<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
DECEMBER 31, 1997
Commission file number: 001-11081
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MERRY LAND & INVESTMENT COMPANY, INC.
P.O. Box 1417
Augusta, Georgia 30903
706-722-6756
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State of Incorporation: Georgia I.R.S. Employer Identification Number:
58-0961876
<TABLE>
<CAPTION>
Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange
Title of Each Class on Which Registered
- ----------------------------------------------------------- ---------------------
<S> <C>
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
7.625% Series E Cumulative Redeemable Preferred Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non affiliates of the
registrant on January 30, 1998: Common Stock, no par value -- $819,689,731 (all
shares other than those owned or controlled by officers, directors, and 5%
shareholders).
The number of shares of common stock outstanding as of January 31, 1998 was
39,506,587.
Documents incorporated by reference: The 1998 definitive proxy statement to be
mailed to shareholders for the annual meeting scheduled for April 20, 1998, is
incorporated by reference into Part III of this form 10-K.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 9
Item 3 Legal Proceedings........................................... 15
Item 4 Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5 Market for the Registrant's Common Stock and Related
Shareholders' Matters....................................... 16
Item 6 Selected Financial Data..................................... 20
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 21
Item 8 Financial Statements and Supplementary Data................. 30
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 41
Item 11 Executive Compensation...................................... 41
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
Item 13 Certain Relationships and Related Transactions.............. 41
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 43
</TABLE>
<PAGE> 3
PART I
Item 1 -- Business
THE COMPANY
Merry Land & Investment Company, Inc. is an apartment operating company and
is one of the largest owners of upscale garden apartments in the United States.
At December 31, 1997, the Company had a total market capitalization of $1.8
billion and owned a high quality portfolio of 104 apartment communities,
containing 29,526 units geographically diversified throughout the Southern
United States. The communities are located in nine states, extending from the
Washington, D.C. area to Texas and to Florida, with 32% of the Company's assets
located in Florida, 25% in Texas, and 43% in other Southern states, based on
cost. The Company also has seven apartment communities under development and
construction. The Company believes that its strong capitalization, cost
efficient operations and established brand identity give it significant
operating advantages over other apartment operators. Merry Land completed its
initial public securities offering in 1981 and elected real estate investment
trust ("REIT") tax status in 1987. The Company is headquartered in Augusta,
Georgia and maintains area management offices in Charlotte, Atlanta, Orlando and
Dallas.
Merry Land's apartment communities are located in 27 metropolitan areas,
each with a population in excess of 250,000 and, at December 31, 1997, no
metropolitan area contained more than 14% of the Company's portfolio. The
Company believes that this diversification reduces the volatility of its
aggregate rental occupancy and rental income. The Company also believes that
specializing in high end Southern apartment communities will allow it to
establish a recognized franchise in its market area and will allow it to achieve
economies in marketing and operating its communities.
The following table summarizes the Company's apartment holdings by major
market as of December 31, 1997 (dollars in millions):
<TABLE>
<CAPTION>
Investment
Market Units at Cost % of Cost
- ------ ------ ---------- ---------
<S> <C> <C> <C>
Dallas/Ft. Worth, Texas..................................... 3,208 $ 209.3 14%
Atlanta, Georgia............................................ 4,235 208.6 14
Orlando, Florida............................................ 2,404 119.0 8
Charlotte, North Carolina................................... 2,459 113.6 8
Jacksonville, Florida....................................... 2,550 107.1 7
Houston, Texas.............................................. 1,457 87.4 6
Austin, Texas............................................... 1,249 80.4 5
Ft. Lauderdale, Florida..................................... 1,144 72.5 5
Tampa, Florida.............................................. 1,449 70.6 5
Ft. Myers, Florida.......................................... 1,268 59.2 4
Savannah, Georgia........................................... 1,149 55.2 4
Raleigh, North Carolina..................................... 1,256 48.8 3
Nashville, Tennessee........................................ 587 35.5 2
Charleston, South Carolina.................................. 880 34.2 2
Others...................................................... 4,231 194.7 12
------ -------- ----
29,526 $1,496.1 100%
</TABLE>
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CORPORATE STRATEGY
The Company's objective is to increase operating cash flow and shareholder
value by generating superior growth in the net operating income of its
communities, by acquiring or developing selected communities with satisfactory
initial yields and the prospects for continued cash flow growth, and by
financing its activities at the lowest possible cost. In order to accomplish
these objectives, the Company intends to own and operate a significant number of
communities in most major markets of the Southern United States, to build
further on its recognized reputation among apartment renters in this region for
high quality communities and first class service, and to continue to develop
superior techniques for operating a growing system of communities. The Company
expects eventually to extend its operations to other high growth areas of the
country.
Operating. The execution of this strategy provides significant marketing
advantages and operating efficiencies to Merry Land. The Company believes that
operating a system of communities which are of consistently high quality allows
it to conduct a focused marketing effort, provide high levels of customer
service, maintain consistent policies, procedures and training, and offer
programs and amenities tailored to the needs of upscale residents. The Company
believes that significant incremental demand is generated by its brand identity
and by the referral of prospects from one Merry Land community to another. At
present, approximately 5% of the Company's new leases are provided by the
transfer of residents from other Merry Land communities or the referral of
customers from other Merry Land communities. The Company also believes that its
high income residents provide a large customer base to which it can market
additional goods and services and generate additional income.
Growth. Merry Land seeks to increase its apartment holdings both for the
increase in earnings expected from each transaction as well as to build further
on the marketing and operating advantages provided by its system of Southern
apartments. The Company adds to its holdings by a variety of means including
buying existing apartment communities, buying communities under construction and
in the initial lease-up stage (primarily from merchant builders) and developing
communities from the ground up.
Merry Land has bought over $1.0 billion of apartment communities in the
past five years. The Company believes that the long term growth prospects of the
South remain the strongest in the country. Furthermore, the large number of
newly built communities currently available for sale in its market areas provide
excellent prospects for the Company's acquisition program. The Company buys both
single assets and portfolios after careful evaluation of each community's
location, physical attributes, and the conditions of supply and demand in its
submarket.
While the Company believes rapid growth through acquisitions remains the
preferable way to expand its holdings, it also believes that development is
becoming an increasingly important component of its growth strategy. The Company
currently uses the services of outside developers to build apartment communities
in selected markets. The cost of development units delivered by the Company was
$28.4 million in 1996, $67.1 million in 1997 and is expected to be $101.1
million in 1998. The use of outside developers has allowed the Company to
undertake a large development program in multiple markets while retaining the
flexibility to expand or contract this program as conditions warrant. The
Company expects to expand its internal development capability over the next
several years.
The Company also intends to dispose of assets which do not conform to its
strategy and to reinvest those proceeds in conforming communities. In the past
two years the Company has sold two apartment communities in Ohio as well as
older properties in Augusta. In 1998, it intends to redevelop or sell a limited
number of communities whose cash flow growth prospects do not meet the Company's
targets. Dispositions in 1998 are expected to total less than 5% of assets.
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The following table summarizes the Company's growth in recent years
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Units acquired........................... 4,104 2,475 3,444 4,872 7,452
Units developed.......................... 936 414 -- -- --
Total units owned at end of period....... 29,526 24,936 22,296 18,852 13,981
Total cost of apartments................. $1,496,109 $1,175,427 $1,009,056 $796,436 $554,589
Total apartment rental income............ $ 208,363 $ 176,053 $ 144,283 $101,667 $ 54,565
</TABLE>
Property Management. The apartment community is Merry Land's basic
business unit. Each community is led by a Property Manager whose staff receives
ongoing training in the disciplines of leasing, administration, maintenance and
marketing. The objective of the on site staff is to maximize growth in cash flow
by providing superior customer service, maximum revenue growth, and cost
effective maintenance. In order to tie employee compensation to the interests of
the Company's shareholders, a significant part of on site personnel's
compensation consists of cash bonuses paid for achievement of budgeted net cash
flow.
The Company believes that its large size provides it superior buying power
which allows it to obtain goods and services for lower costs than would
otherwise be available. The Company has dedicated personnel who concentrate
their efforts on exploiting this advantage. Large size also allows the Company
to hire and train well qualified individuals who specialize in various
disciplines, providing the Company greater competence in these areas than would
be available in a smaller organization.
The Company believes that the control of operating expenses is essential to
the production of superior operating returns. Its focus on the acquisition of
newly built communities and controlling expenses have allowed it to reduce its
same store operating ratio (operating costs as a percent of revenue) from 39.0%
in 1994, 38.9% in 1995, 38.0% in 1996 to 37.5% in 1997.
Financing. The Company maintains a capital structure which affords both
financial flexibility and access to low cost capital. At December 31, 1997,
equity market capitalization was $1.2 billion, total capitalization was $1.8
billion and debt equaled 34% of total capitalization. The Company prefers to
finance its acquisitions using unsecured debt but on occasion assumes mortgage
debt in order to acquire apartment communities or portfolios. At December 31,
1997, seven of the Company's 104 apartment communities were encumbered with
mortgages. The average interest rate on outstanding debt at that date was 7.0%.
The Company has scheduled maturities of its debt in order to allow orderly
repayment or refinancing. Its securities carry investment grade ratings.
1997 ACTIVITIES
Organizational Changes. In December, 1996, Peter S. Knox III, Chairman and
Chief Executive Officer of Merry Land since its inception in 1981, died after an
illness of several months. W. Tennent Houston, President of the Company and
Chief Operating Officer since 1985, was appointed Chief Executive Officer;
Michael N. Thompson, Vice President of Acquisitions and Development since 1992,
was appointed Chief Operating Officer; and Boone A. Knox, Mr. Knox's brother,
was elected Chairman of the Board of Directors. Boone Knox was Chief Executive
Officer of Allied Bankshares, a publicly owned bank holding company, and is a
director of Cousins Properties Incorporated, a diversified REIT. Mr. Knox's
family is the largest shareholder of the Company. During 1997, the Company's
organization was restructured along functional lines, area management offices
were opened, additional personnel were added in various areas, and the Company
invested in equipment and systems to enable it to compete more effectively in
the rapidly maturing apartment industry.
Operating Results. In 1997, the Company more aggressively managed its rent
rates and rental concessions in order to operate at a higher level of occupancy
and to increase rental income. Positions in its property management organization
were added to provide better support of its communities. As a result of those
measures and improving conditions in some southern markets, same store net
operating income rose 4.2% for the year. Same store occupancy (consisting of
apartment communities owned for all of 1996 and 1997) rose 1.1% for the year to
94.8% and same store rental revenues rose 3.3%. The Company focused on
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expense control and began to pass a significant portion of water costs on to its
residents which helped hold the increase in same store operating expense to
1.8%.
Sale of Marketable Securities. In order to fund the future expenditures
required by its development program, the Company had raised funds through sales
of securities in 1995 and 1996 and had invested a portion of the proceeds in the
securities of other REITs. Marketable securities totaled $23.8 million at
December 31, 1996. Income produced by these holdings added $5.0 million of funds
from operations ("FFO") in 1997 ($.10 per share), and $6.0 million in 1996 ($.13
per share). During the first half of 1997, these holdings were liquidated and
the proceeds were invested in apartment acquisitions and development.
Acquisitions. In 1997, the Company acquired 14 apartment communities
containing 4,104 units at a cost of $257.9 million. These high quality
communities had an average age of two years and average rents of $820 per month.
They averaged 93% occupancy at closing. During the year the Company made its
first investments in Houston and eventually added 1,457 units in that city at a
cost of $86 million. The following is a listing of communities acquired in 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Date
Community Location Units Built Cost
- --------- -------- ----- ----- --------
<S> <C> <C> <C> <C>
Trails at Briar Forest.................. Houston, Texas 476 1990 $ 22,150
La Tour Fontaine........................ Houston, Texas 162 1994 15,250
Parc Royale............................. Houston, Texas 171 1994 12,750
Richmond Townhomes...................... Houston, Texas 188 1995 12,700
Palms at South Shore.................... Houston, Texas 240 1990 12,210
Ranchstone.............................. Houston, Texas 220 1996 11,250
Wimberly................................ Dallas/Ft. Worth, Texas 372 1996 26,500
Coventry at City View................... Dallas/Ft. Worth, Texas 360 1996 22,140
Riverhill............................... Dallas/Ft. Worth, Texas 334 1996 22,000
Hidden Lakes............................ Dallas/Ft. Worth, Texas 312 1997 20,000
The Point............................... Charlotte, North Carolina 340 1996 21,300
The Oaks................................ Charlotte, North Carolina 318 1996 20,250
Chatelaine Park......................... Atlanta, Georgia 303 1996 23,413
Polos East.............................. Orlando, Florida 308 1991 16,000
----- --------
4,104 $257,913
</TABLE>
Development. In 1997, the Company completed the construction of Adams Farm
II, a 200 unit expansion in Greensboro, continued construction on its
development communities in Atlanta and Savannah, and started construction on
four other communities in Atlanta, Richmond and Greensboro. For the year,
construction expenditures for these seven communities totaled $57.1 million, and
936 units at a total cost of $67.1 million were completed and placed in service.
This included all 200 units at Madison at Adams Farm in Greensboro, 452 units at
Madison at River Sound in Atlanta, and 284 units at Hammocks at Long Point in
Savannah. The Company expects to deliver the following units in 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
Expected Cost of
Units Delivery in Delivered
Community Location Planned 1998 Units
- --------- -------- ------- ---------------- ---------
<S> <C> <C> <C> <C>
Hammocks at Long Point........ Savannah, Georgia 308 24 $ 1,914
Carriage Homes at Wyndham..... Richmond, Virginia 264 264 26,071
Madison at Bridford Lake...... Greensboro, North Carolina 320 320 24,791
Madison at Satellite Place.... Atlanta, Georgia 424 308 25,715
Cherry Creek III.............. Nashville, Tennessee 220 160 12,186
Spring Oak.................... Richmond, Virginia 506 132 10,467
----- ----- --------
2,042 1,208 $101,144
</TABLE>
Sale of Non-Conforming Assets. In April, 1997, the Company sold Saw Mill
Village in Columbus, Ohio for $19.6 million, recognizing a gain of $0.5 million.
Saw Mill Village was acquired in 1994 as part of a twelve property portfolio
transaction but did not conform to Merry Land's strategy of building a Southern
apartment
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franchise. The Company also disposed of several small commercial and residential
properties located in Augusta which were acquired early in the 1980s. The cost
of these assets was $3.4 million, and a net loss of $0.4 million was recognized
on the sales.
Financing Activity. On July 28, 1997, the Company completed a public
offering of $50.0 million of senior unsecured notes to yield 6.941% to maturity.
The notes bear an interest rate of 6.90%, with interest payable semi-annually in
February and August, and with principal due August 1, 2007.
On October 30, 1997, the Company completed a public offering of $50.0
million of senior unsecured notes to yield 6.69% to maturity. The notes bear an
interest rate of 6.69%, with interest payable semi-annually in May and November,
and with principal due October 30, 2006.
The notes issued in 1997 are rated BBB+ by Standard & Poor's Corporation
and Duff & Phelps Credit Rating Co. and Baa2 by Moody's Investors Services, Inc.
and rank equally with the Company's other unsecured and unsubordinated
indebtedness.
On September 16, 1997, the Company obtained a $200.0 million syndicated
revolving credit facility from a group of banks. Borrowings under the line bear
interest at 0.60% above the thirty day London Interbank Offered Rates. The
credit facility also includes a $100.0 million competitive bid option which
allows the Company to solicit bids from participating banks at rates below the
contractual rate. The facility is for a three year term followed by a two year
amortization for a total term of five years with an annual renewal option.
RECENT DEVELOPMENTS
Acquisition of Communities from Trammell Crow Residential. On February 23,
1998 Merry Land entered into a definitive agreement to acquire 13 Florida
apartment communities containing 3,994 units (the "Trammell Crow Residential
Portfolio") from Trammell Crow Residential, a national apartment development and
management company, and its affiliates. The acquisition is expected to close
late in the first quarter of 1998. The sellers will receive consideration of
approximately $248.0 million, including partnership units in Merry Land's newly
created subsidiary DownREIT partnership, cash and the assumption of debt.
The communities to be acquired include eleven stabilized properties, one in
lease up and one under construction. Four communities are located in Orlando,
four in Tampa, three in Jacksonville and one each in Sarasota and Daytona. This
high quality portfolio averages seven years of age, 941 square feet per unit and
$717 monthly rent, and was 94% occupied as of December 31, 1997. These
characteristics are very similar to those of Merry Land's existing Florida
holdings. These communities have approximately 100 on-site employees. Merry Land
expects to employ substantially all of the staff at the communities and a number
of additional management personnel from Trammell Crow Residential.
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The following is a detailed listing of the communities to be acquired:
<TABLE>
<CAPTION>
12/31/97
Year Sq. ft. ------------------
Community Location Built Units per Unit Avg. Rent Occup.
- --------- ------------- ----- ----- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Wood Forest.............................. Daytona Beach 1985 144 822 $ 568 93%
Oaks at Baymeadows....................... Jacksonville 1985 248 995 637 88
Oaks at Regency.......................... Jacksonville 1985 159 844 562 86
Oaks at Orange Park...................... Jacksonville 1986 280 845 603 92
Vinings at Lake Buena Vista.............. Orlando 1988 400 927 696 97
Chicasaw Crossing........................ Orlando 1986 292 850 613 95
Vinings Club at Metrowest................ Orlando 1997 411 1,182 1,005 (1)
Vinings at Lenox Place................... Orlando 1998 456 1,011 851 (2)
Beneva Place............................. Sarasota 1986 192 882 683 96
Vinings Club at Boot Ranch............... Tampa 1996 432 956 773 94
Vinings at Carrollwood Place............. Tampa 1995 432 970 738 93
Forest Place............................. Tampa 1985 244 813 577 97
Horizon Place............................ Tampa 1985 304 841 605 97
---- ----- ----- ----- --
Weighted Average or Total...... 1990 3,994 941 $ 717 94%
</TABLE>
- ---------------
(1) Under lease-up at December 31, 1997.
(2) Under construction at December 31, 1997.
The Company believes that this transaction will be a significant step in
its strategy to become recognized by renters throughout the South as the
region's leading provider of high-quality apartment homes. With this
transaction, Merry Land will assume a major position in the Florida luxury
apartment market with 14,256 high quality units in that state and with
particularly strong concentrations in Orlando, Tampa and Jacksonville. The
Company expects this transaction will help it to further capitalize on its
significant marketing advantages and operating efficiencies in the state. Merry
Land has substantial infrastructure in place in Florida and expects to quickly
integrate the new communities into its Orlando based Florida Management Area.
