-----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, U9jg0P3omKQGY0B9Ja/HIMlPFQfGCkNIhZQR8qnIsnv6ESWHp4tS4cnPtY0YKIDh XSD5zh0DyhWvN+h7Sa11fw== 0000350071-95-000029.txt : 19951026 0000350071-95-000029.hdr.sgml : 19951026 ACCESSION NUMBER: 0000350071-95-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951025 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: 1934 Act SEC FILE NUMBER: 001-11081 FILM NUMBER: 95583849 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 quarter ended September 30, 1995 MERRY LAND & INVESTMENT COMPANY, INC. P. O. Box 1417 Augusta, Georgia 30903 706 722-6756 Commission file number: 001-11081 State of Incorporation: Georgia I.R.S. Employer Identification Number: 58-0961876 Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value New York Stock Exchange $1.75 Series A Cumulative Convertible Preferred Stock New York Stock Exchange $2.15 Series C Cumulative Convertible Preferred Stock New York Stock Exchange Number of shares outstanding as of September 30, 1995: Common Stock 33,848,745 Series A Preferred Stock 685,316 Series C Preferred Stock 4,599,800 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 (or for such shorter time as required), and (2) has been subject to such filing requirements for the past ninety days: Yes X . No . ---- ---- - ------------------------------------------------------------------------------ Form 10-Q - Merry Land & Investment Company, Inc. Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - September 30, 1995 and December 31, 1994 Statements of Income - Three months ended September 30, 1995 and 1994 and nine months ended September 30, 1995 and 1994 Statements of Cash Flows - Nine months ended September 30, 1995 and 1994 Notes to condensed financial statements - September 30, 1995 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 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 - Merry Land & Investment Company, Inc. Part I. Financial Information Item 1 - Financial Statements
BALANCE SHEETS (Unaudited) September 30, December 31, 1995 1994 -------------- ------------- PROPERTIES AT COST Apartments $ 937,392,323 $796,436,199 Apartments under development 13,584,357 8,128,943 Commercial rental property 6,349,503 6,039,242 Land held for investment or future development 3,832,874 3,831,281 Operating equipment 1,195,819 870,120 --------------- -------------- 962,354,876 815,305,785 Less accumulated depreciation and depletion 60,624,950 41,874,144 --------------- -------------- 901,729,926 773,431,641 CASH & SECURITIES Cash 502,952 717,957 Short term investments 46,150,000 - Marketable securities 65,720,300 27,716,350 -------------- -------------- 112,373,252 28,434,307 OTHER ASSETS Notes receivable 822,089 941,172 Deferred loan costs 4,035,934 2,066,106 Other 4,120,507 1,781,815 --------------- -------------- 8,978,530 4,789,093 TOTAL ASSETS $1,023,081,708 $806,655,041 --------------- -------------- NOTES PAYABLE Mortgage loans $ 24,430,935 $ 17,834,734 6.625% Senior unsecured notes, due 1999-2001 120,000,000 120,000,000 7.25% Senior unsecured notes, due 2002 40,000,000 - 7.25% Senior unsecured notes, due 2005 120,000,000 - Note payable - credit line - 57,600,000 Repurchase agreements - 17,375,000 --------------- ------------- 304,430,935 212,809,734 PAYABLES & ACCRUED LIABILITIES Accrued interest 2,609,500 2,224,288 Resident security deposits 2,803,999 3,011,824 Accrued property taxes 10,025,302 1,204,966 Other 3,528,572 2,553,375 --------------- -------------- 18,967,373 8,994,453 EQUITY Preferred stock ($1.75 Series A, $25.00 per share) 17,132,900 62,908,100 Preferred stock ($2.205 Series B, $25.00 per share) 100,000,000 100,000,000 Preferred stock ($2.15 Series C, $25.00 per share) 114,995,000 - Common stock ($1.00 per share stated value) 33,848,745 30,744,451 Capital surplus 425,026,443 375,169,573 Cumulative undistributed net earnings 16,495,953 23,111,941 Notes receivable from stockholders and ESOP (13,948,152) (10,283,657) Unrealized gain on securities 6,132,511 3,200,446 --------------- ------------- 699,683,400 584,850,854 --------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY $1,023,081,708 $806,655,041 -------------- -------------- Shares of preferred stock outstanding 9,285,116 6,516,324 Shares of common stock outstanding 33,848,745 30,744,451 The notes to financial statements are an integral part of this statement.
