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
March 31, 1996
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 March 31, 1996:
Common Stock 34,160,979
Series A Preferred Stock 658,859
Series C Preferred Stock 4,599,800
Indicate by check mark whether the registrant 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 - March 31, 1996 and December 31, 1995
Statements of income - Three months ended March 31, 1996 and 1995
Statements of cash flows - Three months ended March 31, 1996 and 1995
Notes to condensed financial statements
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
--------- ----------
PROPERTIES AT COST
Apartments $1,022,538,523 $1,009,056,178
Apartments under development 31,058,614 20,942,118
Commercial rental property 6,651,414 6,412,275
Land held for investment
or future development 3,815,405 3,815,405
Operating equipment 1,564,143 1,397,410
----------- -----------
1,065,628,099 1,041,623,386
Less accumulated depreciation
and depletion (76,214,390) (68,347,362)
----------- ----------
989,413,709 973,276,024
CASH AND SECURITIES
Cash and cash equivalents 31,235,368 43,833,846
Marketable securities 48,605,506 48,467,978
----------- ----------
79,840,874 92,301,824
OTHER ASSETS
Notes receivable 808,868 815,689
Deferred loan costs 3,923,754 4,022,226
Other 3,926,117 2,423,981
----------- ---------
8,658,739 7,261,896
--------------- --------------
TOTAL ASSETS $1,077,913,322 $1,072,839,744
--------------- --------------
DEBT
6.625%Senior unsecured notes,due1999-01 $120,000,000 $120,000,000
7.25% Senior unsecured notes,due 2002 40,000,000 40,000,000
6.875%Senior unsecured notes,due 2003 40,000,000 40,000,000
6.875%Senior unsecured notes,due 2004 40,000,000 40,000,000
7.25% Senior unsecured notes, due 2005 120,000,000 120,000,000
----------- -----------
360,000,000 360,000,000
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 10,519,500 4,294,768
Resident security deposits 2,312,708 2,577,913
Accrued property taxes 5,768,934 4,294,312
Other 3,421,674 5,814,021
---------- ----------
22,022,816 16,981,014
STOCKHOLDERS' EQUITY
Preferred stock, at $25 liquidation preference, 20,000,000 shares authorized:
658,859 shares $1.75 Series A
Cumulative Convertible 16,471,475 16,688,000
4,000,000 shares $2.205 Series B
Cumulative Convertible 100,000,000 100,000,000
4,599,800 shares, $2.15 Series C
Cumulative Convertible 114,995,000 114,995,000
Common stock, at $1 stated value,
100,000,000 shares authorized
34,160,979 and 33,876,102 shares issued 34,160,979 33,876,102
Capital surplus 431,469,764 425,610,937
Cumulative undistributed net earnings 8,785,112 11,786,179
Notes receivable from
stockholders and ESOP (18,014,672) (15,795,762)
Unrealized gain on securities 8,022,848 8,698,274
---------- -----------
695,890,506 695,858,730
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY $1,077,913,322 $1,072,839,744
-------------- -------------
The accompanying notes are an integral part of these statements.
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended March 31,
---------------------------
1996 1995
------------- -----------
Rental income $41,563,498 $32,882,263
Mineral royalties 89,590 108,033
Mortgage interest 23,639 19,766
Other interest 727,089 544,173
Dividends 899,417 67,396
Other income 1,223,053 139,772
------------ ----------
44,526,286 33,761,403
Rental expense 11,238,841 9,136,506
Interest 5,791,709 2,977,082
Depreciation - real estate 7,802,042 5,892,102
Depreciation - other 64,988 41,291
Amortization - financing costs 142,383 86,995
Taxes and insurance 4,801,505 3,246,475
General and administrative expense 594,428 509,857
--------- ----------
30,435,896 21,890,308
Income before net realized gains 14,090,390 11,871,095
Net realized gains 458,150 48,436
--------- ----------
NET INCOME 14,548,540 11,919,531
Dividends to preferred shareholders 4,965,644 3,074,166
--------- ----------
NET INCOME AVAILABLE FOR COMMON SHARES $ 9,582,896 $ 8,845,365
Weighted average common shares
- outstanding 33,898,782 32,720,101
- fully diluted 44,759,027 39,626,940
---------- ----------
NET INCOME PER COMMON SHARE $.28 $.27
---- ----
CASH DIVIDENDS DECLARED
PER COMMON SHARE $.37 $.35
---- ----
The accompanying notes are an integral part of these statements.
