-----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, HZSZ3GjScnBnHBaftalud2cJwVgml1eX9UWkf/XbMfBynN5ufEQiVToGFSJNnMxl Wh8g4TA/L9nY5NANRjyyKg== 0000350071-97-000016.txt : 19970815 0000350071-97-000016.hdr.sgml : 19970815 ACCESSION NUMBER: 0000350071-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97664008 BUSINESS ADDRESS: STREET 1: 624 ELLIS ST CITY: AUGUSTA STATE: GA ZIP: 30901 BUSINESS PHONE: 7067226756 MAIL ADDRESS: STREET 1: PO BOX 1417 CITY: AUGUSTA STATE: GA ZIP: 30903 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ Form 10Q ___________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended June 30, 1997 Commission file number: 001-11081 Merry Land & Investment Company, Inc. P.O. Box 1417 Augusta, Georgia 30903 706 722-6756 ___________ State of Incorporation: Georgia I.R.S. Employer Identification Number: 58-0961876 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past ninety days: Yes X . No . --- --- The number of shares of common stock outstanding as of June 30, 1997 was 38,607,565. Form 10-Q - Merry Land & Investment Company, Inc. Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance sheets - June 30, 1997 and December 31, 1996 Statements of Income - Three months ended June 30, 1997 and 1996, and six months ended June 30, 1997 and 1996. Statements of Cash Flows - Six months ended June 30, 1997 and 1996 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) June 30, December 31, 1997 1996 ---- ---- PROPERTIES AT COST Apartments $1,259,559 $1,175,427 Apartments under development 60,833 56,110 Commercial rental property 5,541 6,874 Land held for investment or future development 4,090 4,090 Operating equipment 2,442 1,817 --------- --------- 1,332,465 1,244,318 Less accumulated depreciation and depletion (119,597) (102,277) --------- --------- 1,212,868 1,142,041 CASH AND SECURITIES Cash and cash equivalents 557 32,793 Marketable securities 4,190 23,799 --------- -------- 4,747 56,592 OTHER ASSETS Notes receivable 709 726 Other receivable 2,358 2,449 Deferred loan costs 3,212 3,497 Other 3,318 2,941 --------- -------- 9,597 9,613 --------- -------- TOTAL ASSETS $1,227,212 $1,208,246 --------- -------- NOTES PAYABLE Mortgage loans $ 27,469 $ 27,546 Senior notes 360,000 360,000 Note payable-credit line 13,500 --- --------- -------- 400,969 387,546 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accrued interest 4,016 4,016 Resident security deposits 1,394 1,669 Accrued property taxes 11,470 7,642 Accrued employee compensation 1,231 2,284 Other 9,392 6,317 --------- -------- 27,503 21,928 STOCKHOLDERS' EQUITY Preferred stock, at $25 and $50 liquidation preference, 20,000 shares authorized: 241 and 359 shares, $1.75 Series A Cumulative Convertible 6,017 8,970 4,000 shares, $2.205 Series B Cumulative Convertible 100,000 100,000 4,600 shares, $2.15 Series C Cumulative Convertible 114,995 114,995 1,000 shares, $4.145 Series D Cumulative Redeemable Preferred 50,000 50,000 Common stock, at $1 stated value, 100,000 shares authorized 38,608 and 37,784 shares issued 38,608 37,784 Capital surplus 514,593 498,907 Cumulative undistributed net earnings (3,319) 2,064 Notes receivable from stockholders and ESOP (22,630) (17,502) Unrealized gain on securities 476 3,554 --------- -------- 798,740 798,772 --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY $1,227,212 $1,208,246 --------- --------
The accompanying notes are an integral part of these statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Three months Six months ended June 30, ended June 30, -------------- -------------- 1997 1996 1997 1996 ---- ---- ---- ---- Rental income $49,013 $43,489 $ 96,874 $85,053 Mineral royalties 459 84 554 173 Mortgage interest 18 15 46 39 Other interest 703 278 1,441 1,005 Dividends 42 1,030 601 1,930 Other income 1,550 1,411 5,051 2,634 ------- ------- -------- ------- $51,784 $46,307 $104,566 $90,834 Rental expense 12,543 12,000 25,229 23,239 Interest 5,346 5,640 10,972 11,431 Depreciation - real estate 9,538 8,464 18,963 16,265 Depreciation - other 84 65 168 130 Amortization - financing costs 143 142 285 285 Taxes and insurance 5,793 4,445 11,378 9,247 General and administrative expense 1,325 674 2,381 1,269 Other non-recurring expense --- --- --- --- ------- ------- -------- ------- 34,772 31,430 69,376 61,866 Income before net realized gains 17,012 14,877 35,190 28,968 Net realized gains 855 1,257 855 1,714 ------- ------- -------- ------- NET INCOME 17,867 16,134 36,045 30,682 Dividends to preferred shareholders 5,819 4,953 11,650 9,918 ------- ------- -------- -------- NET INCOME AVAILABLE FOR COMMON SHARES $12,048 $11,181 $ 24,395 $20,764 ------- ------- -------- -------- Weighted average common shares - outstanding 38,358 34,624 38,164 34,265 - fully diluted 48,668 45,445 48,481 45,106 NET INCOME PER COMMON SHARE $.31 $.33 $.64 $.61 CASH DIVIDENDS DECLARED PER COMMON SHARE $.39 $.37 $.78 $.74
