<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): July 23, 1998
---------------------
ERP OPERATING LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
ILLINOIS 0-24920 36-3894853
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or File Number) Identification No.)
organization)
</TABLE>
<TABLE>
<S> <C>
TWO NORTH RIVERSIDE PLAZA, SUITE 400
CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (312) 474-1300
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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<PAGE> 2
ITEM 5 -- OTHER EVENTS
On July 8, 1998, Equity Residential Properties Trust, a Maryland real
estate investment trust ("EQR"), and Merry Land & Investment Company, Inc.
("Merry Land"), a Georgia corporation, entered into an Agreement and Plan of
Merger dated as of July 8, 1998 pursuant to which Merry Land will merge with and
into EQR (the "Merger"). Pursuant to the Merger, the shares of common stock of
Merry Land issued and outstanding immediately prior to the Merger will be
converted into 0.53 of a common share of beneficial interest of EQR, Merry
Land's preferred stock will be converted into preferred shares of beneficial
interest of EQR with the same terms and preferences, subject to certain
adjustments to the conversion prices of Merry Land's convertible preferred stock
in accordance with its terms. Immediately prior to the consummation of the
Merger, Merry Land will distribute to its common shareholders all of the common
stock of a corporation or business trust to be formed which will own and operate
certain of Merry Land's assets following the Merger (the "Spin-Off").
Consummation of the Merger and Spin-Off is subject to the approval of the Merger
by the shareholders of EQR and Merry Land and to specified closing conditions.
Upon completion of the Merger, it is expected that EQR will contribute the
assets of Merry Land to ERP Operating Limited Partnership ("ERP") in exchange
for additional partnership interests in ERP. In connection with the Merger, ERP
is hereby filing additional information contained in Merry Land's Annual Report
on Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 regarding the business and properties
of Merry Land to be acquired in the Merger as follows:
Merry Land & Investment Company, Inc. (the "Company" or "Merry Land") 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.
2
<PAGE> 3
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>
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
3
<PAGE> 4
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.
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.
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
4
<PAGE> 5
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.
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>
5
<PAGE> 6
<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>
6
<PAGE> 7
<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
7
<PAGE> 8
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
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
8
<PAGE> 9
Recent Events
Acquisition of Communities from Trammell Crow Residential. On April 1,
1998, the Company closed the purchase of twelve communities containing 3,538
units from Trammell Crow Residential, a national apartment development and
management company, and its affiliates. The purchase of a thirteenth property
will close upon the completion of construction probably in the second quarter of
1998. For the total 3,994 units, the sellers will receive consideration of
$248.0 million, including partnership units in Merry Land's newly created
subsidiary DownREIT partnership, cash and the assumption of debt.
Of the twelve communities acquired, three 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 $714
monthly rent, and was 95% occupied as of March 31, 1998. These characteristics
are very similar to those of Merry Land's existing Florida holdings. Merry Land
has employed substantially all of the staff at communities and additional
management personnel from Trammell Crow Residential. 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 following is a detailed listing of the communities acquired.:
<TABLE>
<CAPTION>
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 $ 561 92%
Oaks at Baymeadows........................... Jacksonville 1985 248 995 619 94
Oaks at Regency.............................. Jacksonville 1985 159 844 539 85
Oaks at Orange Park.......................... Jacksonville 1986 280 845 589 94
Vinings at Lake Buena Vista.................. Orlando 1988 400 927 674 99
Chicasaw Crossing............................ Orlando 1986 292 850 594 95
Vinings Club at Metrowest.................... Orlando 1997 411 1,182 1,001 93
Vinings at Lenox Place....................... Orlando 1998 456 1,011 875 (1)
Beneva Place................................. Sarasota 1986 192 882 680 99
Vinings Club at Boot Ranch................... Tampa 1996 432 956 803 94
Vinings at Carrollwood Place................. Tampa 1995 432 970 733 96
Forest Place................................. Tampa 1985 244 813 554 96
Horizon Place................................ Tampa 1985 304 841 599 96
---- ----- ----- ------ --
Weighted Average or Total..................................... 1990 3,994 941 $ 714 95%
</TABLE>
- - ---------------
(1) Under construction at March 31, 1998. Expected to close during the second
quarter of 1998.
The Company believes that this transaction is 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 further enhances its leadership 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.
