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
MARCH 31, 1999
Commission file number: 000-29778
MERRY LAND PROPERTIES, INC.
State of Incorporation: Georgia I.R.S. Employer Identification Number:
58-2412761
___________
P.O. Box 1417
Augusta, Georgia
(Address of Principal Executive Offices)
706 722-6756 30903
(Registrant's Telephone (Zip Code)
Number, Including Area Code)
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 April 30, 1999 was
2,595,300.
<PAGE>
FORM 10-Q - MERRY LAND PROPERTIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets - March 31, 1999 and December 31, 1998
Statements of income - Three months ended March 31, 1999 and 1998
Statements of cash flows - Three months ended March 31, 1999 and 1998
Notes to condensed financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
March 31, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Real estate assets, at cost:
Land held for mining, development, and sale $ 5,784,497 $ 7,255,130
Apartments 40,825,584 40,765,214
Commercial rental property 2,622,024 2,622,024
Furniture and equipment 1,845,532 1,836,144
Development in progress 1,516,612 -
------------ ------------
Total cost 52,594,249 52,478,512
Accumulated depreciation and depletion (11,855,274) (11,496,904)
------------ ------------
40,738,975 40,981,608
CASH AND CASH EQUIVALENTS 4,974,554 3,995,365
OTHER ASSETS
Notes receivable 1,290,258 1,342,246
Other receivable 1,352,793 1,434,512
Deferred tax asset 6,747,470 6,909,857
Other 166,144 79,620
----------- -----------
9,556,665 9,766,235
----------- -----------
TOTAL ASSETS $55,270,194 $54,743,208
=========== ===========
NOTES PAYABLE
Senior debt $18,317,429 $18,317,429
Subordinated debt 20,000,000 20,000,000
----------- -----------
38,317,429 38,317,429
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 400,000 444,553
Accrued income taxes 111,529 123,846
Accrued property taxes 215,066 309,936
Accrued dividends payable 100,000 81,111
Deferred revenue 902,559 771,627
Other 529,188 477,967
--------- ---------
2,258,342 2,209,040
PREFERRED STOCK 5,000,000 5,000,000
STOCKHOLDERS' EQUITY
Common stock, at $1 stated value 2,595,300 2,597,633
Capital surplus 9,113,514 9,121,985
Unamortized compensation (1,810,245) (1,854,291)
Cumulative undistributed net earnings (deficit) (204,146) (648,588)
----------- -----------
9,694,423 9,216,739
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $55,270,194 $54,743,208
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------------
1999 1998
---------- ---------
(Accounting
Predecessor)
<S> <C> <C>
INCOME
Rental income $2,008,304 $1,984,732
Royalty income 412,783 390,889
Interest income 68,564 28,362
Management fees 200,762 -
Development fees 585,750 -
Long term loss (29,512) -
---------- ----------
3,246,651 2,403,983
EXPENSES
Rental expense 764,693 755,948
Interest expense 841,029 -
Depreciation 358,368 390,620
General and administrative expense 518,401 30,120
----------- ----------
2,482,491 1,176,688
----------- ----------
INCOME BEFORE TAXES 764,160 1,227,295
Income tax 319,718 -
----------- ----------
NET INCOME $ 444,442 $1,227,295
=========== ==========
WEIGHTED AVERAGE COMMON SHARES
Basic 2,181,070 1,996,750
Diluted 2,245,683 2,001,750
EARNINGS PER COMMON SHARE
Basic $ .20 $ .61
Diluted $ .20 $ .61
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Form 10-Q - Part I.