The accompanying notes are an integral part of these statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months ended June 30, ------------------------ 1997 1996 ---- ---- OPERATING ACTIVITIES: Rents and royalties received $97,558 $85,226 Interest received 1,653 1,231 Dividends received 601 1,793 Rental expense (25,655) (24,241) General and administrative expense (2,730) (1,702) Interest expense (10,972) (11,710) Property taxes and insurance expense (8,472) (4,779) Other 284 (452) Net cash provided by ------- ------- operating activities: 52,268 45,366 INVESTING ACTIVITIES: Principal received on notes receivable 15 8 Sale of securities 21,851 6,267 Purchase of securities --- (8,031) Sale of real property 20,869 (191) Purchase of real property (69,286) (61,037) Development of real property (33,086) (22,291) Recurring capital expenditures (2,560) (2,484) Improvements to existing properties (2,294) (4,279) Other (436) (1,161) Net cash (used) by operating ------- ------- activities (64,927) (93,199) FINANCING ACTIVITIES: Net borrowings (repayments) - bank debt 13,500 --- Net borrowings (repayments) - mortgage loans (77) 9,600 Repurchase agreements --- --- Cash dividends paid - common (29,779) (26,141) Cash dividends paid - preferred, Series A (222) (564) Cash dividends paid - preferred, Series B (4,410) (4,410) Cash dividends paid - preferred, Series C (4,945) (4,945) Cash dividends paid - preferred, Series D (2,073) --- Common stock retired --- (675) Sale of common stock - reinvested dividends 5,397 4,240 Sale of common stock - stock purchase plan 2,214 2,277 Sale of common stock - employees 955 987 Sale of common stock - public offering --- 50,848 Sale of preferred stock - public offering (138) (25) -------- -------- Net cash provided (used) by financing activities (19,577) 31,192 -------- -------- NET INCREASE (DECREASE) IN CASH (32,236) (16,641) CASH AND CASH EQUIVALENTS AT -------- -------- BEGINNING OF PERIOD 32,793 43,834 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 557 $27,193 -------- --------
The accompanying notes are an integral part of these statements. Form 10-Q - Part I. Financial Information Item 1- Financial Statements Merry Land & Investment Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Reconciliation of Net Income to Cash Flows from Operating Activities (In thousands) (Unaudited)
Six Months ended June 30, ------------------------ 1997 1996 ---- ---- Net income $36,045 $30,682 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,416 16,680 (Increase) decrease in interest and accounts receivable 134 992 (Increase) decrease in other assets (403) (1,195) Increase (decrease) in accounts payable and accrued interest (3,779) (79) Gain on the sale of marketable securities --- (1,657) Gain on the sale of real property 855 (57) -------- -------- Net cash provided by operating activities $52,268 $45,366
The accompanying notes are an integral part of these statements. Merry Land & Investment Company, Inc. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (Unaudited) 1. Nature of Business Merry Land & Investment Company, Inc. is a real estate investment trust (REIT), which owns and operates upscale apartment communities in nine Southern states including Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas, and Virginia. As a qualified REIT the Company pays no corporate income taxes on earnings distributed to stockholders. The consolidated financial statements for the six month periods ended June 30, 1997 and June 30, 1996 reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. In March, 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standard No. 128, Earnings Per Share. SFAS No. 128 significantly changes reported earnings per share for companies with complex capital structures. The Company believes the effect on the Company s earnings per share is not material. 2. Marketable Securities The cost and market value of securities by major classification at June 30, 1997 were as follows (dollars in thousands):
Unrealized Cost Market Gain ----- ------ ---------- Common stock $1,808 $1,752 $ (56) Corporate debentures 1,906 2,438 532 ------ ------ ----- $3,714 $4,190 $476
3. Borrowings Borrowings at June 30, 1997 were as follows (dollars in thousands):
9.76% mortgage notes (a) $ 12,682 7.75% mortgage note (b) 9,600 7.625% mortgage note (c) 5,187 6.625% senior unsecured notes (d) 120,000 7.25% senior unsecured notes (e) 40,000 6.875% senior unsecured notes (f) 40,000 6.875% senior unsecured notes (g) 40,000 7.25% senior unsecured notes (h) 120,000 Advances under unsecured line of credit (i) 13,500 -------- $400,969 --------
(a) $10.7 million and $2.0 million, 9.76% mortgage notes, principal and interest payable monthly, maturity 2001. (b) $9.6 million, 7.75% mortgage note, interest payable monthly, maturity 2002. (c) $5.2 million, 7.625% mortgage note, principal and interest payable monthly, maturity 2005. (d) $120.0 million, 6.625% notes, interest payable semi-annually, principal installments of $40.0 million each due 1999, 2000, and 2001. (e) $40.0 million, 7.25% notes, interest payable semi-annually, maturity 2002. (f) $40.0 million, 6.875% notes, interest payable semi-annually, maturity 2003. (g) $40.0 million, 6.875% notes, interest payable semi-annually, maturity 2004. (h) $120.0 million, 7.25% notes, interest payable semi-annually, maturity 2005. (i) $130.0 million line of credit, first $100.0 million bearing interest equal to LIBOR plus 0.65%, maturity September 1997, and next $30.0 million bearing interest at LIBOR plus 0.75%, maturity October 1997. The Company estimates that the fair value of borrowings approximates their carrying value at June 30, 1997. Maturities of borrowings at June 30 were as follows (dollars in thousands):
1997 $ 13,580 1998 185 1999 40,272 2000 40,296 2001 52,566 2002 49,425 2003 40,125 2004 40,135 2005 124,385 -------- $ 400,969 ----------
