SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10Q/A
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended
March 31, 1997
Commission file number: 001-11081
Merry Land & Investment Company, Inc.
(Exact Name of Registrant as Specified in Its Charter)
State of Incorporation:Georgia I.R.S. Employer Identification Num.:58-0961876
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P.O. Box 1417
Augusta, Georgia
(Address of Principal Executive Offices)
706 722-6756 30903
(Registrant's Telephone (Zip Code)
Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months, and (2) has been subject to such filing requirements for
the past ninety days: Yes X . No .
--- ----
The number of shares of common stock outstanding as of March 31,
1997 was 38,259,859.
<PAGE>
Form 10-Q - Merry Land & Investment Company, Inc.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets - March 31, 1997 and December 31, 1996
Statements of income - Three months ended March 31, 1997
and 1996
Statements of cash flows - Three months ended March 31, 1997
and 1996
Notes to condensed financial statements
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
<PAGE>
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
1997 1996
--------- -----------
PROPERTIES AT COST
Apartments $1,189,046 $1,175,427
Apartments under development 60,046 56,110
Commercial rental property 6,971 6,874
Land held for investment or
future development 4,090 4,090
Operating equipment 2,181 1,817
---------- ----------
1,262,334 1,244,318
Less accumulated depreciation
and depletion (111,727) (102,277)
1,150,607 1,142,041
CASH AND SECURITIES
Cash and cash equivalents 36,878 32,793
Marketable securities 9,294 23,799
---------- ----------
46,172 56,592
OTHER ASSETS
Notes receivable 717 726
Other receivable 2,938 2,449
Deferred loan costs 3,354 3,497
Other 3,655 2,941
---------- ----------
10,664 9,613
---------- ----------
TOTAL ASSETS $1,207,443 $1,208,246
NOTES PAYABLE
Mortgage loans $ 27,508 $ 27,546
Senior notes 360,000 360,000
Note payable-credit line --- ---
---------- ----------
387,508 387,546
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 6,303 4,016
Resident security deposits 1,396 1,669
Accrued property taxes 6,597 7,642
Accrued employee compensation 661 2,284
Other 5,706 6,317
---------- ----------
20,663 21,928
STOCKHOLDERS' EQUITY
Preferred stock, at $25 and $50 liquidation preference, 20,000
shares authorized:
267 and 359 shares, $1.75
Series A Cumulative Convertible 6,684 8,970
4,000 shares, $2.205 Series B
Cumulative Convertible 100,000 100,000
4,600 shares, $2.15 Series C
Cumulative Convertible 114,995 114,995
1,000 shares, $4.145 Series D
Cumulative Redeemable Preferred 50,000 50,000
Common stock, at $1 stated value,
100,000 shares authorized
38,260 and 37,784 shares issued 38,260 37,784
Capital surplus 507,831 498,907
Cumulative undistributed net
earnings (381) 2,064
Notes receivable from stockholders
and ESOP (20,199) (17,502)
Unrealized gain on securities 2,082 3,554
---------- ----------
799,272 798,772
---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY $1,207,443 $1,208,246
The accompanying notes are an integral part of these statements.
<PAGE>
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended March 31,
1997 1996
--------- -------
Rental income $ 47,861 $ 41,563
Mineral royalties 95 90
Mortgage interest 28 24
Other interest 738 727
Dividends 559 899
Other income 3,501 1,223
--------- ---------
52,782 44,526
Rental expense 12,686 11,239
Interest 5,626 5,792
Depreciation - real estate 9,425 7,802
Depreciation - other 84 65
Amortization - financing costs 142 142
Taxes and insurance 5,585 4,802
General and administrative expense 1,056 594
--------- ---------
34,604 30,436
Income before net realized gains 18,178 14,090
Net realized gains --- 459
NET INCOME 18,178 14,549
Dividends to preferred shareholders 5,831 4,966
--------- ---------
NET INCOME AVAILABLE
FOR COMMON SHARES $12,347 $ 9,583
--------- ---------
Weighted average common shares
- outstanding 37,957 33,899
- fully diluted 48,292 44,759
NET INCOME PER COMMON SHARE $ .33 $ .28
--------- ---------
CASH DIVIDENDS DECLARED
PER COMMON SHARE $ .39 $ .37
The accompanying notes are an integral part of these statements.
