-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SIpHm5vHAuJy+TFneVGQ8S3bCUTTRrqJMqC9g3uLZngPiTXB53vcwzDwUdVz51Np ymIBDaT3mawYvQDDGlduOw== 0000350071-97-000023.txt : 19971114 0000350071-97-000023.hdr.sgml : 19971114 ACCESSION NUMBER: 0000350071-97-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRY LAND & INVESTMENT CO INC CENTRAL INDEX KEY: 0000350071 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 580961876 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11081 FILM NUMBER: 97714083 BUSINESS ADDRESS: STREET 1: 624 ELLIS ST CITY: AUGUSTA STATE: GA ZIP: 30901 BUSINESS PHONE: 7067226756 MAIL ADDRESS: STREET 1: PO BOX 1417 CITY: AUGUSTA STATE: GA ZIP: 30903 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10Q ___________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended SEPTEMBER 30, 1997 Commission file number: 001-11081 MERRY LAND & INVESTMENT COMPANY, INC. P.O. Box 1417 Augusta, Georgia 30903 706 722-6756 ___________ State of Incorporation: Georgia I.R.S. Employer Identification Number: 58-0961876 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days: Yes X . No____. The number of shares of common stock outstanding as of September 30, 1997 was 38,820,915. Form 10-Q - Merry Land & Investment Company, Inc. Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - September 30, 1997 and December 31, 1996 Statements of Income - Three months ended September 30, 1997 and 1996, and nine months ended September 30, 1997 and 1996. Statements of Cash Flows - Nine months ended September 30, 1997 and 1996 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
September 30, December 31, PROPERTIES AT COST 1997 1996 ---- ---- Apartments $1,447,660 $1,175,427 Apartments under development 51,226 56,110 Commercial rental property 5,572 6,874 Land held for investment or future development 4,090 4,090 Operating equipment 3,565 1,817 --------- --------- 1,512,113 1,244,318 Less accumulated depreciation and depletion (130,239) (102,277) --------- --------- 1,381,874 1,142,041 CASH AND SECURITIES Cash and cash equivalents 660 32,793 Marketable securities 2,335 23,799 --------- --------- 2,995 56,592 OTHER ASSETS Notes receivable 686 726 Other receivable 24 2,449 Deferred loan costs 4,382 3,497 Other 3,475 2,941 --------- --------- 8,567 9,613 --------- --------- TOTAL ASSETS $1,393,436 $1,208,246 --------- --------- NOTES PAYABLE Mortgage loans $ 51,632 $ 27,546 Senior notes 410,000 360,000 Note payable-credit line 88,550 - --------- --------- 550,182 387,546 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accrued interest 7,285 4,016 Resident security deposits 1,763 1,669 Accrued property taxes 17,463 7,642 Accrued employee compensation 2,162 2,284 Other 16,317 6,317 --------- --------- 44,990 21,928 STOCKHOLDERS' EQUITY Preferred stock, at $25 and $50 liquidation preference, 20,000 shares authorized: 227 and 359 shares, $1.75 Series A Cumulative Convertible 5,663 8,970 4,000 shares, $2.205 Series B Cumulative Convertible 100,000 100,000 4,599 and 4,600 shares, $2.15 Series C Cumulative Convertible 114,985 114,995 1,000 shares, $4.145 Series D Cumulative Redeemable Preferred 50,000 50,000 Common stock, at $1 stated value, 100,000 shares authorized 38,821 and 37,784 shares issued 38,821 37,784 Capital surplus 518,788 498,907 Cumulative undistributed net earnings (8,152) 2,064 Notes receivable from stockholders and ESOP (22,368) (17,502) Unrealized gain on securities 527 3,554 --------- --------- 798,264 798,772 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY $1,393,436 $1,208,246 ---------- ----------
The accompanying notes are an integral part of these statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ---------------------------- --------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Rental income $53,742 $44,816 $150,616 $129,869 Mineral royalties 441 99 995 272 Mortgage interest 17 13 63 52 Other interest 154 673 1,595 1,678 Dividends 81 316 682 2,246 Other income 15 2,472 5,066 5,106 ------- ------- -------- -------- 54,450 48,389 159,017 139,223 Rental expense 15,110 12,828 40,339 36,067 Interest 6,461 5,643 17,433 17,074 Depreciation - real estate 10,560 8,598 29,523 24,863 Depreciation - other 111 65 279 195 Amortization - financing costs 219 142 504 427 Taxes and insurance 5,682 4,562 17,060 13,809 General and administrative expense 946 921 3,327 2,190 ------- ------- -------- -------- 39,089 32,759 108,465 94,625 Income before net realized gains 15,363 15,630 50,553 44,598 Net realized gains 680 524 1,535 2,239 ------- ------- -------- -------- NET INCOME 16,043 16,154 52,088 46,836 Dividends to preferred shareholders 5,812 4,848 17,462 14,766 NET INCOME AVAILABLE ------- ------- -------- -------- FOR COMMON SHARES $10,231 $11,306 $34,626 $32,070 ------- ------- -------- -------- Weighted average common shares outstanding - primary 38,618 37,352 38,320 35,303 - fully diluted 48,907 47,852 48,625 46,029 NET INCOME PER COMMON SHARE $.27 $.30 $0.90 $0.91 ---- ---- ----- ----- Cash Dividends Declared Per Common Share $.39 $.37 $1.17 $1.11 ---- ---- ----- -----
The accompanying notes are an integral part of these statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
