-----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, HFv1czzeyDWbBjVI875TPwnZ1SEfvw0wN+arCacogF4hhW8KetpuwhBym0qaqEXw vSeNM0LcmKXFBjuVNC8IlQ== 0000350071-96-000013.txt : 19961209 0000350071-96-000013.hdr.sgml : 19961209 ACCESSION NUMBER: 0000350071-96-000013 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961206 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11081 FILM NUMBER: 96676593 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/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1996 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, 1996: Common Stock 37,560,181 Series A Preferred Stock 389,407 Series C Preferred Stock 4,599,800 Indicate by check mark whether the registrant 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, 1996 and December 31, 1995 Statements of income - Three months ended September 30, 1996 and 1995 and nine months ended September 30, 1996 and 1995. Statements of cash flows - Nine months ended September 30, 1996 and 1995 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 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 (Unaudited) September 30, December 31, 1996 1995 ------------- -----------
PROPERTIES AT COST Apartments $1,133,143,267 $1,009,056,178 Apartments under development 43,856,874 20,942,118 Commercial rental property 6,754,078 6,412,275 Land held for investment or future development 4,089,470 3,815,405 Operating equipment 1,767,079 1,397,410 -------------- ------------- 1,189,610,768 1,041,623,386 Less accumulated depreciation and depletion (93,384,257) (68,347,362) -------------- ------------- 1,096,226,511 973,276,024 Cash and cash equivalents 23,232,601 43,833,846 Marketable securities 30,148,284 48,467,978 ------------- ------------- 53,380,885 92,301,824 OTHER ASSETS Notes receivable 733,323 815,689 Deferred loan costs 3,638,988 4,022,226 Other 3,570,163 2,423,981 ------------- ------------- 7,942,474 7,261,896 ------------- ------------- TOTAL ASSETS $1,157,549,870 $1,072,839,744 ------------- ------------- DEBT 9.76% Mortgage note, due 2001 $ 10,734,863 - 9.76% Mortgage note, due 2001 1,997,184 - 7.75% Mortgage note, due 2002 9,600,000 - 6.625% Senior unsecured notes, due 1999-2001 120,000,000 120,000,000 7.25% Senior unsecured notes, due 2002 40,000,000 40,000,000 6.875% Senior unsecured notes, due 2003 40,000,000 40,000,000 6.875% Senior unsecured notes, due 2004 40,000,000 40,000,000 7.25% Senior unsecured notes, due 2005 120,000,000 120,000,000 ------------- ------------- 382,332,047 360,000,000 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accrued interest 6,303,333 4,294,768 Resident security deposits 1,889,335 2,577,913 Accrued property taxes 12,696,663 4,294,312 Other 5,405,334 5,814,021 -------------- ------------- 26,294,665 16,981,014 STOCKHOLDERS' EQUITY Preferred stock, at $25 liquidation preference, 20,000,000 shares authorized: 389,407 shares $1.75 Series A Cumulative Convertible 9,735,175 16,688,000 4,000,000 shares $2.205 Series B Cumulative Convertible 100,000,000 100,000,000 4,599,800 shares, $2.15 Series C Cumulative Convertible 114,995,000 114,995,000 Common stock, at $1 stated value, 100,000,000 shares authorized 37,560,181 and 33,876,102 shares issued 37,560,181 33,876,102 Capital surplus 495,954,430 425,610,937 Cumulative undistributed net earnings 3,879,473 11,786,179 Notes receivable from stockholders and ESOP (16,406,466) (15,795,762) Unrealized gain on securities 3,205,365 8,698,274 ------------- ------------ 748,923,158 695,858,730 ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY $1,157,549,870 $1,072,839,744 ------------- --------------
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 (Unaudited)
Three months ended 9/30, Nine months ended 9/30, 1996 1995 1996 1995 ------------ --------- -------------- ------------- Rental income $44,816,304 $37,967,793 $129,868,877 $104,958,169 Mineral royalties 99,028 142,820 272,232 347,075 Mortgage interest 13,373 20,243 51,978 59,567 Other interest 672,239 1,852,423 1,677,569 3,268,373 Dividends 316,207 281,872 2,246,266 620,089 Other income 2,471,789 1,206,875 5,105,715 1,346,647 ----------- ---------- ----------- ------------ 48,388,940 41,472,026 139,222,637 110,599,920 Rental expense 12,828,201 10,700,426 36,067,113 29,109,421 Interest 5,642,709 4,559,827 17,073,832 9,858,979 Depreciation - real estate 8,597,426 6,629,733 24,863,138 18,612,128 Depreciation - other 64,988 53,950 194,964 138,679 Amortization - financing costs 142,383 156,218 427,149 330,209 Taxes and insurance 4,561,556 4,852,739 13,808,328 11,396,414 General and administrative expense 921,372 625,357 2,190,148 1,538,007 Other non-recurring expense - - - (200,000) ------------ ---------- ----------- ----------- 32,758,635 27,578,250 94,624,672 70,783,837 Income before net realized gains 15,630,305 13,893,776 44,597,965 39,816,083 Net realized gains 523,600 1,544,136 2,238,424 1,641,148 ------------- ---------- ----------- ---------- NET INCOME 16,153,905 15,437,912 46,836,389 41,457,231 Dividends to preferred shareholders 4,847,758 4,980,763 14,766,464 13,159,682 ------------ ----------- ---------- ----------- NET INCOME AVAILABLE FOR COMMON SHARES $11,306,147 $10,457,149 $32,069,925 $28,297,549 ------------ ------------ ----------- ----------- Weighted average common shares outstanding - primary 37,352,442 33,714,729 35,302,961 33,231,507 - fully diluted 47,851,622 44,610,428 46,029,175 42,737,912 NET INCOME PER COMMON SHARE $.30 $.31 $0.91 $0.85 ---- ---- ----- ----- CASH DIVIDENDS DECLARED PER COMMON SHARE $.37 $.35 $1.11 1.05 ---- ---- ----- -----
