EGP Burkenroad Report

March 28, 2014

EASTGROUP PROPERTIES INC. EGP/NYSE

Continuing Coverage: Buckle Your Sunbelt, It Will Not Be a Bumpy Ride

Investment Rating: Market Perform PRICE: $ 61.92 S&P 500: 1,849.04 DJIA: 16,323.06 RUSSELL 2000: 1,151.81

Concentrating development in the Sunbelt region provides consistent growth.

Improving economy, decreasing unemployment, and customer spending spur demand for commercial real estate.

Rising interest rates will increase costs and could slow growth.

Our 12-month target price is $68.00.

Valuation 2013 A 2014 E 2015 EEPS $ 1.05 $ 1.45 $ 1.54P/E 57.3x 42.6x 39.9x FFOPS $ 3.23 $ 3.70 $ 3.95P/FFOPS 19.2x 16.7x 15.7x

Market Capitalization Stock DataEquity Market Cap (MM): $ 1,914.06 52-Week Range: $52.47 - $66.99

Enterprise Value (MM): $ 2,502.80 12-Month Stock Performance: 14.04%

Shares Outstanding (MM): 30.91 Dividend Yield: 3.69%

Estimated Float (MM): 29.72 Book Value Per Share: $ 16.63

6-Mo. Avg. Daily Volume: 151,810 Beta: 1.04

Company Quick View: Location: Jackson, Mississippi Industry: Real Estate Investments Description: Industrial Real Estate Investment Trust focused on the development, acquisition, and operation of industrial properties in major Sunbelt markets. Key Products & Services: Industrial Real Estate Web Site: www.eastgroup.net

Analysts: Investment Research Manager: Evan Kopf Sophia Sharp Danielle Myers Jie Qing

The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's Freeman School of Business. The reports are not investment advice and you should not and may not rely on them in making any investment decision. You should consult an investment professional and/or conduct your own primary research regarding any potential investment.

Wall Street's Farm Team

BURK

ENRO

AD R

EPO

RTS

4/1/13 4:47 PM

EastGroup Properties Inc. (EGP) BURKENROAD REPORTS (www.burkenroad.org) March 28, 2014

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STOCK PRICE PERFORMANCE

Figure 1: 5-year Stock Price

Performance

Source: Yahoo Finance

INVESTMENT SUMMARY

We give EastGroup Properties Inc. a Market Perform rating and believe that the stock price at the end of fiscal calendar 2014 will be $68.00. We used the net asset value (NAV) pricing model and the price/funds from operations (P/FFO) relative multiples method to utilize the most relevant factors and data to draw our conclusions.

EastGroup Properties is an industrial real estate investment trust (REIT) in the Sunbelt region. A REIT is a type of real estate company modeled after mutual funds that directly invests in and owns real estate properties, offering investors high yields. The Company strategically expands in vibrant metropolitan Sunbelt markets (which include California, Arizona, Nevada, Texas, Florida, North Carolina, Colorado, Oklahoma, Louisiana, and Mississippi) that demonstrate growth in population and consumer spending. We analyzed the real estate industry’s major drivers and the Company’s expansion strategies to project the Company’s revenue. We found that the two most favorable conditions are a low unemployment rate and increased consumer spending. Nonetheless, if interest rates increase from current levels, the risk of debt financing for EastGroup will also increase, as the Company continues to develop and acquire properties.


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PREVIOUS BURKENROAD RATINGS AND PRICES

Table 1: Historical Ratings & Prices

Date Rating Price* 04/03/13 Market Perform $60.00 04/02/12 Market Perform $51.00 03/13/11 Market Perform $46.75 04/05/10 Market Perform $39.73 04/09/09 Market Perform $35.90 04/11/08 Market Perform $48.62 04/09/07 Market Perform $60.40 03/24/06 Market Perform $45.52 11/02/04 Market Perform $32.23 12/05/03 Market Perform $27.23 11/22/02 Market Perform $32.23 12/04/01 Buy $17.51

*Price at time of report date.

INVESTMENT THESIS

Since the first quarter of 2009, the occupancy rate of EastGroup Properties, Inc. has stably increased from 89.4% to 95.5%, as seen in Table 2. EastGroup’s revenue should continually rise with the increase in demand for industrial warehouses and occupancy rates.

Table 2: EastGroup’s Increasing Occupancy Rate and Total Square Feet Leased Year Occupancy Rate Total Square Feet Leased

2009 89.4% 27,161,000

2010 89.8% 28,085,000

2011 94.7% 29,874,000

2012 94.6% 30,651,000

2013 95.5% 32,464,000 Source: EastGroup Properties

Concentrating development in the

Sunbelt provides consistent growth.

EastGroup’s area of focus is the Sunbelt region, an area that continues to grow and provide the Company with success. Experts from Urban Land Institute and PricewaterhouseCoopers predict continued growth for cities in the Sunbelt region, such as Los Angeles, Dallas, and Houston. According to Forbes, population data shows that the ten fastest growing metropolitan cities in the United States are all located in Sunbelt states. In 2012, Houston, Dallas, and San Antonio all expanded at a rate two times greater than the national average. Figure 2 depicts net migration as a percentage of 2013 population; eight out of the top-ten emerging metropolitan areas are located in the Sunbelt. The growth of these cities is the effect of factors such as low population density and affordable housing.


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Overall, the Sunbelt region attracts new customers because it provides newer infrastructure, lower income taxes, a better climate, and an overall higher quality of life than the Snowbelt region. Therefore, as potential customers relocate to the Sunbelt region, EastGroup takes advantage of the increase in demand and continues to develop in this area. The Company’s risk increases from a homogenous market, but EastGroup’s management is confident in its conservative strategy. David Hoster, chief executive officer, believes “EastGroup’s strategy is simple, straightforward, and it works.”

Figure 2: Net Migration as a Percentage of 2013 Population

Source: Emerging Trends in Real Estate 2013

Since the 2008-2009 recession, EastGroup returned to its initial strategy, increasing investments in developments rather than acquisitions. Recently, EastGroup expanded its portfolio in two of its markets with the greatest growth opportunities: Houston, Texas and Charlotte, North Carolina. The Company is currently developing 680,000 square feet of industrial warehouses in Houston, where it already leases over 95% of its property. Similarly, the Company is constructing three buildings in an industrial park in Charlotte, located near Charlotte-Douglas International Airport. As customers occupy these warehouses, EastGroup expects to receive an 8% return on investments. Interestingly, Houston and Charlotte have gross domestic product (GDP) growth rates of 5.3% and 4.9%, respectively, compared to the national average of 2.8%. Therefore, EastGroup is geographically well positioned in growing markets.

Improving economy, decreasing

unemployment rate, and customer spending spur

demand for commercial real

estate.

Both the unemployment rate and consumer spending highly correlate with the demand for office and retail buildings. The unemployment rate in the United States has steadily decreased from 9.7% to 6.6% since 2010. The unemployment rate inversely impacts demand –therefore, when the unemployment rate decreased, the demand for commercial real estate increased. Additionally, consumer spending increased from $9.9 trillion to $10.8 trillion since 2010. An increase in consumer spending is a strong indicator of companies’ revenue and, as a result, increased demand in real estate.


