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, 2000
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 May 12, 2000 was
2,646,966.
<PAGE>
Form 10-Q - Merry Land Properties, Inc.
Index
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance sheets - March 31, 2000 and December 31, 1999 3
Statements of income - Three months ended March 31, 2000 and 1999 4
Statements of cash flows - Three months ended March 31, 2000 and 1999 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<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, 2000 Dec. 31, 1999
-------------- -------------
<S> <C> <C>
ASSETS
Real estate assets, at cost:
Land held for mining and development $4,170,496 $5,905,288
Apartments 96,166,496 95,615,665
Commercial rental property 2,627,652 2,627,652
Furniture and equipment 1,885,262 1,882,536
Development in progress 5,030,832 2,820,564
----------- -----------
Total cost 109,880,738 108,851,705
Accumulated depreciation and depletion (13,979,461) (13,335,596)
----------- -----------
95,901,277 95,516,109
INVESTMENT IN JOINT VENTURE 584,760 -
CASH AND CASH EQUIVALENTS 1,373,834 3,067,372
ESCROWED CASH 1,057,079 1,187,142
OTHER ASSETS
Notes receivable 507,419 564,073
Deferred loan costs 1,189,447 1,111,309
Other receivable 169,573 154,496
Deferred tax asset 5,687,645 5,733,521
Other 249,754 72,603
----------- -----------
7,803,838 7,636,002
----------- -----------
TOTAL ASSETS $106,720,788 $107,406,625
=========== ===========
NOTES PAYABLE
Line of credit $1,500,000 $1,500,000
Mortgage loans 91,536,096 91,711,187
----------- -----------
93,036,096 93,211,187
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 632,053 631,863
Accrued property taxes 459,098 467,863
Deferred revenue 166,817 172,100
Other 778,450 1,262,961
----------- -----------
2,036,418 2,534,787
STOCKHOLDERS' EQUITY
Common stock, at $1 stated value 2,646,966 2,601,300
Capital surplus 9,317,035 9,139,014
Unamortized compensation (1,853,781) (1,710,055)
Cumulative undistributed net earnings 2,720,501 2,648,324
Receivable from ESOP (1,182,447) (1,017,932)
----------- -----------
11,648,274 11,660,651
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $106,720,788 $107,406,625
=========== ===========
</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,
----------------------------
2000 1999
------------ -----------
<S> <C> <C>
INCOME
Rental income $4,587,485 $2,008,304
Royalty income 108,168 412,783
Interest income 38,108 68,564
Management fees 20,482 200,762
Development fees 151,671 585,750
Long term loss - (29,512)
---------- ----------
4,905,914 3,246,651
EXPENSES
Rental expense 1,624,859 764,693
Interest expense 1,762,885 841,029
Depreciation 643,864 358,368
Amortization 26,586 -
General and administrative expense 732,132 518,401
---------- ----------
4,790,326 2,482,491
---------- ----------
INCOME BEFORE TAXES 115,588 764,160
Income tax 43,411 319,718
---------- ----------
NET INCOME $72,177 $444,442
========== ==========
WEIGHTED AVERAGE COMMON SHARES
Basic 2,216,669 2,181,070
Diluted 2,292,917 2,245,683
EARNINGS PER COMMON SHARE
Basic $ .03 $ .20
Diluted $ .03 $ .20
</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,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $72,177 $444,442
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation expense 643,864 358,368
Amortization expense 26,586 -
Decrease in mortgage escrow 130,063 -
Amortization of compensation element of restricted
stock grants 79,961 33,243
Income tax expense 43,411 151,647
Increase (decrease) in other payables (482,097) 51,221
Increase in other assets (150,941) (86,524)
Decrease (increase) in other receivables (54,197) 99,404
Increase (decrease) in deferred revenue (5,283) 130,932
Decrease in property taxes payable (8,765) (94,870)
Increase (decrease) in accrued interest 190 (44,553)
Other (13,625) 57,313
--------- ---------
Net cash provided by operating activities 281,344 1,100,623
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 56,654 610,218
Capitalized costs, improvements and replacements (627,441) (69,758)
Investment in joint venture (584,760) -
Expenditures for development (401,591) (45,979)
Receivable from ESOP (164,515) (575,915)
--------- ---------
Net cash used in investing activities (1,721,653) (81,434)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on mortgage loans (175,091) -
Increase in deferred loan costs (78,138) (40,000)
--------- ---------
Net cash used in financing activities (253,229) (40,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,693,538) 979,189
CASH AT BEGINNING OF PERIOD 3,067,372 3,995,365
--------- ---------
CASH AT END OF PERIOD $1,373,834 $4,974,554
========= =========
Interest paid $1,854,143 $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.