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 (Unaudited)
Nine Months ended Sept. 30, --------------------------- 1996 1995 OPERATING ACTIVITIES: --------------------------- Rents and royalties received $130,141,109 $105,323,753 Interest received 1,953,539 2,392,862 Dividends received 2,988,266 620,089 Rental expense (36,846,015) (28,845,133) General and administrative expense (1,894,233) (1,767,752) Interest expense (15,065,267) (9,473,767) Property taxes and insurance expense (5,954,461) (2,705,411) Other (830,410) (102,126) ------------ ------------ Net cash provided by operating activities 74,492,528 65,442,515 INVESTING ACTIVITIES: Principal received on notes receivable 78,365 119,084 Sale of securities 25,521,643 16,566,751 Purchase of securities (5,408,313) (48,412,920) Sale of real property 109,163 66,653 Purchase of real property (98,991,197) (131,308,581) Development of real property (38,420,724) (4,954,041) Recurring capital expenditures (4,752,870) (3,503,911) Improvements to existing properties (5,317,189) (7,280,965) Other (1,965,647) (2,868,097) ------------ ------------- Net cash (used) by operating activities (129,146,769) (181,576,027) FINANCING ACTIVITIES: Senior unsecured notes - 160,000,000 Net borrowings (repayments) - bank debt - (57,600,000) Net borrowings (repayments) - mortgage loans 22,332,047 6,596,201 Repurchase agreements - (17,375,000) Cash dividends paid - common (39,976,632) (34,918,264) Cash dividends paid - preferred, Series A (734,286) (1,133,017) Cash dividends paid - preferred, Series B (6,615,000) (6,615,000) Cash dividends paid - preferred, Series C (7,417,178) (5,411,665) Common stock retired (675,250) (238,816) Sale of common stock - reinvested dividends 6,434,056 6,506,525 Sale of common stock - stock purchase plan 3,468,191 1,783,272 Sale of common stock - employees 1,167,807 774,538 Sale of common stock - public offering 56,094,328 - Sale of preferred stock - public offerin (25,088) 109,699,733 Net cash provided (used) by financing ----------- ----------- activities 34,052,995 162,068,507 ---------- ----------- NET INCREASE (DECREASE) IN CASH (20,601,246) 45,934,995 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,833,846 717,957 ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $23,232,601 $45,642,952 ----------- ------------
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 (Unaudited)
Nine Months ended Sept. 30, --------------------------- 1996 1995 ------------- ------------ Net income $46,836,389 $41,457,232 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,485,251 19,081,016 Increase) decrease in interest and accounts receivable 992,656 (1,502,662) (Increase) decrease in other assets (1,751,601) (2,805,859) Increase (decrease) in accounts payable and accrued interest 5,168,257 10,853,936 Gain on the sale of marketable securities (2,180,830) (1,572,902) Gain on the sale of real property (57,594) (68,246) ------------ ----------- Net cash provided by operating activities $74,492,528 $65,442,515 ----------- -----------
The accompanying notes are an integral part of these statements. Form 10-Q - Merry Land & Investment Company, Inc. Part I - Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands except apartment and per share data) 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, risks and uncertainties, including general economic conditions, local market factors, delays in construction, completion and rent up of development communities, and performance of consultants of other third parties, any of which may cause actual results to differ from the Company's current expectations. Overview Merry Land & Investment Company, Inc. is one of the largest publicly owned real estate investment trusts in the United States and is one of the nation's largest owners and operators of upscale garden apartments. At September 30, 1996 the Company had a total equity market capitalization of $1.0 billion and owned a high quality portfolio of 88 apartment communities containing 24,256 units, having an aggregate cost of $1.1 billion. 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-eight metropolitan areas primarily in the Southern United States, each with a population in excess of 250,000, extending from the Washington D.C. area to Texas and to Florida. The Company expects eventually to own and operate a significant number of communities in most of the major markets in the Southern United States. The following table further describes the Company's apartment holdings by major market as of September 30, 1996:
% of Average Sept. Average Total Occupancy(1) Rental Rate(2) Market Units Cost Cost 1996 1995 1996 1995 1995 - ------ ----- -------- -------- ---- ---- ---- ---- Atlanta 3,368 $140,906 13% 96% 98% $648 $613 Dallas 1,830 117,811 10 91 90 829 821 Jacksonville 2,550 105,634 9 96 97 613 591 Orlando 1,902 91,015 8 94 95 657 640 Austin 1,249 79,664 7 89 (3) 860 (3) Ft. Lauderdale 1,144 71,468 6 93 95 847 830 Tampa 1,449 64,411 6 95 96 652 639 Ft. Myers 1,268 63,888 6 93 96 661 641 Charlotte 1,623 59,090 5 95 95 588 563 Raleigh 1,256 47,735 4 95 97 603 584 Charleston 880 33,560 3 91 93 532 515 Savannah 865 32,977 3 97 98 614 583 All others 4,872 224,984 20 92 95 636 615 ----- ------- --- --- --- ---- --- 24,256 $1,133,143 100% 93% 95% $666 $624