<PAGE>
Form 10-Q - Part I. Financial Information
Item 1 - Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months ended March 31,
1997 1996
--------- ---------
OPERATING ACTIVITIES:
Rents and royalties received $ 47,975 $ 41,654
Interest received 701 712
Dividends received 559 1,641
Rental expense (13,481) (12,464)
General and administrative expense (1,587) (1,058)
Interest expense (3,338) (40)
Property taxes and insurance
expense (7,376) (4,074)
Other (370)
(323)
Net cash provided by operating
activities: 23,083 26,048
INVESTING ACTIVITIES:
Principal received on notes
receivable 5 7
Sale of securities 16,046 15,647
Purchase of securities --- (15,606)
Purchase of real property --- (10,151)
Development of real property (16,668) (9,643)
Recurring capital expenditures (1,328) (1,179)
Improvements to existing properties (851) (2,559)
Other 43 (1,322)
-------- ----------
Net cash (used) by operating
activities (2,753) (24,806)
FINANCING ACTIVITIES:
Net borrowings (repayments)
- mortgage loans (38) ---
Cash dividends paid - common (14,793) (12,584)
Cash dividends paid - preferred,
Series A (117) (288)
Cash dividends paid - preferred,
Series B (2,205) (2,205)
Cash dividends paid - preferred,
Series C (2,472) (2,472)
Cash dividends paid - preferred,
Series D (1,036) ---
Common stock retired --- (729)
Sale of common stock - reinvested
dividends 2,802 2,056
Sale of common stock - stock
purchase plan 1,062 1,092
Sale of common stock - employees 673 1,314
Sale of preferred stock - public
offering (121) (25)
--------- --------
Net cash provided (used)
by financing activities (16,245) (13,841)
--------- --------
NET INCREASE (DECREASE) IN CASH 4,085 (12,599)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 32,793 43,834
--------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 36,878 $ 31,235
The accompanying notes are an integral part of these statements
<PAGE>
Form 10-Q - Part I. Financial Information
Item 1 - Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Cash Flows from Operating
Activities
(In thousands)
(Unaudited)
Three Months ended March 31,
---------------------------
1997 1996
---- ----
Net income $ 18,178 $ 14,549
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 9,651 8,009
(Increase) decrease in interest and
accounts receivable (1,237) 714
(Increase) decrease in other assets (308) (1,366)
Increase (decrease) in accounts
payable and accrued interest (3,201) 4,600
Gain on the sale of marketable
securities --- (458)
------- -------
Net cash provided by operating
activities $ 23,083 $ 26,048
The accompanying notes are an integral part of these statements.
<PAGE>
Merry Land & Investment Company, Inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(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 nine Southern states including Alabama,
Florida,Georgia, Maryland, North Carolina, South Carolina,
Tennessee, Texas, and Virginia. As a qualified REIT the Company
pays no corporate income taxes on earnings distributed to
stockholders.
The consolidated financial statements for the three month
periods ended March 31, 1997 and March 31, 1996 reflect all
adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results
for the interim period.
In March, 1997, the Financial Accounting Standards Board
released Statement of Financial Accounting Standard No. 128,
Earnings Per Share. SFAS 128 significantly changes reported
earnings per share for companies with complex capital structures.
The Company believes the effect on the Company's earnings per
share is not material.
2. Marketable Securities
The cost and market value of securities by major
classification at March 31, 1997 were as follows (dollars in
thousands):
Unrealized
Cost Market Gain
------- ------ ------
Common stock $5,306 $6,856 $1,550
Corporate debentures 1,906 2,438 532
------- ------ ------
$7,212 $9,294 $2,082
3. Borrowings
Borrowings at March 31, 1997 were as follows (dollars in
thousands):
9.76% mortgage notes (a) $ 12,701
7.75% mortgage note (b) 9,600
7.625% mortgage note (c) 5,207
6.625% senior unsecured notes (d) 120,000
7.25% senior unsecured notes (e) 40,000
6.875% senior unsecured notes (f) 40,000
6.875% senior unsecured notes (g) 40,000
7.25% senior unsecured notes (h) 120,000
Advances under unsecured line of credit (i) 0
---------
$ 387,508
(a) $10.7 million and $2.0 million, 9.76% mortgage notes,
principal and interest payable monthly, maturity 2001.
(b) $9.6 million, 7.75% mortgage note, interest payable
monthly, maturity 2002.
(c) $5.2 million, 7.625% mortgage note, interest and
principal payable monthly, maturity 2002.
(d) $120.0 million, 6.625% notes, interest payable
semi-annually, principal installments of $40.0 million
each due 1999, 2000, and 2001.
(e) $40.0 million, 7.25% notes, interest payable
semi-annually, maturity 2002.
(f) $40.0 million, 6.875% notes, interest payable
semi-annually, maturity 2003.
(g) $40.0 million, 6.875% notes, interest payable
semi-annually, maturity 2004.
(h) $120.0 million, 7.25% notes, interest payable
semi-annually, maturity 2005.
(i) $130.0 million line of credit, first $100.0 million
bearing interest equal to LIBOR plus 0.65%, maturity
June 1997, and next $30.0 million bearing interest at
LIBOR plus 0.75%, maturity October 1997.
The Company estimates that the fair value of borrowings
approximates their carrying value at March 31, 1997. Maturities
of borrowings at March 31 were as follows (dollars in thousands):
1997 $ 157
1998 171
1999 40,187
2000 40,204
2001 52,466
2002 54,361
2003 40,000
2004 40,000
2005 120,000
----------
$ 387,546
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 1997 to qualify as a REIT and to
avoid paying income taxes. On March 31, 1997, the Company paid
dividends per share as follows:
Series A Preferred $0.43750
Series B Preferred $0.55125
Series C Preferred $0.53750
Series D Preferred $1.03625
Common $0.39000
<PAGE>
Form 10-Q - Merry Land & Investment Company, Inc.
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in thousands except apartment and per share data)
Overview
Merry Land & Investment Company, Inc. is the largest owner
and operator of upscale garden apartments in the South. At March
31, 1997, the Company had a total equity market capitalization of
over $1.0 billion and owned a high quality portfolio of 91
apartment communities containing 25,113 units. The communities are
geographically diversified through the Southern United States,
located in twenty-seven metropolitan areas, each with a population
in excess of 250,000, extending from the Washington, D.C. area to
Texas and Florida. Substantially all of the Company's apartment
communities command rental rates in the upper range of their markets.