The acquisition will bring Merry Land's investment in Florida apartments to
$746 million, an increase of 50%, and will represent a 17% increase in the
Company's total investment in apartments based on total cost. Following the
transaction, Merry Land's Florida communities will represent about 43% of the
Company's total apartments at cost. The following table includes Merry Land's
apartment holdings at December 31, 1997 and the Trammell Crow Residential
Portfolio:
<TABLE>
<CAPTION>
% of
TCR Merry Land Total Investment Investment
City Units Units Units at Cost at Cost
- ---- ----- ---------- ------ ---------- ----------
(millions)
<S> <C> <C> <C> <C> <C>
Orlando.......................................... 1,559 2,404 3,963 $ 235.0 13.5%
Tampa............................................ 1,412 1,449 2,861 164.2 9.4
Jacksonville..................................... 687 2,550 3,237 140.0 8.0
Ft. Lauderdale................................... -- 1,144 1,144 72.5 4.2
Ft. Myers........................................ -- 1,268 1,268 59.2 3.4
Other Florida.................................... 336 1,447 1,783 75.3 4.3
----- ------ ------ -------- -----
Total Florida.......................... 3,994 10,262 14,256 746.2 42.8
Dallas/Ft. Worth................................. -- 3,208 3,208 209.3 12.0
Atlanta.......................................... -- 4,235 4,235 208.6 12.0
Charlotte........................................ -- 2,459 2,459 113.6 6.5
Houston.......................................... -- 1,457 1,457 87.4 5.0
Austin........................................... -- 1,249 1,249 80.4 4.6
Other Markets.................................... -- 6,656 6,656 298.6 17.1
----- ------ ------ -------- -----
Total Portfolio........................ 3,994 29,526 33,520 $1,744.1 100.0%
</TABLE>
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To fund the acquisition Merry Land will assume $113.5 million of debt,
including $96.7 million of tax exempt debt bearing interest at an average rate
of approximately 5.0%. Merry Land also has formed a subsidiary DownREIT
partnership which will issue operating partnership units with an aggregate value
of approximately $20.0 million to the sellers. The units will be redeemable for
cash or, at the Company's option shares of Merry Land common stock on a one for
one basis, beginning one year after closing. The Company will file a
registration statement allowing the units exchanged for common stock to be
publicly traded. The balance of the purchase price of approximately $115.0
million will be paid in cash. The definitive agreement with Trammell Crow
Residential contains customary conditions of sale and there can be no assurance
the transaction will close.
Sale of Preferred Stock. In an offering completed on February 13, 1998,
the Company issued 4.0 million shares of Series E Cumulative Redeemable
Preferred Stock at $25.00 per share for net proceeds of $96.7 million. This
issue bears a dividend rate of 7.625%. The Company used the net proceeds to pay
down its line of credit and to provide funds to acquire and develop additional
apartment communities. The Series E Preferred Stock is rated BBB by Standard &
Poor's Corporation and Duff & Phelps Credit Rating Co. and Baa3 by Moody's
Investors Services, Inc. and ranks equally with the Company's other series of
preferred stock.
ORGANIZATION
Merry Land is an operating company which maintains a centralized and
functionally organized management structure, conducting all its corporate level
activities (including accounting, finance, general property management and
acquisitions and development) from its offices in Augusta. The Company does not
provide any services to third parties.
The Company manages its properties under the trade name "Merry Land
Apartment Communities" and in 1998 has begun to identify each of its communities
with the trade name "Merritt" followed by the community's specific name in order
to further establish brand identity.
Each apartment community functions as an individual business unit according
to well developed policies and procedures. Each community is operated by an
onsite Property Manager and staff who are extensively trained by the Company in
sales, management, accounting, maintenance and other disciplines. Property
Managers report to 14 Regional Property Managers who report to four Area
Property Managers. Regional Property Managers are located in Raleigh, Charlotte
(2), Atlanta (2), Charleston, Jacksonville, Orlando, Tampa, Ft. Lauderdale,
Dallas (2), Houston and Austin. Area Property Managers are located in Charlotte,
Atlanta, Orlando, and Dallas and are supported by training, marketing and
maintenance specialists.
At December 31, 1997, the Company had a total of 905 employees. Of this
number 820 work at its apartment communities, 48 are employed in accounting,
administrative and general management, 25 in corporate level property management
and 12 in acquisitions and development. A significant portion of the
compensation of on site personnel is tied to achievement of community cash flow
targets. All employees have the opportunity to become shareholders through the
Company's Employee Stock Ownership Plan. Management level personnel participate
in the Company's stock option and stock purchase plans, further aligning their
interests with those of the Company's shareholders.
MARKETS
The Company believes that a generally favorable long term relationship
between aggregate supply and demand exists for apartment rentals in its Southern
markets. The Company's nine state market area has experienced growth in
households, a key determinant of apartment demand, in excess of national
averages during the 1980s and 1990s. Demographic data for the Company's markets
indicate that from 1990 to 1997 total households in these markets increased
13.0% versus an increase of 7.4% nationally. Data also indicates that in the
next five years, total households in these markets will increase 8.4% versus an
increase of 4.5% nationally.
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Apartment starts in the nine states which the Company considers to be its
current market area have risen in recent years from 50,000 in 1992 to 124,000 in
1996. In 1997, this increased supply led to softness in certain markets, but the
Company believes supply and demand, in the South as a whole, are in equilibrium.
The Company's overall occupancy at communities it held for all of 1996 and 1997
averaged 94.8% for 1997 versus 93.7% for 1996.
HISTORY
Merry Land conducted its initial public stock offering in 1981 after having
been spun off earlier that year from Merry Companies, Inc., one of the Nation's
largest brick manufacturers, in connection with the latter's acquisition by an
Australian company. Merry Land had been incorporated in 1966 and had remained a
passive asset holding subsidiary of Merry Companies, Inc. until the 1981
spin-off, when active operations began. At that time, the Company's major asset
was 4,700 acres of clay land, most of which it still owns and from which it
continues to receive clay and sand royalties. The Company bought its first
apartments in 1982 and has been actively involved in the acquisition and
management of apartments since that date. The Company is a Georgia corporation.
It has its principal office at 624 Ellis Street, Augusta, Georgia 30901 and its
telephone number is (706) 722-6756.
FORWARD LOOKING STATEMENTS
This filing includes statements that are "forward looking statements"
regarding expectations with respect to market conditions, development projects,
acquisitions, occupancy rates, capital requirements, sources of funds, expense
levels, operating performance and other matters. These assumptions and
statements are subject to various factors, unknown risks and uncertainties,
including general economic conditions, local market factors, delays and cost
overruns in construction, completion and rent up of development communities,
performance of consultants or other third parties, environmental concerns, and
interest rates, any of which may cause actual results to differ from the
Company's current expectations.
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PART I
Item 2 -- Properties
APARTMENTS
Communities. The Company owns high quality apartment communities,
substantially all of which command rental rates in the upper range of their
markets. They are generally newer "garden apartments", in wood frame two- and
three-story buildings without elevators, with individually metered electric and
gas service and individual heating and cooling systems. In 1997, the Company
acquired two "mid-rise" communities containing 333 units located in urban areas
of Houston, Texas. The Company's apartments are 48% one bedroom units, 46% two
bedroom units and 6% three bedroom units. The units average 909 square feet in
area, seven years of age, and are well equipped with modern appliances and other
conveniences. The communities are generally heavily landscaped and offer
extensive amenities. Most include swimming pools, tennis courts, club rooms,
exercise facilities and hot tubs. Some of the Company's communities also offer
racquetball courts, saunas, alarm systems and other features, including enclosed
garages.
Residents. Residents at the Company's apartments typically earn middle and
upper middle levels of incomes. They include young professionals, white collar
workers, medical personnel, teachers, members of the military, single parents,
single adults and young families. These residents are generally "renters by
choice" -- who have the means to own homes but choose to live in apartment
communities because of their current employment, family or other personal
circumstances. The Company believes that demand for its apartments is primarily
dependent on the general economic strength of each market's economy and its
level of job creation and household formation, and to a lesser extent to
prevailing interest rate levels for home mortgage loans. There is a steady
turnover of leases at the Company's communities, allowing rents to be adjusted
upward as demand allows. Leases are generally for terms of from six to twelve
months. About two-thirds of the Company's units turn over each year, a rate the
Company believes is typical for higher end apartment communities.
Markets. Merry Land's apartment communities are located in 27 metropolitan
areas, each with a population in excess of 250,000 and, as of December 31, 1997,
none containing more than 14% of the Company's portfolio. The Company believes
that this diversification reduces the volatility of its aggregate rental
occupancy and rental income. The Company also believes that specializing in
high-end Southern apartment communities will allow it to establish a recognized
franchise in its market area and will allow it to achieve economies in marketing
and operating its communities.
9
<PAGE> 12
The following table describes the Company's apartment communities at
December 31, 1997.
<TABLE>
<CAPTION>
Average Average
Date Date Cost(1) Cost Unit Size
Name Location Built Acquired Units (In Thousands) Per Unit(1) (Sq. Ft.)
---- -------- ------- -------- ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALABAMA
Shoal Run........................ Birmingham 1986 1996 276 $ 11,528 $41,766 903
FLORIDA
Indigo Plantation................ Daytona 1989 1994 304 11,615 38,208 882
Waterford Village................ Delray Beach 1989 1994 236 13,708 58,083 910
Country Club Place............... Ft. Lauderdale 1987 1996 152 9,120 59,998 1,100
Ft.
Madison at Coral Square.......... Lauderdale..... 1989 1995 384 26,479 68,957 1,192
Mariner Club..................... Ft. Lauderdale 1988 1996 304 18,483 60,798 931
Welleby Lake Club................ Ft. Lauderdale 1991 1993 304 18,433 60,634 1,061
------- ---------- ------- -----
1,144 72,515 63,387 1,076
Beach Club....................... Ft. Myers 1990 1995 320 12,421 38,817 872
Colony Place..................... Ft. Myers 1991 1993 300 18,469 61,565 1,136
Polos............................ Ft. Myers 1991 1993 328 15,413 46,990 955
Viridian Lake.................... Ft. Myers 1991 1992 320 12,889 40,277 863
------- ---------- ------- -----
1,268 59,192 46,681 953
Bermuda Cove..................... Jacksonville 1989 1994 350 15,976 45,644 912
Claire Point..................... Jacksonville 1986 1993 256 13,839 54,059 1,010
Deerbrook........................ Jacksonville 1983 1993 144 7,142 49,595 1,293
Princeton Square................. Jacksonville 1984 1992 288 8,561 29,724 738
Royal Oaks....................... Jacksonville 1991 1993 284 12,406 43,682 816
Spicewood Springs................ Jacksonville 1986 1992 512 16,946 33,097 759
Timberwalk....................... Jacksonville 1987 1993 284 12,836 45,196 851
Waterford........................ Jacksonville 1988 1993 432 19,380 44,861 1,066
------- ---------- ------- -----
2,550 107,086 41,995 902
Cypress Cove..................... Melbourne 1990 1993 326 16,246 49,833 1,027
Lakeridge at Moors............... Miami 1991 1993 175 12,109 69,194 970
Auvers Village................... Orlando 1991 1993 480 22,890 47,688 1,021
Bishop Park...................... Orlando 1991 1993 324 17,126 52,859 903
Conway Station................... Orlando 1987 1993 242 11,417 47,176 787
Copper Terrace................... Orlando 1989 1992 300 12,182 40,608 902
Lexington Park................... Orlando 1988 1993 252 11,380 45,159 799
Mission Bay...................... Orlando 1991 1993 304 17,343 57,050 1,087
Polos East....................... Orlando 1991 1997 308 16,491 53,543 877
Valencia Plantation.............. Orlando 1990 1996 194 10,197 52,564 899
------- ---------- ------- -----
2,404 119,026 49,512 930
Augustine Club................... Tallahassee 1988 1993 222 8,468 38,144 900
Plantations at Killearn.......... Tallahassee 1990 1996 184 7,685 41,767 849
------- ---------- ------- -----
406 16,153 39,786 877
Audubon Village.................. Tampa 1990 1993 447 20,374 45,580 849
Essex Place...................... Tampa 1989 1996 148 5,358 36,204 834
Falls............................ Tampa 1985 1993 240 8,590 35,794 655
Lofton Place..................... Tampa 1988 1993 280 15,180 54,215 953
Promenade........................ Tampa 1994 1994 334 21,081 63,117 978
------- ---------- ------- -----
1,449 70,583 48,712 865
<CAPTION>
Average December Rent(2) Average
--------------------------- Occupancy
Per Month Per Sq. Ft. (3)
----------- ------------- -----------
Name 1996 1997 1996 1997 1996 1997
---- ---- ---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ALABAMA
Shoal Run........................ $582 $571 $0.64 $0.63 85% 92%
FLORIDA
Indigo Plantation................ 573 586 0.65 0.66 88 95
Waterford Village................ 756 809 0.83 0.89 92 98
Country Club Place............... 838 849 0.76 0.77 94 95
Madison at Coral Square.......... 864 883 0.72 0.74 88 93
Mariner Club..................... 875 836 0.94 0.90 92 93
Welleby Lake Club................ 798 790 0.75 0.74 91 94
---- ---- ----- ----- --- ---
846 841 0.79 0.78 91 94
Beach Club....................... 600 617 0.69 0.71 92 96
Colony Place..................... 753 748 0.66 0.66 95 97
Polos............................ 650 673 0.68 0.70 94 96
Viridian Lake.................... 647 663 0.75 0.77 92 96
---- ---- ----- ----- --- ---
661 674 0.70 0.71 93 96
Bermuda Cove..................... 668 683 0.73 0.75 96 96
Claire Point..................... 693 850 0.69 0.84 97 95
Deerbrook........................ 739 750 0.57 0.58 94 94
Princeton Square................. 520 542 0.70 0.73 95 94
Royal Oaks....................... 613 617 0.75 0.76 96 94
Spicewood Springs................ 527 547 0.69 0.72 95 94
Timberwalk....................... 592 624 0.70 0.73 98 97
Waterford........................ 671 682 0.63 0.64 95 95
---- ---- ----- ----- --- ---
615 646 0.69 0.72 96 95
Cypress Cove..................... 678 683 0.66 0.67 91 97
Lakeridge at Moors............... 844 850 0.87 0.88 95 97
Auvers Village................... 675 713 0.66 0.70 97 97
Bishop Park...................... 637 659 0.71 0.73 94 96
Conway Station................... 594 622 0.75 0.79 97 98
Copper Terrace................... 665 687 0.74 0.76 94 96
Lexington Park................... 601 613 0.75 0.77 89 94
Mission Bay...................... 763 776 0.70 0.71 91 96
Polos East....................... (4) 694 (4) 0.79 (4) 94
Valencia Plantation.............. 684 711 0.76 0.79 96 97
---- ---- ----- ----- --- ---
663 688 0.72 0.75 94 96
Augustine Club................... 633 626 0.70 0.70 86 93
Plantations at Killearn.......... 628 623 0.74 0.73 94 93
---- ---- ----- ----- --- ---
631 625 0.72 0.71 90 93
Audubon Village.................. 632 655 0.74 0.77 95 98
Essex Place...................... 626 658 0.75 0.79 97 99
Falls............................ 519 521 0.79 0.80 94 96
Lofton Place..................... 668 689 0.70 0.72 94 98
Promenade........................ 764 786 0.78 0.80 95 99
---- ---- ----- ----- --- ---
650 670 0.75 0.77 95 98
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Average Average
Date Date Cost(1) Cost Unit Size
Name Location Built Acquired Units (In Thousands) Per Unit(1) (Sq. Ft.)
