-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, J1hvJw7yBxxbZAluX3igY/F6uLHF7W8kKIb5Zid7yXF59U2B75yOYeGec4ACxIeU WxYCw1+UYk3i/DG7jAS0fg== 0000950144-95-000387.txt : 19950515 0000950144-95-000387.hdr.sgml : 19950515 ACCESSION NUMBER: 0000950144-95-000387 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950214 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950214 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11081 FILM NUMBER: 95510699 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 8-K 1 MERRY LAND FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-10384 ------------- Date of Report (Date of earliest event reported) FEBRUARY 14, 1995 ---------------------- MERRY LAND & INVESTMENT COMPANY, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) GEORGIA 58-0961876 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. BOX 1417, AUGUSTA, GEORGIA 30903 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (706) 722-6756 ---------------- NOT APPLICABLE - ------------------------------------------------------------------------------ (Former name, former address and formal fiscal year, if changed since last report) 2 ITEM 5. OTHER EVENTS. - ------------------------- Merry Land & Investment Company, Inc. (the "Company") is filing with this Current Report on Form 8-K (a) the Balance Sheets of the Company as of December 31, 1994 and 1993 and the related Statements of Income, Stockholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1994 and the related Notes to Financial Statements (collectively, the "Financial Statements") and the Report of Independent Public Accountants thereon and (b) Management's Discussion and Analysis of Financial Condition and Results of Operations and (c) Selected Financial Data. This Current Report on Form 8-K is to be incorporated by reference into the Company's Registration Statement on Form S-3 (File No. 33-57453) filed with the Securities and Exchange Commission on February 9, 1995, as amended, relating to the registration of $400,000,000 of debt and equity securities. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. - ---------------------------------------------- (a) Exhibit Index: Exhibit Exhibit No. - -------------------------------------------------------------------------------- Consent of Independent Public Accountants 23 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 14th day of February, 1995. MERRY LAND & INVESTMENT COMPANY, INC. ------------------------------------- (REGISTRANT) /S/ W. Tennent Houston -------------------------- W. Tennent Houston President 3 SELECTED FINANCIAL DATA The following table sets forth selected financial data for the Company and should be read in conjunction with the financial statements and notes thereto incorporated by reference herein. The following amounts are in thousands, except for information with respect to per share amounts, fixed charge coverage ratios and apartment units.
YEARS ENDED DECEMBER 31, PRO ---------------------------------------------------- FORMA 1990 1991 1992 1993 1994 1994(1) -------- -------- -------- -------- -------- -------- OPERATING DATA Income from property operations: Rental and mineral royalty revenue................ $ 13,789 $ 16,447 $ 23,479 $ 56,181 $103,169 $130,393 Rental expenses, property taxes and insurance..... 5,521 7,065 9,604 22,611 38,409 50,340 Depreciation of real estate owned................. 2,119 3,022 4,156 9,066 17,877 23,302 -------- -------- -------- -------- -------- -------- 6,149 6,360 9,719 24,504 46,883 56,751 Income from mortgage backed securities: Interest income................................... 20,104 12,832 3,978 -- -- -- Interest expense.................................. 17,102 8,543 1,558 -- -- -- -------- -------- -------- -------- -------- -------- 3,002 4,289 2,420 -- -- -- Other income: Other interest and dividend income................ 1,701 1,709 1,940 2,463 2,440 1,872 Other............................................. 76 297 196 10 25 25 -------- -------- -------- -------- -------- -------- 1,777 2,006 2,136 2,473 2,465 1,897 Expenses: Interest unrelated to mortgage backed securities...................................... 5,607 4,261 4,230 5,640 10,394 9,082 General and administrative........................ 944 1,277 1,304 1,433 1,773 1,807 Depreciation -- other, amortization and other expenses........................................ 182 112 44 180 470 470 Other non-recurring costs......................... -- -- -- 1,308 200 200 -------- -------- -------- -------- -------- -------- 6,733 5,650 5,578 8,561 12,837 11,559 Gains on sales of assets: Gains on sales of investments..................... 491 (698) 385 6,960 201 201 Gains on sales of real estate..................... 730 803 460 1,032 273 273 Gains on mortgage backed securities............... 487 1,681 1,903 0 -- -- -------- -------- -------- -------- -------- -------- 1,708 1,786 2,748 7,992 474 474 Income tax (benefit)................................ (2) -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net income.......................................... 5,905 8,791 11,445 26,408 36,985 47,563 Preferred dividends paid............................ -- -- -- 4,025 7,934 21,594 -------- -------- -------- -------- -------- -------- Net income available for common shares.............. $ 5,905 $ 8,791 $ 11,445 $ 22,383 $ 29,051 $ 25,969 ========= ========= ========= ========= ========= ========= Weighted average common shares...................... 9,480 9,326 10,652 17,268 26,430 30,744 Weighted average fully diluted common shares........ 9,606 9,449 10,769 20,381 32,562 42,212 Net income per common share......................... $ .62 $ .94 $ 1.07 $ 1.30 $ 1.10 $ 0.84 Common dividends paid............................... 3,779 4,116 7,285 16,934 33,467 33,467 Common dividends paid per share..................... $ .40 $ .44 $ .66 $ .90 $ 1.25 $ 1.25 Fixed charge coverage ratio......................... 1.26x 1.69x 2.98x 5.58x 4.44x 6.04x Fixed charge and preferred stock dividend coverage ratio............................................. 1.26x 1.69x 2.98x 3.29x 2.56x 1.83x
DECEMBER 31, PRO ---------------------------------------------------- FORMA 1990 1991 1992 1993 1994 1994(1) -------- -------- -------- -------- -------- -------- BALANCE SHEET DATA Properties, at cost................................. $103,981 $132,355 $220,615 $565,111 $815,306 $815,306 Mortgage backed securities.......................... 196,620 115,973 -- -- -- Total assets........................................ 318,947 262,881 235,695 562,172 806,655 827,430 Debt related to mortgage backed securities.......... 185,118 112,854 -- -- -- -- Senior Notes........................................ -- -- -- 120,000 120,000 120,000 Other debt.......................................... 61,633 70,939 117,596 37,173 92,810 17,835 Total shareholders' equity.......................... $ 66,302 $ 73,919 $106,831 $397,715 $584,851 $680,601 OTHER DATA Funds from operations(2)............................ $ 6,316 $ 10,027 $ 12,853 $ 28,790 $ 54,588 Funds from operations available to common shares.... $ 6,316 $ 10,027 12,853 $ 24,765 $ 46,654 Apartment units acquired during year................ 592 986 2,845 7,452 4,872 Total apartment units at end of year................ 2,722 3,708 6,527 13,979 18,851