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Rising interest rates will increase costs

and could slow growth.

The expectation of rising interest rates is a potential threat to EastGroup’s growth. On February 12, 2014, the Senate voted to extend the level of Federal government spending. As a result, the financial industry anticipates higher interest rates in the future. These increased interest rates can negatively affect EastGroup Properties, as the Company increases long-term debt with new developments and acquisitions. However, the Federal Open Market Committee’s tapering of its quantitative easing program will have a greater impact on rates in the near term than in the long term.

VALUATION To determine our 12-month target price for EastGroup Properties, we used the net asset value (NAV) pricing model and the price/funds from operations (P/FFO) relative multiples method. These valuation methods gave us a 12-month projected stock price of $68.00, with an expected equity return of 13.76% including dividends for a market perform rating.

Net Asset Value Calculation

We chose to use the NAV-based pricing model because this model is specially designed for real estate investment trusts (REITs), taking into account the revenue and expense forecasts from our price × quantity financial model. We are confident that factoring the projected revenues from our price × quantity revenue model into our NAV calculation will allow us to predict an accurate stock price. From the revenue projections, the NAV model estimates the Company’s total real estate value using an expert-assumed capitalization rate. The model then subtracts the Company’s liabilities from its assets to find the net asset value, which it divides by the number of diluted common shares, giving us an NAV per share of $58.46. However, we applied a 10%, 12%, and 14% premium to the stock price to account for the Company’s historical above average growth. These premiums give us target prices of $64.31, $65.47, and $66.64, respectively.

Price/Funds from Operations Relative

Multiples Method

We also chose to use the price/funds from operations (P/FFO) relative multiples method because it takes into account that the value of a REIT’s property appreciates, instead of depreciates, over time. We divided the growth of EastGroup’s stock price divided by its FFO to formulate a historical average multiple, to which we applied a premium to project the most likely future multiples. The model then multiplies EastGroup’s current FFO per share by the multiples we forecasted to calculate the Company’s future stock price. The target prices that our two selected multiples give us are $68.40 and $73.94, respectively.


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Figure 3: Target Valuation Graph

INDUSTRY ANALYSIS

EastGroup is a Real Estate Investment Trust (REIT) that operates in the commercial real estate industry. The industry’s total inventory of 404.78 billion square feet has grown consistently with its market capitalization, which has increased from $300 billion in 2003 to $703 billion in 2014. As shown in Figure 3, the performance of REITs progressed steadily since the housing crisis; the total return on common equity for global REITs increased from $100 billion in December 2008 to $232 billion in December 2013.

Figure 4: Five-Year Performance – Total Return (USD)

Source: Vanguard REIT Index Fund

$50.00

$52.50

$55.00

$57.50

$60.00

$62.50

$65.00

$67.50

$70.00

$72.50

$75.00

Net AssetValue

Net AssetValue (10%Premium)



FFO with18.5

Multiple

FFO with20.0

Multiple

12‐MonthTarget Price:$68.00

Current Price:$61.92

American REITs

S&P 500


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Industry Trends As the economy recovers from the 2008-2009 housing market collapse, the commercial real estate industry is positive about its market. The industry expects an increase in corporate growth, which will encourage new firms to enter the market, and ultimately drive industry growth. Several trends occur as the real estate market recovers:

Growth in demand for multi-tenant bulk, business distribution, and service centers

Incorporation of environmentally friendly practices into the building process

Return of interest rates and dividend payout yields to historical levels

Increase of commercial construction

Analysts expect the demand for industrial real estate to increase as the costs of new construction projects and newly issued permits for the units return to normal levels after several years of depressed construction activity. New multi-tenant construction starts were at an annual rate of 280,000 units in August 2013, which is higher than the estimated 20 year average of 252,000. Industry experts predict that these multi-tenant buildings will be especially popular in the Sunbelt region. The Sunbelt region is most vulnerable to an increase in multi-tenant buildings because of its relatively low costs of land and construction, which may convince tenants that purchasing, instead of leasing, new homes may be a good financial decision.

Many companies are practicing environmentally friendly policies during construction. Some of the practices that companies have adopted include reducing water consumption, using sustainable building materials, reducing waste, and disposing of materials properly. Adopting these green strategies is beneficial for banks, so companies have a variety of options for institutions that will provide financing. Also, there are many grants, tax credits, and subsidized loans available for green buildings.

Analysts expect interest rates to increase directly with the yield on the 10-year treasury note. The interest rate on the 10-year treasury note is rising because the government started to reduce its purchase of bonds for monetary stimulus as the economy improves. However, even though the yield on the treasury note is increasing, the average yield for equity REITs maintains a positive spread. Also, dividend payout rates are returning to historical levels. In the first quarter of 2013, the dividend payout ratio was 75%, which is very similar to the historical rate of 72%. This increase in dividend payout may help attract more retail investors.


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The recovering economy also caused an increase in commercial construction. The demand for commercial space dipped during the recession, but construction activity increased gradually every year since 2011. Standard & Poor’s Economics expect the uptrend to continue through 2015. The new construction will inspire increased competition from suppliers entering the market.

Regulatory Environment

The Internal Revenue Service regulates the activity of REITs, according to tax law. By following the laws, REITs qualify for tax exemption at the trust level. According to the IRS Tax Code, there are several requirements to qualify as a REIT:

The organization must distribute at least 90% of taxable income to shareholders

The organization must be managed by a board of directors or trustees

The shares of the REIT must be fully transferable

The organization must invest 75% or more of its total assets in real estate

The organization must not be a financial institution

Five or fewer individuals must not own more than 50% of its shares during the second half of the REIT’s taxable year

The organization must have a minimum of 100 different shareholders

REITs must also fill out the Form 1120-REIT to report income, gains, and losses to the IRS.

Bargaining Power of Buyers

As the amount of commercial businesses that want to lease industrial properties increases, the bargaining power of these businesses, the buyers, decreases. Industry REITs currently have the advantage of a high demand for real estate and respond to this demand by developing more industrial properties. Spending for commercial construction increased from $266.6 billion in 2010 to $309.6 billion in 2013 as firms in the commercial real estate industry focused on portfolio expansion as a means to attract buyers. Specifically, EastGroup has pricing power within the industry because of its locations, which are close to city centers.

Bargaining Power of Suppliers

The suppliers for REITs include those who sell the land, real estate brokerage firms, contractors that build on the land, and contractors that renovate the properties. The bargaining power of these suppliers is moderately high because the demand for land is increasing. As this demand increases, the suppliers gain more power in the industry, and become more profitable.


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REITs commonly purchase land using real estate brokerage firms to act as intermediaries between the REIT and the seller. The market for real estate brokerage firms is saturated and there is not one firm that leads the industry. For example, while EastGroup traditionally chooses to work with some brokerage firms, such as Coldwell Banker Richard Ellis Group, Inc. (CBG/NYSE), more than others, it has never faced the dilemma of having too few brokerage firms from which to choose.

Similarly, the market for both independent and public construction contractors is saturated. There is minimal fluctuation in the costs for direct materials and labor among the various contracting companies.

