REAL ESTATE PROPERTIES

12 Months Ended

Dec. 31, 2022

REAL ESTATE PROPERTIES AND DEVELOPMENT AND VALUE-ADD PROPERTIES

The Company’s Real estate properties and Development and value-add properties at December 31, 2022 and 2021 were as follows:


	December 31,
	2022		2021
	(In thousands)
Real estate properties:
Land	$	730,445	544,505
Buildings and building improvements	3,012,319		2,408,944
Tenant and other improvements	633,817		570,627
Right of use assets — Ground leases (operating) (1)	19,391		22,635
Development and value-add properties (2)	538,449		504,614
	4,934,421		4,051,325
Less accumulated depreciation	(1,150,814)		(1,035,617)
	$	3,783,607	3,015,708

(1)See Ground Leases discussion below for information regarding the Company’s right of use assets for ground leases.

(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.

A summary of real estate properties acquired for the years ended December 31, 2022, 2021 and 2020 follows:


REAL ESTATE PROPERTIES ACQUIRED	Location	Size	Date Acquired	Cost (1)
		(Square feet)		(In thousands)
2022
OPERATING PROPERTIES ACQUIRED (2)
Cebrian Distribution Center and Reed Distribution Center (3)	Sacramento, CA	329,000	06/01/2022	$	49,726
6th Street Business Center, Benicia Distribution Center 1-5, Ettie Business Center, Laura Alice Business Center, Preston Distribution Center, Sinclair Distribution Center, Transit Distribution Center and Whipple Business Center (3)	San Francisco, CA	1,377,000	06/01/2022	309,404
Total operating property acquisitions		1,706,000		359,130
VALUE-ADD PROPERTIES ACQUIRED (4)
Cypress Preserve 1 & 2	Houston, TX	516,000	03/28/2022	54,462
Zephyr Distribution Center	San Francisco, CA	82,000	04/08/2022	29,017
Mesa Gateway Commerce Center	Phoenix, AZ	147,000	04/15/2022	18,315
Access Point 3	Greenville, SC	299,000	07/12/2022	21,127
Total value-add property acquisitions		1,044,000		122,921
Total acquired assets in 2022 (5)		2,750,000		$	482,051
2021
OPERATING PROPERTIES ACQUIRED (2)
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
Texas Avenue	Austin, TX	20,000	10/15/2021	4,143
Total operating property acquisitions		760,000		108,149
VALUE-ADD PROPERTIES ACQUIRED (4)
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
Siempre Viva Distribution Center 3-6	San Diego, CA	547,000	12/01/2021	134,479
Total value-add property acquisitions		1,046,000		171,076
Total acquired assets in 2021 (5)		1,806,000		$	279,225
2020
OPERATING PROPERTIES ACQUIRED (2)
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 at Star Business Park	Dallas, TX	212,000	12/17/2020	34,102
Total operating property acquisitions		347,000		48,656
VALUE-ADD PROPERTIES ACQUIRED (4)
Rancho Distribution Center	Los Angeles, CA	162,000	10/15/2020	27,862
Total acquired assets in 2020 (5)		509,000		$	76,518

(1)Cost is calculated in accordance with FASB ASC 805, Business Combinations, and represents the sum of the purchase price, closing costs and capitalized acquisition costs.

(2)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.

(3)The Company acquired these operating properties along with two land parcels, also in Sacramento, CA and San Francisco, CA, in connection with its acquisition of Tulloch Corporation in June 2022. Size and cost are presented on an aggregate basis for the properties located in Sacramento, CA and San Francisco, CA, respectively. In consideration for this acquisition, the Company assumed a $60,000,000 loan and issued 1,868,809 shares of the Company’s common stock. The acquisition date fair value of the loan assumed was $60,000,000, and the acquisition date fair value of the common shares, which was based on the closing share price on the acquisition date, was $303,756,000.

(4)Value-add properties are defined in Note 2.

(5)Excludes acquired development land as detailed below.

Also during 2022, EastGroup purchased 456.3 acres of development land in 10 cities for $123,717,000. The land acquisitions in San Francisco and Sacramento were acquired in connection with the Company's acquisition of Tulloch Corporation in June 2022.