(1) The unaudited pro forma financial data gives effect to the 1994 apartment acquisitions, the Common and Series B Preferred Stock offerings completed during 1994 and the issuance of the Series C Preferred Stock as if such transactions had occurred at the end of the prior year in the case of operating data, and as of the end of the current year in the case of balance sheet data. In the opinion of management, all adjustments necessary to present fairly such pro forma data have been included. The unaudited pro forma data is not necessarily indicative of the results of operations of the Company for the year indicated had the transactions occurred on the date assumed, nor does such information purport to indicate the future results of operations. (2) Funds from operations is defined as net income computed in accordance with generally accepted accounting principles, excluding nonrecurring costs and net realized gains, plus depreciation of real property. Funds from operations in 1990, 1991 and 1992 includes net income from mortgage backed securities, which was $3,002,000, $4,289,000, and $2,420,000 in 1990, 1991 and 1992, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 3 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Over the past several years, Merry Land has significantly expanded its apartment holdings through an active program of acquisitions. The Company believes that its access to public and private debt and equity, its experience as an apartment operator, its knowledge of the Southern apartment markets and its acquisition expertise have allowed it to take advantage of favorable conditions to make acquisitions at attractive yields. Even though prices of apartments offered for sale have risen throughout 1993 and 1994, the Company believes that prices have recently stabilized at levels which present continued favorable opportunities for both acquisition and development. The following table describes the growth of the Company's apartment holdings in recent years:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1992 INCREASE 1993 INCREASE 1994 INCREASE ------------ -------- ------------ -------- ------------ -------- Units(1)........................ 6,527 76% 13,979 114% 18,851 35% Cost (in thousands)(1)(2)....... $209,549 73% $554,444 165% $796,364 44%
- --------------- (1) Excludes condominium unit held for sale. (2) Represents the total acquisition cost of the property plus the capitalized cost of improvements made subsequent to acquisition. In December 1994, the Company commenced a program of apartment development by buying three tracts of land on which it intends to build high quality suburban garden apartments. The Company will build these communities in a series of phases using experienced apartment developers to provide development and construction management services. Construction on all three communities is expected to commence in the first half of 1995 with the first units expected to be available for occupancy later that year. The Company's present intention is to limit its financial commitment to development to no more than 10% of total assets. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 Rental Operations. The operating performance of the Company's apartments is summarized in the following table (dollars in thousands, except average monthly rent):
CHANGE FROM 1993 TO 1992 1993 1994 1994 ------- ------- -------- ----------- Rents....................................... $22,460 $54,565 $101,667 86% Operating expenses.......................... 6,954 16,572 27,578 66 Taxes and insurance......................... 2,596 4,833 9,634 99 Depreciation................................ 4,020 8,924 17,735 99 ------- ------- -------- ----- $ 8,890 $24,236 $ 46,720 93 Average occupancy(1)............... 91.6% 92.9% 95.2% 2.3 Average monthly rent(2)............. $ 472 $ 551 $ 591 7.3 Expense ratio(3)............................ 42.5% 39.2% 36.6% (2.6)%
- --------------- (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 December month end. (3) Represents total of operating expenses, taxes and insurance divided by rental revenues. Rental revenues and expenses have risen sharply with the Company's acquisition of new communities. The weighted average number of apartments owned rose to 16,415 in 1994 from 10,253 in 1993 and 5,118 in 1992. Most of the rental markets in which Merry Land operates are experiencing strong job growth and household formation, and occupancy levels and rent rates have risen. However, the 7.3% increase in portfolio average rental rates in 1994 from 1993 largely reflects 4 5 the higher rents charged at the communities the Company acquired in 1993 and 1994, whose monthly rents averaged $626 at December 31, 1994, versus the total portfolio average of $591. Although construction starts of new apartment communities have increased in 1993 and 1994, the Company believes demand continues to outstrip supply and expects a strong rental market to continue throughout 1995, with continued high occupancy and rising rent rates. The performance of the 6,527 units which the Company held for all of both 1994 and 1993 ("same store" results), is summarized in the following table (dollars in thousands, except average monthly rent; see footnotes above):
CHANGE FROM 1993 TO 1993 1994 1994 ------- ------- ----------- Rents...................................................... $37,339 $40,407 8% Operating expenses......................................... 12,911 12,225 (5) Taxes and insurance........................................ 3,426 3,549 4 Depreciation............................................... 6,346 6,676 5 ------- ------- ----- $14,656 $17,957 23 Average occupancy.......................................... 92.6% 95.7% 3.1 Average monthly rent....................................... $ 510 $ 530 3.9 Expense ratio.............................................. 43.8% 39.0% (4.8)%
Reflecting the strong rental markets, rental revenues and operating income for those properties held for all of both periods rose as a result of 3.1% higher occupancy and 3.9% higher rental rates. Operating expenses decreased $0.7 million in 1994 as compared to 1993. Of this decrease, $0.5 million came from a change in capitalization policy which resulted in the capitalization of certain expenditures which had previously been expensed, including painting the exteriors of apartment communities, replacement of mini blinds and replacement of vinyl. The remaining decrease in expenses came from lower personnel costs. For those 3,360 apartments owned by the Company for both 1993 and 1992, rental revenues increased $1.0 million or 6% in 1993 over 1992 as monthly rental rates increased 3.4% to $491 per month from $475 per month, while occupancy for those units rose to 93.2% for 1993 from 92.2% for 1992. Operating expenses rose $1.1 million, or 19%, due to charging the cost of ESOP contributions to the communities, rather than to corporate overhead, and to higher maintenance expenditures, which included painting the exterior of three more communities than in the prior year. Taxes and insurance expense rose 8% while depreciation rose 2%. Mineral Royalty and Commercial Property Income. These amounts rose to $1.4 million in 1994 and $1.6 in 1993 from $1.0 million in 1992 largely as the result of the sale of sand under a contract which has now expired. Mineral royalties in 1995 should total less than half of 1994 amounts. Interest and Dividend Income. Interest and dividend income totaled $2.4 million for 1994 as compared to $2.5 million for 1993 and $5.9 million in 1992. Interest and dividend income includes interest received on temporary investments, notes receivable, and dividends earned on equity securities investments. The 1992 amount included interest on the Company's portfolio of mortgage backed securities, which was disposed of in that year. Interest Expense. Interest expense totaled $10.4 million for 1994, up from $5.6 million for 1993 and $5.8 million for 1992. The increase resulted both from an increase in the amount of debt outstanding and from higher interest rates. Average debt outstanding rose to $165.2 million in 1994 from $95.2 million in 1993 and $74.2 million in 1992, primarily as a result of financing apartment purchases. The 1992 amount included funds used to finance the mortgage backed securities portfolio. The weighted average interest rate charged