Availability of Substitutes

Real estate is a necessity for any business that has interest in expanding into a specific market. Companies may choose to buy and develop property themselves instead of renting from a REIT, especially if these companies have the capital to do so. Many corporations that plan to remain in cities for a significant amount of time often choose to purchase real estate, as the net present value of buying is usually greater than that of leasing. Nonetheless, the availability of substitutes decreases when a company plans to remain in a market for a specific amount of time or does not have the capital to invest in real estate.

Other key external drivers for REITs include vacancy rates and per capita disposable income. Low vacancy rates indicate that the demand to rent is greater than the demand to buy housing. Similarly, per capital disposable income increases as the demand to rent increases. Figure 5 shows past, present, and predicted future vacancy rates and percent change in disposable income. Experts at the IBISWorld predict that both rental vacancy rates, which are currently 9.2%, and change in disposable income, which is 1.9%, will continue to increase over the next couple of years.

Figure 5: Rental Vacancy Rates and Disposable Income

Source: IBISWorld

1.9%

9.2%


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COMPANY DESCRIPTION

ICM Realty was founded in the northeast in 1969 as a Real Estate Investment Trust (REIT), and offered its first share of public stock in 1971. Leland Speed and David Hoster II claimed control in 1983, when they changed the Company’s name to EastGroup Properties, Inc. (EGP/NYSE) and moved its headquarters to Jackson, Mississippi. EastGroup performs business throughout the Sunbelt region, as displayed in Figure 6, with its target markets in Florida, Texas, Arizona, California and North Carolina.

Figure 6: EastGroup’s Portfolio

Source: EastGroup Properties

Products EastGroup Properties’ primary business is the acquisition, development, and management of industrial properties. Approximately 99% of EastGroup’s Funds from Operations (FFO) come from rental income. EastGroup’s customers currently rent an average of 25,000 square feet each (excluding its smaller properties in Tampa), with an average lease term of 5.3 years. As EastGroup’s properties are located exclusively in Sunbelt cities, the financial and economic growth of these cities is a major external determinant of the Company’s success.

EastGroup develops and acquires industrial properties. Recently, however, EastGroup’s management has placed a stronger emphasis on the development, as opposed to the acquisition, of properties. Developed properties create the greatest value for shareholders; these properties generate an 8% yield from investments, and these properties also have a 2.5% higher occupancy rate than that of acquired properties. Developed properties consist over one-third of the Company’s portfolio.


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When the Company chooses to acquire, instead of develop properties, it looks for multi-tenant bulk distribution buildings between 50,000 and 250,000 square feet that are priced at replacement cost and have low office build out. Some of EastGroup’s recent major additions to its portfolio include: the purchase of the Wiegman Distribution Center in San Francisco for $7.5 million in August 2012; the purchase of five multi-tenant distribution buildings in the Valwood Industrial Park in northwest Dallas for $41.2 million at the end of 2012; and the purchase of eight business distribution buildings of the Northfield Distribution Center in Dallas for $70 million in 2013.

Company Strategy EastGroup Properties’ short-term and long-term corporate strategies share the common goal of increasing shareholder value by developing and acquiring properties in Sunbelt cities where the Company expects the demand for industrial real estate to rise. This strategy is fairly conservative because the majority of companies in the industrial real estate industry expand into more than one geographical region to establish diverse portfolios. The Company’s strategy also includes finding both national and international companies as tenants to rent the properties.

EastGroup’s current strategy is to continually expand its portfolio by developing warehouses in strategic locations of Sunbelt metropolitan areas with high potentials for economic growth. As the demand for industrial real estate rises, the Company uses its available capital to develop, instead of acquire, new properties.

Management underscores the value in developing properties in infill locations, which are sites that are close to the central part of the city. These infill locations allow EastGroup’s customers to quickly transfer goods from the warehouse to customers in metropolitan areas. EastGroup uses these strategic locations as a means to differentiate itself from its peers and increase pricing power, competing on location as opposed to rent.

Once EastGroup establishes properties in a given Sunbelt market, it continues this optimization cycle in another market or in a different strategic location within the same market. The Company has seen this strategy work effectively in the past, as it constructs or acquires large amounts of properties in its core markets at one time. The Company is currently constructing three distribution buildings in Charlotte, North Carolina and 465,000 square feet of property in Houston, Texas.

Measuring Growth EastGroup measures its long-term success by tracking its increase in funds from operations (FFO), which creates momentum for continued future growth. The Company increases its FFO by constantly developing and acquiring new properties in Sunbelt cities where there is, or where the Company expects there to be, demand for the real estate. Additionally, the Company increases its net operating income on existing properties.


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Management assesses the Company’s corporate strategy in its Annual Reports and reflects on whether it did or did not achieve the goals of its strategy. EastGroup’s FFO for 2013 was $3.23 per share ($97.6 million in total), an increase of 4.9% from $3.08 per share in 2013.

Competitors EastGroup’s main competitors are REITs that own properties in similar Sunbelt locations. These companies include Duke Realty Corporation (DRE/NYSE), Prologis, Inc. (PLD/NYSE), Liberty Property Trust (LRY/NYSE), and Kilroy Realty Corporation (KRC/NYSE). The Company’s market share in the commercial real estate industry is relatively low, as its competitors are larger corporations with more property than EastGroup. EastGroup’s market capitalization is $1.81 billion, compared to Duke Realty Corporation’s market capitalization of $4.92 billion, Kilroy Realty Corporation’s market capitalization of $4.32 billion, Liberty Property’s market capitalization of $4.89 billion or Prologis, Inc.’s market capitalization of $18.83 billion.

Latest Developments

Since the 2008-2009 recession, EastGroup increased development projects in targeted growth cities. EastGroup’s most recent investment is the construction of three distribution buildings at Steele Creek Commerce Park, Charlotte, North Carolina. To date, three of the six buildings are complete. German logistics company Kuehne & Nagel Inc. leased the first building, totaling 70,000 square feet. Swiss manufacturer Huber + Suhner leased 35,200 square feet of the second building, which is also 70,000 square feet in total. EastGroup recently leased 45,400 of 108,200 square feet of its third and newest building to the family-owned German logistics company, Hellmann’s Worldwide Logistics.

The actual location of EastGroup’s Charlotte property at Steele Creek Commerce Park is strategic for the Company, which is anticipating a high occupancy rates for these buildings. Not only are lease rates increasing, but the park is adjacent to Charlotte Douglas International Airport, which invested $92 million in building an intermodal shipping yard. The airport also purchased a $35 million, 370-acre property near the intermodal yard for business use. Both the intermodal yard and the 370-acre property should increase Charlotte’s growth as a manufacturing and shipping hub. As more transportation, manufacturing, and logistics companies move into Charlotte, EastGroup Properties continues to increase its square footage in the area.

PEER ANALYSIS EastGroup Properties competes against other REITs in the commercial real estate industry. Compared to its peers in the Sunbelt region, EastGroup has a relatively small market capitalization of $1.81 billion and owns a total of 33.7 million square feet of property.


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Table 3 compares the financial ratios of EastGroup with that of Prologis, Inc., Duke Realty Corporation, Kilroy Realty Corporation, and Liberty Property Trust, all of whom compete for market share in Sunbelt cities. While EastGroup’s market capitalization is the smallest compared to its peers, it has the highest funds from operations (FFO), highlighting its strong return on operations.