1. BASIS OF PRESENTATION
The consolidated financial statements for the three month periods ended
March 31, 2000 and March 31, 1999, 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. INVESTMENT IN JOINT VENTURE
In March 2000, Merry Land entered into a joint venture with a real
estate investment fund to purchase Cypress Cove apartment community for
approximately $18.8 million. Seventy percent of the cost was funded with
floating rate debt with the remaining thirty percent in cash. Merry Land is
not obligated to repay the joint venture's debt or to make any additional
capital contributions. Under the terms of the joint venture, Merry Land
holds a 10% ownership interest in the joint venture and will provide
property management services to the apartment community for a 3.5% fee.
Merry Land has accounted for the joint venture as an investment under the
cost method of accounting in the accompanying consolidated financial
statements.
4. 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 Merry Land'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.
<PAGE>
A reconciliation of the average outstanding shares used in the two
calculations is as follows:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Weighted average shares outstanding-basic 2,216,669 2,181,070
Dilutive potential common shares 76,248 64,613
-------------- --------------
Weighted average shares outstanding-diluted 2,292,917 2,245,683
</TABLE>
5. NOTES RECEIVABLE
At March 31, 2000 and December 31, 1999, notes receivable consisted of
the following:
<TABLE>
<CAPTION>
Note Balances at
--------------------------
Original March 31, December 31,
NOTE Rate Due Amount 2000 1999
- ---- ----- ----- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Brothersville 6.00% 11/12 $675,000 $418,029 $470,957
Brothersville 10.00% 9/02 327,600 35,130 38,195
New Zion 7.00% 11/12 60,000 54,260 54,921
---------- ----------- ------------
$1,062,600 $507,419 $564,073
</TABLE>
6. DEBT
At March 31, 2000 and December 31, 1999, debt consisted of the
following:
<TABLE>
<CAPTION>
MATURITY INTEREST MARCH 31, DEC 31,
DEBT DATE RATE 2000 1999
-------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Line of credit 06/24/01 LIBOR + 1.25% $1,500,000 $1,500,000
Mortgage loan-Huntington LLC 09/01/07 7.97% 5,065,364 5,074,767
Mortgage loan-Magnolia Villas LLC 09/01/07 7.97% 4,721,629 4,730,394
Mortgage loan-Summit Place LLC 09/01/07 7.97% 7,053,051 7,066,145
Mortgage loan-Woodcrest LLC 09/01/07 7.97% 6,330,709 6,342,461
Mortgage loan-Greentree LLC 07/01/09 7.73% 6,685,992 6,699,284
Mortgage loan-Marsh Cove LLC 07/01/09 7.73% 8,119,911 8,136,056
Mortgage loan-Quarterdeck LLC 07/01/09 7.73% 9,915,050 9,934,763
Mortgage loan-Waters Edge LLC 07/01/09 7.73% 7,162,639 7,176,879
Mortgage loan-West Wind LLC 07/01/09 7.73% 9,154,803 9,173,004
Mortgage loan-Hammocks LLC 09/01/11 7.99% 18,718,466 18,753,048
Mortgage loan-Windsor Place LLC 09/01/11 7.99% 8,608,482 8,624,386
---------- ----------
Total $93,036,096 $93,211,187
</TABLE>
7. INCOME TAXES
Merry Land is a taxable "C" corporation. The components of the income
tax provision for the first quarter of 2000 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current federal tax $ -
Current state tax -
Deferred federal tax 36,943
Deferred state tax 6,468
-------
$43,411
</TABLE>
<PAGE>
The reconciliation of income tax computed at the U.S. federal
statutory rate to income tax expense for the first quarter of 2000 is as
follows:
<TABLE>
<CAPTION>
% of
pretax
$ Amount income
-------- ------
<S> <C> <C>
Income tax expense at statutory rate $39,300 34.0%
Increases (reductions) in taxes resulting from:
State and local income taxes, net of federal
income tax benefit 4,577 4.0%
Other (466) (.4)%
-------- ------
$43,411 37.6%
</TABLE>
