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 fiscal quarter ended
June 30, 1997
Commission file number: 001-11081
Merry Land & Investment Company, Inc.
P.O. Box 1417
Augusta, Georgia 30903
706 722-6756
___________
State of Incorporation: Georgia
I.R.S. Employer Identification Number: 58-0961876
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months, and (2) has been
subject to such filing requirements for the past ninety days:
Yes X . No .
--- ---
The number of shares of common stock outstanding as of June 30,
1997 was 38,607,565.
Form 10-Q - Merry Land & Investment Company, Inc.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets - June 30, 1997 and December 31, 1996
Statements of Income - Three months ended June 30, 1997
and 1996, and six months ended June 30, 1997 and 1996.
Statements of Cash Flows - Six months ended June 30,
1997 and 1996
Notes to Consolidated 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
(In thousands)
(Unaudited)
June 30, December 31,
1997 1996
---- ----
PROPERTIES AT COST
Apartments $1,259,559 $1,175,427
Apartments under development 60,833 56,110
Commercial rental property 5,541 6,874
Land held for investment or
future development 4,090 4,090
Operating equipment 2,442 1,817
--------- ---------
1,332,465 1,244,318
Less accumulated depreciation
and depletion (119,597) (102,277)
--------- --------- 1,212,868 1,142,041
CASH AND SECURITIES
Cash and cash equivalents 557 32,793
Marketable securities 4,190 23,799
--------- --------
4,747 56,592
OTHER ASSETS
Notes receivable 709 726
Other receivable 2,358 2,449
Deferred loan costs 3,212 3,497
Other 3,318 2,941
--------- --------
9,597 9,613
--------- --------
TOTAL ASSETS $1,227,212 $1,208,246
--------- --------
NOTES PAYABLE
Mortgage loans $ 27,469 $ 27,546
Senior notes 360,000 360,000
Note payable-credit line 13,500 ---
--------- --------
400,969 387,546
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 4,016 4,016
Resident security deposits 1,394 1,669
Accrued property taxes 11,470 7,642
Accrued employee compensation 1,231 2,284
Other 9,392 6,317
--------- --------
27,503 21,928
STOCKHOLDERS' EQUITY
Preferred stock, at $25 and $50
liquidation preference, 20,000
shares authorized:
241 and 359 shares, $1.75 Series A
Cumulative Convertible 6,017 8,970
4,000 shares, $2.205 Series B
Cumulative Convertible 100,000 100,000
4,600 shares, $2.15 Series C
Cumulative Convertible 114,995 114,995
1,000 shares, $4.145 Series D
Cumulative Redeemable Preferred 50,000 50,000
Common stock, at $1 stated value, 100,000
shares authorized 38,608 and 37,784
shares issued 38,608 37,784
Capital surplus 514,593 498,907
Cumulative undistributed net earnings (3,319) 2,064
Notes receivable from stockholders and ESOP (22,630) (17,502)
Unrealized gain on securities 476 3,554
--------- --------
798,740 798,772
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY $1,227,212 $1,208,246
--------- --------
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
(In thousands, except per share data)
(Unaudited)
Three months Six months ended June 30, ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
Rental income $49,013 $43,489 $ 96,874 $85,053
Mineral royalties 459 84 554 173
Mortgage interest 18 15 46 39
Other interest 703 278 1,441 1,005
Dividends 42 1,030 601 1,930
Other income 1,550 1,411 5,051 2,634
------- ------- -------- -------
$51,784 $46,307 $104,566 $90,834
Rental expense 12,543 12,000 25,229 23,239
Interest 5,346 5,640 10,972 11,431
Depreciation -
real estate 9,538 8,464 18,963 16,265
Depreciation -
other 84 65 168 130
Amortization -
financing costs 143 142 285 285
Taxes and insurance 5,793 4,445 11,378 9,247
General and
administrative expense 1,325 674 2,381 1,269
Other non-recurring
expense --- --- --- ---
------- ------- -------- -------
