<PAGE>
- --------------------------------------------------------------------------------
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 quarter ended
June 30, 1995
-------------
MERRY LAND & INVESTMENT COMPANY, INC.
P. O. Box 1417
Augusta, Georgia 30903
706 722-6756
Commission file number: 001-11081
State of Incorporation: Georgia
I.R.S. Employer Identification Number: 58-0961876
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value New York Stock Exchange
$1.75 Series A Cumulative
Convertible Preferred Stock New York Stock Exchange
$2.15 Series C Cumulative
Convertible Preferred Stock New York Stock Exchange
Number of shares outstanding as of June 30, 1995:
Common Stock 33,587,878
Series A Preferred Stock 781,721
Series C Preferred Stock 4,599,800
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 (or for such shorter time as
required), and (2) has been subject to such filing requirements for the past
ninety days: Yes X No____.
<PAGE>
Form 10-Q - Merry Land & Investment Company, Inc.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets - June 30, 1995 and December 31, 1994
Statements of income - Three months ended June 30, 1995 and 1994 and
six months ended June 30, 1995 and 1994
Statements of cash flows - Three months ended June 30, 1995 and 1994
and six months ended June 30, 1995 and 1994
Notes to condensed financial statements - June 30, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Form 10-Q - Merry Land & Investment Company, Inc.
Part I. Financial Information
Item 1 - Financial Statements
<TABLE>
<CAPTION>
BALANCE SHEETS
(Unaudited)
June 30, December 31,
-------- ------------
1995 1994
-------- ------------
<S> <C> <C>
PROPERTIES AT COST
Apartments $873,986,227 $796,436,199
Apartments under development 9,729,621 8,128,943
Commercial rental property 6,317,546 6,039,242
Land held for investment or
future development 3,831,281 3,831,281
Operating equipment 1,138,584 870,120
895,003,259 815,305,785
------------ ------------
Less accumulated depreciation
and depletion 53,941,268 41,874,144
841,061,991 773,431,641
CASH & SECURITIES
Cash 167,044 717,957
Short term investments 80,100,000 -
Marketable securities 39,873,750 27,716,350
------------ ------------
120,140,794 28,434,307
OTHER ASSETS
Notes receivable 828,467 941,172
Deferred loan costs 3,571,070 2,066,106
Other 4,191,451 1,781,815
------------ -----------
8,590,988 4,789,093
------------ -----------
TOTAL ASSETS $969,793,773 $806,655,041
------------ ------------
NOTES PAYABLE
Mortgage loans $ 17,802,046 $ 17,834,734
6.625% Senior unsecured notes 120,000,000 120,000,000
7.25% Senior unsecured notes 120,000,000 -
Note payable-credit line - 57,600,000
Repurchase agreements - 17,375,000
----------- -----------
257,802,046 212,809,734
PAYABLES & ACCRUED LIABILITIES
Accrued interest 2,180,833 2,224,288
Resident security deposits 3,042,258 3,011,824
Accrued property taxes 5,988,420 1,204,966
Other 2,348,430 2,553,373
----------- -----------
13,559,941 8,994,451
EQUITY
Preferred stock ($1.75 Series A,
$25.00 per share) 19,543,025 62,908,100
Preferred stock ($2.205 Series B,
$25.00 per share) 100,000,000 100,000,000
Preferred stock ($2.15 Series C,
$25.00 per share) 114,995,000 -
Common stock ($1.00 per share
stated value) 33,587,878 30,744,451
Capital surplus 420,271,086 375,169,573
Cumulative undistributed net earnings 17,832,497 23,111,941
Notes receivable from stockholders
and ESOP (14,321,051) (10,283,657)
Unrealized gain on securities 6,523,351 3,200,448
------------ ------------
698,431,786 584,850,856
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY $969,793,773 $806,655,041
------------ ------------
Shares of preferred stock outstanding 9,381,521 6,516,324
Shares of common stock outstanding 33,587,878 30,744,451
The notes to financial statements are an integral part of this statement.
</TABLE>
<PAGE>
Form 10-Q - Merry Land & Investment Company, Inc.