on all the Company's debt increased to 6.4% for 1994 from 5.4% for 1993 and 5.0% for 1992, primarily as a result of the Company's shift to higher cost fixed rate debt from variable rate financing and also because of rising short term rates. At 5 6 December 31, 1994, $85.3 million of the Company's $212.8 million of outstanding debt was at variable interest rates, and $9.9 million of this amount was tax exempt financing bearing interest at 75% of prime. General and Administrative Expenses. In 1994, general and administrative expense totaled $1.8 million, versus $1.4 million for 1993 and $1.3 million in 1992. In 1994, general and administrative expenses equaled 1.7% of rental revenues, down from 2.6% for 1993 and 5.6% in 1992. The decrease in this ratio is attributable to increased operating efficiency as the Company's overhead was spread over more apartment units. The Company expects that as it continues to grow, even though general and administrative expenses will increase in absolute terms, such expenses will continue to decline as a percentage of revenues. In 1994, the Company began charging the cost of property management activities conducted at the regional and corporate level to rental expense. Previously, such expenses had been included as part of general and administrative expenses. Results for both 1993 and 1992 have been presented on a basis consistent with 1994 expenses. Non-Recurring Costs. In 1994, the Company reserved $0.2 million as the estimated potential cost of its share of a possible environmental investigation of a landfill located on land the Company owns in Richmond County, Georgia. (See "Business -- Environmental Matters"). In 1993 the Company sold $120.0 million of 6.625% unsecured senior notes and used the $119.0 net proceeds to repay substantially all other debt. Prepayment penalties and the cost of closing out an interest rate swap agreement totaled $1.3 million. Gains on Sales of Assets. Net gains recognized on the sale of assets totaled $0.5 million for 1994, $8.0 million for 1993 and $2.7 million in 1992. Gains in 1994 came from the sale of securities and real estate. Gains in 1993 resulted primarily from the sale of thrift stocks and in 1992 from the sale of mortgage backed securities. Net income. Net income totaled $37.0 million for 1994, $26.4 million in 1993, and $11.4 million for 1992. Net income available for common shareholders totaled $29.1 million for 1994, $22.4 million for 1993, and $11.4 million for 1992. The increases in net income and net income available for common shareholders for 1994 when compared to 1993 arose principally from substantially increased operating income from apartments, which were partially offset by lower levels of gains recognized on sales of assets. Net income per share for 1994 fell to $1.10 from $1.30 in 1993 as a result of various factors, including the lower level of gains recognized, increased depreciation and the increased number of shares outstanding. The increase in net income for 1993 as compared to 1992 arose both from increased operating income from apartments and from greater gains recognized on the sale of assets, principally securities. Dividends to preferred shareholders. Dividends to preferred shareholders totaled $7.9 million for 1994 and $4.0 million in 1993. The increase in dividends arose from the sale of Preferred Stock during the two years. In June 1993, the Company sold 4.6 million shares of Series A Preferred Stock in a public offering. In November 1994, the Company completed a private placement of 4.0 million shares of its Series B Preferred Stock. During 1994, holders of Series A Preferred Stock converted 2.1 million shares of the Series A Preferred Stock into approximately 2.8 million shares of the Company's Common Stock. Funds From Operations. The Company believes that funds from operations is an important measure of the Company's operating performance. Funds from operations does not represent cash flows from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income or as an indicator of the Company's operating performance, or as a measure of the Company's liquidity. Based on recently published recommendations of a task force of the National Association of Real Estate Investment Trusts, the Company defines funds from operations as net income computed in accordance with GAAP, excluding non-recurring costs and net realized gains, plus depreciation of real property. This revised definition eliminates from funds from operations any amortization of debt costs and any non-real estate 6 7 depreciation, which reduced the Company's funds from operations by $0.5 million in 1994, $0.2 million in 1993 and $0.04 million in 1992. Funds from operations rose 90% to $54.6 million for 1994 as compared to $28.8 million for 1993 and $12.9 million for 1992. These increases were principally due to increased rental operating income resulting from the growth of the Company's apartment holdings. The following is a reconciliation of net income to funds from operations (data in thousands, except per share data):
1992 1993 1994 ------- ------- ------- Net income...................................................... $11,445 $26,408 $36,985 Less preferred dividends paid................................... -- 4,025 7,934 ------- ------- ------- Net income available for common shares.......................... 11,445 22,383 29,051 Add depreciation of real estate owned........................... 4,156 9,066 17,877 Add non-recurring costs......................................... -- 1,308 200 Less net realized gains......................................... 2,748 7,992 474 ------- ------- ------- Funds from operations available to common shares................ 12,853 24,765 46,654 Add preferred dividends......................................... -- 4,025 7,934 ------- ------- ------- Funds from operations -- fully diluted.......................... $12,853 $28,790 $54,588 ======== ======== ======== Weighted average common shares outstanding -- primary....................................................... 10,652 17,268 26,430 fully diluted................................................. 10,753 20,381 32,562 Funds from operations per share -- primary....................................................... $ 1.21 $ 1.43 $ 1.77 fully diluted................................................. $ 1.20 $ 1.41 $ 1.68
LIQUIDITY AND CAPITAL RESOURCES Merry Land's financial strategy is to buy apartment communities for cash, using amounts drawn on its unsecured line of credit, and subsequently to raise funds in the capital markets to permanently finance these investments. The Company completed a number of such acquisition and funding cycles in recent years and expects to continue to fund its acquisition and development activities in this manner. In 1994, the Company acquired 4,872 apartment units for $226.2 million and funded these purchases initially by liquidating temporary investments and borrowing funds under its line of credit. On June 30, 1994, the Company completed a public offering of 4.6 million shares of Common Stock at a price of $20.25 per share, for net proceeds of $87.5 million. Of this amount, $58.7 million was used to repay debt incurred in the acquisition and improvement of apartments and the remainder was used for further acquisitions. On November 1, 1994, the Company completed the private placement of $100.0 million of its $2.205 Series B Cumulative Convertible Preferred Stock for net proceeds of $96.7 million, and used this amount to pay in part for the $154.4 million apartment portfolio acquired on November 18, 1994. The remainder of the purchase price was financed with the Company's line of credit. The Series B Preferred Stock was sold in a private placement at a price of $25.00 per share to a small group of institutional investors. It has an annual dividend