<PAGE> 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
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(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)
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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.
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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
<PAGE> 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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PRO
---------------------------------------------------- FORMA
1990 1991 1992 1993 1994 1994(1)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO
---------------------------------------------------- FORMA
1990 1991 1992 1993 1994 1994(1)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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
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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:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 INCREASE 1993 INCREASE 1994 INCREASE
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
- ---------------
(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):
<TABLE>
<CAPTION>
CHANGE FROM
1993 TO
1992 1993 1994 1994
------- ------- -------- -----------
<S> <C> <C> <C> <C>
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)%
</TABLE>
- ---------------
(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
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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):
<TABLE>
<CAPTION>
CHANGE FROM
1993 TO
1993 1994 1994
------- ------- -----------
<S> <C> <C> <C>
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)%
</TABLE>
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
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<PAGE> 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
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<PAGE> 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):
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
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,
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<PAGE> 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):
<TABLE>
<CAPTION>
% OF MARKET % OF
COST TOTAL VALUE TOTAL
-------- ----- ---------- -----
<S> <C> <C> <C> <C>
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%
========= ==== ========== ====
</TABLE>
- ---------------
(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
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<PAGE> 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:
<TABLE>
<CAPTION>
SOURCES AND USES OF CASH
YEAR ENDED DECEMBER 31,
---------------------------------
1992 1993 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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)
</TABLE>
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.
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<PAGE> 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
<PAGE> 11
Merry Land & Investment Company, Inc.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993
-------- ----------
<S> <C> <C>
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
======== ========
</TABLE>
<PAGE> 12
Merry Land & Investment Company, Inc.
STATEMENTS OF INCOME
(In thousands, except per share date)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 13
Merry Land & Investment Company, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock Capital Undistributed Total
Shares Amount Shares Amount Surplus Net Earnings Stockholders'
-------------------- ----------------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
====== ======== ====== ======= ======== ======= ========
</TABLE>
<PAGE> 14
Merry Land & Investment Company, Inc.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
<PAGE> 15
Reconciliation of Net Income to Cash Flows from Operating Activities
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
<PAGE> 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):
<TABLE>
<CAPTION>
Mortgage Backed Other
Real Estate Securities Securities Total
----------- --------------- ---------- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE> 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:
<TABLE>
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------------------- -------------------- -----------------
Cost Market Cost Market Cost Market
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= ======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
1994 1993
---- ------
<S> <C> <C>
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
==== ======
</TABLE>
<PAGE> 18
At December 31, 1994, maturities of notes receivable were as follows (in
thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . 755
1996 . . . . . . . . . . . . . . . . . . . . . . 36
1997 . . . . . . . . . . . . . . . . . . . . . . --
1998 . . . . . . . . . . . . . . . . . . . . . . --
1999 . . . . . . . . . . . . . . . . . . . . . . --
2000 and thereafter . . . . . . . . . . . . . . 150
----
$941
====
</TABLE>
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):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
(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):
<TABLE>
<S> <C>
1995 75,043
1996 148
1997 279
1998 286
1999 and thereafter 137,054
--------
$212,810
========
</TABLE>
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.
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Common Preferred A Preferred B
------ ----------- -----------
<S> <C> <C> <C>
March 31 $ .30 $ .4375 $ --
June 30 .30 .4375 --
September 30 .30 .4375 --
December 31 .35 .4375 .37
----- ------- ----
Total $1.25 $1.7500 $.37
</TABLE>
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
<PAGE> 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.
<PAGE> 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)
<TABLE>
<CAPTION>
1994
Apartment Acquisitions
---------------------------
Combined
Results of Interest and
Acquired Dividend
As Reported Properties Adjustments Adjustment Pro Forma
----------- ---------- ----------- ---------- ---------
increase (decrease)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
See notes and assumptions to unaudited pro forma statement of income.
<PAGE> 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:
<TABLE>
<S> <C>
Properties, at cost $815,306
Total assets $827,430
Total debt $137,835
Shareholders' equity $680,601
</TABLE>
<PAGE> 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