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
INCOME STATEMENTS
(Unaudited)
Three Months ended Six Months Ended
----------------------- -----------------------
June 30 June 30
----------------------- -----------------------
1995 1994 1995 1994
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME
Rental income $34,108,113 $23,750,255 $66,990,376 $46,886,249
Mineral royalties 96,222 260,927 204,255 502,395
Mortgage interest 19,558 11,432 39,324 42,795
Other interest 871,777 348,542 1,415,950 631,852
Dividends 270,821 67,848 338,217 142,367
Other income - - 139,772 -
---------- ---------- ---------- ----------
35,366,491 24,439,004 69,127,894 48,205,658
EXPENSES
Rental expense 9,272,489 6,603,221 18,408,995 13,057,442
Interest 2,322,070 2,670,071 5,299,152 5,365,861
Depreciation - real estate 6,090,293 4,023,863 11,982,395 7,994,639
Depreciation - other 43,438 20,408 84,729 40,816
Amortization - financing
costs 86,996 86,996 173,991 173,991
Taxes and insurance 3,297,200 2,448,502 6,543,675 4,915,605
General and administrative
expense 402,793 459,792 912,650 837,318
Other non-recurring expense (200,000) 459,792 (200,000) -
--------- --------- ---------- ---------
21,315,27 16,312,850 43,205,58 32,385,672
--------- ---------- ---------- ----------
come before net realized
gains 14,051,212 8,126,151 25,922,307 15,819,986
Net realized gains 48,576 - 97,012 189,398
---------- ---------- ---------- ---------
NET INCOME $14,099,788 $ 8,126,151 $26,019,319 $16,009,384
Dividends to preferred
shareholders 5,104,753 1,699,206 8,178,919 3,711,706
---------- ---------- ---------- ----------
NET INCOME AVAILABLE
FOR COMMON SHARES $ 8,995,035 $ 6,426,944 $17,840,400 $12,297,678
---------- ---------- ---------- ----------
Weighted average common shares
- outstanding 33,249,163 23,952,800 32,986,093 23,404,400
- fully diluted 44,273,817 29,156,000 41,763,750 29,088,008
NET INCOME PER
COMMON SHARE $.27 $.27 $.54 $.53
CASH DIVIDENDS DECLARED
PER COMMON SHARE $.35 $.30 $.70 $.60
</TABLE>
The notes to financial statements are an integral part of this statement.
<PAGE>
Item 1 - Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ending June 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Rents and royalties received $ 67,213,139 $ 47,386,643
Interest received 1,199,020 451,725
Dividends received 338,217 142,367
Rental expense (18,319,983) (13,057,442)
General and administrative expense (1,162,479) (1,356,738)
Interest expense (5,342,606) (5,260,255)
Property taxes and insurance expense (1,826,110) (1,357,353)
Other 75,366 (171,878)
Net cash provided (used) by operating ---------- ----------
activities: 42,174,564 26,777,069
INVESTING ACTIVITIES:
Principal received on notes receivable 112,705 80,056
Sale of securities 12,523,563 1,992,712
Purchase of securities (21,006,670) (9,339,063)
Purchase of real property (72,683,377) (34,621,699)
Development of real property (1,099,306) -
Improvements to real property (5,914,791) (8,592,497)
Purchase of short term investments (80,100,000) -
Other (3,792,674) (622,965)
Net cash provided (used) by investing ----------- ----------
activities: (171,960,550) (51,103,456)
FINANCING ACTIVITIES:
Net borrowings - senior unsecured notes 120,000,000 -
Net borrowings (repayments) - bank debt (57,600,000) 58,600,000
Repayments on mortgage loans (32,689) (18,931,632)
Repurchase agreements (17,375,000) -
Cash dividends paid - common (23,124,571) (14,070,119)
Cash dividends paid - preferred, Series A (829,647) (3,711,706)
Cash dividends paid - preferred, Series B (4,410,000) -
Cash dividends paid - preferred, Series C (2,939,272) -
Common stock retired (18,816) -
Sale of common stock - public offering - (262,362)
Sale of common stock - reinvested
dividends 4,217,206 1,749,199
Sale of common stock - stock purchase
plan 1,150,934 671,294
Sale of common stock - employees 401,638 284,719
Sale of preferred stock - public offering 109,795,290 -
Net cash provided (used) in financing ----------- ----------
activities 129,235,073 24,329,393
----------- ----------
NET INCREASE (DECREASE) IN CASH (550,913) 3,006
CASH AT BEGINNING OF PERIOD 717,957 577,544
------------ -----------
CASH BALANCE $ 167,044 $ 580,550
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Reconciliation of Net Income to Cash Flows from Operating Activities)
(Unaudited)
Six months ending June 30,
---------------------------
1995 1994
<S> <C> <C>
------------- -------------
Net income $ 26,019,319 $ 16,009,383
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,241,115 8,209,446
(Increase) decrease in interest and
accounts receivable (210,630) (459,738)
(Increase) decrease in other assets (3,703,970) (814,080)
Increase (decrease) in accounts payable
and accrued interest 7,925,742 4,021,456
Gain on the sale of marketable securities (97,012) (189,398)
Gain on the sale of real estate - -
__________ __-_______
Net cash provided by operating activities $42,174,564 $26,777,069
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Merry Land & Investment Company, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
(Unaudited)
1. Nature of Business
Merry Land & Investment Company, Inc. is a real estate investment trust
(REIT), which owns and operates upscale apartment communities in eight
Southern states including Florida, Georgia, Maryland, North Carolina,
South Carolina, Tennessee, Texas, and Virginia and also in Ohio. As a qualified
REIT the Company pays no corporate income taxes on earnings distributed to
stockholders.