4. Income Taxes and Dividend Policy As discussed in Note 1, the Company has elected to be taxed as a REIT. The Internal Revenue Code provides that a REIT, which in any taxable year meets certain requirements and distributes to its stockholders at least 95% of its ordinary taxable income, will not be subject to federal income taxation on taxable income which is distributed. The Company intends to distribute the required amounts of income in 1997 to qualify as a REIT and to avoid paying income taxes. On June 30, 1997, the Company paid dividends per share as follows:
Series A Preferred $0.43750 Series B Preferred $0.55125 Series C Preferred $0.53750 Series D Preferred $1.03625 Common $0.39000
Form 10-Q - Merry Land & Investment Company, Inc. Part I - Financial Information Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands except apartment and per share data) Overview Merry Land & Investment Company, Inc. is the largest owner and operator of upscale garden apartments in the South. At June 30, 1997, the Company had a total equity market capitalization of over $1.1 billion and owned a high quality portfolio of 97 apartment communities containing 26,230 units. The communities are geographically diversified through the Southern United States, located in twenty-seven metropolitan areas, each with a population in excess of 250,000, extending from the Washington, D.C. area to Texas and Florida. Substantially all of the Company s apartment communities command rental rates in the upper range of their markets. Operating Strategy. The Company's strategy is to own and operate a significant number of communities in every major market in the Southern United States, and to establish a reputation recognized among apartment dwellers throughout this region for high quality communities and first class service. The accomplishment of this strategy should allow the Company to increase funds from operations and distributions to shareholders by producing greater cash flows at its apartment communities through significant marketing advantages and operating efficiencies. The Company adds to its holdings by buying existing apartment communities, by buying communities under construction and in the initial lease-up stage (primarily from merchant builders) and by developing communities from the ground up. The following table further describes the Company's apartment holdings by major market as of June 30, 1997 (dollars in thousands except rental rates):
Average June Average % of Occupancy(1) Rental Rate (2) Market Units Cost Total Cost 1997 1996 1997 1996 - ------ ----- ---- ---------- ---- ---- ---- ---- Atlanta 3,644 $161,401 12.8% 90.3% 96.3% $678 $640 Dallas 1,830 118,038 9.4 92.5 88.7 856 839 Orlando 2,404 117,867 9.4 95.5 93.2 682 658 Charlotte 2,459 112,502 8.9 93.0 94.2 637 580 Jacksonville 2,550 106,207 8.4 94.2 96.0 628 613 Austin 1,249 80,097 6.4 96.0 87.7 849 865 Ft. Lauderdale 1,144 71,854 5.7 92.2 88.9 848 837 Tampa 1,449 64,806 5.1 97.3 94.2 660 647 Ft. Myers 1,268 64,237 5.1 96.3 93.5 670 656 Raleigh 1,256 48,101 3.8 94.4 93.5 629 601 Savannah 949 39,404 3.1 92.0 96.2 643 605 Charleston 880 33,850 2.7 95.4 89.4 561 533 All others 5,148 241,195 19.2 90.3 92.0 655 632 26,230 $1,259,559 100.0% 93.0% 92.9% $685 $660 ------ ---------- ----- ---- ---- ---- ----
__________ (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 June month end. Growth. Merry Land intends to increase its holdings of apartments primarily through the acquisition of apartment communities and also through apartment development. The following table summarizes the Company s growth in recent years (dollars in thousands):
1997(1) 1996 1995 1994 ------ ---- ---- ---- Units acquired 1,186 2,475 3,444 4,872 Units developed 448 414 --- --- Total units owned at end of period 26,230 24,936 22,296 18,852 Total cost of apartments $1,259,559 $1,175,427 $1,009,056 $796,436 Total apartment rental income $ 96,587 $ 176,053 $ 144,283 $101,667
__________ (e) Represents totals at June 30, 1997. Acquisitions. In the second quarter of 1997, the Company acquired four apartment communities (including its first in Houston) containing 1,186 units at a cost of $68.8 million (dollars in thousands):
Community Location Units Cost --------- -------- ----- ---- Polos East Orlando, FL 308 $16,000 Ranchstone Houston, TX 220 11,250 The Oaks Charlotte, NC 318 20,250 The Point Charlotte, NC 340 21,300 ----- ------- 1,186 $68,800
On August 1, 1997 the Company acquired two additional apartment communities, Coventry at Cityview, a 360 unit luxury apartment community built in 1996 and located in Ft. Worth, Texas and The Palms at South Shore, a 240 unit luxury apartment community built in 1990 and located in the Clear Lake area of Houston, Texas. The purchase prices were $22.1 million and $12.3 million paid in all cash transactions. Acquisition of Communities under Development. The Company has also agreed to acquire the following communities to be built by unrelated third parties (dollars in thousands):
Estimated Estimated Community Location Units Cost Completion - --------- -------- ----- --------- ---------- Creekside Homes at Legacy Dallas, TX 380 $28,500 1Q 1998 Villages of Prairie Creek I Dallas, TX 236 17,700 1Q 1998 Villages of Prairie Creek II Dallas, TX 200 15,000 1Q 1999 --- ------- ------- 816 $61,200