---- -------- ------- -------- ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
GEORGIA
Belmont Crossing............... Atlanta 1988 1993 316 $ 13,535 $42,834 1,023
Belmont Landing................ Atlanta 1988 1993 424 16,734 39,468 911
Champion's Park................ Atlanta 1987 1994 252 11,861 47,069 806
Chatelaine Park................ Atlanta 1995 1997 303 23,709 78,247 1,105
Gwinnett Crossing.............. Atlanta 1990/89 1992/95 574 20,905 36,420 874
Harvest Grove.................. Atlanta 1986 1992 376 11,580 30,799 927
Lexington Glen................. Atlanta 1990 1993 480 31,810 66,271 1,095
Madison at River Sound......... Atlanta 1996 1996 586 41,984 71.645 834
Shadowlake..................... Atlanta 1989 1994 228 9.987 43,803 1,018
Sweetwater Glen................ Atlanta 1986 1992 200 6,440 32,202 802
Willow Trail................... Atlanta 1985 1993 224 7,915 35,335 860
Windridge...................... Atlanta 1982 1994 272 12,185 44,798 845
------- ---------- ------- -----
4,235 208,645 49,267 927
Downtown....................... Augusta (5) (5) 75 3,454 46,055 974
Woodcrest...................... Augusta 1982 1982 248 8,699 35,077 875
Woodknoll...................... Augusta 1975 1982 52 1,554 35,077 900
Other.......................... Augusta 1984 1984 1 72 72,131 1,300
------- ---------- ------- -----
376 13,779 36,593 856
Greentree...................... Savannah 1983 1986 194 7,392 38,102 852
Hammocks at Long Point......... Savannah 1997 1997 284 21,385 75,300 1,049
Huntington..................... Savannah 1986 1992 147 5,335 36,291 812
Magnolia Villa................. Savannah 1986 1986 144 5,709 39,648 1,119
Marsh Cove..................... Savannah 1983 1986 188 8,104 43,105 1,053
West Wind Landing.............. Savannah 1985 1993 192 7,262 37,822 1,124
------- ---------- ------- -----
1,149 55,187 48,030 994
MARYLAND
Clarys Crossing................ Baltimore 1984 1994 198 12,138 61,031 938
NORTH CAROLINA
Berkshire Place................ Charlotte 1982 1990 240 9,024 37,599 882
English Hills.................. Charlotte 1984 1994 280 10,541 37,648 688
Hunt Club...................... Charlotte 1990 1992 300 10,901 36,335 891
Kimmerly Glen.................. Charlotte 1986 1995 260 9,638 37,070 750
Lake Point..................... Charlotte 1984 1989 296 10,739 36,280 918
The Oaks....................... Charlotte 1996 1997 318 20,413 64,192 883
The Point...................... Charlotte 1996 1997 340 21,529 63,319 884
Regency........................ Charlotte 1986 1996 178 11,461 64,388 925
Steeplechase................... Charlotte 1986 1994 247 9,304 37,668 724
------- ---------- ------- -----
2,459 113,550 46,177 823
Adams Farm..................... Greensboro 1987 1994 500 28,546 57,092 1,005
Chatham Wood................... High Point 1986 1990 208 7,426 35,702 811
Duraleigh Woods................ Raleigh 1987 1994 362 18,553 51,251 784
Misty Woods.................... Raleigh 1984 1991 360 11,615 32,264 766
Sailboat Bay................... Raleigh 1986 1993 192 6,391 33,286 641
Sommerset Place................ Raleigh 1983 1990 144 5,601 38,894 780
Timber Hollow.................. Chapel Hill 1986 1991 198 6,649 33,582 735
------- ---------- ------- -----
1,256 48,809 38,861 751
SOUTH CAROLINA
Quarterdeck.................... Charleston 1986 1989 230 9,681 42,093 810
Summit Place................... Charleston 1985 1985 226 8,346 36,929 892
Waters Edge.................... Charleston 1985 1988 200 7,939 39,693 911
Windsor Place.................. Charleston 1984 1989 224 8,192 36,570 953
------- ---------- ------- -----
880 34,158 38,816 890
Hollows........................ Columbia 1987 1991 212 6,540 30,847 762
Haywood Pointe................. Greenville 1985 1991 216 7,070 32,732 848
<CAPTION>
Average December Rent(2) Average
----------------------------- Occupancy
Per Month Per Sq. Ft. (3)
------------- ------------- -----------
Name 1996 1997 1996 1997 1996 1997
---- ---- ------ ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GEORGIA
Belmont Crossing............... $643 $668 $0.63 $0.65 96% 95%
Belmont Landing................ 611 646 0.67 0.71 97 94
Champion's Park................ 644 682 0.80 0.85 97 96
Chatelaine Park................ (4) 866 (4) 0.78 (4) 92
Gwinnett Crossing.............. 623 639 0.71 0.73 96 94
Harvest Grove.................. 593 605 0.64 0.65 95 94
Lexington Glen................. 853 866 0.78 0.79 93 94
Madison at River Sound......... 793 855 0.95 1.03 63 63
Shadowlake..................... 652 658 0.64 0.65 96 94
Sweetwater Glen................ 579 616 0.72 0.77 97 96
Willow Trail................... 587 603 0.68 0.70 97 95
Windridge...................... 629 644 0.74 0.76 95 91
---- ------ ----- ----- --- ---
657 712 0.71 0.77 96 91
Downtown....................... 478 487 0.49 0.50 86 91
Woodcrest...................... 519 525 0.59 0.60 75 78
Woodknoll...................... 477 492 0.53 0.55 95 96
Other.......................... 675 675 0.52 0.52 100 100
---- ------ ----- ----- --- ---
447 513 0.52 0.57 76 83
Greentree...................... 569 594 0.67 0.70 95 92
Hammocks at Long Point......... (4) 776 (4) 0.74 (4) 77
Huntington..................... 606 616 0.75 0.76 97 77
Magnolia Villa................. 603 621 0.54 0.55 96 94
Marsh Cove..................... 644 658 0.61 0.62 96 90
West Wind Landing.............. 660 684 0.59 0.61 99 96
---- ------ ----- ----- --- ---
617 671 0.63 0.67 96 98
MARYLAND
Clarys Crossing................ 805 842 0.86 0.90 95 95
NORTH CAROLINA
Berkshire Place................ 615 630 0.70 0.71 95 96
English Hills.................. 559 556 0.81 0.81 93 95
Hunt Club...................... 665 672 0.75 0.75 95 95
Kimmerly Glen.................. 549 567 0.73 0.76 94 95
Lake Point..................... 597 607 0.65 0.66 94 91
The Oaks....................... (4) 756 (4) 0.86 (4) 93
The Point...................... (4) 743 (4) 0.84 (4) 95
Regency........................ 771 751 0.92 0.81 94 91
Steeplechase................... 558 565 0.77 0.78 96 95
---- ------ ----- ----- --- ---
610 651 0.75 0.78 94 95
Adams Farm..................... 690 727 0.69 0.72 93 80
Chatham Wood................... 531 557 0.65 0.69 97 95
Duraleigh Woods................ 644 658 0.82 0.84 93 92
Misty Woods.................... 587 611 0.77 0.80 97 95
Sailboat Bay................... 547 568 0.85 0.89 95 95
Sommerset Place................ 626 640 0.80 0.82 96 97
Timber Hollow.................. 653 676 0.89 0.92 96 98
---- ------ ----- ----- --- ---
605 632 0.81 0.84 95 95
SOUTH CAROLINA
Quarterdeck.................... 589 616 0.73 0.76 100 99
Summit Place................... 460 480 0.52 0.54 87 93
Waters Edge.................... 547 570 0.60 0.63 93 97
Windsor Place.................. 540 551 0.57 0.58 88 98
---- ------ ----- ----- --- ---
534 554 0.60 0.62 92 97
Hollows........................ 516 528 0.68 0.69 95 94
Haywood Pointe................. 560 565 0.66 0.67 98 94
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
Average Average
Date Date Cost(1) Cost Unit Size
Name Location Built Acquired Units (In Thousands) Per Unit(1) (Sq. Ft.)
---- -------- ------- -------- ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TENNESSEE
The Landings................... Memphis 1986 1994 292 $ 11,831 $40,517 786
Cherry Creek................... Nashville 1996/86 1994 407 24,247 59,575 902
Waterford Place................ Nashville 1994 1996 180 11,254 62,524 1,027
------- ---------- ------- -----
587 35,501 60,479 940
TEXAS
Estate at Quarry Lake.......... Austin 1995 1996 302 18,286 60,509 894
Madison at the Arboretum....... Austin 1995 1996 161 10,467 65,015 937
Madison at Stone Creek......... Austin 1995 1995 390 23,905 61,294 862
Sedona Springs................. Austin 1995 1996 396 27,714 69,985 950
------- ---------- ------- -----
1,249 80,372 64,439 907
Madison at Cedar Springs....... Dallas 1995 1995 380 24,423 64,271 898
Madison at Chase Oaks.......... Dallas 1995 1995 470 29,608 62,995 895
Madison on Melrose............. Dallas 1995 1995 200 14,086 70,430 947
Madison on the Parkway......... Dallas 1995 1995 376 24,981 66,439 904
Madison at Round Grove......... Dallas 1995 1995 404 25,213 62,407 933
Riverhill...................... Dallas 1996 1997 334 21,877 65,501 890
Coventry at Cityview........... Ft. Worth 1996 1997 360 22,278 61,882 978
Hidden Lakes................... Ft. Worth 1996 1997 312 20,141 64,553 928
Wimberly....................... Ft. Worth 1996 1997 372 26,689 71,746 921
------- ---------- ------- -----
3,208 209,296 65,242 919
La Tour Fontaine............... Houston 1994 1997 162 15,415 95,156 1,029
Palms of South Shore........... Houston 1990 1997 240 12,310 51,293 795
Parc Royale.................... Houston 1994 1997 171 12,891 75,383 976
Ranchstone..................... Houston 1996 1997 220 11,353 51,604 878
Richmond Townhomes............. Houston 1995 1997 188 12,963 68,952 978
Trails at Briar Forest......... Houston 1990 1997 476 22,485 47,238 897
------- ---------- ------- -----
1,457 87,417 59,998 912
VIRGINIA
Champions Club................. Richmond 1988 1994 212 10,486 49,463 776
Hickory Creek.................. Richmond 1984 1994 294 15,597 53,055 851
------- ---------- ------- -----
506 26,083 51,549 820
TOTALS................... 29,526 $1,496,109 $50,671 909
<CAPTION>
Average December Rent(2) Average
----------------------------- Occupancy
Per Month Per Sq. Ft. (3)
------------- ------------- -----------
Name 1996 1997 1996 1997 1996 1997
---- ---- ------ ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TENNESSEE
The Landings................... $570 $595 $0.73 $0.76 94% 93%
Cherry Creek................... 716 757 0.79 0.84 91 97
Waterford Place................ 758 789 0.74 0.77 96 95
---- ------ ----- ----- --- ---
729 767 0.78 0.82 93 95
TEXAS
Estate at Quarry Lake.......... 852 877 0.95 0.98 85 96
Madison at the Arboretum....... 840 833 0.90 0.89 95 97
Madison at Stone Creek......... 789 773 0.92 0.90 89 95
Sedona Springs................. 888 918 0.93 0.97 88 95
---- ------ ----- ----- --- ---
842 852 0.93 0.94 88 95
Madison at Cedar Springs....... 870 911 0.97 1.01 97 98
Madison at Chase Oaks.......... 816 814 0.91 0.91 91 93
Madison on Melrose............. 908 915 0.96 0.97 88 93
Madison on the Parkway......... 851 866 0.94 0.96 85 91
Madison at Round Grove......... 790 819 0.85 0.88 91 92
Riverhill...................... (4) 831 (4) 0.93 (4) 84
Coventry at Cityview........... (4) 856 (4) 0.88 (4) 92
Hidden Lakes................... (4) 831 (4) 0.90 (4) 85
Wimberly....................... (4) 888 (4) 0.96 (4) 91
---- ------ ----- ----- --- ---
839 855 0.92 0.93 91 92
La Tour Fontaine............... (4) 1,171 (4) 1.14 (4) 93
Palms of South Shore........... (4) 752 (4) 0.95 (4) 97
Parc Royale.................... (4) 1,019 (4) 1.04 (4) 94
Ranchstone..................... (4) 771 (4) 0.88 (4) 95
Richmond Townhomes............. (4) 889 (4) 0.91 (4) 96
Trails at Briar Forest......... (4) 712 (4) 0.79 (4) 95
---- ------ ----- ----- --- ---
(4) 837 (4) 0.92 (4) 96
VIRGINIA
Champions Club................. 656 685 0.85 0.88 93 96
Hickory Creek.................. 664 701 0.78 0.82 95 97
---- ------ ----- ----- --- ---
661 694 0.81 0.85 94 96
TOTALS................... $670 $709 $0.74 $0.78 93% 94%
</TABLE>
- ---------------
(1) Represents the total acquisition cost of the property plus the capitalized
cost of the improvements made subsequent to acquisition.
(2) Represents the weighted average of rent charged for occupied units and rent
asked for unoccupied units at month end.
(3) Represents average physical occupancy at each month end for the period held.
(4) Properties not owned during period indicated.
(5) These units consist of three locations, built and acquired at various times.
(6) 1996 amounts represent the 134 units delivered by December 31,1996.
(7) 1996 amounts represent the initial 300 units owned.
DEVELOPMENT COMMUNITIES
At December 31, 1997, the Company had six communities under construction
which will contain 2,408 units (of which 870 units have been delivered) and one
community with 220 units under development. These communities will be completed
at an expected total cost of $203.3 million. In addition, the Company owns land
for 1,240 additional units to be built in subsequent phases of development
communities in Greensboro, Nashville and Savannah. 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 Company has engaged experienced apartment developers to provide
development and construction management services to the Company on a project by
project basis. These developers are not partners of the Company and have no
interest in the real estate or improvements which are owned in fee simple by
Merry Land. The developers' fees are computed as a share of the value of the
completed projects, based on agreed upon formulas, less actual costs. Merry
Land's employees supervise development activities with the assistance of
architects and engineers as required. The Company owns all land and
improvements, directly contracts for construction and bears essentially all
risks of project development. While the Company has added several individuals to
its acquisition and development department as a result of this program, it does
not intend to establish a large, specialized development organization. The
Company believes that this system of constructing new communities allows it the
flexibility to simultaneously develop communities in multiple markets and
12
<PAGE> 15
to expand, reduce or terminate such activities as conditions warrant. Merry Land
will manage these new communities during and after construction.
The following table summarizes the Company's current developments and
recently completed communities as of December 31, 1997. Estimated costs 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
Units
Total Total Units Placed
Estimated Cost in in Units Estimated
Location Community Units Cost to Date Service Service Leased Completion
- -------- ------------------- ----- --------- -------- ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Completed
Greensboro............. Adams Farm(1) 200 $ 13,100 $ 13,062 200 $13,062 167 3Q1997
Under Construction
Atlanta................ River Sound 586 $ 42,000 $ 41,976 586 $41,976 366 1Q1998
Savannah............... Long Point 308 22,900 22,289 284 21,383 221 1Q1998
Richmond............... Wyndham 264 24,500 15,764 -- -- 0 4Q1998
Greensboro............. Bridford Lake 320 24,500 7,832 -- -- 0 1998
Atlanta................ Satellite Place 424 34,000 7,721 -- -- 0 1999
Richmond............... Spring Oak 506 38,800 6,073 -- -- 0 1999
----- -------- -------- --- ------- ---
2,408 $186,700 $101,655 870 $63,359 587
Under Development
Nashville.............. Cherry Creek III(1) 220 $ 16,600 $ 3,682 1999
Future Development
Savannah............... Long Point II(1) 352 $ 1,128
Nashville.............. Bell Road I and II 688 3,908
Greensboro............. Bridford Lake II(1) 200 1,328
----- --------
1,240 $ 6,364
</TABLE>
- ---------------
(1) Adjoins an existing community owned by the Company.
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> <C> <C> <C> <C>
Creekside Homes at Legacy............................. Dallas, Texas 380 $31,200 2Q1998
Villages of Prairie Creek I........................... Dallas, Texas 236 19,800 2Q1998
Villages of Prairie Creek II.......................... Dallas, Texas 200 19,500 1Q1999
--- -------
816 $70,500
</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.
The Company believes that there is more risk associated with development
activities than with buying operating communities. Such risks include those
associated with obtaining regulatory approvals and entitlements, timely
completion of construction, cost control and marketing and lease up. Any one or
more of these factors could cause adverse changes in the construction budgets
referred to in the table. The Company believes that the potentially higher
returns on development projects merit the assumption of this additional risk.
The Company's present intent is to limit the total cost of development underway
at any given time to no more than 10% of its total assets.
13
<PAGE> 16
OTHER ASSETS
Unimproved Land. The Company owns 5,315 acres of undeveloped land with a
book value of $4.1 million. Most of this land was acquired by the Company's
predecessor for clay reserves and is located in Georgia and South Carolina.
Since 1981, brick manufacturer Boral Bricks, Inc. has had a long term clay
mining lease on 2,622 acres of the Company's land. The Company also leases 100
acres to another company for the mining of sand and gravel and leases other
tracts for agriculture, and grows timber on much of the remaining land. The
Company expects that some of its land eventually may be developed or sold for
development by others.
Commercial Properties. The Company also owns several small commercial
properties in the Augusta area, primarily office buildings, including the
Company's headquarters building, which were acquired before the Company began to
focus on apartments. These properties, aggregating 182,000 square feet, have a
book value of $4.0 million. The Company intends to sell these properties.
14
<PAGE> 17
PART I
Item 3 -- Legal Proceedings
None
Item 4 -- Submission of Matters to a Vote of Security Holders
None
15
<PAGE> 18
PART II
Item 5 -- Market for the Registrant's Common Stock and Related Shareholders'
Matters
COMMON STOCK
Merry Land's Common Stock is traded on the NYSE under the symbol "MRY". The
following table sets forth the reported high and low sales prices of the Common
Stock on the NYSE, and the cash dividends declared per share of Common Stock.
<TABLE>
<CAPTION>
Common Cash
Stock Price Dividends
----------------- Declared
High Low per Share
---- --- ---------
<S> <C> <C> <C> <C> <C>
1997
Fourth Quarter.............................................. $24 1/8 $21 1/16 $.39
Third Quarter............................................... 23 21 1/16 .39
Second Quarter.............................................. 22 1/8 20 1/2 .39
First Quarter............................................... 22 5/8 20 3/8 .39
1996
Fourth Quarter.............................................. $21 3/4 $18 1/4 $.37
Third Quarter............................................... 22 1/8 20 1/8 .37
Second Quarter.............................................. 22 1/4 20 .37
First Quarter............................................... 23 3/4 21 5/8 .37
</TABLE>
On December 31, 1997, the Company had 4,523 shareholders of record. The
Company estimates that an additional 24,000 shareholders hold their shares in
"street name."
On January 19, 1998, the Board of Directors declared a dividend of $.41 per
share of Common Stock to be paid on March 31, 1998 to holders of record on March
16, 1998. The projected current annual dividend rate is $1.64 per share. The
$.41 quarterly dividend represents a payout of 79% of FFO available for common
shares for the quarter ended December 31, 1997, a payout ratio which the Company
believes is conservative relative to its REIT peers. Future dividends will be
declared at the discretion of the Board of Directors after considering the
Company's distributable funds, financial requirements, tax considerations and
other factors.
Under the REIT rules of the Internal Revenue Code, the Company must pay at
least 95% of its REIT taxable income (excluding capital gains) as dividends in
order to avoid taxation as a regular corporation. The Board makes decisions with
respect to the distribution of capital gains on a case-by-case basis. A portion,
or all, of the Company's dividends paid to its shareholders may be deemed
capital gain, ordinary income or a return of capital.
The federal income tax status of dividends paid to holders of Common Stock
was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Ordinary income............................................. $0.88 $1.18.. $1.34
Capital gains............................................... .16 .11.. .06
Return of capital........................................... .52 .19.. --
----- ----- -----
Total dividends paid.............................. $1.56 $1.48.. $1.40
===== ===== =====
</TABLE>
The loan agreements for the Company's 6.625% Senior Notes and its $200.0
million line of credit prohibit the payment of any dividends or other
distributions upon the occurrence of an event of default. The terms of the
Company's credit agreements and preferred stock include other restrictions on
its ability to pay dividends, including a requirement in its line of credit
agreement that it not pay dividends in any year in an amount in excess of 90% of
its FFO, except as necessary to maintain the Company's REIT status. The Company
does not expect that these covenants will adversely affect its ability to make
dividend payments.
16
<PAGE> 19
SERIES A PREFERRED STOCK
Merry Land's $1.75 Series A Cumulative Convertible Preferred Stock is
traded on the New York Stock Exchange under the symbol "MRYpr". At December 31,
1997, $4.7 million of Series A Preferred Stock was outstanding. The following
table sets forth the reported high and low sales prices of the Series A
Preferred Stock on the NYSE, and the cash dividends declared per share of Series
A Preferred Stock.
