REAL ESTATE PROPERTIES

The Company’s Real estate properties and Development at December 31, 2014 and 2013 were as follows:



	December 31,
	2014			2013
	(In thousands)
Real estate properties:
Land	$	283,116		265,871
Buildings and building improvements	1,284,961			1,210,318
Tenant and other improvements	326,896			302,370
Development	179,973			148,767
	2,074,946			1,927,326
Less accumulated depreciation	(600,526		)	(550,113	)
	$	1,474,420		1,377,213

EastGroup acquired operating properties during 2014, 2013 and 2012 as discussed in Note 1(j).

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. In April 2014, the FASB issued 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. 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. ASU 2014-08 is described in further in Note 1(f).

In 2014, the Company sold the following operating properties: Northpoint Commerce Center, Tampa West Distribution Center VI, Clay Campbell Distribution Center, Kirby Business Center and two of its three Ambassador Row Warehouses. The results of operations and gains on sales for the properties sold during 2014 are reported under Income from Continuing Operations on the Consolidated Statements of Income and Comprehensive Income. The gains on sales are included in Gain on sales of real estate investments.

In 2013, the Company sold the following operating properties: Tampa East Distribution Center II, Tampa West Distribution Center V and Tampa West Distribution Center VII. In 2012, the Company sold the following operating properties: Tampa East Distribution Center III, Tampa West Distribution Center VIII, Estrella Distribution Center and Braniff Distribution Center. The results of operations and gains on sales for the properties sold in 2012 and 2013 are reported under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income.

In accordance with the guidelines established under ASC 360, the results of operations for the properties sold or held for sale during 2012 and 2013 are shown under Discontinued Operations on the Consolidated Statements of Income and Comprehensive Income. No interest expense was allocated to the properties held for sale or whose operations are included under Discontinued Operations.

Gain on Sales of Real Estate

A summary of gain on sales of real estate for the years ended December 31, 2014, 2013 and 2012 follows:



Real Estate Properties	Location	Size (in Square Feet)	Date Sold	Net Sales Price		Basis	Recognized Gain
				(In thousands)
2014
Northpoint Commerce Center	Oklahoma City, OK	58,000	03/28/2014	$	3,471	3,376	95
Tampa West Distribution Center VI	Tampa, FL	9,000	07/08/2014	682		446	236
Clay Campbell Distribution Center	Houston, TX	118,000	09/30/2014	7,690		2,826	4,864
Kirby Business Center	Houston, TX	125,000	09/30/2014	5,306		2,989	2,317
Ambassador Row Warehouses	Dallas, TX	132,000	12/30/2014	3,358		1,682	1,676
Total for 2014				$	20,507	11,319	9,188
2013
Tampa West Distribution Center V	Tampa, FL	12,000	12/20/2013	$	609	442	167
Tampa West Distribution Center VII	Tampa, FL	6,000	12/20/2013	422		417	5
Tampa East Distribution Center II	Tampa, FL	31,000	12/30/2013	1,929		1,303	626
Total for 2013				$	2,960	2,162	798
2012
Tampa East Distribution Center III and Tampa West Distribution Center VIII	Tampa, FL	10,500	02/15/2012	$	538	371	167
Estrella Distribution Center	Phoenix, AZ	174,000	06/13/2012	6,861		4,992	1,869
Braniff Distribution Center	Tulsa, OK	259,000	12/27/2012	9,688		5,214	4,474
Total for 2012				$	17,087	10,577	6,510

The table above includes sales of operating properties; the Company also sold parcels of land during the years presented. During the year ended December 31, 2014, EastGroup sold a small parcel of land in Orlando for a net sales price of $118,000 and recognized a gain of $98,000. During 2013, the Company sold a small parcel of land in Orlando for a net sales price of $1,313,000 and recognized a gain of $24,000. EastGroup did not sell any land in 2012. The gains on sales of land are included in Other on the Consolidated Statements of Income and Comprehensive Income.

The following table presents the components of revenues and expenses for the properties sold or held for sale during 2013 and 2012.



DISCONTINUED OPERATIONS	Years Ended December 31,
DISCONTINUED OPERATIONS	2013			2012
	(In thousands)
Income from real estate operations	$	306		1,737
Expenses from real estate operations	(87		)	(448	)
Property net operating income from discontinued operations	219			1,289
Depreciation and amortization	(130		)	(929	)
Income from real estate operations	89			360
Gain on sales of nondepreciable real estate investments, net of tax ⁽¹⁾	—			167
Gain on sales of real estate investments	798			6,343
Income from discontinued operations	$	887		6,870


(1)	The Company recognized taxes of $6,000 on the gains related to the sales of Tampa East Distribution Center III and Tampa West Distribution Center VIII during 2012.

The Company’s development program as of December 31, 2014, 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 properties for 2014 were $4,942,000 compared to $5,064,000 for 2013 and $4,660,000 for 2012. In addition, EastGroup capitalized internal development costs of $4,040,000 during the year ended December 31, 2014, compared to $3,730,000 during 2013 and $2,810,000 in 2012.

Total capital invested for development during 2014 was $97,696,000, which primarily consisted of costs of $69,983,000 and $20,763,000 as detailed in the development activity table below and costs of $6,950,000 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).