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended March 31,
---------------------------
1996 1995
----------- ---------
OPERATING ACTIVITIES:
Rents and royalties received $41,653,088 $32,984,124
Interest received 712,188 372,200
Dividends received 1,641,417 67,396
Rental expense (12,463,647) (9,224,571)
General and administrative expense (1,057,549) (779,772)
Interest expense (40,083) (5,088,352)
Property taxes and insurance expense (4,074,205) (1,627,849)
Other (322,724) (92,301)
--------- ---------
Net cash provided by operating activitie 26,048,485 16,610,875
INVESTING ACTIVITIES:
Principal received on notes receivable 6,821 71,989
Sale of securities 15,647,257 9,939,500
Purchase of securities (15,605,944) (11,343,750)
Purchase of real property (10,151,154) ----
Development of real property (9,643,391) (1,323,860)
Recurring capital expenditures (1,178,271) (727,287)
Improvements to existing properties (2,558,792) (2,445,838)
Other (1,322,152) (1,180,826)
----------- ----------
Net cash (used) by operating activitie (24,805,626) (7,010,072)
FINANCING ACTIVITIES:
Net borrowings (repayments) - bank debt --- (57,600,000)
Net borrowings (repayments - mortgage loans --- (16,174)
Repurchase agreements --- (17,375,000)
Cash dividends paid - common (12,583,964) (11,420,300)
Cash dividends paid - preferred, Series A (288,251) (486,944)
Cash dividends paid - preferred, Series B (2,205,000) (2,205,000)
Cash dividends paid - preferred, Series C (2,472,393) ---
Common stock retired (729,000) ---
Sale of common stock - reinvested dividends 2,056,337 1,961,720
Sale of common stock - stock purchase plan 1,091,606 582,416
Sale of common stock - employees 1,314,416 167,294
Sale of preferred stock - public offering (25,088) 95,749,267
-------- ----------
Net cash provided (used)
by financing activities (13,841,337) 9,357,279
NET INCREASE (DECREASE) IN CASH (12,598,478) 18,958,082
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 43,833,846 717,957
---------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $31,235,368 $19,676,039
----------- ----------
The accompanying notes are an integral part of these statements.
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land & Investment Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Cash Flows from Operating Activities
(Unaudited)
Three Months ended March 31,
---------------------------
1996 1995
---------- ----------
Net income $14,548,540 $11,919,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,009,413 6,020,388
(Increase) decrease in interest
and accounts receivable 713,829 (246,808)
(Increase) decrease in other assets (1,365,558) (785,940)
Increase (decrease) in accounts payable
and accrued interest 4,600,411 (247,858)
Gain on the sale of marketable securities (458,150) (48,438)
----------- ----------
Net cash provided by operating activities $26,048,485 $16,610,875
----------- ----------
The accompanying notes are an integral part of these statements.
Merry Land & Investment Company, Inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(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.
The consolidated financial statements for the three month periods ended
March 31, 1996 and March 31, 1995 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, 1996 were as follows:
Unrealized
Cost Market Gain
---------- ---------- ----------
Common stock $38,676,908 $46,155,256 $7,478,348
Corporate debentures 1,905,750 2,450,250 544,500
----------- ---------- ---------
$40,582,658 $48,605,506 $8,022,848
----------- ---------- ----------
3. Borrowings
Borrowings at March 31, 1996 were as follows:
6.625% senior unsecured notes (a) $120,000,000
7.725% senior unsecured notes (b) 40,000,000
6.875% senior unsecured notes (c) 40,000,000
6.875% senior unsecured notes (d) 40,000,000
7.25% senior unsecured notes (e) 120,000,000
Advances under unsecured line of credit (f) 0
-----------
$360,000,000
-----------
(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) $40 million, 6.875% notes, interest payable semi-annually,
maturity 2003.