34,772 31,430 69,376 61,866
Income before net
realized gains 17,012 14,877 35,190 28,968
Net realized gains 855 1,257 855 1,714
------- ------- -------- -------
NET INCOME 17,867 16,134 36,045 30,682
Dividends to preferred
shareholders 5,819 4,953 11,650 9,918
------- ------- -------- --------
NET INCOME AVAILABLE
FOR COMMON SHARES $12,048 $11,181 $ 24,395 $20,764
------- ------- -------- --------
Weighted average
common shares
- outstanding 38,358 34,624 38,164 34,265
- fully diluted 48,668 45,445 48,481 45,106
NET INCOME PER
COMMON SHARE $.31 $.33 $.64 $.61
CASH DIVIDENDS DECLARED
PER COMMON SHARE $.39 $.37 $.78 $.74
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
(In thousands)
(Unaudited)
Six Months ended June 30,
------------------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Rents and royalties received $97,558 $85,226
Interest received 1,653 1,231
Dividends received 601 1,793
Rental expense (25,655) (24,241)
General and administrative
expense (2,730) (1,702)
Interest expense (10,972) (11,710)
Property taxes and insurance
expense (8,472) (4,779)
Other 284 (452)
Net cash provided by ------- -------
operating activities: 52,268 45,366
INVESTING ACTIVITIES:
Principal received on notes
receivable 15 8
Sale of securities 21,851 6,267
Purchase of securities --- (8,031)
Sale of real property 20,869 (191)
Purchase of real property (69,286) (61,037)
Development of real property (33,086) (22,291)
Recurring capital expenditures (2,560) (2,484)
Improvements to existing
properties (2,294) (4,279)
Other (436) (1,161)
Net cash (used) by operating ------- -------
activities (64,927) (93,199)
FINANCING ACTIVITIES:
Net borrowings (repayments)
- bank debt 13,500 ---
Net borrowings (repayments)
- mortgage loans (77) 9,600
Repurchase agreements --- ---
Cash dividends paid - common (29,779) (26,141)
Cash dividends paid -
preferred, Series A (222) (564)
Cash dividends paid -
preferred, Series B (4,410) (4,410)
Cash dividends paid -
preferred, Series C (4,945) (4,945)
Cash dividends paid -
preferred, Series D (2,073) ---
Common stock retired --- (675)
Sale of common stock -
reinvested dividends 5,397 4,240
Sale of common stock -
stock purchase plan 2,214 2,277
Sale of common stock -
employees 955 987
Sale of common stock -
public offering --- 50,848
Sale of preferred stock -
public offering (138) (25)
-------- --------
Net cash provided (used)
by financing activities (19,577) 31,192
-------- --------
NET INCREASE (DECREASE) IN CASH (32,236) (16,641)
CASH AND CASH EQUIVALENTS AT -------- --------
BEGINNING OF PERIOD 32,793 43,834
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 557 $27,193
-------- --------
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
(In thousands)
(Unaudited)
Six Months ended June 30,
------------------------
1997 1996
---- ----
Net income $36,045 $30,682
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 19,416 16,680
(Increase) decrease in interest
and accounts receivable 134 992
(Increase) decrease in other
assets (403) (1,195)
Increase (decrease) in accounts
payable and accrued interest (3,779) (79)
Gain on the sale of marketable
securities --- (1,657)
Gain on the sale of real property 855 (57)
-------- --------
Net cash provided by operating
activities $52,268 $45,366
The accompanying notes are an integral part of these statements.
Merry Land & Investment Company, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. Nature of Business
Merry Land & Investment Company, Inc. is a real estate
investment trust (REIT), which owns and operates upscale
apartment communities in nine Southern states including Alabama,
Florida, Georgia, Maryland, North Carolina, South Carolina,
Tennessee, Texas, and Virginia. As a qualified REIT the Company
pays no corporate income taxes on earnings distributed to
stockholders.