NINE MONTHS ENDED SEPT. 30, --------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Rents and royalties received $151,837 $130,141 Interest received 1,881 1,954 Dividends received 682 2,988 Rental expense (39,772) (36,846) General and administrative expense (3,497) (1,894) Interest expense (14,164) (15,065) Property taxes and insurance expense (8,707) (5,955) Other 810 (830) -------- -------- Net cash provided by operating activities 89,070 74,493 INVESTING ACTIVITIES: Principal received on notes receivable 36 78 Sale of securities 26,949 25,522 Purchase of securities - (5,408) Sale of real property 20,974 109 Purchase of real property (231,725) (98,991) Development of real property (45,660) (38,421) Recurring capital expenditures (5,552) (3,992) Improvements to existing properties (5,319) (6,078) Other 6,027 (1,966) -------- -------- Net cash (used) by operating activities (234,270) (129,147) FINANCING ACTIVITIES: Senior unsecured notes 50,000 - Net borrowings (repayments) - bank debt 88,550 - Net borrowings (repayments) - mortgage loans 24,086 22,332 Repurchase agreements - - Cash dividends paid - common (44,842) (39,977) Cash dividends paid - preferred (17,462) (14,766) Common stock retired - (675) Sale of common stock - reinvested dividends 8,285 6,434 Sale of common stock - stock purchase plan 3,455 3,468 Sale of common stock - employees 1,133 1,168 Sale of common stock - public offering - 56,094 Sale of preferred stock - public offering (138) (25) ------- -------- Net cash provided (used) by financing 113,067 34,053 activities _______ _______ NET INCREASE (DECREASE) IN CASH (32,133) (20,601) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,793 43,834 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 660 $ 23,233 ------- --------
The accompanying notes are an integral part of these statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Reconciliation of Net Income to Cash Flows from Operating Activities (In thousands) (Unaudited)
NINE MONTHS ENDED SEPT. 30, --------------------------- 1997 1996 ---- ---- Net income $ 52,088 $ 46,836 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 30,306 25,485 (Increase) decrease in interest and accounts 289 993 receivable (Increase) decrease in other assets (1,731) (1,751) Increase (decrease) in accounts payable and 6,584 5,168 accrued interest Gain on the sale of marketable securities 596 (2,181) Gain on the sale of real property 938 (57) -------- ------- Net cash provided by operating activities $ 89,070 $ 74,493 --------- ---------
The accompanying notes are an integral part of these statements. Merry Land & Investment Company, Inc. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (Unaudited) 1. Nature of Business Merry Land & Investment Company, Inc. is a real estate investment trust (REIT), which owns and operates upscale apartment communities in nine Southern states including Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas, and Virginia. As a qualified REIT the Company pays no corporate income taxes on earnings distributed to stockholders. The consolidated financial statements for the nine month periods ended September 30, 1997 and September 30, 1996 reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. In March, 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standard No. 128, Earnings Per Share. SFAS No. 128 significantly changes reported earnings per share for companies with complex capital structures. The Company believes the effect on the Company's earnings per share is not material. 2. MARKETABLE SECURITIES The cost and market value of securities by major classification at September 30, 1997 were as follows (dollars in thousands):
Unrealized COST MARKET GAIN ------ ------- -------- Common stock $1,808 $ 2,335 $ 527
3. BORROWINGS Borrowings at September 30, 1997 were as follows (dollars in thousands):
9.76% mortgage notes (a) $ 12,662 7.75% mortgage note (b) 9,600 7.625% mortgage note (c) 5,167 7.210% mortgage note (d) 9,449 7.125% mortgage note (e) 14,754 6.625% senior unsecured notes (f) 120,000 7.25% senior unsecured notes (g) 40,000 6.875% senior unsecured notes (h) 40,000 6.875% senior unsecured notes (i) 40,000 7.25% senior unsecured notes (j) 120,000 6.90% senior unsecured notes (k) 50,000 Advances under unsecured line of credit (l) 88,550 ------- $ 550,182 -------
------ (a) $10.7 million and $2.0 million, 9.76% mortgage notes, principal and interest payable monthly, maturity 2001. (b) $9.6 million, 7.75% mortgage note, interest payable monthly, maturity 2002. (c) $5.2 million, 7.625% mortgage note, principal and interest payable monthly, maturity 2005. (d) $9.6 million, 7.210% mortgage note, interest payable monthly, maturity 2001. (e) $0.8 million and $8.5 million and $6.3 million, 7.125% mortgage notes, interest payable monthly, maturity 2006. (f) $120.0 million, 6.625% notes, interest payable semi-annually, principal installments of $40.0 million each due 1999, 2000, and 2001. (g) $40.0 million, 7.25% notes, interest payable semi-annually, maturity 2002. (h) $40.0 million, 6.875% notes, interest payable semi-annually, maturity 2003. (i) $40.0 million, 6.875% notes, interest payable semi-annually, maturity 2004. (j) $120.0 million, 7.25% notes, interest payable semi-annually, maturity 2005. (g) $50.0 million, 6.900% notes, interest payable semi-annually, maturity August, 2007. (h) $200.0 million line of credit bearing interest equal to LIBOR plus 0.60%, maturity September 2000. The Company estimates that the fair value of borrowings approximates their carrying value at September 30, 1997. Maturities of borrowings at September 30 were as follows (dollars in thousands):
1997 $107 1998 533 1999 40,575 2000 129,171 2001 61,860 2002 54,700 2003 40,364 2004 40,391 2005 120,419 2006 12,062 2007 50,000 ------- $550,182 -------
4. INCOME TAXES AND DIVIDEND POLICY As discussed in Note 1, the Company has elected to be taxed as a REIT. The Internal Revenue Code provides that a REIT, which in any taxable year meets certain requirements and distributes to its stockholders at least 95% of its ordinary taxable income, will not be subject to federal income taxation on taxable income which is distributed. The Company intends to distribute the required amounts of income in 1997 to qualify as a REIT and to avoid paying income taxes. On September 30, 1997, the Company paid dividends per share as follows:
Series A Preferred $0.43750 Series B Preferred $0.55125 Series C Preferred $0.53750 Series D Preferred $1.03625 Common $0.39000
Form 10-Q - Merry Land & Investment Company, Inc. Part I - Financial Information Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands except apartment and per share data) OVERVIEW Merry Land & Investment Company, Inc. is one of the largest owners and operators of upscale garden apartments in the South. At September 30, 1997, the Company had a total equity market capitalization of over $1.1 billion and owned a high quality portfolio of 103 apartment communities containing 29,091 units. The communities are geographically diversified through the Southern United States, located in twenty-seven metropolitan areas, each with a population in excess of 250,000, extending from the Washington, D.C. area to Texas and Florida. Substantially all of the Company's apartment communities command rental rates in the upper range of their markets. OPERATING STRATEGY. The Company's strategy is to own and operate a significant number of communities in every major market in the Southern United States, and to establish a reputation recognized among apartment dwellers throughout this region for high quality communities and first class service. The accomplishment of this strategy should allow the Company to increase funds from operations and distributions to shareholders by producing greater cash flows at its apartment communities through significant marketing advantages and operating efficiencies. The Company adds to its holdings by buying existing apartment communities, by buying communities under construction and in the initial lease-up stage (primarily from merchant builders) and by developing communities from the ground up. The following table further describes the Company's apartment holdings by major market as of September 30, 1997 (dollars in thousands except rental rates):
Average Sept. Average OCCUPANCY(1) RENTAL RATE (2) % of ------------ --------------- MARKET UNITS COST TOTAL COST 1997 1996 1997 1996 - ------ ----- ---- ---------- ---- ---- ---- ---- Dallas/Ft. Worth 3,208 $ 209,076 14.5% 93.7% 90.7% $837 $829 Atlanta 4,089 196,925 13.6 91.2 96.3 699 648 Orlando 2,404 118,399 8.2 96.2 93.8 681 657 Charlotte 2,459 112,901 7.8 93.9 94.7 647 588 Jacksonville 2,550 106,665 7.4 94.5 96.0 625 613 Austin 1,249 80,276 5.5 96.1 88.9 845 860 Ft. Lauderdale 1,144 72,158 5.0 93.2 89.7 845 847 Tampa 1,449 64,897 4.5 97.7 94.6 667 652 Ft. Myers 1,268 64,408 4.4 96.4 92.6 667 661 Savannah 1,085 49,883 3.4 92.4 96.6 661 614 Raleigh 1,256 48,320 3.3 94.7 94.5 630 603 Charleston 880 33,998 2.4 96.5 90.8 550 532 All others 6,050 289,754 20.0 91.7 90.8 670 636 ------ ---------- ----- ---- ---- ---- ---- 29,091 $1,447,660 100.0% 93.8% 93.3% $696 $666
__________ (1) Represents the average of physical occupancy at each month end for the period held. (2) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at September month end. GROWTH. Merry Land has increased its holdings of apartments primarily through the acquisition of apartment communities and also through apartment development. The following table summarizes the Company's growth in recent years (dollars in thousands):
1997(1) 1996 1995 1994 ------ ---- ---- ---- Units acquired 3,771 2,475 3,444 4,872 Units developed 726 414 - - Total units owned at end of 29,091 24,936 22,296 18,852 period Total cost of apartments $1,447,660 $1,175,427 $1,009,056 $796,436 Total apartment rental income $ 150,223 $ 176,053 $ 144,283 $101,667
__________ (1) Represents totals at September 30, 1997. ACQUISITIONS. In the second and third quarters of 1997, the Company acquired the following twelve apartment communities containing 3,771 units at a cost of $230.0 million (dollars in thousands):
DATE COMMUNITY LOCATION UNITS BUILT COST - --------- -------- ----- ----- ------ Polos East Orlando, Fla. 308 1991 $ 16,000 Ranchstone Houston, Tex. 220 1996 11,250 The Oaks Charlotte, N.C. 318 1996 20,250 The Point Charlotte, N.C. 340 1996 21,300 Coventry at City View Ft. Worth, Tex. 360 1996 22,140 Palms at South Shore Houston, Tex. 240 1990 12,210 Chatelaine Park Atlanta, Ga. 303 1996 23,413 Riverhill Dallas, Tex. 334 1996 22,000 Hidden Lakes Ft. Worth, Tex. 312 1996 20,000 Wimberly Ft. Worth, Tex. 372 1996 26,500 Trails at Briar Forest Houston, Tex. 476 1990 22,150 Richmond Townhomes Houston, Tex. 188 1995 12,700 ----- -------- 3,771 $229,913
ACQUISITION OF COMMUNITIES UNDER DEVELOPMENT. The Company has also agreed to acquire the following communities to be built by unrelated third parties (dollars in thousands):
ESTIMATED ESTIMATED COMMUNITY LOCATION UNITS COST COMPLETION - --------- -------- ----- --------- ---------- Creekside Homes at Legacy Dallas, Tex. 380 $28,500 1Q 1998 Villages of Prairie Creek I Dallas, Tex. 236 17,700 1Q 1998 Villages of Prairie Creek II Dallas, Tex. 200 15,000 1Q 1999 --- ------- 816 $61,200
The Company will acquire title to these communities upon completion of construction for an amount equal to the lesser of the budgeted cost or the seller's actual cost. The Company will pay the seller additional amounts upon the attainment of specified occupancy and net operating cash flow levels based on agreed upon formulas. DEVELOPMENT. At September 30, 1997, the Company had five communities with 1,902 units under construction (of which 660 units have been delivered) and two communities with 726 units under development. The Company expects to complete these communities at an expected total cost of $201.8 million. In addition, the Company owns land for 1,232 additional units. The communities under construction and development offer features typical of very high end properties, including nine foot ceilings, high levels of trim and finish, garages and extensive amenities. The following table summarizes the Company's current development communities and recently completed communities. Estimated cost consists of land, direct construction costs and indirect costs, including projected fees to third party development managers and allocated overhead (dollars in thousands, except cost per unit):