2. Marketable Securities and Short Term Investments
The cost and market value of securities by major classification at June 30,
1995 were as follows:
<TABLE>
<CAPTION>
Cost Market
------------- ------------
<S> <C> <C>
Common stocks $ 11,550,899 $ 16,630,650
Corporate debentures 1,905,750 2,425,500
U.S. Treasury securities 19,893,750 20,817,600
Repurchase agreements 79,500,000 79,500,000
Money market 600,000 600,000
------------ -----------
$113,450,399 $119,973,750
------------ ------------
</TABLE>
3. Borrowings
During the quarter the Company completed a public offering of $120
million of 7.25% Senior unsecured notes. Interest will be paid semi-annually
with the first payment due December 15, 1995, and the notes will mature on
June 15, 2005.
Borrowings at June 30, 1995 were as follows:
<TABLE>
<S> <C>
6.625% Senior unsecured notes (a) $120,000,000
7.25% Senior unsecured notes (b) 120,000,000
Mortgage loan at fixed rate (b) 7,477,046
Tax exempt mortgage loan at variable rate (c) 10,325,000
-----------
$257,802,046
-----------
(a) $120 million, 6.625% notes, interest payable semi-annually, principal
installments of $40 million each due 1999, 2000, and 2001.
(b) $120 million, 7.25% notes, interest payable semi-annually, maturity
2005.
(c) Secured by apartments at interest rate of 8.375%, due in monthly install-
ments through 2000.
(d) Secured by apartments at a variable interest rate equal to 75% of
prime, due in principal installments of $125,000 each in 1995 and
1996, with balances callable in 2000.
Maturities of borrowings at June 30 were as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1995 $159
1996 148
1997 279
1998 286
1999 and thereafter 256,930
$257,802
</TABLE>
4. Income Taxes and Dividend Policy
As discussed in Note 1, the Company has elected to be taxed as a REIT. The
Internal Revenue Code provides that a REIT, which in any taxable year meets
certain requirements and distributes to its stockholders at least 95% of its
ordinary taxable income, will not be subject to federal income taxation on
taxable income which is distributed. The Company intends to distribute the
required amounts of income in 1995 to qualify as a REIT and to avoid paying
income taxes. On June 30, 1995, the Company paid dividends per share as
follows:
<TABLE>
<CAPTION>
<S> <C>
Series A Preferred $.43750
Series B Preferred $.55125
Series C Preferred $.53750
Common $.35000
</TABLE>
At March 31, 1995 the Company accrued a $.1015 per share cash dividend on
its Series C Cumulative Convertible Preferred Stock, which was paid with the
June 30, 1995 quarterly dividend.
5. Environmental Matters
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, remedial
action with respect to listed sites. A 96 acre tract owned by the Company and
located in Richmond County, Georgia, formerly used as a landfill, was
included on this list. In the third quarter of 1994 the Company accrued
$200,000 as a non recurring charge. This amount represented the Company's
estimate of its share of the potential cost if further investigation of the
site was required as a result of the action by the State of Georgia.
On April 24, 1995, following discussions with the Company's representatives,
the Georgia EPD notified the Company that it had determined that there was
insufficient evidence to include the site on the Hazardous Site Inventory.
The state removed the site from the inventory as of that date. The Company
reversed the $200,000 non-recurring charge in the second quarter of 1995.
Part I
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
(In thousands except apartment and per share data)
Overview
Over the past several years, Merry Land has significantly expanded its
apartment holdings through an active program of acquisitions. The following
table describes the growth of the Company's apartment holdings in recent
years:
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31, Dec. 31,
1995 Increase 1994 Increase 1993 Increase 1992 Increase
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Units (1) 20,195 7% 18,851 35% 13,979 114% 6,527 76%
Cost (1)(2) $873,986 10% $796,436 44% $554,444 165% $209,549 73%
</TABLE>
__________
(1) Excludes condominium units.
(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 develop-
ment by buying three tracts of land on which it intends to build high quality
suburban garden apartments. The Company is building these communities using
experienced apartment developers to provide development and construction
management services. Construction on all three communities is expected to
commence in the summer of 1995. The Company's present intent, and the
covenants under the Company's loan agreements, limit its financial commitment
to development to no more than 10% of total assets.
The Company expects that further expansion of its apartment holdings will
continue to come primarily from acquisitions.
Recent Developments
1995 Acquisitions. In the first six months of 1994 the Company acquired
four apartment communities containing 1,344 units at a cost of $71.7 million:
<TABLE>
<S> <C> <C>
Apartments Location Units
---------- -------- -----
Gwinnett Club Atlanta, Georgia 260
Laurel Gardens Ft. Lauderdale, Florida 384
Beach Club Ft. Myers, Florida 320
Jefferson at Cedar Springs Dallas, Texas 380
-----
1,344
</TABLE>
Investment in Texas Properties. In June, Merry Land made its first
apartment investment in the state of Texas with the purchase of the Jefferson
at Cedar Springs by acquiring the partnership interests of the limited
partnership which owns the community. The partnership interests were acquired
by two newly created, wholly-owned subsidiaries of Merry Land.
