REAL ESTATE PROPERTY ACQUISITIONS AND ACQUIRED INTANGIBLES

9 Months Ended

Sep. 30, 2021

Business Combinations [Abstract]

Real Estate Property Acquisitions and Acquired Intangibles

REAL ESTATE PROPERTY ACQUISITIONS AND ACQUIRED INTANGIBLES

Upon acquisition of real estate properties, EastGroup applies the principles of FASB ASC 805, Business Combinations. The FASB Codification provides a framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. Under the guidance, companies are required to utilize an initial screening test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set is not a business. EastGroup determined that its real estate property acquisitions in 2020 and the first nine months of 2021 are considered to be acquisitions of groups of similar identifiable assets; therefore, the acquisitions are not considered to be acquisitions of a business. As a result, the Company capitalized acquisition costs related to its 2020 and 2021 acquisitions.

The FASB Codification also provides guidance on how to properly determine the allocation of the purchase price among the individual components of both the tangible and intangible assets based on their respective fair values.  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. Land is valued using comparable land sales specific to the applicable market, provided by a third party. The Company determines whether any financing assumed is above or below market based upon comparison to similar financing terms for similar properties.  The cost of the properties acquired may be adjusted based on indebtedness assumed from the seller that is determined to be above or below market rates.  

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 current market rents over the remaining term of the lease.  The amounts allocated to above and below market lease intangibles 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.  Factors considered by management in the allocation include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.  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.

Amortization expense for in-place lease intangibles was $1,647,000 and $4,385,000 for the three and nine months ended September 30, 2021, respectively, and $1,342,000 and $4,048,000 for the same periods in 2020. Amortization of above and below market lease intangibles increased rental income by $230,000 and $704,000 for the three and nine months ended September 30, 2021, respectively, and $332,000 and $1,078,000 for the same periods in 2020.

During the nine months ended September 30, 2021, EastGroup acquired the following properties:

REAL ESTATE PROPERTIES ACQUIRED IN 2021	Location	Size	Date Acquired	Cost
		(Square feet)		(In thousands)
Operating properties acquired (1)
Southpark Distribution Center 2	Phoenix, AZ	79,000	06/10/2021	$	9,177
DFW Global Logistics Centre	Dallas, TX	611,000	08/26/2021	89,829
Progress Center 3	Atlanta, GA	50,000	09/23/2021	5,000
Total operating property acquisitions		740,000		104,006
Value-add properties acquired (2)
Access Point 1	Greenville, SC	156,000	01/15/2021	10,501
Northpoint 200	Atlanta, GA	79,000	01/21/2021	6,516
Access Point 2	Greenville, SC	159,000	05/19/2021	10,743
Cherokee 75 Business Center 2	Atlanta, GA	105,000	06/17/2021	8,837
Total value-add property acquisitions		499,000		36,597
Total acquired assets		1,239,000		$	140,603

(1)Operating properties are defined as stabilized real estate properties (land including buildings and improvements) in the Company’s operating portfolio; included in Real estate properties on the Consolidated Balance Sheets.

(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.

The following table summarizes the allocation of the consideration paid for the acquired assets and assumed liabilities in connection with the acquisitions identified in the table above which were acquired during the nine months ended September 30, 2021.

ACQUIRED ASSETS AND ASSUMED LIABILITIES IN 2021	Cost
	(In thousands)
Land	$	6,596
Buildings and building improvements	127,709
Tenant and other improvements	1,969
Right of use assets — Ground leases (operating)	12,708
Total real estate properties acquired	148,982
In-place lease intangibles (1)	5,763
Above market lease intangibles (1)	5
Below market lease intangibles (2)	(1,439)
Operating lease liabilities — Ground leases (3)	(12,708)
Total assets acquired, net of liabilities assumed	$	140,603

(1)In-place lease intangibles and above market lease intangibles are each included in Other assets on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.

(2)Below market lease intangibles are included in Other liabilities on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.  

(3)Operating lease liabilities - Ground leases are included in Other liabilities on the Consolidated Balance Sheets.

The leases in the properties acquired during the nine months ended September 30, 2021 had a weighted average remaining lease term at acquisition of approximately 2.8 years.

During 2020, EastGroup acquired the following properties:

REAL ESTATE PROPERTIES ACQUIRED IN 2020	Location	Size	Date Acquired	Cost
		(Square feet)		(In thousands)
Operating properties acquired (1)
Wells Point One	Austin, TX	50,000	02/28/2020	$	6,231
Cherokee 75 Business Center 1	Atlanta, GA	85,000	12/15/2020	8,323
The Rock	Dallas, TX	212,000	12/17/2020	34,102
Total operating property acquisitions		347,000		48,656
Value-add properties acquired (2)
Rancho Distribution Center	Los Angeles, CA	162,000	10/15/2020	27,862
Total acquired assets		509,000		$	76,518

(1)Operating properties are defined as stabilized real estate properties (land including buildings and improvements) in the Company’s operating portfolio; included in Real estate properties on the Consolidated Balance Sheets.

(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.

The following table summarizes the allocation of the consideration paid for the acquired assets and assumed liabilities in connection with the acquisitions identified in the table above which were acquired during the year ended December 31, 2020.

ACQUIRED ASSETS AND ASSUMED LIABILITIES IN 2020	Cost
	(In thousands)
Land	$	23,565
Buildings and building improvements	42,024
Tenant and other improvements	7,971
Total real estate properties acquired	73,560
In-place lease intangibles (1)	3,257
Above market lease intangibles (1)	104
Below market lease intangibles (2)	(403)
Total assets acquired, net of liabilities assumed	$	76,518

(1)In-place lease intangibles and above market lease intangibles are each included in Other assets on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.

(2)Below market lease intangibles are included in Other liabilities on the Consolidated Balance Sheets. These costs are amortized over the remaining lives of the associated leases in place at the time of acquisition.

The leases in the properties acquired during the year ended December 31, 2020 had a weighted average remaining lease term at acquisition of approximately 3.9 years.

The Company periodically reviews the recoverability of goodwill (at least annually) and the recoverability of other intangibles (on a quarterly basis) for possible impairment.  No impairment of goodwill or other intangibles existed during the three and nine month periods ended September 30, 2021 and 2020.