Table 3: Peer Analysis

Source: Bloomberg

Company Ticker Symbol

Market Cap (bil)

FFO P/BVEV/

EBITDA Debt/

Equity Div.

Yield ROE

Prologis, Inc (Beta: 1.19)

PLD $20.14 $1.77 1.48 30.67 63.56％ 2.77% 2.50%

Duke Realty Corporation (Beta: 1.25)

DRE $5.37 $1.14 2.09 17.70 139.73％ 4.12% 6.90%

Kilroy Realty Corporation (Beta: 1.01)

KRC $4.72 $2.66 2.09 25.06 87.63％ 2.44% 1.50%

Liberty Property Trust (Beta: 0.99)

LRY $5.39 2.51 1.77 22.68 104.83% 5.17% 8.20%

EastGroup Properties (Beta: 1.05)

EGP $1.90 $3.42 3.69 21.08 49.89％ 3.52% 6.50%

Differentiation from Competitors

EastGroup positions itself uniquely against its competitors because the Company exclusively owns properties in the Sunbelt states. While its competitors also have properties in EastGroup’s target cities, these REITs also own properties in other parts of the country. Prologis, Inc. even owns international properties. EastGroup specializes in the Sunbelt region and plans to optimize its properties there, as opposed to expanding into unfamiliar markets. Table 4 outlines the operating differences among EastGroup’s peer groups.


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Table 4: Operating Differences

Company Square Feet Leased

Property Locations Property Types

Occupancy Rate

Prologis, Inc. 145,300,000 21 countries (Americas, Europe, Asia)

Industrial 95.1%

Duke Realty Corporation

152,600,000 Midwest, Northeast, Sunbelt region

Industrial, Office, and Healthcare

94.0%

Kilroy Realty Corporation

12,736,099 California and Washington

Industrial and Office

93.4%

Liberty Property Trust

83,600,000 U.S. and U.K. Industrial and Office

92.1%

EastGroup Properties

32,464,000 Sunbelt Region Industrial and Office

95.5%

Source: Company websites (2013 year end)

Prologis, Inc. (PLD/NYSE)

As the largest industrial REIT among its peer group, Prologis has a market capitalization of $20.14 billion and operates in North and South America, Europe, and Asia. Founded in 1983 as AMB Property Corporation, Prologis quickly expanded its portfolio in the United States and began expanding internationally in 1996. As opposed to EastGroup, which focuses exclusively on industrial properties, Prologis focuses on investment in both industrial as well as community shopping centers in infill trade areas. One of Prologis’s biggest competitive advantages is its highly renowned reputation as a global leader in real estate. As Prologis started to own more international properties, especially in Europe, it increased its clientele, consisting of companies which, in the future, may desire to expand into the Sunbelt region. As a major source of tenants for EastGroup comes from international companies seeking expansion in Sunbelt markets, Prologis’s ties with growing European companies may pose a threat to EastGroup’s potential tenants.

Duke Realty Corporation (DRE/NYSE)

Established in Indianapolis in 1972, Duke Realty maintains a portfolio of industrial, office, and healthcare properties. With a market capitalization of $5.37 billion, the company currently owns over 150 million square feet in 22 metropolitan areas scattered across the Midwest, Northeast, and Sunbelt. A key strategy of Duke Realty shared by EastGroup is to own properties with convenient access to public transportation. Duke Realty presents its greatest threat to EastGroup’s Florida market. Both EastGroup and Duke Realty began to acquire properties in Florida in the late 1990s, and own 9.40 million and 11.60 million square feet in the state, respectively.


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Kilroy Realty Corporation (KRE/NYSE)

Kilroy Realty Corp., founded in 1996 in Maryland, owns commercial properties in the West Coast, from Seattle to San Diego. The company dramatically increased its portfolio in 2010 by acquiring a large amount of properties at a cyclically low price. The types of properties include mid-rise and two-story office buildings, multi-building campuses, biotechnology facilities, medical office buildings, and R&D flex space. A successful strategy of Kilroy Realty has been its preservation of long-term relationships with its tenants, most of whom are members of the software, healthcare, finance, and engineering industries.

As previously stated, environmentally friendly policies are becoming an important industry trend, especially in California, which is one of the leading states of the green initiative. Kilroy Realty is taking full advantage of this movement, and distinguishes itself with its energy efficient strategies. Approximately 40% of Kilroy Realty’s portfolio is currently Leadership in Energy and Environmental Design (LEED) certified and another 17% of its portfolio is in the process of becoming LEED certified.

Liberty Property Trust (LRY/NYSE)

Founded in 1972, Liberty Property Trust is a large industrial and office REIT with a market cap of $5.39 billion and a portfolio with 80.6 million square feet of property. Liberty owns properties throughout the U.S. and the U.K. Additionally, Liberty has 67 LEED projects completed or under construction throughout the U.S. and three Building Research Establishment Environmental Assessment Methodology (BREEAM) projects in the U.K. Liberty proves its commitment to sustainability by improving energy performance and indoor air quality, and by developing recycling programs, all of which reduce waste and ultimately decrease costs to tenants.

MANAGEMENT PERFORMANCE AND BACKGROUND

EastGroup Properties’ management team, led by CEO David H. Hoster II, not only helped the Company recover from the 2007-2012 economic crisis, but also allowed EastGroup to maintain a stable, growing market capitalization, funds from operations rate, earnings per share, and return on invested capital. Management strives to raise revenue by maximizing occupancy to constantly and consistently increase shareholder wealth.

A company’s return on invested capital (ROIC) allows investors to evaluate how well management generates returns for every dollar invested. Table 5 compares the ROIC of EastGroup with that of Kilroy Realty. Kilroy has a relatively similar size and strategy to exclusively operate in one region, which in Kilroy’s case is the west coast. From 2005 to 2008, EastGroup’s ROIC was similar to that of Kilroy. However, since the 2008-2009 recession, EastGroup never had to dilute shares, restructure debt, or cut dividends.


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Table 5: ROICs of EastGroup and Kilroy Realty

Year EastGroup

ROIC Kilroy Realty

ROIC 2005 2.43% 2.72%

2006 2.71% 2.93%

2007 3.07% 2.61%

2008 3.03% 2.39%

2009 2.39% 1.53%

2010 1.62% 0.71%

2011 1.85% 0.71%

2012 2.02% 0.25%

2013 2.32% 0.36% Source: Bloomberg

Management Compensation

The Compensation Committee of the Board of Directors aligns the interests of both shareholders and managers; the committee administers the compensation program fairly in the shareholders’ interests by compensating management for performance. Base salaries assure that key executives have a guaranteed cash payment linked with their responsibilities. Table 6 provides the 2012 executive compensation for the Company’s management.

Table 6: Executive Compensation (USD in thousands)

Position Salary Restricted

Stock Award

Non-Equity Compensation

Other Total

David H. Hoster, CEO 569 1,672 612 18 2,870

N. Keith McKey, CFO 343 843 305 18 1,508

John F. Coleman, Senior VP 333 535 197 18 1,083

Brent W. Wood, Senior VP 327 516 194 15 1,052

William D. Petsas, Senior VP 320 516 190 18 1,044 Source: Morningstar 2012

Director Compensation

For their efforts, EastGroup Properties compensates the Board of Directors monthly with a $30,000 payment to each member, as well as a $10,000 fee to the chairman of the Audit Committee and a $7,500 fee to the chairman of the Compensation Committee. The Board of Directors also sets policies to provide compensation in the form of a significant financial stake in the Company. Directors who have spent five or more years on the Board must own an amount of shares of common stock equivalent to a market value that is at least three times the annual cash retainer fee payable to a director. Directors also receive $70,000 in equity compensation each year upon re-election.