---------- (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. (3) Units first acquired in December 1995. Portfolio Growth Merry Land seeks to expand its apartment holdings in order to establish a presence recognized by renters throughout the Southern United States. 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. From 1984 until April 1996, all portfolio growth occurred through acquisitions. In 1996, the Company expects to deliver 500 units under its development program. Acquisitions. The following table describes the growth of the Company's apartment holdings through acquisitions in recent years:
Units Ending Cost of Ending Acquired Units Increase Acquisitions Cost(2) Increase -------- ------ -------- ---------- ---------- -------- 1994 4,872 18,852 35% $226,174 $ 796,436 44% 1995 3,444 22,296 18 196,275 1,009,056 27 1996, through Sept. 30 1,739 24,256(2) 9 97,899 1,133,143(2) 9
---------- 1) Represents the total acquisition cost of apartment communities plus the capitalized cost of improvements made subsequent to acquisition. 2) Includes 200 units placed in service from the Cherry Creek II development community and 22 units placed in service from the Madison at River Sound development community. Development. In December 1994, Merry Land commenced a program of apartment development. At September 30, 1996, the Company had five communities with 1,638 units under construction (of which 222 units have been delivered) and three communities with 1,230 units under development as outlined below. These communities will be completed at an expected total cost of $208.5 million. In addition, the Company owns land for 752 additional units to be built in subsequent phases in Greensboro, Nashville and Savannah. The communities under development offer features typical of very high end properties, including nine foot ceilings, high levels of trim and finish, garages and extensive amenities. The Company has engaged experienced apartment developers to provide development and construction management services to the Company on a project by project basis. The developers fees are computed as a share of the value of the completed projects, based on agreed upon formulas, less actual costs. Merry Land s employees supervise development activities with the assistance of architects and engineers as required. The Company owns all land and improvements, directly contracts for construction and bears essentially all risks of project development. While the Company has added several individuals to its acquisition and development department as a result of this program, it does not intend to establish a large, specialized development organization. The Company believes that this system of constructing new communities will allow it the flexibility to develop communities in a number of markets and to expand, reduce or terminate such activities as conditions warrant. Merry Land will manage these new communities during and after construction. The following table summarizes the Company's current development 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 Total Esti- of Esti- mated Total Units Placed Esti- mated Cost Cost in in -mated Location Community Units Cost Per unit to Date Service Service Completion - -------- --------- ----- -------- -------- ------- ------- ------- ---------- Nashville Cherry Creek 280 $ 18,700 $66,785 $16,382 200 $13,420 4Q 1996 Atlanta River Sound 586 42,200 72,013 17,294 22 1,509 4Q 1997 Greensboro Adams Farm II(1) 200 13,100 65,500 2,383 - - 3Q 1997 Savannah Long Point 308 20,500 66,558 5,853 - - 4Q 1997 Richmond Wyndham 264 23,000 87,121 2,871 - - 1Q 1998 ----- -------- ------- ------- --- ------- 1,638 $117,500 $71,734 $44,783 222 $14,929 Under Development - ----------------- Greensboro Bridford Lake 300 $20,300 $67,667 $ 1,873 - $ - 2Q 1998 Richmond Spring Oak 506 38,700 76,482 4,134 4Q 1998 Atlanta Sweetwater Creek 424 32,000 75,472 3,484 - - 3Q 1999 ----- ------- ------- ------ --- ------- 1,230 $91,000 $73,984 $9,491 Future Development - ------------------ Nashville Cherry Creek II 200 $2,735 Savannah Long Point II 352 583 Greensboro Bridford Lake II 200 1,193 --- ------ 752 $4,511