Also in the three months ended December 31, 2022, the Company acquired the 1% noncontrolling partnership interest in Speed Distribution Center in San Diego for $18,599,000. EastGroup continues to control and now owns 100% of the property.

Sales of Real Estate

The Company sold operating properties during 2022, 2021 and 2020 as shown in the table below. The results of operations and gains and losses on sales for the properties sold during the periods presented are reported in continuing operations on the Consolidated Statements of Income and Comprehensive Income. The gains and losses on sales are included in Gain on sales of real estate investments. The Company did not consider its sales in 2022, 2021 or 2020 to be disposals of a component of an entity or a group of components of an entity representing a strategic shift that has (or will have) a major effect on the entity’s operations and financial results.

A summary of Gain on sales of real estate investments for the years ended December 31, 2022, 2021 and 2020 follows:


Real Estate Properties	Location	Size (Square Feet)	Date Sold	Net Sales Price		Basis	Recognized Gain
				(In thousands)
2022
Metro Business Park	Phoenix, AZ	189,000	01/06/2022	$	32,851	5,880	26,971
Cypress Creek Business Park (1)	Fort Lauderdale, FL	56,000	03/31/2022	5,282		1,901	3,381
World Houston 15 East	Houston, TX	42,000	05/11/2022	12,873		2,226	10,647
Total for 2022				$	51,006	10,007	40,999
2021
Jetport Commerce Park	Tampa, FL	284,000	11/09/2021	$	44,260	5,401	38,859
2020
University Business Center 120 (2)	Santa Barbara, CA	46,000	12/01/2020	$	10,342	4,007	6,335
Central Green	Houston, TX	80,000	12/23/2020	10,168		3,358	6,810
Total for 2020				$	20,510	7,365	13,145

(1)Cypress Creek Business Park is located on a ground lease. In conjunction with the sale of the property, the Company fully amortized the associated right-of-use asset and liability of $1,745,000.

(2)EastGroup owned 80% of University Business Center 120 through a joint venture partnership. EastGroup sold its 80% share of the joint venture, and the partnership was dissolved. The information shown for this transaction represents EastGroup’s 80% ownership.

The table above includes sales of operating properties. During 2022, 2021 and 2020, there were no land sales.

Development and Value-Add Properties

The Company’s development and value-add program as of December 31, 2022, 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 projects for 2022 were $12,393,000 compared to $9,028,000 for 2021 and $9,651,000 for 2020. In addition, EastGroup capitalized internal development costs of $9,985,000 during the year ended December 31, 2022, compared to $7,713,000 during 2021 and $6,689,000 in 2020.

Total capital invested for development and value-add properties during 2022 was $494,073,000, which primarily consisted of costs of $384,541,000 as detailed in the Development and Value-Add Properties Activity table below, $110,623,000 as detailed in the Development and Value-Add Properties Transferred to the Real Estate Properties Portfolio During 2022 table below and costs of $10,989,000 on projects subsequent to transfer to Real estate properties. These costs were partially offset by development spending prepaid in prior periods. Additionally, the Company acquired development land in the acquisition of Tulloch Corporation through the issuance of shares of the Company's common stock and the assumption of certain indebtedness, which was immediately repaid. The capitalized costs incurred on development projects 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 activity of the Company's Development and Value-Add Properties for the year ended December 31, 2022 follows:


DEVELOPMENT AND VALUE-ADD PROPERTIES ACTIVITY		Costs Incurred					Anticipated Building Conversion Date
		Costs Transferred in 2022 (1)		For the Year Ended 12/31/22	Cumulative as of 12/31/22	Projected Total Costs (2)
		(In thousands)
	(Unaudited)					(Unaudited)	(Unaudited)
LEASE-UP	Building Size (Square feet)
Cypress Preserve 1 & 2, Houston, TX (3)	516,000	$	—	54,081	54,081	57,800	03/23
Grand West Crossing 1, Houston, TX	121,000	—		4,168	13,037	15,700	04/23
Zephyr, San Francisco, CA (3)	82,000	—		29,028	29,028	29,800	04/23
Access Point 3, Greenville, SC (3)	299,000	—		22,632	22,632	25,400	07/23
McKinney 3 & 4, Dallas, TX	212,000	—		13,714	24,152	27,000	07/23
Grand Oaks 75 4, Tampa, FL	185,000	—		9,637	16,015	17,900	09/23
Total Lease-Up	1,415,000	—		133,260	158,945	173,600
UNDER CONSTRUCTION
SunCoast 11, Fort Myers, FL	79,000	1,524		7,651	9,175	9,900	04/23
Arlington Tech 3, Fort Worth, TX	77,000	1,980		6,420	8,400	10,300	02/24
Gateway 2, Miami, FL	133,000	8,049		10,139	18,188	23,700	02/24
Hillside 1, Greenville, SC	122,000	632		8,846	9,478	11,600	02/24
I-20 West Business Center, Atlanta, GA	155,000	—		10,175	13,139	15,500	02/24
LakePort 4 & 5, Dallas, TX	177,000	—		10,767	18,705	24,000	02/24
Horizon West 1, Orlando, FL	97,000	3,730		5,839	9,569	13,200	03/24
Steele Creek 11 & 12, Charlotte, NC	241,000	2,857		13,923	16,780	25,900	04/24
Springwood 1 & 2, Houston, TX	292,000	6,741		16,232	22,973	33,300	05/24
Stonefield 35 1-3, Austin, TX	274,000	10,279		6,040	16,319	35,300	06/24
SunCoast 10, Fort Myers, FL	100,000	1,624		1,344	2,968	13,600	06/24
Basswood 3-5, Fort Worth, TX	351,000	7,476		886	8,362	45,000	08/24
McKinney 1 & 2, Dallas, TX	172,000	4,261		2,240	6,501	27,300	08/24


Cass White 1 & 2, Atlanta, GA	296,000	3,534		1,795	5,329	31,900	10/24
Total Under Construction	2,566,000	52,687		102,297	165,886	320,500
Total Lease-Up and Under Construction	3,981,000	52,687		235,557	324,831	494,100

PROSPECTIVE DEVELOPMENT (PRIMARILY LAND)	Estimated Building Size (Square feet)
Phoenix, AZ	655,000	—		15,395	15,395
Sacramento, CA	82,000	—		3,130	3,130
San Francisco, CA	65,000	—		3,561	3,561
Fort Myers, FL	364,000	(3,148)		2,693	7,843
Miami, FL	510,000	(8,049)		18,035	24,317
Orlando, FL	1,053,000	(9,906)		8,338	24,670
Tampa, FL	32,000	—		—	825
Atlanta, GA	1,490,000	(3,534)		13,189	14,713
Jackson, MS	28,000	—		—	706
Charlotte, NC	1,146,000	(2,857)		1,475	13,722
Greenville, SC	476,000	(632)		5,353	6,457
Austin, TX	1,557,000	(10,279)		50,699	46,851
Dallas, TX	—	(4,261)		457	4,594
Fort Worth, TX	313,000	(9,456)		1,376	7,247

Houston, TX	1,536,000	(11,247)		17,110	30,696
San Antonio, TX	423,000	—		8,173	8,891
Total Prospective Development	9,730,000	(63,369)		148,984	213,618
Total Development and Value-Add Properties	13,711,000	$	(10,682)	384,541	538,449
The Development and Value-Add Properties table is continued on the following page.


DEVELOPMENT AND VALUE-ADD PROPERTIES TRANSFERRED TO THE REAL ESTATE PROPERTIES PORTFOLIO DURING 2022		Costs Incurred
		Costs Transferred in 2022 (1)		For the Year Ended 12/31/22	Cumulative as of 12/31/22 (4)
	(Unaudited)	(In thousands)				(Unaudited)
	Building Size (Square feet)					Building Conversion Date