The Company has entered into agreements for the acquisition of three
additional apartment communities containing 1,250 units in Dallas. Two of
these communities recently have been completed and one is currently under
construction. The Company's obligation to purchase these communities is
subject to various conditions, including the completion of inspections by
the Company, the attainment of specified occupancy and rent levels and, in
the case of the property currently under construction, the completion of its
construction.The Company expects to expand its holdings in Dallas and to
invest in additional major Texas markets as opportunities allow.
Credit Line Increase. On June 30, 1995, the Company increased its exist-
ing $100.0 million unsecured line of credit to $160.0 million. The Company's
primary bank continues to provide the Company with the first $100.0 million
of the line of credit, which bears interest at 0.65% above the thirty day
London Interbank Offered Rates (LIBOR). A group of five banks provide the
additional $60.0 million portion of the line of credit at a rate of interest
of 1.65% above LIBOR. The Company expects to use the facility to finance
apartment acquisitions and development.
Issuance of 7.25% Senior Unsecured Notes. On June 20, 1995 the Company
completed a public offering of $120.0 million of senior unsecured notes.
The notes were sold at a price of 99.562% of par value, to yield 7.31% to
maturity.
The notes bear an interest rate of 7.25%, payable semi-annually in June
and December. The notes have a term of ten years and mature on June 15, 2005,
but are redeemable at any time after June 15, 2002, subject to a prepayment
penalty.
The notes rank equally with the Company's other unsecured and unsubordi-
nated indebtedness. The Company capitalized $1.7 million of costs in connection
with the issuance of the notes, which will be amortized over the term of the
notes.
The 7.25% Senior unsecured notes contain various covenants which limit the
incurrence of debt by the Company. Under these covenants, the Company and its
subsidiaries will not incur additional debt:
- if total secured debt becomes greater than 40% of total assets;
- if total debt becomes greater than 60% of total assets; or
- if net operating income divided by interest on debt and regularly
scheduled principal debt amortization becomes less than 1.5.
The Company is also required to maintain unencumbered assets of not less
than 150% of outstanding unsecured debt.
Debt Rating Raised. Standard & Poor's raised its credit rating on the
Company's senior unsecured notes from BBB to BBB+ in connection with the
latest debt offering discussed above. Moody's Investors Service held its
rating of the Company's senior unsecured notes at Baa2. Both ratings are
"investment grade".
Sale of Preferred Stock. In a public offering on March 8, 1995, the
Company issued 4,000,000 shares of $2.15 Series C Cumulative Convertible
Preferred Stock at $25.00 per share for net proceeds of $95.7 million.
On April 7, 1995, the Company issued an additional 600,000 shares of the
Series C Preferred Stock for net proceeds of $14.4 million. The additional
600,000 shares covered the 15% overallotment option given to the underwriters
concurrent with the March 8 offering.
The Series C Preferred Stock has an annual dividend rate of $2.15 per share
and contains a ratchet provision which provides that the preferred dividend
rate shall be increased if necessary so that it will always be equal to the
greater of $2.15 per share or the dividends payable on the number of shares
of common stock into which the Series C Preferred Stock is convertible. The
Series C shares are convertible into shares of common stock at a conversion
price of $22.00 per share. The Series C shares may not be redeemed for cash
at any time, but may be redeemed after March 31, 2000 by the Company for
shares of common stock at a rate of 1.136 shares of common stock for each
share of preferred, provided the Company's common stock is trading above the
conversion price. The Series C Preferred Stock is traded on the New York
Stock Exchange under the symbol "MRYPrC". The proceeds from the offering
were used to repay all of the Company's then outstanding short-term unsecured
debt, and the balance was invested in marketable securities, pending
investment in additional apartment acquisitions and development.
Results of Operations for the Six Months Ended June 30, 1995 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>
Six Months
--------------------------
%Change 1995 1994
------- ------- -------
<S> <C> <C> <C>
Rents 44% $66,747 $46,497
Operating expenses 41% 18,311 13,022
Taxes and insurance 29% 6,288 4,875
Depreciation 50% 11,905 7,924
--- ------- -------
46% $30,243 $20,676
Average monthly rent (1) 8.0% $609 $564
Average occupancy (2) 0.7%(4) 95.1% 94.4%
Expense ratio (3) (1.7%)(4) 36.8% 38.5%
</TABLE>
_____________
(1) Represents weighted average monthly rent charged for occupied units
and rents asked for unoccupied units at June 30.
(2) Represents the average physical occupancy at each month end for the
period held.
(3) Represents total of operating expenses, taxes and insurance divided
by rental revenues.
