- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended
September 30, 1995
MERRY LAND & INVESTMENT COMPANY, INC.
P. O. Box 1417
Augusta, Georgia 30903
706 722-6756
Commission file number: 001-11081
State of Incorporation: Georgia
I.R.S. Employer Identification Number: 58-0961876
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value New York Stock Exchange
$1.75 Series A Cumulative Convertible
Preferred Stock New York Stock Exchange
$2.15 Series C Cumulative Convertible
Preferred Stock New York Stock Exchange
Number of shares outstanding as of September 30, 1995:
Common Stock 33,848,745
Series A Preferred Stock 685,316
Series C Preferred Stock 4,599,800
Indicate by check mark whether the registrant :(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter time as required),
and (2) has been subject to such filing requirements for the past ninety
days: Yes X . No .
---- ----
- ------------------------------------------------------------------------------
Form 10-Q - Merry Land & Investment Company, Inc.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995 and December 31, 1994
Statements of Income - Three months ended September 30, 1995
and 1994 and nine months ended September 30, 1995 and 1994
Statements of Cash Flows - Nine months ended September 30, 1995
and 1994
Notes to condensed financial statements - September 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Form 10-Q - Merry Land & Investment Company, Inc.
Part I. Financial Information
Item 1 - Financial Statements
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
-------------- -------------
PROPERTIES AT COST
Apartments $ 937,392,323 $796,436,199
Apartments under development 13,584,357 8,128,943
Commercial rental property 6,349,503 6,039,242
Land held for investment or
future development 3,832,874 3,831,281
Operating equipment 1,195,819 870,120
--------------- --------------
962,354,876 815,305,785
Less accumulated depreciation
and depletion 60,624,950 41,874,144
--------------- --------------
901,729,926 773,431,641
CASH & SECURITIES
Cash 502,952 717,957
Short term investments 46,150,000 -
Marketable securities 65,720,300 27,716,350
-------------- --------------
112,373,252 28,434,307
OTHER ASSETS
Notes receivable 822,089 941,172
Deferred loan costs 4,035,934 2,066,106
Other 4,120,507 1,781,815
--------------- --------------
8,978,530 4,789,093
TOTAL ASSETS $1,023,081,708 $806,655,041
--------------- --------------
NOTES PAYABLE
Mortgage loans $ 24,430,935 $ 17,834,734
6.625% Senior unsecured
notes, due 1999-2001 120,000,000 120,000,000
7.25% Senior unsecured notes,
due 2002 40,000,000 -
7.25% Senior unsecured notes,
due 2005 120,000,000 -
Note payable - credit line - 57,600,000
Repurchase agreements - 17,375,000
--------------- -------------
304,430,935 212,809,734
PAYABLES & ACCRUED LIABILITIES
Accrued interest 2,609,500 2,224,288
Resident security deposits 2,803,999 3,011,824
Accrued property taxes 10,025,302 1,204,966
Other 3,528,572 2,553,375
--------------- --------------
18,967,373 8,994,453
EQUITY
Preferred stock ($1.75 Series A,
$25.00 per share) 17,132,900 62,908,100
Preferred stock ($2.205 Series B,
$25.00 per share) 100,000,000 100,000,000
Preferred stock ($2.15 Series C,
$25.00 per share) 114,995,000 -
Common stock ($1.00 per share
stated value) 33,848,745 30,744,451
Capital surplus 425,026,443 375,169,573
Cumulative undistributed
net earnings 16,495,953 23,111,941
Notes receivable from
stockholders and ESOP (13,948,152) (10,283,657)
Unrealized gain on securities 6,132,511 3,200,446
--------------- -------------
699,683,400 584,850,854
--------------- -------------
LIABILITIES AND STOCKHOLDERS'
EQUITY $1,023,081,708 $806,655,041
-------------- --------------
Shares of preferred stock
outstanding 9,285,116 6,516,324
Shares of common stock outstanding 33,848,745 30,744,451
The notes to financial statements are an integral part of this statement.
Form 10-Q - Merry Land & Investment Company, Inc.