(d) $40 million, 6.875% notes, interest payable semi-annually,
maturity 2004.
(e) $120 million, 7.25% notes, interest payable semi-annually,
maturity 2005.
(f) $160 million line of credit, first $100 million bearing interest
equal to LIBOR plus 0.65% and next $60 million bearing interest
at LIBOR plus 1.65%, maturity June 1996.
The Company estimates that the fair value of borrowings approximates
their carrying value at March 31, 1996. Maturities of borrowings at March 31
were as follows:
1996 $ ---
1997 ---
1998 ---
1999 40,000,000
2000 40,000,000
2001 40,000,000
2002 40,000,000
2003 40,000,000
2004 40,000,000
2005 120,000,000
-----------
360,000,000
-----------
On November 30, 1995 the Company defeased all its remaining mortgage debt
by transferring government securities totaling $17.9 million to a trust
account with First Union National Bank. The $17.4 million of mortgage debt
defeased is secured by the Claire Point and Lakeridge communities. The
encumbrance covering the Claire Point community was removed effective February
1, 1996 upon repayment of the mortgage debt by the trust. The encumbrance
covering the Lakeridge community will be removed upon repayment of the
mortgage debt by the trust in July 1996.
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 1996 to qualify as a REIT and to avoid paying
income taxes. On March 29, 1996, the Company paid dividends per share as
follows:
Series A Preferred $.43750
Series B Preferred $.55125
Series C Preferred $.53750
Common $.37000
Form 10-Q - Merry Land & Investment Company, Inc.
Part II - Other Information
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollars in thousands except apartment and per share data)
Overview
Merry Land & Investment Company, Inc. is one of the largest
publicly owned real estate investment trusts in the United States and
is one of the nation s largest owners and operators of upscale
garden apartments. At March 29, 1996 the Company had a total equity market
capitalization of $979.2 million and owned a high quality portfolio of
82 apartment communities containing 22,457 units, having an aggregate cost
of $1,022.5 million.
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-seven metropolitan areas
primarily in the Southern United States, each with a population in excess of
250,000, extending from the Washington D.C. area to Texas and to Florida.
The Company expects eventually to own and operate a significant number of
communities in most of the major markets in the Southern United States. The
following table further describes the Company s apartment holdings by major
market as of March 31,1996:
Average March Average
% of Occupancy(1) Rental Rate (2)
Total ------------ ------------
Market Units Cost Cost 1995 1996 1995 1996
--------- ------ ---- ------- ---- ---- ----- ----
Atlanta 3,346 $138,609 14% 98% 96% $596 $631
Dallas 1,830 117,701 12 -- 88 --- 829
Jacksonville 2,550 104,944 10 97 97 575 616
Orlando 1,902 90,732 9 91 95 629 652
Tampa 1,301 64,151 6 96 95 627 661
Charlotte 1,623 58,558 6 95 93 551 557
Ft. Myer 1,268 58,491 6 99 95 650 658
Raleigh 1,256 47,005 5 97 95 573 596
Austin 551 33,854 3 -- 89 --- 815
Charleston 880 33,170 3 95 88 510 539
Savannah 865 32,743 3 98 97 572 609
All others 5,085 242,581 23 94 91 615 656
----- ------- --- --- --- --- ---
22,457 $1,022,539 100% 95% 93% $596 $650
(1)Represents the average of physical occupancy at each month end for
the period held.
(2)Represents weighted average monthly rent charged for occupied units
and rents asked for unoccupied units at March month end.
Portfolio Growth
Merry Land seeks to expand its apartment holdings in
order to establis a presence recognized by renters throughout the Southern
United States. The Company adds to its holdings by buying existing operating
communities, by buying communities (primarily from merchant builders) on
which construction and lease-up may not be complete, and by developing
communities from the ground up. From 1984 until April 1996, all portfolio
growth occurred through acquisitions. In April 1996, the first units of the
Company s new development program were delivered.