8. SEGMENT INFORMATION
Merry Land 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, 2000 Apartments Commercial Land Services Corporate Consolidated
----------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Real estate rental revenue $ 4,508,562 $ 68,633 $ 10,290 $ - $ - $ 4,587,485
Real estate expense 1,549,795 58,296 16,768 - - 1,624,859
Depreciation and amortization 573,496 9,062 1,406 - 86,486 670,450
----------- ----------- ----------- ---------- ------------ ------------
Income from real estate 2,385,271 1,275 (7,884) - (86,486) 2,292,176
Other income - - 108,168 172,153 38,108 318,429
----------- ----------- ----------- ---------- ------------ ------------
Segment income 2,385,271 1,275 100,284 172,153 (48,378) 2,610,605
Interest expense - - - - (1,762,885) (1,762,885)
General and administrative - - - (286,128) (446,004) (732,132)
----------- ----------- ----------- ---------- ------------ ------------
Income before taxes 2,385,271 1,275 100,284 (113,975) (2,257,267) 115,588
Income tax - - - - (43,411) (43,411)
----------- ----------- ----------- ---------- ------------ ------------
Net income $ 2,385,271 $ 1,275 $ 100,284 $(113,975) $(2,300,678) $ 72,177
=========== =========== =========== ========== ============ ============
Capital investments $ 616,567 $ - $ 401,591 $ - $ 10,875 $ 1,029,033
=========== =========== =========== ========== ============ ============
Total real estate assets $83,988,643 $2,275,427 $9,166,180 $ - $ 471,027 $95,901,277
=========== =========== =========== ========== ============ ============
Third
Party
MARCH 31, 1999 Apartments Commercial Land Services Corporate Consolidated
----------- ----------- ----------- ---------- ------------ ------------
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 $ 983,85 $ (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
=========== =========== =========== ========== ============ ============
</TABLE>
<PAGE>
Form 10-Q - Part I. Financial Information
Item 2.
Merry Land Properties, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT EVENTS
On March 31, 2000, Merry Land entered into a joint venture with a real
estate investment fund to buy Cypress Cove apartments in Melbourne,
Florida, for $18.8 million. The joint venture entity funded $13.3 million
of the cost with floating rate debt which will eventually be replaced with
permanent mortgage financing. Merry Land is not obligated to repay the
joint venture's debt or to make any additional capital contributions.
Cypress Cove is a 326 unit apartment community built in 1990. The financial
partner owns 90% of the venture, while Merry Land owns 10% and may receive
a promoted interest upon the eventual disposition of the property. We will
also provide property management services to the community at a rate of
3.5% of gross rental income.
In April 2000, we completed the financing process for our 230 unit
apartment MERRITT AT JAMES ISLAND project in Charleston and are set to
begin construction. The all-in interest rate on this $16.2 million, forty
year government sponsored construction and permanent mortgage loan is
8.65%. The projected cost of this community is $17.3 million and
construction is scheduled to be completed by May 2001.
In April 2000, Merry Land sold a commercial property located in downtown
Augusta for $135 thousand in cash resulting in a $59 thousand gain. We are
currently exploring the possibility of selling other downtown Augusta
properties.
In the coming months, Merry Land may offer its existing shareholders the
right to purchase Convertible Trust Preferred Securities of Merry Land
Capital Trust, a Delaware business trust owned by Merry Land. These
securities will accrue distributions to their holders and will be
convertible into Merry Land's common stock.