The acquisition represents a 17% increase in the Company's total investment
in apartments, and a 50% increase in its Florida holdings. Merry Land's Florida
communities now represents 43% of the Company's
9
<PAGE> 10
total investment in apartments. The following table includes Merry Land's
apartment holdings at April 1, 1998:
<TABLE>
<CAPTION>
% OF
TOTAL COST TOTAL COST
----- ---- ----------
<S> <C> <C> <C>
Florida..................................................... 14,256 $ 747,420,328 42.6%
Texas....................................................... 5,914 377,542,701 21.5
Georgia..................................................... 5,760 278,247,332 15.8
N. Carolina................................................. 4,423 198,739,385 11.3
S. Carolina................................................. 1,308 47,830,505 2.7
Tennessee................................................... 879 47,365,670 2.7
Virginia.................................................... 596 35,103,440 2.0
Maryland.................................................... 198 12,147,319 0.7
Alabama..................................................... 276 11,548,002 0.7
------ -------------- -----
33,610 $1,755,944,682 100.0%
</TABLE>
To fund the acquisition Merry Land assumed $113.4 million of debt,
including $96.7 million of tax exempt debt bearing interest at an average rate
of approximately 5.0%. Merry Land also formed a subsidiary DownREIT partnership
which issued operating partnership units with an aggregate value of $30.6
million to the sellers. An additional $5.4 million of units will be issued upon
the closing of the thirteenth community. The units are redeemable for cash or,
at the Company's option, for 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 common stock exchanged for the units to be publicly
traded. The balance of the purchase price was paid in cash.
10
<PAGE> 11
Item 7 -- Financial Statements, Pro forma Financial Information and Exhibits
(a) Financial Statements of Business to be Acquired
FINANCIAL STATEMENTS OF MERRY LAND & INVESTMENT COMPANY, INC.
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
11
<PAGE> 12
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.
12
<PAGE> 13
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.
13
<PAGE> 14
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.
14
<PAGE> 15
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.
15
<PAGE> 16
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.
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.
16
<PAGE> 17
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
17
<PAGE> 18
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.
18
<PAGE> 19
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.
19
<PAGE> 20
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>
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
20
<PAGE> 21
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.
21
<PAGE> 22
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.
22
<PAGE> 23
Schedule XI -- Real Estate and Accumulated Depreciation for the Year Ending
December 31, 1997:
<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
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
<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.
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.
</TABLE>
23
<PAGE> 24
<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>
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
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
<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>
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.
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.
</TABLE>
24
<PAGE> 25
<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>
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 1,338,807,741
------------ -------------- ------------ ---------- ------------ --------------
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 $188,261,871 $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>
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>
25
<PAGE> 26
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 $1,040,225,976 $ 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.
26
<PAGE> 27
Merry Land & Investment Company, Inc.
UNAUDITED FINANCIAL STATEMENTS
As of March 31, 1998
------------------------
Merry Land & Investment Company, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
PROPERTIES AT COST
Apartments................................................ $1,507,945 $1,496,109
Apartments under development.............................. 51,300 48,342
Commercial rental property................................ 5,375 5,363
Land held for investment or future development............ 4,090 4,090
Operating equipment....................................... 3,780 3,676
---------- ----------
1,572,490 1,557,580
Less accumulated depreciation and depletion............... (155,324) (142,617)
---------- ----------
1,417,166 1,414,963
CASH AND SECURITIES
Cash and cash equivalents................................. 45 570
Repurchase Agreements..................................... 79,854 --
Marketable securities..................................... 2,131 1,963
---------- ----------
82,030 2,533
OTHER ASSETS
Notes receivable.......................................... 1,397 1,412
Other receivables......................................... 189 249
Deferred loan costs....................................... 4,421 4,639
Other..................................................... 6,102 4,085
---------- ----------
12,109 10,385
---------- ----------
TOTAL ASSETS................................................ $1,511,305 $1,427,881
========== ==========
NOTES PAYABLE
Mortgage loans............................................ $ 70,109 $ 70,282
Senior notes.............................................. 460,000 460,000
Note payable -- credit line............................... -- 67,800
---------- ----------
530,109 598,082
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest.......................................... 8,724 6,622
Resident security deposits................................ 1,333 1,597
Accrued property taxes.................................... 8,083 10,780
Accrued employee compensation............................. 1,545 3,471