Cost of Total Units Total Estimated Total Placed Estimated Cost Cost Units in in Estimated LOCATION COMMUNITY UNITS COST PER UNIT TO DATE SERVICE SERVICE COMPLETION - -------- --------- ----- --------- --------- ------- -------- ------- ---------- Completed Nashville Cherry Creek 280 $ 18,945 $67,661 $18,945 280 $18,945 4Q 1996 Greensboro Adams Farm II (1) 200 13,100 65,500 13,062 200 13,062 3Q 1997 ___ _________ _______ _______ ___ _______ 480 $ 32,045 $66,760 $32,007 480 $32,007 UNDER CONSTRUCTION Atlanta River Sound 586 $ 41,500 $72,526 $39,787 440 $31,566 4Q 1997 Savannah Long Point 308 22,500 74,350 20,762 220 16,357 1Q 1998 Richmond Wyndham 264 24,500 92,803 12,701 - - 3Q 1998 Greensboro Bridford Lake 320 24,500 73,125 4,047 - - 4Q 1998 Atlanta Sweetwater 424 34,000 80,189 6,939 - - 1999 Creek ----- --------- ------- ------- --- ------- 1,902 $ 147,000 $77,445 $84,236 660 $47,923 UNDER DEVELOPMENT Richmond Spring Oak 506 $ 38,800 $75,099 $ 5,488 1998 Nashville Cherry Creek II(1) 220 16,000 72,727 3,248 1998 ----- --------- ------- -------- 726 $ 54,800 $74,380 $ 8,736 FUTURE DEVELOPMENT Savannah Long Point II (1) 352 $ 1,101 Nashville Bell Road I and II 680 3,468 Greensboro Bridford LakeII(1) 200 1,300 ----- -------- 1,232 $ 5,869
__________ (1) Adjoins an existing community owned by the Company. RECENT EVENTS ISSUANCE OF SENIOR UNSECURED NOTES. On July 28, 1997 the Company completed a public offering of $50.0 million of senior unsecured notes. The notes were sold at a price of 99.707% of par value, to yield 6.941% to maturity. The notes bear an interest rate of 6.90%, with interest only payable semi-annually in February and August, have a term of ten years and mature on August 1, 2007. On October 30, 1997 the Company completed a public offering of $50.0 million of senior unsecured notes. The notes were sold at a price of 100% of par value, to yield 6.69% to maturity. The notes bear an interest rate of 6.69%, with interest only payable semi-annually in May and November, have a term of nine years and mature on October 30, 2006. The notes are rated BBB+ by Standard & Poor's Corporation and Duff & Phelps Credit Rating Co. and Baa2 by Moody's Investors Services, Inc. and rank equally with the Company's other unsecured and unsubordinated indebtedness. The senior unsecured notes contain various covenants which prohibit the incurrence of additional debt: - if total debt becomes greater than 60% of total assets; or - if total secured debt becomes greater than 40% of total assets; or - if net operating income divided by interest on debt and regularly scheduled principal debt amortization becomes less than 1.5. The Company is also required to maintain unencumbered assets of not less than 150% of outstanding unsecured debt. CREDIT LINE. On September 16, 1997, the Company completed a $200.0 million syndicated revolving credit facility with a group of banks led by its primary commercial bank. Borrowings under the line bear interest at 0.60% above the thirty day London Interbank Offered Rates. The credit facility also includes a $100.0 million competitive bid option which allows the Company to solicit bids from participating banks at rates below the contractual rate. The facility is for a three year term and two year amortization for a total term of five years with an annual renewal option. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996. RENTAL MARKETS. Rental markets were stronger in the nine month period of 1997 than in the same period in 1996 as strong demand for apartments exceeded additions to supply. Average physical occupancy for the third quarter of 1997 totaled 95.2% as compared to 94.1% for the third quarter of 1996. The Company's increase in occupancy can be attributed to stronger markets, to aggressive leasing efforts by its staff and also to offering concessions to residents in order to induce them to rent. While levels of new construction throughout the South remain high, the Company believes that if general economic activity, job growth and household formation in the South remain strong, physical occupancy should remain satisfactory. RENTAL OPERATIONS - TOTAL PORTFOLIO. The operating performance of the Company's apartment portfolio is summarized in the following table (dollars in thousands except average monthly rent):
Change from NINE MONTHS ----------- % CHANGE 1996 TO 1997 1997 1996 -------- ------------ ---- ---- Rental Income 16.0% $20,775 $150,223 $129,448 Operating expenses (1) 11.4 4,102 40,009 35,907 Taxes and insurance 25.2 3,365 16,716 13,352 Subtotal (1) 15.2 7,466 56,725 49,259 ____ ______ _______ _______ 16.6% $13,309 $ 93,498 $ 80,189 Average occupancy (2) 0.5% (3) 93.8% 93.3% Average monthly rent (4) 4.5% $ 696 $ 666 Expense ratio (5) (0.3)%(3) 37.8% 38.1%