The Company will acquire title to these communities upon completion of construction for an amount equal to the lesser of the budgeted cost or the seller's actual cost. The Company will pay the seller additional amounts upon the attainment of specified occupancy and net operating cash flow levels based on agreed upon formulas. Development. At June 30, 1997, the Company had six communities with 2,102 units under construction (of which 582 units have been delivered) and two communities with 726 units under development. The Company expects to complete these communities at an expected total cost of $214.1 million. In addition, the Company owns land for 1,232 additional units. 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 following table summarizes the Company's current development communities and recently completed communities. Estimated cost consists of land, direct construction costs and indirect costs, including projected fees to third party development managers and allocated overhead (dollars in thousands, except cost per unit):
Cost of Total Units Total Estimated Total Placed Estimated Cost Cost Units in in Estimated Location Community Units Cost Per Unit to Date Service Service Completion - -------- --------- ---- --------- --------- ------- -------- ------- ---------- Completed - --------- Nashville Cherry Creek 280 $18,945 $67,661 $18,945 280 $18,945 4Q 1996 Under Construction, - ------------------ Atlanta River Sound 586 $41,500 $70,819 $37,862 298 $21,057 4Q 1997 Greensboro Adams Farm II(1) 200 13,100 65,500 13,062 200 13,062 3Q 1997 Savannah Long Point 308 22,500 73,052 18,109 84 6,223 4Q 1997 Richmond Wyndham 264 24,500 92,803 9,534 --- --- 1Q 1998 Greensboro Bridford Lake 320 24,500 76,563 3,257 --- --- 1998 Atlanta Sweetwater Creek 424 34,000 80,189 5,357 --- --- 1999 ---- ------- ------- ------- ----- ------- 2,102 $160,100 $76,166 $87,181 582 $40,342 Under Development - ----------------- Richmond Spring Oak 506 $38,000 $75,099 $ 5,102 1998 Nashville Cherry Creek II 220 16,000 72,727 3,260 1998 ---- ------- ------- ------- 726 $54,000 $74,380 $8,362 Future Development - ------------------ Savannah Long Point II 352 $ 737 Nashville Bell Road 360 1,689 Nashville Bell Road II 320 1,689 Greensboro Bridford Lake II 200 1,269 ----- -------- 1,232 $ 5,384
_________ (1) Adjoins the Company's Adams Farm community Recent Events Issuance of 6.90% Senior Unsecured Notes. On July 28, 1997 the Company completed a public offering of $50.0 million of senior unsecured notes. The notes were sold at a price of 99.707% of par value, to yield 6.941% to maturity. The notes bear an interest rate of 6.90%, payable semi-annually in February and August. The notes have a term of ten years and mature on August 1, 2007, but are redeemable at any time, subject to a prepayment penalty. The notes are rated BBB+ by Standard & Poor s Corporation and Duff & Phelps Credit Rating Co. and Baa2 by Moody s Investors Services, Inc. and rank equally with the Company's other unsecured and unsubordinated indebtedness. The 6.90% senior unsecured notes contain various covenants which prohibit the incurrence of additional debt: - if total debt becomes greater than 60% of total assets; or - if total secured debt becomes greater than 40% of total assets; or - if net operating income divided by interest on debt and regularly scheduled principal debt amortization becomes less than 1.5. The Company is also required to maintain unencumbered assets of not less than 150% of outstanding unsecured debt. Results of Operations for the Six Months Ended June 30, 1997 and 1996. Rental Markets. Rental markets were somewhat stronger in the six month period of 1997 than in the same period in 1996 as very strong demand for apartments exceeded additions to supply. Average physical occupancy for the second quarter of 1997 totaled 93.1% as compared to 92.9% for the first quarter of 1997 and 92.7% for the second quarter of 1996. The Company's increase in occupancy can be attributed to stronger markets, to aggressive leasing efforts by its staff and also to offering concessions to residents in order to induce them to rent. While levels of new construction throughout the South remain high, the Company believes that if general economic activity, job growth and household formation in the South remain strong, physical occupancy for 1997 should exceed 93.3% achieved in 1996. 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 Six Months % Change 1996 to 1997 1997 1996 -------- ------------ ---- ---- Rents 13.9% $11,818 $96,587 $84,769 Operating expenses(1) 8.6 1,992 25,137 23,145 Taxes and insurance 24.9 2,226 11,170 8,944 Subtotal (1) 13.1 4,218 36,307 32,089 14.4% $7,600 $60,280 $52,680 Average occupancy(2) 0.1% (3) 93.0% 92.9% Average monthly rent(4) 3.8% $685 $660 Expense ratio (5) (0.3)%(3) 37.6% 37.9% __________
(1) Excludes depreciation and amortization. (2) Represents the average physical occupancy at each month end for the period held. (3) Represents increase or decrease between periods. (4) Represents weighted average monthly rent charged for occupied units and rents asked for unoccupied units at June 30. (5) Represents total of operating expenses, taxes and insurance divided by rental revenues. Acquisitions and the delivery of 742 units from the Company's development program since the second quarter of 1996 increased the weighted average number of apartments owned to 25,339 in the six month period of 1997 from 22,892 in the six month period of 1996. Rental revenues and expenses rose accordingly. Company wide occupancy totaled 93.5% at June 30, 1997 and 93.0% at June 30, 1996. The 3.8% increase in portfolio average rental rates in the six month period of 1997 from the six month period of 1996 resulted from both higher rents at the Company's continuing properties and also the higher rents charged at the communities the Company acquired and put in service in 1996 and 1997, whose monthly rents averaged $751 at June 30, 1997, versus the total portfolio average of $685. Rental Operations - Same Store. The performance of the 21,156 units which the Company held for the six month period of both 1997 and 1996 ("same store" results), is summarized in the following table (dollars in thousands, except average monthly rent; see footnotes above):