Financial Information
Item 1- Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------------
1999 1998
------- --------
<S> <C> <C>
(Accounting
CASH FLOWS FROM OPERATING ACTIVITIES: Predecessor)
Net income $ 444,442 $ 1,227,295
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation expense 358,368 390,620
Deferred tax expense 162,387 -
Decrease in property taxes payable (94,870) (69,892)
Decrease in income taxes payable (12,317) -
Increase in deferred revenue 130,932 110,232
Decrease in accrued interest (44,553) -
Other 32,379 (6,277)
--------- -----------
Net cash provided by operating activities 976,768 1,651,978
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 51,988 15,177
Investment in real estate assets (115,737) (365,506)
Other 66,170 -
--------- -----------
Net cash used in investing activities 2,421 (350,329)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Merry Land & Investment Co., Inc. - 365,506
Distributions to Merry Land & Investment Co., Inc. - (1,667,155)
---------- -----------
Net cash used in financing activities - (1,301,649)
NET INCREASE IN CASH 979,189 -
CASH AT BEGINNING OF PERIOD 3,995,365 -
----------- -----------
CASH AT END OF PERIOD $ 4,974,554 $ -
=========== ===========
Interest paid $ 785,582 $ -
Income taxes paid $ 169,648 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MERRY LAND PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Merry Land Properties, Inc. was formed on September 3, 1998, as a
corporate subsidiary of Merry Land & Investment Company, Inc. in connection
with a transaction in which Merry Land & Investment Company was merged into
Equity Residential Properties Trust on October 19, 1998. On October 15,
1998, the common stock of Merry Land Properties was spun off to the common
shareholders of Merry Land & Investment Company on the basis of one share
of Merry Land Properties stock for every twenty shares of Merry Land &
Investment Company.
2. BASIS OF PRESENTATION
The financial statements for periods prior to the spin off include
only those assets and liabilities contributed by Merry Land & Investment
Company. These financial statements have been prepared using Merry Land &
Investment Company's historical basis of the assets and liabilities and the
historical results of operations and have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission
applicable for subsidiaries which have been spun off. These rules stipulate
that statements shall be prepared as if the entity had existed prior to the
existence of the new company. Such statements are not those of a real
entity, but describe a hypothetical "accounting predecessor" to Merry Land
Properties.
Management has estimated common and corporate level expenses which
would have been incurred on behalf of the accounting predecessor by Merry
Land & Investment Company and has allocated such expenses based on its best
estimate of the time and effort that would have been expended. Property
management costs have been estimated and allocated on a per unit basis. The
assets contributed to Merry Land Properties by Merry Land & Investment
Company were not encumbered by mortgage debt at any time prior to the spin
off and the financial statements for the accounting predecessor for periods
prior to the spin off do not include any debt or related interest expense.
Merry Land & Investment Company was qualified to be taxed as a real
estate investment trust and was not subject to federal income taxation on
distributed income. Accordingly, no provision for income tax is included in
the accompanying financial statements for periods prior to the spin off.
Amounts shown for periods and dates prior to the spin off assume lower
levels of general and administrative expenses than have actually been
incurred after the spin off and exclude any debt, interest expense or
income taxes. Accordingly, comparisons of periods subsequent to the spin
off with periods prior to the spin off may be difficult and misleading.
The consolidated financial statements for the three month periods
ended March 31, 1999 and March 31, 1998, 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.
3. EARNINGS PER SHARE AND SHARE INFORMATION
Basic earnings per common share is computed on the basis of the
weighted average number of shares outstanding during each period excluding
the unvested shares issued to employees under the Company's Management
Incentive Plan. Diluted earnings per share is computed giving effect to
dilutive stock equivalents resulting from outstanding options and
restricted stock using the treasury stock method.
For periods prior to the spin off, earnings per share have been
computed giving effect to the distribution ratio of one share of
Merry Land Properties for every twenty common shares of Merry Land &
Investment Company. Accordingly, weighted average common shares outstanding
for the accounting predecessor have been assumed to be 1/20 of the
shares outstanding of Merry Land & Investment Company for the periods prior
to the spin off. For the periods prior to the spin off, dilutive
earnings per share are calculated giving effect to dilutive options of
Merry Land & Investment Company using the same ratio.
A reconciliation of the average outstanding shares used in the two
calculations is as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Weighted average shares outstanding-basic 2,181,070 1,996,750
Dilutive potential common shares 64,613 5,000
--------- ---------
Weighted average shares outstanding-diluted 2,245,683 2,001,750
</TABLE>
4. NOTES RECEIVABLE
At March 31, 1999 and December 31, 1998, notes receivable consisted of
the following:
<TABLE>
<CAPTION>
Note Balances at
Original March 31, December 31,
Note Rate Due Amount 1999 1998
---- ------ ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Augusta Partners 10.00% 10/99 $ 695,000 $ 0 $ 573,566
Brothersville 6.00% 11/12 675,000 599,044 636,512
Brothersville 10.00% 9/02 327,600 58,464 74,717
New Zion 7.00% 11/12 60,000 56,835 57,451
ESOP LIBOR + 2.5% 3/04 575,915 575,915 -
---------- ---------- ----------
$2,333,515 $1,290,258 $1,342,246
</TABLE>
During February, the Company received $542,734 from Augusta Partners in
total satisfaction of its note receivable, generating a loss of $29,512.