Form 10-Q - Merry Land & Investment Company, Inc. Part I. Financial Information Item 1. Financial Statements
INCOME STATEMENTS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------------ --------------------------- 1995 1994 1995 1994 ----------- ----------- ------------ ------------ INCOME Rental income $37,967,793 $25,611,316 $104,958,169 $72,497,565 Mineral royalties 142,820 222,456 347,075 724,851 Mortgage interest 20,243 23,948 59,567 66,743 Other interest 1,852,423 672,928 3,268,373 1,304,780 Dividends 281,872 65,448 620,089 207,815 Other income 1,206,875 (679,688) 1,346,647 (679,688) ------------ ---------- -------------- ------------ 41,472,026 25,916,408 110,599,920 74,122,066 EXPENSES Rental expense 10,700,426 7,170,701 29,109,421 20,228,143 Interest 4,559,827 2,390,169 9,858,979 7,756,030 Depreciation - real estate 6,629,733 4,488,088 18,612,128 12,482,727 Depreciation - other 53,950 35,691 138,679 76,507 Amortization - financing costs 156,218 86,995 330,209 260,986 Taxes and insurance 4,852,739 2,312,202 11,396,414 7,227,807 General and administrative expense 625,357 291,227 1,538,007 1,128,545 Other non-recurring expense - 200,000 (200,000) 200,000 ---------- ----------- ------------- ------------- 27,578,250 16,975,073 70,783,837 49,360,745 Income before net realized gains 13,893,776 8,941,335 39,816,083 24,761,321 Net realized gains 1,544,136 743,743 1,641,148 933,141 ----------- ---------- ------------ ------------ NET INCOME 15,437,912 9,685,078 41,457,232 25,694,462 Dividends to preferred shareholders 4,980,763 1,641,106 13,159,682 5,352,812 ------------- ---------- -------------- ------------ NET INCOME AVAILABLE FOR COMMON SHARES $10,457,149 $8,043,972 $28,297,550 $20,341,650 ------------ ---------- -------------- ------------ Weighted average common shares - outstanding 33,714,729 28,224,500 33,231,507 25,006,515 - fully diluted 44,610,428 33,252,800 42,737,912 30,473,450 NET INCOME PER COMMON SHARE $.31 $.29 $ .85 $.81 ----- ---- ----- ---- CASH DIVIDENDS DECLARED PER COMMON SHARE $.35 $.30 $1.05 $.90 ----- ---- ----- ----
The notes to financial statements are an integral part of this statements. Item 1 - Financial Statements and Supplementary Data
STATEMENTS OF CASH FLOWS (Unaudited) Nine months Ended September 30, 1995 1994 ------------- ----------- OPERATING ACTIVITIES: Rents and royalties received $105,323,753 $73,220,416 Interest received 2,392,862 1,335,379 Dividends received 620,089 207,815 Rental expense (28,845,133) (20,228,143) General and administrative expense (1,767,752) (1,521,204) Interest expense (9,473,767) (9,743,530) Property taxes and insurance expense (2,705,411) (2,001,176) Other (102,126) (968,182) ------------- ------------- Net cash provided (used) by operating activities: 65,442,515 40,301,375 INVESTING ACTIVITIES: Principal received on notes receivable 119,084 112,411 Sale of securities 16,566,751 7,568,488 Purchase of securities (48,412,920) (33,176,563) Sale of real property 66,653 69,929 Purchase of real property (131,308,581) (47,460,524) Development of real property (4,954,041) - Improvements to real property (10,784,876) (11,238,933) Purchase of short term investments (46,150,000) - Other (2,868,097) (487,677) -------------- ------------- Net cash provided (used) by investing activities: (227,726,027) (84,612,869) FINANCING ACTIVITIES: Net borrowings - senior unsecured notes 160,000,000 - Net borrowings (repayments) - bank debt (57,600,000) (375,000) Net borrowings (repayments) - mortgage loans 6,596,201 (18,947,144) Repurchase agreements (17,375,000) - Cash dividends paid - common (34,918,264) (22,740,909) Cash dividends paid - preferred, Series A (1,133,017) (5,352,813) Cash dividends paid - preferred, Series B (6,615,000) - Cash dividends paid - preferred, Series C (5,411,665) - Common stock retired (238,816) - Sale of common stock - public offering - 87,751,638 Sale of common stock - reinvested dividends 6,506,525 2,740,231 Sale of common stock - stock purchase plan 1,783,272 671,294 Sale of common stock - employees 774,538 243,903 Sale of preferred stock - public offering 109,699,733 - --------------- ------------- Net cash provided (used) in financing activities 162,068,507 43,991,200 --------------- ------------- NET INCREASE (DECREASE) IN CASH (215,005) (320,294) CASH AT BEGINNING OF PERIOD 717,957 577,544 --------------- ------------- CASH BALANCE $ 502,952 $ 257,250 --------------- -------------
The accompanying notes are an integral part of these statements. Item 1 - Financial Statements and Supplementary Data
STATEMENTS OF CASH FLOWS (Reconciliation of Net Income to Cash Flows from Operating Activities) (Unaudited) Nine Months Ended September 30, -------------------------------- 1995 1994 ------------- ------------ Net income $41,457,232 $25,694,462 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,081,016 12,820,220 (Increase) decrease in interest and accounts receivable (1,502,662) (63,566) (Increase) decrease in other assets (2,805,859) (894,802) Increase (decrease) in accounts payable and accrued interest 10,853,936 3,678,202 Gain on the sale of marketable securities (1,572,902) (880,411) Gain on the sale of real estate (68,246) (52,730) ------------- ------------ Net cash provided by operating activities $65,442,515 $40,301,375 ------------- ------------