<TABLE>
<CAPTION>
Preferred
Stock Price
---------------- Dividends
High Low Declared
------ ------ ---------
<S> <C> <C> <C>
1997
Fourth quarter.............................................. $31.94 $29.63 $.4375
Third quarter............................................... 30.63 28.69 .4375
Second quarter.............................................. 29.38 27.38 .4375
First quarter............................................... 30.00 28.38 .4375
1996
Fourth quarter.............................................. $28.88 $25.13 $.4375
Third quarter............................................... 29.38 27.63 .4375
Second quarter.............................................. 29.75 27.25 .4375
First quarter............................................... 31.75 30.00 .4375
</TABLE>
The federal income tax status of dividends paid to holders Series A
Preferred Stock was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Ordinary income............................................. $1.49 $1.61 $1.68
Capital gains............................................... 0.26 .14 .07
Return of capital........................................... -- -- --
----- ----- -----
Total dividends paid........................................ $1.75 $1.75 $1.75
</TABLE>
The Series A Preferred Stock has an annual dividend rate of $1.75 per
share, payable quarterly, and is convertible into common shares at a conversion
price of $18.65 per share of common stock. The Series A Preferred Stock may not
be redeemed for cash at any time, but may be redeemed by the Company for common
shares after June 30, 1998, at a rate of 1.34 shares of common for each share of
preferred, provided the common shares are trading above $18.65, subject to
adjustments for certain circumstances.
SERIES B PREFERRED STOCK
Merry Land's $2.205 Series B Cumulative Convertible Preferred Stock is not
publicly traded though the Company has granted to the holders of the Series B
Preferred Stock certain registration rights. At December 31, 1997, $100.0
million of Series B Preferred Stock was outstanding. The federal income tax
status of dividends paid to holders of Series B Preferred Stock was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Ordinary income........................................... $1.875 $2.025 $2.115
Capital gains............................................. .330 .180 .090
Return of capital......................................... -- -- --
------ ------ ------
Total dividends paid...................................... $2.205 $2.205 $2.205
</TABLE>
The Series B Preferred Stock has an annual dividend rate of $2.205 per
year, payable quarterly, and is convertible into common shares at a conversion
price of $21.04 per common share. The Series B Preferred Stock may not be
redeemed for cash at any time, but may be redeemed by the Company for common
shares after October 31, 1999, at a rate of 1.188 shares of common stock for
each share of preferred, provided the Company's common shares are trading above
the conversion price of $21.04 per share, subject to adjustments for certain
circumstances.
17
<PAGE> 20
SERIES C PREFERRED STOCK
Merry Land's $2.15 Series C Cumulative Convertible Preferred Stock is
traded on the New York Stock Exchange under the symbol "MRYPrC". At December 31,
1997, $115.0 million of Series C Preferred Stock was outstanding. The following
table sets forth the high and low sales prices of the Series C Preferred Stock
on the NYSE, and the cash dividends declared per share of Series C Preferred
Stock:
<TABLE>
<CAPTION>
Preferred
Stock Price
--------------- Dividends
High Low Declared
------ ------ ---------
<S> <C> <C> <C>
1997
Fourth quarter.............................................. $28.31 $26.50 $.5375
Third quarter............................................... 28.81 26.38 .5375
Second quarter.............................................. 28.00 26.00 .5375
First quarter............................................... 28.75 26.00 .5375
1996
Fourth quarter.............................................. $28.88 $24.50 $.5375
Third quarter............................................... 28.63 26.25 .5375
Second quarter.............................................. 28.38 25.75 .5375
First quarter............................................... 30.25 27.00 .5375
</TABLE>
The federal income tax status of dividends paid to holders of Series C
Preferred Stock was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
<S> <C> <C> <C>
Ordinary income............................................. $1.82 $1.97 $--
Capital gains............................................... 0.33 .18 --
Return of capital........................................... -- -- --
----- ----- --
Total dividends paid........................................ $2.15 $2.15 $--
</TABLE>
The Series C Preferred Stock is convertible into common shares at a
conversion price of $22.00 per share of common stock and has an annual dividend
rate of $2.15 per share payable quarterly. The dividend rate will be increased
to an amount equal to at least the dividends paid on the number of shares of
common stock into which the Series C Preferred Stock is convertible. The Series
C Preferred Stock may not be redeemed for cash at any time, but may be redeemed
by the Company for common shares after March 31, 2000, at a rate of 1.136 shares
of common for each share of Series C Preferred Stock provided the common shares
are trading above $22.00, subject to adjustments for certain circumstances.
SERIES D PREFERRED STOCK
Merry Land's $4.145 Series D Cumulative Redeemable Preferred Stock is not
publicly traded. At December 31, 1997, $50.0 million of Series D Preferred Stock
was outstanding. The federal income tax status of dividends paid to holders of
Series D Preferred Stock was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Ordinary income............................................. $3.526 $0.222 --
Capital gains............................................... 0.619 .020 --
Return of capital........................................... -- -- --
------ ------ ------
Total dividends paid........................................ $4.145 $0.242 --
</TABLE>
The Series D Preferred Stock has an annual dividend rate of $4.145 per
year, payable quarterly. The Series D Preferred Stock may not be redeemed until
December 10, 2026.
SERIES E PREFERRED STOCK
On February 13, 1998, the Company issued 4,000,000 shares of 7.625% Series
E Cumulative Redeemable Preferred Stock, which has an annual dividend rate of
$1.906, payable quarterly beginning March 31, 1998.
18
<PAGE> 21
The Series E Preferred Stock may not be redeemed until February 13, 2003. The
Series E Preferred Stock is traded on the New York Stock Exchange under the
symbol "MRYPrE".
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has adopted a Dividend Reinvestment and Stock Purchase Plan
under which any holder of Common Stock or Preferred Stock may reinvest cash
dividends or optional cash payments of up to $5,000 per quarter in additional
shares of Common Stock purchased directly from the Company at a 5% discount.
Stock purchases made with optional cash payments cannot exceed the number of
shares of Common Stock and Preferred Stock owned by the shareholder. All common
and preferred shareholders are eligible to join the plan including shareholders
whose shares are held in the name of a nominee or broker. During 1997 the
Company issued 783,907 shares under the plan at an average price of $20.81 per
share providing $16.3 million in new equity capital. The Dividend Reinvestment
and Stock Purchase Plan has provided new equity capital as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Dividend Reinvestment.................................... $11,459 $ 9,128 $ 8,547
Stock Purchase Plan...................................... 4,858 4,704 2,622
------- ------- -------
$16,317 $13,832 $11,169
</TABLE>
19
<PAGE> 22
PART II
Item 6 -- Selected Financial Data
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company and
should be read in conjunction with the financial statements and notes thereto
incorporated by reference herein. The following amounts are in thousands, except
for information with respect to per share amounts and apartment units.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Income from property operations:
Rental and mineral royalty revenue.............. $ 210,272 $ 176,989 $ 145,214 $103,169 $ 56,181
Rental expenses, property taxes and insurance... 79,735 68,087 58,527 38,409 22,611
Depreciation of real estate owned............... 42,464 34,490 26,265 17,877 9,066
---------- ---------- ---------- -------- --------
88,073 74,412 60,422 46,883 24,504
Other income:
Other interest and dividend income.............. 2,603 5,454 6,908 2,440 2,463
Other........................................... 5,086 6,178 4,476 (655) 10
---------- ---------- ---------- -------- --------
7,689 11,632 11,384 1,785 2,473
Expenses:
Interest........................................ 25,900 22,527 15,646 10,394 5,640
General and administrative...................... 4,666 2,858 2,396 1,773 1,433
Depreciation - other and amortization........... 1,149 860 670 470 180
Other non-recurring costs....................... -- -- 1,370 200 1,308
---------- ---------- ---------- -------- --------
31,715 26,245 20,082 12,837 8,561
Gains on sales of assets:
Gains on sales of investments................... 996 2,679 1,673 881 6,960
Gains on sales of land.......................... -- -- 68 196 1,023
Gains on sales of depreciable real estate....... 460 1,528 72 77 9
---------- ---------- ---------- -------- --------
1,456 4,207 1,813 1,154 7,992
Net income........................................ 65,503 64,006 53,537 36,985 26,408
Preferred dividends paid.......................... 23,257 19,843 18,129 7,934 4,025
---------- ---------- ---------- -------- --------
Net income available for common shares............ $ 42,246 $ 44,163 $ 35,408 $ 29,051 $ 22,383
========== ========== ========== ======== ========
Weighted average common shares.................... 38,461 35,919 33,368 26,430 17,268
Weighted average diluted common shares............ 38,928 36,676 33,418 26,450 17,288
Diluted earnings per common share................. $ 1.10 $ 1.23 $ 1.06 $ 1.10 $ 1.30
Common dividends paid............................. $ 60,040 $ 53,886 $ 46,734 $ 33,467 $ 16,934
Common dividends paid per share................... $ 1.56 $ 1.48 $ 1.40 $ 1.25 $ .90
BALANCE SHEET DATA (at end of period)
Apartments, net of depreciation................... $1,356,226 $1,075,933 $ 943,070 $756,588 $532,465
Senior notes...................................... 460,000 360,000 360,000 120,000 120,000
Mortgage debt..................................... 70,282 27,546 -- 17,835 37,173
Other debt........................................ 67,800 -- -- 74,975 --
Total stockholders' equity........................ 797,332 798,772 695,859 584,851 397,715
Total assets...................................... $1,427,881 $1,208,246 $1,072,840 $806,655 $562,172
OTHER DATA
Funds from operations(1).......................... $ 102,367 $ 94,047 $ 79,360 $ 53,907 $ 28,790
Funds from operations available to common
shares.......................................... $ 83,254 $ 74,446 $ 61,231 $ 45,973 $ 24,764
Apartment units acquired or developed during the
period.......................................... 5,040 2,889 3,444 4,872 7,452
Total apartment units at end of the period........ 29,526 24,936 22,296 18,852 13,981
</TABLE>
- ---------------
(1) The Company uses the National Association of Real Estate Investment Trusts'
task force's published definition of funds from operations. Funds from
operations is defined as net income computed in accordance with generally
accepted accounting principles, excluding non-recurring costs and net
realized gains (other than gains included in other income as cash management
income) plus depreciation of real property. Funds from operations should be
considered along with, and not as a substitution for, net income and cash
flows as a measure of the Company's operating performance and liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
20
<PAGE> 23
PART II
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997, 1996 AND
1995.
Rental Markets. In the aggregate, the Company's Southern rental markets
were stronger in 1997 than in 1996 as strong demand for apartments exceeded
additions to supply. The Company's apartments experienced occupancy in 1997 of
93.8% which was 0.5% above 1996 as the result of stronger markets, aggressive
leasing efforts by staff, and selectively offering concessions to residents in
order to induce them to rent. While levels of new construction throughout the
South remain high, the Company believes that physical occupancy should remain
satisfactory if general economic activity, job growth and household formation in
the South remain strong.
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):
<TABLE>
<CAPTION>
% Change from
Change 1996 to 1997 1997 1996 1995
------ ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Rental income............................ 18% $32,310 $208,363 $176,053 $144,283
Operating expenses(1).................... 15 7,212 55,347 48,135 40,726
Taxes and insurance expense.............. 23 4,283 23,265 18,982 15,520
---- ------- -------- -------- --------
Subtotal................................. 17 11,495 78,612 67,117 56,246
------- -------- -------- --------
Earnings before interest, depreciation
and amortization....................... 19 $20,815 $129,751 $108,936 $ 88,037
Average Units(2)......................... 14 3,303 26,850 23,547 20,291
Average occupancy(3)..................... 0.5(4) 93.8% 93.3% 95.2%
Occupancy at end of period............... 0.6(4) 92.8% 92.2% 94.0%
Average monthly rent(5).................. 5.8 $ 39 $ 709 $ 670 $ 639
Expense ratio (6)........................ (0.5)(4) 37.7% 38.1% 39.0%
</TABLE>
- ---------------
(1) Excludes depreciation and amortization.
(2) Represents the average number of units owned at each month end.
(3) Represents the average physical occupancy at each month end for the period
held.
(4) Represents increase between periods.
(5) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at December 31.
(6) Represents total of operating expenses, taxes and insurance divided by
rental revenues.
Acquisitions and the delivery of units from the Company's development
program increased the weighted average number of apartments owned to 26,850 in
1997 from 23,547 in 1996. Rental revenues, operating expenses and taxes and
insurance rose accordingly. A 5.8% increase in portfolio average rental rates in
1997 resulted from both higher rents at the Company's continuing properties and
also from higher rents charged at the communities the Company acquired and put
in service in 1997 and 1996, whose monthly rents averaged $800 at December 31,
1997, versus the total portfolio average of $709.
21
<PAGE> 24
Rental Operations -- Same Store. The performance of the 21,156 units which
the Company held for all of both 1997 and 1996 ("same store" results) is
summarized in the following table (dollars in thousands, except average monthly
rent; see footnotes above):
<TABLE>
<CAPTION>
Change from
Change 1996 to 1997 1997 1996
------ ------------ -------- --------
<S> <C> <C> <C> <C>
Rental income.......................................... 3.3% $5,183 $162,995 $157,811
Personnel expense...................................... 14.5 2,260 17,887 15,627
Utilities expense...................................... (23.2) (2,056) 6,816 8,872
Operating expense...................................... 12.7 996 8,830 7,834
Maintenance and grounds expense........................ (4.7) (509) 10,214 10,723
Taxes and insurance expense............................ 2.4 543 17,238 16,837
----- ------ -------- --------
Subtotal(1)............................................ 1.8 1,234 60,985 59,893
----- ------ -------- --------
Earnings before interest, depreciation and
amortization......................................... 4.2 $3,949 $102,010 $ 97,918
Average occupancy(3)................................... 1.1(4) 94.8% 93.7%
Occupancy at end of period............................. 1.9(4) 94.6% 92.7%
Average monthly rent(5)................................ 2.6 $ 17 $ 674 $ 657
Expense ratio(6)....................................... (0.4)(4) 37.5% 38.0%
</TABLE>
- ---------------
Same store community results do not include Cherry Creek, a 127 unit community
which was owned for both 1997 and 1996. This community was acquired in December
1994 and was recently renovated. It has been combined with a development
community which contains 280 additional units. Same store community results also
do not include Adams Farm, a 300 unit community which was owned for both 1997
and 1996. This community was acquired in 1994 and has been combined with a
development community which contains 200 additional units.
Rental income rose by $5.2 million, or 3.3%, for those properties held for
all of both periods, as a result of 1.1% higher occupancy and 2.6% higher
average rental rates. At December 31, 1997, same store occupancy was 94.6%, up
from 92.7% at December 31, 1996.
Rental expenses were $61.0 million, or 1.8% more in 1997 than 1996. Higher
on-site bonuses accounted for $1.8 million of a $2.3 million increase in
personnel costs. Utilities expense decreased by $2.1 million as the Company
passed a portion of its water expense to the residents. Operating expenses
increased $1.0 million primarily as a result of higher marketing costs. Off site
property management expense, which is allocated to the communities, rose $0.3
million as the Company added corporate positions in 1996 and 1997 in operations,
training, marketing, and maintenance. Maintenance and grounds expenses decreased
by $0.5 million or 4.7% due primarily to lower levels of contracted services.
Property taxes and insurance increased by $0.5 million to reflect higher
assessed values.
For those 18,410 apartments owned by the Company for both 1996 and 1995,
rental revenues increased $2.8 million or 2.1% in 1996 over 1995 as a result of
1.5% lower occupancy and 3.2% higher average rental rates. Operating expenses
decreased $0.5 million or 1.0% in 1996 as compared to the same period in 1995.
Increases in operating and maintenance and grounds expenses were more than
offset by lower personnel, utilities, and taxes and insurance expense. Personnel
costs were down primarily because year end cash incentive bonuses decreased by
$0.4 million in 1996 as a result of weaker operating results. Utilities expense
decreased by $0.5 million as the Company began charging its residents a portion
of its water expense. Property taxes and insurance decreased by $0.5 million to
reflect lower than expected millage rates, and the successful appeal of the
assessed values for several properties. Off site property management expense,
which is allocated to the communities, rose $0.5 million as the Company
established additional corporate positions in training, marketing and
maintenance. Maintenance and grounds expense increased by $0.2 million as
turnover increased to 70% from 68% in 1996.
22
<PAGE> 25
Rental Operations -- Development Communities. In 1997, the Company placed
in service 936 units as summarized in the following table:
<TABLE>
<CAPTION>
Occupancy
of
Units put delivered
Units in service Total units units at
Community Location planned in 1997 in service 12/31/97
- --------- ---------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Madison at Adams Farm II.................... Greensboro.. 200 200 500 84%
Hammocks at Long Point...................... Savannah 308 284 284 78
Madison at River Sound...................... Atlanta 586 452 586 63
----- --- ----- --
1,094 936 1,370 75%
</TABLE>
As discussed above, the 200 unit Madison at Adams Farm II is adjacent to
the existing 300 unit Adams Farm community and these two communities are now
operated as one. The operating results for 1997 and 1996 for the Madison at
River Sound, Madison at Adams Farm, and the Hammocks at Long Point are
summarized in the following table (dollars in thousands; see footnotes above):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Rental income............................................... $9,697 $4,344
Operating expenses(1)....................................... 2,663 1,313
Taxes and insurance expense................................. 491 230
------ ------
Subtotal.................................................... 3,154 1,543
------ ------
Earnings before interest, depreciation and amortization..... $6,543 $2,801
Units in service at year end................................ 1,777 841
</TABLE>
Rental Operations -- Other Communities. "Other communities" are those not
considered "same store communities" or "development communities". These include
communities bought or sold in part or in whole in 1996 or 1997. At December 31,
1997, these communities included 6,593 units. The performance of the other
communities for 1997 and 1996 is summarized in the following table (dollars in
thousands; see footnotes above):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Rental income............................................... $35,671 $13,898
Operating expenses(1)....................................... 8,937 3,766
Taxes and insurance expense................................. 5,536 1,915
------- -------
Subtotal.................................................... 14,473 5,681
------- -------
Earnings before interest, depreciation and amortization..... $21,198 $ 8,217
Units....................................................... 6,593 2,939
</TABLE>
Interest, Dividend and Other Income. Interest, dividend and other income
decreased to $7.7 million in 1997 from $11.6 million in 1996 and $11.4 million
in 1995 as the Company liquidated its holdings of cash and marketable securities
and invested the proceeds in apartments. At December 31, 1997, cash and
marketable securities totaled $2.5 million as compared to $56.6 million at
December 31, 1996 and $92.3 million at December 31, 1995. Interest, dividend and
other income are summarized in the following table (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Interest income............................................. $1,878 $ 2,276 $ 5,514
Dividend income............................................. 725 3,178 1,394
Other income................................................ 5,086 6,177 4,476
------ ------- -------
Total....................................................... $7,689 $11,631 $11,384
</TABLE>
23
<PAGE> 26
Interest Expense. Interest expense net of capitalized interest totaled
$25.9 million in 1997, up from $22.5 million in 1996 and $15.6 million in 1995.