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
RENTAL OPERATIONS-ALL APARTMENTS. At March 31, 2000, Merry Land owned
eleven apartment communities, as described in the following table:
<TABLE>
<CAPTION>
Three Months ended March 31,
------------------------------------------
Average Average
Occupancy (1) Rental Rate (2)
-------------------- --------------------
Community Units 2000 1999 2000 1999
- --------- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Woodcrest 248 96.5% - % (3) $542 $ - (3)
----- ------ ------ ------ ------
Total Augusta 248 96.5 - 542 -
Quarterdeck 230 98.8 99.4 696 643
Summit Place 226 97.4 - (3) 542 - (3)
Waters Edge 200 97.3 97.7 631 585
Windsor Place 224 97.9 - (3) 618 - (3)
----- ------ ------ ------ ------
Total Charleston 880 97.9 98.6 622 616
Greentree 194 94.5 97.1 625 602
Hammocks at Long Point 308 94.1 - (3) 837 - (3)
Huntington 147 92.7 - (3) 648 - (3)
Magnolia Villas 144 94.9 - (3) 653 - (3)
Marsh Cove 188 95.2 95.2 706 680
West Wind 192 93.1 96.0 733 708
----- ------ ------ ------ ------
Total Savannah 1,173 94.1 96.1 718 663
Total 2,301 95.8% 97.2% $662 $643
</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) Acquired on August 24, 1999.
The following table describes the operating performance of all Merry
Land's apartment communities (dollars in thousands, except average monthly
rent):
<TABLE>
<CAPTION>
Three Months ended March 31,
% Change from ----------------------------
Change 1999 to 2000 2000 1999
------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Rental income 131.6% $ 2,561.6 $ 4,508.6 $ 1,947.0
Total expenses (1) 120.5 1,160.2 2,123.4 963.2
------ ------------ ------------- -------------
Operating income 142.4% $ 1,401.4 $ 2,385.2 $ 983.8
Average occupancy (2) - (1.4)% 95.8% 97.2%
Average monthly rent (3) 3.0% $ 19 $ 662 $ 643
Expense ratio (4) - (0.9)% 34.4% 35.3%
</TABLE>
(1) Represents operating, real estate taxes, insurance and depreciation
expenses.
(2) Represents the average physical occupancy at each month end for the
period held.
(3) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at March 31.
(4) Represents total operating expenses (excluding depreciation and
amortization) divided by rental revenues.
<PAGE>
Merry Land's purchase of six of its eleven apartment communities in
August 1999, accounted for most of the increase in apartment rental income
and operating expenses. These communities contributed $2.5 million in
rental income, offset by $0.8 million in operating expenses and $0.3
million in depreciation, netting $1.4 million of operating income before
debt service during the first three months of 2000.
The average rent rates for all communities at the end of the first
quarter of 2000 increased 3.0% from the end of the first quarter of 1999.
The 1.4% decrease in occupancy during the first three month period of 2000
resulted primarily from a decline in average occupancy in the Savannah
communities. Occupancy in Savannah had improved to 95.7% at March 31, 2000.
RENTAL OPERATIONS-SAME STORE APARTMENTS. The following table compares
the performance of the 1,004 units which Merry Land held for the three
months ended March 31, 2000 ("same store" results) to their performance for
the same period in 1999 (dollars in thousands, except average monthly rent;
see footnotes above):
<TABLE>
<CAPTION>
Three months ended March 31,
% Change from ---------------------------
Change 1999 to 2000 2000 1999
------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Rental income 3.1% $ 61.3 $ 2,008.3 $ 1,947.0
Personnel (10.2) (25.1) 222.1 247.2
Utilities 3.9 2.6 69.0 66.4
Operating 21.6 12.9 72.6 59.7
Maintenance and grounds 12.8 16.1 141.4 125.3
Taxes and insurance 6.4 12.0 200.1 188.1
Depreciation and amortization 1.0 2.9 279.4 276.5
------ ------------ ------------ ------------
Total expenses 2.2 21.4 984.6 963.2
Operating income 4.1% $ 39.9 $ 1,023.7 $ 983.8
Average occupancy (1) - (1.3)% 95.9% 97.2%
Average monthly rent (2) 5.4% $ 35 $ 678 $ 643
Expense ratio (3) - (0.1)% 35.2% 35.3%
</TABLE>
For the three months ended March 31, 2000, rental income increased $61
thousand, or 3.1%, for the five same store communities from the same period
in 1999. A 5.4% increase in average monthly rents was offset by a 1.3%
decline in occupancy, largely as a result of weaknesses in the Savannah
market. Savannah's less than satisfactory results were in contrast to the
excellent results in the Charleston communities where rents increased by
8.1%, while occupancy decreased slightly to 98.1%. At March 31, 2000, the
Savannah communities' occupancy had improved to 96.0%.