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Leland R. Speed Chairman of the Board (81) Leland R. Speed joined EastGroup in 1978, when he began his term as CEO and Chairman of the Board. He became a Director in 1983. In 1997, when the Company decided to separate the positions of Chairman and CEO, David H. Hoster II replaced Speed as CEO. Mr. Speed is also the current Chairman of the Board at Delta Industries, Inc. and Farm Fish, Inc., and is a member of the Board at Mississippi Valley Gas Co. Mr. Speed received his undergraduate degree from Georgia Institute of Technology and his MBA from Harvard Business School. In January 2009, the National Association of REITs presented Speed with the 2008 Industry Leadership Award in order to honor Speed’s contribution to the growth and improvement of the real estate industry.

David H. Hoster II Chief Executive Officer, President and Director (68) David H. Hoster II became an Executive Vice President for EastGroup in 1983, served as President and Director in 1993, and succeeded Mr. Speed as CEO in 1997. Before serving as an executive Vice President for EastGroup, Mr. Hoster was the President of Riviere Realty Trust in Washington, D.C. He attended Princeton University for his bachelor’s degree and Stanford University for his master’s degree.

N. Keith McKey Executive Vice President, Chief Financial Officer, Treasurer (62) N. Keith McKey joined EastGroup with Mr. Hoster in 1983 when he too became an officer. The Company appointed him CFO and Secretary in 1992, Executive Vice President in 1993, and Treasurer in 1997. Prior to joining EastGroup, Mr. McKey served as an accountant for Ernst & Young LLP and KPMG Peat Marwick LLP. He is a Certified Public Accountant and attended the University of Mississippi for his undergraduate education.

Bruce Corkern Senior Vice President and Chief Accounting Officer (51) Bruce Corkern has been the Senior Vice President and Controller of the Company since 2000 and the CAO of EastGroup since 2005. From 1990 to 2000, Mr. Corkern was the Vice President of Finance for the Jackson/Monroe Division of Time Warner Cable. He is a Certified Public Accountant and attended the University of Southern Mississippi.

William D. Petsas Senior Vice President (55) William D. Petsas is one of EastGroup’s Senior Vice Presidents and also serves as head of the Phoenix, Arizona regional office. Mr. Petsas was a Vice President for a direct competitor, Prologis, Inc., until April 2000 when he joined EastGroup. Mr. Petsas is a Certified Public Accountant and received his bachelor’s degree from Valparaiso University and his master’s degree from Indiana University.


18

John F. Coleman Senior Vice President (53) John F. Coleman is the Senior Vice President and head of the Florida regional office in Orlando, Florida. Before he joined EastGroup in 2001, Mr. Coleman was a Senior Vice President at competitor Duke Realty Corporation. He attended Clemson University for both his undergraduate degree and Masters in Architecture.

Brent W. Wood Senior Vice President (43) Brent W. Wood started his career at EastGroup in 1996 as Assistant Controller and Senior Asset Manager; he later became Senior Vice President and director of EastGroup’s Houston office in 2003. Mr. Wood is a Certified Public Accountant and attended the University of Mississippi for both his Bachelor and Master of Accountancy degrees.

Board of Directors EastGroup’s Board of Directors consists of nine members, seven of whom are independent outsiders who comprise of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Compared to its peers, EastGroup’s independent outsiders rate of 78% is slightly below Kilroy Realty’s 80%, Prologis’s 90%, and Duke Realty’s 92%. Having a large number of independent directors is an industry standard as it allows for the board members to be objective when approving decisions in their committees. Each independent member of EastGroup’s Board has multiple channels of experience in the industrial real estate industry, and was or currently serves as an executive of another real estate organization. For example, Compensation Committee member Fredric Gould was the Chairman of BRT Realty Trust and One Liberty Properties, Inc., and was a member of the Board of Governors of the National Association of Real Estate Investment Trusts. Gould’s background in the industry allows him to objectively and wisely evaluate EastGroup’s compensation decisions according to what he personally views as a best practice. Leland Speed and David Hoster are the only insiders on the board.

H. Eric Bolton Jr. joined the Company’s board in December 2013. His election increased the number of the Board of Directors from eight to nine members. Bolton is Chairman and CEO of Mid-America Apartment Communities, Inc., which owns properties in 14 Sunbelt states and has a market capitalization of $6.5 billion. The remaining eight members have all served on EastGroup’s board since at least 2005.

SHAREHOLDER ANALYSIS

EastGroup Properties, Inc.’s primary shareholders include investment advisors, insurance companies, pension funds, banks, hedge funds, government organizations, and individuals. Two hundred fifty-five institutional shareholders hold 97.05% of the Company’s outstanding shares. The top ten institutional shareholders are exhibited in Table 7. These top-ten institutional shareholders own 58.90% of total shares. The total ownership claimed by investment advisors is 90.86%.


19

Additionally, there are 1.82% shares owned by pension funds, 1.31% shares owned by banks, 0.99% shares owned by hedge funds, 0.85% shares owned by insurance companies, and 0.84% shares owned by the United States government. By holding a large amount of EastGroup shares, institutional investors prove their confidence in the Company’s long-term growth ability and future prospects. Furthermore, 83.77% of the Company’s investors are located in the United States. Also, 14 inside holders own 3.73% of the Company, totaling 1.14 million shares.

Table 7: Top-Ten Institutional Shareholders

Holder Name Shares Percent

Ownership Vanguard Group Inc. 3,764,431 12.29%

Blackrock 3,411,954 11.14%

T Rowe Price Group Inc. 2,820,911 9.21%

Invesco Ltd 2,293,204 7.49%

JPMorgan Chase & Co 1,289,455 4.21%

AMP Ltd 1,112,756 3.63%

Shinko Asset Mangement Co 966,186 3.15%

Bank of New York Mellon Corp 927,530 3.03%

Silvercrest Asset Management 728,196 2.38%

State Street Corp 725,450 2.37% Source: ULT-AGG via Bloomberg February 2, 2014

Table 8 shows the top-five individual shareholders of EastGoup Properties, Inc. The CEO David H. Hoster II holds 0.93% of the stock and is currently the largest individual shareholder.

Table 8: Top-Five Individual Shareholders

Holder Name Shares Percent

Ownership David H Hoster II 285,551 0.93%

Leland R Speed 238,494 0.78%

Keith N Mckey 141,301 0.46%

William D Petsas 113,790 0.37%

John F Coleman 109,908 0.36% Source: Bloomberg February 2, 2014


20

RISK ANALYSIS AND INVESTMENT CAVEATS

EastGroup, along with all other real estate investment trusts (REITs), faces operational risks, regulatory risks, and financial risks. Because EastGroup is in the commercial real estate industry, it is especially subject to macroeconomic forces. All of the following risks can affect EastGroup’s performance, or the amount the Company is able to distribute to stockholders when it pays its quarterly dividends.