(4) Represents increase or decrease between years.
With the Company's acquisition of new communities, the weighted average
number of apartments owned rose to 19,279 in the first six months of 1995
from 14,206 in the first six months of 1994 and rental revenues and expenses
rose accordingly. Furthermore, most of the rental markets in which Merry Land
operates are experiencing strong job growth and household formation, and this
is reflected in rising occupancy levels and rent rates. Although construction
starts of new apartment communities have increased recently, the Company
believes demand continues to outstrip supply and expects a generally strong
rental market to continue throughout 1995.
The 8.0% increase in portfolio average rental rates in the first six months
of 1995 from the first six months of 1994 resulted from higher rents at its
continuing properties, and also reflects the higher rents charged at the
communities the Company acquired after June 30, 1994, whose monthly rents
averaged $646 at June 30, 1995, versus the total portfolio average of $609.
The performance of the 13,665 units which the Company held for the firt
six months of both 1995 and 1994 ("same property" results), is summarized in
the following table (dollars in thousands, except average monthly rents; see
footnotes above):
<TABLE>
<CAPTION
Six Months
-------------------
%Change 1995 1994
------- ------- -------
<S> <C> <C> <C>
Rents 5% $47,139 $44,996
Operating expenses 5% 13,262 12,676
Taxes and insurance 3% 4,764 4,609
Depreciation 10% 8,518 7,715
---- ------ -------
3% $20,595 $19,996
Average monthly rent 4.0% $591 $568
Average occupancy 0.8% 95.1% 94.3%
Expense ratio (0.2)% 38.2% 38.4%
</TABLE>
____________
(1) Same property resul ts do not include Gwinnett Crossing, a 314
unit community, which was owned for the first six months of 1995 and
1994. The 260 unit Gwinnett Club community, acquired in 1995, is
adjacent to Gwinnett Crossing. These communities were combined and
are now operated as a single community.
Reflecting the strong rental markets, rental revenues rose 5% for those
properties held for all of both periods, as a result of 0.8% higher occupancy
and 4.0% higher rental rates. In part offsetting the increase in rents,
operating expenses increased $0.6 million or 5% for the first six months of
1995 as compared to the same period in 1994, due primarily to increases in
the offsite property management expenses, water and personnel costs.
The increase in personnel costs is attributable primarily to higher levels of
staffing as formerly vacant positions were filled at communities acquired in
late 1993 and the vesting of additional employees in the Company's ESOP plan.
Offsite property management expense has risen as the Company has established
new corporate level positions in marketing, training, maintenance and
administration. The cost of offsite, corporate level management expenditures
are allocated to communities as part of their operating expense.
Mineral Royalty and Commercial Property Income. These amounts decreased to
$0.4 million in the first six months of 1995 from $0.9 million in the first
six months of 1994 largely as the result of the expiration in late 1994 of a
contract for the sale of sand and also lower occupancies at the Company's
non-apartment properties.
Interest and Dividend Income. Interest and dividend income rose to $1.8
million for the first six months of 1995 from $0.8 million for the first six
months of 1994 due to a higher level of investments in 1995. Interest and
dividend income includes interest received on marketable securities, short
term investments and notes receivable, and dividends earned on equity security
investments. Average investments rose to $33.9 million in 1995 from $26.1
in 1994, while the average annual return on investments in 1995 averaged 6.9%
as compared to 6.0% in 1994. The higher level of investments in 1995 is due
to the temporary investment of proceeds from the Series C Preferred Stock and
the 7.25% Senior unsecured notes offerings.
Interest Expense. Interest expense totaled $5.3 million for the first six
months of 1995, slightly down from $5.4 million for the first six months of
1994. Average debt outstanding rose to $190.2 million in the first six
months of 1995 from $170.6 million in the first six months of 1994, primarily
as a result of financing apartment purchases and the issuance of the 7.25%
Senior unsecured notes discussed above. The weighted average interest rate
charged on all the Company's debt increased to 6.8% for the first six months
of 1995 from 6.0% for the first six months of 1994, primarily as a result of
rising short term rates and the issuance of the 7.25% Senior unsecured notes.
Although the average debt outstanding and average interest rate increased in
1995 from 1994, interest expense did not increase due to the capitalization
of $0.4 million of interest related to the Company's development projects.
At June 30, 1995, $9.9 million of the Company's debt was tax exempt
financing bearing interest at a variable rate of 75% of prime.
General and Administrative Expenses. In 1995, general and administrative
expense totaled $0.9 million, versus $0.8 million for 1994. These amounts
equaled 1.4% of rental revenues in 1995 and 1.8% of rental revenues in 1994.
The Company expects that as it continues to grow, even though general and
administrative expenses will increase in absolute terms, such expenses will
not increase as a percentage of revenues.