rate of $2.205 per year, payable quarterly, and is convertible into shares of Common Stock at a conversion price of $21.04 per share of Common Stock (equivalent to a conversion rate of 1.188 shares of Common Stock for each share of Series B Preferred Stock). The Series B Preferred Stock may not be redeemed for cash at any time, 7 8 but may be redeemed by the Company for Common Stock after October 31, 1999, provided the Company's Common Stock is trading above the conversion price of $21.04 per share. Common Stock Repurchases. In December 1994, the Company's Board of Directors authorized the repurchase of up to 1.0 million shares of the Company's Common Stock. The Board took this action because in its judgment the Company's stock price had fallen significantly below price levels which the Board felt were appropriate. The Company bought and retired 175,440 shares for approximately $3.1 million, an average price of $17.94 per share. The Company discontinued the repurchase program as the stock price rose over the last weeks of the year. Financial Structure. At December 31, 1994, debt equaled 27% of total capitalization at cost, and 20% of total capitalization, with equity valued at market. At that date, the Company's financial structure was as follows (dollars in thousands):
% OF MARKET % OF COST TOTAL VALUE TOTAL -------- ----- ---------- ----- Advances under line of credit......................... $ 57,600 8% $ 57,600 5% Repurchase agreements................................. 17,375 2 17,375 2 Mortgage loans........................................ 17,835 2 17,835 2 6.625% Senior notes................................... 120,000 15 120,000 11 -------- ----- ---------- ----- Total debt.................................. 212,810 27 212,810 20 Common and preferred equity(1)........................ 584,851 73 850,245 80 -------- ----- ---------- ----- Total capitalization........................ $797,661 100% $1,063,055 100% ========= ==== ========== ====
- --------------- (1) Assumes conversion of all Preferred Stock outstanding into Common Stock. Merry Land's primary commercial bank provides the Company with a $100.0 million unsecured line of credit for property acquisitions and other general corporate purposes. This line bears interest at 0.65% over the 30 day LIBOR rate, matures on September 30, 1995, and, subject to the bank's approval, is expected to be renewed annually. At December 31, 1994, the Company had $42.4 million available under this line of credit. The Company is negotiating with a group of banks to obtain a syndicated credit facility in addition to the existing line. It generally is not the practice of the Company to finance its acquisitions using mortgage debt. At times, however, the Company finds it advantageous to assume such debt in order to successfully negotiate and close property acquisitions. During 1994, the Company repaid approximately $19.2 million of mortgage debt previously assumed in property acquisitions of prior years. Repurchase agreements are borrowings secured by the Company's temporary investments in U.S. Treasury Notes. The Company's Preferred Stock, and implicitly its 6.625% Senior Notes, are rated investment grade by Standard & Poor's Corporation and Moody's Investors Service, Inc. Liquidity. Merry Land expects to meet its short-term liquidity requirements with the net cash flow provided by operating activities and with its line of credit. The Company believes that its primary short-term liquidity needs are to fund operating expenses and capital improvements, debt service payments, dividend payments and current requirements of its program of new apartment development. The Company expects to meet its long-term liquidity requirements, including scheduled debt maturities and permanent financing for property acquisitions and development, with a variety of sources, including additional borrowings and the issuance and sale of debt or equity securities in the public and private markets. The Company is limited in the amount of debt it may incur under the terms of its existing loan agreements. At December 31, 1994, the Company's loan agreements would have allowed it to borrow an additional $180 million on an unsecured basis. Cash Flows. Operating cash flow has grown with the expansion of the Company's apartment holdings. Operating cash flow grew to $56.1 million in 1994 from $30.9 million in 1993 and $14.3 million in 1992. Sales of Common and Preferred Stock, however, have been the largest source of cash for the past three years. The primary use of cash has been to finance new apartment 8 9 acquisitions and improvements. Dividends paid in 1994 and 1993 increased from levels in prior years due to an increase in the average amount of stock outstanding during 1994 and 1993, and in the case of the Company's Common Stock, an increase in the quarterly dividend per share from $0.15 for the first quarter of 1992 to $0.35 for the last quarter of 1994. The following table summarizes cash flows for 1992, 1993, and 1994:
SOURCES AND USES OF CASH YEAR ENDED DECEMBER 31, --------------------------------- 1992 1993 1994 --------- --------- --------- (IN THOUSANDS) Operating activities..................................... $ 14,256 $ 30,911 $ 56,099 Net sales of securities and temporary investments........ 99,913 1,659 -- Sales of Common and Preferred Stock...................... 27,703 283,560 187,939 Net borrowings........................................... -- 1,429 55,637 Other.................................................... 20,724 10,677 576 --------- --------- --------- Total sources....................................... 162,596 328,236 300,251 Acquisitions of and improvements to properties........... (88,841) (307,048) (250,263) Dividends paid........................................... (7,666) (20,959) (41,401) Net repayment of debt.................................... (66,197) -- -- Net purchase of temporary investments.................... -- -- (8,447) --------- --------- --------- Total uses.......................................... $(162,704) $(328,007) $(300,111)
Capital Expenditures. The Company capitalizes the cost of expenditures for the acquisition or development of additional productive assets and for expenditures which significantly increase the revenue producing capability or which reduce the cost of operating such assets. Normal operating costs are expensed as incurred. Certain items which are replaced on a regular basis, but which have lives of more than one year, such as carpet, vinyl flooring and exterior repainting, are capitalized. At newly acquired communities, the Company often finds it necessary to upgrade the physical appearance of such 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. 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. 9 10 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Merry Land & Investment Company, Inc.: We have audited the accompanying balance sheets of Merry Land & Investment Company, Inc. (a Georgia corporation) as of December 31, 1994 and 1993 and the related statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Merry Land & Investment Company, Inc. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ------------------------ Arthur Andersen LLP Atlanta, Georgia January 13, 1995 11 Merry Land & Investment Company, Inc. BALANCE SHEETS (In thousands)