The accompanying notes are an integral part of these statements. Merry Land & Investment Company, Inc. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (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 eight Southern states including Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas and Virginia and also in Ohio. As a qualified REIT the Company pays no corporate income taxes on earnings distributed to stockholders. 2. Marketable Securities and Short-term Investments The cost and market value of securities by major classification at September 30, 1995 were as follows:
Cost Market ------------- ------------- Common stocks $ 10,382,039 $ 15,005,250 Corporate debentures 1,905,750 2,450,250 U.S. Treasury securities 47,300,000 48,264,800 Money market 46,150,000 46,150,000 ------------- ------------- $105,737,789 $111,870,300 ------------- -------------
3. Borrowings During the second quarter of 1995 the Company completed a public offering of $120 million of 7.25% senior unsecured notes due in 2005. Interest will be paid semi-annually with the first payment due December 15, 1995, and the notes will mature on June 15, 2005. In the third quarter of 1995 the Company completed a public offering of $40 million of 7.25% senior unsecured notes due in 2002. Interest will be paid semi-annually with the first payment due April 1, 1996, and the notes will mature on October 1, 2002. Borrowings at September 30, 1995 were as follows:
6.625% senior unsecured notes (a) $120,000,000 7.25% senior unsecured notes (b) 40,000,000 7.25% senior unsecured notes (c) 120,000,000 Mortgage loans at fixed rates (d) 14,480,935 Tax exempt mortgage loan at variable rate (e) 9,950.000 ----------- $304,430,935 ------------
(a) $120 million, 6.625% notes, interest payable semi-annually, principal installments of $40 million each due 1999, 2000, and 2001. (b) $40 million, 7.25% notes, interest payable semi-annually, maturity 2002. (c) $120 million, 7.25% notes, interest payable semi-annually, maturity 2005. (d) Secured by apartment communities at interest rates of 8.375% and 9.875%. $7.0 million is due in December, 1995 with the balance due in monthly installments through 2000. (e) Secured by apartment community at a variable interest rate equal to 75% of prime, due in principal installments of $75,000 in 1996 and $200,000 each in 1997 through 2000, with balances callable in 2000. Maturities of borrowings at September 30 were as follows (in thousands):
1995 $ 7,038 1996 148 1997 279 1998 286 1999 40,293 2000 56,387 2001 40,000 2002 40,000 2003 - 2004 - 2005 120,000 -------- $304,431
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 1995 to qualify as a REIT and to avoid paying income taxes. On September 29, 1995, the Company paid dividends per share as follows: Series A Preferred $.43750 Series B Preferred $.55125 Series C Preferred $.53750 Commom $.35000
5. Environmental Matters On July 1, 1994 the Environmental Protection Division of the State of Georgia published its initial Hazardous Site Inventory under the State's 1992 "Superfund" law, which requires investigation, and if appropriate, remedial action with respect to listed sites. A 96 acre tract owned by the Company and located in Richmond County, Georgia, formerly used as a landfill, was included on this list. In the third quarter of 1994 the Company accrued $200,000 as a non-recurring charge, representing the Company's estimate of its share of the potential cost if further investigation of the site was required as a result of the action by the State of Georgia. On April 24, 1995, following discussions with the Company's representatives, the Georgia EPD notified the Company that it had determined that there was insufficient evidence to include the site on the Hazardous Site Inventory. The state removed the site from the inventory as of that date. The Company reversed the $200,000 non-recurring charge in the second quarter of 1995. Part I Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. (In thousands except apartment, per share and per unit data) Overview Merry Land & Investment Company, Inc. is one of the largest publicly owned real estate investments trusts in the United States and is one of the nation's largest owners and operators of upscale garden apartments. At September 30, 1995 the Company had a total equity market capitalization of $942.3 million and owned a high quality portfolio of 77 apartment communities containing 21,235 units and having an aggregate cost of $937.3 million. The following table describes the growth of the Company's apartment holdings in recent years:
Units (1) Increase Cost (1) (2) Increase --------- -------- ------------ -------- 1992 6,527 76% $209,549 73% 1993 13,979 114 554,444 165 1994 18,851 35 796,436 44 1995, through September 30 21,235 13% $937,320 18%
------------------ (1) Excludes condominium units. (2) Represents the total acquisition cost of apartments plus the capitalized cost of improvements made subsequent to acquisition. Substantially all of the Company's apartment communities command rental rates in the upper range of their markets. The communities are geographically diversified, located in twenty-six metropolitan areas primarily in the Southern United States, each with a population in excess of 250,000. Merry Land considers its market area to include the Southern United States, extending from the Washington D.C. area, to Texas and to Florida. The Company expects eventually to operate in most of the major markets in this area. The following table further describes the Company's apartment holdings as of September 30, 1995.