The consolidated financial statements for the six month
periods ended June 30, 1997 and June 30, 1996 reflect all
adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for
the interim period.
In March, 1997, the Financial Accounting Standards Board
released Statement of Financial Accounting Standard No. 128,
Earnings Per Share. SFAS No. 128 significantly changes reported
earnings per share for companies with complex capital structures.
The Company believes the effect on the Company s earnings per
share is not material.
2. Marketable Securities
The cost and market value of securities by major
classification at June 30, 1997 were as
follows (dollars in thousands):
Unrealized
Cost Market Gain
----- ------ ----------
Common stock $1,808 $1,752 $ (56)
Corporate
debentures 1,906 2,438 532
------ ------ -----
$3,714 $4,190 $476
3. Borrowings
Borrowings at June 30, 1997 were as follows (dollars in
thousands):
9.76% mortgage notes (a) $ 12,682
7.75% mortgage note (b) 9,600
7.625% mortgage note (c) 5,187
6.625% senior unsecured notes (d) 120,000
7.25% senior unsecured notes (e) 40,000
6.875% senior unsecured notes (f) 40,000
6.875% senior unsecured notes (g) 40,000
7.25% senior unsecured notes (h) 120,000
Advances under unsecured line of credit (i) 13,500
--------
$400,969
--------
(a) $10.7 million and $2.0 million, 9.76% mortgage notes, principal and
interest payable monthly, maturity 2001.
(b) $9.6 million, 7.75% mortgage note, interest payable monthly,
maturity 2002.
(c) $5.2 million, 7.625% mortgage note, principal and interest payable
monthly, maturity 2005.
(d) $120.0 million, 6.625% notes, interest payable semi-annually,
principal installments of $40.0 million
each due 1999, 2000, and 2001.
(e) $40.0 million, 7.25% notes, interest payable semi-annually,
maturity 2002.
(f) $40.0 million, 6.875% notes, interest payable semi-annually,
maturity 2003.
(g) $40.0 million, 6.875% notes, interest payable semi-annually,
maturity 2004.
(h) $120.0 million, 7.25% notes, interest payable semi-annually,
maturity 2005.
(i) $130.0 million line of credit, first $100.0 million bearing
interest equal to LIBOR plus 0.65%, maturity September 1997,
and next $30.0 million bearing interest at LIBOR plus 0.75%,
maturity October 1997.
The Company estimates that the fair value of borrowings
approximates their carrying value at June 30, 1997. Maturities of borrowings
at June 30 were as follows (dollars in thousands):
1997 $ 13,580
1998 185
1999 40,272
2000 40,296
2001 52,566
2002 49,425
2003 40,125
2004 40,135
2005 124,385
--------
$ 400,969
----------
4. Income Taxes and Dividend Policy
As discussed in Note 1, the Company has elected to be taxed
as a REIT. The Internal Revenue Code provides that a REIT, which in any
taxable year meets certain requirements and distributes to its stockholders
at least 95% of its ordinary taxable income, will not be subject to federal
income taxation on taxable income which is distributed. The Company intends to
distribute the required amounts of income in 1997 to qualify as a REIT and to
avoid paying income taxes. On June 30, 1997, the Company paid dividends per
share as follows:
Series A Preferred $0.43750
Series B Preferred $0.55125
Series C Preferred $0.53750
Series D Preferred $1.03625
Common $0.39000
Form 10-Q - Merry Land & Investment Company, Inc.
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in thousands except apartment and per share data)
Overview
Merry Land & Investment Company, Inc. is the largest owner and operator
of upscale garden apartments in the South. At June 30, 1997, the Company had a
total equity market capitalization of over $1.1 billion and owned a high
quality portfolio of 97 apartment communities containing 26,230 units. The
communities are geographically diversified through the Southern United States,
located in twenty-seven metropolitan areas, each with a population in excess
of 250,000, extending from the Washington, D.C. area to Texas and Florida.