Part I. Financial Information
Item 1. Financial Statements
INCOME STATEMENTS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ---------------------------
1995 1994 1995 1994
----------- ----------- ------------ ------------
INCOME
Rental income $37,967,793 $25,611,316 $104,958,169 $72,497,565
Mineral royalties 142,820 222,456 347,075 724,851
Mortgage interest 20,243 23,948 59,567 66,743
Other interest 1,852,423 672,928 3,268,373 1,304,780
Dividends 281,872 65,448 620,089 207,815
Other income 1,206,875 (679,688) 1,346,647 (679,688)
------------ ---------- -------------- ------------
41,472,026 25,916,408 110,599,920 74,122,066
EXPENSES
Rental expense 10,700,426 7,170,701 29,109,421 20,228,143
Interest 4,559,827 2,390,169 9,858,979 7,756,030
Depreciation -
real estate 6,629,733 4,488,088 18,612,128 12,482,727
Depreciation - other 53,950 35,691 138,679 76,507
Amortization -
financing costs 156,218 86,995 330,209 260,986
Taxes and insurance 4,852,739 2,312,202 11,396,414 7,227,807
General and administrative
expense 625,357 291,227 1,538,007 1,128,545
Other non-recurring
expense - 200,000 (200,000) 200,000
---------- ----------- ------------- -------------
27,578,250 16,975,073 70,783,837 49,360,745
Income before net
realized gains 13,893,776 8,941,335 39,816,083 24,761,321
Net realized gains 1,544,136 743,743 1,641,148 933,141
----------- ---------- ------------ ------------
NET INCOME 15,437,912 9,685,078 41,457,232 25,694,462
Dividends to preferred
shareholders 4,980,763 1,641,106 13,159,682 5,352,812
------------- ---------- -------------- ------------
NET INCOME AVAILABLE
FOR COMMON SHARES $10,457,149 $8,043,972 $28,297,550 $20,341,650
------------ ---------- -------------- ------------
Weighted average common shares
- outstanding 33,714,729 28,224,500 33,231,507 25,006,515
- fully diluted 44,610,428 33,252,800 42,737,912 30,473,450
NET INCOME PER
COMMON SHARE $.31 $.29 $ .85 $.81
----- ---- ----- ----
CASH DIVIDENDS DECLARED
PER COMMON SHARE $.35 $.30 $1.05 $.90
----- ---- ----- ----
The notes to financial statements are an integral part of this statements.
Item 1 - Financial Statements and Supplementary Data
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
1995 1994
------------- -----------
OPERATING ACTIVITIES:
Rents and royalties received $105,323,753 $73,220,416
Interest received 2,392,862 1,335,379
Dividends received 620,089 207,815
Rental expense (28,845,133) (20,228,143)
General and administrative expense (1,767,752) (1,521,204)
Interest expense (9,473,767) (9,743,530)
Property taxes and insurance expense (2,705,411) (2,001,176)
Other (102,126) (968,182)
------------- -------------
Net cash provided (used) by operating
activities: 65,442,515 40,301,375
INVESTING ACTIVITIES:
Principal received on notes receivable 119,084 112,411
Sale of securities 16,566,751 7,568,488
Purchase of securities (48,412,920) (33,176,563)
Sale of real property 66,653 69,929
Purchase of real property (131,308,581) (47,460,524)
Development of real property (4,954,041) -
Improvements to real property (10,784,876) (11,238,933)
Purchase of short term investments (46,150,000) -
Other (2,868,097) (487,677)
-------------- -------------
Net cash provided (used) by investing
activities: (227,726,027) (84,612,869)
FINANCING ACTIVITIES:
Net borrowings - senior
unsecured notes 160,000,000 -
Net borrowings (repayments)
- bank debt (57,600,000) (375,000)
Net borrowings (repayments)
- mortgage loans 6,596,201 (18,947,144)
Repurchase agreements (17,375,000) -
Cash dividends paid - common (34,918,264) (22,740,909)
Cash dividends paid - preferred,
Series A (1,133,017) (5,352,813)
Cash dividends paid - preferred,
Series B (6,615,000) -
Cash dividends paid - preferred,
Series C (5,411,665) -
Common stock retired (238,816) -
Sale of common stock -
public offering - 87,751,638
Sale of common stock - reinvested
dividends 6,506,525 2,740,231
Sale of common stock - stock
purchase plan 1,783,272 671,294
Sale of common stock - employees 774,538 243,903
Sale of preferred stock - public
offering 109,699,733 -
--------------- -------------
Net cash provided (used) in
financing activities 162,068,507 43,991,200
--------------- -------------
NET INCREASE (DECREASE) IN CASH (215,005) (320,294)
CASH AT BEGINNING OF PERIOD 717,957 577,544
--------------- -------------
CASH BALANCE $ 502,952 $ 257,250
--------------- -------------
The accompanying notes are an integral part of these statements.
Item 1 - Financial Statements and Supplementary Data
STATEMENTS OF CASH FLOWS
(Reconciliation of Net Income to Cash Flows from Operating Activities)
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1995 1994
------------- ------------
Net income $41,457,232 $25,694,462
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 19,081,016 12,820,220
(Increase) decrease in interest and
accounts receivable (1,502,662) (63,566)
(Increase) decrease in other assets (2,805,859) (894,802)
Increase (decrease) in accounts payable
and accrued interest 10,853,936 3,678,202
Gain on the sale of marketable securities (1,572,902) (880,411)
Gain on the sale of real estate (68,246) (52,730)
------------- ------------
Net cash provided by operating activities $65,442,515 $40,301,375
------------- ------------
The accompanying notes are an integral part of these statements.
Merry Land & Investment Company, Inc.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
1. Nature of Business
Merry Land & Investment Company, Inc. is a real estate investment
trust (REIT), which owns and operates upscale apartment communities in eight
Southern states including Florida, Georgia, Maryland, North Carolina, South
Carolina, Tennessee, Texas and Virginia and also in Ohio. As a qualified REIT
the Company pays no corporate income taxes on earnings distributed to
stockholders.