Acquisitions. The following table describes the growth of the Company s
apartment holdings through acquisitions in recent years:
Units Ending Cost of Ending
Acquired Units Increase Acquisitions Cost (1) Increase
------- ------- ------- -------- ------- -------
1992 2,845 6,529 76% $ 86,081 $ 209,694 73%
1993 7,452 13,981 114 335,213 554,589 164
1994 4,872 18,852 35 226,174 796,436 44
1995 3,444 22,296 13 196,275 1,009,056 27
1996,through March 31 161 22,457 1 10,100 1,022,539 1
(1)Represents the total acquisition cost of apartment communities
plus the capitalized cost of improvements made subsequent
to acquisition.
Development. In December 1994, Merry Land commenced a program of
apartment development. At March 31, 1996, the Company had three communities
with 1,174 units under construction, seven communities with 1,983 units
under development and 200 more units planned, for a total development
program of 3,357 units. The communities under development offer features
typical of very high end properties, including nine foot ceilings, high
levels of trim and finish, garages and extensive amenities. The Company has
engaged experienced apartment developers to provide development and
construction management services to the Company on a project by project
basis. 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 will allow it the flexibility to develop
communities in a number of markets and 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 development
communities (dollars in thousands, except cost per unit):
Budgeted Rentals
Budgeted Cost Cost Expected Estimated
Location Community Units Cost Per Unit to Date to Begin Completion
- ------- -------- ----- ------ ------- ---- ------- --------
Under Construction
------------------
Nashville Cherry Creek 280 $ 17,946 $64,093 $ 8,453 2Q 1996 4Q 1996
Atlanta River Sound 586 37,800 64,505 6,776 3Q 1996 4Q 1997
Savannah Long Point 308 20,000 64,935 1,882 4Q 1996 2Q 1997
--- ------ ------ -----
1,174 $75,746 $64,520 $17,111
Under Development
- -----------------
Atlanta Sweetwater Creek 425 $ 29,712 $69,911 $2,996 1997 1998
Greensboro Adams Farm II* 200 11,049 54,245 994 1996 1997
Greensboro Wendover 300 17,902 59,673 1,788 1996 1997
Richmond Spring Oak 242 17,602 72,736 1,866 1996 1998
Richmond Wyndham 264 21,000 79,545 2,089 1996 1997
Nashville Cherry Creek II 200 12,000 60,000 2,512 1997 1998
Savannah Long Point II 352 20,400 57,955 553 1997 1998
---- ------ ------ ------
1,983 $129,665 $65,388 $12,798
Future Development
- ------------------
Greensboro Wendover II 200 $12,000 $60,000 $1,150
*Adjoins the Company s Adams Farm community.
Recent Events
1996 Acquisitions. In the first three months of 1996, the Company
acquired Crestview at Austin Hills located in Austin, Texas, containing 161
units at a cost of $10.1 million. The community was 98% occupied at
closing. Also in the first quarter, the Company signed a contract to
acquire the Texas limited partnership which owns Sedona Springs. In Austin,
Sedona Springs contains 396 units and was completed in November 1995. The
Company closed its purchase on April 5, 1996. The community was 82%
occupied at closing.
Development Activity. In January, the Company bought one tract of
land in Atlanta for $3.5 million on which a 425 unit community to be named
Madison at Sweetwater Creek is expected to be built. The Company also
bought a tract in Richmond for $1.9 million on which a 242 unit community
to be named Madison at Spring Oak is expected to be built.
Results of Operations for the Three Months Ended March 31, 1996 and 1995.
Rental Markets. Rental markets were weaker in the first quarter of
1996 than in the same quarter of 1995, and the Company expects its
apartment portfolio to experience occupancy in 1996 approximately 1.5% to
2.0% below the 95% average occupancy experienced throughout 1995. Delivery
of newly constructed apartments has picked up in many of its markets and
occupancy levels have moderated in some cities. The Company believes that
if general economic activity and concomitant job growth and household
formation remain strong, serious weakness should not develop in 1996 as a
result of overbuilding.