Gains on Sales of Assets. Net gains recognized on the sale of assets
totaled $0.1 million for the first six months of 1995 and $0.2 million for
the first six months of 1994. Gains in both years came primarily from the
sale of securities.
Net Income. Net income totaled $26.0 million for the first six months of
1995 and $16.0 million for the first six months of 1994. Net income available
for common shareholders totaled $17.8 million for the first six months of
1995 and $12.3 million for the first six months of 1994. The increases in net
income and net income available for common shareholders for 1995 when
compared to 1994 arose principally from substantially increased operating
income from apartments due to the growth of the Company's apartment holdings.
Net income per common share for 1995 increased to $.54 from $.53 in 1994.
Dividends to preferred shareholders. Dividends to preferred shareholders
totaled $8.2 million for the first six months of 1995 and $3.7 million for
the first six months of 1994. The increase in preferred dividends arose from
an increase in the amount of preferred stock outstanding during the two
periods. The preferred dividends are summarized in the following table
(in thousands):
<TABLE>
<CAPTION> Six months
------------------------
1995 1994
------ ------
<S> <C> <C>
Series A Preferred $ 830 $3,712
Series B Preferred 4,410 -
Series C Preferred 2,939 -
----- ------
Total preferred dividends $8,179 $3,712
Holders of the Company's Series A Preferred Stock have converted 3.8
million of the 4.6 million Series A shares originally issued in June 1993
into approximately 5.1 million shares of the Company's common stock, as the
common dividend was raised above the equivalent preferred dividend. In
November 1994, the Company completed a private placement of 4.0 million
shares of the Series B Preferred Stock. As discussed earlier, the Company
issued 4.6 million shares of the Series C Preferred Stock in March and
April 1995.
Funds From Operations. The Company believes that funds from operations is
an important measure of its operating performance. Funds from operations does
not represent cash flows from operations as defined by generally accepted
accounting principles, GAAP, and should not be considered as an alternative
to net income or as an indicator of the Company's operating performance, or
as a measure of the Company's liquidity. Based on 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 depreciation. Revision of the definition reduced the
Company's funds from operations by $0.3 million in 1995 and $0.2 million
in 1994.
Funds from operations rose 58% to $37.7 million for the first six months of
1995 as compared to $23.8 million for the first six months of 1994. Funds
from operations available to common shares totaled $29.5 million for the
first six months of 1995 and $20.1 million for the first six months of 1994.
These increases were principally due to increased rental operating income
resulting from the growth of the Company's apartment holdings. On a per share
basis, funds from operations on a fully diluted basis increased to $.90 from
$.82 per share, or 10%, less than the absolute increase because of the
larger number of shares outstanding.
The following is a reconciliation of net income to funds from operations
(data in thousands, except per share data):
</TABLE>
<TABLE>
<CAPTION>
Six Months
------- -------
1995 1994
------- -------
<S> <C> <C>
Net income $26,019 $16,009
Less preferred dividends paid 8,179 3,712
------ -------
Net income available for common shares 17,840 12,297
Add depreciation of real estate owned 11,982 7,995
Less net realized gains 96 189
Plus non-recurring expenses (200) -
------ -------
Funds from operations available to
common shares 29,526 20,103
Add preferred dividends 8,179 3,712
------ ------
Funds from operations-fully diluted $37,705 $23,815
------ ------
Weighted average common shares outstanding-
primary 32,986 23,404
fully diluted 41,764 29,088
Funds from operations per share-
primary $0.90 $0.86
fully diluted $0.90 $0.82
</TABLE>
Liquidity and Capital Resources
Merry Land's financial strategy is to buy and develop 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 operate in this
manner.
On June 20, 1995, the Company completed the public offering of the 7.25%
Senior unsecured notes described above and used the total net proceeds of
$119.0 million to acquire the Jefferson at Cedar Springs, repay short term
debt, and purchase marketable securities, which will be liquidated to fund
future acquisitions and development.
On March 8, 1995, the Company completed the public offering of $2.15
Series C Cumulative Convertible Preferred Stock described above and used the
total net proceeds of $95.7 million to repay debt incurred in the acquisition
and improvement of apartments and temporarily invested the remaining net
proceeds in marketable securities pending future acquisitions. On April 12,
1995, the Company received net proceeds of $14.4 million from the sale of the
over-allotment option of the Series C Preferred Stock.
Financial Structure. At June 30, 1995, total debt equaled 27% of total
capitalization at cost, and 21% 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 $ - 0% $ - 0%
Mortgage loans 17,802 1% 17,802 1%
6.625% Senior unsecured notes 120,000 13% 120,000 10%
7.25% Senior unsecured notes 120,000 13% 120,000 10%
------- --- ------- ----
Total debt 257,802 27% 257,802 21%
Common and preferred equity (1) 698,432 73% 908,905 79%
------- --- ------- ---
Total capitalization $956,234 100% $1,166,787 100%
-------- ---- ---------- ----
</TABLE>
__________
(1) Assumes conversion of all outstanding preferred stock into common
stock.
