STOCK-BASED COMPENSATION

The Company follows the provisions of ASC 718, Compensation – Stock Compensation, to account for its stock-based compensation plans. 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.

Equity Incentive Plan

The Company has a management incentive plan which was approved by the stockholders and adopted in 2004. The Plan was further amended by the Board of Directors in September 2005 and December 2006. This plan authorizes the issuance of up to 1,900,000 shares of common stock to employees in the form of options, stock appreciation rights, restricted stock, deferred stock units, performance shares, bonus stock or stock in lieu of cash compensation. Total shares available for grant were 1,330,619 shares, 1,406,156 shares and 1,481,850 shares at December 31, 2012, 2011, and 2010, respectively. Typically, the Company issues new shares to fulfill stock grants or upon the exercise of stock options.

Stock-based compensation cost was $4,087,000, $2,486,000 and $1,801,000 for 2012, 2011 and 2010, respectively, of which $920,000, $304,000 and $43,000 were capitalized as part of the Company’s development costs for the respective years.

Equity Awards

The purpose of the restricted stock plan is to act as a retention device since it allows participants to benefit from dividends on shares as well as potential stock appreciation. The vesting periods of the Company’s restricted stock plans vary; the vesting period begins on the date of grant and generally ranges from 2.5 years to 9 years from the date of grant. Restricted stock is granted to executive officers subject to both continued service and the satisfaction of certain annual performance goals and multi-year market conditions as determined by the Compensation Committee. Restricted stock is granted to non-executive officers subject only to continued service. Under the modified prospective application method, the Company continues to recognize compensation cost on a straight-line basis over the service period for awards that precede January 1, 2006. The cost for performance-based awards after January 1, 2006 is amortized 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. This method accelerates the expensing of the award compared to the straight-line method. The cost for market-based awards after January 1, 2006 and awards that only require service is amortized on a straight-line basis over the requisite service periods.

The total compensation expense for service and performance based awards is based upon the fair market value of the shares on the grant date, adjusted for estimated forfeitures. The grant date fair value for awards that have been granted and are subject to a future market condition (total shareholder return) is determined using a simulation pricing model developed to specifically accommodate the unique features of the awards.

In March 2012, the Compensation Committee evaluated the Company's performance compared to a variety of goals for the year ended December 31, 2011. Based on the evaluation, 44,789 shares were awarded to the Company’s executive officers at a weighted average grant date fair value of $48.75 per share. These shares vested 20% on the dates shares were determined and awarded, 20% on December 19, 2012, and will vest 20% per year on January 1 in years 2014, 2015 and 2016. The shares will be expensed on a straight-line basis over the remaining service period.

Also in March 2012, the Committee evaluated the Company’s absolute and relative total stockholder return for the five-year period ended December 31, 2011. Based on the evaluation, 47,418 shares were awarded to the Company’s executive officers at a weighted average grant date fair value of $48.75 per share. These shares vested 25% on the dates shares were awarded, 25% on December 19, 2012, and will vest 25% per year on January 1 in years 2014 and 2015. The shares will be expensed on a straight-line basis over the remaining service period.

In the second quarter of 2012, the Company’s Board of Directors approved an equity compensation plan for its executive officers based upon the attainment of certain annual performance goals. These goals are for the year ended December 31, 2012, so any shares issued upon attainment of these goals will be determined by the Compensation Committee in the first quarter of 2013. The number of shares to be issued on the grant date could range from zero to 51,369. These shares will vest 20% on the date shares are determined and awarded and generally will vest 20% per year on each January 1 for the subsequent four years.

Also in the second quarter of 2012, EastGroup’s Board of Directors approved an equity compensation plan for the Company’s executive officers based on EastGroup’s absolute and relative total stockholder return compared to the NAREIT Equity Index, NAREIT Industrial Index and Russell 2000 Index for the five-year period ended December 31, 2012, so any shares issued pursuant to this equity compensation plan will be determined by the Compensation Committee in the first quarter of 2013. The number of shares to be issued on the grant date could range from zero to 54,335. These shares will vest 25% on the date shares are determined and awarded and generally will vest 25% per year on each January 1 in years 2014, 2015 and 2016.

Notwithstanding the foregoing, shares issued to the Company’s Chief Executive Officer, David H. Hoster II, and Chief Financial Officer, N. Keith McKey, will become fully vested no later than January 1, 2015 and April 6, 2016, respectively.

In the second quarter of 2012, 19,525 shares were granted to certain non-executive officers subject only to continued service as of the vesting date. These shares, which have a grant date fair value of $48.96 per share, will vest 20% per year on January 1 in years 2013, 2014, 2015, 2016 and 2017.