__________ (1) Excludes depreciation and amortization. (2) Represents the average physical occupancy at each month end for the period held. (3) Represents increase or decrease between periods. (4) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at September 30. (5) Represents total of operating expenses, taxes and insurance divided by rental revenues. Acquisitions and the delivery of units from the Company's development program since the second quarter of 1996 increased the weighted average number of apartments owned to 26,050 in the nine month period of 1997 from 23,168 in the nine month period of 1996. Rental revenues and expenses rose accordingly. Company wide occupancy totaled 95.1% at September 30, 1997 and 94.4% at September 30, 1996. The 4.5% increase in portfolio average rental rates in the nine month period of 1997 from the nine month period of 1996 resulted from both higher rents at the Company's continuing properties and also the higher rents charged at the communities the Company acquired and put in service in 1996 and 1997, whose monthly rents averaged $771 at September 30, 1997, versus the total portfolio average of $696. RENTAL OPERATIONS - SAME STORE. The performance of the 21,156 units which the Company held for the nine month period of both 1997 and 1996 ("same store" results), is summarized in the following table (dollars in thousands, except average monthly rent; see footnotes above):
Change from NINE MONTHS ----------- % CHANGE 1996 TO 1997 1997 1996 -------- ------------ ---- ---- Rental income 3.1% $3,616 $121,708 $118,092 Personnel 12.8 1,500 13,266 11,766 Utilities (25.4) (1,757) 5,163 6,920 Operating 9.2 555 6,582 6,027 Maintenance and grounds (7.3) (597) 7,542 8,139 Taxes and insurance 8.9 1,077 13,136 12,059 Subtotal (1) 1.7 779 45,689 44,910 ____ ______ _______ _________ 3.9% $2,837 $ 76,019 $ 73,182 Average occupancy (2) 0.9% (3) 94.6% 93.7% Average monthly rent (4) 2.3% $668 $ 653 Expense ratio (5) (0.5)% (3) 37.5% 38.0%
Rental income rose by $3.6 million or 3.1% for those properties held for all of both periods, as a result of 0.9% higher occupancy and 2.3% higher average rental rates. At September 30, 1997 same store occupancy was 96.1%, up from 94.8% at September 30, 1996. Rental concessions for September 30, 1997 equaled approximately 1.6% of market rents. Operating expenses increased $0.6 million or 9.2% in 1997 from the same period in 1996. Personnel costs rose $1.5 million, resulting primarily from higher bonuses accrued on site and higher employee headcount and salaries. Utilities expense decreased by $1.8 million or 25.4% as the Company has passed a portion of its water expense to the residents. Accruals for property taxes and insurance increased by $1.1 million to reflect higher assessed values. RENTAL OPERATIONS - DEVELOPMENT COMMUNITIES. $45.7 million was expended in the nine month period of 1997 for apartments under development, bringing the total investment in communities still under development to $98.8 million. In the first nine months of 1997, 726 units were placed in service at a cost of $51.7 million. The Company expects to put a total of approximately 1,000 units in service in 1997. Some dilution of earnings may occur to the extent that leasing lags behind the delivery of units. 306 units of Madison at River Sound, 200 units of Madison at Adams Farm, and 220 units of Hammocks at Long Point were delivered in the first nine months of 1997. The operating results for the nine month period of 1997 and 1996 for all development units in service is summarized in the following table (dollars in thousands; see footnotes above):
NINE MONTHS ----------- 1997 1996 ---- ---- Units 1,567 649 Rental income $6,515 $2,839 Operating expense (1) 1,895 835 Taxes and insurance 398 173 Subtotal (1) 2,293 1,008 ------ ------ $4,222 $1,831
At September 30, 1997, 83.3% of the units delivered at Cherry Creek, Madison at River Sound, Madison at Adams Farm, and Hammocks at Long Point were leased at an average rental rate of $768 per unit. RENTAL OPERATIONS - OTHER COMMUNITIES. "Other communities" are those not included in same store communities or development communities. These include communities bought or sold in part or in whole in 1996 or 1997. At September 30, 1997, these communities included 6,368 units. The performance of the other communities for the nine month period of 1997 and 1996 are summarized in the following table (dollars in thousands; see footnotes above):
NINE MONTHS 1997 1996 ____ ____ Units 6,368 4,848 Rental income $21,999 $8,517 Operating expense (1) 5,561 2,221 Taxes and insurance 3,181 1,119 Subtotal (1) 8,742 3,341 ------- ------ $13,257 $5,176
INTEREST, DIVIDEND AND OTHER INCOME. Dividend income decreased as the Company essentially completed the liquidation of its holdings of equity security investments. Interest, dividend and other income are summarized in the following table (dollars in thousands):
NINE MONTHS 1997 1996 ---- ---- Interest income $1,658 $1,730 Dividend income 682 2,246 Other income 5,066 5,106 Total $7,406 $9,082
INTEREST EXPENSE. Interest expense net of capitalized interest rose to $17.4 million in the nine month period of 1997, up from $17.1 million in the nine month period of 1996. Average debt outstanding rose to $418.7 million in the nine month period of 1997 from $369.3 million in the nine month period of 1996, primarily as a result of the issuance of the 6.90% senior unsecured notes in July of 1997, the assumption of $24.2 million of mortgage notes related to the acquisition of Richmond Townhomes and Trails at Briar Forest in September of 1997, and borrowing $88.6 million under the Company's line of credit to fund the acquisition of apartment communities in the second and third quarters of 1997. The weighted average interest rate charged on all the Company's debt increased to 7.1% in the nine month period of 1997 from 7.0% for the nine month period in 1996 as a result of an average interest rate of 8.0% on the mortgage debt assumed. During the nine month period of 1997, $4.1 million of interest related to the Company's development projects was capitalized versus $2.0 million in the nine month period of 1996, due to the higher level of development underway. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the nine month period of 1997 were $3.3 million, or 2.2% of rental revenues as compared to 1.6% for all of 1996. General and administrative expenses increased $1.1 million in the first nine months in 1997 versus the first nine months in 1996 due primarily to higher corporate headcount and their associated costs. In 1997, the Company has added positions in the areas of property management, acquisitions, development, accounting, and administration in order to provide better service to its residents and to compete more effectively in a rapidly evolving industry. The Company expects that its overhead expense measured as a percentage of revenues will remain among the lowest of apartment REITs. NET INCOME. Net income totaled $52.1 million in the nine month period of 1997 and $46.8 million for the nine month period of 1996. Net income available for common shareholders totaled $34.6 million in the nine month period of 1997 and $32.1 million for the nine month period of 1996. The increases in net income and net income available for common shareholders for 1997 compared to 1996 arose principally from substantially increased operating income from apartments due to the growth of the Company's apartment holdings. Net income per common share in the nine month period of 1997 decreased to $.90 from $.91 in the nine month period of 1996 due primarily to a reduction in net realized gains and more common shares outstanding. DIVIDENDS TO PREFERRED SHAREHOLDERS. Dividends to preferred shareholders totaled $17.5 million in the nine month period of 1997 and $14.8 million in the nine month period of 1996. Preferred dividends are summarized in the following table (dollars in thousands):
NINE MONTHS 1997 1996 ---- ---- Series A Preferred share dividends $ 321 $ 734 Series B Preferred share dividends 6,615 6,615 Series C Preferred share dividends 7,417 7,417 Series D Preferred share dividends 3,109 - --------- --------- Total preferred dividends $ 17,462 $ 14,766
The increase in preferred dividends arose from the issuance of $50.0 million of Series D preferred shares in December, 1996. Holders of the Company's Series A Preferred Stock have converted 4.4 million of the 4.6 million Series A shares originally issued in June 1993 into 5.9 million shares of the Company's common stock as the common dividend was raised above the equivalent preferred dividend. FUNDS FROM OPERATIONS. Funds from operations rose 10.8% to $77.0 million in the nine month period of 1997 as compared to $69.5 million in the nine month period of 1996. Funds from operations available to common shares rose 14.4% to $62.6 million in the nine month period of 1997 compared to $54.7 million in the nine month period of 1996. These increases were principally due to increased rental operating income resulting from the growth of the Company's apartment holdings. On a fully diluted per share basis, funds from operations increased 4.6% to $1.58 in 1997 from $1.51 in 1996. Other income from securities totaled $5.0 million, or $.10 per share for the first three quarters of 1997 (all recorded in the first two quarters of the year) versus $5.1 million, or $.11 per share for the first three quarters of 1996. "Core FFO", those earnings produced exclusively by non cash management activities, rose 5.7% to $1.48 per share from $1.40 per share for the first three quarters of 1997. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data):
NINE MONTHS 1997 1996 ---- ---- Net income $52,088 $46,836 Less preferred dividends paid 17,462 14,766 ------ ------- Net income available for common shares 34,626 32,070 Add depreciation of real estate owned 29,523 24,863 Less net realized gains 1,535 2,238 ------ ------- Funds from operations available to common shares 62,615 54,695 Add convertible preferred dividends 14,353 14,766 ------ ------- Funds from operations-fully diluted $76,968 $69,461 ------ ------- Weighted average common shares outstanding - Primary 38,320 35,303 Fully diluted 48,625 46,029 Funds from operations per share- Primary $ 1.63 $ 1.55 Fully diluted $ 1.58 $ 1.51 Other income from securities (fully diluted) $ .10 $ .11 Core funds from operations (fully diluted) $ 1.48 $ 1.40
The Company believes that funds from operations is an important measure of its operating performance. Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles, GAAP, and should not be considered as an alternative to net income or as an indicator of the Company's operating performance, or as a measure of the Company's liquidity. Based on published recommendations of a task force of the National Association of Real Estate Investment Trusts, the Company defines funds from operations as net income computed in accordance with GAAP, excluding non- recurring costs and net realized gains, plus depreciation of real property. This revised definition eliminates from funds from operations any amortization of debt costs and any non-real estate depreciation. Revision of the definition reduced the Company's funds from operations by $0.8 million and $0.6 million in the nine month periods of 1997 and 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL STRUCTURE. The Company's senior notes and its preferred stock are rated investment grade by Standard & Poor's Corporation (BBB+/BBB), Moody's Investors Services, Inc. (Baa2/Baa3) and Duff & Phelps Credit Rating Co. (BBB+/BBB). At September 30, 1997, total debt equaled 34% of total capitalization at cost, and 27% of total capitalization with equity valued at market. At that date, the Company's financial structure was as follows (dollars in thousands):