2. Marketable Securities and Short-term Investments
The cost and market value of securities by major classification at
September 30, 1995 were as follows:
Cost Market
------------- -------------
Common stocks $ 10,382,039 $ 15,005,250
Corporate debentures 1,905,750 2,450,250
U.S. Treasury securities 47,300,000 48,264,800
Money market 46,150,000 46,150,000
------------- -------------
$105,737,789 $111,870,300
------------- -------------
3. Borrowings
During the second quarter of 1995 the Company completed a public
offering of $120 million of 7.25% senior unsecured notes due in 2005.
Interest will be paid semi-annually with the first payment due December 15,
1995, and the notes will mature on June 15, 2005. In the third quarter
of 1995 the Company completed a public offering of $40 million of 7.25%
senior unsecured notes due in 2002. Interest will be paid semi-annually with
the first payment due April 1, 1996, and the notes will mature on October 1,
2002.
Borrowings at September 30, 1995 were as follows:
6.625% senior unsecured notes (a) $120,000,000
7.25% senior unsecured notes (b) 40,000,000
7.25% senior unsecured notes (c) 120,000,000
Mortgage loans at fixed rates (d) 14,480,935
Tax exempt mortgage loan at variable rate (e) 9,950.000
-----------
$304,430,935
------------
(a) $120 million, 6.625% notes, interest payable semi-annually,
principal installments of $40 million each due 1999, 2000,
and 2001.
(b) $40 million, 7.25% notes, interest payable semi-annually,
maturity 2002.
(c) $120 million, 7.25% notes, interest payable semi-annually,
maturity 2005.
(d) Secured by apartment communities at interest rates of 8.375%
and 9.875%. $7.0 million is due in December, 1995 with the
balance due in monthly installments through 2000.
(e) Secured by apartment community at a variable interest rate
equal to 75% of prime, due in principal installments of
$75,000 in 1996 and $200,000 each in 1997 through 2000,
with balances callable in 2000.
Maturities of borrowings at September 30 were as follows (in thousands):
1995 $ 7,038
1996 148
1997 279
1998 286
1999 40,293
2000 56,387
2001 40,000
2002 40,000
2003 -
2004 -
2005 120,000
--------
$304,431
4. Income Taxes and Dividend Policy
As discussed in Note 1, the Company has elected to be taxed as a
REIT. The Internal Revenue Code provides that a REIT, which in any taxable
year meets certain requirements and distributes to its stockholders at least
95% of its ordinary taxable income, will not be subject to federal income
taxation on taxable income which is distributed. The Company intends to
distribute the required amounts of income in 1995 to qualify as a REIT and
to avoid paying income taxes. On September 29, 1995, the Company paid
dividends per share as follows:
Series A Preferred $.43750
Series B Preferred $.55125
Series C Preferred $.53750
Commom $.35000
5. Environmental Matters
On July 1, 1994 the Environmental Protection Division of the State
of Georgia published its initial Hazardous Site Inventory under the State's
1992 "Superfund" law, which requires investigation, and if appropriate,
remedial action with respect to listed sites. A 96 acre tract owned by the
Company and located in Richmond County, Georgia, formerly used as a landfill,
was included on this list. In the third quarter of 1994 the Company accrued
$200,000 as a non-recurring charge, representing the Company's estimate of
its share of the potential cost if further investigation of the site was
required as a result of the action by the State of Georgia.
On April 24, 1995, following discussions with the Company's
representatives, the Georgia EPD notified the Company that it had determined
that there was insufficient evidence to include the site on the Hazardous
Site Inventory. The state removed the site from the inventory as of that
date. The Company reversed the $200,000 non-recurring charge in the second
quarter of 1995.
Part I
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(In thousands except apartment, per share and per unit data)
Overview
Merry Land & Investment Company, Inc. is one of the largest
publicly owned real estate investments trusts in the United States and
is one of the nation's largest owners and operators of upscale garden
apartments. At September 30, 1995 the Company had a total equity market
capitalization of $942.3 million and owned a high quality portfolio of 77
apartment communities containing 21,235 units and having an aggregate cost
of $937.3 million. The following table describes the growth of the Company's
apartment holdings in recent years:
Units (1) Increase Cost (1) (2) Increase
--------- -------- ------------ --------
1992 6,527 76% $209,549 73%
1993 13,979 114 554,444 165
1994 18,851 35 796,436 44
1995, through
September 30 21,235 13% $937,320 18%
------------------
(1) Excludes condominium units.
(2) Represents the total acquisition cost of apartments plus
the capitalized cost of improvements made subsequent
to acquisition.
Substantially all of the Company's apartment communities command
rental rates in the upper range of their markets. The communities are
geographically diversified, located in twenty-six metropolitan areas primarily
in the Southern United States, each with a population in excess of 250,000.
Merry Land considers its market area to include the Southern United States,
extending from the Washington D.C. area, to Texas and to Florida. The Company
expects eventually to operate in most of the major markets in this area.
The following table further describes the Company's apartment holdings as of
September 30, 1995.
% of Average Average
Market Units Cost Total Occupancy Rental Rate
------ ----- ----- ------ --------- -----------
Atlanta 3,346 $137.8 15% 95% $613
Jacksonville 2,550 104.2 11 97 591
Orlando 1,902 90.2 10 95 640
Charlotte 1,623 57.9 6 96 563
Tampa/St.