Rental Operations - Total Portfolio. The operating performance of the
Company s apartment portfolio is summarized in the following table (dollars
in thousands except average monthly rent):
Three Months
------------
% Change 1996 1995
------- ---- ----
Rents 26% $41,416 $32,760
Operating expenses 23 11,187 9,088
Taxes and insurance 44 4,515 3,145
Depreciation 33 7,771 5,854
------ ------- --------
Operating income 22% $17,943 $14,673
Average occupancy (1) (2.2)% (4) 93.2% 95.4%
Average monthly rent (2) 9.1% $650 $596
Expense ratio (3) 0.6% (4) 37.9% 37.3%
__________
(1)Represents the average physical occupancy at each month end for
the period held.
(2)Represents weighted average monthly rent charged for occupied
units and rents asked for unoccupied units at March 31.
(3)Represents total of operating expenses, taxes and insurance
divided by rental revenues.
(4)Represents increase or decrease between periods.
With Merry Land s acquisition of new communities, the weighted
average number of apartments owned rose to 22,457 in the first three months
of 1996 from 18,852 in the first three months of 1995, and rental revenues
and expenses rose accordingly. Company wide occupancy at March 31, 1996
totaled 93.2%, down from 95.2% at the same date in 1995. This decline was
due in part to 89.1% occupancy in Dallas and Austin where the Company
acquired several communities still in initial lease up. Excluding the Texas
communities, occupancy at March 31, 1996 was 93.7%.
The 9.1% increase in portfolio average rental rates in the first
three months of 1996 from the first three months of 1995 resulted from both
higher rents at the Company s continuing properties and also the higher
rents charged at the communities the Company acquired in 1995 and 1996,
whose monthly rents averaged $758, at March 31, 1996, versus the total
portfolio average of $650.
Rental Operations - Comparable Communities. The performance of the
18,411 units which the Company held for the first three months of both 1996
and 1995 ("same property" results), is summarized in the following table
(dollars in thousands, except average monthly rent; see footnotes above)
Three months
Percent Change from --------------
Increase 1995 to 1996 1996 1995
-------- ----------- ---- ----
Rental income 3.2% $1,025 $33,098 $32,073
Personnel 8.2 262 3,463 3,201
Utilities 2.6 51 2,042 1,991
Operating 8.9 137 1,677 1,540
Maintenance & grounds (1.5) (33) 2,112 2,145
Taxes and insurance 6.1 188 3,273 3,085
---- ---- ----- -----
5.1 605 12,567 11,962
Depreciation 3.1 181 5,936 5,755
---- ---- ----- -----
Operating income 1.7% $ 239 $14,595 $14,356
Average occupancy for period(1) (1.4)%(4) 93.9% 95.3%
Average monthly rent(2) 5.0% $628 $598
Expense ratio (3) 0.7% (4) 38.0% 37.3%
__________
Same property results do not include Gwinnett Crossing, a 314 unit
community, or Cherry Creek, a 127 unit community. Both communities were
owned for the first three months of 1996 and 1995. 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. The
Cherry Creek community was acquired in December 1994 and is currently being
renovated. It has been combined with a development community which will
contain 280 additional units.
Rental income rose by $1.0 million or 3.2% for those properties held
for all of both periods, as a result of 1.4% lower occupancy during the
year and 5.0% higher average rental rates. At March 31, 1996 same property
occupancy was 93.7%, down from 95.2% at March 31, 1995, as newly completed
apartment construction reduced occupancy in some of the Company s markets.
Operating expenses increased $0.6 million or 5.1% in 1996 from the
same period in 1995. An unusually severe winter caused higher than expected
operating expenses and also led to a number of out of service units due to
frozen pipes. Personnel costs accounted for $0.3 million of the increase,
resulting from higher life and health insurance premiums (because the
Company extended coverage to its employees dependents) and higher levels
of staffing as formerly vacant positions were filled at communities
acquired in late 1994. Off site property management expense, which is
allocated to the communities, rose $0.1 million as the Company established
additional corporate positions in training, marketing and maintenance.