Operating Strategy. The Company's strategy is to own and
operate a significant number of communities in every major market
in the Southern United States, and to establish a reputation
recognized among apartment dwellers throughout this region for
high quality communities and first class service. The
accomplishment of this strategy should allow the Company to
increase funds from operations and distributions to shareholders
by producing greater cash flows at its apartment communities
through significant marketing advantages and operating
efficiencies. The Company adds to its holdings by buying
existing apartment communities, by buying communities under
construction and in the initial lease-up stage (primarily from
merchant builders) and by developing communities from the ground
up. The following table further describes the Company's
apartment holdings by major market as of March 31,1997 (dollars
in thousands except rental rates):
Average Mar. Average
Occupancy(1)Rental Rate(2)
% of --------- ----------
Market Units Cost Total Cost 1997 1996 1997 1996
- ----- ----- ------ ---------- ---- ---- ---- ----
Atlanta 3586 $156,353 13.1 % 92.4% 96.2% $669 $663
Dallas 1,830 117,982 9.9 90.8 87.5 849 823
Jacksonville 2,550 106,026 8.9 93.4 96.6 621 606
Orlando 1,902 101,373 8.5 96.1 94.5 669 650
Austin 1,249 80,052 6.7 95.3 89.3 842 803
Ft. Lauderdale 1,144 71,769 6.0 91.3 90.3 850 818
Charlotte 1,801 70,616 5.9 92.2 93.1 615 574
Tampa 1,643 64,699 5.4 96.6 94.8 652 641
Ft. Myers 1,268 64,184 5.4 97.2 95.3 664 651
Raleigh 1,256 47,915 4.0 94.5 94.9 621 594
Savannah 865 33,100 2.8 93.3 96.6 630 596
Charleston 880 27,230 2.3 94.5 87.7 548 527
All others 5,139 247,747 20.8 91.0 90.1 650 626
------ ---------- ----- ---- ---- ---- ----
25,113 $1,189,046 100.0% 92.9% 93.1% $677 $650
------------
(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
March month end.
Growth. Merry Land intends to increase its holdings of apartments
primarily through the acquisition of apartment communities and also through
apartment development. The following table summarizes the Company's growth
in recent years (dollars in thousands):
1997(1) 1996 1995 1994
---------- ------- ------- ------
Units acquired --- 2,475 3,444 4,872
Units developed 178 414 --- ---
Total units owned at end
of period 25,113 24,936 22,296 18,852
Total cost of apartments $1,189,046 $1,175,427 $1,009,056 $796,436
Total apartment rental income $47,707 $176,053 $144,283 $101,667
------------
(1) Represents totals at March 31, 1997.
Development. At March 31, 1997, the Company had six
communities with 2,082 units under construction (of which 312
units have been delivered) and two communities with 706 units
under development. These communities will be completed at an
expected total cost of $203.5 million. In addition, the Company
owns land for 1,232 additional units. The communities under
development offer features typical of very high end properties,
including nine foot ceilings, high levels of trim and finish,
garages and extensive amenities.
The following table summarizes the Company's current
development communities and recently completed communities.
Estimated cost consists of land, direct construction costs and
indirect costs, including projected fees to third party
development managers and allocated overhead (dollars in
thousands, except cost per unit):
<TABLE>
<CAPTION>
Cost of
Total Units
Total Estimated Total Placed
Estimated Cost Cost Units in in Estimated
Location Community Units Cost Per Unit to Date Service Service Completion
- -------- --------- ----- ---- ------- ------ ------- ------- ----------
<S> <S> <C> <C> <C> <C> <C> <C> <S>
Completed:
- -----------
Nashville Cherry Creek 280 $18,931 $67,611 $18,931 280 $18,931 4Q1996
Under Construction, Leasing Underway
- ------------------------------------
Atlanta River Sound 586 $41,250 $70,392 $31,129 240 $16,441 1Q 1998
Greensboro Adams Farm II(1) 200 13,200 66,000 9,346 72 4,783 4Q 1997
Savannah Long Point 308 21,000 68,182 14,090 --- --- 1Q 1998
Under Construction
- ------------------
Richmond Wyndham 264 23,400 88,636 5,946 --- --- 4Q 1997
Greensboro Bridford Lake 300 20,400 68,000 2,261 --- --- 4Q 1998
Atlanta Sweetwater Creek 424 32,000 75,472 3,963 --- --- 2Q 1999
----- -------- ------ ------ --- ------
2,082 $151,250 $72,646 66,735 312 $21,224
Under Development
- -------------------
Richmond Spring Oak 506 $38,800 $76,680 $4,707 1998
Nashville Cherry Creek II 200 13,400 67,000 2,341 1998
--- ------ ------ -----
706 $52,200 $73,938 $7,048
Future Development
- ------------------
Savannah Long Point II 352 $ 640
Nashville Bell Road 360 1,641
Nashville Bell Road II 320 1,641
Greensboro Bridford Lake II 200 1,470
------ -------
1,232 $ 5,392
- ----------
(1) Adjoins the Company's Adams Farm community
</TABLE>
Recent Events
Acquisitions. In the three month period ended March 31,
1997, the Company did not acquire any apartment communities.
However, on April 18, 1997 and May 9, 1997 the Company acquired
Polos East, a 308 unit luxury apartment community built in 1991
and located in east Orlando, Florida and Ranchstone, a 220 unit
luxury apartment community built in 1996 and located in northwest
Houston, Texas. The purchase prices were $16.0 million and $11.3
million paid in all cash transactions.
Sale of Columbus, Ohio Community. The Company sold the Saw
Mill Village community on April 22, 1997. This community was
acquired in late 1994 as part of a twelve property portfolio
transaction but did not conform to Merry Land's strategy of
building a Southern apartment franchise. The sales price for this
community was $19.6 million with a gain totaling $0.5 million
which will be recognized in the second quarter of 1997.