Petersburg 1,301 63.9 7 94 639
Ft. Myers 1,268 57.9 6 94 641
Raleigh 1,256 46.3 5 96 584
Dallas 1,160 73.7 8 90 821
Charleston 880 33.0 4 94 515
Savannah 865 32.4 3 98 583
All others 5,084 240.0 25 95 644
------ ------ ---- ---- ----
21,235 $937.3 100% 96% $624
In December 1994, the Company commenced a program of apartment
development in order to provide an additional means of expanding its
apartment holdings. At that time, the Company bought three tracts of land for
the construction of high quality suburban garden apartments. The Company has
since bought two additional development parcels. The Company intends to build
communities on these sites using experienced apartment developers to provide
development and construction management services. Construction on the Atlanta
and Nashville communities described below has commenced. The following table
summarizes the Company's current development communities.
Total Cost Cost
Budgeted Per To Estimated
Under Development: Units Cost Unit Date Completion
------------------ ----- --------- ------- ----- ----------
Atlanta 586 $37.4 $63,822 $4.1 1997
Greensboro 200 11.0 55,250 0.8 1997
Nashville 280 16.8 60,161 2.4 1996
Savannah 308 17.3 56,091 1.6 1996
----- ---------- ------ ----- ---------
1,374 $82.5 $60,095 $8.9
Future Development:
-------------------
Greensboro 300 $1.7 1997
Nashville 180 2.5 1997
Savannah 352 0.5 1997
----
$4.7
The Company expects that further expansion of its apartment
holdings will continue to come primarily from acquisitions.
Recent Developments
1995 Acquisitions. In the first nine months of 1995, the Company
acquired seven apartment communities containing 2,384 units at a cost of
$129.9 million:
Apartment Location Units
---------- -------- -----
Gwinnett Club Atlanta, Georgia 260
Laurel Gardens Ft. Lauderdale, Florida 384
Beach Club Ft. Myers, Florida 320
Jefferson at Cedar Springs Dallas, Texas 380
Jefferson on the Parkway Dallas, Texas 376
Kimmerly Glen Charlotte, North Carolina 260
Jefferson at Round Grove Dallas, Texas 404
------
2,384
Investment in Texas Properties. In June, July and August of 1995, Merry
Land closed the acquisition of its first apartment communities in the state
of Texas with the purchases of Jefferson at Cedar Springs, Jefferson on the
Parkway and Jefferson at Round Grove, all in Dallas, by acquiring the limited
partnerships which owned the communities. The partnership interests were
acquired by two newly created, wholly-owned subsidiaries of Merry Land under
an agreement by which Merry Land agreed to purchase them upon completion of
construction and the attainment of specified occupancy and rent levels. The
agreement also calls for the acquisition of a fourth newly constructed
apartment community containing 470 units, which the Company expects to close
in the fourth quarter of 1995. The Company expects to further expand its
holdings in Dallas and to invest in additional major Texas markets as
opportunities allow.
Greensboro, North Carolina Developments. In July, the Company bought two
tracts of land in Greensboro, North Carolina for apartment development. One
tract is located adjacent to the Company's Adams Farm community and will be
used to expand that community by 200 units with development expected to begin
there by year end. The other tract will be used for development of a 300 unit
community with development expected to commence in 1997.
Issuance of Senior Unsecured Notes. On September 1, 1995 the Company
completed a public offering of $40.0 million of senior unsecured notes. The
notes were sold at a price of 99.933% of par value, to yield 7.26% to maturity.
The notes bear an interest rate of 7.25%, payable semi-annually in April and
October and mature on October 1, 2002.
On June 20, 1995 the Company completed a public offering of $120.0
million of senior unsecured notes. The notes were sold at a price of 99.562%
of par value, to yield 7.31% to maturity. The notes bear an interest rate of
7.25%, payable semi-annually in June and December and mature on June 15, 2005,
but are redeemable at any time after June 15, 2002, subject to a prepayment
penalty.
In conjunction with issuing these notes, the Company incurred and
capitalized $2.0 million of costs and will amortize the costs over the terms
of the notes. The notes rank equally with the Company's other unsecured and
unsubordinated indebtedness.
The two series of senior unsecured notes due in 2002 and 2005 contain
covenants which limit the levels of debt the Company may incur. Under these
covenants the Company will not incur additional debt:
- if total secured debt becomes greater than 40% of total assets;
- if total debt becomes greater than 60% of total assets; or
- if net operating income divided by interest on debt and regularly
scheduled principal debt amortization becomes less than 1.5.
The Company is also required to maintain unencumbered assets of not
less than 150% of outstanding unsecured debt.
Credit Line Increase. On June 30, 1995, the Company increased its
existing $100.0 million unsecured line of credit to $160.0 million. The
Company's primary bank continues to provide the Company with the first $100.0
million of the line of credit, which bears interest at 0.65% above the thirty
day London Interbank Offered Rates (LIBOR) and a group of five other banks
provide the additional $60.0 million portion of the line of credit at a rate
of interest 1.65% above LIBOR. The Company expects to use the credit line to
finance apartment acquisitions and development.