During the first quarter of 1999, the Company loaned $575,915 to the Merry
Land Employee Stock Ownership Plan. The loan bears interest at LIBOR plus
250 basis points and matures on March 31, 2004. The loan is secured by
127,771 shares of the Company's common stock which were purchased by the
ESOP.
5. DEBT
At March 31, 1999, debt consisted of the following:
<TABLE>
<CAPTION>
Debt Maturity date Interest rate Balance
- ---- ------------- ------------- -------
<S> <C> <C> <C>
Senior debt (a) October 15, 1999 (a) $18,317,429
Subordinated debt (b) October 15, 2013 (b) 20,000,000
-----------
Total $38,317,429
</TABLE>
(a) Senior debt. Borrowings of up to $25,000,000 are available under
the senior debt agreement, therefore, an additional $6,682,571 is available
for future draws. The Senior debt bears interest, payable quarterly, at the
Company's option at either LIBOR plus 250 basis points or prime plus 200
basis points. At March 31, 1999, the interest rate was 7.4%.
(b) Subordinated debt. The Subordinated debt has a fifteen-year term,
maturing on October 15, 2013. Interest is payable quarterly and accrues at
the following rates:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Until Oct. 15, 2003 8.00% Oct. 16, 2008-Oct. 15, 2009 9.75%
Oct. 16, 2003-Oct. 15, 2004 8.25% Oct. 16, 2009-Oct. 15, 2010 10.50%
Oct. 16, 2004-Oct. 15, 2005 8.50% Oct. 16, 2010-Oct. 15, 2011 11.50%
Oct. 16, 2005-Oct. 15, 2006 8.75% Oct. 16, 2011-Oct. 15, 2012 12.75%
Oct. 16, 2006-Oct. 15, 2007 9.00% Oct. 16, 2012-Oct. 15, 2013 14.25%
Oct. 16, 2007-Oct. 15, 2008 9.25%
</TABLE>
The senior debt and subordinated debt agreements contain covenants
restricting the amount of debt which can be incurred by the Company.
6. INCOME TAXES
The Company is a taxable "C" corporation. It is assumed that the
accounting predecessor distributed sufficient taxable income to
shareholders in the form of dividends to qualify as a REIT, and so no
income taxes were provided for in periods prior to the spin off.
The components of the income tax provision for the first
quarter of 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current federal tax $132,463
Current state tax 24,868
Deferred federal tax 136,720
Deferred state tax 25,667
--------
$319,718
</TABLE>
The reconciliation of income tax computed at the U.S. federal
statutory rate to income tax expense for the first quarter of 1999 is as
follows:
<TABLE>
<CAPTION>
% of pretax
$ Amount Income
--------- -----------
<S> <C> <C>
Income tax expense at statutory rate $ 259,814 34.0%
Increases (reductions) in taxes resulting from:
State and local income taxes, net of federal income tax benefit 32,848 4.3%
Dividends not deductible 35,000 4.5%
Other (7,944) (1.0)%
-------- -----------
$319,718 41.8%
</TABLE>
7. SEGMENT INFORMATION
The Company has four reportable segments: Apartment Communities,
Commercial Properties, Land and Third Party Services. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
<TABLE>
<CAPTION>
Third Party
March 31, 1999 Apartments Commercial Land Services Corporate Consolidated
- -------------- ---------- ---------- ---- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Real estate rental revenue $ 1,946,986 $ 38,028 $ 23,290 $ - $ - $ 2,008,304
Real estate expense 686,677 51,774 26,242 - - 764,693
Depreciation and amortization 276,450 9,052 - 72,866 358,368
--------- --------- ---------- --------- ---------- -----------
Income from real estate 983,859 (22,798) (2,952) - (72,866) 885,243
Other income - - 412,783 786,512 39,052 1,238,347
--------- --------- ---------- --------- ---------- -----------
Segment income 983,859 (22,798) 409,831 786,512 (33,814) 2,123,590
Interest expense - - - - (841,029) (841,029)
General and administrative - - - (120,892) (397,509) (518,401)
--------- --------- ---------- ---------- ---------- -----------
Income before taxes 983,859 (22,798) 409,831 665,620 (1,272,352) 764,160
========= ========= ========== ========== ========== ===========
Income tax - - - - (319,718) (319,718)
Net income $ 983,859 $ (22,798) $ 409,831 $665,620$ (1,592,070) $ 444,442
========= ========== ========== ========== =========== ===========
Capital investments $ 60,370 $ - $ 45,979 $ - $ 9,388 $ 115,737