Accruals for property tax and insurance rose $0.2 million.
Rental Operations - Development Properties. During the first quarter
of 1996 the Company had eleven communities under development with three
under construction at March 31, 1996. Construction is scheduled to begin on
four more communities in 1996. $10.1 million was expended in the first
three months of 1996 for apartments under development, bringing the
cumulative investment to $31.1 million, including capitalized interest of
$1.5 million. For the remainder of 1996, the Company expects to spend about
$70.0 million on development. No units were placed in service in the first
three months of 1996. The Company expects to put approximately 500 units in
service in 1996. Later this year as units are delivered and put in service
some dilution of earnings may occur to the extent leasing lags behind the
delivery of units.
Interest and Dividend Income. Interest and dividend income rose to
$1.7 million in the first three months of 1996 from $0.6 million in the
first three months of 1995 due to the temporary investment of proceeds from
the $80.0 million 6.875% senior unsecured notes offerings in November 1995.
Average investments rose to $79.8 million in the first three months of 1996
from $35.3 in the first three months of 1995, while the average annual
return on investments in 1996 averaged 7.3% as compared to 7.05% in 1995.
Other Income. Other income totaled $1.2 million in the first three
months of 1996 as compared to $0.1 million in the first three months of
1995. Other income in 1996 included profits of $1.1 million from cash
management activities and $0.1 million of miscellaneous income, while the
income in 1995 came from the sale of timber. Cash management activities
include the profits on sales of liquid securities held for less than one
year.
Interest Expense. Interest expense totaled $5.8 million in the first
three months of 1996, up from $3.0 million in the first three months of
1995. Average debt outstanding rose to $360.0 million in the first three
months of 1996 from $200.8 million in the first three months of 1995,
primarily as a result of the issuance of the 6.875% and 7.25% senior
unsecured notes in 1995. The weighted average interest rate charged on all
the Company s debt increased to 7.0% in the first three months of 1996 from
6.7% for the first three months in 1995, primarily as a result of the
replacement of short-term financing with the 6.875% and 7.25% senior
unsecured notes. During the first three months of 1996, $0.5 million of
interest related to the Company s development projects was capitalized.
General and Administrative Expenses. General and administrative
expenses in the first three months of 1996 were $0.6 million, representing
1.4% of rental revenues and 2.7% of funds from operations. For all of 1995,
expenses averaged 1.7% of rental revenues and 3.0% 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 and funds from operations.
Gains on Sales of Assets. Net gains recognized on the sale of assets
totaled $0.5 million in the first three months of 1996 and $0.01 million in
the first three months of 1995. Gains in both years came primarily from the
sale of securities held for more than one year. In the first three months
of 1996, 35,000 shares of First Financial Holdings, Inc. were sold on the
open market. At March 31, 1996, the Company owned 165,000 shares of First
Financial. 87,000 additional shares were sold after the end of the quarter,
and the gain will be reported in the second quarter.
Net Income. Net income totaled $14.5 million in the first three
months of 1996 and $11.9 million for the first three months of 1995. Net
income available for common shareholders totaled $9.6 million in the first
three months of 1996 and $8.8 million for the first three months of 1995.
The increases in net income and net income available for common
shareholders for 1996 when compared to 1995 arose principally from
substantially increased operating income from apartments due to the growth
of the Company s apartment holdings, as well as increases in other income
and net realized gains. Net income per common share in the first three
months of 1996 increased to $.28 from $.27 in the first three months of
1995.
Dividends to preferred shareholders. Dividends to preferred
shareholders totaled $5.0 million in the first three months of 1996 and
$3.1 million in the first three months of 1995. 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 (dollars in thousands):
Three months
------------
1996 1995
----- ----
Series A Preferred share dividends $ 289 $ 487
Series B Preferred share dividends 2,205 2,205
Series C Preferred share dividends 2,472 382
----- -----
Total preferred dividends $4,966 $3,074
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 5.3 million shares of the Company s common stock as the common
dividend was raised above the equivalent preferred dividend. In March and
April 1995 the Company issued 4.6 million shares of the Series C
Convertible Preferred Stock.