Change from Six Months % Change 1996 to 1997 1997 1996 -------- ------------ ---- ---- (s) Rental income 2.6% $2,011 $80,376 $78,365 Personnel 9.3 712 8,333 7,621 Utilities (25.5) (1,189) 3,477 4,666 Operating 8.2 323 4,288 3,965 Maintenance and grounds (10.1) (533) 4,722 5,255 Taxes and insurance 13.5 1,088 9,145 8,057 ----- ------ ------- ------- Subtotal (1) 1.4 401 29,965 29,564 3.3% $1,610 $50,411 $48,801 Average occupancy (2) 0.7% (3) 93.9% 93.2% Average monthly rent (4) 3.2% $670 $649 Expense ratio (5) (0.4)% (3) 37.3% 37.7%
Rental income rose by $2.0 million or 2.6% for those properties held for all of both periods, as a result of 0.7% higher occupancy and 3.2% higher average rental rates, offset in part by higher rent concessions. At June 30, 1997 same store occupancy was 94.8%, up from 93.4% at June 30, 1996. Rental concessions at June 30, 1997 equaled approximately 1.6% of market rents. Operating expenses increased $0.4 million or 1.4% in 1997 from the same period in 1996. Personnel costs rose $0.7 million, resulting primarily from higher employee headcount and salaries. Utilities expense decreased by $1.2 million or 25.5% as the Company has passed a portion of its water expense to the residents. Accruals for property taxes and insurance increased by $1.1 million to reflect higher projected assessed values and millage rates. Rental Operations - Development Communities. $33.1 million was expended in the six month period of 1997 for apartments under development, bringing the total investment in communities still under development to $100.9 million. At June 30, 1997, 862 units had been placed in service at a cost of $59.3 million. The Company expects to put approximately 1,200 units in service in 1997. Some dilution of earnings may occur to the extent that leasing lags behind the delivery of units. 164 units of Madison at River Sound, 200 units of Madison at Adams Farm, and 84 units of Hammocks at Long Point were delivered in the first six months of 1997. The operating results for the six month period of 1997 and 1996 for all development units in service is summarized in the following table (dollars in thousands; see footnotes above):
Six months 1997 1996 ---- ---- Units 1,289 547 Rental income $3,802 $1,672 Operating expense (1) 1,050 535 Taxes and insurance 263 127 ------ ------ Subtotal (1) 1,313 662 ------ ------ $2,489 $1,010
At June 30, 1997, 76.6% of the units delivered at Cherry Creek, Madison at River Sound, Madison at Adams Farm, and Hammocks at Long Point were leased at an average rental rate of $748 per unit. Rental Operations - Other Communities. "Other communities" are those not included in same store communities or development communities. These include communities bought or sold in part or in whole in 1996 or 1997. At June 30, 1997, these communities included 3,785 units. The performance of the other communities for the six month period of 1997 and 1996 are summarized in the following table (dollars in thousands; see footnotes above):
Six months 1997 1996 ---- ---- Units 3,785 1,721 Rental income $12,409 $4,732 Operating expense (1) 3,267 1,104 Taxes and insurance 1,762 759 ------- ------ Subtotal (1) 5,029 1,863 ------- ------ $7,380 $2,869
Interest, Dividend and Other Income. Other income increased and dividend income decreased as the Company essentially completed the liquidation of its holdings of equity security investments. Interest, dividend and other income are summarized in the following table (dollars in thousands):
Six months 1997 1996 ---- ---- Interest income $1,486 $1,044 Dividend income 601 1,930 Other income 5,051 2,634 ------ ------ Total $7,138 $5,608
Interest Expense. Interest expense "net of capitalized interest" totaled $11.0 million in the six month period of 1997, down from $11.4 million in the six month period of 1996. Average debt outstanding rose to $389.8 million in the six month period of 1997 from $367.1 million in the six month period of 1996, primarily as a result of the assumption of mortgage notes in 1996 related to apartment acquisitions. The weighted average interest rate charged on all the Company s debt increased to 7.1% in the six month period of 1997 from 7.0% for the six month period in 1996 as a result of an average interest rate of 8.7% on the mortgage debt assumed. During the six month period of 1997, $2.7 million of interest related to the Company s development projects was capitalized versus $1.1 million in the six month period of 1996 due to a higher level of development underway. General and Administrative Expenses. General and administrative expenses for the six month period of 1997 were $2.4 million, representing 2.5% of rental revenues and 4.6% of funds from operations. General