Substantially all of the Company s apartment communities command rental rates
in the upper range of their markets.
Operating Strategy. The Company's strategy is to own and operate a
significant number of communities in every major market in the Southern
United States, and to establish a reputation recognized among apartment
dwellers throughout this region for high quality communities and first class
service. The accomplishment of this strategy should allow the Company to
increase funds from operations and distributions to shareholders by
producing greater cash flows at its apartment communities through significant
marketing advantages and operating efficiencies. The Company adds to its
holdings by buying existing apartment communities, by buying communities
under construction and in the initial lease-up stage (primarily from merchant
builders) and by developing communities from the ground up. The following
table further describes the Company's apartment holdings by major market as
of June 30, 1997 (dollars in thousands except rental rates):
Average June Average
% of Occupancy(1) Rental Rate (2)
Market Units Cost Total Cost 1997 1996 1997 1996
- ------ ----- ---- ---------- ---- ---- ---- ----
Atlanta 3,644 $161,401 12.8% 90.3% 96.3% $678 $640
Dallas 1,830 118,038 9.4 92.5 88.7 856 839
Orlando 2,404 117,867 9.4 95.5 93.2 682 658
Charlotte 2,459 112,502 8.9 93.0 94.2 637 580
Jacksonville 2,550 106,207 8.4 94.2 96.0 628 613
Austin 1,249 80,097 6.4 96.0 87.7 849 865
Ft. Lauderdale 1,144 71,854 5.7 92.2 88.9 848 837
Tampa 1,449 64,806 5.1 97.3 94.2 660 647
Ft. Myers 1,268 64,237 5.1 96.3 93.5 670 656
Raleigh 1,256 48,101 3.8 94.4 93.5 629 601
Savannah 949 39,404 3.1 92.0 96.2 643 605
Charleston 880 33,850 2.7 95.4 89.4 561 533
All others 5,148 241,195 19.2 90.3 92.0 655 632
26,230 $1,259,559 100.0% 93.0% 92.9% $685 $660
------ ---------- ----- ---- ---- ---- ----
__________
(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 June month end.
Growth. Merry Land intends to increase its holdings of apartments
primarily through the acquisition of apartment communities and also through
apartment development. The following table summarizes the Company s growth in
recent years (dollars in thousands):
1997(1) 1996 1995 1994
------ ---- ---- ----
Units acquired 1,186 2,475 3,444 4,872
Units developed 448 414 --- ---
Total units owned
at end of period 26,230 24,936 22,296 18,852
Total cost of
apartments $1,259,559 $1,175,427 $1,009,056 $796,436
Total apartment
rental income $ 96,587 $ 176,053 $ 144,283 $101,667
__________
(e) Represents totals at June 30, 1997.
Acquisitions. In the second quarter of 1997, the Company acquired four
apartment communities (including its first in Houston) containing 1,186
units at a cost of $68.8 million (dollars in thousands):
Community Location Units Cost
--------- -------- ----- ----
Polos East Orlando, FL 308 $16,000
Ranchstone Houston, TX 220 11,250
The Oaks Charlotte, NC 318 20,250
The Point Charlotte, NC 340 21,300
----- -------
1,186 $68,800
On August 1, 1997 the Company acquired two additional apartment
communities, Coventry at Cityview, a 360 unit luxury apartment community built
in 1996 and located in Ft. Worth, Texas and The Palms at South Shore, a 240
unit luxury apartment community built in 1990 and located in the Clear Lake
area of Houston, Texas. The purchase prices were $22.1 million and $12.3
million paid in all cash transactions.
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):
Estimated Estimated
Community Location Units Cost Completion
- --------- -------- ----- --------- ----------
Creekside Homes
at Legacy Dallas, TX 380 $28,500 1Q 1998
Villages of
Prairie Creek I Dallas, TX 236 17,700 1Q 1998
Villages of
Prairie Creek II Dallas, TX 200 15,000 1Q 1999
--- ------- -------
816 $61,200
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.