December 31, ---------------------------- 1994 1993 -------- ---------- PROPERTIES AT COST Apartments $796,436 $554,589 Development in progress 8,129 -- Commercial rental property 6,040 6,047 Land held for investment or future development 3,831 3,884 Operating equipment 870 591 -------- -------- 815,306 565,111 Less accumulated depreciation and depletion (41,874) (23,899) -------- -------- 773,432 541,212 CASH AND SECURITIES Cash 718 578 Marketable securities 27,716 15,868 -------- -------- 28,434 16,446 OTHER ASSETS Notes receivable 941 1,058 Deferred loan costs 2,066 2,412 Other 1,782 1,044 -------- -------- 4,789 4,514 -------- -------- TOTAL ASSETS $806,655 $562,172 ======== ======== NOTES PAYABLE Mortgage loans $ 17,835 $ 37,173 6.625% Senior notes 120,000 120,000 Note payable-credit line 57,600 -- U.S. Treasury repurchase agreement 17,375 -- -------- -------- 212,810 157,173 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accrued interest 2,224 1,988 Resident security deposits 3,012 2,344 Accrued property taxes 1,205 635 Other 2,553 2,317 -------- -------- 8,994 7,284 STOCKHOLDERS' EQUITY Preferred stock, no par value, 20,000 shares authorized; 2,516 shares $1.75 Series A Cumulative Convertible shares issued and outstanding, $25.00 per share liquidation preference 62,908 115,000 Preferred stock, no par value, 20,000 shares authorized; 4,000 shares $2.205 Series B Cumulative Convertible shares issued and outstanding, $25.00 per share liquidation preference 100,000 -- Common stock without par value at $1 stated value, 50,000 shares authorized; 30,744 and 22,826 shares issued and outstanding at December 31, 1994 and 1993 30,744 22,826 Capital surplus 375,170 236,369 Cumulative undistributed net earnings 23,112 27,529 Notes receivable from stockholders and ESOP (10,283) (4,009) Unrealized gain on securities 3,200 -- -------- -------- 584,851 397,715 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $806,655 $562,172 ======== ========
12 Merry Land & Investment Company, Inc. STATEMENTS OF INCOME (In thousands, except per share date)
Years Ended December 31, -------------------------------------------- 1994 1993 1992 -------- ------- ------- INCOME Rental income $102,352 $55,262 $23,130 Mineral royalties 817 919 349 Mortgage interest 95 510 4,662 Other interest 2,070 1,709 910 Dividends 275 244 346 Other income 25 10 196 -------- ------- ------- 105,634 58,654 29,593 EXPENSES Rental expense 27,953 16,996 7,332 Interest 10,394 5,640 5,788 Depreciation - real estate 17,877 9,066 4,156 Depreciation - other 122 59 41 Amortization - financing costs 348 121 3 Taxes and insurance 10,456 5,615 2,272 General and administrative expense 1,773 1,433 1,304 Other non-recurring expense 200 1,308 -- -------- ------- ------- 69,123 40,238 20,896 Income before net realized gains 36,511 18,416 8,697 Net realized gains 474 7,992 2,748 -------- ------- ------- NET INCOME 36,985 26,408 11,445 -------- ------- ------- Dividends to preferred shareholders 7,934 4,025 -- -------- ------- ------- NET INCOME AVAILABLE FOR COMMON SHARES $ 29,051 $22,383 $11,445 ======== ======= ======= Weighted average common shares outstanding 26,430 17,268 10,652 Weighted average common shares - fully diluted 32,562 20,381 10,652 NET INCOME - PER SHARE $ 1.10 $ 1.30 $ 1.07 FULLY DILUTED $ 1.10 $ 1.30 $ 1.07 ======== ======= ======= CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.25 $ 0.90 $ 0.66
13 Merry Land & Investment Company, Inc. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Cumulative Preferred Stock Common Stock Capital Undistributed Total Shares Amount Shares Amount Surplus Net Earnings Stockholders' -------------------- ----------------- ------- ------------- ------------- Equity Balance, December 31, 1991 -- -- 9,397 $ 9,397 $ 47,033 $17,489 $ 73,919 1992 net income -- -- -- -- -- 11,445 11,445 Sale of common stock -- -- 2,910 2,910 24,230 -- 27,140 Common stock issued in conversion of debentures -- -- 64 64 473 -- 537 Common stock dividends ($.66 per share) -- -- -- -- -- (7,285) (7,285) Common stock dividends reinvested -- -- 145 145 1,224 -- 1,369 Exercise of stock options -- -- 59 59 278 -- 337 ------ -------- ------ ------- -------- ------- -------- -- -- 12,575 12,575 73,238 21,649 107,462 Decrease in net unrealized loss on marketable equity securities -- -- -- -- -- 431 431 Notes receivable from stockholders -- -- -- -- (1,062) -- (1,062) ------ -------- ------ ------- -------- ------- -------- Balance, December 31, 1992 -- -- 12,575 12,575 72,176 22,080 106,831 1993 net income -- -- -- -- -- 26,408 26,408 Sale of common stock -- -- 9,950 9,950 164,962 -- 174,912 Sale of preferred stock 4,600 115,000 -- -- (5,781) -- 109,219 Common stock issued in conversion of debentures -- -- 55 55 410 -- 465 Sale of common stock to employees -- -- 135 135 1,910 -- 2,045 Increase in notes receivable from stockholders -- -- -- -- (1,838) -- (1,838) Common stock dividends ($.90 per share -- -- -- -- -- (16,934) (16,934) Common stock dividends reinvested -- -- 99 99 1,661 -- 1,760 Preferred stock dividends($.875 per share) -- -- -- -- -- (4,025) (4,025) Stock purchase plan -- -- 9 9 164 -- 173 Common stock redeemed -- -- (72) (72) (1,480) -- (1,552) Sale of common stock to ESOP -- -- 75 75 1,284 -- 1,359 Increase in notes receivable from ESOP -- -- -- -- (1,108) -- (1,108) ------ -------- ------ ------- -------- ------- -------- Balance, December 31, 1993 4,600 115,000 22,826 22,826 232,360 27,529 397,715 1994 net income -- -- -- -- -- 36,985 36,985 Sale of common stock -- -- 4,600 4,600 82,907 -- 87,507 Sale of preferred stock 4,000 100,000 -- -- (3,288) -- 96,712 Common stock issued in conversion of preferred stock, Series A (2,084) (52,092) 2,792 2,792 49,300 -- -- Sale of common stock to employees -- -- 389 389 6,888 -- 7,277 Purchase of common stock from employees -- -- (9) (9) (186) -- (195) Increase in notes receivable from stockholders -- -- -- -- (6,687) -- (6,687) Common stock dividends -- -- -- -- -- (33,467) (33,467) Common stock dividends reinvested -- -- 194 194 3,741 -- 3,935 Preferred stock dividends -- -- -- -- -- (7,934) (7,934) Stock purchase plan -- -- 128 128 2,411 -- 2,539 Common stock redeemed -- -- (176) (176) (2,972) -- (3,148) Decrease in notes receivable from ESOP -- -- -- -- 412 -- 412 Unrealized gain on securities -- -- -- -- 3,200 -- 3,200 ------ -------- ------ ------- -------- ------- -------- Balance, December 31, 1994 6,516 $162,908 30,744 $30,744 $368,086 $23,113 $584,851 ====== ======== ====== ======= ======== ======= ========
14 Merry Land & Investment Company, Inc. STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, ------------------------------------------ 1994 1993 1992 -------- -------- -------- OPERATING ACTIVITIES: Rents and royalties received $103,149 $ 56,347 $ 23,460 Interest received 2,011 2,035 6,535 Dividends received 275 244 346 Rental expense (27,804) (15,988) (7,182) General and administrative expense (1,229) (1,767) (1,183) Interest expense (10,158) (4,395) (6,614) Property taxes and insurance expense (10,282) (5,880) (1,787) Other 137 315 681 -------- -------- -------- Net cash provided (used) by operating activities: 56,099 30,911 14,256 INVESTING ACTIVITIES: Principal received on notes receivable 116 10,272 329 Monthly principal receipts on mortgage backed securities -- -- 19,506 Sale of marketable securities and temporary investments 7,030 117,494 107,391 Purchase of temporary investments (15,477) (115,835) (7,478) Acquisition of and improvements to properties (250,263) (307,048) (88,841) Sale of real estate 302 428 856 Other 158 (23) 33 -------- -------- -------- Net cash provided (used) by investing activities: (258,134) (294,712) 31,796 FINANCING ACTIVITIES: Net borrowings (repayments) - repurchase agreements 17,375 -- (112,854) Net borrowings (repayments) - bank debt 57,600 (109,358) 46,770 Net borrowings - senior notes -- 119,025 -- Repayments of mortgage loans (19,338) (8,238) (113) Cash dividends paid - common (33,467) (16,934) (7,666) Cash dividends paid - preferred, Series A (6,454) (4,025) -- Cash dividends paid - preferred, Series B (1,480) -- -- Sale of common stock - public offerings 87,507 171,949 26,334 Sale of common stock - reinvested dividends 3,935 1,760 1,369 Sale of common stock - stock purchase plan 2,538 173 -- Sale of common stock - employees 395 459 -- Sale of preferred stock - public offering 96,712 109,219 -- Common stock retired (3,148) -- -- -------- -------- -------- Net cash provided by financing activities 202,175 264,030 (46,160) -------- -------- -------- NET INCREASE (DECREASE) IN CASH 140 228 (108) CASH AT BEGINNING OF PERIOD 578 349 457 -------- -------- -------- CASH AT END OF PERIOD $ 718 $ 578 $ 349 ======== ======== ========