Acquisition of Communities under Development. The Company
has also agreed to acquire the following communities to be built
by unrelated third parties (dollars in thousands):
<TABLE>
<CAPTION>
Estimated Estimated
Community Location Units Cost Completion
- ---------- -------- ----- --------- ---------
<S> <S> <C> <C> <S>
Creekside Homes at Legacy Dallas, Texas 380 $28,500 2Q 1998
Villages of Prairie Creek I Dallas, Texas 236 17,700 2Q 1998
Villages of Prairie Creek II Dallas, Texas 200 15,000 1Q 1999
--- ------
816 $61,200
</TABLE>
The Company will acquire title to these communities upon
completion of construction for an amount equal to the lesser of
the budgeted cost or the seller's actual cost. The Company will
pay the seller additional amounts upon the attainment of
specified occupancy and net operating cash flow levels based on
agreed upon formulas. Although the third party developer bears
the development and construction risk, the Company will actively
monitor construction quality of the communities.
Results of Operations for the Three Months Ended March 31,
1997 and 1996.
Rental Markets. Rental markets were somewhat weaker in the
three month period of 1997 than in the same period in 1996
primarily as a result of new apartment construction. The
Company expects its apartment portfolio to experience occupancy
in 1997 approximately 1.0% below the 93.3% average occupancy
experienced throughout 1996 as the result of weaker markets. The
Company believes that if general economic activity, job growth
and household formation in the South remain strong, serious further
weakness should not develop in 1997 or 1998 as a result of overbuilding.
Rental Operations - Total Portfolio. The operating
performance of the Company's apartment portfolio is summarized in
the following table (dollars in thousands except average monthly
rent):
Change from Three Months
-------------
% Change 1996 to 1997 1997 1996
-------- ------------ ----- -----
Rents 15.2% $6,291 $47,707 $41,416
Operating expenses (1) 13.0 1,455 12,642 11,187
Taxes and insurance 21.8 986 5,501 4,515
---- ----- ------ ------
Subtotal(1) 15.5 2,441 18,143 15,702
15.0% $3,850 $29,564 $25,714
Average occupancy(2 ) (0.2)%(3) 92.9% 93.1%
Average monthly rent(4) 4.1% $677 $650
Expense ratio(5) 0.1%(3) 38.0% 37.9%
- ----------
(1) Excludes depreciation and amortization
(2) Represents the average physical occupancy at each month end
for the period held.
(3) Represents increase or decrease between periods.
(4) Represents weighted average monthly rent charged for
occupied units and rents asked for unoccupied units at
March 31.
(5) Represents total of operating expenses, taxes and insurance
divided by rental revenues.
Acquisitions in the last three quarters of 1996 and the
delivery of 178 units from the Company's development program in
the first quarter of 1997 increased the weighted average number
of apartments owned to 25,039 in the three month period of 1997
from 22,457 in the three month period of 1996. Rental revenues
and expenses rose accordingly. Company wide occupancy totaled
93.1% at both March 31, 1997 and at the same date in 1996.
The 4.1% increase in portfolio average rental rates in the
three month period of 1997 from the three month period of 1996
resulted from both higher rents at the Company's continuing
properties and also the higher rents charged at the communities
the Company acquired and put in service in 1996 and 1997, whose
monthly rents averaged $748 at March 31, 1997, versus the total
portfolio average of $677.
Rental Operations - Same Store. The performance of the
21,496 units which the Company held for the three month period of
both 1997 and 1996 ("same store" results), is summarized in the
following table (dollars in thousands, except average monthly
rent; see footnotes above):
Change from Three Months
------------
% Change 1996 to 1997 1997 1996
-------- ------------ ---- ----
Rental income 2.5% $988 $40,670 $39,682
Personnel 11.8 468 4,439 3,971
Utilities (22.2) (539) 1,886 2,425
Operating 4.6 91 2,052 1,961
Maintenance and grounds (2.2) (52) 2,297 2,349
Taxes and insurance 7.7 330 4,617 4,287
--- ----- ------ ------
Subtotal(1) 2.0 298 15,291 14,993
2.8% $690 $25,379 $24,689
Average occupancy(2) 0.2%(3) 93.5% 93.3%
Average monthly rent(4) 3.3% $665 $644
Expense ratio(5) (0.2)%(3) 37.6% 37.8%
Rental income rose by $1.0 million or 2.5% for those
properties held for all of both periods, as a result of 0.2%
higher occupancy and 3.3% higher average rental rates. However,
higher rent concessions offset increases in occupancy and rental
rates. At March 31, 1997 same store occupancy was 93.9%,
up from 93.3% at March 31, 1996.
Operating expenses increased $0.3 million or 2.0% in 1997
from the same period in 1996.Personnel costs accounted for $0.5
million of the increase, resulting primarily from higher employee
headcount and salaries. Utilities expense decreased by $0.5
million or 22.2% as the Company has passed a portion of its water
expense to the residents. Accruals for property taxes and
insurance increased by $0.3 million to reflect higher projected
assessed values and millage rates.
Rental Operations - Development Communities. $16.7 million
was expended in the three month period of 1997 for apartments
under development, bringing the cumulative investment to
$100.7 million, including capitalized interest of $5.2 million.
The Company expects to put approximately 1,400 units in service
in 1997. Some dilution of earnings may occur to the extent that
leasing lags behind the delivery of units.