Operational Risks Real Estate Industry Risks EastGroup faces risks associated with the local real estate conditions of the Sunbelt region where it owns properties, which may include an oversupply of industrial buildings or a decline in the attractiveness of EastGroup’s properties. Events that have a negative effect on the real estate industry will negatively affect EastGroup’s performance. Because most of EastGroup’s properties are located in the Sunbelt region, it is especially subject to real estate risks in this area. A downturn in the general economic conditions in the area of an EastGroup property, such as reduced demand or business layoffs, could have a particularly strong negative effect on EastGroup, due to its lack of geographic diversity. Also, EastGroup properties are subject to local competition, as the real estate business is highly competitive. Because EastGroup is a smaller company, it may not be able to compete with other real estate investors or purchasers that have the advantage of stronger financial resources, higher revenues, and greater geographical diversity.

Specific Macroeconomic Risks As mentioned above, because EastGroup is a REIT, it is especially subject to risks from the overall economic environment. An economic downturn could limit the Company’s access to credit while also reducing demand for its properties. Some of the specific economic conditions that would affect EastGroup customers include business personal income trends, and industry slowdowns. Any of these conditions could lower demand for properties, and prevent EastGroup tenants from making their payments on time or at all. A substantial portion of EastGroup’s income comes from rents of long term leases, so if the Company cannot lease all of its space or receive its payments as planned EastGroup will end up with less money than expected.

Insurance Coverage Risk Although EastGroup has insurance on its properties, there is a chance of losses occurring that current policies do not cover. The Company has insurance relating to its business operations, including casualty and general liability, but EastGroup is responsible for deductibles and any losses that are not covered by these policies. When a loss occurs that is either uninsured or in excess of the insurance coverage, EastGroup loses the capital it invested into that particular property, and it loses the anticipated future revenues from the property.


21

Regulatory Risks Regulations in the real estate business can greatly constrain EastGroup’s activities. For example, local zoning and land use laws can restrict expansion or rehabilitation. Also, legislation such as the Americans with Disabilities Act may require EastGroup to modify its properties, which brings on additional costs for the company. As a part of the real estate industry, EastGroup is especially subject to environmental regulations, including laws concerning disposal of hazardous substances, natural resource damage, and contamination. These laws can be federal, state, or local, and give mitigation responsibility to companies, regardless of whether they are aware of, or at fault for, the environmental damage. Disposal and contamination are risks for companies, because there is no way to determine the magnitude of any potential liability or violations ahead of time. Also, if the American Society for Testing and Materials (ASTM) creates new laws regarding climate change, EastGroup may be required to make improvements on its existing properties.

Financial Risks Investment Risks As a REIT, EastGroup is required to distribute at least 90% of its taxable income to its shareholders each year. With this outstanding requirement the Company is not always able to fund all future capital needs with its cash from operations, so EastGroup sometimes relies on third-party sources of capital. The Company’s access to third-party sources of capital depends on factors such as the general market conditions and the market’s perception of the Company, so there is a risk that EastGroup may not always be able to obtain favorable terms on funding. The terms that EastGroup receives on its credit agreements could limit the Company’s flexibility in operations, and if the Company cannot meet its payment obligations on time it may be left with less cash to distribute to shareholders. Lastly, because EastGroup’s ability to receive funding is dependent on its credit ratings, the Company bears the risk of not being able to obtain additional financing or refinance existing obligations if its credit ratings go down. Credit ratings are based on the Company’s operating performance, liquidity and leverage ratios, and overall financial position, as determined by credit rating agencies.

Liquidity Risk It is difficult for the Company to vary its portfolio in response to changes in the economy due to the illiquidity of real estate investments. Also, EastGroup’s status as a REIT limits its ability to sell its properties. Therefore, if EastGroup needs to sell an investment, it may be difficult to do so on favorable terms.

Interest Rate and Tax Risk Because the economy expects interest rates to rise, EastGroup faces the risk of increasing its floating rate debt, which was $88.95 million at the end of 2013. If interest rates rise, the Company may have to refinance its existing debt at higher rates.


22

Overall, rising interest rates would have negative effects on the Company’s financial condition, its ability to pay expected distributions to stockholders, and the value of its stock. Changes in tax laws could also impact the Company’s financial condition.

Altman Z-Score Analysis

In 1968, Edward I. Altman invented the Altman Z-Score formula, which predicts the likelihood that a firm will declare bankruptcy. The formula takes into account the following five financial ratios

Working capital/total assets

Retained earnings/total assets

Earnings before interest, tax, depreciation, and amortization/total assets

Market value of equity/total liabilities

Net Sales/total assets

Altman concluded that a company with a Z-Score of 1.8 or below is likely to default, while a company with a score of 3.0 or above has a low risk for bankruptcy.

However, Z-Score is generally not an accurate indicator to determine the probability of bankruptcy for REITs. The current assets of REITs consist predominantly of cash and cash equivalents, skewing the calculation involving working capital. Also, as REITs pay out at least 90% of their earnings in dividends, REITs tend to have a lower proportion of retained earnings than that of other publicly traded securities.

EastGroup’s Z-Score has been relatively consistent over the past five years. Nonetheless, because EastGroup’s unique financial structure has likely skewed these results, the Company’s Z-Score may not be an accurate indicator of bankruptcy probability. Table 9 displays EastGroup’s most recent Altman Z-Scores.

Table 9: EastGroup’s Z-Scores Company 2009 2010 2011 2012 2013

EastGroup Properties, Inc. (EGP) 1.54 1.52 1.38 1.70 1.74 Source: Burkenroad Team February 26, 2014


23

FINANCIAL PERFORMANCE AND PROJECTIONS

In forecasting EastGroup’s financial projections, we made several assumptions about the factors affecting the growth of the Company, including the growth rates regarding the total square footage of EastGroup’s portfolio and revenue per square foot. We also assumed that the value of land in the Sunbelt will continue to appreciate as more companies and families relocate in the area. Lastly, after meeting with management, we believe the Company will continue to maintain its debt-to-equity ratio of approximately 50%.

Operating Assumptions

In our price × quantity financial model, we forecasted total revenues by multiplying the revenue per square foot leased by the total square feet leased. To do so, however, we derived average growth rates for revenue per square foot and total square feet for lease. Of the total square feet for lease, we have also estimated that EastGroup will continue to lease 95% of its total square feet available for rent. After our meeting with management, we have confidence in our assumption that the previous years’ data are a strong indicator of future performance. Management also believes it will be able to uphold its high occupancy rate. Given the Company’s past performance and management’s assurance, we believe that EastGroup will continue to strategically increase its portfolio and uphold its high occupancy rate.

Macroeconomic Assumptions

We also assumed that the value of land in the Sunbelt will continue to increase. As EastGroup only operates in the Sunbelt, it is extremely vulnerable to the Sunbelt’s economy and is dependent upon the trend of companies and families relocating in that region. Since the population and Gross Domestic Product of most Sunbelt states have been steadily increasing and since we do not have reason to believe otherwise, we believe that the growing economy of the Sunbelt will continue to positively impact EastGroup’s revenues and stock price.