Total real estate assets $30,448,228 $2,310,437 $7,271,584 $ - $ 708,726 $40,738,975
Accounting Predecessor
Third Party
March 31, 1998 Apartments Commercial Land Services Corporate Consolidated
- -------------- ---------- ---------- ---- ----------- --------- ------------
Real estate rental revenue $ 1,862,297 $ 103,095 $ 19,340 $ - $ - $ 1,984,732
Real estate expense 663,537 67,664 24,747 - - 755,948
Depreciation and amortization 297,005 93,615 - - - 390,620
----------- ---------- ---------- ----------- --------- ------------
Income from real estate 901,755 (58,184) (5,407) - - 838,164
Other income - - 390,889 - 28,362 419,251
----------- ---------- ---------- ----------- --------- ------------
Segment income 901,755 (58,814) 385,482 - 28,362 1,257,415
Interest expense - - - - - -
Insurance expense - - - - - -
General and administrative - - - (30,120) (30,120)
----------- ---------- ---------- ----------- --------- ------------
Income before taxes 901,755 (58,814) 385,482 - (1,758) 1,227,295
=========== ========== ========== =========== ========= ============
Income tax - - - - - -
Net income $ 901,755 $ (58,184) $ 385,482 $ - $(1,758) $ 1,227,295
=========== ========== ========== =========== ========= ============
Capital investments $ 90,006 $ 154,475 $ 74,962 $ - $ 46,063 $ 365,506
Total real estate assets $31,240,878 $4,011,815 $6,466,323 $ - $852,169 $42,571,185
</TABLE>
<PAGE>
PART I
Item 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations
Merry Land Properties, Inc. was formed on September 3, 1998, as a
corporate subsidiary of Merry Land & Investment Company, Inc. in connection
with a transaction in which Merry Land & Investment Company was merged into
Equity Residential Properties Trust on October 19, 1998.
Merry Land has operated only since October 15, 1998. Accordingly,
only the Consolidated Balance Sheets for December 31, 1998 and March 31,
1999 and the Consolidated Statement of Income for the period ended March
31, 1999 are financial statements prepared for a real company. The
Statement of Income for the period ended March 31, 1998 is for an
"accounting predecessor" which has been constructed in accordance with the
rules of the Securities and Exchange Commission as described in the Notes
to the Financial Statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
RENTAL OPERATIONS-APARTMENTS. The Company owns five apartment
communities described in the following table:
<TABLE>
<CAPTION>
Three Months ended March 31,
--------------------------------------------------------
Average Average
Occupancy (1) Rental Rate (2)
---------------------- --------------------
Community Units 1999 1998 1999 1998
- --------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Quarterdeck 230 99.4% 100.0% $643 $619
Waters Edge 200 97.7 95.7 585 567
--- ---- ----- ---- ----
Total Charleston 430 98.6 98.0 616 595
Greentree 194 97.1 92.1 602 593
Marsh Cove 188 95.2 96.6 680 660
West Wind 192 96.0 97.2 708 687
--- ---- ----- ---- ----
Total Savannah 574 96.1 95.3 663 646
Total 1,004 97.2% 96.4% $643 $624
</TABLE>
(1) Represents the average physical occupancy at each month end for
the period held.
(2) Represents weighted average monthly rent charged
for occupied units and rents asked for unoccupied
units at March 31.
The operating performance of the Company's apartment
communities is summarized in the following table (dollars in
thousands, except average monthly rent):
<TABLE>
<CAPTION>
Three Months ended March 31,
% Change from -----------------------------
Change 1998 to 1999 1999 1998
------ ------------ ---- ----
<S> <C> <C> <C> <C>
Rental income 4.5% $84.7 $1,947.0 $1,862.3
Personnel (1.0) (2.5) 247.2 249.7
Utilities (1.2) (0.8) 66.4 67.2
Operating (8.4) (5.5) 59.7 65.2
Maintenance and grounds 3.1 3.8 125.3 121.5
Taxes and insurance 17.6 28.1 188.1 160.0
Depreciation and amortization (6.9) (20.5) 276.5 297.0
----- ------ -------- --------
Subtotal 0.3 2.6 963.2 960.6
Operating income 9.1% $82.1 $ 983.8 $ 901.7
Average occupancy (1) 0.8% 97.2% 96.4%
Average monthly rent (2) 3.0% $ 19 $ 643 $ 624
Expense ratio (3) (0.3)% 35.3% 35.6%
</TABLE>
(1) Represents the average physical occupancy at each month end for the period
held.