At June 30, 1995, the Company had no borrowings outstanding under its
$160.0 million line of credit. This line matures on June 29, 1996, and
subject to the banks' approval, is expected to be renewed annually.
As discussed earlier, the Company's preferred stock and its senior
unsecured 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, by
liquidating its short term investments and by borrowing under its line of
credit. The Company's primary short-term liquidity needs are operating
expenses, apartment acquisitions, capital improvements and replacements,
debt service payments, dividend payments and current requirements of its
program of new apartment development.
As discussed earlier, the Company has executed agreements to purchase
three additional apartment communities in Dallas, Texas for approximately
$78.0 million. Closing on all three properties is expected to occur by year
end. Through 1998, less than $0.3 million per year of principal payments on
borrrowings are due. Capitalized expenditures for the Company's three
development projects under way totaled $4.8 million at June 30, 1995. Of the
remaining estimated cost of $42.2 million, $24.1 million is expected to be
incurred in the last two quarters of 1995 with the balance spent in 1996.
Capital resources available to the Company at June 30, 1995 included cash
and marketable securities of $120.1 million and the Company's $160.0 million
line of credit. Currently, there is no amount outstanding under the line of
credit.
The Company expects to meet its long-term liquidity requirements,
including scheduled debt maturities and permanent financing for property
acquisitions and development, from a variety of sources, including additional
borrowings and the issuance and sale of debt and 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 June 30, 1995,
the Company's loan agreements would have allowed it to borrow an additional
$200.0 million on an unsecured basis.
Cash Flows. The following table summarizes cash flows for the first six
months of 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
Sources and Uses of Cash:
--------------------------
Six Months
--------------------------
<S> <C> <C>
1995 1994
-------- --------
Operating activities $ 42,175 $ 26,777
Sales of common and preferred stock 115,546 2,443
Net borrowings 44,992 39,668
Other 113 80
------- -------
Total sources 202,826 68,968
Acquisitions of and improvements
to properties (78,598) (43,214)
Development of properties (1,099) -
Dividends paid (31,303) (17,782)
Other (3,793) (623)
------- ------
Total uses (114,793) (61,619)
------- ------
Increase in cash, securities and
temporary investments $ 88,033 $ 7,349
-------- -------
</TABLE>
Operating cash flow has grown significantly with the expansion of the
Company's apartment holdings. Operating cash flow grew to $42.2 million in
the first six months of 1995 from $26.8 million in the first six months of
1994. Dividends paid in 1995 and 1994 increased from levels in prior years
due to an increase in the average amount of stock outstanding, and in the
case of the Company's common stock, an increase in the quarterly dividend per
share to $0.35 for the second quarter of 1995 from $0.30 for the first
quarter of 1994. Cash,securities and temporary investments increased
significantly in 1995 because proceeds from the Series C Preferred Stock and
the 7.25% Senior unsecured notes have yet to be invested in additional
apartments.
Capital Expenditures. The Company capitalizes the direct and indirect
cost of expenditures for the acquisition or development of apartments and for
replacements and improvements. Replacements are non-revenue producing capital
expenditures which recur on a regular basis, but which have estimated useful
lives of more than one year, such as carpet, vinyl flooring and exterior
repainting. Improvements are expenditures which significantly increase the
revenue producing capability or which reduce the cost of operating assets. 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, and certain of such expenditures which would be considered
replacements at stabilized communicates (as defined below) are classified as
improvements at newly acquired properties. Interest, real estate taxes and
other carrying costs incurred during the development period are capitalized
and, upon completion of the project, depreciated over the lives of the
project.
The following table summarizes the capital expenditures for the first six
months of 1995 and 1994 (dollars in thousands, except per unit data):
<TABLE>
1995 1994
------- --------
<S> <C> <C>
Apartment communities:
Acquisitions $72,684 $34,621
Development projects:
Development costs 652 -
Capitalized interest 447 -
Replacements for stabilized
communities (1) 1,320 793
Improvements (2) 4,048 7,591
Commercial properties 278 74
Corporate level expenditure 268 135
------- -------
$79,697 $43,214
------- -------
Per Unit:
Replacements for stabilized
communities(1) $97 $121
Improvements (2) $200 $512
</TABLE>
__________
(1) Stabilized communities are those properties which have been owned
for at least one full calendar year. In the first six months of
1995, 13,665 properties were stabilized as compared to 6,527 in
the first six months of 1994.
(2) Improvements include expenditures for all properties owned during
the quarter and replacements for newly acquired communities.
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. Merry Land & Investment Company, Inc.
<PAGEL
Part II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
Issuance of 7.25 % Senior unsecured notes.
On June 20, 1995 the Company completed a public offering of $120.0
million of senior unsecured notes. The notes were sold at a price of 99.592%
of par value, to yield 7.31% to mataurity.