Investing and Financing

Assumptions

As the success of any REIT is dependent upon the REIT’s ability to raise capital, we have also assumed that EastGroup will continue to raise capital while maintaining its debt-to-equity ratio of 50%. During our visit, management explained that it prefers to hold more equity than debt and confirmed our assumption that the Company will sustain its ability to raise capital.

SITE VISIT We spent our Valentine’s Day in Jackson, Mississippi visiting EastGroup’s headquarters. We left early in the morning to make the three-hour drive, and arrived in Jackson around 9:30 a.m. with plenty of time to prepare for our meeting at 11:00 a.m. We were scheduled to meet with CAO Bruce Corkern, but upon entering the headquarters, we learned we would be meeting with President and CEO, David Hoster, and CFO, Keith McKey, as well.


24

The three executives began by introducing themselves and telling us some background information on the Company. Mr. Hoster stressed the importance of EastGroup’s consistent strategy, addressing EastGroup’s attraction to the Sunbelt region, which has given the Company a competitive advantage. We learned that EastGroup stays in the Sunbelt region because it is a major area for job and population growth. To make up for the lack of geographic diversity, EastGroup gains its competitive advantage by offering properties close to the city centers so that warehouses are near shipping and transportation locations. To conclude his introduction, Mr. Hoster outlined the Company’s construction process, and told us about some of the EastGroup customers, including a manufacturer for ignition interlock devices, a bourbon brewery, and a company that leases performance rehearsal space to cruise lines.

After Mr. Hoster’s introduction, the executives opened the floor for questions. Our research team asked about LEED certification, a limit on EastGroup’s occupancy rate, and sources of outside financing. During the Q&A session, we took a break to get lunch with management at a famous Jackson restaurant called the Mayflower, which was in the movie The Help. All three executives are regulars at this restaurant, and had great recommendations for everyone. After lunch we finished our discussion of sources of finance by talking about debt. Leland Speed, Chairman of the Board, joined us for the end of the meeting, expressing high confidence in the Company.

We left the EastGroup office at 2:00 p.m. with the 2013 annual report, t-shirts, and gift bags from the Company; but more importantly, we left with a better understanding of EastGroup. Overall, we feel very fortunate to have had the opportunity to meet with management and learn about the Company from their perspective.

Site Visit Photo


25

INDEPENDENT OUTSIDE RESEARCH

To evaluate the strategic location of warehouses, we interviewed EastGroup’s customers, vendors in the online retail business, and industry analysts from the National Association of Real Estate Investment Trusts (NAREIT). These individuals’ unique experiences with the industrial real estate industry allowed us to find the most prominent themes and commonalities from their various points of view, regarding the future of warehouse space in relation to customer proximity. As the majority of EastGroup’s customers use industrial warehouses to produce goods to sell in the same market where the warehouse is located, we felt that contacting stakeholders in the industrial real estate industry would allow us to better gauge EastGroup’s position in the market.

Strategic location of warehouses

We gained a consensus that location is the most important consideration for companies looking to purchase or rent a warehouse, as location plays a key factor in minimizing transportation costs and efficiently transferring finished goods to the consumer. Michael Annino, who manages development and investment projects for InSite Realty Partners, explained, “My first consideration [when selecting a warehouse] is to be located on a site that has great mobility or access to major arteries in the trade area.” The vendors with whom we spoke agreed that convenient access to a city center allows them to efficiently reach their customers, giving them a competitive advantage. Their views reinforce the importance of EastGroup’s strategy to compete with its peers on location, as opposed to cost of renting the property, which is typically the buyers’ second consideration.

Same-day shipping attitudes

With regards to efficient access to customers, we were, however, surprised to discover that same-day shipping is not as popular as we had originally thought. While close proximity to customers is vital for vendors, transferring goods from the warehouse to the customer within a 24 hour time span does not currently pose a significant threat or opportunity to suppliers. Nonetheless, as the demand for same-day shipping continues to slowly but steadily increase, vendors may need to factor this trend into the decision making process for purchasing warehouses.

High potential for growth in Sunbelt

Another dominant theme among the interviewees was their unanimous belief that the Sunbelt region currently has more potential for industry REITs than any other geographical regions in the U.S. Their opinions support our hypothesis that the Sunbelt, with increasing job growth and population growth, is a strong strategic location for EastGroup to expand its portfolio.


26

WWBD? What Would Ben (Graham) Do?

BEN GRAHAM ANALYSIS (slightly modified)

Ben Graham is a prominent investor and the Father of Fundamental Equity Analysis. He created a valuation method consisting of ten critical elements, or hurdles, that assist investors in selecting stocks. In our modified valuation we only used eight hurdles. The first six hurdles determine whether a company is overvalued or undervalued, and the last two hurdles analyze the growth and stability of the company as a whole. The eight hurdles together allow investors to determine whether a stock is well-priced and whether it will grow consistently in the future.

According to the Ben Graham Analysis, EastGroup is an overpriced, unattractive stock. A company is attractive if it satisfies at least four out of the eight hurdles; EastGroup only satisfies two. The Company passed hurdle number three, which requires a company to have a dividend yield greater than half the yield on the 10-year U.S. Treasury bond. As the Company pays out at least 90% of its earnings in dividends, this result is not surprising. EastGroup also passed the last hurdle, which shows investors that the Company’s earnings will likely have strong and stable growth. We believe that the Ben Graham Analysis accurately predicted EastGroup’s consistent future growth in earnings, which is an important factor for investors to consider. Nonetheless, this analysis might not be an appropriate method to evaluate EastGroup, as Graham created the analysis before the existence of REITS. (See the following table for the complete Ben Graham Analysis.)