15 Reconciliation of Net Income to Cash Flows from Operating Activities
Years Ended December 31, --------------------------------------- 1994 1993 1992 ------- ------- ------- Net income $36,985 $26,408 $11,445 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,347 9,246 4,200 (Increase) decrease in interest and accounts receivable (110) (168) 943 (Increase) decrease in other assets (282) (9) 201 Increase (decrease) in accounts payable and accrued interest 1,479 3,426 38 Gain on the sale of mortgage backed securities -- -- (1,903) Gain on the sale of marketable securities (201) (6,961) (385) Gain on the sale of real estate (273) (1,031) (460) ESOP contributions 154 -- 177 ------- ------- ------- Net cash provided by operating activities $56,099 $30,911 $14,256 ======= ======= =======
16 MERRY LAND & INVESTMENT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 1. Nature of Business Merry Land & Investment Company, Inc. is a real estate investment trust, which invests in upscale apartment communities located primarily in Florida, Georgia, North Carolina and South Carolina. At December 31, 1994 the Company owned 73 apartment communities containing 18,851 units in twenty five cities and eight states. In past years it invested in mortgage backed and other securities, most of which were sold by 1992. As a qualified REIT, the Company pays no corporate income taxes on earnings distributed to stockholders. It must specialize in investments in real estate and real estate mortgages, meet certain requirements as to stock ownership, gross income and asset mix. The Company is self administered and has no affiliated advisor, sponsor, or property manager. Information on the Company's real estate and securities investments follows for the years ended (in thousands):
Mortgage Backed Other Real Estate Securities Securities Total ----------- --------------- ---------- ----- December 31, 1994 Revenues $103,469 $ -- $ 2,165 $105,634 Rental expenses, property tax, and insurance 38,300 -- 110 38,410 Depreciation and amortization 18,347 -- -- 18,347 Interest expense -- -- -- 10,394 Net realized gains 273 -- 201 474 Net income -- -- -- 36,985 Assets 778,221 -- 28,434 806,655 Capital expenditures 250,263 -- -- 250,263 December 31, 1993 Revenues $ 56,702 $ -- $ 1,952 $ 58,654 Rental expenses, property tax, and insurance 21,902 -- 181 22,083 Depreciation and amortization 9,246 -- -- 9,246 Interest expense -- -- -- 5,640 Net realized gains 1,032 -- 6,960 7,992 Net income -- -- -- 26,408 Assets 546,118 -- 16,054 562,172 Capital expenditures 307,048 -- -- 307,048 December 31, 1992 Revenues $ 24,354 $3,983 $ 1,256 $ 29,593 Rental expenses, property tax, and insurance 9,573 -- -- 9,573 Depreciation and amortization 4,200 -- -- 4,200 Interest expense -- -- -- 5,788 Net realized gains 460 1,903 385 2,748 Net income -- -- -- 11,445 Assets 217,512 -- 18,183 235,695 Capital expenditures 88,841 -- -- 88,841
Assets not specifically identified with securities have been allocated to real estate. All general and administrative expenses have been allocated to the Company's real estate activities. Interest expense is not specifically identified with real estate or securities investments since the Company funds its business on an overall basis. 2. Summary of Significant Accounting Policies Recognition of Income The Company leases its apartment properties generally for terms of one year or less. Rental income is recognized when paid. 17 Depreciation and Amortization Depreciation of buildings and equipment is computed on the straight-line method for financial reporting purposes using the following estimated useful lives: Apartments . . . . . . . . . . . . . . . . . . . . . . . . 40-50 years Land improvements. . . . . . . . . . . . . . . . . . . . . 50 years Commercial rental buildings . . . . . . . . . . . . . . . 40-50 years Furniture, fixtures, equipment and carpet . . . . . . . . 5-10 years Operating equipment . . . . . . . . . . . . . . . . . . . 3-5 years
Straight line and accelerated methods are used for income tax reporting purposes. Betterments, renewals and extraordinary repairs that extend the lives of assets are capitalized; other repairs and maintenance are expensed. Income Taxes As a real estate investment trust, the Company does not pay income taxes on its distributed income. It does pay income taxes on that income which is not distributed, and it may be subject to excise taxes on income distributed after certain dates. See Note 8 where income taxes are discussed further. Earnings Per Share and Share Information Earnings per share are computed on the basis of the weighted average number of shares outstanding during the year. Earnings per share assuming full dilution are computed based on the assumption that convertible preferred stock was converted at the beginning of the year with an applicable reduction in preferred dividends. 3. Marketable Securities The cost and market value of securities by major classification at December 31 were as follows:
1994 1993 1992 ------------------- -------------------- ----------------- Cost Market Cost Market Cost Market ------- ------- ------- ------- ------- ------- Financial institutions common stock and debentures $ 3,323 $ 7,702 $ 5,825 $11,888 $10,567 $18,658 U.S. Treasury Notes 21,193 20,014 8,293 8,250 -- -- Repurchase Agreements -- -- 1,750 1,750 -- -- ------- ------- ------- ------- ------- ------- $24,516 $27,716 $15,868 $21,888 $10,567 $18,658 ======= ======= ======= ======= ======= =======
In 1994, the Company sold 86,500 shares of First Financial Holdings for a gain of $0.7 million, and sold $6.0 million of Treasury Notes for a loss of $0.7 million. On January 1, 1994, the Company adopted SFAS 115 and reports its marketable securities at market value with unrealized gains and losses as a separate component of shareholder's' equity. Changes in net unrealized gains are recorded as adjustments to this account and not as credits or charges to earnings. 4. Notes Receivable Notes receivable at December 31 were as follows (in thousands):
1994 1993 ---- ------ 9% to 11.5% mortgage notes, amortizing, balloon payments due 1995-1996 $159 $ 195 10% mortgage notes, amortizing, balloon payments due 1995 and 2002 782 863 ---- ------ $941 $1,058 ==== ======
18 At December 31, 1994, maturities of notes receivable were as follows (in thousands): 1995 . . . . . . . . . . . . . . . . . . . . . 755 1996 . . . . . . . . . . . . . . . . . . . . . . 36 1997 . . . . . . . . . . . . . . . . . . . . . . -- 1998 . . . . . . . . . . . . . . . . . . . . . . -- 1999 . . . . . . . . . . . . . . . . . . . . . . -- 2000 and thereafter . . . . . . . . . . . . . . 150 ---- $941 ====
The Company estimates that the fair value of its notes receivable approximates their carrying value. 5. Borrowings and Assets Subject to Lien Borrowings outstanding at December 31 were as follows (in thousands):
1994 1993 -------- -------- Senior notes (a) $120,000 $120,000 Mortgage loan due to a pension fund at fixed rates (b) 7,510 26,848 Mortgage loans due to a financial corporation at variable rates (c) 10,325 10,325 Advances under unsecured lines of credit (d) 57,600 -- Repurchase agreements 17,375 -- -------- -------- $212,810 $157,173 ======== ========