Average debt outstanding rose to $457.1 million in 1997 from $373.0 million in
1996 and $264.6 million in 1995. During 1997, the Company issued $100.0 million
of senior unsecured notes in July and October, assumed $43.0 million of mortgage
debt in connection with the acquisition of four apartment communities and
borrowed a net of $67.8 million under the Company's line of credit. The weighted
average interest rate charged on all the Company's debt was 7.0% in 1997, 7.1%
in 1996 and 6.9% in 1995. During 1997, $5.3 million of interest related to the
Company's development projects was capitalized, up from $3.2 million in 1996 and
$1.1 million in 1995, due to the higher level of development.
General and Administrative Expenses. General and administrative expenses
for 1997 totaled $4.7 million, representing 2.2% of rental revenues. For 1996,
general and administrative expenses averaged 1.6% of rental revenues and for
1995 averaged 1.7% of rental revenues. General and administrative expenses
increased in 1997 primarily as a result of higher headcount and their associated
costs. In 1997, the Company added positions in the areas of property management,
acquisitions, development, accounting, and administration in order to provide
better service to its residents and to compete more effectively in a rapidly
evolving industry. The Company expects that its overhead expense measured as a
percentage of revenues will remain in the range of 2.0% to 2.5% of rents.
Gains on Sales of Assets. Net gains recognized on the sale of assets
totaled $1.5 million in 1997, $4.2 million in 1996, and $1.8 million for 1995.
Gains in 1997 consisted of $1.0 million from the sale of securities and $0.5
million in gains from the sale of real estate. In 1997, the Company sold Saw
Mill Village, a 340-unit apartment community located in Columbus, Ohio
recognizing a $0.5 million gain. In 1996, the Company sold Hunters Chase, a
244-unit apartment community located in Cleveland, Ohio, recognizing a $1.5
million gain. Saw Mill Village and Hunters Chase were acquired in 1994 as part
of a twelve property portfolio transaction, but the Ohio locations of these two
communities did not fit the Company's strategy of building a Southern franchise.
Net Income. Net income totaled $65.5 million in 1997, $64.0 million in
1996 and $53.5 million in 1995. Net income available for common shareholders
totaled $42.2 million in 1997, $44.2 million in 1996 and $35.4 million in 1995.
The increases in net income for 1997 when compared to 1996 and 1995 arose
principally from substantially increased operating income from apartments due to
the growth of the Company's apartment holdings, higher same store net operating
income and higher leverage. Net income available for common shareholders and net
income per common share decreased in 1997 primarily due to a reduction in net
realized gains. Net income per common share was $1.10 in 1997, $1.23 in 1996,
and $1.06 in 1995.
Dividends to preferred shareholders. Preferred dividends are summarized in
the following table (dollars in thousands):
<TABLE>
<CAPTION>
Issue
date 1997 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Series A Preferred share dividends...................... 6/23/93 $ 404 $ 891 $ 1,425
Series B Preferred share dividends...................... 10/31/94 8,820 8,820 8,820
Series C Preferred share dividends...................... 3/8/95 9,889 9,890 7,884
Series D Preferred share dividends...................... 12/5/96 4,144 242 --
------- ------- -------
Total preferred dividends............................. $23,257 $19,843 $18,129
</TABLE>
The increase in preferred dividends arose from the issue in December 1996
of 1.0 million shares of Series D Preferred Stock. Shareholders of the Company's
Series A Preferred Stock have converted 4.4 million of the 4.6 million Series A
shares originally issued in June 1993 into 5.9 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 8.8% to $102.4 million
in 1997 as compared to $94.0 million in 1996 and $79.4 million in 1995. Funds
from operations available to common shares rose 11.8% to $83.3 million in 1997
compared to $74.4 million in 1996 and $61.2 million in 1995. These increases
were principally due to higher same store net operating income, higher rental
operating income resulting from the growth of the Company's apartment holdings
and higher leverage. On a fully diluted per share basis, funds
24
<PAGE> 27
from operations increased 4.0% to $2.10 in 1997 from $2.02 in 1996 and $1.84 in
1995. Other income from securities totaled $5.0 million, or $.10 per share, for
1997 versus $6.0 million, or $.13 per share, for 1996 and $4.3 million, or $.10
per share for 1995. "Core FFO", those earnings produced exclusively by non cash
management activities, rose 5.8% to $2.00 per share from $1.89 in 1996 and $1.74
in 1995.
The following is a reconciliation of net income to funds from operations
(data in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net income.................................................. $ 65,503 $64,006 $53,537
Less preferred dividends paid............................... 23,257 19,843 18,129
-------- ------- -------
Net income available for common shares...................... 42,246 44,163 35,408
Add depreciation of real estate owned....................... 42,464 34,490 26,265
Less net realized gains..................................... 1,456 4,207 1,813
Plus non-recurring expenses................................. -- -- 1,370
-------- ------- -------
Funds from operations available to common shares............ 83,254 74,446 61,230
Add convertible preferred dividends......................... 19,113 19,601 18,129
-------- ------- -------
Funds from operations -- fully diluted...................... $102,367 $94,047 $79,359
======== ======= =======
Weighted average common shares outstanding --
Basic..................................................... 38,461 35,919 33,368
Fully diluted(1).......................................... 48,747 46,577 43,112
Funds from operations per share --
Basic..................................................... $ 2.16 $ 2.07 $ 1.84
Fully diluted(1).......................................... 2.10 2.02 1.84
Other income from securities (diluted).................... .10 .13 .10
Core funds from operations (diluted)...................... 2.00 1.89 1.74
</TABLE>
- ---------------
(1) Assumes conversion of all convertible preferred shares.
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 (other than gains included in other
income as cash management income), 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 $1.1 million, $0.9 and $0.7
million in 1997, 1996 and 1995, respectively.
25
<PAGE> 28
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 December 31, 1997, total debt equaled 43% of total capitalization
at cost, and 34% of total capitalization with equity valued at market. At that
date, the Company's financial structure was as follows (dollars in thousands):
<TABLE>
<CAPTION>
Equity at
% of Market % of
Book(1) Total Value Total
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Advances under line of credit............................. $ 67,800 5%
Mortgage loans............................................ 70,282 5
6.625% senior unsecured notes, 1999....................... 40,000 3
6.625% senior unsecured notes, 2000....................... 40,000 3
6.625% senior unsecured notes, 2001....................... 40,000 3
7.250% senior unsecured notes, 2002....................... 40,000 3
6.875% senior unsecured notes, 2003....................... 40,000 3
6.875% senior unsecured notes, 2004....................... 40,000 3
7.250% senior unsecured notes, 2005....................... 120,000 7
6.690% senior unsecured notes, 2006....................... 50,000 4
6.900% senior unsecured notes, 2007....................... 50,000 4
---------- --- ---------- ---
Total debt................................................ 598,082 43 $ 598,082 34%
Series D preferred equity................................. 50,000 4 50,000 3
Common and convertible preferred equity(2)................ 747,332 53 1,130,140 63
---------- --- ---------- ---
Total equity.............................................. 797,332 57 1,180,140 66
Total capitalization...................................... $1,395,414 100% $1,778,222 100%
========== === ========== ===
</TABLE>
- ---------------
(1) Represents principal amount of debt, face amount of preferred stock and book
value of common stock.
(2) Assumes conversion of all outstanding convertible preferred stock into
common stock.
At December 31, 1997, the Company had $67.8 million borrowings outstanding
under its $200.0 million line of credit. Borrowings under the line bear interest
at 0.60% above the thirty day London Interbank Offered Rates. At December 31,
1997, the Company's loan agreements and the covenants under its senior unsecured
notes would have allowed it to borrow $220.3 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
December 31, 1997, the Company had seven mortgage loans outstanding, which were
assumed in connection with the purchase of the Mariner Club, Estate on Quarry
Lake, Plantations at Killearn, Richmond Townhomes, Trails at Briar Forest, Parc
Royale, and La Tour Fontaine communities.
Liquidity. Merry Land expects to meet its short-term liquidity
requirements with cash provided by operating activities and by borrowing under
its line of credit. The Company's primary short-term liquidity needs are
operating expenses, apartment acquisitions and development and capital
improvements. The Company has essentially completed the liquidation of its
holdings of marketable securities which were acquired as temporary investments
pending the acquisition or development of 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.
26
<PAGE> 29
The following table summarizes the Company's estimated capital requirements
resulting from its development commitments as of December 31, 1997, pro forma
for the sale of the Series E Preferred Stock on February 13, 1998. Not included
in this table are additional acquisitions and developments, including the
Trammell Crow Residential Portfolio, debt repayments or the additional sale of
debt or equity securities (dollars in thousands):
<TABLE>
<S> <C>
Estimated capital requirements:
Development costs through 12/31/99.......................... $ 222,415
Less development costs paid through 12/31/97................ (124,414)
---------
Development costs through 1999.............................. 98,001
Acquisition of communities under development................ 70,500
---------
Total future development commitments.............. 168,501
Estimated capital sources:
Cash on hand at 12/31/97, pro forma......................... 29,420(1)
Funds available under line of credit at 12/31/97, pro
forma..................................................... 200,000(2)
---------
Total capital sources............................. 229,420
Excess of capital sources over capital requirements......... $ 60,919
=========
</TABLE>
- ---------------
(1) Represents cash on hand at 12/31/97 of $570, plus net proceeds of $96,650
from the sale of Series E Preferred Stock, less the balance of $67,800
repaid under the Company's line of credit at 12/31/97.
(2) See footnote (1).
Cash Flows. The following table summarizes cash flows for 1997, 1996, and
1995 including the availability of marketable securities (dollars in thousands):
<TABLE>
<CAPTION>
Sources and Uses of Cash
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating activities................................ $ 110,925 $ 91,666 $ 82,224
Sales of Merry Land common and preferred stock...... 17,212 118,512 118,895
Net borrowings...................................... 210,536 27,546 148,234
Sale of real property............................... 21,710 -- --
Other sources....................................... 7,254 15,731 9,738
--------- --------- ---------
Total sources of cash............................... 367,637 253,455 359,091
Acquisitions of and improvements to properties...... (277,419) (152,177) (213,521)
Development of properties........................... (58,711) (63,081) (12,813)
Dividends paid...................................... (83,297) (73,729) (64,868)
Other uses.......................................... (2,269) (178) (4,021)
--------- --------- ---------
Total uses.......................................... (421,696) (289,165) (295,223)
--------- --------- ---------
Increase (decrease) in cash, cash equivalents and
marketable securities............................. $ (54,059) $ (35,710) $ 63,868
</TABLE>
Cash, cash equivalents and marketable securities decreased by $54.1 million
in 1997 as the Company invested funds raised in equity offerings in 1996 in
apartments. With the expansion of the Company's apartment holdings, operating
cash flow has grown to $110.9 million in 1997 from $91.7 million in 1996 and
$82.2 million in 1995. During 1997 net borrowings provided $210.5 million in
funds. In July and October the Company issued a total of $100.0 million of
senior unsecured notes; drawings under the Company's line of credit totaled
$67.8 million at December 31, 1997; and $43.0 million of mortgage debt was
assumed in connection with the purchase of four apartment communities. $16.3
million was reinvested by shareholders under the Company's Dividend Reinvestment
and Stock Purchase Plans.
The primary use of cash has been apartment acquisitions, development and
improvements and dividends. Dividends paid in 1997 increased from the same
periods in 1996 and 1995 due to an increase in the average amount of common and
preferred stock outstanding, and in the case of the Company's Common Stock, an
increase in the dividends per share to $1.56 from $1.48 in 1996 and $1.40 in
1995.
27
<PAGE> 30
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. In addition to the direct costs of construction,
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 project.
The following table summarizes capital expenditures for 1997, 1996 and 1995
(dollars in thousands, except per unit data):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Apartment communities:
Acquisitions.............................................. $260,213 $139,066 $198,339
Development projects:
Development costs...................................... 53,453 59,917 11,749
Capitalized interest................................... 5,258 3,164 1,064
Replacements for stabilized communities(1)................ 8,250 5,250 3,178
Improvements(2)........................................... 6,928 6,979 11,103
Commercial properties....................................... 175 462 373
Corporate level expenditures................................ 1,853 419 528
-------- -------- --------
$336,130 $215,257 $226,334
======== ======== ========
Per Unit:
Replacements for stabilized communities(1)................ $ 390 $ 285 $ 233
Improvements(2)........................................... $ 235 $ 278 $ 498
</TABLE>
- ---------------
(1) Stabilized communities are those properties which have been owned for at
least two full calendar years. In 1997, 21,156 units were stabilized as
compared to 18,410 units in 1996 and 13,665 units in 1995.
(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.
Forward Looking Statements. This filing includes statements that are
"forward looking statements" regarding expectations with respect to market
conditions, development projects, acquisitions, occupancy rates, capital
requirements, sources of funds, expense levels, operating performance and other
matters. These assumptions and statements are subject to various factors,
unknown risks and uncertainties, including general economic conditions, local
market factors, delays and cost overruns in construction, completion and rent up
of development communities, performance of consultants or other third parties,
environmental concerns, and interest rates, any of which may cause actual
results to differ from the Company's current expectations.
28
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Merry Land & Investment Company, Inc.