and administrative expenses increased $1.1 million in the first six months in 1997 versus the first six months in 1996 due primarily to higher corporate headcount and their associated costs. In 1997, the Company has added positions in the areas of property management, acquisitions, development, accounting, and administration in order to provide better service to its residents and to compete more effectively in a rapidly evolving industry. The Company expects that its overhead expense measured as a percentage of revenues will remain among the lowest of apartment REITs. Net Income. Net income totaled $36.0 million in the six month period of 1997 and $30.7 million for the six month period of 1996. Net income available for common shareholders totaled $24.4 million in the six month period of 1997 and $20.8 million for the six month period of 1996. The increases in net income and net income available for common shareholders for 1997 compared to 1996 arose principally from substantially increased operating income from apartments due to the growth of the Company s apartment holdings, as well as increases in other income. Net income per common share in the six month period of 1997 increased to $.64 from $.61 in the six month period of 1996. Dividends to Preferred Shareholders. Dividends to preferred shareholders totaled $11.7 million in the six month period of 1997 and $9.9 million in the six month period of 1996. Preferred dividends are summarized in the following table (dollars in thousands):
Six months 1997 1996 ---- ---- Series A Preferred share dividends $ 222 $ 563 Series B Preferred share dividends 4,410 4,410 Series C Preferred share dividends 4,945 4,945 Series D Preferred share dividends 2,073 --- ------- ------ Total preferred dividends $11,650 $9,918
The increase in preferred dividends arose from the issuance of $50.0 million of Series D preferred shares in December, 1996. Holders of the Company's Series A Preferred Stock have converted 4.4 million of the 4.6 million Series A shares originally issued in June 1993 into 5.8 million shares of the Company's common stock as the common dividend was raised above the equivalent preferred dividend. Funds From Operations. Funds from operations rose 15.1% to $52.1 million in the six month period of 1997 as compared to $45.2 million in the six month period of 1996. Funds from operations available to common shares rose 20.4% to $42.5 million in the six month period of 1997 compared to $35.3 million in the six month period of 1996. These increases were principally due to increased rental operating income resulting from the growth of the Company's apartment holdings and increased other income produced by the active management of cash raised in securities offerings which was not yet invested in apartments. On a fully diluted per share basis, funds from operations increased 7.0% to $1.07 in 1997 from $1.00 in 1996. Other income from securities totaled $5.0 million, or $.10 per share for the first two quarters of 1997 versus $2.5 million, or $.06 per share for the first two quarters of 1996. "Core FFO", those earnings produced exclusively by non cash management activities, rose 3.2% to $.97 per share from $.94 per share for the first two quarters of 1997. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data):
Six months 1997 1996 ---- ---- Net income $36,045 $30,683 Less preferred dividends paid 11,650 9,919 ------- ------- Net income available for common shares 24,395 20,764 Add depreciation of real estate owned 18,964 16,266 Less net realized gains 855 1,715 Funds from operations available to ------- ------- common shares 42,504 35,315 Add convertible preferred dividends 9,577 9,919 ------- ------- Funds from operations-fully diluted $52,081 $45,234 Weighted average common shares outstanding - Primary 38,164 34,265 Fully diluted 48,481 45,106 Funds from operations per share- Primary $ 1.11 $ 1.03 Fully diluted $ 1.07 $ 1.00 Other income from securities (fully diluted) $ .10 $ .06 Core funds from operations (fully diluted) $ .97 $ .94
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 $0.5 million and $0.4 million in the six month periods of 1997 and 1996, respectively. Liquidity and Capital Resources Financial Structure. The Company s senior notes and its preferred stock are rated investment grade by Standard & Poor s Corporation (BBB+/BBB), Moody's Investors Services, Inc. (Baa2/Baa3) and Duff & Phelps Credit Rating Co. (BBB+/BBB). At June 30, 1997, total debt equaled 34% of total capitaliza- tion 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 $ 13,500 1% $ 13,500 1% Mortgage loans 27,469 2 27,469 2 6.625% senior unsecured notes, 1999 40,000 3 40,000 3 6.625% senior unsecured notes, 2000 40,000 3 40,000 3 6.625% senior unsecured notes, 2001 40,000 3 40,000 3 7.25% senior unsecured notes, 2002 40,000 3 40,000 3 6.875% senior unsecured notes, 2003 40,000 3 40,000 3 6.875% senior unsecured notes, 2004 40,000 3 40,000 3 7.25% senior unsecured notes, 2005 120,000 13 120,000 6 -------- --- -------- --- Total debt 400,969 34% 400,969 27% Series D preferred stock 50,000 4% 50,000 3% Common and preferred stock(1) 748,740 62% 1,060,802 70% -------- --- --------- --- Total equity 798,740 66% 1,110,802 73% Total capitalization $1,199,709 100% $1,511,771 100% __________ ---------- --- ----------- --- (1) Assumes conversion of all outstanding convertible preferred stock into common stock.