Debt Rating Raised. Standard & Poor's raised its credit rating on
the Company's senior unsecured notes from BB to BBB+ in connection with the
June debt offering discussed above. Moody's Investors Service held its rating
of the Company's senior unsecured notes at Baa2. Both ratings are "investment
grade".
Sale of Preferred Stock. In a public offering on March 8, 1995,
the Company issued 4,000,000 shares of $2.15 Series C Cumulative Convertible
Preferred Stock at $25.00 per share for net proceeds of $95.7 million. On
April 7, 1995, the Company issued an additional 600,000 shares of the Series
C Preferred Stock for net proceeds of $14.4 million under the overallotment
option given to the underwriters in the March 8 offering.
Results of Operations for the Nine Months Ended September 30, 1995 and 1994.
Rental Operations. The operating performance of the Company's
apartments is summarized in the following table (dollars in thousands,
except average monthly rent):
Nine Months
-----------------------------------
1995 1994 % Change
---------- --------- --------
Rents $104,597 $71,952 45%
Operating expenses 28,754 20,051 43
Taxes and insurance 11,001 6,931 59
Depreciation 18,500 12,377 49
---------- --------- ----
$46,342 $32,593 42%
Average monthly rent (1) $624 $577 8.1%
Average occupancy (2) 95.2% 94.9% 0.3%(4)
Expense ratio (3) 38.0% 37.5% 0.5%(4)
----------
(1) Represents weighted average monthly rent charged for occupied
units and rents asked for unoccupied units at September 30.
(2) Represents the average physical occupancy at each month end of
the period held.
(3) Represents total of operating expenses, taxes and insurance
divided by rental revenues.
(4) Represents increase or decrease between years.
With the Company's acquisition of new communities, the weighted
average number of apartments owned rose to 19,857 in the first nine months of
1995 from 14,486 in the first nine months of 1994, and rental revenues and
expenses rose accordingly. Rental revenues also increased because most of the
rental markets in which Merry Land operates are experiencing strong job growth
and household formation, and this is reflected in high occupancy levels and
rising rent rates. The Company operates in 26 metropolitan areas, and has no
more than 15% of its portfolio located within any one city. The Company
believes that this diversification of its apartment portfolio reduces the
volatility of its aggregate rental occupancy and rental income.
Construction starts of new apartment communities have increased
in the Company's market area, and as a result occupancy levels have moderated
in some cities. Company wide occupancy at September 30, 1995 totaled 96.0%,
down from 97.0% at the same date in 1994. Even so, the Company believes that
demand continues to outstrip supply and expects a generally strong rental
market to continue throughout 1995 and into 1996.
The 8.1% increase in portfolio average rental rates in the first
nine months of 1995 from the first nine months of 1994 resulted from higher
rents at its continuing properties, and also reflects the higher rents
charged at the communities the Company acquired in 1994 and 1995, whose
monthly rents averaged $638 and $720, respectively, at September 30, 1995,
versus the total portfolio average of $624.
The performance of the 13,665 units which the Company held for
the first nine months of both 1995 and 1994 ("same property" results), is
summarized in the following table (dollars in thousands, except average
monthly rents; see footnotes above):
Nine Months
---------------------------
1995 1994 %Change
------- ------- -------
Rents $71,468 $68,189 5%
Operating expenses 20,240 19,200 5
Taxes and insurance 7,117 6,950 2
Depreciation 12,835 11,794 9
------- ------- ---
$31,276 $30,245 3%
Average monthly rent $600 $575 4.3%
Average occupancy 95.3% 94.9% 0.4%
Expense ratio 38.3% 38.4% (0.1)%
--------
(1) Same property results do not include Gwinnett Crossing, a 314
unit community, which was owned for the first nine months
of 1995 and 1994. The 260 unit Gwinnett Club community,
acquired in 1995, is adjacent to Gwinnett Crossing. These
communities were combined and are now operated as a single
community.
Reflecting generally strong rental markets, rental revenues for
the first three quarters rose $3.3 million or 5% for those properties held
for all of both periods, as a result of 0.4% higher average occupancy and
4.3% higher average rental rates. In part offsetting the increase in rents,
operating expenses increased $1.0 million or 5% for the first nine months of
1995 as compared to the same period in 1994, due primarily to increases in
offsite property management expense, water and personnel costs. The increase
in personnel costs is attributable primarily to higher levels of staffing as
formerly vacant positions were filled at communities acquired in late 1993
and the vesting of additional employees in the Company's ESOP plan. Off site
property management expense has risen as the Company has established
additional corporate level positions in marketing, training, maintenance
and administration. The cost of off site, corporate level management
expenditures is allocated to communities as part of their operating expense.
Mineral Royalty and Commercial Property Income. These amounts
decreased to $0.7 million in the first nine months of 1995 from $1.2 million
in the first nine months of 1994, largely as the result of the expiration in
late 1994 of a contract for the sale of sand and also because of lower
occupancies at the Company's non-apartment properties.