---------- (1) Adjoins the Company's Adams Farm community. Recent Events Sale of Common Stock. In a public offering completed on June 14, 1996, the Company issued 2,500,000 shares of common stock at $21.50 per share for net proceeds of $50.6 million. On July 16, 1996 pursuant to the exercise of the overallotment option given to the underwriters, the Company issued an additional 272,900 shares of common stock for net proceeds of $5.5 million. The Company intends to use the net proceeds to acquire and develop additional apartment properties. Pending such uses, the Company has invested the excess proceeds in marketable securities. Acquisitions. In the nine month period ended September 30, 1996, the Company acquired the following communities (dollars in thousands): Community Location Units Cost ---------- -------- ----- ------- Crestview Austin, Texas 161 $10,100 Sedona Springs Austin, Texas 396 27,324 Mariner Club Ft. Lauderdale, Florida 304 18,000 Essex Place Tampa, Florida 148 5,075 Shoal Run Birmingham, Alabama 276 10,800 Estate on Quarry Lake Austin, Texas 302 18,000 Country Club Place Ft. Lauderdale, Florida 152 8,600 ----- ------- 1,739 $97,899 Acquisition of Communities under Development. The Company has also agreed to acquire the following communities to be built by unrelated third parties pursuant to detailed plans and specifications agreed to by the Company (dollars in thousands): Community Location Units Cost Completion --------- -------- ----- --------- ---------- Creekside at Homes at Legacy Dallas, Texas 380 $28,500 2Q 1998 Villages of Prairie Creek I Dallas, Texas 236 17,700 2Q 1998 Villages of Prairie Creek II Dallas, Texas 200 15,000 3Q 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 seller s actual cost or the budgeted cost agreed to by the Company. 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. Although the third party developer bears the development and construction risk, the Company will actively monitor construction quality of the communities. Development Activity. During the nine month period of 1996, the Company bought one tract of land in Atlanta for $3.5 million on which a 424 unit community to be named Madison at Sweetwater Creek will be built. The Company also bought two tracts in Richmond for $3.9 million on which a 506 community to be named Madison at Spring Oak will be built. Credit Line. On June 28, 1996, the Company renewed its $100.0 million unsecured, revolving credit agreement with its primary commercial bank. Borrowings under the line bear interest at 0.65% above the thirty day London Interbank Offered Rates, and subject to the bank s approval, may be renewed annually. On October 8, 1996, the Company entered into an additional $30.0 million unsecured, revolving credit agreement with a second commercial bank. Borrowings under this line bear interest at 0.75% above the thirty day London Interbank Offered Rates, and may be renewed annually subject to the bank's approval. The Company maintains the credit lines to finance apartment acquisitions and development and for general corporate purposes. Credit Rating Assigned. On July 10, 1996, Duff & Phelps Credit Rating Co. assigned its BBB+ rating to the Company's outstanding $360.0 million of senior notes and its BBB rating to the Company's cumulative convertible preferred stock. The Company had previously received ratings on its senior notes of BBB+ from Standard & Poor's and Baa2 from Moody's Investors Service. All these ratings are "investment grade". Results of Operations for the Nine Months Ended September 30, 1996 and 1995. Rental Markets. Rental markets were weaker in the nine month period of 1996 than in the same period in 1995 primarily as a result of new apartment construction, and the Company s apartment portfolio has experienced occupancy in 1996 approximately 2.0% below the 95% average occupancy experienced throughout 1995 as the result of both weaker markets and the purchase of several communities still in their initial lease up. The Company believes that if general economic activity, job growth and household formation remain strong, serious weakness should not develop in 1996 or 1997 as a result of overbuilding. 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 1995 to 1996 1996 1995 ------- ------------ -------- -------- Rents 24% $24,845 $129,448 $104,603 Operating expenses 25 7,153 35,907 28,754 Taxes and insurance 21 2,310 13,352 11,042 --- ------- -------- ------- Subtotal 24 9,463 49,259 39,796 Depreciation 34 6,270 24,770 18,500 --- ------- -------- ------- Total expenses 27 15,733 74,029 58,296 --- ------- -------- ------- Net operating income 20% $9,112 $55,419 $46,307 Average occupancy(1) (1.9)%(4) 93.3% 95.2% Average monthly rent(2) 6.7% $666 $624 Expense ratio(3) 0.1% (4) 38.1% 38.0%
---------- (1) Represents the average 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 30. (3) Represents total of operating expenses, taxes and insurance divided by rental revenues. (4) Represents increase or decrease between periods. With Merry Land's acquisition of new communities and the delivery of 222 units from the Company's development program, the weighted average number of apartments owned rose to 23,167 in the nine month period of 1996 from 19,858 in the nine month period of 1995, and rental revenues and expenses rose accordingly. Company wide occupancy at September 30, 1996 totaled 94.4%, down from 96.0% at the same date in 1995. The 6.7% increase in portfolio average rental rates in the nine month period of 1996 from the nine month period of 1995 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 1995 and 1996, whose monthly rents averaged $775 at September 30, 1996, versus the total portfolio average of $666. Rental Operations - Comparable Communities. The performance of the 18,410 units which the Company held for the nine month period of both 1996 and 1995 ("comparable communities" results), is summarized in the following table (dollars in thousands, except average monthly rent; see footnotes above):