% of Average Average Market Units Cost Total Occupancy Rental Rate ------ ----- ----- ------ --------- ----------- Atlanta 3,346 $137.8 15% 95% $613 Jacksonville 2,550 104.2 11 97 591 Orlando 1,902 90.2 10 95 640 Charlotte 1,623 57.9 6 96 563 Tampa/St. Petersburg 1,301 63.9 7 94 639 Ft. Myers 1,268 57.9 6 94 641 Raleigh 1,256 46.3 5 96 584 Dallas 1,160 73.7 8 90 821 Charleston 880 33.0 4 94 515 Savannah 865 32.4 3 98 583 All others 5,084 240.0 25 95 644 ------ ------ ---- ---- ---- 21,235 $937.3 100% 96% $624
In December 1994, the Company commenced a program of apartment development in order to provide an additional means of expanding its apartment holdings. At that time, the Company bought three tracts of land for the construction of high quality suburban garden apartments. The Company has since bought two additional development parcels. The Company intends to build communities on these sites using experienced apartment developers to provide development and construction management services. Construction on the Atlanta and Nashville communities described below has commenced. The following table summarizes the Company's current development communities.
Total Cost Cost Budgeted Per To Estimated Under Development: Units Cost Unit Date Completion ------------------ ----- --------- ------- ----- ---------- Atlanta 586 $37.4 $63,822 $4.1 1997 Greensboro 200 11.0 55,250 0.8 1997 Nashville 280 16.8 60,161 2.4 1996 Savannah 308 17.3 56,091 1.6 1996 ----- ---------- ------ ----- --------- 1,374 $82.5 $60,095 $8.9 Future Development: ------------------- Greensboro 300 $1.7 1997 Nashville 180 2.5 1997 Savannah 352 0.5 1997 ---- $4.7
The Company expects that further expansion of its apartment holdings will continue to come primarily from acquisitions. Recent Developments 1995 Acquisitions. In the first nine months of 1995, the Company acquired seven apartment communities containing 2,384 units at a cost of $129.9 million:
Apartment Location Units ---------- -------- ----- Gwinnett Club Atlanta, Georgia 260 Laurel Gardens Ft. Lauderdale, Florida 384 Beach Club Ft. Myers, Florida 320 Jefferson at Cedar Springs Dallas, Texas 380 Jefferson on the Parkway Dallas, Texas 376 Kimmerly Glen Charlotte, North Carolina 260 Jefferson at Round Grove Dallas, Texas 404 ------ 2,384
Investment in Texas Properties. In June, July and August of 1995, Merry Land closed the acquisition of its first apartment communities in the state of Texas with the purchases of Jefferson at Cedar Springs, Jefferson on the Parkway and Jefferson at Round Grove, all in Dallas, by acquiring the limited partnerships which owned the communities. The partnership interests were acquired by two newly created, wholly-owned subsidiaries of Merry Land under an agreement by which Merry Land agreed to purchase them upon completion of construction and the attainment of specified occupancy and rent levels. The agreement also calls for the acquisition of a fourth newly constructed apartment community containing 470 units, which the Company expects to close in the fourth quarter of 1995. The Company expects to further expand its holdings in Dallas and to invest in additional major Texas markets as opportunities allow. Greensboro, North Carolina Developments. In July, the Company bought two tracts of land in Greensboro, North Carolina for apartment development. One tract is located adjacent to the Company's Adams Farm community and will be used to expand that community by 200 units with development expected to begin there by year end. The other tract will be used for development of a 300 unit community with development expected to commence in 1997. Issuance of Senior Unsecured Notes. On September 1, 1995 the Company completed a public offering of $40.0 million of senior unsecured notes. The notes were sold at a price of 99.933% of par value, to yield 7.26% to maturity. The notes bear an interest rate of 7.25%, payable semi-annually in April and October and mature on October 1, 2002. On June 20, 1995 the Company completed a public offering of $120.0 million of senior unsecured notes. The notes were sold at a price of 99.562% of par value, to yield 7.31% to maturity. The notes bear an interest rate of 7.25%, payable semi-annually in June and December and mature on June 15, 2005, but are redeemable at any time after June 15, 2002, subject to a prepayment penalty. In conjunction with issuing these notes, the Company incurred and capitalized $2.0 million of costs and will amortize the costs over the terms of the notes. The notes rank equally with the Company's other unsecured and unsubordinated indebtedness. The two series of senior unsecured notes due in 2002 and 2005 contain covenants which limit the levels of debt the Company may incur. Under these covenants the Company will not incur additional debt: - if total secured debt becomes greater than 40% of total assets; - if total debt becomes greater than 60% 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 Increase. On June 30, 1995, the Company increased its existing $100.0 million unsecured line of credit to $160.0 million. The Company's primary bank continues to provide the Company with the first $100.0 million of the line of credit, which bears interest at 0.65% above the thirty day London Interbank Offered Rates (LIBOR) and a group of five other banks provide the additional $60.0 million portion of the line of credit at a rate of interest 1.65% above LIBOR. The Company expects to use the credit line to finance apartment acquisitions and development. Debt Rating Raised. Standard & Poor's raised its credit rating on the Company's senior unsecured notes from BB to BBB+ in connection with the June debt offering discussed above. Moody's Investors Service held its rating of the Company's senior unsecured notes at Baa2. Both ratings are "investment grade". Sale of Preferred Stock. In a public offering on March 8, 1995, the Company issued 4,000,000 shares of $2.15 Series C Cumulative Convertible Preferred Stock at $25.00 per share for net proceeds of $95.7 million. On April 7, 1995, the Company issued an additional 600,000 shares of the Series C Preferred Stock for net proceeds of $14.4 million under the overallotment option given to the underwriters in the March 8 offering. Results of Operations for the Nine Months Ended September 30, 1995 and 1994. Rental Operations. The operating performance of the Company's apartments is summarized in the following table (dollars in thousands, except average monthly rent):
Nine Months ----------------------------------- 1995 1994 % Change ---------- --------- -------- Rents $104,597 $71,952 45% Operating expenses 28,754 20,051 43 Taxes and insurance 11,001 6,931 59 Depreciation 18,500 12,377 49 ---------- --------- ---- $46,342 $32,593 42% Average monthly rent (1) $624 $577 8.1% Average occupancy (2) 95.2% 94.9% 0.3%(4) Expense ratio (3) 38.0% 37.5% 0.5%(4)
---------- (1) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at September 30. (2) Represents the average physical occupancy at each month end of the period held. (3) Represents total of operating expenses, taxes and insurance divided by rental revenues. (4) Represents increase or decrease between years. With the Company's acquisition of new communities, the weighted average number of apartments owned rose to 19,857 in the first nine months of 1995 from 14,486 in the first nine months of 1994, and rental revenues and expenses rose accordingly. Rental revenues also increased because most of the rental markets in which Merry Land operates are experiencing strong job growth and household formation, and this is reflected in high occupancy levels and rising rent rates. The Company operates in 26 metropolitan areas, and has no more than 15% of its portfolio located within any one city. The Company believes that this diversification of its apartment portfolio reduces the volatility of its aggregate rental occupancy and rental income. Construction starts of new apartment communities have increased in the Company's market area, and as a result occupancy levels have moderated in some cities. Company wide occupancy at September 30, 1995 totaled 96.0%, down from 97.0% at the same date in 1994. Even so, the Company believes that demand continues to outstrip supply and expects a generally strong rental market to continue throughout 1995 and into 1996. The 8.1% increase in portfolio average rental rates in the first nine months of 1995 from the first nine months of 1994 resulted from higher rents at its continuing properties, and also reflects the higher rents charged at the communities the Company acquired in 1994 and 1995, whose monthly rents averaged $638 and $720, respectively, at September 30, 1995, versus the total portfolio average of $624. The performance of the 13,665 units which the Company held for the first nine months of both 1995 and 1994 ("same property" results), is summarized in the following table (dollars in thousands, except average monthly rents; see footnotes above):
Nine Months --------------------------- 1995 1994 %Change ------- ------- ------- Rents $71,468 $68,189 5% Operating expenses 20,240 19,200 5 Taxes and insurance 7,117 6,950 2 Depreciation 12,835 11,794 9 ------- ------- --- $31,276 $30,245 3% Average monthly rent $600 $575 4.3% Average occupancy 95.3% 94.9% 0.4% Expense ratio 38.3% 38.4% (0.1)%
-------- (1) Same property results do not include Gwinnett Crossing, a 314 unit community, which was owned for the first nine months of 1995 and 1994. The 260 unit Gwinnett Club community, acquired in 1995, is adjacent to Gwinnett Crossing. These communities were combined and are now operated as a single community. Reflecting generally strong rental markets, rental revenues for the first three quarters rose $3.3 million or 5% for those properties held for all of both periods, as a result of 0.4% higher average occupancy and 4.3% higher average rental rates. In part offsetting the increase in rents, operating expenses increased $1.0 million or 5% for the first nine months of 1995 as compared to the same period in 1994, due primarily to increases in offsite property management expense, water and personnel costs. The increase in personnel costs is attributable primarily to higher levels of staffing as formerly vacant positions were filled at communities acquired in late 1993 and the vesting of additional employees in the Company's ESOP plan. Off site property management expense has risen as the Company has established additional corporate level positions in marketing, training, maintenance and administration. The cost of off site, corporate level management expenditures is allocated to communities as part of their operating