Interest and Dividend Income. Interest and dividend income rose to
$3.9 million for the first nine months of 1995 from $1.6 million for the first
nine months of 1994 due to the temporary investment of proceeds from the
$115.0 million Series C Preferred Stock offering in March and the $160.0
million 7.25% senior unsecured notes offerings in June and September. Average
investments rose to $65.7 million in the first nine months of 1995 from $34.5
in the first nine months of 1994, while the average annual return on
investments in 1995 averaged 5.9% as compared to 6.0% in 1994.
Other Income. Other income totaled $1.3 million for the first
nine months of 1995 as compared to a loss of $0.7 million for the first nine
months of 1994. Other income in 1995 included profits of $1.2 million from
cash management activities and $0.1 million from the sale of timber, while
the loss in 1994 came from cash management activities. Cash management
activities include the purchase and sale of liquid securities and the
purchase and sale of options related to such securities. The profits and
losses from cash management activities of the Company's uncommitted cash
and temporary investments were originally included in net realized gains
in the second quarter of 1995 and the third quarter of 1994. The Company now
includes in other income the profits and losses from cash management
activities until the eventual investment of funds into apartment communities.
Gains and losses from long-term investments continue to be included in net
realized gains and losses. The Company believes that this accounting for
cash management activities is consistent with the recent interpretations by
the National Association of Real Estate Investment Trusts for the definition
of funds from operations regarding sales of undepreciated assets incidental
to the Company's operations, though, the Company includes only profits or
losses from liquid assets held for a short period of time instead of all
undepreciated assets.
Interest Expense. Interest expense totaled $9.9 million for the
first nine months of 1995, up from $7.8 million for the first nine months
of 1994. Average debt outstanding rose to $227.6 million in the first nine
months of 1995 from $159.7 million in the first nine months of 1994,
primarily as a result of financing apartment purchases and the issuance of
the 7.25% senior unsecured notes discussed above. The weighted average
interest rate charged on all the Company's debt increased to 6.7% for the
first nine months of 1995 from 6.3% for the first nine months of 1994,
primarily as a result of rising short term rates and the replacement of
short-term financing with the 7.25% senior unsecured notes. During the first
nine months of 1995, $0.7 million of interest related to the Company's
development projects was capitalized.
General and Administrative Expenses. General and administrative
expenses for the first nine months were $1.5 million, only 1.4% of revenues
and 2.6% of funds from operations. For all of last year these expenses
averaged 1.7% of revenues and 3.2% of funds from operations. The significant
improvement this year reflects continuing efforts to control overhead costs,
and more importantly the significant increase in the Company's revenues.
Gains on Sales of Assets. Net gains recognized on the sale of
assets totaled $1.6 million for the first nine months of 1995 and $0.9
million for the first nine months of 1994. Gains in both years came primarily
from the sale of securities held for more than one year. In 1995, 281,400
shares of First Financial Holdings, Inc. were sold on the open market. At
September 30, 1995, the Company owned 200,000 shares of First Financial.
Net Income. Net income totaled $41.5 million for the first nine
months of 1995 and $25.7 million for the first nine months of 1994. Net
income available for common shareholders totaled $28.3 million for the first
nine months of 1995 and $20.3 million for the first nine months of 1994. The
increases in net income and net income available for common shareholders for
1995 when compared to 1994 arose principally from substantially increased
operating income from apartments due to the growth of the Company's
apartment holdings. Net income per common share for the first nine months of
1995 increased to $.85 from $.81 in the first nine months of 1994.
Dividends to preferred shareholders. Dividends to preferred
shareholders totaled $13.2 million for the first nine months of 1995 and
$5.4 million for the first nine months of 1994. The increase in preferred
dividends arose from an increase in the amount of preferred stock outstanding
during the period. Preferred dividends are summarized in the following table
(in thousands):
Nine months
-------------------
1995 1994
--------- -------
Series A Preferred shares $ 1,133 $5,353
Series B Preferred shares 6,615 -
Series C Preferred shares 5,412 -
--------- -------
Total preferred dividends $13,160 $5,353
Holders of the Company's Series A Preferred Stock have converted
3.9 million of the 4.6 million Series A shares originally issued in June
1993 into 5.2 million shares of the Company's common stock as the common
dividend was raised above the equivalent preferred dividend. In November
1994, the Company completed a private placement of 4.0 million shares of
the Company's Series B Preferred Stock, and in March and April 1995 the
Company issued 4.6 million shares of the Series C Preferred Stock.
Funds From Operations. The Company believes that funds from
operations is an important measure of its operating performance. Funds
from operations does not represent cash flows from operations as defined
by generally accepted accounting principles, GAAP, and should not be
considered as an alternative to net income or as an indicator of the
Company's operating performance, or as a measure of the Company's liquidity.
Based on recently published recommendations of a task force of the National
Association of Real Estate Investment Trusts, the Company defines funds from
operations as net income computed in accordance with GAAP, excluding
non-recurring costs and net realized gains, plus depreciation of real
property. This revised definition eliminates from funds from operations any
amortization of debt costs and any non-real estate depreciation. Revision of
the definition reduced the Company's funds from operations by $0.5 million
and $0.3 million for the first nine months in 1995 and 1994, respectively.
Funds from operations rose 56% to $58.2 million for the first nine
months of 1995 as compared to $37.4 million for the first nine months of 1994.