Change from Nine Months % Change 1995 to 1996 1996 1995 -------- ------------ -------- ------- Rental income 2.7% $2,663 $100,223 $97,560 Personnel 5.2 513 10,318 9,805 Utilities (1.3) (77) 5,868 5,945 Operating 13.3 605 5,171 4,566 Maintenance and grounds 5.8 400 7,283 6,883 Taxes and insurance (9.1) (939) 9,375 10,314 ----- ------ ------- ------ Subtotal 1.3 502 38,015 37,513 Depreciation 3.2 554 17,987 17,433 ----- ----- ------- ------ Total Expenses 1.9 1,056 56,002 54,946 ----- ----- ------- ------ Net operating income 3.8% $1,607 $44,221 $42,614 Average occupancy(1) (1.3)%(4) 93.9% 95.2% Average monthly rent(2) 3.4% $632 $611 Expense ratio(3) (0.6)%(4) 37.9% 38.5%
---------- Comparable community results do not include Gwinnett Crossing, a 314 unit community, or Cherry Creek, a 127 unit community, which were owned for the nine month periods of 1996 and 1995. A 260 unit community adjacent to Gwinnett Crossing was acquired in 1995 and combined with that community. The Cherry Creek community was acquired in December 1994 and is currently being renovated. It has been combined with a development community which contains 280 additional units. Rental income rose by $2.7 million or 2.7% for those properties held for all of both periods, as a result of 1.3% lower occupancy and 3.4% higher average rental rates. At September 30, 1996 same property occupancy was 95.0%, down from 96.3% at September 30, 1995, as newly completed apartment construction reduced occupancy in some of the Company s markets. Operating expenses increased $0.5 million or 1.3% in 1996 from the same period in 1995. An unusually severe winter caused higher than expected operating and maintenance expenses and also led to a number of out of service units due to frozen pipes. Personnel costs accounted for $0.5 million of the increase, resulting primarily from higher life and health insurance premiums (because the Company extended coverage to its employees dependents) and the vesting of additional employees in the Company's ESOP. Utilities expense decreased by $0.1 million or 1.3% as the Company has begun passing through a portion of its water expense to the residents. Off site property management expense, which is allocated to the communities, rose $0.3 million as the Company established additional corporate positions in training, marketing and maintenance. Accruals for property taxes and insurance decreased by $0.9 million to reflect lower than expected millage rates, the successful appeal of the assessed values for several properties and discounts allowed for early payment. Rental Operations - Development Communities. $38.4 million was expended in the nine month period of 1996 for apartments under development, bringing the cumulative investment to $58.8 million, including capitalized interest of $3.5 million. The Company expects to put approximately 500 units in service in 1996. Some dilution of earnings may occur to the extent that leasing lags behind the delivery of units. 200 units of the Cherry Creek II community and 22 units of the Madison at River Sound community, in the Company's development program, were delivered in the second and third quarters of 1996. As discussed above, the 280 Cherry Creek II community is adjacent to the existing 127 unit Cherry Creek community which is being renovated and these two communities are operated together. The operating results for the nine month period of 1996 and 1995 for both phases of Cherry Creek and the Madison at River Sound are summarized in the following table (dollars in thousands): Nine months ------------------- 1996 1995 ---- ---- Units 349 127 Rental income $1,052 $473 Operating expens 358 195 Taxes and insurance 31 31 ---- ---- Subtotal 389 226 Depreciation 77 74 ---- ---- Total expenses 466 300 ---- ---- Net operating income $586 $173 At September 30, 1996, 86% of the 222 units delivered in the Cherry Creek phase II and the Madison at River Sound were leased at an average rental rate of $810 per unit, or $.81 per square foot. Rental Operations - Other Communities. The Company defines "other communities" as those not included in comparable communities or development communities. At September 30, 1996, these communities included 5,497 units, of which 1,739 units were bought in the nine month period of 1996. The remaining units were bought in 1995, except for the 314 units of Gwinnett Crossing described above. The performance of the other communities for the nine month period of 1996 and 1995 are summarized in the following table (dollars in thousands): Nine months ---------------------- 1996 1995 ------- ------ Units 5,497 2,698 Rental income $28,172 $6,571 Operating expense 6,909 1,362 Taxes and insurance 3,946 696 ------ ------ Subtotal 10,855 2,058 Depreciation 6,706 993 ------ ------ Total expenses 17,561 3,051 ------ ------ Net operating income $10,611 $3,520 Interest, Dividend and Other Income. Interest, dividend and other income are summarized in the following table (dollars in thousands): Nine months --------------------- 1996 1995 ------ ------ Interest income $1,730 $3,328 Dividend income 2,246 620 Other income 5,106 1,347 ------ ------ Total $9,082 $5,295 The increase in 1996 when compared to 1995 is