(a) 6.625% unsecured notes, interest payable semi-annually, principal installments of $40 million each due 1999, 2000, and 2001. (b) Secured by Lakeridge Apartments at interest rate of 8.38% with principal amortizing monthly and a balloon payment due in 2000. (c) Secured by Claire Point Apartments at a variable rate of 75% of prime due in annual installments in 1996 through 2000. (d) Drawn on an unsecured $100.0 million line of credit bearing interest at LIBOR + 0.65%, 6.65% at December 31, 1994, due September 30, 1995. Maturities of borrowings at December 31 were as follows (in thousands): 1995 75,043 1996 148 1997 279 1998 286 1999 and thereafter 137,054 -------- $212,810 ========
6. Mineral Leases The Company entered into a clay lease with Boral Bricks, Inc. ("Boral") for a term of 40 years from January 1, 1981 to December 31, 2020. Each year the royalty rate is adjusted for any change in the Producer Price Index for Crude Materials Less Agricultural Products. The royalty rate for 1994 was $.45 per ton mined. The clay lease further provides that if the clay is exhausted before December 31, 2020, and prior to 36 million tons being mined, the Company is obligated to obtain other clay deposits within 20 miles of the Augusta brick plant of Boral and to subject such deposits to the clay lease. From 1981 through 1994, 7,711,200 tons of clay have been mined under the terms of this lease. The Company also leases land in Richmond County, Georgia, to a building materials firm which mines sand and gravel on the tract. 19 7. Income Taxes 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 distributed the required amounts of income for the periods reported. Accordingly, no provision for income taxes is required. The Company's taxable income differs from its income reported in the accompanying financial statements because of the difference in the timing of recognition of certain items of income and expense for tax purposes. A reconciliation of tax and book income follows:
1994 1993 1992 -------- ------- ------- Net income $36,985 $26,408 11,445 Adjustment of securities to market value - 457 (206) Excess of tax over accounting depreciation (5,724) (9,847) (4,098) Other (94) 218 (122) -------- ------- ------- Estimated taxable income $31,167 $17,236 $ 7,019 ======= ======= =======
8. Incentive Stock Option Plan Under the Company's incentive stock option plan, at December 31, 1994, there were 5,000 shares available for grant and there were 57,000 exercisable options outstanding. Options granted under the plan expire ten years from date of grant and may not be exercised at a rate greater than 20% per year. Shares under option which subsequently expire or are canceled are available for subsequent grant. The option price is equal to the market price of the shares on the date of the option grants. Options outstanding for the years ended December 31, 1994, 1993, and 1992, are as follows: Balance, December 31, 1992 (at between $5.00 and $8.25 per share) 55,000 Issued (at between $16.63 and $18.75 per share) 125,000 Exercised (at between $5.00 and $8.25 per share) (25,000) ------- Balance December 31, 1993 155,000 Issued (at between $17.50 and $20.88 per share) 400,000 Exercised (at $8.25 per share) (9,000) ------- Balance December 31, 1994 (at between $8.25 and $20.88 per share) 546,000
During 1993 and 1992, the Company loaned officers and employees approximately $0.1 million and $0.3 million, respectively, to exercise such options. The loans are secured by the shares purchased, carry a 0% interest rate, and are due upon demand. At December 31, 1994, the balance of such loans was $0.4 million. During 1994, 1993 and 1992, the Company loaned officers and employees $7.2 million, $2.0 million and $0.8 million respectively, to purchase shares of the Company's common stock. The terms of these loans are the same as for the loans to exercise options, as discussed above. The Company requires that at least two thirds of dividends paid on these notes, be used to repay the indebtedness. $0.5 million, $0.3 million and $0.1 million was repaid in 1994, 1993 and 1992. At December 31, 1994, the balance of such loans was $9.3 million. 9. Employee Stock Ownership Plan The Company maintains an Employee Stock Ownership Plan. Under the plan, the Company makes annual contributions to a trust for the benefit of eligible employees in the form of either cash or common shares of the Company. The amount of the annual contribution is discretionary. The Company contributed $0.5 million, $0.3 million and $0.2 million in 1994, 1993 and 1992. The note bears an interest rate equal to the thirty-day LIBOR rate and is due November 30, 2000. In 1993, the Company advanced the ESOP $1.4 million to buy 75,000 20 shares of common stock on the open market. At December 31, 1994, the balance of this note was $0.7 million. 10. Preferred Stock On November 1, 1994, the Company sold 4.0 million shares of Series B Cumulative Convertible Preferred Stock for net proceeds of $96.7 million. The Series B Preferred Stock was sold in a private placement to a small group of institutional investors. It has an annual dividend rate of $2.205 per year, payable quarterly, and is convertible into common shares at a conversion price of $21.04 per common share (equivalent to a conversion rate of 1.188 shares of common stock for each share of preferred). The Series B Preferred Stock may not be redeemed for cash at any time, but may be redeemed by the Company for common stock after October 31, 1999, provided the Company's common shares are trading above the conversion price of $21.04 per share. The shares were not registered under the Securities Act of 1933, but the Company has agreed to register them after April 2, 1995. In 1993, the Company sold to the public 4.6 million shares of Series A Cumulative Convertible Preferred Stock. The Series A Preferred shares have a liquidation preference of $25.00 per share and an annual dividend rate of $1.75 per year, payable quarterly. The shares are convertible into common shares at any time at the option of the holders at a conversion price of $18.65 per common share (equivalent to a conversion rate of 1.34 shares of common stock for each share of preferred stock). On or after June 30, 1998, the preferred shares will be redeemable for common shares, at the option of the Company at a conversion rate of 1.34 shares of common stock for each share of preferred stock. At December 31, 1994, 2,083,676 shares of Series A Preferred Stock had been converted into 2,792,118 shares of common stock. 11. Dividends In 1994, the Company paid dividends as follows:
Common Preferred A Preferred B ------ ----------- ----------- March 31 $ .30 $ .4375 $ -- June 30 .30 .4375 -- September 30 .30 .4375 -- December 31 .35 .4375 .37 ----- ------- ---- Total $1.25 $1.7500 $.37
Of the total dividends paid in 1994, 99.1% related to ordinary income and 0.9% related to capital gains. On January 16, 1995 the Company declared a $.35 per common share, $.4375 preferred A share, and $.55125 Preferred B share dividend payable on March 31, 1995. The Company has established a dividend reinvestment plan whereby any shareholder may elect to use all or a portion of cash dividends paid to acquire additional shares of the Company's common stock at a price equal to 95% of the higher of: (a) the high and low sales prices of the Company's common stock on the dividend payment date, or (b) the average of the daily high and low sales prices for the ten trading days prior to the dividend payment date. During 1994, 194,227 shares were issued at a total value of $3.9 million. In December 1993 the Company established a Stock Purchase Plan which provides holders of the Company's common stock and preferred stock with a method of purchasing additional common stock of the Company through optional cash payments without fees and at a 5% discount. Optional cash payments are subject to the limitation that the number of shares of common stock which can be purchased cannot exceed the number of shares of common and preferred stock