REAL ESTATE PROPERTIES

EastGroup has one reportable segment – industrial properties. These properties are concentrated in major Sunbelt markets of the United States, primarily in the states of Florida, Texas, Arizona, California and North Carolina, have similar economic characteristics and also meet the other criteria that permit the properties to be aggregated into one reportable segment.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows (including estimated future expenditures necessary to substantially complete the asset) expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. As of September 30, 2018 and December 31, 2017, the Company did not identify any impairment charges which should be recorded.

Depreciation of buildings and other improvements is computed using the straight-line method over estimated useful lives of generally 40 years for buildings and 3 to 15 years for improvements. Building improvements are capitalized, while maintenance and repair expenses are charged to expense as incurred. Significant renovations and improvements that improve or extend the useful life of the assets are capitalized. Depreciation expense was $18,960,000 and $55,785,000 for the three and nine months ended September 30, 2018 and $17,323,000 and $51,070,000 for the same periods in 2017.

The Company’s Real estate properties and Development and value-add properties at September 30, 2018 and December 31, 2017 were as follows:



	September 30, 2018			December 31, 2017
	(In thousands)
Real estate properties:
Land	$	376,658		345,424
Buildings and building improvements	1,703,237			1,587,130
Tenant and other improvements	431,751			404,180
Development and value-add properties ⁽¹⁾	244,761			242,014
	2,756,407			2,578,748
Less accumulated depreciation	(796,037		)	(749,601	)
	$	1,960,370		1,829,147

(1)

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.

During 2016, a hail storm caused damage to two of EastGroup's properties which were covered by insurance for all losses, subject to the Company's deductibles. The recoveries received for damages were in excess of the sum of the incurred losses for clean-up costs and the net book value written off for the damaged property. After all contingencies relating to the casualties were resolved, the Company recorded casualty gains of approximately $1.15 million during the second quarter of 2018, which is included in Other revenue on the Consolidated Statements of Income and Comprehensive Income.