The notes bear an interest rat5e of 7.25%, payablem semi-annually in
June and December. The notes haave a taerm or ten years and mature on June 15,
2005, but are redeemable at any time after June 15, 2002, subject to a pre-
payment penalty.
The notes rank equally with the Company's other unsecured and
unsubordinated indebtedness. The Company capitalized $1.7 million of costs in
connection with the issuance of the notes, which will be amortized over the
term of the notes.
The 7.25% Senior unsecured notes contain various covenants which limit
the incurrence of debt by the Company. Under these covenants, the Company
and its subsidiaries will not incur additional debt:
- if total secured debt becmes greater than 40% of total assets;
- if total debt becomes greater than 60% of total assets; or
- if net operating income divided by interest on debt and regularly
scheduled principal debt amortization becomes less than 1.5.
The Company is also required to maintain unencumbered assets of not less
than 150% of outstanding unsecured debt.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held April 17, 1995 the
following vote totals were recorded:
1. Election of Directors: shares voted - 19,798,243
<TABLE>
<CAPTION>
For Against/Abstain
--- ---------------
<S> <C> <C>
W. Hale Barrett 19,589,075 (98.9%) 209,168(1.1%)
W. Tennent Houston 19,589,558 (98.9% 208,685(1.1%)
Peter S. Knox III 19,590,075 (98.9%) 208,168(1.1%)
Hugh Long 19,588,158 (98.9%) 210,085(1.1%)
Pierce Merry, Jr. 19,589,558 (98.9%) 208,685(1.1%)
</TABLE>
2. To amend the articles of Incorporation to increase the Company's
authorized common stock from 50,000,000 shares to 100,000,000 shares:
shares vote - 19,798,243
<TABLE>
<CAPTION>
For Against/Abstain
--- ---------------
<S> <C>
18,850,261 (95.2%) 947,982 (4.8%)
</TABLE>
3. Approval of the 1995 Stock Option and Incentive Plan: Shares Voted -
19,798,243
<TABLE>
<CAPTION>
For Against/Abstain
--- ---------------
<S> <C>
19,107,558 (96.5%) 690,685 (3.5%)
</TABLE>
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8K
(4.1) The Company's 7 1/4% Note due 2005 (Incorporated herein by
reference to Item 7, Exhibit 4A to the Company's Form 8-K filed
June 23, 1995).
(4.2) Indenture (Incorporated herein by refernce to Item 7, Exhibit
4B to the Company's Form 8-K filed June 23, 1995).
(4.3) First Supplemental Indenture (Incorportated herein by reference
to Item 7, Exhibit 4C to the Company's Form 8-K filed June 23,
1995).
(10.1) Credit Agreement between the Company and Lenders for a $160
million credit facility (Incorporated herein by reference to
Item 7, Exhibit 10 to the Company's credit report on Form 8-K
filed July 14, 1995).
Reports on Form 8-K
<TABLE>
<CAPTION> Financial
Items Statements
Form Date Filed Reported Filed
---- ---------- -------- ----------
<S> <C> <C> <C>
8-K June 8, 1995 Acquisition of Club at No financial
Gwinnett, Laurel Gardens statements required.
at Coral Springs and
Beach Club apartment
communities.
8-K June 19, 1995 Agreements to purchase Pro forma statements
Jefferson at Cedar of income and audited
Springs, Round Grove, statement of excess
Chase Oaks and Parkway revenues over
apartment communities specific operating
in Dallas, Texas. expenses with
respect to the
anticipated
acquisitions.
8-K/A June 21, 1995 Agreements to purchase Pro forma statement
Jefferson at Cedar of income and audited
Springs, Round Grove, statement of excess
Chase Oaks and Parkway revenues over
apartment communities specific operating
in Dallas, Texas. expenses with
(typographical errors) respect to the
anticipated
acquisitions.
(typographical errors)
8-K June 23, 1995 Completion of 7.25% N/A
Senior Notes Offering.
</TABLE>
<PAGE>
Form 10-Q - Merry Land & Investment Company, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MERRY LAND & INVESTMENT COMPANY, INC.
/s/W. Tennent Houston
W. Tennent Houston
President
Principal Financial Officer
July 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 80,267
<SECURITIES> 39,874
<RECEIVABLES> 8,591
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 128,732
<PP&E> 885,274
<DEPRECIATION> 53,941
<TOTAL-ASSETS> 969,794
<CURRENT-LIABILITIES> 13,560
<BONDS> 257,802
<COMMON> 33,588
0
234,538
<OTHER-SE> 430,306
<TOTAL-LIABILITY-AND-EQUITY> 969,794
<SALES> 67,195
<TOTAL-REVENUES> 19,225
<CGS> 36,935
<TOTAL-COSTS> 36,935
<OTHER-EXPENSES> 971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,299
<INCOME-PRETAX> 26,019
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,019
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