Equity at % of Market % of COST TOTAL VALUE TOTAL Advances under line of credit $ 88,550 7% $ 88,550 6% Mortgage loans 51,632 4 51,632 4 6.625% senior unsecured notes, 1999 40,000 3 40,000 2 6.625% senior unsecured notes, 2000 40,000 3 40,000 2 6.625% senior unsecured notes, 2001 40,000 3 40,000 2 7.25% senior unsecured notes, 2002 40,000 3 40,000 2 6.875% senior unsecured notes, 2003 40,000 3 40,000 2 6.875% senior unsecured notes, 2004 40,000 3 40,000 2 7.25% senior unsecured notes, 2005 120,000 8 120,000 7 6.90% senior unsecured notes, 2007 50,000 4 50,000 4 ---------- ---- --------- --- Total debt 550,182 41% 550,182 33% Series D preferred stock 50,000 4% 50,000 4% Common and preferred stock (1) 748,264 55% 1,083,187 63% ---------- ---- --------- --- Total equity 798,264 59% 1,133,187 67% Total capitalization $1,348,446 100% $1,683,369 100% ---------- ---- --------- ----
__________ (1) Assumes conversion of all outstanding convertible preferred stock into common stock. At September 30, 1997, the Company had $88.6 million outstanding under its line of credit. Borrowings under the line bear interest at 0.60% above the thirty day London Interbank Offered Rates. The Company's loan agreements and the covenants under its senior unsecured notes would allow it to borrow an additional $260.6 million on an unsecured basis at September 30, 1997. It generally is not the practice of the Company to finance its acquisitions using mortgage debt, though at times the Company finds it advantageous to assume such debt in order to successfully negotiate and close property acquisitions. At September 30, 1997, the Company had five mortgage loans outstanding, which were assumed in 1996 and 1997 in connection with the purchase of five communities. LIQUIDITY. Merry Land expects to meet its short-term liquidity requirements with cash provided by operating activities and by borrowing under its line of credit. The Company's primary short-term liquidity needs are operating expenses, apartment acquisitions, apartment development and capital improvements. The Company has essentially completed the liquidation of its holdings of marketable securities which were acquired as a temporary investment pending the acquisition or development of additional apartment communities. The Company expects to meet its long-term liquidity requirements, including scheduled debt maturities and permanent financing for property acquisitions and development, from a variety of sources, including operating cash flow, additional borrowings and the issuance and sale of debt and equity securities in the public and private markets. The following table summarizes the Company's capital requirements resulting from its acquisition and development commitments as of September 30, 1997. Not included in this table are additional acquisitions and developments, debt repayments or the additional sales of debt or equity securities (dollars in thousands):
ESTIMATED CAPITAL REQUIREMENTS: Development communities expected costs $239,714 Less development costs paid thru 9/30/97 (130,748) --------- Development costs through 1999 108,866 Acquisition of communities under development in 1998 61,200 Total future development commitments --------- 170,066 ESTIMATED CAPITAL SOURCES: Cash on hand at 9/30/97 660 Funds available under line of credit at 9/30/97 111,450 Total capital sources --------- 112,110 --------- Excess of capital requirements over sources $57,956 ---------
On October 30, 1997 the Company completed the public offering of its 6.69% $50.0 million senior unsecured notes. Net proceeds of $49.6 million from this offering were used to pay down the balance outstanding under the Company's line of credit. CASH FLOWS. The following table summarizes cash flows for the nine month periods of 1997 and 1996 (dollars in thousands):
SOURCES AND USES OF CASH: NINE MONTHS 1997 1996 ---- ---- Operating activities $ 89,070 $ 74,493 Sale of Merry Land common stock 12,736 66,464 Net borrowings 162,636 22,332 Sale of real property 20,974 - Other 5,521 187 Total sources of cash $290,937 $163,476 Acquisitions of and improvements to (242,587) (109,061) properties Development of properties (45,660) (38,421) Dividends paid (62,304) (54,743) Other 6,017 (172) --------- --------- Total uses (344,534) (202,397) --------- --------- Increase (decrease) in cash, cash equivalents and marketable securities ($ 53,597) ($ 38,921)
Cash, cash equivalents and marketable securities decreased by $53.6 million in 1997 as the Company invested funds raised in the equity offerings of 1996 in apartments. The Company's operating cash flow increased to $89.1 million in the nine month period of 1997 from $74.5 million in the nine month period of 1996. The primary use of cash has been apartment acquisitions, development and improvements and dividends. Dividends paid in the nine month period of 1997 increased from the same period in 1996 due to an increase in the average amount of stock outstanding and in the case of the Company's common stock, an increase in the dividends per share to $1.17 in the first three quarters of 1997 from $1.11 per share for the first three quarters of 1996. CAPITAL EXPENDITURES. The Company capitalizes the direct and indirect cost of expenditures for the acquisition or development of apartments and for replacements and improvements. Replacements are non-revenue producing capital expenditures which recur on a regular basis, but which have estimated useful lives of more than one year, such as carpet, vinyl flooring and exterior repainting. Improvements are expenditures which significantly increase the revenue producing capability or which significantly reduce the cost of operating assets. At newly acquired communities, the Company often finds it necessary to upgrade the physical appearance of the properties and to complete maintenance and repair work which had been deferred by prior owners. These activities often result in heavier capital expenditures in the early years of Company ownership, and some of these expenditures which would be considered replacements at stabilized communities (as defined below) are classified as improvements at newly acquired properties. Interest, real estate taxes and other carrying costs incurred during the development period of apartments under construction are capitalized and, upon completion of the project, depreciated over the lives of the projects. The following table summarizes the capital expenditures for the nine month periods of 1997 and 1996 (dollars in thousands, except per unit data):