<PAGE>
The Charleston market will see significant additions to supply in the
remainder of 2000, which may adversely affect occupancy and rent rates in
that city. We believe that physical occupancy should remain satisfactory
despite these deliveries of new units if general economic activity, job
growth and household formation remain strong. The Savannah market should
continue to improve.
Total operating expenses excluding depreciation for the year were up
$21 thousand, or 2.2%. On site expenses, including personnel, operating,
utilities, and maintenance expenses were up 3.2% primarily as a result of
higher turnover costs and repairs.
RENTAL OPERATIONS-COMMERCIAL. On March 31, 2000, we owned six
commercial properties in the Augusta area containing a total of 169,915
square feet, including the office building where Merry Land's headquarters
are located. During April 2000, we sold the Commerce Building, a 13.6
thousand square foot building located in downtown Augusta for $135
thousand. Two remaining buildings containing approximately 61 thousand
square feet are located in the depressed downtown Augusta rental market and
are in varying stages of physical obsolescence. Occupancy for all six
commercial properties was approximately 55% at March 31, 2000.
For the three months ended March 31, 2000, rental income increased by
$30.6 thousand, or 80.5%, and total expenses increased $6.5 thousand, or
12.5%, from the same period in 1999 primarily due to higher occupancy.
LAND. Merry Land 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. Land income decreased to $118
thousand in the first three months of 2000 from $436 thousand in 1999 due
to the expiration of one of the royalty agreements during May 1999.
MORTGAGE INTEREST INCOME. Interest income from mortgage notes
receivable totaled $11 thousand in the three month period ended March 31,
2000, down from $17 thousand in the same period of 1999. The decrease was
primarily due to the repayment of an outstanding note receivable in
February 1999.
PROPERTY MANAGEMENT AND DEVELOPMENT FEES. Property management fee
income fell 89.8% to $21 thousand in the first three months of 2000 from
$201 thousand in 1999. Development fee income fell 74.1% to $152 thousand
from $586 thousand. These declines are due to the substantial completion of
our agreement with Equity Residential Properties Trust, under which Merry
Land provided property management and consulting services for twelve Equity
Residential apartment communities under construction. Merry Land will
collect another $728 thousand in 2000 and 2001 under these agreements. We
are seeking other third party property management and development business.
INTEREST EXPENSE. Interest expense related to the $91.9 million
mortgage loans totaled $1.8 million for the first three months of 2000
compared to interest expense of $0.8 million on $38.3 million debt in 1999.
Interest on Merry Land's line of credit totaled $28 thousand and interest
capitalized related to development in progress was $88 thousand during the
same period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $214 thousand or 41.2% to $732 thousand for the first
three months in 2000 from $518 thousand for the same period in 1999. The
increase was primarily due to the increased number of salaried corporate
employees and the shortened vesting of non-executive employees' stock
grants.
INCOME BEFORE TAXES. Income before taxes decreased to $116 thousand
for the three months ended March 31, 2000 from $764 thousand for the same
period in 1999. The $1.4 million net operating income contributed by the
six communities acquired in August 1999 was more than offset by the $614
thousand decrease in property management and development fee income, the
$305 thousand decrease in clay royalty income, the $922 thousand increase
in interest expense and the $214 thousand increase in general and
administrative expenses.