Funds From Operations. Funds from operations rose 23% to $21.9
million in the first three months of 1996 as compared to $17.8 million in
the first three months of 1995. Funds from operations available to common
shares rose 15% to $16.9 million in the first three months of 1996 compared
to $14.7 million in the first three months of 1995. These increases were
principally due to increased rental operating income resulting from the
growth of the Company s apartment holdings and increased other income from
cash management activities. On a fully diluted per share basis, funds from
operations increased 9% to $.49 in 1996 from $0.45.
The following is a reconciliation of net income to funds from
operations (data in thousands, except per share data):
Three months
------------------
1996 1995
--------- --------
Net income $14,548 $11,919
Less preferred dividends paid 4,966 3,074
------- -------
Net income available for common shares 9,582 8,845
Add depreciation of real estate owned 7,802 5,892
Less net realized gains 458 48
------- -------
Funds from operations
Available to common shares 16,926 14,689
Add preferred dividends 4,966 3,074
------- -------
Funds from operations-fully diluted $21,892 $17,763
------- --------
Weighted average common shares outstanding -
Primary 33,899 32,720
Fully diluted 44,759 39,627
Funds from operations per share-
Primary $.50 $.45
Fully diluted $.49 $.45
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 $0.2 million and $0.1 million in the
first three months of 1996 and 1995, respectively.
Liquidity and Capital Resources
Financial Structure. At March 31, 1996, total debt equaled 34% of
total capitalization at cost, and 27% of total capitalization with equity
valued at market. At that date, the Company s financial structure was as
follows (dollars in thousands):
Equity at
% of Market % of
Cost Total Value Total
----- ----- ------- -----
Advances under line of credit $ --- $ --- $
Mortgage loans --- ---
6.625%senior unsecured notes,1999 40,000 40,000
6.625%senior unsecured notes,2000 40,000 40,000
6.625%senior unsecured notes,2001 40,000 40,000
7.25%senior unsecured notes,2002 40,000 40,000
6.875%senior unsecured notes,2003 40,000 40,000
6.875%senior unsecured notes,2004 40,000 40,000
7.25%senior unsecured notes,2005 120,000 120,000
------- -------
Total debt 360,000 34% 360,000 27%
Common and preferred equity (1) 695,891 66% 979,212 73%
-------- --- --------- ---
Total capitalization $1,055,891 100% $1,339,212 100%
---------- --- --------- ---
(1) Assumes conversion of all outstanding preferred stock into common
stock.
At March 31, 1996, the Company had no borrowings outstanding under
its $160.0 million line of credit. The line matures on June 29, 1996, and
subject to the bank s approval, may be renewed annually.
It generally is not the practice of the Company to finance its
acquisitions using mortgage debt, though at times the Company finds it
advantageous to assume such debt in order to successfully negotiate and
close property acquisitions. At March 31, 1996, the Company had no mortgage
loans outstanding.
The Company s preferred stock and its senior notes are rated
investment grade by Standard & Poor s Corporation and Moody s Investors
Services, Inc.
Liquidity. Merry Land expects to meet its short-term liquidity
requirements with cash provided by operating activities, by liquidating
short term investments and by borrowing under its line of credit. The
Company s primary short-term liquidity needs are operating expenses,
apartment acquisitions and development and capital improvements. As
discussed earlier, the Company has agreed to purchase an additional
apartment community in Austin, Texas with closing expected to occur in the
second quarter. Expenditures for the Company s development projects totaled
$31.1 million at March 31, 1996. Over the next three years, the Company
expects to spend $190.0 million to complete its communities under
development. During this period no principal amounts of the Company s debt
become due.