(2) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at March 31.
(3) Represents total operating expenses (excluding depreciation and
amortization) divided by rental revenues.
For the three month period ended March 31, 1999, rental income rose by
$84.7 thousand, or 4.5%, for the five apartment communities because of 3.0%
higher rents and 0.8% higher occupancy over the same period in 1998. In
the aggregate, the Charleston and Savannah rental markets were strong in
the first quarter of 1999 and 1998 as demand for apartments exceeded
additions to supply. The Company's apartments experienced 97.2% occupancy
in the first quarter of 1999 versus 96.4% in the first quarter of 1998.
Average rent increased 3.0%, from $624 on March 31, 1998 to $643 on March
31, 1999. Charleston rents increased to $616, or 3.5% and Savannah rents
increased to $663, or 2.6%, during this period. The Company believes that
physical occupancy should remain satisfactory despite substantial delivery
of new units if general economic activity, job growth and household
formation along the southeastern coast remain strong.
Total expenses were up $2.6 thousand, or 0.3%, for the three months
ended March 31, 1999, from the same period in 1998. This increase was
primarily due to an increase in taxes and insurance and higher maintenance
expenses. Taxes and insurance increased $28.1 thousand, or 17.6%, because
of projected increases in millage rates and higher insurance premiums.
Maintenance and grounds expenses increased by $3.8 thousand, or 3.1% due to
increased landscaping costs. These increases were somewhat offset by
decreases in operating expenses and depreciation and amortization.
Operating expenses decreased by $5.5 thousand, or 8.4% due to lower
advertising and promotional costs and savings in long distance phone
service.
RENTAL OPERATIONS-COMMERCIAL. The Company owns six commercial
properties in the Augusta area containing a total of 169,915 square feet
and including the office building where the Company's headquarters are
located. Three buildings containing approximately 75,000 square feet are
located in the depressed downtown Augusta rental market and are in varying
stages of physical obsolescence. Consequently, occupancy for all six
commercial properties was 52.0% at March 31, 1999. The performance of the
six commercial properties is summarized in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months
% Change from -------------------------
Change 1998 To 1999 1999 1998
------ ------------ ---- ----
<S> <C> <C> <C> <C>
Rental income (63.1)% $(65.1) $ 38.0 $ 103.1
Utilities (18.8) (4.4) 19.0 23.4
Operating (36.2) (1.7) 3.0 4.7
Maintenance and grounds (41.7) (10.8) 15.1 25.9
Taxes and insurance 7.3 1.0 14.7 13.7
Depreciation and amortization (12.5) (11.7) 81.9 93.6
------ ------ ------- -------
Subtotal (17.1) (27.6) 133.7 161.3
Operating income (64.4)% $(37.5) $ (95.7) $ (58.2)
</TABLE>
In the three months ended March 31, 1999, rental income
decreased by $65.1 thousand, or 63.1%, for commercial
properties because of decreased occupancy. Total expenses were
down $27.6 thousand, or 17.1%, in the first quarter of 1999
from the same period in 1998 primarily due to lower occupancy.
LAND. The Company owns approximately 4,800 acres of
unimproved land, of which 3,144 acres are subject to clay and
sand mining leases and 180 acres are zoned for apartment or
commercial uses. The operating performance of the land is
summarized in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
% Change from ------------------------
Change 1998 to 1999 1999 1998
------ ------------ ---- ----
<S> <C> <C> <C> <C>
Clay royalties 5.9% $21.9 $394.0 $372.1
Sand royalties 0.0 - 18.8 18.8
Rental income 20.7 4.0 23.3 19.3
----- ----- ------ ------
Subtotal 6.3 25.9 436.1 410.2
Operating expenses (45.0) (5.4) 6.6 12.0
Taxes and insurance 55.1 7.0 19.7 12.7
----- ----- ------ ------
Subtotal 6.5 1.6 26.3 24.7
Operating income 6.3% $24.3 $409.8 $385.5
</TABLE>
Clay royalties increased $21.9 thousand, or 5.9%, for the
three month period in 1999 compared to the same period in 1998
due primarily to an increase in royalties per ton. Because
royalty payments under one of the royalty agreements end in
April 1999, royalties in future periods are expected to be
significantly lower.