Access Point 1, Greenville, SC (3)	156,000	$	—	7	12,529	01/22
Speed Distribution Center, San Diego, CA	519,000	—		2,884	70,702	03/22
Access Point 2, Greenville, SC (3)	159,000	—		601	12,232	05/22
Grand Oaks 75 3, Tampa, FL	136,000	—		1,205	11,397	06/22
Siempre Viva 3-6, San Diego, CA (3)	547,000	—		595	133,283	06/22
Steele Creek 8, Charlotte, NC	72,000	—		5,142	7,870	07/22
CreekView 9 & 10, Dallas, TX	145,000	—		4,210	15,546	08/22
Gateway 3, Miami, FL	133,000	—		4,903	18,069	08/22
Ridgeview 3, San Antonio, TX	88,000	—		3,513	9,317	08/22
Americas Ten 2, El Paso, TX	169,000	—		5,254	14,354	09/22
Horizon West 2 & 3, Orlando, FL	210,000	—		1,597	18,787	09/22
Mesa Gateway, Phoenix, AZ (3)	147,000	—		18,696	18,696	11/22
World Houston 47, Houston, TX	139,000	4,506		12,517	17,023	11/22
45 Crossing, Austin, TX	177,000	—		7,998	25,058	12/22
Basswood 1 & 2, Fort Worth, TX	237,000	—		7,237	22,466	12/22
Horizon West 4, Orlando, FL	295,000	6,176		18,201	24,377	12/22
SunCoast 12, Fort Myers, FL	79,000	—		3,928	8,106	12/22
Tri-County Crossing 5, San Antonio, TX	106,000	—		5,544	11,144	12/22
Tri-County Crossing 6, San Antonio, TX	124,000	—		6,591	10,373	12/22
Total Transferred to Real Estate Properties	3,638,000	$	10,682	110,623	461,329

(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)Included in these costs are development obligations of $134.8 million and tenant improvement obligations of $15.0 million on properties under development.

(3)Represents value-add acquisitions.

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

Ground Leases

As of December 31, 2021, the Company operated two properties in Florida, four properties in Texas and one property in Arizona that are subject to ground leases. During the year ended December 31, 2022, EastGroup sold Cypress Business Park, which was located on a ground lease. In conjunction with the sale of the property, the lease was transferred to the buyer and the Company fully amortized the associated right-of-use asset and liability of $1,745,000. The remaining properties with ground leases have terms of 40 to 50 years, expiration dates of August 2031 to October 2058, and renewal options of 15 to 35 years, except for the one lease in Arizona which is automatically and perpetually renewed annually. The Company has included renewal options in the lease terms for calculating the ground lease assets and liabilities as the Company is reasonably certain it will exercise these options. Total ground lease expenditures for the years ended December 31, 2022, 2021 and 2020 were $1,755,000, $1,354,000 and $1,051,000, 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. These future changes in payments will be considered variable payments and will not impact the assessment of the asset or liability unless there is a significant event that triggers reassessment, such as amendment with a change in the terms of the lease. The weighted-average remaining lease term as of December 31, 2022, for the ground leases is 36 years.

EastGroup applies ASC 842, Leases, for its ground leases, which are classified as operating leases. There were no new ground leases in 2022 or 2020. In August 2021, the Company acquired DFW Global Logistics Centre in Dallas, which is located on land under a ground lease. The Company recorded a right of use asset of $12,708,000 in connection with this acquisition. As of December 31, 2022 and 2021, the unamortized balances of the Company’s right of use assets for its ground leases were $19,391,000 and $22,635,000, respectively. The right of use assets for ground leases are included in Real estate properties on the Consolidated Balance Sheets.

The following schedule indicates approximate future minimum ground lease payments for these properties by year as of December 31, 2022:

Future Minimum Ground Lease Payments as of December 31, 2022


Years Ending December 31,	(In thousands)
2023	$	1,519
2024	1,572
2025	1,606
2026	1,643
2027	1,643
Thereafter	53,758
Total minimum payments	61,741
Imputed interest (1)	(41,835)
Total ground lease liabilities	$	19,906

(1)As the Company’s leases do not provide an implicit rate, in order to calculate the present value of the remaining ground lease payments, the Company used its incremental borrowing rate, adjusted for a number of factors, including the long-term nature of the ground leases, the Company’s estimated borrowing costs, and the estimated fair value of the underlying land, to determine the imputed interest for its ground leases.