106 units of Madison at River Sound community and 72 units
of Madison at Adams Farm community were delivered in the first
quarter of 1997. The operating results for the three month period
of 1997 and 1996 for all development communities is summarized in
the following table (dollars in thousands; see footnotes above):
Three months
-------------
1997 1996
---- ----
Units 1,019 427
Rental income $1,794 $765
Operating expense (1) 477 244
Taxes and insurance 131 68
Subtotal (1) 608 312
----- -----
$1,186 $453
At March 31, 1997, 80.2% of the 1,019 units delivered at
Cherry Creek, Madison at River Sound and Madison at Adams Farm
were leased at an average rental rate of $730 per unit, or $.69
per square foot.
Rental Operations - Other Communities. The Company defines
"other communities" as those not included in same store
communities or development communities. These include communities
bought or sold in part or in whole in 1996. At March 31, 1997,
these communities included 2,598 units. The performance of the
other communities for the three month period of 1997 and 1996 are
summarized in the following table (dollars in thousands; see
footnotes above):
Three months
------------
1997 1996
---- ----
Units 2,598 534
Rental income $5,243 $970
Operating expense (1) 1,491 237
Taxes and insurance 683 54
----- -----
Subtotal (1) 2,174 291
$3,069 $679
Interest, Dividend and Other Income. Interest, dividend and
other income are summarized in the following table (dollars in
thousands):
Three months
-------------
1997 1996
---- ----
Interest income $ 766 $ 751
Dividend income 559 899
Other income 3,501 1,223
----- -----
Total $4,826 $2,873
Dividend income decreased as the Company liquidated the
majority of its equity security investments. The $3.5 million in
other income was generated primarily from the sale of a portion
of the equity security investments. At March 31, 1997 the
Company's equity security investments totaled $6.9 million, down
from $18.3 million at December 31, 1996 and an average of $11.5
million for the three months of 1997.
Interest Expense. Interest expense totaled $5.6 million in
the three month period of 1997, down from $5.8 million in the
three month period of 1996. Average debt outstanding rose to
$387.5 million in the three month period of 1997 from $360.0
million in the three month period of 1996, primarily as
a result of the assumption of mortgage notes in 1996 related to
apartment acquisitions. The weighted average interest rate
charged on all the Company's debt increased to 7.1% in the three
month period of 1997 from 7.0% for the three month period in 1996
as a result of an average interest rate of 8.7% on the mortgage
debt assumed. During the three month period of 1997, $1.2 million
of interest related to the Company's development projects was
capitalized versus $0.5 million in the three month period of
1996.
General and Administrative Expenses. General and
administrative expenses in the three month period of 1997 were
$1.1 million, representing 2.2% of rental revenues and 4.0% of
funds from operations. General and administrative expenses
increased $0.5 million in the first three months in 1997 versus
the first three months in 1996 due primarily to higher payroll,
professional fees, outside directors' expenses and investor
communications. Payroll expense increased primarily due to
increased employee headcount and pay rates.
Net Income. Net income totaled $18.2 million in the three
month period of 1997 and $14.5 million for the three month period
of 1996. Net income available for common shareholders totaled
$12.3 million in the three month period of 1997 and $9.6 million
for the three month period of 1996. The increases in net income
and net income available for common shareholders for 1997 when
compared to 1996 arose principally from substantially increased
operating income from apartments due to the growth of the
Company's apartment holdings, as well as increases in other
income. Net income per common share in the three month period of
1997 increased to $.33 from $.28 in the three month period of
1996.
Dividends to Preferred Shareholders. Dividends to preferred
shareholders totaled $5.8 million in the three month period of
1997 and $5.0 million in the three month period of 1996.
Preferred dividends are summarized in the following table
(dollars in thousands):
Three months
------------
1997 1996
---- ----
Series A Preferred share dividends $ 118 $ 289
Series B Preferred share dividends 2,205 2,205
Series C Preferred share dividends 2,472 2,472
Series D Preferred share dividends 1,036 ---
----- ------
Total preferred dividends $5,831 $4,966
The increase in preferred dividends arose from an increase
in the amount of preferred stock outstanding during the period as
a result of the issuance of $50.0 million of Series D preferred
shares in December, 1996. Holders of the Company's Series A
Preferred Stock have converted 4.3 million of the 4.6 million
Series A shares originally issued in June 1993 into 5.8 million
shares of the Company's common stock as the common dividend was
raised above the equivalent preferred dividend.
Funds From Operations. Funds from operations rose 21.3% to
$26.6 million in the three month period of 1997 as compared to
$21.9 million in the three month period of 1996. Funds from
operations available to common shares rose 28.6% to $21.8 million
in the three month period of 1997 compared to $16.9 million in
the three month period of 1996. These increases were principally
due to increased rental operating income resulting from the
growth of the Company's apartment holdings and increased
other income produced by the active management of cash raised in
securities offerings which was not yet invested in apartments. On
a fully diluted per share basis, funds from operations increased
12.2% to $.55 in 1997 from $.49. Other income from securities
totaled $3.5 million, or $.07 per share for the first quarter of
1997 versus $1.1 million, or $.03 per share for the first quarter
of 1996. At March 31, 1997, the Company held marketable equity
securities with unrealized gains of $1.5 million which should
produce cash management income of about $0.03 per share in the
second quarter of 1997, after which the Company does not expect
further amounts of such earnings. "Core FFO", those earnings
produced exclusively by non cash management activities, rose 4%
to $.48 per share from $.46 per share for the first quarter of
1997.