MORTGAGE INTEREST INCOME. Interest income from mortgage notes
receivable totaled $17.1 thousand in the three month period ended March 31,
1999, down from $28.4 thousand in the same period of 1998. The decrease
was due to the repayment of a mortgage note receivable in February, 1999.
PROPERTY MANAGEMENT AND DEVELOPMENT FEES. In the three
months ended March 31, 1999 management fee income was $200.8
thousand and development fee income was $585.8 thousand. These
fees were earned under agreements with Equity Residential
whereby the Company provides either property management or
development consulting services for twelve apartment
communities. At March 31, 1999, approximately $1.5 million
remains to be earned under the development agreement. The
Company has no expectations of a continuing relationship with
Equity Residential that would produce further fees. The
Company intends to seek other third party property management
and development consulting business, but there can be no
assurance that fees approaching current levels will be
achieved.
OTHER INCOME. The Company recorded no income other than that described
above. In future periods, the Company may engage in various activities
which may produce other income, including the purchase and sale of real
estate, land subdivision and lot sales, conversion of apartments to
condominiums, the sale or lease of various interests in real property and
other real estate activities.
INTEREST EXPENSE. The assets contributed to the Company by
Merry Land & Investment Company were not encumbered by mortgage
debt at any time during 1998 prior to the spin off. Therefore,
the financial statements for the accounting predecessor to
Merry Land Properties for periods prior to the spin off assume
that there was no debt or related interest expense. In October
1998 and in connection with the spin off, the Company received
its assets subject to $18.3 million of senior debt, $20.0
million of subordinated debt, and $5.0 million of preferred
stock. Interest expense related to these obligations totaled
$841.0 thousand for the three months ended March 31, 1999 and
included $100.0 thousand of dividends accrued on the Company's
preferred stock. During this period, the average rate on the
senior debt was 7.4% and the rate on the subordinated debt and
preferred stock was 8.0%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses totaled $518.4 thousand for the three months ended March 31, 1999.
For periods prior to October 15, 1998, management has estimated common and
corporate level expenses which might have been incurred on behalf of the
accounting predecessor to Merry Land Properties by Merry Land & Investment
Company in accordance with the rules and regulations of the Securities and
Exchange Commission applicable for subsidiaries which have been spun off.
Management has allocated such expenses based on its best estimate under
these guidelines of time and effort that would have been expended for the
benefit of the accounting predecessor.
INCOME BEFORE TAXES. Income before taxes decreased to
$0.76 million for the three months ended March 31, 1999 from
$1.2 million for the same period in 1998. As discussed in Note
1 to the financial statements, general and administrative
expenses estimated in the statements were considerably less
prior to the spin off than after the spin off and there was no
interest expense assumed prior to the spin off. This resulting
decrease in income before taxes for the first quarter of 1999
primarily related to the higher general and administrative
expense of $488.3 thousand and higher interest expense of
$841.0 thousand. These increases in expenses were somewhat
offset by increases in mineral royalties and fee income from
third party property management and development consulting.
INCOME TAXES. As a REIT, the accounting predecessor to
Merry Land Properties would not have been subject to income
taxes. A net income tax expense in the first quarter of 1999
totaled $319.7 thousand, and consisted of $157.3 thousand in
current income tax expense and $162.4 thousand in deferred
income tax expense.
FUNDS FROM OPERATIONS. For the three month period ended
March 31, 1999, funds from operations were $809.2 thousand.
The following is a reconciliation of net income to funds from
operations. (data in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net income available for common $444.4
Add depreciation of real estate owned 285.5
Add long term capital loss 29.5
Add permanent deferred tax benefit 49.8
------
Funds from operations available to common shares $809.2
======
Weighted average common shares outstanding--
Basic 2,181.1
Diluted 2,245.7
</TABLE>
The Company believes that funds from operations are an important
measure of its operating performance. Funds from operations do 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. 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 and the tax benefit related to the step-up in basis of the
Company's assets for tax purposes.