due to higher dividend and other income. Interest income decreased as the Company liquidated a portion of its interest-bearing investments and acquired equity security investments. For the nine month period of 1996, the Company realized dividend income of $2.2 million and other income of $5.0 million on its equity security investments. The $5.0 million in other income was generated from the sale of a portion of the equity security investments. At September 30, 1996 the Company's equity security investments totaled $27.7 million, down from $46.0 million at December 31, 1995 and an average of $43.5 million for the nine months of 1996. Interest Expense. Interest expense totaled $17.1 million in the nine month period of 1996, up from $9.9 million in the nine month period of 1995. Average debt outstanding rose to $369.3 million in the nine month period of 1996 from $227.6 million in the nine month period of 1995, primarily as a result of the issuance of the 6.875% and 7.25% senior unsecured notes in 1995 and the assumption of $22.3 million of mortgage debt when the Mariner Club and Estate of Quarry Lake communities were acquired in April and September of 1996. The weighted average interest rate charged on all the Company s debt increased to 7.0% in the nine month period of 1996 from 6.7% for the nine month period in 1995, primarily as a result of the replacement of short-term financing with the 6.875% and 7.25% senior unsecured notes and an average interest rate of 8.9% on the mortgage debt assumed. During the nine month period of 1996, $2.0 million of interest related to the Company's development projects was capitalized. General and Administrative Expenses. General and administrative expenses in the nine month period of 1996 were $2.2 million, representing 1.7% of rental revenues and 3.2% of funds from operations. For all of 1995, expenses averaged 1.7% of rental revenues and 3.0% of funds from operations. Gains on Sales of Assets. Net gains recognized on the sale of assets totaled $2.2 million in the nine month period of 1996 and $1.6 million in the nine month period of 1995. Gains in both years came primarily from the sale of securities. In the nine month period of 1996, 162,000 shares of First Financial Holdings, Inc. were sold on the open market. At September 30, 1996, the Company owned 38,000 shares of First Financial, which were sold on the open market after the end of the quarter. Net Income. Net income totaled $46.8 million in the nine month period of 1996 and $41.5 million for the nine month period of 1995. Net income available for common shareholders totaled $32.1 million in the nine month period of 1996 and $28.3 million for the nine month period of 1995. The increases in net income and net income available for common shareholders for 1996 when compared to 1995 arose principally from substantially increased operating income from apartments due to the growth of the Company s apartment holdings, as well as increases in other income and net realized gains. Net income per common share in the nine month period of 1996 increased to $.91 from $.85 in the nine month period of 1995. Dividends to preferred shareholders. Dividends to preferred shareholders totaled $14.8 million in the nine month period of 1996 and $13.2 million in the nine month period of 1995. Preferred dividends are summarized in the following table (dollars in thousands): Nine months -------------------- 1996 1995 ------ ----- Series A Preferred share dividends $ 734 $ 1,133 Series B Preferred share dividends 6,615 6,615 Series C Preferred share dividends 7,417 5,412 ------ ----- Total preferred dividends $14,766 $13,160 The increase in preferred dividends arose from an increase in the amount of preferred stock outstanding during the period. Holders of the Company s Series A Preferred Stock have converted 4.2 million of the 4.6 million Series A shares originally issued in June 1993 into 5.6 million shares of the Company s common stock as the common dividend was raised above the equivalent preferred dividend. In March and April 1995 the Company issued 4.6 million shares of the Series C Convertible Preferred Stock. Funds From Operations. Funds from operations rose 19% to $69.5 million in the nine month period of 1996 as compared to $58.2 million in the nine month period of 1995. Funds from operations available to common shares rose 21% to $54.7 million in the nine month period of 1996 compared to $45.1 million in the nine month period of 1995. These increases were principally due to increased rental operating income resulting from the growth of the Company s apartment holdings and increased other income. On a fully diluted per share basis, funds from operations increased 11% to $1.51 in 1996 from $1.36. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data): Nine Months -------------------- 1996 1995 ------- ------- Net income $46,836 $41,457 Less preferred dividends paid 14,766 13,160 ------- ------- Net income available for common shares 32,070 28,297 Add depreciation of real estate owned 24,863 18,612 Less net realized gains 2,238 1,641 Plus non-recurring expenses - (200) ------- ------ Funds from operations available to common shares 54,695 45,068 Add preferred dividends 14,766 13,160 ------- ------- Funds from operations-fully diluted $69,461 $58,228 Weighted average common shares outstanding - Primary 35,303 33,232 Fully diluted 46,029 42,738 Funds from operations per share- Primary $1.55 $1.36 Fully diluted $1.51 $1.36 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 $0.6 million and $0.5 million in the nine month periods of 1996 and 1995, respectively. Liquidity and Capital Resources Financial Structure. At September 30, 1996, 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 $ - $ - Mortgage loans 22,332 22,332 6.625% senior unsecured notes, 1999 40,000 40,000 6.625% senior unsecured notes, 2000 40,000 40,000 6.625% senior unsecured notes, 2001 40,000 40,000 7.25% senior unsecured notes, 2002 40,000 40,000 6.875% senior unsecured notes, 2003 40,000 40,000 6.875% senior unsecured notes, 2004 40,000 40,000 7.25% senior unsecured notes, 2005 120,000 120,000 ------- ------- Total debt 382,332 34% 382,332 27% Common and preferred equity (1) 748,923 66% 1,027,269 73% --------- ---- ---------- ---- Total capitalization $1,131,255 100% 1,409,601 1 00% --------- ---- ---------- ----
(1) Assumes conversion of all outstanding preferred stock into common stock. At September 30, 1996, the Company had no borrowings outstanding under its line of credit. Borrowings under the line bear interest at 0.65% above the thirty day London Interbank Offered Rates. 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, 1996, the Company had two mortgage loans outstanding, which were assumed in April and September of 1996 in connection with the purchase of the Mariner Club and Estate on Quarry Lake communities. The Company's preferred stock and its senior notes are rated investment grade by Standard & Poor's Corporation, Moody's Investors Services, Inc., and Duff & Phelps Credit Rating Co. Liquidity. Merry Land expects to meet its short-term liquidity requirements with cash provided by operating activities, by liquidating marketable securities and short term investments and by borrowing under its line of credit. The Company's primary short-term liquidity needs are operating expenses, apartment acquisitions and development and capital improvements. The Company has reduced its holdings of marketable securities which were acquired as a temporary investment pending the acquisition or development of additional apartment communities. The Company intends to continue to liquidate its portfolio of marketable securities as market conditions allow and invest in 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 estimated future capital requirements for apartment communities under development and capital sources as of September 30, 1996 through completion of all committed developments without considering additional acquisitions, debt repayments or possible additional sales of debt or equity securities (dollars in thousands): Estimated capital requirements: ------------------------------- Development communities expected costs $208,500 Less development costs paid thru 9/30/96 (58,800) -------- 149,700 Acquisition of communities under development 61,200 -------- Total future development commitments 210,900 Estimated capital sources: ------------------------- Cash on hand at 9/30/96 $ 23,233 Marketable securities held at 9/30/96 30,148 Funds available under line of credit 123,500 -------- Total capital sources 176,881 Excess of capital requirements over sources $ 34,019 -------- Additional new developments or acquisitions of existing apartment communities will further increase the Company's capital requirements. The Company expects to fund the excess of capital requirements over capital sources with cash provided by operating activities and proceeds from the issuance of stock under the Company's Dividend Reinvestment and Stock Purchase Plans. At September 30, 1996, the Company's loan agreements and the covenants under its senior unsecured notes would have allowed it to borrow only $123.5 million on an unsecured basis. Cash Flows. The following table summarizes cash flows for the nine month periods of 1996 and 1995 (dollars in thousands): Sources and Uses of Cash: ------------------------- Nine Months ------------------------- 1996 1995 ------------ ---------- Operating activities $ 74,493 $ 65,443 Sales of Merry Land common and preferred stock 66,464 118,525 Net borrowings 22,332 91,621 Other 187 6,346 ------- -------- Total sources of cash 163,476 281,935 Acquisitions of and improvements to properties (109,061) (142,093) Development of properties (38,421) (4,954) Dividends paid (54,743) (48,078) Other (172) (2,871 --------- --------- Total uses (202,397) (197,996) --------- --------- Increase (decrease) in cash, cash equivalents and marketable securities ($38,921) $83,939 Cash, cash equivalents and marketable securities decreased by $38.9 million in 1996 as the Company invested funds raised in the debt and equity offerings in 1995 in apartments. With the expansion of the Company s apartment holdings, operating cash flow has grown to $74.5 million in the nine month period of 1996 from $65.4 million in the nine month period of 1995. In the first nine months of 1996, sales of Merry Land common stock included the issuance of 2,772,900 shares of common stock in a public offering at $21.50 per share for net proceeds of $56.1 million and $9.5 million issued under the Company's Dividend Reinvestment and Stock Purchase Plans. The primary use of cash has been apartment acquisitions and improvements. Expenditures for apartment communities under development increased to $38.4 million in the first nine months of 1996 from $5.0 million in the first nine months of 1995 as the level of construction increased. The Company expects development expenditures to increase further for the remainder of 1996 and in 1997 as construction of additional apartment communities commences. Dividends paid in the nine month period of 1996 increased from the same period in 1995 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 $0.37 in the first quarter of 1996 from $0.35 per share. 