NINE MONTHS 1997 1996 ---- ---- Apartment communities: Acquisitions $231,725 $ 98,991 Development projects: Development costs 41,579 36,459 Capitalized interest 4,081 1,962 Replacements for stabilized communities (1) 5,552 3,992 Improvements (2) 3,399 5,356 Commercial properties 172 342 Corporate level expenditures 1,747 380 -------- -------- $288,255 $147,482 -------- -------- Per Unit: Replacements for stabilized communities (1) $262 $217 Improvements (2) $117 $221
__________ (1) Stabilized communities are those properties which have been owned for at least one full calendar year. In the nine month period of 1997, 21,156 units were stabilized as compared to 18,410 units in the nine month period of 1996. (2) Improvements include expenditures for all properties owned during the period, including replacements at newly acquired communities. The Company expects that the level of expenditures for replacements and improvements will increase for the remainder of 1997 due primarily to the installation of water submeters at a number of communities and other expenditures scheduled for completion to enhance or maintain the Company's apartment communities position in their markets. INFLATION. Substantially all of the Company's leases are for terms of one year or less, which should enable the Company to replace existing leases with new leases at higher rentals in times of rising prices. The Company believes that this would offset the effect of cost increases stemming from inflation. FORWARD LOOKING STATEMENTS. This filing includes statements that are "forward looking statements" regarding expectations with respect to market conditions, development projects, occupancy rates, capital requirements and sources. These assumptions and statements are subject to various factors, unknown risks and uncertainties, including general economic conditions, local market factors, delays and cost overruns in construction, completion and rent up of development communities, and performance of consultants or other third parties and environmental concerns, any of which may cause actual results to differ from the Company's current expectations. Merry Land & Investment Company, Inc. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities None ITEM 3. Defaults Upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K a. EXHIBITS: (3.i) Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 4(a) to the Company's Shelf Registration Statement on Form S-3 filed December 15, 1995, file number 33-65067), as amended by Articles of Amendment to Articles of Incorporation re: Series D Preferred Stock (incorporated herein by reference to Exhibit 4 to the Company's current report on Form 8-K filed December 11, 1996). (3.ii) By-laws (incorporated herein by reference to Exhibit 3(ii) of Item 14 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). (12) Material Contracts. (10.1) Credit Agreement between the Company and Lenders dated September 16, 1997, (incorporated herein by reference to Item 7, Exhibit 10 to the Company's report on Form 8-K filed September 22, 1997). (27) Financial Data Schedules b. Reports on Form 8-K: FINANCIAL STATEMENTS FORM DATE FILED ITEMS REPORTED FILED 8-K 7-29-97 Completion of Offering No of $50 million principal amount of the Company's 6.90% Notes due 2007 8-K 8-6-97 Acquisitions of Ranchstone Financial Statements Apartments and Polos East were filed with respect Apartments to Ranchstone Apts. and Polos East Apts. 8-K 8-6-97 Acquisitions of The Palms No at South Shore Apartments and Coventry at Cityview Apartments 8-K 9-15-97 Financial Statements filed Financial Statements with respect to previously were filed with respect reported acquisitions to The Palms at South Shore Apartments and Coventry at Cityview Apartments 8-K 9-22-97 Execution of Credit No Agreement for $200 million Unsecured Revolving Line of Credit 8-K 10-8-97 Acquisitions of Chatelaine Financial Statements Park Apartments, and the were filed with respect Partnership interests of to the acquired McCaslin Riverhill, Ltd., properties, and pro The Wimberly Apartment forma, consolidated Homes, Ltd., and McCaslin financials were filed Hidden Lakes, Ltd. with respect to Polos East Apts., Ranchstone Apts., The Oaks Apts., The Pointe Apts., Coventry at Cityview Apts., Chatelaine Park Apts., Wimberly Apartment Homes, Riverhill Apts., and Hidden Lakes Apts. 8-K 10-8-97 Acquisitions of Richmond No Towne Homes and Trails of Briar Forest Apartments 8-K 10-31-97 Completion of Offering No of $50 million principal amount of the Company's 6.69% Notes due 2006 Form 10-Q - Merry Land & Investment Company, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERRY LAND & INVESTMENT COMPANY, INC. /s/ W. TENNENT HOUSTON ---------------------- W. Tennent Houston President Principal Financial Officer November 12, 1997 EX-27 2
5 9-MOS DEC-31-1997 SEP-30-1997 660 2,335 24 0 0 3,499 1,460,887 130,239 1,393,437 44,990 410,000 0 270,648 38,821 488,795 1,393,437 150,616 160,553 40,339 108,465 50,693 0 17,433 52,088 0 52,088 0 0 0 52,088 .90 .90
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