We have audited the accompanying consolidated balance sheets of Merry Land &
Investment Company, Inc. (a Georgia corporation) as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Merry Land &
Investment Company, Inc. as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------------
Arthur Andersen LLP
Atlanta, Georgia
January 16, 1998
29
<PAGE> 32
PART II
Item 8 -- Financial Statements and Supplementary Data
Merry Land & Investment Company, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
PROPERTIES AT COST
Apartments................................................ $1,496,109 $1,175,427
Apartments under development.............................. 48,342 56,110
Commercial rental property................................ 5,363 6,874
Land held for investment or future development............ 4,090 4,090
Operating equipment....................................... 3,676 1,817
---------- ----------
1,557,580 1,244,318
Less accumulated depreciation and depletion............... (142,617) (102,277)
---------- ----------
1,414,963 1,142,041
CASH AND SECURITIES
Cash and cash equivalents................................. 570 32,793
Marketable securities..................................... 1,963 23,799
---------- ----------
2,533 56,592
OTHER ASSETS
Notes receivable.......................................... 1,412 726
Other receivable.......................................... 249 2,449
Deferred loan costs....................................... 4,639 3,497
Other..................................................... 4,085 2,941
---------- ----------
10,385 9,613
---------- ----------
TOTAL ASSETS................................................ $1,427,881 $1,208,246
========== ==========
NOTES PAYABLE
Mortgage loans............................................ $ 70,282 $ 27,546
Senior notes.............................................. 460,000 360,000
Note payable -- credit line............................... 67,800 --
---------- ----------
598,082 387,546
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest.......................................... 6,622 4,016
Resident security deposits................................ 1,597 1,669
Accrued property taxes.................................... 10,780 7,642
Accrued employee compensation............................. 3,471 2,284
Other..................................................... 9,997 6,317
---------- ----------
32,467 21,928
STOCKHOLDERS' EQUITY
Preferred stock, at $25 and $50 liquidation preference,
20,000 shares authorized; 188 and 359 shares $1.75 Series
A Cumulative Convertible.................................. 4,692 8,970
4,000 shares $2.205 Series B Cumulative Convertible....... 100,000 100,000
4,599 shares, $2.15 Series C Cumulative Convertible....... 114,985 114,995
1,000 shares, $4.145 Series D Cumulative Redeemable
Preferred.............................................. 50,000 50,000
Common stock, at $1 stated value, 100,000 shares authorized;
39,177 and 37,784 shares issued........................... 39,177 37,784
Capital surplus........................................... 525,744 498,907
Cumulative undistributed net earnings..................... (15,730) 2,064
Notes receivable from stockholders and ESOP............... (21,691) (17,502)
Unrealized gain on securities............................. 155 3,554
---------- ----------
797,332 798,772
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,427,881 $1,208,246
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
30
<PAGE> 33
PART II
Item 8 -- Financial Statements and Supplementary Data
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
INCOME
Rental income............................................... $208,871 $176,620 $144,778
Mineral royalties........................................... 1,401 369 436
Mortgage interest........................................... 84 70 79
Other interest.............................................. 1,794 2,206 5,435
Dividends................................................... 725 3,178 1,394
Other income................................................ 5,086 6,177 4,476
-------- -------- --------
217,961 188,620 156,598
EXPENSES
Rental expense.............................................. 56,023 48,350 42,180
Interest.................................................... 25,900 22,527 15,646
Depreciation -- real estate................................. 42,464 34,490 26,265
Depreciation -- other....................................... 412 290 208
Amortization -- financing costs............................. 737 569 462
Taxes and insurance......................................... 23,712 19,737 16,347
General and administrative expense.......................... 4,666 2,858 2,396
Other non-recurring expense................................. -- -- 1,370
-------- -------- --------
153,914 128,821 104,874
Income before net realized gains............................ 64,047 59,799 51,724
Net realized gains.......................................... 1,456 4,207 1,813
-------- -------- --------
NET INCOME.................................................. 65,503 64,006 53,537
======== ======== ========
Dividends to preferred shareholders......................... 23,257 19,843 18,129
-------- -------- --------
NET INCOME AVAILABLE FOR COMMON SHARES...................... $ 42,246 $ 44,163 $ 35,408
======== ======== ========
Weighted average common shares
Outstanding............................................... 38,461 35,919 33,368
Diluted................................................... 38,928 36,676 33,418
EARNINGS PER COMMON SHARE
Basic..................................................... $ 1.10 $ 1.23 $ 1.06
Diluted................................................... $ 1.10 $ 1.23 $ 1.06
======== ======== ========
CASH DIVIDENDS DECLARED PER COMMON SHARE.................... $ 1.56 $ 1.48 $ 1.40
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
31
<PAGE> 34
PART II
Item 8 -- Financial Statements and Supplementary Data
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Cumulative Total
----------------- ----------------- Capital Undistributed Stockholders'
Shares Amount Shares Amount Surplus Net Earnings Equity
------ -------- ------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994....... 6,516 $162,908 30,744 $30,744 $368,086 $ 23,113 $584,851
1995 net income.................. -- -- -- -- -- 53,537 53,537
Sale of preferred stock.......... 4,600 115,000 -- -- (5,314) -- 109,686
Common stock issued in conversion
of preferred stock............. (1,849) (46,225) 2,478 2,478 43,747 -- --
Employee purchase and sale of
common stock................... -- -- 226 226 3,966 -- 4,192
Increase in notes receivable from
stockholders................... -- -- -- -- (3,453) -- (3,453)
Common stock dividends........... -- -- -- -- -- (46,734) (46,734)
Preferred stock dividends........ -- -- -- -- -- (18,129) (18,129)
Dividend reinvestment and stock
purchase plan.................. -- -- 552 552 10,618 -- 11,170
Common stock redeemed............ -- -- (124) (124) (2,576) -- (2,700)
Sale of common stock to ESOP..... -- -- -- -- (2,059) -- (2,059)
Unrealized gain on securities.... -- -- -- -- 5,498 -- 5,498
------ -------- ------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1995....... 9,267 $231,683 33,876 $33,876 $418,513 $ 11,787 $695,859
1996 net income.................. -- -- -- -- -- 64,006 64,006
Sale of common stock............. -- -- 2,773 2,773 53,259 -- 56,032
Sale of preferred stock.......... 1,000 50,000 -- -- (1,275) -- 48,725
Common stock issued in conversion
of preferred stock............. (308) (7,718) 414 414 7,304 -- --
Employee purchase and sale of
common stock................... -- -- 72 72 1,500 -- 1,572
Increase in notes receivable from
stockholders................... -- -- -- -- (974) -- (974)
Common stock dividends........... -- -- -- -- -- (53,886) (53,886)
Preferred stock dividends........ -- -- -- -- -- (19,843) (19,843)
Dividend reinvestment and stock
purchase plan.................. -- -- 679 679 13,153 -- 13,832
Common stock redeemed............ -- -- (30) (30) (645) -- (675)
Sale of common stock to ESOP..... -- -- -- -- (732) -- (732)
Unrealized gain on securities.... -- -- -- -- (5,144) -- (5,144)
------ -------- ------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1996....... 9,959 $273,965 37,784 $37,784 $484,959 $ 2,064 $798,772
1997 net income.................. -- -- -- -- -- 65,503 65,503
Common stock issued in conversion
of preferred stock............. (172) (4,288) 231 231 4,057 -- --
Employee purchase and sale of
common stock................... -- -- 378 378 7,425 -- 7,803
Increase in notes receivable from
stockholders................... -- -- -- -- (5,262) -- (5,262)
Common stock dividends........... -- -- -- -- -- (60,040) (60,040)
Preferred stock dividends........ -- -- -- -- -- (23,257) (23,257)
Dividend reinvestment and stock
purchase plan.................. -- -- 784 784 15,354 -- 16,138
Sale of common stock to ESOP..... -- -- -- -- 1,073 -- 1,073
Unrealized gain on securities.... -- -- -- -- (3,398) -- (3,398)
------ -------- ------- ------- -------- -------- --------
BALANCE, DECEMBER 31, 1997....... 9,787 $269,677 39,177 $39,177 $504,208 $(15,730) $797,332
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
32
<PAGE> 35
PART II
Item 8 -- Financial Statements and Supplementary Data
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Rents and royalties received.............................. $ 210,608 $ 176,968 $ 145,232
Interest received......................................... 2,005 2,345 4,887
Dividends received........................................ 725 3,921 1,394
Rental expense............................................ (54,899) (48,516) (40,981)
General and administrative expense........................ (4,408) (2,637) (2,257)
Interest expense.......................................... (23,294) (22,806) (13,575)
Property taxes and insurance expense...................... (21,054) (16,644) (12,461)
Other..................................................... 1,241 (965) (15)
--------- --------- ---------
Net cash provided by operating activities:.............. 110,925 91,666 82,224
INVESTING ACTIVITIES:
Principal received on notes receivable.................... (687) 85 125
Sale of securities and temporary investments.............. 26,549 31,340 274,944
Purchase of securities and temporary investments.......... -- (5,408) (284,189)
Sale of real property..................................... 21,710 14,904 156
Purchase of real property................................. (260,213) (139,066) (198,339)
Development of real property.............................. (58,711) (63,081) (12,813)
Improvements to real property............................. (17,206) (13,111) (15,182)
Nonrecurring expenditures................................. -- -- (1,546)
Other..................................................... (1,582) 33 (2,475)
--------- --------- ---------
Net cash used in investing activities................... (290,140) (174,304) (239,319)
FINANCING ACTIVITIES:
Issuance of senior unsecured notes........................ 100,000 -- 240,000
Net borrowings (repayments) -- bank debt.................. 67,800 -- (57,600)
Net borrowings (repayments) -- repurchase agreements...... -- -- (17,375)
Assumption of mortgage loans.............................. 42,979 27,546 7,041
Repayments of mortgage loans.............................. (243) -- (23,832)
Cash dividends paid -- common............................. (60,040) (53,886) (46,739)
Cash dividends paid -- preferred.......................... (23,257) (19,843) (18,129)
Sale of common stock -- public offerings.................. -- 56,032 --
Sale of common stock -- reinvested dividends and stock
purchase plan........................................... 16,138 13,832 11,170
Sale of common stock -- employees......................... 2,542 3,266 977
Sale of preferred stock (net of conversions) -- public
offering................................................ -- 48,725 109,686
Common stock retired...................................... -- (3,343) (2,938)
Net (borrowings) repayments -- ESOP....................... 1,073 (732) (2,050)
--------- --------- ---------
Net cash provided by financing activities............... 146,992 71,597 200,211
NET INCREASE (DECREASE) IN CASH............................. (32,223) (11,041) 43,116
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 32,793 43,834 718
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 570 $ 32,793 $ 43,834
========= ========= =========
Reconciliation of Net Income to Cash Flows from Operating Activities
Net income.................................................. $ 65,503 $ 64,006 $ 53,537
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 43,613 35,349 26,935
(Increase) decrease in interest and accounts receivable..... 69 (1,572) (586)
(Increase) decrease in other assets......................... (2,604) (865) (2,012)
Increase (decrease) in accounts payable and accrued
interest.................................................. 4,727 (1,853) 6,163
Gain on the sale of marketable securities................... (996) (2,679) (1,673)
Gain on the sale of real estate............................. (460) (1,528) (140)
ESOP contributions.......................................... 1,073 808 --
--------- --------- ---------
Net cash provided by operating activities................... $ 110,925 $ 91,666 $ 82,224
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
33
<PAGE> 36
PART II
Item 8 -- Financial Statements and Supplementary Data
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Merry Land & Investment Company, Inc. is an apartment operating company,
which acquires, builds and operates upscale apartment communities throughout the
Southern United States. The Company is taxed as a real estate investment trust
(REIT).
2. Summary of Significant Accounting Policies
Recognition of Income
The Company leases its apartment properties generally for terms of one year
or less. Rental income is recognized when collected.
Depreciation and Amortization
Depreciation of buildings and equipment is computed on the straight-line
method for financial reporting purposes using the following estimated useful
lives:
<TABLE>
<S> <C> <C>
Apartments.................................................. 40-50 years
Land improvements........................................... 50 years
Commercial rental buildings................................. 40-50 years
Furniture, fixtures, equipment and carpet................... 5-15 years
Operating equipment......................................... 3-5 years
</TABLE>
Straight-line and accelerated methods are used for income tax reporting
purposes. Betterments, renewals and extraordinary repairs that extend the lives
of assets are capitalized; other repairs and maintenance are expensed. In 1996,
the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 121.
The adoption had no effect on the financial statements.
Income Taxes
As a real estate investment trust, the Company does not pay income taxes on
its distributed income. It does pay income taxes on that income which is not
distributed, and it may be subject to excise taxes on income distributed after
certain dates. See Note 5 for a further discussion of income taxes.
Earnings Per Share and Share Information
In 1997, the Company adopted SFAS 128, "Earnings Per Share." In accordance
with this standard, basic earnings per share is computed on the basis of the
weighted average number of shares outstanding during the year. Diluted earnings
per share is computed giving effect to dilutive stock options and dilutive
preferred stock (Series A) with an applicable reduction in preferred dividends.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned corporations and limited partnerships. Any significant
intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenue and expenses. Actual results may differ from these estimates.
34
<PAGE> 37
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
For purposes of the statements of cash flows, all investments purchased
with an original maturity of three months or less are considered to be cash
equivalents.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued,
effective for years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Based on
current accounting standards, this new accounting statement is not expected to
have a material impact on the Company's consolidated financial statements. The
Company will adopt this accounting standard in 1998.
Also in June 1997, SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," was issued, effective for years beginning
after December 15, 1997. This statement requires companies to identify segments
consistent with the manner in which management makes decisions about allocating
resources to segments and measuring their performance. Disclosures for the newly
identified segments are similar to those required under current standards, with
the addition of certain quarterly disclosure requirements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt this accounting standard in 1998.
Development Activities
The cost of developed properties includes interest, property taxes,
insurance and allocated development overhead incurred during the construction
period. Interest of $5.3 million and $3.2 million was capitalized during 1997
and 1996, respectively.
3. Marketable Securities
The cost and market value of securities by major classification at December
31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ----------------- -----------------
Cost Market Cost Market Cost Market
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Common stocks................... $1,808 $1,963 $18,339 $21,361 $37,864 $46,018
Corporate debentures............ -- -- 1,906 2,438 1,906 2,450
------ ------ ------- ------- ------- -------
$1,808 $1,963 $20,245 $23,799 $39,770 $48,468
====== ====== ======= ======= ======= =======
</TABLE>
On January 1, 1994, the Company adopted SFAS No. 115 and began classifying
its marketable securities as available for sale and reporting them at market
value with unrealized gains and losses reported as a separate component of
shareholders' equity. Changes in net unrealized gains are recorded as
adjustments to this account and not as credits or charges to earnings.
35
<PAGE> 38
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. Borrowings
Borrowings outstanding at December 31, 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
9.760% mortgage notes(a).................................... $ 12,642 $ 12,720
7.750% mortgage note(b)..................................... 9,600 9,600
7.625% mortgage note(c)..................................... 5,147 5,226
7.210% mortgage note(d)..................................... 9,423 --
7.125% mortgage note(e)..................................... 14,713 --
7.570% mortgage note(f)..................................... 9,828 --
8.250% mortgage note(g)..................................... 8,929 --
6.625% senior unsecured notes(h)............................ 120,000 120,000
7.250% senior unsecured notes(i)............................ 40,000 40,000
6.875% senior unsecured notes(j)............................ 40,000 40,000
6.875% senior unsecured notes(k)............................ 40,000 40,000
7.250% senior unsecured notes(l)............................ 120,000 120,000
6.690% senior unsecured notes(m)............................ 50,000 --
6.900% senior unsecured notes(n)............................ 50,000 --
Advance under unsecured line of credit(o)................... 67,800 --
-------- --------
$598,082 $387,546
======== ========
</TABLE>
- ---------------
(a) $10.6 million and $2.0 million, 9.760% mortgage notes, principal and
interest payable monthly, maturity 2001.
(b) 7.750% mortgage note, interest payable monthly, maturity 2002.
(c) 7.625% mortgage note, principal and interest payable monthly, maturity
2005.
(d) 7.210% mortgage note, principal and interest payable monthly, maturity
2001.
(e) $0.8 million and $8.0 million and $5.9 million, 7.125% mortgage notes,
principal and interest payable monthly, maturity 2006.
(f) 7.570% mortgage note, principal and interest payable monthly, maturity
2001.
(g) 8.250% mortgage note, principal and interest payable monthly, maturity
2001.
(h) 6.625% notes, interest payable semi-annually, principal installments of
$40.0 million each due 1999, 2000, and 2001.
(i) 7.250% notes, interest payable semi-annually, maturity 2002.
(j) 6.875% notes, interest payable semi-annually, maturity 2003.
(k) 6.875% notes, interest payable semi-annually, maturity 2004.
(l) 7.250% notes, interest payable semi-annually, maturity 2005.
(m) 6.690% notes, principal and interest payable semi-annually, maturity 2006.
(n) 6.900% notes, principal and interest payable semi-annually, maturity
August, 2007.
(o) $200 million line of credit bearing interest equal to floating LIBOR plus
0.60%, maturity September, 2000.
36
<PAGE> 39
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company estimates that the aggregate fair value of borrowings
approximates their carrying value at December 31, 1997. Maturities of borrowings
at December 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Loan
Amount
--------
<S> <C>
1998........................................................ $ 68,511
1999........................................................ 40,768
2000........................................................ 40,829
2001........................................................ 80,038
2002........................................................ 54,700
2003........................................................ 40,364
2004........................................................ 40,391
2005........................................................ 120,419
2006........................................................ 62,062
2007........................................................ 50,000
--------
$598,082
========
</TABLE>
5. Income Taxes
As discussed in Note 1, the Company has elected to be taxed as a REIT. The
Internal Revenue Code provides that a REIT, which in any taxable year meets
certain requirements and distributes to its stockholders at least 95% of its
ordinary taxable income, will not be subject to federal income taxation on
taxable income which is distributed. The Company distributed the required
amounts of income for the periods reported. Accordingly, no provision for income
taxes is required.
The Company's taxable income differs from its income reported in the
accompanying financial statements because of the difference in the timing of
recognition of certain items of income and expense for tax purposes. A
reconciliation of tax and book income follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income................................................ $65,503 $64,006 $53,537
Excess of tax over accounting depreciation................ (5,725) (5,451) (6,944)
Other..................................................... 2,572 (85) 2,423
------- ------- -------
Estimated taxable income.................................. $62,350 $58,470 $49,016
======= ======= =======
</TABLE>
6. Incentive Stock Option Plan
Under the Company's incentive stock option plan, at December 31, 1997,
there were 1,727,800 shares available for grant and 619,100 exercisable options
outstanding. Options granted under the plan expire ten years from date of grant
and may not be exercised at a rate greater than 20% per year. Shares under
option which subsequently expire or are canceled are available for subsequent
grant. The option price is equal to the market price of the shares on the date
of the option grants.
37
<PAGE> 40
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options outstanding for the years ended December 31, 1997, 1996, and 1995
are as follows:
<TABLE>
<S> <C>
Balance, December 31, 1995.................................. 510,000
Issued (at $20.88 per share).............................. 790,000
Exercised (weighted average $18.58 per share)............. (50,300)
Canceled (weighted average $19.98 per share).............. (66,000)
---------
Balance, December 31, 1996.................................. 1,183,700
Issued (weighted average $21.03 per share)................ 577,500
Exercised (weighted average $20.51 per share)............. (220,700)
Canceled (weighted average $20.66 per share).............. (75,300)
---------
Balance, December 31, 1997 (weighted average $20.31 per
share).................................................... 1,465,200
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Number
Number Exercisable
Award Outstanding Remaining at
Date at 12/31/97 Contractual Life Exercise Price 12/31/97
---------- ----------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
3/16/92 14,000 4.3 yrs. $ 8.25 14,000
7/12/93 54,000 5.6 yrs. 16.63 54,000
9/1/93 25,000 5.8 yrs. 18.75 25,000
1/18/94 45,000 6.1 yrs. 20.88 36,000
8/18/94 206,700 6.7 yrs. 19.00 160,700
11/3/94 20,000 6.9 yrs. 17.88 16,000
4/15/96 541,500 8.3 yrs. 20.88 212,400
1/17/97 211,000 9.0 yrs. 21.50 37,000
4/28/97 243,000 9.3 yrs. 20.50 47,000
5/12/97 50,000 9.4 yrs. 21.13 10,000
5/19/97 10,000 9.4 yrs. 20.88 2,000
5/20/97 25,000 9.4 yrs. 21.00 5,000
7/28/97 7,500 9.6 yrs. 21.88 0
10/27/97 12,500 9.8 yrs. 21.94 0
--------- -------
1,465,200 619,100
</TABLE>
During 1997, 1996 and 1995, the Company loaned officers and employees $10.5
million, $3.3 million and $4.4 million respectively, to purchase shares of the
Company's common stock. The loans are secured by the shares purchased, carry a
0% interest rate, and are due upon demand. The Company requires that at least
60% of dividends paid on these shares be used to repay the indebtedness. $5.2
million, $2.3 million and $0.9 million were repaid in 1997, 1996 and 1995. At
December 31, 1997, the balance of officer and employee loans was $19 million.
The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, since all options
have been granted with an exercise price equal to the fair value of the
Company's stock on the date of grant. The Company adopted SFAS No. 123 in 1996
for disclosure purposes and estimated the fair value of each option grant during
1997 and 1996 as of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: risk-free interest rate
of 6.6%, expected life of seven years, dividend yield of 7.4%, and expected
volatility of 25%. Using these assumptions, the fair value of the stock options
granted in 1997 and 1996 is $1.5 million and $2.0 million respectively which
would be amortized as compensation expense over the vesting period of the
options. Options generally vest equally over five years. Had compensation
expense for the plans been recorded in
38
<PAGE> 41
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordance with SFAS 123, the Company's net income available for common
shareholders and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net Income:
As reported............................................... $42,246 $44,163
Pro Forma................................................. $41,601 $43,865
Earnings per Share:
As reported (basic and diluted)........................... 1.10 1.23
Pro Forma (basic and diluted)............................. $ 1.08 $ 1.22
</TABLE>
Basic and diluted earnings per share are computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
BASIC:
Net income............................................ $65,503,469 $64,006,073 $53,537,199
Preferred dividend requirement........................ 23,257,662 19,842,834 18,129,144
----------- ----------- -----------
Net income available for common....................... $42,245,807 $44,163,239 $35,408,055
=========== =========== ===========
Average common shares outstanding..................... 38,460,687 35,918,565 33,367,527
Basic earnings per share.............................. $ 1.10 $ 1.23 $ 1.06
=========== =========== ===========
DILUTED:
Net income............................................ $65,503,469 $64,006,073 $53,537,199
Preferred dividend requirement........................ 22,779,499 18,944,799 18,129,144
----------- ----------- -----------
Net income available for common....................... $42,723,970 $45,061,274 $35,408,055
=========== =========== ===========
Dilutive convertible preferred shares................. 366,136 687,638 0
Dilutive stock options................................ 101,300 70,100 50,200
Average common shares outstanding..................... 38,460,687 35,918,565 33,367,527
----------- ----------- -----------
Average diluted common shares outstanding............. 38,928,123 36,676,303 33,417,727
=========== =========== ===========
Diluted earnings per share............................ $ 1.10 $ 1.23 $ 1.06
=========== =========== ===========
</TABLE>
7. Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan under which the
Company makes annual contributions to a trust for the benefit of eligible
employees in the form of either cash or common shares of the Company. The amount
of the annual contribution is discretionary. The Company contributed $0.9
million, $1.1 million and $0.8 million in 1997, 1996 and 1995. In 1996, the
Company loaned the ESOP $1.5 million to buy 75,000 shares of the Company's
common stock. At December 31, 1997, the balance of this note and a previous note
was $2.4 million. Both notes bear an interest rate equal to the thirty-day LIBOR
rate plus 65 basis points. The notes are due December 31, 2002 and December 31,
2003.