Funds from operations available to common shares rose 40% to $45.1 million for
the first nine months of 1995 compared to $32.1 million for the first nine
months of 1994. These increases were principally due to increased rental
operating income resulting from the growth of the Company's apartment
holdings. On a fully diluted per share basis, funds from operations increased
to $1.36 from $1.23 per share,or 11%.
The following is a reconciliation of net income to funds from
operations (data in thousands, except per share data):
Nine Months
------------------
1995 1994
-------- ------
Net income $41,457 $25,694
Less preferred dividends paid 13,160 5,353
-------- -------
Net income available for common
shares 28,297 20,341
Add depreciation of real estate
owned 18,612 12,483
Less net realized gains 1,641 933
(Less) or plus non-recurring
(income) expenses (200) 200
-------- -------
Funds from operations available
to common shares 45,068 32,091
Add preferred dividends 13,160 5,353
-------- -------
Funds from operations-fully diluted $58,228 $37,444
-------- -------
Weighted average common shares
outstanding-
primary 33,232 25,007
fully diluted 42,738 30,473
Funds from operations per share-
primary $1.36 $1.28
fully diluted $1.36 $1.23
Liquidity and Capital Resources
In the first nine months of 1995, the Company raised $268.4
million from the issuance of preferred stock and senior notes described above.
The Company used $129.9 million to acquire apartments. At September 30, 1995
the Company held $112.4 million of cash and securities available for further
investment in apartments.
Financial Structure. At September 30, 1995, total debt equaled 30%
of total capitalization at cost, and 24% of total capitalization with equity
valued at market. At that date, the Company's financial structure was as
follows (dollars in thousands):
% of Market % of
Cost Total Value Total
------ ------- --------- ------
Advances under line
of credit $ - 0% $ - 0%
Mortgage loans 24,431 2% 24,431 2%
6.625% senior unsecured
notes, 1999 40,000 4% 40,000 3%
6.625% senior unsecured
notes, 2000 40,000 4% 40,000 3%
6.625% senior unsecured
notes, 2001 40,000 4% 40,000 3%
7.25% senior unsecured
notes, 2002 40,000 4% 40,000 3%
7.25% senior unsecured
notes, 2005 120,000 12% 120,000 10%
----------- -------- -------- ----
Total debt 304,431 30% 304,431 24%
Common and preferred
equity (1) 699,683 70% 942,291 76%
----------- -------- -------- ----
Total capitalization $1,004,114 100% $1,246,722 100%
----------- --------- ---------- ----
-----------
(1) Assumes conversion of all outstanding preferred stock into common
stock.
At September 30, 1995, the Company had no borrowings
outstanding under its $160.0 million line of credit. This line matures
on June 29, 1996, and subject to the banks'approval, is expected to be
renewed annually.
Liquidity. Merry Land expects to meet its short-term liquidity
requirements with the net cash flow provided by operating activities, by
liquidating its short term investments and by borrowing under its line of
credit. The Company's primary short-term liquidity needs are operating
expenses, apartment acquisitions, capital improvements and replacements,
debt service payments, dividend payments and current requirements of its
program of new apartment development. As discussed earlier, the Company has
agreed to purchase one additional apartment community in Dallas, Texas.
Closing is expected to occur in the fourth quarter. Expenditures for the four
development projects under way totaled $8.9 million at September 30, 1995. Of
the remaining estimated cost of $73.6 million, $8.0 million is expected to be
incurred in the last quarter of 1995 with the balance to be expended in 1996
and 1997. In the last quarter of 1995, one mortgage loan with a $7.0 million
principal balance is due, and from 1996 through 1998, less than $0.3 million
per year of principal payments on borrowings are due. Capital resources
available to the Company at September 30, 1995 included cash and marketable
securities of $112.4 million and the Company's $160.0 million line of credit.
Currently, there is no amount outstanding under the line of credit.
The Company expects to meet its long-term liquidity
requirements, including scheduled debt maturities and permanent financing
for property acquisitions and development, from a variety of sources,
including additional borrowings and the issuance and sale of debt and equity
securities in the public and private markets. The Company is limited in the
amount of debt it may incur under the terms of its existing loan agreements.
At September 30, 1995, the Company's loan agreements and the covenants under
its senior unsecured notes would have allowed it to borrow an additional
$166.6 million on an unsecured basis.
Cash Flows. The following table summarizes cash flows for the
first nine months of 1995 and 1994 (dollars in thousands):
Sources and Uses of Cash:
-------------------------
Nine Months
-------------------------
1995 1994
-------- ---------
Operating activities $ 65,443 $ 40,981
Sales of common and
preferred stock 118,525 91,407
Net borrowings 91,621 -
Other 188 182
-------- ---------
Total sources 275,777 132,570
Acquisitions of and
improvements to properties (142,093) (58,699)
Development of properties (4,954) -
Dividends paid (48,078) (28,094)
Net repayment of borrowings - (19,322)
Other (2,871) (487)
---------- ---------
Total uses (197,996) (106,602)
---------- ---------
Increase (decrease) in cash,
securities and temporary
investments $ 77,781 $ 25,968
--------- ---------
Operating cash flow has grown significantly with the expansion
of the Company's apartment holdings. Dividends paid in 1995 and 1994 increased
from levels in prior years due to an increase in the average amount of stock
outstanding, and in the case of the Company's common stock, an increase in
the quarterly dividend per share to $0.35 in the fourth quarter of 1994
from $0.30 per share. Cash, securities and temporary investments increased
significantly in 1995 because all of the proceeds from the two series of
7.25% senior unsecured notes have not been invested in additional apartments.