DEVELOPMENT		Costs Incurred
DEVELOPMENT		Costs Transferred in 2014 ⁽¹⁾			For the Year Ended 12/31/14		Cumulative as of 12/31/14	Estimated Total Costs ⁽²⁾	Building Completion Date
		(In thousands)
	(Unaudited)							(Unaudited)	(Unaudited)
LEASE-UP	Building Size (Square feet)
Horizon I, Orlando, FL	109,000	$	—		1,811		7,112	7,700	02/14
Steele Creek II, Charlotte, NC	71,000	—			1,582		4,923	5,600	03/14
World Houston 39, Houston, TX	94,000	—			3,420		5,056	5,700	06/14
Steele Creek III, Charlotte, NC	108,000	2,172			5,148		7,320	8,200	07/14
World Houston 41, Houston, TX	104,000	1,184			4,162		5,346	6,900	08/14
Horizon II, Orlando, FL	123,000	2,526			5,134		7,660	8,600	09/14
Ten West Crossing 6, Houston, TX	64,000	928			3,314		4,242	4,800	10/14
West Road I, Houston, TX	63,000	1,014			3,263		4,277	4,900	10/14
Kyrene 202 I, Phoenix, AZ	75,000	971			4,968		5,939	6,900	11/14
Kyrene 202 II, Phoenix, AZ	45,000	575			2,834		3,409	4,300	11/14
Rampart IV, Denver, CO	84,000	—			5,229		6,947	8,300	11/14
Total Lease-Up	940,000	9,370			40,865		62,231	71,900
UNDER CONSTRUCTION									Anticipated Building Completion Date
Alamo Ridge I, San Antonio, TX	96,000	1,341			4,134		5,475	6,700	01/15
Alamo Ridge II, San Antonio, TX	62,000	866			2,500		3,366	3,900	01/15
Steele Creek IV, Charlotte, NC	57,000	938			2,522		3,460	4,300	01/15
West Road III, Houston, TX	78,000	1,164			2,701		3,865	5,000	02/15
Thousand Oaks 4, San Antonio, TX	66,000	1,123			1,820		2,943	5,100	03/15
Madison II & III, Tampa, FL	127,000	951			2,729		3,680	8,000	04/15
Sky Harbor 6, Phoenix, AZ	31,000	807			813		1,620	3,100	04/15
Ten West Crossing 7, Houston, TX	68,000	962			2,208		3,170	4,900	04/15
ParkView 1-3, Dallas, TX	276,000	3,039			1,037		4,076	19,600	07/15
Total Under Construction	861,000	11,191			20,464		31,655	60,600
PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)	Estimated Building Size (Square feet)
Phoenix, AZ	286,000	(2,353		)	1,443		3,463	21,600
Tucson, AZ	70,000	—			—		417	5,300
Fort Myers, FL	663,000	—			—		17,858	50,000
Orlando, FL	1,144,000	(2,526		)	1,703		23,851	82,600
Tampa, FL	392,000	(951		)	313		6,184	23,100
Jackson, MS	28,000	—			—		706	2,000
Charlotte, NC	384,000	(3,110		)	739		4,983	26,800
Dallas, TX	169,000	(3,039		)	3,439		1,649	11,200
El Paso, TX	251,000	—			—		2,444	11,300
Houston, TX	1,362,000	(6,864		)	415		21,710	92,200
San Antonio, TX	254,000	(3,330		)	602		2,822	16,700
Total Prospective Development	5,003,000	(22,173		)	8,654		86,087	342,800
	6,804,000	$	(1,612	)	69,983		179,973	475,300
DEVELOPMENTS COMPLETED AND TRANSFERRED TO REAL ESTATE PROPERTIES DURING 2014	Building Size (Square feet)								Building Completion 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
Thousand Oaks 3, San Antonio, TX	66,000	—			684		4,984		07/13
Ten West Crossing 2, Houston, TX	46,000	—			860		4,949		09/13
Ten West Crossing 4, Houston, TX	68,000	—			1,350		4,811		02/14
Ten West Crossing 5, Houston, TX	101,000	—			4,652		6,064		09/14
World Houston 37, Houston, TX	101,000	—			1,291		6,670		09/13
World Houston 40, Houston, TX	202,000	—			7,020		9,050		09/14
West Road II, Houston, TX	100,000	1,612			4,408		6,020		10/14
Total Transferred to Real Estate Properties	949,000	$	1,612		20,763		59,540	⁽³⁾


(1)	Represents costs transferred from Prospective Development (primarily land) to Under Construction during the period.


(2)	Included in these costs are development obligations of $25.3 million and tenant improvement obligations of $2.6 million on properties under development.


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

The following schedule indicates approximate future minimum rental receipts under non-cancelable leases for real estate properties by year as of December 31, 2014:

Future Minimum Rental Receipts Under Non-Cancelable Leases



Years Ending December 31,	(In thousands)
2015	$	163,356
2016	130,512
2017	99,822
2018	72,788
2019	53,451
Thereafter	91,343
Total minimum receipts	$	611,272

Ground Leases

As of December 31, 2014, the Company owned two properties in Florida, two 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 November 2037, and renewal options of 15 to 35 years, except for the one lease in Arizona which is automatically and perpetually renewed annually. Total ground lease expenditures for continuing and discontinued operations for the years ended December 31, 2014, 2013 and 2012 were $745,000, $740,000 and $733,000, 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. The following schedule indicates approximate future minimum ground lease payments for these properties by year as of December 31, 2014:

Future Minimum Ground Lease Payments



Years Ending December 31,	(In thousands)
2015	$	747
2016	747
2017	747
2018	747
2019	747
Thereafter	11,815
Total minimum payments	$	15,550