The following is a reconciliation of net income to funds
from operations (data in thousands, except per share data):
Three months
-------------
1997 1996
---- ----
Net income $18,178 $14,548
Less preferred dividends paid 5,831 4,966
------ ------
Net income available for common shares 12,347 9,582
Add depreciation of real estate owned 9,425 7,802
Less net realized gains --- 458
------ ------
Funds from operations
available to common shares 21,772 16,926
Add convertible preferred dividends 4,795 4,966
------ ------
Funds from operations-fully diluted $26,567 $21,892
Weighted average common shares
outstanding -
Primary 37,957 33,899
Fully diluted 48,292 44,759
Funds from operations per share-
Primary $ .57 $ .50
Fully diluted $ .55 $ .49
Other income from
securities (fully diluted) $ .07 $ .03
Core FFO (fully diluted) $ .48 $ .46
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 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 $0.2 million in both three month periods
of 1997 and 1996.
Liquidity and Capital Resources
Financial Structure. The Company's senior notes and its
preferred stock are rated investment grade by Standard & Poor's
Corporation (BBB+/BBB), Moody's Investors Services, Inc.
(Baa2/Baa3) and Duff & Phelps Credit Rating Co. (BBB+/BBB). At
March 31, 1997, total debt equaled 33% of total capitalization at
cost, and 27% of total capitalization with equity valued at
market. At that date, the Company's financial structure was as
follows (dollars in thousands):
Equity at
% of Market % of
Cost Total Value Total
---- ----- --------- -----
Advances under line of credit $ --- ---% $ --- ---%
Mortgage loans 27,508 2 27,508 1
6.625% senior unsecured notes, 1999 40,000 3 40,000 3
6.625% senior unsecured notes, 2000 40,000 3 40,000 3
6.625% senior unsecured notes, 2001 40,000 3 40,000 3
7.25% senior unsecured notes, 2002 40,000 3 40,000 3
6.875% senior unsecured notes, 2003 40,000 3 40,000 3
6.875% senior unsecured notes, 2004 40,000 3 40,000 3
7.25% senior unsecured notes, 2005 120,000 13 120,000 8
------- -- ------- --
Total debt 387,508 33% 387,508 27%
Series D preferred equity 50,000 4% 50,000 3%
Common and preferred equity (1) 749,271 63% 996,208 70%
------- --- ------- ---
Total equity 799,271 67% 1,046,208 73%
Total capitalization $1,186,779 100% $1,433,716 100%
-----------
(1) Assumes conversion of all outstanding convertible preferred
stock into common stock.
At March 31, 1997, the Company had no borrowings outstanding
under its lines of credit. The first $100.0 million of borrowings
under the line bear interest at 0.65% above the thirty day London
Interbank Offered Rates. At that date, the Company's loan
agreements and the covenants under its senior unsecured notes
would have allowed it to borrow $155.2 million on an unsecured
basis.
It generally is not the practice of the Company to finance
its acquisitions using mortgage debt, though at times the Company
finds it advantageous to assume such debt in order to
successfully negotiate and close property acquisitions. At March
31, 1997, the Company had three mortgage loans outstanding, which
were assumed in 1996 in connection with the purchase of three
communities.
Liquidity. Merry Land expects to meet its short-term
liquidity requirements with cash provided by operating
activities, by liquidating marketable securities and short term
investments and by borrowing under its line of credit. The
Company's primary short-term liquidity needs are operating
expenses, apartment acquisitions, apartment development and
capital improvements. The Company has reduced its holdings of
marketable securities which were acquired as a temporary
investment pending the acquisition or development of additional
apartment communities. The Company intends to continue to
liquidate its portfolio of marketable securities as market
conditions allow and invest in additional apartment communities.
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 operating cash flow, additional
borrowings and the issuance and sale of debt and equity
securities in the public and private markets.
The following table summarizes the Company's capital
requirements resulting from its development commitments as of
March 31, 1997. Not included in this table are additional
acquisitions and developments, debt repayments or the additional
sales of debt or equity securities (dollars in thousands):
Estimated capital requirements:
-------------------------------
Development communities expected costs $227,773
Less development costs paid thru 3/31/97 (98,106)
--------
129,667
Acquisition of communities under development 61,200
--------
Total future development commitments 190,867
Estimated capital sources:
-------------------------
Cash on hand at 3/31/97 $ 36,878
Marketable securities held at 3/31/97 9,294
Funds available under line of credit 130,000
--------
Total capital sources 176,172
Excess of capital requirements over sources $ 14,695
Cash Flows. The following table summarizes cash flows for
the three month periods of 1997 and 1996 (dollars in thousands):
Sources and Uses of Cash:
------------------------
Three Months
------------
1997 1996
---- ----
Operating activities $ 23,083 $ 26,048
Dividend Reinvestment and
Stock Purchase Plan 3,864 3,147
Other 2,262 562
------ ------
Total sources of cash 29,209 29,757
Acquisitions of and
improvements to properties (2,179) (13,888)
Development of properties (16,668) (9,643)
Dividends paid (20,623) (17,550)
Other (159) (1,274)
------ ------
Total uses (39,629) (42,355)
Increase (decrease) in cash,
cash equivalents and
marketable securities ($10,420) ($12,598)
Cash, cash equivalents and marketable securities decreased
by $10.4 million in 1997 as the Company invested funds raised in
the equity offerings in 1996 in apartments. The Company's
operating cash flow has decreased to $23.0 million in the three
month period of 1997 from $26.0 million in the three month period
of 1996. Net rental income from apartments increased as the size
of the portfolio grew. However, the timing of payments for
interest expense and property taxes for communities acquired in
1996 caused cash flow from operating activities to decrease. The
primary use of cash has been apartment development and
improvements and dividends. Expenditures for apartment
communities under development increased to $16.7 million in the
first three months of 1997 from $9.6 million in the first three
months of 1996 as the level of construction increased. The
Company expects development expenditures to increase further for
the remainder of 1997 as construction of additional apartment
communities commences. Dividends paid in the three month period
of 1997 increased from the same period in 1996 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 $0.39 in the first quarter of 1997 from
$0.37 per share.