At June 30, 1997, the Company had $13.5 million outstanding under its lines of credit, which mature in September and October, 1997. The Company has received a firm commitment from First Union National Bank to provide a $150.0 million three-year line of credit facility, which is expected to close in September, 1997. The first $100.0 million of borrowings under the line bear interest at 0.65% above the thirty day London Interbank Offered Rates. As amended, the Company's loan agreements and the covenants under its senior unsecured notes would allow it to borrow an additional $410.0 million on an unsecured basis at June 30, 1997. It generally is not the practice of the Company to finance its acquisitions using mortgage debt, though at times the Company finds it advantageous to assume such debt in order to successfully negotiate and close property acquisitions. At June 30, 1997, the Company had three mortgage loans outstanding, which were assumed in 1996 in connection with the purchase of three communities. Liquidity. Merry Land expects to meet its short-term liquidity require- ments with cash provided by operating activities and by borrowing under its line of credit. The Company's primary short-term liquidity needs are operating expenses, apartment acquisitions, apartment development and capital improvements. The Company has essentially completed the liquidation of its holdings of marketable securities which were acquired as a temporary invest- ment pending the acquisition or development of additional apartment communities. The Company expects to meet its long-term liquidity requirements, including scheduled debt maturities and permanent financing for property acquisitions and development, from a variety of sources, including operating cash flow, additional borrowings and the issuance and sale of debt and equity securities in the public and private markets. The following table summarizes the Company's capital requirements resulting from its acquisition and development commitments as of June 30, 1997. Not included in this table are additional acquisitions and developments, debt repayments or the additional sales of debt or equity securities (dollars in thousands):
Estimated capital requirements: ------------------------------ Development communities expected costs $238,429 Less development costs paid thru 6/30/97 (119,872) -------- Development costs through 1999 118,557 Acquisition of communities under development in 1998 61,200 -------- Total future development commitments 179,757 Estimated capital sources: ------------------------- Cash on hand at 6/30/97 557 Funds available under line of credit 116,500 -------- Total capital sources 117,057 Excess of capital requirements over sources $ 62,700 --------
Cash Flows. The following table summarizes cash flows for the six month periods of 1997 and 1996 (dollars in thousands):
Sources and Uses of Cash: Six Months 1997 1996 ---- ---- Operating activities $ 52,268 $ 45,366 Sale of Merry Land common stock 8,428 58,327 Net borrowings 13,500 9,600 Sale of real property 20,869 --- Other 2,257 8 -------- -------- Total sources of cash $ 97,322 $113,301 Acquisitions of and improvements to properties (74,141) (67,800) Development of properties (33,086) (22,291) Dividends paid (41,428) (36,060) Other (512) (1,027) --------- --------- Total uses (149,167) (127,178) --------- --------- Increase (decrease) in cash, cash equivalents and marketable securities ($51,845) ($ 13,877)
Cash, cash equivalents and marketable securities decreased by $51.8 million in 1997 as the Company invested funds raised in the equity offerings of 1996 in apartments. The Company's operating cash flow increased to $52.3 million in the six month period of 1997 from $45.4 million in the six month period of 1996. Net rental income from apartments increased as the size of the portfolio grew. The primary use of cash has been apartment acquisitions, development and improvements and dividends. Expenditures for apartment communities under development increased to $33.1 million in the first six months of 1997 from $22.3 million in the first six months of 1996. The Company expects development expenditures to increase for the remainder of 1997 as construction of additional apartment communities commences. Dividends paid in the six month period of 1997 increased from the same period in 1996 due to an increase in the average amount of stock outstanding and in the case of the Company's common stock, an increase in the dividends per share to $0.78 in the first two quarters of 1997 from $0.74 per share for the first two quarters of 1996. Capital Expenditures. The Company capitalizes the direct and indirect cost of expenditures for the acquisition or development of apartments and for replacements and improvements. Replacements are non-revenue producing capital expenditures which recur on a regular basis, but which have estimated useful lives of more than one year, such as carpet, vinyl flooring and exterior repainting. Improvements are expenditures which significantly increase the revenue producing capability or which significantly reduce the cost of operating assets. At newly acquired communities, the Company often finds it necessary to upgrade the physical appearance of the properties and to complete maintenance and repair work which had been deferred by prior owners. These activities often result in heavier capital expenditures in the early years of Company ownership, and some of these expenditures which would be considered replacements at stabilized communities (as defined below) are classified as improvements at newly acquired properties. Interest, real estate taxes and other carrying costs incurred during the development period of apartments under construction are capitalized and, upon completion of the project, depreciated over the lives of the projects. The following table summarizes the capital expenditures for the six month periods of 1997 and 1996 (dollars in thousands, except per unit data):