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 project. The following table summarizes the capital expenditures for the nine month periods of 1996 and 1995 (dollars in thousands, except per unit data): Nine Months ------------------- 1996 1995 ------- ------- Apartment communities: Acquisitions $98,991 $131,308 Development projects: Development costs 36,459 4,235 Capitalized interest 1,962 719 Replacements for stabilized communities (1) 3,992 2,286 Improvements 5,356 7,863 Commercial properties 342 310 Corporate level expenditures 380 326 ------ ------- $147,482 $147,047 Per Unit: Replacements for stabilized communities (1) $217 $167 Improvements (2) $221 $370 ---------- (1) Stabilized communities are those properties which have been owned for at least one full calendar year. In the nine month period of 1996, 18,410 units were stabilized as compared to 13,665 units in the nine month period of 1995. (2) Improvements include expenditures for all properties owned during the period, including replacements at 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 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 3. 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). (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). (4) Instruments Defining Rights of Security Holders, Including Indentures (4.1) The Company's $120,000,000 7 1/4% Notes due 2005 (incorporated herein by reference to Item 7, Exhibit 4A to the Company s Form 8-K filed June 23, 1995). (4.2) Indenture (incorporated herein by reference to Item 7, Exhibit 4B to the Company's Form 8-K filed June 23, 1995). (4.3) First Supplemental Indenture (incorporated herein by reference to Item 7, Exhibit 4C to the Company's Form 8-K filed June 23, 1995). (4.4) The Company s $40,000,000 7 1/4% Notes due 2002 (incorporated herein by reference to Exhibit 4A to the Company's current report on Form 8-K filed September 1, 1995). (4.5) The Company's $40,000,000 6.875% Notes due 2003 and $40,000,000 6.875% Notes due 2004 incorporated herein by reference to Exhibit 4A to the Company's current report on Form 8-K filed November 8, 1995. (10) Material Contracts. (10.1) Credit Agreement between the Company and Lenders for a $100 million credit facility (incorporated herein by reference to Item 7, Exhibit 10 to the Company's current report on Form 8-K filed July 15, 1996). (10.2) Credit Agreement between the Company and Lenders for a $160 million credit facility (incorporated herein by reference to Item 7, Exhibit 10 to the Company's current report on Form 8-K filed July 14, 1995). (10.3) $120,000,000 6.625% Senior Notes/Note Purchase Agreement (incorporated herein by reference to Exhibit 10.ii of Item 6 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993). (10.4) 1993 Incentive Stock Option Plan (incorporated herein by reference to Exhibit (10.2.1) of item 14 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). (10.5) Executive Officer Restricted Stock Loan Plan, as amended (incorporated herein by reference to Exhibit (10.2.2) of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). (10.6) Employee Stock Ownership Plan and Trust Agreement (incorporated herein by reference to Exhibit (10.2.3) of Item 14 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993). (10.7) 1994 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit (10.2.4) of Item 14 of the Company's Annual Report of Form 10-K for the year ended December 31, 1993). (10.8) 1995 Stock Option and Incentive Plan (incorporated herein by reference to Appendix "B" to the Company's 1995 Proxy Statement on Form DEF-14A filed March 27, 1995). (10.9) Line of Credit Agreement (unsecured) (incorporated herein by reference to Item 7, Exhibit 10 to the Company's current report on Form 8-K filed October 23, 1996). (27) Financial Data Schedules b. Reports on Form 8-K and K-/A: Form Date Filed Items Reported Financial Statements Filed ---- ---------- -------------- -------------------------- 8-K August 2, 1996 Acquisition of Financial Statements Mariner Club and were filed on the Sedona Springs Company's current report Apartments. on Form 8-K filed 8/2/96. 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 December 5, 1996 EX-27 2
5 9-MOS DEC-30-1996 SEP-30-1996 23,233 30,148 195 0 0 56,951 1,141,664 93,355 1,157,550 26,295 360000 0 224,730 37,560 486,633 1,157,550 129,869 141,461 36,067 94,625 427 0 17,074 46,836 0 46,836 0 0 0 46,836 .91 .91
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