Capital resources available to the Company at March 31, 1996 included
cash and marketable securities of $79.8 million and the Company s $160.0
million line of credit. Currently, there is no amount outstanding under the
line of credit, but the Company is limited in the amount of debt it may
incur under the terms of its existing loan agreements. At March 31, 1996,
the Company s loan agreements and the covenants under its senior unsecured
notes would have allowed it to borrow an additional $109.3 million on an
unsecured basis.
The Company expects to meet its long-term liquidity requirements,
including scheduled debt maturities and permanent financing for property
acquisitions and development, from a variety of sources, including
operating cash flow, additional borrowings and the issuance and sale of
debt and equity securities in the public and private markets.
Cash Flows. The following table summarizes cash flows for the first
three months of 1996 and 1995 (dollars in thousands):
Sources and Uses of Cash:
------------------------
Three Months
-----------
1996 1995
------ -----
Operating activities $26,049 $ 16,611
Sales of Merry Land common and preferred stock 3,708 98,460
Other --- 72 ------
Total sources of cash 29,757 115,143
Acquisitions of and improvements to properties (13,888) (3,173)
Development of properties (9,643) (1,324)
Dividends paid (17,550) (14,112)
Net repayment of borrowings --- (74,991)
Net purchase of marketable securities --- (1,404)
Other (1,274) (1,181)
-------- -------
Total uses (42,355) (96,185)
-------- -------
Increase (decrease) in cash, securities and
temporary investments ($12,598) $ 18,958
Operating cash flow has grown significantly with the expansion of the
Company s apartment holdings. Dividends paid in 1996 and 1995 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 $0.37 in the first quarter
of 1996 from $0.35 per share. Cash, securities and temporary investments
increased significantly in 1996 because all of the proceeds from the two
series of 6.875% senior unsecured notes in November 1995 had 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
significantly reduce the cost of operating assets. At newly acquired
communities, the Company often finds it necessary to upgrade the physical
appearance of the properties and to complete maintenance and repair work
which had been deferred by prior owners. These activities often result in
heavier capital expenditures in the early years of Company ownership, and
some of these expenditures which would be considered replacements at
stabilized communities (as defined below) are classified as improvements at
newly acquired properties. Interest, real estate taxes and other carrying
costs incurred during the development period of apartments under
construction are capitalized and, upon completion of the project,
depreciated over the lives of the project.
The following table summarizes the capital expenditures for the first
three months of 1996 and 1995 (dollars in thousands, except per unit data):
Three Months
--------------
1996 1995
----- -----
Apartment communities:
Acquisitions $10,151 $ ---
Development projects:
Development costs 9,643 1,068
Capitalized interest 473 255
Replacements for stabilized communities (1) 1,178 727
Improvements (2) 2,153 2,276
Commercial properties 239 126
Corporate level expenditures 167 45
------- -----
$ 24,004 $ 4,497
------- -----
Per Unit:
Replacements for stabilized communities(1) $64 $52
Improvements (2) $96 $121
__________
(1)Stabilized communities are those properties which have been owned
for at least one full calendar year. In the first three months
of 1996, 18,411 units were stabilized as compared to 13,979
units in the first three months of 1995.
(2)Improvements include expenditures for all properties owned during
the period, including replacements at newly acquired
communities.
Inflation. Substantially all of the Company s leases are for terms of
one year or less, which should enable the Company to replace existing
leases with new leases at higher rentals in times of rising prices. The
Company believes that this would offset the effect of cost increases
stemming from inflation.
Merry Land & Investment Company, Inc.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
--------
None
b. Reports on Form 8-K and K-/A:
Form Date Filed Items Reported Financial Statements Filed
---- --------- -------------- --------------------------
8K February 14, 1996 Acquisition of Jefferson No financial statements
at Chase Oaks required.
Acquisition of Jeffferson No financial statements
on Melrose required.
Acquisition of Jefferson No financial statements
Stone Creek required.
Acquisition of Crestview No financial statements
Apartments required.
Form 10-Q - Merry Land & Investment Company, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MERRY LAND & INVESTMENT COMPANY, INC.
/s/ W. Tennent Houston
----------------------
W. Tennent Houston
President
Principal Financial Officer
May 3, 1996