expense. Mineral Royalty and Commercial Property Income. These amounts decreased to $0.7 million in the first nine months of 1995 from $1.2 million in the first nine months of 1994, largely as the result of the expiration in late 1994 of a contract for the sale of sand and also because of lower occupancies at the Company's non-apartment properties. Interest and Dividend Income. Interest and dividend income rose to $3.9 million for the first nine months of 1995 from $1.6 million for the first nine months of 1994 due to the temporary investment of proceeds from the $115.0 million Series C Preferred Stock offering in March and the $160.0 million 7.25% senior unsecured notes offerings in June and September. Average investments rose to $65.7 million in the first nine months of 1995 from $34.5 in the first nine months of 1994, while the average annual return on investments in 1995 averaged 5.9% as compared to 6.0% in 1994. Other Income. Other income totaled $1.3 million for the first nine months of 1995 as compared to a loss of $0.7 million for the first nine months of 1994. Other income in 1995 included profits of $1.2 million from cash management activities and $0.1 million from the sale of timber, while the loss in 1994 came from cash management activities. Cash management activities include the purchase and sale of liquid securities and the purchase and sale of options related to such securities. The profits and losses from cash management activities of the Company's uncommitted cash and temporary investments were originally included in net realized gains in the second quarter of 1995 and the third quarter of 1994. The Company now includes in other income the profits and losses from cash management activities until the eventual investment of funds into apartment communities. Gains and losses from long-term investments continue to be included in net realized gains and losses. The Company believes that this accounting for cash management activities is consistent with the recent interpretations by the National Association of Real Estate Investment Trusts for the definition of funds from operations regarding sales of undepreciated assets incidental to the Company's operations, though, the Company includes only profits or losses from liquid assets held for a short period of time instead of all undepreciated assets. Interest Expense. Interest expense totaled $9.9 million for the first nine months of 1995, up from $7.8 million for the first nine months of 1994. Average debt outstanding rose to $227.6 million in the first nine months of 1995 from $159.7 million in the first nine months of 1994, primarily as a result of financing apartment purchases and the issuance of the 7.25% senior unsecured notes discussed above. The weighted average interest rate charged on all the Company's debt increased to 6.7% for the first nine months of 1995 from 6.3% for the first nine months of 1994, primarily as a result of rising short term rates and the replacement of short-term financing with the 7.25% senior unsecured notes. During the first nine months of 1995, $0.7 million of interest related to the Company's development projects was capitalized. General and Administrative Expenses. General and administrative expenses for the first nine months were $1.5 million, only 1.4% of revenues and 2.6% of funds from operations. For all of last year these expenses averaged 1.7% of revenues and 3.2% of funds from operations. The significant improvement this year reflects continuing efforts to control overhead costs, and more importantly the significant increase in the Company's revenues. Gains on Sales of Assets. Net gains recognized on the sale of assets totaled $1.6 million for the first nine months of 1995 and $0.9 million for the first nine months of 1994. Gains in both years came primarily from the sale of securities held for more than one year. In 1995, 281,400 shares of First Financial Holdings, Inc. were sold on the open market. At September 30, 1995, the Company owned 200,000 shares of First Financial. Net Income. Net income totaled $41.5 million for the first nine months of 1995 and $25.7 million for the first nine months of 1994. Net income available for common shareholders totaled $28.3 million for the first nine months of 1995 and $20.3 million for the first nine months of 1994. The increases in net income and net income available for common shareholders for 1995 when compared to 1994 arose principally from substantially increased operating income from apartments due to the growth of the Company's apartment holdings. Net income per common share for the first nine months of 1995 increased to $.85 from $.81 in the first nine months of 1994. Dividends to preferred shareholders. Dividends to preferred shareholders totaled $13.2 million for the first nine months of 1995 and $5.4 million for the first nine months of 1994. The increase in preferred dividends arose from an increase in the amount of preferred stock outstanding during the period. Preferred dividends are summarized in the following table (in thousands):
Nine months ------------------- 1995 1994 --------- ------- Series A Preferred shares $ 1,133 $5,353 Series B Preferred shares 6,615 - Series C Preferred shares 5,412 - --------- ------- Total preferred dividends $13,160 $5,353