FINANCIAL STRUCTURE. At March 31, 1999, total debt
equaled 73% of total capitalization at cost and 65% of total
capitalization with equity valued at market (2,595,300 shares
outstanding at the March 31, 1999 closing price of $5.875 per
share). At that date, the Company's financial structure was as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Equity at
% of Market % of
BOOK Total Value Total
---- ----- --------- -----
<S> <C> <C> <C> <C>
Senior debt $18,317.4 35% $18,317.4 31%
Subordinated debt 20,000.0 38 20,000.0 34%
--------- --- --------- ---
Total debt 38,317.4 73 $38,317.4 65
Preferred stock 5,000.0 9 5,000.0 9
Common stock 9,694.4 18 15,247.4 26
--------- --- --------- ---
Total capitalization $53,011.8 100% $58,564.8 100%
========= === ========= ===
</TABLE>
The senior debt, subordinated debt, and preferred
stock were issued in connection with the merger and
spin off. The Company intends to refinance these
obligations with mortgage debt in future periods if
market conditions allow it to do so on favorable
terms. The Company may also purchase additional
apartment properties in future periods and finance
these acquisitions with mortgage debt at levels up to
75% or 80% of their fair market value if prevailing
underwriting standards allow, and if the Company's
analysis indicates that the use of such leverage
is prudent. Before the spin off none of Merry Land
& Investment Company's debt or preferred stock were
attributed to the predecessor.
YEAR 2000 DISCLOSURE. The Company has evaluated
the impact of the "Year 2000" issue on its business,
results of operations, and financial condition and
has determined that the cost of any software and
hardware upgrades is not expected to be material.
The cost to analyze and prepare for the Year 2000
issue has not been material and the Company does not
anticipate the need for a contingency plan. While
there can be no assurances, the Company does not
currently expect the Year 2000 issue will have a
material impact on the Company's business,
operations, or financial condition.
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 rent rates
in times of rising prices. The Company believes that this would
offset the effect of cost increases stemming from inflation.
FORWARD LOOKING STATEMENTS. This filing includes
statements that are "forward looking statements"
within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 regarding expectations with
respect to market conditions, development projects,
acquisitions, occupancy rates, capital requirements,
sources of funds, expense levels, operating
performance, and other matters. 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, performance of consultants
or other third parties, environmental concerns, and
interest rates, any of which may cause actual results
to differ from the Company's current expectations.
<PAGE>
PART I
Item 3--Quantitative and Qualitative Disclosures
about Market Risk.
There have been no significant changes to the
Company's reported market risk since December 31,
1998.
<PAGE>
Merry Land Properties, Inc.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. EXHIBITS:
--------
(3.i) Articles of Incorporation, as amended by Articles of
Amendment to Articles of Incorporation re Series A
Redeemable Cumulative Preferred Stock (incorporated herein
by reference to Exhibit 3(i) to the Company's Annual Report
on Form 10-K filed March 31, 1999, file number 000-29778).
(3.ii) By-laws, as amended on January 28, 1999, (incorporated
herein by reference to Exhibit 3(ii) of Item 14 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
(10) Material Contracts.
(10.1) Directors Stock Compensation Plan (incorporated herein by
reference as Exhibit 4.3 to the Company's Registration
Statement on Form S-8 filed April 19, 1999, registration
number 333-76521).
(27) Financial Data Schedules
b. Reports on Form 8-K. The registrant filed no reports on Form 8-K
during the first quarter of 1999.
<PAGE>
Form 10-Q - Merry Land Properties, 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 PROPERTIES, INC.
/s/ DORRIE E. GREEN
-------------------
Dorrie E. Green
Vice President and
Chief Financial Officer
May 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,974,554
<SECURITIES> 0
<RECEIVABLES> 2,643,051
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,974,554
<PP&E> 52,594,249
<DEPRECIATION> 11,855,274
<TOTAL-ASSETS> 55,270,194
<CURRENT-LIABILITIES> 2,258,342
<BONDS> 38,317,429
5,000,000
0
<COMMON> 2,595,300
<OTHER-SE> 7,099,123
<TOTAL-LIABILITY-AND-EQUITY> 55,270,194
<SALES> 3,207,599
<TOTAL-REVENUES> 3,246,651
<CGS> 1,123,061
<TOTAL-COSTS> 2,482,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 841,029
<INCOME-PRETAX> 764,160
<INCOME-TAX> 319,718
<INCOME-CONTINUING> 444,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444,442
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