Other..................................................... 8,270 9,997
---------- ----------
27,955 32,467
STOCKHOLDERS' EQUITY
Preferred stock, at $25 and $50 liquidation preference,
20,000 shares authorized.................................. 369,672 269,677
Common stock, at $1 stated value, 100,000 shares authorized
42,706 and 39,177 shares issued........................... 42,706 39,177
Capital surplus........................................... 594,789 525,744
Cumulative undistributed net earnings..................... (24,648) (15,730)
Notes receivable from stockholders and ESOP............... (29,601) (21,691)
Accumulated other comprehensive income.................... 323 155
---------- ----------
953,241 797,332
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY........................ $1,511,305 $1,427,881
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 28
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Rental income............................................... $59,244 $47,861
Mineral royalties........................................... 391 95
Mortgage interest........................................... 29 28
Other interest.............................................. 420 738
Dividends................................................... 44 559
Other income................................................ 373 3,501
------- -------
60,501 52,782
Rental expense.............................................. 15,096 12,686
General and administrative expense.......................... 1,207 1,056
Interest.................................................... 8,730 5,626
Taxes and insurance......................................... 7,129 5,585
Depreciation -- real estate................................. 12,679 9,425
Depreciation -- other....................................... 135 84
Amortization -- financing costs............................. 237 142
------- -------
45,213 34,604
Income before net realized loss............................. 15,288 18,178
Net realized loss........................................... (15) --
------- -------
NET INCOME.................................................. 15,273 18,178
Dividends to preferred shareholders......................... 6,770 5,831
------- -------
NET INCOME AVAILABLE FOR COMMON SHARES...................... $ 8,503 $12,347
======= =======
Weighted average common shares outstanding
Basic..................................................... 39,935 37,957
Diluted................................................... 40,035 37,983
EARNINGS PER COMMON SHARE
Basic..................................................... $ .21 $ .33
Diluted................................................... $ .21 $ .33
======= =======
CASH DIVIDENDS DECLARED PER COMMON SHARE.................... $ .41 $ .39
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 29
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Rents and royalties received.............................. $ 59,745 $ 47,975
Interest received......................................... 565 701
Dividends received........................................ 44 559
Rental expense............................................ (15,704) (13,481)
General and administrative expense........................ (1,650) (1,587)
Interest expense.......................................... (6,629) (3,338)
Property taxes and insurance expense...................... (10,654) (7,376)
Other..................................................... (480) (370)
-------- --------
Net cash provided by operating activities.............. 25,237 23,083
INVESTING ACTIVITIES:
Sale of securities........................................ -- 16,046
Sale of real property..................................... 261 --
Purchase of real property................................. (242) --
Development of real property.............................. (12,622) (16,668)
Recurring capital expenditures............................ (1,627) (1,328)
Improvements to existing properties....................... (1,246) (851)
Other..................................................... (2,928) 48
-------- --------
Net cash used by investing activities.................. (18,404) (2,753)
FINANCING ACTIVITIES:
Net repayments -- bank debt............................... (67,800) --
Net repayments -- mortgage loans.......................... (173) (38)
Cash dividends paid -- common............................. (17,421) (14,793)
Cash dividends paid -- preferred.......................... (6,769) (5,830)
Sale of common stock...................................... 68,026 4,537
Sale of preferred stock................................... 96,633 (121)
-------- --------
Net cash provided (used) by financing activities....... 72,496 (16,245)
NET INCREASE IN CASH........................................ 79,329 4,085
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 570 32,793
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 79,899 $ 36,878
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 30
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Cash Flows from Operating Activities
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Net income.................................................. $ 15,273 $ 18,178
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 13,051 9,651
Increase in interest and accounts receivable.............. 52 (1,237)
Decrease in other assets.................................. (1,438) (308)
Decrease in accounts payable and accrued interest......... (1,701) (3,201)
-------- --------
Net cash provided by operating activities................. $ 25,237 $ 23,083
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 31
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. Nature of Business
Merry Land & Investment Company, Inc. is a real estate investment trust
(REIT), which owns and operates upscale apartment communities in nine Southern
states including Alabama, Florida, Georgia, Maryland, North Carolina, South
Carolina, Tennessee, Texas, and Virginia. As a qualified REIT the Company pays
no corporate income taxes on earnings distributed to stockholders.
The consolidated financial statements for the three month periods ended
March 31, 1998 and March 31, 1997 reflect all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for the
interim period.