INCOME TAXES. Income tax expense for the three month period ended
March 31, 2000, totaled $43 thousand, which consisted of $150 thousand in
current income tax benefit and $193 thousand in deferred income tax
expense. Income tax expense for the first quarter of 1999 totaled $320
thousand and consisted of $320 thousand in deferred income tax expense.
PROJECTS UNDER DEVELOPMENT. Merry Land owns a 22 acre tract adjacent
to its Quarterdeck Apartments in Charleston on which we began construction
in April 2000 of Merritt at James Island, a 230 unit apartment community.
The $17.3 million projected cost is being funded with non-recourse
financing. The first units are expected to be available for rental in fall
2000.
In 1999, we acquired a historic building in downtown Charleston which
we are currently renovating into seven condominium units for sale to the
public. Our total cost on the project will be approximately $1.5 million.
We expect to begin realizing income from the sale of the condominiums this
summer.
We are pursuing the development of a 35 acre tract adjacent to our
Waters Edge community that lies along the Ashley River in the Summerville
area of Charleston for up to nine single family lots. We are in the final
stages of obtaining zoning and regulatory approvals. If successful, we will
spend approximately $700 thousand on road and infrastructure and begin
marketing the lots later this year.
We are evaluating the feasibility of establishing a wetland mitigation
bank on a portion of the Merry tract located in Augusta. If successful in
establishing the bank, we would be awarded credits for preserving, creating
or enhancing wetlands, and these credits could then be sold to others who
have destroyed wetlands elsewhere. While we believe our prospects for
establishing a bank are good, there seems to be a limited demand for
credits in our local service area.
<PAGE>
FUNDS FROM OPERATIONS. For the three month period ended March 31,
2000, funds from operations were $708 thousand compared to $809 thousand
for the same period in 1999. The following is a reconciliation of net
income to funds from operations (data in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net income $ 72.2 $ 444.4
Add depreciation of real estate owned 584.1 285.5
Add long term capital loss - 29.5
Add tax benefit resulting from permanent
difference in book and tax basis 52.1 49.8
------------- -------------
Funds from operations available to common shares $ 708.4 $ 809.2
============= =============
Weighted average common shares outstanding-
Basic 2,216.7 2,181.1
Diluted 2,292.9 2,245.7
</TABLE>
Even though first quarter FFO was less than that of last year,
recurring FFO is at a higher level now than it was at this point in 1999.
FFO in 1999 included an additional $434 thousand in development income from
Merry Land's agreement with Equity Residential to complete our predecessor
company's development pipeline and an additional $181 thousand in
management fee income from the six joint venture communities which were
acquired in August 1999. In addition, clay royalty payments decreased $305
thousand as one of the royalty agreements expired. However, as a result of
the six 1999 apartment acquisitions, first quarter 2000 apartment operating
income before depreciation was up $1.7 million and $0.8 million net of the
incremental mortgage interest expense.
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 items and net realized gains (losses), plus depreciation of
operating real estate.
FINANCIAL STRUCTURE. At March 31, 2000, total debt equaled 89% of
total capitalization at cost and 86% of total capitalization with equity
valued at market (2,646,966 shares outstanding at the March 31, 2000
closing price of $5.625 per share). At that date, Merry Land'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>
Line of credit $ 1,500 2% $ 1,500 1%
Mortgage loans 91,536 87 91,536 85
--------- ------- --------- -------
Total debt 93,036 89 93,036 86
Common stock 11,648 11 14,889 14
--------- ------- --------- -------
Total capitalization $ 104,684 100% $ 107,925 100%
========= ======= ========= =======
</TABLE>
INFLATION. Substantially all of Merry Land's leases are for terms of
one year or less, which should enable us to replace existing leases with
new leases at higher rental rates in times of rising prices. We believe
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>
Form 10-Q - Part I. Financial Information
Item 3.
Merry Land Properties, Inc.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to Merry Land's reported market
risk since December 31, 1999.
<PAGE>
Form 10-Q - 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, 1999).
(27) Financial Data Schedules
b. Reports on Form 8-K. The registrant filed no reports on
Form 8-K during the first quarter of 2000.
<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 15, 2000