Capital Expenditures. The Company capitalizes the direct and
indirect cost of expenditures for the acquisition or development of apartments
and for replacements and improvements. Replacements are non-revenue producing
capital expenditures which recur on a regular basis, but which have estimated
useful lives of more than one year, such as carpet, vinyl flooring and exterior
repainting. Improvements are expenditures which significantly increase the
revenue producing capability or which reduce the cost of operating assets.
At newly acquired communities, the Company often finds it necessary to upgrade
the physical appearance of the properties and to complete maintenance and
repair work which had been deferred by prior owners. These activities often
result in heavier capital expenditures in the early years of Company ownership,
and same of these expenditures which would be considered replacements at
stabilized communicates (as defined below) are classified as improvements at
newly acquired properties. Interest, real estate taxes and other carrying
costs incurred during the development period of apartments under construction
are capitalized and, upon completion of the project, depreciated over the
lives of the project.
The following table summarizes the capital expenditures for
the first nine months of 1995 and 1994 (dollars in thousands, except per
unit data):
Nine Months
-------------------
1995 1994
--------- --------
Apartment communities:
Acquisitions $131,308 $47,460
Development projects:
Development costs 4,235 -
Capitalized interest 719 -
Replacements for stabilized
communities (1) 2,286 1,289
Improvements (2) 7,863 9,691
Commercial properties 310 79
Corporate level expenditures 326 180
-------- -------
$147,047 $58,699
-------- --------
Per Unit:
Replacements for stabilized
communities (1) $167 $198
Improvements (2) $370 $644
------------
(1) Stabilized communities are those properties which have
been owned for at least one full calendar year. In the
first nine months of 1995, 13,665 units were stabilized
as compared to 6,527 in the first nine months of 1994.
(2) Improvements include expenditures for all properties owned
during the period and replacements for newly acquired
communities.
Inflation. Substantially all of the Company's leases are for
terms of one year or less, which should enable the Company to replace existing
leases with new leases at higher rentals in times of rising prices. The Company
believes that this would offset the effect of cost increases stemming from
inflation.
Merry Land & Investment Company, Inc.
Part II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
Issuance of 7.25% senior unsecured notes.
On September 1, 1995 the Company completed a public offering
of $40.0 million of senior unsecured notes. The notes were sold at a price
of 99.933% of par value, to yield 7.26% to maturity. The notes bear an
interest rate of 7.25%, payable semi-annually in April and October and
mature on October 1, 2002. In connection with issuing the notes, the Company
incurred and capitalized $0.3 million of costs and will amortize the costs
over the term of the notes.
The notes rank equally with the Company's other unsecured and
unsubordinated indebtedness. The 7.25% senior unsecured notes contain various
covenants which limit the levels of debt the Company may incur. Under these
covenants, the Company will not incur additional debt:
- if total secured debt becomes greater than 40% of total
assets;
- if total debt becomes greater than 60% of total assets; or
- if net operating income divided by interest on debt and
regularly scheduled principal debt amortization becomes
less than 1.5.
The Company is also required to maintain unencumbered assets of not less
than 150% of outstanding unsecured debt.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
(4.1) Form of Merry Land & Investment Company, Inc. 7.25%
Notes due 2002 (incorporated herein by reference to
Exhibit A of the Company's current report on Form 8-K
filed September 1, 1995).
b. Reports on Form 8-K and 8-K/A:
Form Date Filed Items Reported Financial Statements Filed
----- ----------- -------------- --------------------------
8-K July 14, 1995 $160 million No financial statements
line of credit required.
agreement
Acquisition of Financial Statements were
Jefferson at filed on the Company's
Cedar Springs current report on Form
8-K filed 6/19/95 and
amended on Form 8-K/A
filed on 6/21/95
(typographical error).
8-K Sept. 1, 1995 Completion of No financial statements
public offering of required.
$40 million 7.25%
Notes due 2002
8-K Sept. 14, 1995 Acquisition of Financial Statements
Jefferson at were filed on the
Round Grove and Company's current report
Jefferson on the on Form 8-K filed on
Parkway 6/19/95 and amended on
Form 8-K/A filed 6/21/95
(typographical error).
Acquisition of No financial statements
Kimmerly Glen required.
Acquisition Lake No financial statements
Site & Adams Farm required.
development
properties
8-K/A Sept.18, 1995 Financial Statements Statements of Excess of
for Club at Gwinnett Revenues over Specific
(now known as Operating Expenses
Gwinnett Crossing)
and Laurel Gardens
Form 10-Q - Merry Land & Investment Company, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MERRY LAND & INVESTMENT COMPANY, INC.
---------------------------
W. Tennent Houston
President
Principal Financial Officer
October 25, 1995