Holders of the Company's Series A Preferred Stock have converted 3.9 million of the 4.6 million Series A shares originally issued in June 1993 into 5.2 million shares of the Company's common stock as the common dividend was raised above the equivalent preferred dividend. In November 1994, the Company completed a private placement of 4.0 million shares of the Company's Series B Preferred Stock, and in March and April 1995 the Company issued 4.6 million shares of the Series C Preferred Stock. Funds From Operations. 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 recently 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 $0.5 million and $0.3 million for the first nine months in 1995 and 1994, respectively. Funds from operations rose 56% to $58.2 million for the first nine months of 1995 as compared to $37.4 million for the first nine months of 1994. Funds from operations available to common shares rose 40% to $45.1 million for the first nine months of 1995 compared to $32.1 million for the first nine months of 1994. 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 to $1.36 from $1.23 per share,or 11%. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data):
Nine Months ------------------ 1995 1994 -------- ------ Net income $41,457 $25,694 Less preferred dividends paid 13,160 5,353 -------- ------- Net income available for common shares 28,297 20,341 Add depreciation of real estate owned 18,612 12,483 Less net realized gains 1,641 933 (Less) or plus non-recurring (income) expenses (200) 200 -------- ------- Funds from operations available to common shares 45,068 32,091 Add preferred dividends 13,160 5,353 -------- ------- Funds from operations-fully diluted $58,228 $37,444 -------- ------- Weighted average common shares outstanding- primary 33,232 25,007 fully diluted 42,738 30,473 Funds from operations per share- primary $1.36 $1.28 fully diluted $1.36 $1.23
Liquidity and Capital Resources In the first nine months of 1995, the Company raised $268.4 million from the issuance of preferred stock and senior notes described above. The Company used $129.9 million to acquire apartments. At September 30, 1995 the Company held $112.4 million of cash and securities available for further investment in apartments. Financial Structure. At September 30, 1995, total debt equaled 30% of total capitalization at cost, and 24% of total capitalization with equity valued at market. At that date, the Company's financial structure was as follows (dollars in thousands):
% of Market % of Cost Total Value Total ------ ------- --------- ------ Advances under line of credit $ - 0% $ - 0% Mortgage loans 24,431 2% 24,431 2% 6.625% senior unsecured notes, 1999 40,000 4% 40,000 3% 6.625% senior unsecured notes, 2000 40,000 4% 40,000 3% 6.625% senior unsecured notes, 2001 40,000 4% 40,000 3% 7.25% senior unsecured notes, 2002 40,000 4% 40,000 3% 7.25% senior unsecured notes, 2005 120,000 12% 120,000 10% ----------- -------- -------- ---- Total debt 304,431 30% 304,431 24% Common and preferred equity (1) 699,683 70% 942,291 76% ----------- -------- -------- ---- Total capitalization $1,004,114 100% $1,246,722 100% ----------- --------- ---------- ----
----------- (1) Assumes conversion of all outstanding preferred stock into common stock. At September 30, 1995, the Company had no borrowings outstanding under its $160.0 million line of credit. This line matures on June 29, 1996, and subject to the banks'approval, is expected to be renewed annually. Liquidity. Merry Land expects to meet its short-term liquidity requirements with the net cash flow provided by operating activities, by liquidating its short term investments and by borrowing under its line of credit. The Company's primary short-term liquidity needs are operating expenses, apartment acquisitions, capital improvements and replacements, debt service payments, dividend payments and current requirements of its program of new apartment development. As discussed earlier, the Company has agreed to purchase one additional apartment community in Dallas, Texas. Closing is expected to occur in the fourth quarter. Expenditures for the four development projects under way totaled $8.9 million at September 30, 1995. Of the remaining estimated cost of $73.6 million, $8.0 million is expected to be incurred in the last quarter of 1995 with the balance to be expended in 1996 and 1997. In the last quarter of 1995, one mortgage loan with a $7.0 million principal balance is due, and from 1996 through 1998, less than $0.3 million per year of principal payments on borrowings are due. Capital resources available to the Company at September 30, 1995 included cash and marketable securities of $112.4 million and the Company's $160.0 million line of credit. Currently, there is no amount outstanding under the line of credit. 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 additional borrowings and the issuance and sale of debt and equity securities in the public and private markets. The Company is limited in the amount of debt it may incur under the terms of its existing loan agreements. At September 30, 1995, the Company's loan agreements and the covenants under its senior unsecured notes would have allowed it to borrow an additional $166.6 million on an unsecured basis. Cash Flows. The following table summarizes cash flows for the first nine months of 1995 and 1994 (dollars in thousands): Sources and Uses of Cash: ------------------------- Nine Months ------------------------- 1995 1994 -------- --------- Operating activities $ 65,443 $ 40,981 Sales of common and preferred stock 118,525 91,407 Net borrowings 91,621 - Other 188 182 -------- --------- Total sources 275,777 132,570 Acquisitions of and improvements to properties (142,093) (58,699) Development of properties (4,954) - Dividends paid (48,078) (28,094) Net repayment of borrowings - (19,322) Other (2,871) (487) ---------- --------- Total uses (197,996) (106,602) ---------- --------- Increase (decrease) in cash, securities and temporary investments $ 77,781 $ 25,968 --------- ---------