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 significantly reduce the
cost of operating assets. At newly acquired communities, the
Company often finds it necessary to upgrade the physical
appearance of the 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 some of these expenditures
which would be considered replacements at stabilized communities
(as defined below) are classified as improvements at newly
acquired properties. Interest, real estate taxes and other
carrying costs incurred during the development period of
apartments under construction are capitalized and, upon
completion of the project, depreciated over the lives of the
projects.
The following table summarizes the capital expenditures for
the three month periods of 1997 and 1996 (dollars in thousands,
except per unit data):
Three months
------------
1997 1996
---- ----
Apartment communities:
Acquisitions $ --- $10,151
Development projects:
Development costs 15,450 9,643
Capitalized interest 1,218 473
Replacements for
stabilized communities (1) 1,006 1,178
Improvements (2) 712 2,153
Commercial properties 97 239
Corporate level expenditures 364 167
------ ------
$18,874 $24,004
Per Unit:
Replacements for
stabilized communities (1) $47 $64
Improvements (2) $28 $96
-------------
(1) Stabilized communities are those properties which have
been owned for at least one full calendar year. In the
three month period of 1997, 21,496 units were stabilized
as compared to 18,411 units in the three month period
of 1996.
(2) Improvements include expenditures for all properties
owned during the period, including replacements at 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.
This filing includes statements that are "forward looking
statements" regarding expectations with respect to market
conditions, development projects, occupancy rates, capital
requirements and sources. These assumptions and statements are
subject to various factors, unknown risks and uncertainties,
including general economic conditions, local market factors,
delays and costs overruns in construction, completion and rent up
of development communities, and performance of consultants
of other third parties and environmental concerns, any of which
may cause actual results to differ from the Company's current
expectations.
<PAGE>
Merry Land & Investment Company, Inc.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
(3.i) Amended and Restated Articles of Incorporation
(incorporated herein by reference to Exhibit 4(a) to
the Company's Shelf Registration Statement on Form
S-3 filed December 15, 1995, file number 33-65067),
as amended by Articles of Amendment to Articles of
Incorporation re:Series D Preferred Stock
(incorporated herein by reference to Exhibit 4 to the
Company's current report on Form 8-K filed
December 11, 1996).
(3.ii)By-laws (incorporated herein by reference to Exhibit
3(ii) of Item 14 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
Material Contracts.
Directors Stock Loan Plan
(27) Financial Data Schedules
b. Reports on Form 8-K:
None
<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
May 15, 1997
MERRY LAND & INVESTMENT COMPANY, INC.
DIRECTORS STOCK LOAN PLAN
WHEREAS, Merry Land & Investment Company, Inc. ("Merry Land") desires to
adopt this Merry Land & Investment Company, Inc. Directors Stock Loan Plan
(the "Plan") and to subject 150,000 shares of Merry Land Common Stock to the
Plan by adopting this Plan with respect to such Common Stock;
NOW, THEREFORE, Merry Land hereby adopts the following Plan:
1. PURPOSE
a. This Plan is intended as a performance incentive and to encourage
the continued support, loyalty and services of the Board of Directors of
Merry Land and other corporations which qualify as subsidiary corporations of
Merry Land (the "Subsidiaries") within the meaning of Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), so that the person to
whom an award (the "Award") is granted (the "Participant") may acquire or
increase his or her proprietary interest in the success of Merry Land and the
Subsidiaries. The Plan is further intended to closely associate the interests
of Merry Land's Board of Directors with the shareholders by reinforcing the
relationship between Participants' rewards and shareholders' gains.
b. Awards shall be designated as Stock Loan Rights.
2. ADMINISTRATION
a. The Plan shall be administered by the Board of Directors of Merry
Land (the "Directors"). A majority vote of the Directors shall be required
for all of their actions.
b. The Directors shall have the power, subject to, and within the
limits of, the express provisions of the Plan:
i. To determine from time to time which Directors are eligible
persons and which of the eligible persons shall be granted
Awards under the Plan, and the time or times when, and the
number of shares for which, an Award shall be granted to
such person;
ii. To prescribe the other terms and provisions (which need not be
identical) of each Award granted under the Plan to eligible
persons;
iii. To construe and interpret the Plan and Awards granted under
it, and to establish, amend, and revoke rules and regulations
for administration. The Directors, in the exercise of this
power, may correct any defect, or supply any omission, or
reconcile any inconsistency in the Plan, or in any Award
agreement, in the manner and to the extent they shall deem
necessary or expedient to make the Plan fully effective. In
exercising this power, the Directors may retain counsel at
the expense of Merry Land. All decisions and determinations
by the Directors in exercising this power shall be final and
binding upon Merry Land, the Subsidiaries, and the Participants;
and
iv. Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests
of Merry Land and the Subsidiaries with respect to the Plan.
3. STOCK
The stock subject to the Awards shall be shares of Merry Land's authorized
but unissued common stock, no par value per share (the "Common Stock "). The
number of shares for which Awards may be granted, excluding the shares involved
in the unexercised portion of any cancelled, terminated or expired Awards,
shall not exceed an aggregate number 150,000 shares of Common Stock.
