (17,182 ) 100,320 101,724 (1,404 ) Weighted average variable interest rates (excluding loan cost amortization) 1.85 % 1.83 % 1.89 % 1.94 % VARIABLE RATE INTEREST EXPENSE Unsecured bank credit facilities interest



(excluding loan cost amortization)

$ 497 567 (70 ) 942 977 (35 ) Amortization of unsecured bank credit facilities costs 103 102 1 206 204 2 Total variable rate interest expense 600 669 (69 ) 1,148 1,181 (33 ) FIXED RATE INTEREST EXPENSE Secured debt interest (excluding loan cost amortization) 6,640 8,077 (1,437 ) 13,355 16,236 (2,881 ) Unsecured debt interest (1) (excluding loan cost amortization) 2,684 1,019 1,665 5,316 2,039 3,277 Amortization of secured debt costs 133 180 (47 ) 267 360 (93 ) Amortization of unsecured debt costs 67 41 26 134 82 52 Total fixed rate interest expense 9,524 9,317 207 19,072 18,717 355 Total interest 10,124 9,986 138 20,220 19,898 322 Less capitalized interest (1,226 ) (1,269 ) 43 (2,336 ) (2,560 ) 224 TOTAL INTEREST EXPENSE $ 8,898 8,717 181 17,884 17,338 546 (1) Includes interest on the Company's unsecured debt with fixed interest rates per the debt agreements or effectively fixed interest rates due to interest rate swaps, as discussed in Note 12 in the Notes to Consolidated Financial Statements. EastGroup's variable rate interest expense decreased by $69,000 for the three months ended June 30, 2014, as compared to the same period of 2013 due to a decrease in average unsecured bank credit facilities borrowings in the second quarter of 2014 as compared to the same period last year. The Company's variable rate interest expense decreased by $33,000 for the six months ended June 30, 2014, as compared to the same period last year due to decreases in the Company's weighted average variable interest rates in the six month period ended June 30, 2014 compared to the same period of 2013. The Company's fixed rate interest expense increased by $207,000 and $355,000 for the three and six months ended June 30, 2014, as compared to the same periods in 2013. These increases were primarily due to increases in unsecured debt interest resulting from the Company's unsecured debt described below. -27-

-------------------------------------------------------------------------------- A summary of Unsecured Debt follows: UNSECURED DEBT Interest Rate Date Obtained Maturity



Date June 30, 2014December 31, 2013

(In thousands) $80 Million Unsecured Term Loan (1) 2.770% 08/31/2012 08/15/2018 $ 80,000 80,000 $50 Million Unsecured Term Loan 3.910% 12/21/2011 12/21/2018 50,000 50,000 $75 Million Unsecured Term Loan (2) 3.752% 12/20/2013 12/20/2020 75,000 75,000 $100 Million Senior Unsecured Notes (3) 3.800% 08/28/2013 08/28/2025 100,000 100,000 $ 305,000 305,000



(1) The interest rate on this unsecured term loan is comprised of LIBOR plus 175

basis points subject to a pricing grid for changes in the Company's coverage

ratings. The Company entered into an interest rate swap to convert the

loan's LIBOR rate to a fixed interest rate, providing the Company an

effective interest rate on the term loan of 2.770% as of June 30, 2014. See

Note 12 in the Notes to Consolidated Financial Statements for additional

information on the interest rate swap.

(2) The interest rate on this unsecured term loan is comprised of LIBOR plus 140

basis points subject to a pricing grid for changes in the Company's coverage

ratings. The Company entered into two interest rate swaps to convert the

loan's LIBOR rate to a fixed interest rate, providing the Company a weighted

average effective interest rate on the term loan of 3.752% as of June 30, 2014. See Note 12 in the Notes to Consolidated Financial Statements for additional information on the interest rate swaps. (3) Principal payments due on the $100 million senior unsecured notes are as



follows: $30 million on August 28, 2020, $50 million on August 28, 2023, and

$20 million on August 28, 2025.