27

Earnings per share (ttm) 1.08$ Price: 61.53$

Earnings to Price Yield 1.76%

10 Year Treasury (2X) 5.40%

P/E ratio as of 12/31/09 26.6

P/E ratio as of 12/31/10 46.5

P/E ratio as of 12/31/11 44.5

P/E ratio as of 12/31/12 35.3

P/E ratio as of 12/31/13 47.6

Current P/E Ratio 57.0

Dividends per share (ttm) 2.14$ Price: 61.53$

Dividend Yield 3.48%

1/2 Yield on 10 Year Treasury 1.35%

Stock Price 61.53$

Book Value per share as of 12/31/2013 16.59$

150% of book Value per share as of 12/31/2013 24.89$

Interest-bearing debt as of 12/31/2013 893,745$

Book value as of 12/31/2013 513,998$

Current assets as of 12/31/2013 11,559$

Current liabilit ies as of 12/31/2013 37,104$

Current ratio as of 12/31/2013 0.3

EPS for year ended 12/31/13 1.08$





EPS for year ended 12/31/13 1.08$ -4%

EPS for year ended 12/31/12 1.13$ 36%

EPS for year ended 12/31/11 0.83$ 22%

EPS for year ended 12/31/10 0.68$ -35%


Sto ck p rice d ata as o f March 28 , 2 014

Hurdle # 4: A Stock Price less than 1.5 BV

No

Hurdle # 8: Stability in Growth of Earnings

Yes

No

EASTGRO UP PRO PERTIES INC. (EGP)Ben Graham Analysis

Hurdle # 1: An Earnings to Price Yield of 2X the Yield on 10 Year Treasury

No

Hurdle # 7: Earnings Growth of 7% or Higher over past 5 years

Hurdle # 6: Current Ratio of Two or More

No

Hurdle # 5: Total Debt less than Book Value

No

Hurdle # 2: A P/E Ratio Down to 1/2 of the Stocks Highest in 5 Yrs

No

Hurdle # 3: A Dividend Yield of 1/2 the Yield on 10 Year Treasury

Yes

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4 E

THIS PAGE LEFT INTENTIONALLY BLANK



BURKENROAD REPORTS RATING SYSTEM MARKET OUTPERFORM: This rating indicates that we believe forces are in place that would enable this company's stock to produce returns in excess of the stock market averages over the next 12 months. MARKET PERFORM: This rating indicates that we believe the investment returns from this company's stock will be in line with those produced by the stock market averages over the next 12 months. MARKET UNDERPERFORM: This rating indicates that while this investment may have positive attributes, we believe an investment in this company will produce subpar returns over the next 12 months. BURKENROAD REPORTS CALCULATIONS

CPFS is calculated using operating cash flows excluding working capital changes.

All amounts are as of the date of the report as reported by Bloomberg or Yahoo Finance unless otherwise noted. Betas are collected from Bloomberg.

Enterprise value is based on the equity market cap as of the report date, adjusted for long-term debt, cash, and short-term investments reported on the most recent quarterly report date.

12-month Stock Performance is calculated using an ending price as of the report date. The stock performance includes the 12-month dividend yield.

2013-2014 COVERAGE UNIVERSE AFC Enterprises Inc. (AFCE) Amerisafe Inc. (AMSF) Bristow Group Inc. (BRS) CalIon Petroleum Company (CPE) Cal-Maine Foods Inc. (CALM) Carbo Ceramics Inc. (CRR) Cash America International Inc. (CSH) CLECO Corporation (CNL) Conn's Inc. (CONN) Conrad Industries Inc. (CNRD) Crown Crafts Inc. (CRWS) Cyberonics Incorporated (CYBX) Denbury Resources Inc. (DNR) EastGroup Properties Inc. (EGP) EPL Oil & Gas Inc. (EPL) Evolution Petroleum Corp. (EPM) Gulf Island Fabrication Inc. (GIFI) Hibbett Sports (HIBB) Hornbeck Offshore Services Inc. (HOS) Houston Wire & Cable Company (HWCC)

IBERIABANK Corp. (IBKC) ION Geophysical Corp. (IO) Key Energy Services (KEG) Marine Products Corp. (MPX) MidSouth Bancorp Inc. (MSL) PetroQuest Energy Inc. (PQ) Pool Corporation (POOL) Powell Industries Inc. (POWL) Rollins Incorporated (ROL) RPC Incorporated (RES) Sanderson Farms Inc. (SAFM) SEACOR Holdings Inc. (CKH) Sharps Compliance Inc. (SMED) Stone Energy Corp. (SGY) Superior Energy Services Inc. (SPN) Susser Holdings Corp. (SUSS) Susser Petroleum Partners (SUSP) Team Incorporated (TISI) Teche Holding Company (TSH) Willbros Group Inc. (WG)

PETER RICCHIUTI Director of Research Founder of Burkenroad Reports [email protected] ANTHONY WOOD Senior Director of Accounting [email protected]

JIMMY DUNN TYLER HARDIN SAMRA NAWAZ Associate Directors of Research

BURKENROAD REPORTS Tulane University New Orleans, LA 70118-5669 (504) 862-8489 (504) 865-5430 Fax

To receive complete reports on any of the companies we follow, contact:Peter Ricchiuti, Founder & Director of Research

Tulane UniversityFreeman School of BusinessBURKENROAD REPORTS

Phone: (504) 862-8489Fax: (504) 865-5430

E-mail: [email protected] visit our web site at www.BURKENROAD.org

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Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter of Tulane’s business school, and funded through contributions from his family and friends, BURKENROAD REPORTS is a nationally recognized program, publishing objective, investment research reports on public companies in our region. Students at Tulane University’s Freeman School of Business prepare these reports.Alumni of the BURKENROAD REPORTS program are employed at a number of highly respected financial institutions including:ABN AMRO Bank · Aegis Value Fund · Invesco/AIM Capital Management · Alpha Omega Capital Partners · American General Investment Management · Ameriprise Financial · Atlas Capital · Banc of America Securities · Bank of Montreal · Bancomer · Barclays Capital · Barings PLC · Bearing Point · Bessemer Trust · Black Gold Capital· Bloomberg · Brookfield Asset Management · Brown Brothers Harriman Capital · Blackrock Financial Management · Boston Consulting Group · Buckingham Research · California Board of Regents · Cambridge Associates· Canaccord Genuity · Cantor Fitzgerald · Chaffe & Associates · Citadel Investment Group · Citibank · Citigroup Private Bank · City National Bank · Cornerstone Resources · Credit Suisse · D. A. Davidson & Co. · Deutsche Banc · Duquesne Capital Management · Equitas Capital Advisors· Factset Research · Financial Models · First Albany · Fiduciary Trust · Fitch Investors Services · Forex Trading · Franklin Templeton · Friedman Billings Ramsay · Fulcrum Global Partners · Gintel Asset Management · Global Hunter Securities · Goldman Sachs · Grosever Funds · Gruntal & Co. · Guggenheim Securities , LLC · Hancock Investment Services · Healthcare Markets Group · Capital One Southcoast · Howard Weil Labouisse Friedrichs · IBERIABANK Capital Markets · J.P. Morgan Securities · Janney Montgomery Scott · Jefferies & Co. · Johnson Rice & Co. · KBC Financial · KDI Capital Partners · Key Investments · Keystone Investments · Legacy Capital · Liberty Mutual · Lowenhaupt Global Advisors · Mackay Shields · Manulife/John Hancock Investments · Marsh & McLennan · Mercer Partners · Merrill Lynch · Miramar Asset Management · Moodys Investor Services · Morgan Keegan · Morgan Stanley · New York Stock Exchange · Perkins Wolf McDonnell · Piper Jaffray & Co. · Professional Advisory Services · Quarterdeck Investment Services · RBC · Raymond James · Restoration Capital · Rice Voelker, LLC · Royal Bank of Scotland· Sandler O'Neill & Partners · Sanford Bernstein & Co. · Scotia Capital · Scottrade · Second City Trading LLC · Sequent Energy · Sidoti & Co · Simmons & Co. · Southwest Securities · Stephens & Co. · Sterne Agee · Stewart Capital LLC · Stifel Nicolaus · Sun-Trust Capital Markets · Susquehanna Investment Group · Thomas Weisel Partners · TD Waterhouse Securities · Texas Employee Retirement System · Texas Teachers Retirement System · ThirtyNorth Investments · Thornburg Investment Management · Tivoli Partners · Tudor Pickering & Co. · Tulane University Endowment Fund · Turner Investment Partners · UBS · Value Line Investments · Vaughan Nelson Investment Management · Wells Fargo Capital Management · Whitney National Bank · William Blair & Co. · Zephyr Management

Date post:	22-Jan-2018
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EGP Burkenroad Report

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