8. Preferred Stock
On December 5, 1996, the Company in a public offering issued 1.0 million
shares of Series D Redeemable Preferred Stock for net proceeds of $48.7 million.
On March 8, 1995, the Company issued 4.6 million shares of Series C Cumulative
Convertible Preferred Stock in a public offering for net proceeds of $109.8
million. In 1994, the Company sold 4.0 million shares of Series B Cumulative
Convertible Preferred Stock for net proceeds of $96.7 million to a small group
of institutional investors. The Company has granted registration rights to the
holders of the Series B and Series D shares. In 1993, the Company sold to the
public 4.6 million shares of Series A Cumulative Convertible Preferred Stock for
net proceeds of $109.2 million.
39
<PAGE> 42
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, Series A Cumulative Convertible Preferred shareholders converted
170 thousand shares to 230 thousand shares of the Company's common stock and at
December 31, 1997, 4.4 million shares of Series A had been converted to 5.9
million shares of common stock leaving 0.2 million shares outstanding. Preferred
stock at December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Preferred A Preferred B Preferred C Preferred D
------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Price per share...... $25.00 $25.00 $25.00 $50.00
Shares issued........ 4,600,000 4,000,000 4,600,000 1,000,000
Shares outstanding... 187,666 4,000,000 4,599,400 1,000,000
Dividend per share... $1.75 $2.205 $2.15(a) $4.145
Call date............ June 30, 1998 October 31, 1999 March 31, 2000 December 10, 2026
Conversion price..... $18.65 $21.04 $22.00 --(b)
</TABLE>
- ---------------
(a) The Series C Preferred Stock contains a "ratchet" provision which provides
that the preferred dividend rate shall be increased if necessary so that it
will always be 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.
(b) The Series D Preferred Stock is not convertible into any other securities of
the Company.
9. Dividends
In 1997, the Company paid dividends per share as follows:
<TABLE>
<CAPTION>
Common Preferred A Preferred B Preferred C Preferred D
------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
March 31........................... $ .39 $ .4375 $ .55125 $ .5375 $1.03625
June 30............................ .39 .4375 .55125 .5375 1.03625
September 29....................... .39 .4375 .55125 .5375 1.03625
December 29........................ .39 .4375 .55125 .5375 1.03625
----- ------- -------- ------- --------
Total.............................. $1.56 $1.7500 $2.20500 $2.1500 $4.14500
</TABLE>
The ordinary, long-term capital gains and return of capital distributions
for 1997 were as follows:
<TABLE>
<CAPTION>
Common Preferred A Preferred B Preferred C Preferred D
Dividends Dividends Dividends Dividends Dividends
--------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ordinary........................ 56.44% 84.88% 84.88% 84.88% 84.88%
Return of Capital............... 33.50 0 0 0 0
Long-term capital gain.......... 10.06 15.12 15.12 15.12 15.12
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
On January 19, 1998, the Company declared a $.41 per common share, $.4375
per Preferred A share, $.55125 per Preferred B share, $.5375 per Preferred C
share and $1.03625 per Preferred D per share dividend payable on March 31, 1998.
The Company's dividend reinvestment plan allows any shareholder to elect to
use all or a portion of cash dividends paid to acquire additional shares of the
Company's common stock at a price equal to 95% of the higher of: (a) the average
of the high and low sales prices of the Company's common stock on the dividend
payment date, or (b) the average of the daily high and low sales prices for the
ten trading days prior to the dividend payment date. During 1997, 550,876 shares
were issued at a total value of $11.5 million.
In December 1993, the Company established a Stock Purchase Plan which
provides holders of the Company's common stock and preferred stock with a method
of purchasing additional common stock of the Company through optional cash
payments without fees and at a 5% discount. Optional cash payments are subject
to the limitation that the number of shares of common stock which can be
purchased cannot exceed the number of shares of common and preferred stock owned
by the shareholder. During 1997, 233,031 shares were issued for a total value of
$4.9 million.
40
<PAGE> 43
PART II
Item 9 -- Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10 -- Directors and Executive Officers of the Registrant
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
Item 11 -- Executive Compensation
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
Item 13 -- Certain Relationships and Related Transactions
Incorporated by reference to the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission.
41
<PAGE> 44
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) FINANCIAL STATEMENTS. The following schedule lists the financial
statements as filed as part of this report:
Report of Independent Public Accountants
Balance Sheets
Statements of Income
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Reconciliation of Net Income to Cash Flows
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following schedule lists the financial
statement schedules required to be filed by Item 8 and Item 14(d) of Form 10-K:
Report of Independent Public Accountants on Schedules
Real Estate and Accumulated Depreciation
3. Exhibits.
<TABLE>
<C> <S> <C>
(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), and as further amended by Articles of Amendment to
Articles of Incorporation re Series E Preferred Stock
(incorporated herein by reference to Exhibit B of the
Company's Form 8-A filed February 11, 1998).
(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).
(4) -- INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
(4.1) -- The Company's $120,000,000 7 1/4% Notes 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 reference to Item 7,
Exhibit 4B to the Company's Form 8-K filed June 23, 1995).
(4.3) -- First Supplemental Indenture (incorporated herein by
reference to Item 7, Exhibit 4C to the Company's Form 8-K
filed June 23, 1995).
(4.4) -- The Company's $40,000,000 7 1/4% Notes due 2002
(incorporated herein by reference to Exhibit 4A to the
Company's on Form 8-K filed September 1, 1995).
(4.5) -- The Company's $40,000,000 6.875% Notes due 2003 and
$40,000,000 6.875% Notes due 2004 (incorporated herein by
reference to Exhibit 4A to the Company's Form 8-K filed
November 8, 1995.)
(4.6) -- The Company's $50,000,000 6.90% Notes due 2007 (incorporated
herein by reference to Exhibit 4A to the Company's Form 8-K
filed July 29, 1997.)
(4.7) -- The Company's $50,000,000 6.69% Notes due 2006 (incorporated
herein by reference to Exhibit 4A to the Company's Form 8-K
filed October 31, 1997.)
(10) -- MATERIAL CONTRACTS.
(10.1) -- $120,000,000 6.625% Senior Notes/Note Purchase Agreement
(incorporated herein by reference to Exhibit 10.ii of Item 6
of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
</TABLE>
42
<PAGE> 45
<TABLE>
<C> <S> <C>
(10.2) -- Executive Officer Restricted Stock Loan Plan, as amended
(incorporated herein by reference to Exhibit (10.2.2) of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
(10.3) -- Employee Stock Ownership Plan and Trust Agreement
(incorporated herein by reference to Exhibit (10.2.3) of
Item 14 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
(10.4) -- Credit Agreement between the Company and Lenders dated
September 16, 1997, (incorporated herein by reference to
Item 7, Exhibit 10 to the Company's report on Form 8-K filed
September 22, 1997)
(10.5) -- Stock Option and Incentive Plan (incorporated herein by
reference to Appendix "A" to the Company's 1997 Proxy
Statement on Form DEF-14A filed March 24, 1997)
(11) -- Statement regarding computation of per share earnings.
(21) -- Subsidiaries of the subsidiaries of Merry Land & Investment
Company, Inc.:
</TABLE>
<TABLE>
<CAPTION>
State of Names Under Which
Name Type of Entity Formation Subsidiary Does Business
---- ------------------- ----------- ------------------------
<S> <C> <C> <C>
Merry Land Apartment Merry Land Apartment
Communities, Inc............. Corporation Maryland Communities
ML Apartments Limited.......... Corporation Maryland ML Apartment Limited
ML Texas Apartments LP......... Limited Partnership Texas ML Texas Apartments
ML North Carolina ML North Carolina
Apartments LP................ Limited Partnership Georgia Apartments LP
ML Tennessee Apartments
ML Tennessee Apartments LP..... Limited Partnership Georgia LP
ML Alabama Apartments, Inc..... Corporation Alabama ML Alabama Apartments LP
MLA, Inc....................... Corporation Georgia MLA, Inc.
McCaslin Riverhill, Ltd........ Limited Partnership Texas McCaslin Riverhill
The Wimberly Apartment Homes, The Wimberly Apartment
Ltd.......................... Limited Partnership Texas Homes
McCaslin Hidden Lakes, Ltd..... Limited Partnership Texas McCaslin Hidden Lakes
(23) -- Consent of Arthur Andersen, LLP
(27) -- Financial Data Schedule (for SEC use only).
b) -- Reports on Form 8-K. The registrant filed reports on Form
8-K during the last quarter of 1997 as follows with respect
to the following matters.
</TABLE>
<TABLE>
<CAPTION>
Form Items Date Filed Location Financial Statements
- ---- ---------------------------------- ----------------- ------------- --------------------
<S> <C> <C> <C> <C>
8-K 5,7 (Acquisition of four apartment October 8, 1997 Duluth, Ga Audited Statements
communities) Dallas, Tex. and Pro Forma
Financial Statements
8-K 5 (Acquisition of two apartment October 8, 1997 Houston, Tex. N/A
communities)
8-K 5,7 ($50MM 6.69% Notes due 2006) October 31, 1997 N/A N/A
8-K 5 (Completion of Public Offering February 13, 1998 N/A N/A
of Series E Preferred Stock)
</TABLE>
43
<PAGE> 46
To the Shareholders of
Merry Land & Investment Company, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated January 16, 1998. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedules listed in
Item 14 are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------------
Arthur Andersen LLP
Atlanta, Georgia
January 16, 1998
44
<PAGE> 47
PART IV
Item 14 -- Schedule XI -- Real Estate and Accumulated Depreciation for the Year
Ending December 31, 1996:
<TABLE>
<CAPTION>
COST CAPITALIZED GROSS AMOUNT AT WHICHGROS
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION CARRIED AT DECEMBER 31, 1CARR
----------------------------- ------------------------- -----------------------------
ENCUM- BUILDINGS & CARRYING BUILDINGS &
RESIDENTIAL BRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS
- ----------- -------- ------------ -------------- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Adams Farm................... $ 1,500,000 $ 12,712,085 $ 14,334,143 $ 1,500,000 $ 27,046,228
Audubon Village.............. 3,576,000 15,671,192 1,127,193 3,576,000 16,798,385
Augustine Club............... 1,110,000 6,330,825 1,027,057 1,110,000 7,357,882
Auvers Village............... 3,840,000 17,219,224 1,831,230 3,840,000 19,050,454
Beach Club................... 2,080,000 9,957,175 384,122 2,080,000 10,341,297
Belmont Crossing............. 1,580,000 10,983,800 971,654 1,580,000 11,955,454
Belmont Landing.............. 2,120,000 13,195,900 1,418,343 2,120,000 14,614,243
Berkshire Place.............. 805,550 7,166,331 1,051,951 805,550 8,218,282
Bermuda Cove................. 1,503,000 13,553,192 919,341 1,503,000 14,472,533
Bishop Park.................. 2,592,000 13,375,363 1,158,803 2,592,000 14,534,166
Broadway..................... 65,000 259,675 1,567,939 65,000 1,827,614
Champions Club............... 954,000 9,083,755 448,371 954,000 9,532,126
Champions Park............... 1,134,000 10,158,363 569,070 1,134,000 10,727,433
Chatelaine Park.............. 1,818,000 21,740,650 150,043 1,818,000 21,890,693
Chatham Wood................. 700,000 5,620,292 1,105,789 700,000 6,726,081
Cherry Creek................. 635,000 2,901,168 20,711,036 635,000 23,612,204
Claire Pointe................ 2,048,000 9,710,500 2,080,518 2,048,000 11,791,018
Clary's Crossing............. 891,000 10,883,905 362,725 891,000 11,246,630
Colony Place................. 1,500,000 16,142,858 826,636 1,500,000 16,969,494
Conway Station............... 1,936,000 7,939,000 1,541,663 1,936,000 9,480,663
Copper Terrace............... 1,200,000 9,985,256 997,101 1,200,000 10,982,357
Country Club Place........... 912,000 7,717,525 490,213 912,000 8,207,738
Coventry at City View........ 2,160,000 19,980,440 137,073 2,160,000 20,117,513
Cypress Cove................. 1,630,000 12,880,863 1,734,707 1,630,000 14,615,570
Deerbrook.................... 1,008,000 5,133,133 1,000,503 1,008,000 6,133,636
Duraleigh Woods.............. 1,629,000 15,936,411 987,441 1,629,000 16,923,852
English Hills................ 1,260,000 8,584,736 696,681 1,260,000 9,281,417
Essex Place.................. 888,000 4,241,225 228,921 888,000 4,470,146
Estates on Quarry Lake....... (e) 1,963,000 16,037,341 285,468 1,963,000 16,322,809
Falls........................ 1,440,000 6,210,000 940,447 1,440,000 7,150,447
Greentree.................... 325,000 6,001,731 1,065,060 325,000 7,066,791
Gwinnett Crossing............ 2,632,000 16,839,075 1,433,842 2,632,000 18,272,917
Hammocks at Long Point....... 258,277 21,126,910 0 258,277 21,126,910
Harvest Grove................ 752,000 9,759,351 1,068,936 752,000 10,828,287
Haywood Pointe............... 480,000 5,917,041 672,998 480,000 6,590,039
Hickory Creek................ 1,323,000 12,864,616 1,410,628 1,323,000 14,275,244
Hidden Lakes................. 1,872,000 18,134,684 133,848 1,872,000 18,268,532
Hollows...................... 450,000 5,256,127 833,452 450,000 6,089,579
Hunt Club.................... 990,000 9,016,445 894,165 990,000 9,910,610
Huntington................... 485,100 4,371,125 478,590 485,100 4,849,715
Indigo Plantation............ 1,520,000 9,414,575 680,577 1,520,000 10,095,152
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1997
--------------------- ACCUMULATED
& TOTAL DEPRECIATION DATE OF DATE DEPRECIABLE
RESIDENTIAL NTS (A) (A) CONSTRUCTION ACQUIRED LIFE
- ----------- ---- -------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Adams Farm................... $ 28,546,228 $ 2,105,408 1987 1994 5-50 yr.
Audubon Village.............. 20,374,385 2,567,866 1990 1993 5-50 yr.
Augustine Club............... 8,467,882 1,192,864 1988 1993 5-50 yr.
Auvers Village............... 22,890,454 2,945,724 1991 1993 5-50 yr.
Beach Club................... 12,421,297 1,073,315 1990 1995 5-50 yr.
Belmont Crossing............. 13,535,454 1,802,704 1988 1993 5-50 yr.
Belmont Landing.............. 16,734,243 2,157,767 1988 1993 5-50 yr.
Berkshire Place.............. 9,023,832 2,270,885 1982 1990 5-50 yr.
Bermuda Cove................. 15,975,533 1,419,457 1989 1994 5-50 yr.
Bishop Park.................. 17,126,166 2,061,461 1991 1993 5-50 yr.
Broadway..................... 1,892,614 576,333 1918(b) 1983 5-50 yr.
Champions Club............... 10,486,126 907,966 1988 1994 5-50 yr.
Champions Park............... 11,861,433 1,017,354 1987 1994 5-50 yr.
Chatelaine Park.............. 23,708,693 212,144 1996 1997 5-50 yr.
Chatham Wood................. 7,426,081 2,048,209 1986 1990 5-50 yr.
Cherry Creek................. 24,247,204 1,130,975 1986 1994 5-50 yr.
Claire Pointe................ 13,839,018 1,497,947 1986 1993 5-50 yr.
Clary's Crossing............. 12,137,630 1,048,827 1984 1994 5-50 yr.
Colony Place................. 18,469,494 2,388,834 1991 1993 5-50 yr.
Conway Station............... 11,416,663 1,249,086 1987 1993 5-50 yr.
Copper Terrace............... 12,182,357 1,970,553 1989 1992 5-50 yr.
Country Club Place........... 9,119,738 351,970 1987 1996 5-50 yr.
Coventry at City View........ 22,277,513 327,271 1996 1997 5-50 yr.
Cypress Cove................. 16,245,570 2,254,648 1990 1993 5-50 yr.
Deerbrook.................... 7,141,636 1,018,817 1983 1993 5-50 yr.
Duraleigh Woods.............. 18,552,852 1,650,774 1987 1994 5-50 yr.
English Hills................ 10,541,417 947,313 1984 1994 5-50 yr.
Essex Place.................. 5,358,146 293,958 1989 1996 5-50 yr.
Estates on Quarry Lake....... 18,285,809 773,253 1995 1996 5-50 yr.
Falls........................ 8,590,447 1,074,647 1985 1993 5-50 yr.
Greentree.................... 7,391,791 2,077,609 1983 1986 5-50 yr.
Gwinnett Crossing............ 20,904,917 2,635,148 1990 1992 5-50 yr.
Hammocks at Long Point....... 21,385,187 258,814 1990 1992 5-50 yr.
Harvest Grove................ 11,580,287 1,885,051 1986 1992 5-50 yr.
Haywood Pointe............... 7,070,039 1,464,170 1985 1991 5-50 yr.
Hickory Creek................ 15,598,244 1,418,863 1984 1994 5-50 yr.
Hidden Lakes................. 20,140,532 177,901 1996 1997 5-50 yr.
Hollows...................... 6,539,579 1,467,167 1987 1991 5-50 yr.
Hunt Club.................... 10,900,610 1,748,398 1990 1992 5-50 yr.
Huntington................... 5,334,815 846,763 1986 1992 5-50 yr.
Indigo Plantation............ 11,615,152 1,204,856 1989 1994 5-50 yr.