The increase in unsecured debt interest was partially offset by decreases in secured debt interest resulting from regularly scheduled principal payments and debt repayments. Regularly scheduled principal payments on secured debt were $11,141,000 during the six months ended June 30, 2014. During the year ended December 31, 2013, regularly scheduled principal payments on secured debt were $24,420,000. The details of the secured debt repaid in 2013 and 2014 are shown in the following table: SECURED DEBT REPAID IN 2013 AND 2014 Interest Rate Date Repaid Payoff Amount 35th Avenue, Beltway I, Broadway V, Lockwood, Northwest Point, Sunbelt, Techway Southwest I and World Houston 10, 11 & 14 4.75% 08/06/13 $ 33,476,000 Airport Commerce Center I & II, Interchange Park, Ridge Creek Distribution Center I, Southridge XII, Waterford Distribution Center and World Houston 24, 25 & 27 5.75% 12/06/13 50,057,000 Kyrene Distribution Center 9.00% 06/30/14 11,000 Weighted Average/Total Amount 5.35% $ 83,544,000



Interest costs incurred during the period of construction of real estate properties are capitalized and offset against interest expense. Capitalized interest decreased $43,000 and $224,000 for the three and six months ended June 30, 2014, as compared to the same periods of 2013.

Depreciation and Amortization expense from continuing operations increased $853,000 and $2,459,000 for the three and six months ended June 30, 2014, as compared to the same periods in 2013 primarily due to the operating properties acquired by the Company and the properties transferred from Development in 2013 and 2014. -28-

-------------------------------------------------------------------------------- Capital Expenditures Capital expenditures for EastGroup's operating properties for the three and six months ended June 30, 2014 and 2013 were as follows: Three Months Ended Six Months Ended June 30, June 30, Estimated Useful Life 2014 2013 2014 2013 (In thousands) Upgrade on Acquisitions 40 yrs $ 28 166 54 249 Tenant Improvements: New Tenants Lease Life 2,345 2,236 3,974 4,496 New Tenants (first generation) (1) Lease Life 1 14 1 82 Renewal Tenants Lease Life 218 483 1,253 1,298 Other: Building Improvements 5-40 yrs 730 1,016 1,384 1,601 Roofs 5-15 yrs 1,548 1,456 2,150 2,393 Parking Lots 3-5 yrs 63 413 217 561 Other 5 yrs 90 152 120 216 Total Capital Expenditures $ 5,023



5,936 9,153 10,896

(1) First generation refers only to space that has never been occupied under

EastGroup's ownership. Capitalized Leasing Costs The Company's leasing costs (principally commissions) are capitalized and included in Other Assets. The costs are amortized over the terms of the associated leases and are included in Depreciation and Amortization expense. Capitalized leasing costs for the three and six months ended June 30, 2014 and 2013 were as follows: Three Months Ended Six Months Ended June 30, June 30, Estimated Useful Life 2014 2013 2014 2013 (In thousands) Development Lease Life $ 660 913 1,099 1,519 New Tenants Lease Life 925 1,085 1,632 1,750 New Tenants (first generation) (1) Lease Life - 2 - 4 Renewal Tenants Lease Life 727 1,193 2,097 2,271 Total Capitalized Leasing Costs $ 2,312 3,193 4,828 5,544 Amortization of Leasing Costs (2) $ 1,939 1,835 3,922 3,615 (1) First generation refers only to space that has never been occupied under EastGroup's ownership.



(2) Includes discontinued operations.

Discontinued Operations In April 2014, the FASB issued Accounting Standards Update (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, which amends the requirements for reporting discontinued operations. Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported 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, this ASU requires 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. The Company adopted the provisions of ASU 2014-08 beginning with the period ended March 31, 2014, and has applied the provisions prospectively. -29- -------------------------------------------------------------------------------- Prior to the adoption of ASU 2014-08, the results of operations for the operating properties sold or held for sale during the reported periods were shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income. Interest expense was not generally allocated to the properties held for sale or whose operations were included under Discontinued Operations unless the mortgage was required to be paid in full upon the sale of the property. During the first three months of 2014, EastGroup sold one operating property, Northpoint Commerce Center in Oklahoma City. The results of operations and gain on sale for the property sold during the period are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income. The gain on sale is included in Other. As of June 30, 2014, the Company reported one property, Tampa West Distribution Center VI, as held for sale on the June 30, 2014 Consolidated Balance Sheet. The results of operations for the held for sale property are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income.



During 2013, the Company sold three operating properties: Tampa West Distribution Center V and VII and Tampa East Distribution Center II. The results of operations for the properties sold during 2013 are reported under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.

See Note 7 in the Notes to Consolidated Financial Statements for more information related to discontinued operations and gain on sales of real estate investments. The following table presents the components of revenue and expense for the operating properties sold during 2013.


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Source: Edgar Glimpses


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