Operating cash flow has grown significantly with the expansion of the Company's apartment holdings. Dividends paid in 1995 and 1994 increased from levels in prior years 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 quarterly dividend per share to $0.35 in the fourth quarter of 1994 from $0.30 per share. Cash, securities and temporary investments increased significantly in 1995 because all of the proceeds from the two series of 7.25% senior unsecured notes have not been invested in additional apartments. 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 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 same of these expenditures which would be considered replacements at stabilized communicates (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 project. The following table summarizes the capital expenditures for the first nine months of 1995 and 1994 (dollars in thousands, except per unit data):
Nine Months ------------------- 1995 1994 --------- -------- Apartment communities: Acquisitions $131,308 $47,460 Development projects: Development costs 4,235 - Capitalized interest 719 - Replacements for stabilized communities (1) 2,286 1,289 Improvements (2) 7,863 9,691 Commercial properties 310 79 Corporate level expenditures 326 180 -------- ------- $147,047 $58,699 -------- -------- Per Unit: Replacements for stabilized communities (1) $167 $198 Improvements (2) $370 $644
------------ (1) Stabilized communities are those properties which have been owned for at least one full calendar year. In the first nine months of 1995, 13,665 units were stabilized as compared to 6,527 in the first nine months of 1994. (2) Improvements include expenditures for all properties owned during the period and replacements for newly acquired communities. 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. Merry Land & Investment Company, Inc. Part II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities Issuance of 7.25% senior unsecured notes. On September 1, 1995 the Company completed a public offering of $40.0 million of senior unsecured notes. The notes were sold at a price of 99.933% of par value, to yield 7.26% to maturity. The notes bear an interest rate of 7.25%, payable semi-annually in April and October and mature on October 1, 2002. In connection with issuing the notes, the Company incurred and capitalized $0.3 million of costs and will amortize the costs over the term of the notes. The notes rank equally with the Company's other unsecured and unsubordinated indebtedness. The 7.25% senior unsecured notes contain various covenants which limit the levels of debt the Company may incur. Under these covenants, the Company will not incur additional debt: - if total secured debt becomes greater than 40% of total assets; - if total debt becomes greater than 60% 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. 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: (4.1) Form of Merry Land & Investment Company, Inc. 7.25% Notes due 2002 (incorporated herein by reference to Exhibit A of the Company's current report on Form 8-K filed September 1, 1995). b. Reports on Form 8-K and 8-K/A: Form Date Filed Items Reported Financial Statements Filed ----- ----------- -------------- -------------------------- 8-K July 14, 1995 $160 million No financial statements line of credit required. agreement Acquisition of Financial Statements were Jefferson at filed on the Company's Cedar Springs current report on Form 8-K filed 6/19/95 and amended on Form 8-K/A filed on 6/21/95 (typographical error). 8-K Sept. 1, 1995 Completion of No financial statements public offering of required. $40 million 7.25% Notes due 2002 8-K Sept. 14, 1995 Acquisition of Financial Statements Jefferson at were filed on the Round Grove and Company's current report Jefferson on the on Form 8-K filed on Parkway 6/19/95 and amended on Form 8-K/A filed 6/21/95 (typographical error). Acquisition of No financial statements Kimmerly Glen required. Acquisition Lake No financial statements Site & Adams Farm required. development properties 8-K/A Sept.18, 1995 Financial Statements Statements of Excess of for Club at Gwinnett Revenues over Specific (now known as Operating Expenses Gwinnett Crossing) and Laurel Gardens 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. --------------------------- W. Tennent Houston President Principal Financial Officer October 25, 1995 EX-27 2 FDS
5 9-MOS DEC-31-1995 SEP-30-1995 46,653 65,720 2,922 0 0 115,295 962,355 60,625 1,023,082 18,967 304,431 33,849 0 232,128 433,707 1,023,082 105,305 112,241 59,257 1,868 (200) 0 9,859 41,457 0 41,457 0 0 0 41,457 .85 .85
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