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
COST CAPITALIZED GROSS AMOUNT AT WHICHGROS
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION CARRIED AT DECEMBER 31, 1CARR
----------------------------- ------------------------- -----------------------------
ENCUM- BUILDINGS & CARRYING BUILDINGS &
RESIDENTIAL BRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS
- ----------- -------- ------------ -------------- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kimmerly Glen................ $ 1,040,000 $ 8,071,809 $ 526,330 $ 1,040,000 $ 8,598,139
La Tour Fontaine............. (g) 2,916,000 12,418,026 81,250 2,916,000 12,499,276
Lake Point................... 1,058,975 8,096,736 1,583,233 1,058,975 9,679,969
Lakeridge.................... 2,100,000 9,600,000 408,950 2,100,000 10,008,950
Landings..................... 1,314,000 9,978,363 538,603 1,314,000 10,516,966
Laurel Gardens............... 4,800,000 20,742,850 936,471 4,800,000 21,679,321
Lexington Glen............... 5,760,000 24,320,449 1,729,762 5,760,000 26,050,211
Lexington Park............... 2,016,000 8,518,000 846,151 2,016,000 9,364,151
Lofton Place................. 2,240,000 11,960,000 980,063 2,240,000 12,940,063
Madison at Cedar Springs..... 2,470,000 21,562,604 390,469 2,470,000 21,953,073
Madison at Chase Oaks........ 3,055,000 25,957,233 595,430 3,055,000 26,552,663
Madison at Melrose........... 1,300,000 12,613,527 172,478 1,300,000 12,786,005
Madison at River Sound....... 838,529 7,369,277 33,776,110 838,529 41,145,387
Madison at Round Grove....... 2,626,000 22,060,707 525,830 2,626,000 22,586,537
Madison at Stone Creek....... 2,535,000 20,986,021 383,551 2,535,000 21,369,572
Madison at the Arboretum..... 1,046,500 9,054,154 366,784 1,046,500 9,420,938
Madison on the Parkway....... 2,444,000 22,020,109 516,804 2,444,000 22,536,913
Magnolia Villa............... 351,001 4,159,438 1,198,887 351,001 5,358,325
Mariner Club................. (f) 1,824,000 16,227,875 430,803 1,824,000 16,658,678
Marsh Cove................... 329,786 6,649,280 1,124,748 329,786 7,774,028
Mission Bay.................. 2,432,000 14,107,966 803,187 2,432,000 14,911,153
Misty Woods.................. 720,000 7,959,871 2,935,193 720,000 10,895,064
The Oaks..................... 2,196,744 18,053,471 162,921 2,196,744 18,216,392
Parc Royale.................. (h) 2,223,000 10,598,821 68,750 2,223,000 10,667,571
Palms at South Shore......... 1,200,000 11,010,416 99,977 1,200,000 11,110,393
Plantations at Killearn...... (d) 828,000 6,563,020 294,134 828,000 6,857,154
The Point.................... 1,700,000 19,600,290 228,253 1,700,000 19,828,543
Polos........................ 1,640,000 12,945,374 827,473 1,640,000 13,772,847
Polos East................... 1,386,000 14,775,063 330,178 1,386,000 15,105,240
Princeton Square............. 864,000 5,252,025 2,444,531 864,000 7,696,556
Promenade.................... 2,171,000 18,535,275 374,936 2,171,000 18,910,211
Quarterdeck.................. 580,000 8,216,250 885,105 580,000 9,101,355
Ranchstone................... 777,000 10,480,126 95,684 777,000 10,575,810
Regency...................... 890,000 10,318,505 252,582 890,000 10,571,087
Richmond Townhomes........... (j) 940,000 11,919,983 102,992 940,000 12,022,975
Riverhill.................... 2,004,000 19,980,334 (106,874) 2,004,000 19,873,460
Royal Oaks................... 1,988,000 9,663,149 754,412 1,988,000 10,417,561
Sailboat Bay................. 960,000 4,937,213 493,690 960,000 5,430,903
Sedona Springs............... 2,574,000 24,834,228 305,720 2,574,000 25,139,948
Shadow Lake.................. 1,140,000 8,397,085 449,955 1,140,000 8,847,040
Shoal Run.................... 1,380,000 9,437,830 709,707 1,380,000 10,147,537
Sommerset Place.............. 360,000 4,235,504 1,005,194 360,000 5,240,698
Spicewood Springs............ 1,536,000 13,614,751 1,795,060 1,536,000 15,409,811
Steeple Chase................ 1,111,500 7,671,643 520,873 1,111,500 8,192,516
Summit Place................. 411,500 6,891,173 1,043,287 411,500 7,934,460
Sweetwater Glen.............. 500,000 4,571,011 1,369,336 500,000 5,940,347
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1997
--------------------- ACCUMULATED
& TOTAL DEPRECIATION DATE OF DATE DEPRECIABLE
RESIDENTIAL NTS (A) (A) CONSTRUCTION ACQUIRED LIFE
- ----------- ---- -------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Kimmerly Glen................ $ 9,638,139 $ 876,504 1986 1995 5-50 yr.
La Tour Fontaine............. 15,415,276 1994 1997 5-50 yr.
Lake Point................... 10,738,944 2,105,636 1984 1989(c) 5-50 yr.
Lakeridge.................... 12,108,950 1,306,296 1991 1993 5-50 yr.
Landings..................... 11,830,966 1,046,636 1986 1994 5-50 yr.
Laurel Gardens............... 26,479,321 2,237,950 1989 1995 5-50 yr.
Lexington Glen............... 31,810,211 3,475,702 1990 1993 5-50 yr.
Lexington Park............... 11,380,151 1,329,915 1988 1993 5-50 yr.
Lofton Place................. 15,180,063 1,825,613 1988 1993 5-50 yr.
Madison at Cedar Springs..... 24,423,073 2,144,146 1995 1995 5-50 yr.
Madison at Chase Oaks........ 29,607,663 2,147,427 1995 1995 5-50 yr.
Madison at Melrose........... 14,086,005 995,869 1995 1995 5-50 yr.
Madison at River Sound....... 41,983,916 674,124 1996 1996 5-50 yr.
Madison at Round Grove....... 25,212,537 2,037,188 1995 1995 5-50 yr.
Madison at Stone Creek....... 23,904,572 1,674,579 1995 1995 5-50 yr.
Madison at the Arboretum..... 10,467,438 646,117 1995 1996 5-50 yr.
Madison on the Parkway....... 24,980,913 2,118,479 1995 1995 5-50 yr.
Magnolia Villa............... 5,709,326 1,461,626 1986 1986 5-50 yr.
Mariner Club................. 18,482,678 1,093,465 1988 1996 5-50 yr.
Marsh Cove................... 8,103,814 2,206,008 1983 1986 5-50 yr.
Mission Bay.................. 17,343,153 2,118,959 1991 1993 5-50 yr.
Misty Woods.................. 11,615,064 2,261,396 1984 1991 5-50 yr.
The Oaks..................... 20,413,136 356,981 1996 1997 5-50 yr.
Parc Royale.................. 12,890,571 0 1994 1997 5-50 yr.
Palms at South Shore......... 12,310,393 182,789 1990 1997 5-50 yr.
Plantations at Killearn...... 7,685,154 275,988 1990 1996 5-50 yr.
The Point.................... 21,528,543 388,061 1996 1997 5-50 yr.
Polos........................ 15,412,847 2,035,558 1991 1993 5-50 yr.
Polos East................... 16,491,240 398,211 1991 1997 5-50 yr.
Princeton Square............. 8,560,556 1,259,496 1984 1992 5-50 yr.
Promenade.................... 21,081,211 1,682,822 1994 1994 5-50 yr.
Quarterdeck.................. 9,681,355 1,894,352 1986 1989 5-50 yr.
Ranchstone................... 11,352,810 278,974 1996 1997 5-50 yr.
Regency...................... 11,461,087 448,552 1986 1996 5-50 yr.
Richmond Townhomes........... 12,962,975 117,059 1995 1997 5-50 yr.
Riverhill.................... 21,877,460 194,702 1996 1997 5-50 yr.
Royal Oaks................... 12,405,561 1,559,864 1991 1993 5-50 yr.
Sailboat Bay................. 6,390,903 824,483 1986 1993 5-50 yr.
Sedona Springs............... 27,713,948 1,961,223 1995 1996 5-50 yr.
Shadow Lake.................. 9,987,040 1,053,170 1989 1994 5-50 yr.
Shoal Run.................... 11,527,537 497,626 1986 1996 5-50 yr.
Sommerset Place.............. 5,600,698 1,546,712 1983 1990 5-50 yr.
Spicewood Springs............ 16,945,811 2,885,884 1986 1992 5-50 yr.
Steeple Chase................ 9,304,016 822,147 1986 1994 5-50 yr.
Summit Place................. 8,345,960 2,192,178 1985 1985 5-50 yr.
Sweetwater Glen.............. 6,440,347 1,029,963 1986 1992 5-50 yr.
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
COST CAPITALIZED GROSS AMOUNT AT WHICHGROS
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION CARRIED AT DECEMBER 31, 1CARR
----------------------------- ------------------------- -----------------------------
ENCUM- BUILDINGS & CARRYING BUILDINGS &
RESIDENTIAL BRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS
- ----------- -------- ------------ -------------- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Timber Hollow................ $ 800,000 $ 5,214,004 $ 635,302 $ 800,000 $ 5,849,306
Timberwalk................... 1,988,000 9,833,825 1,013,729 1,988,000 10,847,554
Trails at Briar Forest....... (i) 2,380,000 19,936,610 168,768 2,380,000 20,105,378
Valencia Plantation.......... 873,000 9,033,168 291,166 873,000 9,324,334
Viridian Lake................ 960,000 11,022,351 906,223 960,000 11,928,574
Waterford.................... 3,024,000 15,027,450 1,328,306 3,024,000 16,355,756
Waterford Place.............. 900,000 10,222,867 131,512 900,000 10,354,378
Waterford Village............ 1,888,000 10,950,825 868,740 1,888,000 11,819,565
Waters Edge.................. 448,000 6,490,069 1,000,539 448,000 7,490,608
Welleby Lake................. 3,648,000 13,152,000 1,632,824 3,648,000 14,784,824
West Wind Landing............ 960,000 5,597,500 704,280 960,000 6,301,780
Willow Trail................. 1,120,000 6,088,097 706,973 1,120,000 6,795,070
Wimberly..................... 2,232,000 24,274,684 182,792 2,232,000 24,457,476
Windridge.................... 1,224,000 9,971,854 989,319 1,224,000 10,961,173
Windsor Place................ 377,500 6,195,990 1,618,101 377,500 7,814,091
Woodcrest.................... 73,163 -- 8,293,835 $ 523,036 73,163 8,625,884
Woodknoll.................... 125,000 1,076,646 352,155 125,000 1,428,801
Miscell...................... 138,399 626,133 869,118 138,399 1,495,251
------------ -------------- ------------ ---------- ------------ --------------
Total Residential............ 157,301,524 1,181,664,767 156,810,925 523,036 157,301,524 1,383,807,741
------------ -------------- ------------ ---------- ------------ --------------
Commercial................... 791,726 3,089,125 1,482,180 -- 791,726 4,571,305
Development in Progress...... 14,395,165 -- 29,968,766 3,977,716 24,698,865 23,642,782
Land......................... 4,089,470 -- -- -- 4,089,470 --
------------ -------------- ------------ ---------- ------------ --------------
Total........................ $176,303,820 $1,184,753,892 $188,261,781 $4,500,752 $186,607,520 $1,367,021,828
============ ============== ============ ========== ============ ==============
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1997
--------------------- ACCUMULATED
& TOTAL DEPRECIATION DATE OF DATE DEPRECIABLE
RESIDENTIAL NTS (A) (A) CONSTRUCTION ACQUIRED LIFE
- ----------- ---- -------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Timber Hollow................ $ 6,649,306 $ 1,392,730 1986 1991 5-50 yr.
Timberwalk................... 12,835,554 1,754,512 1987 1993 5-50 yr.
Trails at Briar Forest....... 22,485,378 198,882 1991 1997 5-50 yr.
Valencia Plantation.......... 10,197,334 397,505 1990 1996 5-50 yr.
Viridian Lake................ 12,888,574 2,065,934 1991 1992 5-50 yr.
Waterford.................... 19,379,756 2,555,627 1988 1993 5-50 yr.
Waterford Place.............. 11,254,378 436,642 1994 1996 5-50 yr.
Waterford Village............ 13,707,565 1,244,745 1989 1994 5-50 yr.
Waters Edge.................. 7,938,608 1,799,737 1985 1988 5-50 yr.
Welleby Lake................. 18,432,824 2,024,155 1991 1993 5-50 yr.
West Wind Landing............ 7,261,780 951,766 1985 1993 5-50 yr.
Willow Trail................. 7,915,070 1,081,288 1985 1993 5-50 yr.
Wimberly..................... 26,689,476 237,448 1996 1997 5-50 yr.
Windridge.................... 12,185,173 1,036,709 1982 1994 5-50 yr.
Windsor Place................ 8,191,591 1,724,596 1984 1989 5-50 yr.
Woodcrest.................... 8,699,047 2,674,414 1982 1983 5-50 yr.
Woodknoll.................... 1,553,801 643,579 1975 1982 5-50 yr.
Miscell...................... 1,633,650 469,971 various various 5-50 yr.
-------------- ------------ ------- ------- -----------
Total Residential............ 1,496,109,265 139,883,740
-------------- ------------
Commercial................... 5,363,031 1,370,506 various various 5-50 yr.
Development in Progress...... 48,341,647 --
Land......................... 4,089,470 29,526
-------------- ------------ ------- ------- -----------
Total........................ $1,553,873,887 $141,283,772
============== ============
</TABLE>
47
<PAGE> 50
Notes:
(a) Reconciliations of total real estate carrying value and accumulated
depreciation for the years ending December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
Real Estate Accumulated Depreciation
-------------------------------------------------- -------------------------------------------
1997 1996 1995 1997 1996 1995
-------------- -------------- -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period...................... $1,242,471,071 $1,040,255,976 $ 814,435,663 $101,267,134 $ 67,627,934 $41,362,624
Additions -- acquisitions and
improvements................ 335,099,751 216,470,076 225,806,187 42,463,748 34,489,629 26,265,310
Deductions -- cost of real
estate sold................. 23,696,935 14,224,981 15,874 2,447,110 850,429 0
-------------- -------------- -------------- ------------ ------------ -----------
Balance at end of period...... $1,553,873,887 $1,242,471,071 $1,040,225,976 $141,283,772 $101,267,134 $67,627,934
============== ============== ============== ============ ============ ===========
</TABLE>
(b) This property was substantially renovated by the Company following
acquisition.
(c) Additional apartment units acquired in 1992.
(d) This property secures a term loan. At December 31, 1997, the balance
outstanding was $5,146,989.
(e) This property secures two term loans. At December 31, 1997, the balances
outstanding were $1,983,098 and $10,659,152.
(f) This property secures a term loan. At December 31, 1997, the balance
outstanding was $9,600,000.
(g) This property secures a term loan. At December 31,1997, the balance was
$9,827,808.
(h) This property secures a term loan. At December 31,1997, the balance was
$8,928,467.
(i) This property secures three term loans. At December 31, 1997, the balances
outstanding were $773,035, $8,016,267, and $5,923,839.
(j) This property secures a term loan. At December 31,1997, the balance was
$9,423,036.
48
<PAGE> 51
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned,
MERRY LAND & INVESTMENT
COMPANY, INC.
(Registrant)
/s/ W. TENNENT HOUSTON
- --------------------------------------
W. Tennent Houston
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BOONE A. KNOX Chairman of the Board and February 23, 1998
- ----------------------------------------------------- Director
Boone A. Knox
/s/ W. TENNENT HOUSTON President, Chief Executive February 23, 1998
- ----------------------------------------------------- Officer and Director
W. Tennent Houston
/s/ MICHAEL N. THOMPSON Executive Vice President, February 23, 1998
- ----------------------------------------------------- Chief Operating Officer and
Michael N. Thompson Director
/s/ W. HALE BARRETT Secretary and Director February 23, 1998
- -----------------------------------------------------
W. Hale Barrett
/s/ HUGH CALVIN LONG II Director February 23, 1998
- -----------------------------------------------------
Hugh Calvin Long II
/s/ ROBERT P. KIRBY Director February 23, 1998
- -----------------------------------------------------
Robert P. Kirby
/s/ PAUL S. SIMON Director February 23, 1998
- -----------------------------------------------------
Paul S. Simon
/s/ DORRIE E. GREEN Vice President and Chief February 23, 1998
- ----------------------------------------------------- Financial Officer
Dorrie E. Green
/s/ RONALD J. BENTON Vice President and Controller February 23, 1998
- -----------------------------------------------------
Ronald J. Benton
</TABLE>
49
<PAGE> 1
PART IV
Item 14 -- Exhibit 11 -- Computation of Per Share Earnings
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
BASIC:
Net income............................................ $65,503,469 $64,006,073 $53,537,199
Preferred dividend requirement........................ 23,257,662 19,842,834 18,129,144
----------- ----------- -----------
Net income available for common....................... $42,245,807 $44,163,239 $35,408,055
=========== =========== ===========
Average common shares outstanding..................... 38,460,687 35,918,565 33,367,527
Basic earnings per share.............................. $ 1.10 $ 1.23 $ 1.06
=========== =========== ===========
DILUTED:
Net income............................................ $65,503,469 $64,006,073 $53,537,199
Preferred dividend requirement........................ 22,779,499 18,944,799 18,129,144
----------- ----------- -----------
Net income available for common....................... $42,723,970 $45,061,274 $35,408,055
=========== =========== ===========
Dilutive convertible preferred shares................. 366,136 687,638 0
Dilutive stock options................................ 101,300 70,100 50,200
Average common shares outstanding..................... 38,460,687 35,918,565 33,367,527
----------- ----------- -----------
Average diluted common shares outstanding............. 38,928,123 36,676,303 33,417,727
=========== =========== ===========
Diluted earnings per share............................ $ 1.10 $ 1.23 $ 1.06
=========== =========== ===========
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K into the Company's previously filed
Registration Statement File Nos. 33-65067, 33-03335, 33-63083, 333-22221, and
333-40155.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------------
Arthur Andersen LLP
Atlanta, Georgia
February 23, 1998
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 520
<SECURITIES> 1,963
<RECEIVABLES> 1,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,533
<PP&E> 1,557,580
<DEPRECIATION> 142,617
<TOTAL-ASSETS> 1,427,881
<CURRENT-LIABILITIES> 32,467
<BONDS> 460,000
0
269,677
<COMMON> 39,177
<OTHER-SE> 488,478
<TOTAL-LIABILITY-AND-EQUITY> 1,427,881
<SALES> 210,272
<TOTAL-REVENUES> 219,417
<CGS> 122,199
<TOTAL-COSTS> 153,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,900
<INCOME-PRETAX> 65,503
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,503
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
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