Six months 1997 1996 ---- ---- Apartment communities: Acquisitions $ 69,286 $ 61,037 Development projects: Development costs 30,356 21,149 Capitalized interest 2,730 1,142 Replacements for stabilized communities (1) 2,560 2,484 Improvements (2) 1,528 3,717 Commercial properties 141 297 Corporate level expenditures 625 264 -------- -------- $107,226 $ 90,090 Per Unit: Replacements for stabilized communities (1) $121 $135 Improvements (2) $ 58 $159
__________ (1) Stabilized communities are those properties which have been owned for at least one full calendar year. In the six month period of 1997, 21,156 units were stabilized as compared to 18,411 units in the six month period of 1996. (2) Improvements include expenditures for all properties owned during the period, including replacements at newly acquired communities. The Company expects that the level of expenditures for replacements and improvements will increase for the remainder of 1997 due primarily to the installation of water submeters at a number of communities and other expenditures scheduled for completion to enhance or maintain the Company's apartment communities position in their markets. Inflation. Substantially all of the Company's leases are for terms of one year or less, which should enable the Company to replace existing leases with new leases at higher rentals in times of rising prices. The Company believes that this would offset the effect of cost increases stemming from inflation. This filing includes statements that are "forward looking statements" regarding expectations with respect to market conditions, development projects, occupancy rates, capital requirements and sources. These assumptions and statements are subject to various factors, unknown risks and uncertainties, including general economic conditions, local market factors, delays and cost overruns in construction, completion and rent up of development communities, and performance of consultants or other third parties and environmental concerns, any of which may cause actual results to differ from the Company's current expectations. Merry Land & Investment Company, Inc. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities None ITEM 3. Defaults Upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders At the Company s Annual Meeting of Shareholders held April 21, 1997, the following vote totals were recorded: 1. Election of Directors: Shares Voted - 31,622,494
For Withheld --- -------- W. Hale Barrett 31,469,337 (99.5%) 153,157 W. Tennent Houston 31,539,763 (99.7%) 82,731 Robert P. Kirby 31,547,244 (99.8%) 75,250 Boone A. Knox 31,543,065 (99.7%) 79,429 Hugh C. Long II 31,539,994 (99.7%) 82,500 Paul S. Simon 31,543,983 (99.8%) 78,511 Michael N. Thompson 31,530,924 (99.7%) 91,570
2. Approval of the 1997 Stock Option and Incentive Plan: Shares Voted - 31,622,494
For Against/Abstain --- --------------- 28,440,740 (89.9%) 3,181,754 (10.1%)
ITEM 5. Other Information None ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits: -------- (3.i) Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 4(a) to the Company's Shelf Registration Statement on Form S-3 filed December 15, 1995, file number 33-65067), as amended by Articles of Amendment to Articles of Incorporation re: Series D Preferred Stock (incorporated herein by reference to Exhibit 4 to the Company's current report on Form 8-K filed December 11, 1996). (3.ii) By-laws (incorporated herein by reference to Exhibit 3(ii) of Item 14 of the Company s Annual Report on Form 10-K for the year ended December 31, 1993). (10) Material Contracts. (10.1) Extension Agreement to Line of Credit (27) Financial Data Schedules b. Reports on Form 8-K: None 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 August 14, 1997 EX-10 2 EXTENSION AGREEMENT THIS MODIFICATION AGREEMENT is dated as of the 26th day of June, 1997 by and among MERRY LAND & INVESTMENT COMPANY, INC., a Georgia corporation (the "Borrower"), the Lenders who are or may become a party to the Agreement (as hereinafter defined) and FIRST UNION NATIONAL BANK, in its capacity as Agent for the Lenders (for itself as a Lender and as Agent, collectively "First Union"). Statement of Purpose The Borrower and First Union entered into a certain Credit Agreement dated June 28, 1996, as modified by Modification Agreement dated December 19, 1996 (as modified, the "Credit Agreement") and Borrower has requested that First Union extend the "Termination Date" as defined in Section 1.1 of the Credit Agreement. All capitalized terms used herein and not defined herein shall have the meaning as used in the Credit Agreement. Now, therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows: 1. The definition of "Termination Date" in Section 1.1 of the Credit Agreement shall be deleted, and simultaneously substituted in lieu of the language deleted from Section 1.1 shall be the following: " Termination Date' means September 30, 1997 or such date as may be provided in Section 2.5 hereof." 2. This Extension Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts together shall constitute one and the same instrument. Except as modified hereby, the Credit Agreement shall be unchanged and is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have executed this Extension Agreement as of the day and year first above written. MERRY LAND & INVESTMENT COMPANY, INC., a Georgia corporation By: Dorrie E. Green /s/ Name: Dorrie E. Green Title: Vice President FIRST UNION NATIONAL BANK By: Susan T. Miller /s/ Name: Susan T. Miller Title: Senior Vice President EX-27 3
5 6-MOS DEC-31-1997 JUN-30-1997 557 4,190 2,358 0 0 8,045 1,271,602 119,568 1,227,212 27,504 360,000 0 271,012 38,608 489,118 1,227,212 96,874 105,421 25,229 69,376 33,175 0 10,972 36,045 0 36,045 0 0 0 36,045 .64 .64
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