During the restricted period for awards no longer subject to contingencies, the Company accrues dividends and holds the certificates for the shares; however, the employee can vote the shares. For shares subject to contingencies, dividends are accrued based upon the number of shares expected to be awarded. Share certificates and dividends are delivered to the employee as they vest. As of December 31, 2012, there was $7,293,000 of unrecognized compensation cost related to unvested restricted stock compensation that is expected to be recognized over a weighted average period of 3.58 years.

Following is a summary of the total restricted shares granted, forfeited and delivered (vested) to employees with the related weighted average grant date fair value share prices for 2012, 2011 and 2010. Of the shares that vested in 2012, 2011 and 2010, 36,195 shares, 3,564 shares and 19,668 shares, respectively, were withheld by the Company to satisfy the tax obligations for those employees who elected this option as permitted under the applicable equity plan. As shown in the table below, the fair value of shares that were granted during 2012, 2011 and 2010 was $5,451,000, $3,576,000 and $5,002,000, respectively. As of the vesting date, the fair value of shares that vested during 2012, 2011 and 2010 was $6,630,000, $613,000 and $3,591,000, respectively.



Restricted Stock Activity:	Years Ended December 31,
	2012				2011				2010
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Unvested at beginning of year	235,929		$	38.90	170,575		$	36.29	124,080		$	36.93
Granted ⁽¹⁾	111,732		48.79		79,491		44.99		135,704		36.86
Forfeited	—		—		(233	)	35.85		—		—
Vested	(135,455	)	40.88		(13,904	)	41.77		(89,209	)	38.05
Unvested at end of year	212,206		42.84		235,929		38.90		170,575		36.29


(1)	Includes shares granted in prior years for which performance conditions have been satisfied and the number of shares have been determined.

Following is a vesting schedule of the total unvested shares as of December 31, 2012:



Unvested Shares Vesting Schedule		Number of Shares
2013		9,366
2014		55,440
2015		59,111
2016		24,587
2017		15,702
2018		12,000
2019		16,200
2020		19,800
Total Unvested Shares		212,206

Employee Stock Options

The Company has not granted stock options to employees since 2002. Outstanding employee stock options vested equally over a two-year period; accordingly, all options are now vested. There were no employee stock option exercises during 2012. The intrinsic value realized by employees from the exercise of options during 2011 and 2010 was $5,000 and $74,000, respectively. There were no employee stock options granted, forfeited, or expired during the years presented. Following is a summary of the total employee stock options exercised with related weighted average exercise share prices for 2012, 2011 and 2010.



Stock Option Activity:	Years Ended December 31,
	2012			2011				2010
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	—	$	—	250		$	25.30	4,750		$	21.80
Exercised	—	—		(250	)	25.30		(4,500	)	21.61
Outstanding at end of year	—	—		—		—		250		25.30
Exercisable at end of year	—	$	—	—		$	—	250		$	25.30

Directors Equity Plan

The Company has a directors equity plan that was approved by stockholders and adopted in 2005 (the 2005 Plan), which authorizes the issuance of up to 50,000 shares of common stock through awards of shares and restricted shares granted to non-employee directors of the Company. The 2005 Plan replaced prior plans under which directors were granted stock option awards. Outstanding grants under prior plans will be fulfilled under those plans.

Directors were issued 7,326 shares, 6,618 shares and 6,690 shares of common stock for 2012, 2011 and 2010, respectively. There were 9,127 shares available for grant under the 2005 Plan at December 31, 2012.

Stock-based compensation expense for directors was $330,000, $270,000 and $240,000 for 2012, 2011 and 2010, respectively. The intrinsic value realized by directors from the exercise of options was $116,000, $183,000 and $208,000 for 2012, 2011 and 2010, respectively.

There were no director stock options granted or expired during the years presented below. Following is a summary of the total director stock options exercised with related weighted average exercise share prices for 2012, 2011 and 2010.



Stock Option Activity:	Years Ended December 31,
	2012				2011				2010
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	9,000		$	25.31	18,000		$	24.33	31,500		$	23.65
Exercised	(4,500	)	24.02		(9,000	)	23.36		(13,500	)	22.74
Outstanding at end of year	4,500		26.60		9,000		25.31		18,000		24.33
Exercisable at end of year	4,500		$	26.60	9,000		$	25.31	18,000		$	24.33



Director outstanding stock options at December 31, 2012, all exercisable:
Exercise Price Range	Number	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Intrinsic Value
$26.60	4,500	0.4 years	$	26.60	$	122,000