4. ELIGIBILITY
The persons who shall be eligible to receive Awards shall be full-time
employees of Merry Land or the Subsidiaries. A Participant may receive more
than one Award. No Participant may receive Awards with respect to more than
150,000 shares of Common Stock in any calendar year.
5. STOCK LOAN RIGHTS
Participants may be granted interest free, limited or full recourse loans
to purchase Common Stock at the fair market value prevailing at the time of
purchase. For this purpose, the fair market value of the Common Stock shall
be determined in good faith by the Directors. The loans shall be:
a. evidenced by a promissory note,
b. payable on demand,
c. secured by the common stock purchased by the employee with at least
60% of all dividends to be applied against the principal balance of
the loan, and
d. if approved by the Directors, extended on a limited recourse basis
with recourse in the event of default limited to the shares of
stock purchased with and securing the loan and without personal
liability on the part of the Participant.
No shares of Common Stock purchased pursuant to the Stock Loan Rights
may be released to the Participant until the loan is repaid in full.
6. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of Common Stock pursuant to Stock Loans granted
under the Plan shall constitute general funds of Merry Land.
7. AMENDMENT OF THE PLAN
The Board of Directors, at any time, and from time to time, may amend
the Plan, subject to any required regulatory approval.
8. EFFECTIVENESS OF THE PLAN
This Plan shall become effective upon its adoption by the Board of
Directors. The Board of Directors at any time may terminate or suspend the
Plan. Unless sooner terminated, the Plan shall terminate on the tenth
anniversary of the effective date, but such termination shall not affect any
Award theretofore granted. An Award may not be granted while the Plan is
suspended or after it is terminated.
Rights and obligations under any Award granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan except with the consent of the Participant.
9. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan by the Board of Directors shall not be
construed as creating any limitations on the power of the Board of Directors
to adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of Awards otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases. The adoption of this Plan shall not terminate or have any effect on any
prior or existing stock loan plan.
10. NONTRANSFERABILITY OF AWARDS
All Awards granted pursuant to the Plan shall not be transferable, except
by will or the laws of descent and distribution, and shall be exercisable
during the Participant's lifetime only by the Participant; and
No assignment or transfer of the Award, or of the rights represented
thereby, whether voluntary or involuntary, by operation of law or otherwise,
shall vest in the assignee or transferee any interest or right in the Award
whatsoever, but immediately upon any attempt to assign or transfer the Award
the same shall terminate and be of no force or effect.
11. MANNER OF GRANT OF AWARDS
Nothing contained in this Plan or in any resolution heretofore or
hereafter adopted by the Board of Directors or any committee or by the
stockholders of Merry Land with respect to this Plan shall constitute the
granting of an Award under the Plan. The granting of an Award under this Plan
shall be deemed to occur only upon the date on which the Directors as provided
for in Section 2 hereof shall approve the grant of such Award.
12. SECURITIES LAWS
All Awards shall be subject to any provision necessary to assure
compliance with federal and state securities laws. Unless otherwise advised
by counsel to Merry Land, (i) each Award shall contain Participant's
acknowledgement that neither the Award nor the securities subject to the
Award have been registered under any state or federal securities law, (ii)
Participant agrees that the Award may not be exercised unless he or she is
able and willing to represent in writing to Merry Land that the securities
subject to the Award are being acquired by Participant for his or her own
account and without a view to the further distribution of such securities,
and (iii) a legend reading substantially as follows shall be placed
on the certificate(s) representing the securities:
"These securities have not been registered under the Securities Act of
1933 nor under any state securities law and may not be offered or sold or
transferred in the absence of an effective registration statement under the
Securities Act or under any applicable state act or an opinion of counsel
satisfactory to the Corporation that such registration is not required."
The transfer agent shall also be instructed to refuse to transfer the
securities unless the legend has been complied with.
13. TAX WITHHOLDING
Merry Land or a Subsidiary shall have the right to deduct or otherwise
effect a withholding of any amount required by federal or state laws to be
withheld with respect to the grant or exercise of any Award.
14. CONTINUATION OF DIRECTORSHIP
Nothing contained in this Plan (or in any written Award agreement) shall
obligate Merry Land or any Subsidiary to continue to elect or retain as a
Director, for any period, a Participant to whom an Award has been granted, or
interfere with the right of Merry Land or any Subsidiary to reduce such
Director's compensation.
15. EXCULPATION AND INDEMNIFICATION
Merry Land shall indemnify and hold harmless the members of the Board of
Directors acting in accordance with Section 2, from and against any and all
liabilities, costs, and expenses incurred by such persons as a result of any
act, or omission to act, in connection with the performance of such persons'
duties, responsibilities, and obligations under this Plan, other than such
liabilities, costs and expenses as may result from the negligence, gross
negligence, bad faith, willful misconduct, or criminal acts of such
persons.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 36,878
<SECURITIES> 9,294
<RECEIVABLES> 3,513
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,766
<PP&E> 1,202,258
<DEPRECIATION> 111,698
<TOTAL-ASSETS> 1,207,443
<CURRENT-LIABILITIES> 20,664
<BONDS> 360,000
0
271,679
<COMMON> 38,260
<OTHER-SE> 489,332
<TOTAL-LIABILITY-AND-EQUITY> 1,207,443
<SALES> 47,862
<TOTAL-REVENUES> 52,782
<CGS> 12,686
<TOTAL-COSTS> 34,604
<OTHER-EXPENSES> 16,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,626
<INCOME-PRETAX> 18,178
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,178
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
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