2. Marketable Securities
The cost and market value of securities by major classification at March
31, 1998 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Unrealized
Cost Market Gain
------ ------ ----------
<S> <C> <C> <C>
Common stock................................... $1,808 $2,131 $323
</TABLE>
3. Borrowings
Borrowings at March 31, 1998 were as follows (dollars in thousands):
<TABLE>
<S> <C>
9.760% mortgage notes(a).................................... $ 12,622
7.750% mortgage note(b)..................................... 9,600
7.625% mortgage note(c)..................................... 5,126
7.210% mortgage note(d)..................................... 9,397
7.125% mortgage note(e)..................................... 14,651
7.570% mortgage note(f)..................................... 9,803
8.250% mortgage note(g)..................................... 8,910
6.625% senior unsecured notes(h)............................ 120,000
7.250% senior unsecured notes(i)............................ 40,000
6.875% senior unsecured notes(j)............................ 40,000
6.875% senior unsecured notes(k)............................ 40,000
7.250% senior unsecured notes(l)............................ 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)................... --
--------
$530,109
========
</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 only until November 1998 at
which both principal and interest will be 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.
31
<PAGE> 32
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(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.
The Company estimates that the fair value of borrowings approximates their
carrying value at March 31, 1998. Maturities of borrowings at March 31 were as
follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 552
1999........................................................ 40,853
2000........................................................ 40,921
2001........................................................ 80,138
2002........................................................ 49,764
2003........................................................ 40,489
2004........................................................ 40,526
2005........................................................ 124,804
2006........................................................ 62,062
2007........................................................ 50,000
---------
$ 530,109
=========
</TABLE>
4. 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
32
<PAGE> 33
MERRY LAND & INVESTMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with an applicable reduction in preferred dividends. Basic and diluted earnings
per share are computed as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
BASIC:
Net Income........................................... $15,273 $18,178
Preferred dividend requirement....................... 6,770 5,831
------- -------
Net income available for common...................... $ 8,503 $12,347
======= =======
Average common shares outstanding.................... 39,935 37,957
Basic earnings per share............................. $ 0.21 $ 0.33
DILUTED:
Net income........................................... $15,273 $18,178
Preferred dividend requirement....................... 6,770 5,831
------- -------
Net income available for common...................... $ 8,503 $12,347
======= =======
Dilutive stock options............................... 100 26
Average common shares outstanding.................... 39,935 37,957
Average diluted common shares outstanding............ $40,035 $37,983
======= =======
Diluted earnings per share........................... $ 0.21 $ 0.33
======= =======
</TABLE>
5. Income Taxes and Dividend Policy
As discussed in Note 1, the Company has elected to be taxed as a REIT. The
Internal Revenue Code provides that a REIT, which in any taxable year meets
certain requirements and distributes to its stockholders at least 95% of its
ordinary taxable income, will not be subject to federal income taxation on
taxable income which is distributed. The Company intends to distribute the
required amounts of income in 1998 to qualify as a REIT and to avoid paying
income taxes. On March 31, 1998, the Company paid dividends per share as
follows:
<TABLE>
<S> <C>
Series A Preferred.......................................... $0.43750
Series B Preferred.......................................... $0.55125
Series C Preferred.......................................... $0.53750
Series D Preferred.......................................... $1.03625
Series E Preferred (a)...................................... $0.02436
Common...................................................... $0.41000
</TABLE>
- - ---------------
(a) Series E Preferred was issued on February 13, 1998, therefore the dividends
per share have been prorated.
6. Recent Accounting Pronouncements
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". The Company had comprehensive income, which is comprised of net income
and unrealized gains or losses on marketable securities held as available for
sale, of $15,440,810 and $16,705,911 for the period ending March 31, 1998 and
1997 respectively.
33
<PAGE> 34
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- - -----------
<S> <C>
23 Consent of Arthur Andersen LLP
</TABLE>
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ERP OPERATING LIMITED PARTNERSHIP
By: Equity Residential Properties
Trust,
its general partner
By: /s/ BRUCE C. STROHM
------------------------------------
Bruce C. Strohm, Secretary,
Executive Vice President and General
Counsel
Date: July 23, 1998
35
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 8-K into the previously filed
registration statement (Form S-3 No. 333-45557) of ERP Operating Limited
Partnership.
Arthur Andersen LLP
Atlanta, Georgia
July 22, 1998