owned by the shareholder. During 1994, 127,824 shares were issued for a total value of $2.5 million 21 12. Environmental Matters Portions of the Company's land holdings in Richmond County, Georgia were used by the County for two municipal landfills during the late 1960's and early 1970's. One site is comprised of 71 acres and the other, the "New Savannah Road Landfill", 96 acres. Both landfills were closed in the mid-1970's and have been held by the Company and its predecessors as unimproved land since that time. Although the sites were used primarily as municipal landfills, there have been some reports that some industrial wastes may have been disposed of at the sites. In 1992, a contractor for the U.S. Environmental Protection Agency sampled air, surface water, soil and groundwater on the New Savannah Road Landfill in order to determine whether there was any contamination on the site and whether the site should be placed on the federal National Priorities List (the "NPL") for potential clean up. In October 1992, the EPA issued its report which indicated that some comtamination was present in soil samples but that sufficient groundwater samples had not been taken to permit a complete evaluation of the site. Accordingly, the report recommended that further action be taken which the Company believes would consist principally of additional testing of the site's groundwater and surface water. The Company has had no further contact with the EPA or its agents since that time and the site has not been included on the National Priorities List. Following the EPA's 1992 study, Merry Land retained an environmental consultant to conduct similar studies of both sites. The consultant reported that its study of the sites did not reveal the presence on either site of contaminants in amounts likely to result in the EPA listing either site on the NPL. After receiving the EPA's report, the Company's consultant also reviewed the EPA contractor's test results and confirmed its prior conclusion that the level of contamination discovered on the New Savannah Road Landfill is not likely to result in the EPA listing this site on the NPL. However, the studies were limited in nature and did not reporsent an examination of all portions of the landfill sites. There can be no assurance that a more complete investigation or further testing would not reveal higher levels or differenc types of contamination at the sites. On July 1, 1994, the Environmental Protection Division of the State of Georgia published its initial hazardous site inventory under the state's 1992 "Superfund" law, which requires investigation, and if appropriate, clean up of listed sites. The New Savannah Road landfill was included on this list in a category of sites identified as having released hazardous substances above reportable levels. The Company and its environmental consultants have evaluated the action by the State and have initiated discussions with the State of Georgia to determine whether it is appropriate for the New Savannah Road Landfill site to be included on this list. Should further investigation or remedial action be required for the landfill sites, the Company believes that there will likely be other entities which will be responsible for a portion of the cost of the investigation or remediation. These entities include Richmond County, which operated the landfills, any identified company or municipality whose waste was placed in the landfills, and the company that owned the sites at the time of the disposal of the waste. In the third quarter of 1994, the Company recognized a non-recurring charge against income of $0.2 million associated with this matter. This is the amount which the Company's believes to be the potential cost of its share of any expenses which may be incurred if further investigation of the New Savannah Road Landfill is required as a result of the action by the State of Georgia. There can be no assurances that the Company will not have material liability with respect to these landfill sites. 22 MERRY LAND & INVESTMENT COMPANY, INC. PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 (Unaudited) (In thousands, except per share data)
1994 Apartment Acquisitions --------------------------- Combined Results of Interest and Acquired Dividend As Reported Properties Adjustments Adjustment Pro Forma ----------- ---------- ----------- ---------- --------- increase (decrease) Income from property operations: Rental and mineral royalty revenue......... $103,169 $27,224 (a) $ $ $130,393 Rental expenses, property tax and insurance 38,409 11,849 (b) 82 (c) 50,340 Depreciation of real estate owned.......... 17,877 5,425 (d) 23,302 -------- ------- ------- ------- -------- Operating income from properties 46,883 15,375 (5,507) 0 56,751 Other income: Other interest and dividend income......... 2,440 (568) 1,872 Other...................................... 25 25 -------- ------- ------- ------- -------- 2,465 0 0 (568) 1,897 Expenses: Interest................................... 10,394 (1,312)(f) 9,082 General and administrative................. 1,773 34 (e) 1,807 Depreciation-other, amortization and other 470 470 Other non-recurring costs.................. 200 200 -------- ------- ------- ------- -------- 12,837 0 34 (1,312) 11,559 Income before gains........................... 36,511 15,375 (5,541) 744 47,089 Gains on sales of assets: Gains on sales of investments.............. 201 201 Gains on sales of real estate.............. 273 273 -------- ------- ------- ------- -------- 474 0 0 0 474 -------- ------- ------- ------- -------- Net income.................................... 36,985 $15,375 ($5,541) $ 744 $ 47,563 ======= ======= ======= Preferred dividend requirement................ 7,934 21,694 (g) -------- -------- Net income available for common shares........ $ 29,051 $ 25,869 ======== ======== Net income per common share (fully diluted)... $1.10 $ 0.84 Weighted Average common shares outstanding.... 26,430 30,744 Weighted average fully diluted common shares.. 32,562 43,212
See notes and assumptions to unaudited pro forma statement of income. 23 MERRY LAND & INVESTMENT COMPANY, INC. Notes and Assumptions to Unaudited Pro Forma Income Statement (a) Represents adjustments to reflect a full period of rental income from the properties acquired during 1994. (b) Represents adjustments to reflect a full period of operating expenses on properties acquired during 1994. (c) Represents adjustments to reflect additional management costs on properties acquired during 1994. (d) Represents adjustments to reflect a full period of depreciation on properties acquired during 1994. (e) Represents adjustments to reflect the additional general and administrative expenses required by an increase in personnel and associated costs related to properties acquired during 1994. (f) Represents adjustment to interest expense and other interest and dividend income resulting from property acquisitions, payoff of other debt and the use of common and preferred stock offering proceeds. (g) Represents the dividend requirement on the preferred stock outstanding. The assumed rate on the Series C preferred stock is 8.47% NOTE: No pro forma balance sheet has been prepared. Giving effect to the proceeds of the Series C preferred stock and use of such proceeds to repay the unsecured line of credit and the repurchase agreement debt results in the following pro forma balances: Properties, at cost $815,306 Total assets $827,430 Total debt $137,835 Shareholders' equity $680,601
EX-23 2 CONSENT OF ARTHUR ANDERSEN 1 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K into the Company's previously filed Registration Statement File No. 33-57453. /s/ ARTHUR ANDERSEN LLP -------------------------------------- ARTHUR ANDERSEN LLP Atlanta, Georgia February 14, 1995 -----END PRIVACY-ENHANCED MESSAGE-----