Development. At June 30, 1997, the Company had six communities with 2,102
units under construction (of which 582 units have been delivered) and two
communities with 726 units under development. The Company expects to complete
these communities at an expected total cost of $214.1 million. In addition,
the Company owns land for 1,232 additional units. The communities under
development offer features typical of very high end properties, including nine
foot ceilings, high levels of trim and finish, garages and extensive
amenities.
The following table summarizes the Company's current development
communities and recently completed communities. Estimated cost consists of
land, direct construction costs and indirect costs, including projected fees
to third party development managers and allocated overhead (dollars in
thousands, except cost per unit):
Cost of
Total Units
Total Estimated Total Placed
Estimated Cost Cost Units in in Estimated
Location Community Units Cost Per Unit to Date Service Service Completion
- -------- --------- ---- --------- --------- ------- -------- ------- ----------
Completed
- ---------
Nashville Cherry Creek 280 $18,945 $67,661 $18,945 280 $18,945 4Q 1996
Under Construction,
- ------------------
Atlanta River Sound 586 $41,500 $70,819 $37,862 298 $21,057 4Q 1997
Greensboro Adams Farm II(1) 200 13,100 65,500 13,062 200 13,062 3Q 1997
Savannah Long Point 308 22,500 73,052 18,109 84 6,223 4Q 1997
Richmond Wyndham 264 24,500 92,803 9,534 --- --- 1Q 1998
Greensboro Bridford Lake 320 24,500 76,563 3,257 --- --- 1998
Atlanta Sweetwater Creek 424 34,000 80,189 5,357 --- --- 1999
---- ------- ------- ------- ----- -------
2,102 $160,100 $76,166 $87,181 582 $40,342
Under Development
- -----------------
Richmond Spring Oak 506 $38,000 $75,099 $ 5,102 1998
Nashville Cherry Creek II 220 16,000 72,727 3,260 1998
---- ------- ------- -------
726 $54,000 $74,380 $8,362
Future Development
- ------------------
Savannah Long Point II 352 $ 737
Nashville Bell Road 360 1,689
Nashville Bell Road II 320 1,689
Greensboro Bridford Lake II 200 1,269
----- --------
1,232 $ 5,384
_________
(1) Adjoins the Company's Adams Farm community
Recent Events
Issuance of 6.90% Senior Unsecured Notes. On July 28, 1997 the Company
completed a public offering of $50.0 million of senior unsecured notes.
The notes were sold at a price of 99.707% of par value, to yield 6.941% to
maturity.
The notes bear an interest rate of 6.90%, payable semi-annually in
February and August. The notes have a term of ten years and mature on August
1, 2007, but are redeemable at any time, subject to a prepayment penalty. The
notes are rated BBB+ by Standard & Poor s Corporation and Duff & Phelps Credit
Rating Co. and Baa2 by Moody s Investors Services, Inc. and rank equally with
the Company's other unsecured and unsubordinated indebtedness. The 6.90%
senior unsecured notes contain various covenants which prohibit the incurrence
of additional debt:
- if total debt becomes greater than 60% of total assets; or
- if total secured debt becomes greater than 40% 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.
Results of Operations for the Six Months Ended June 30, 1997 and 1996.
Rental Markets. Rental markets were somewhat stronger in the six month
period of 1997 than in the same period in 1996 as very strong demand for
apartments exceeded additions to supply. Average physical occupancy for the
second quarter of 1997 totaled 93.1% as compared to 92.9% for the first
quarter of 1997 and 92.7% for the second quarter of 1996. The Company's
increase in occupancy can be attributed to stronger markets, to aggressive
leasing efforts by its staff and also to offering concessions to residents in
order to induce them to rent. While levels of new construction throughout the
South remain high, the Company believes that if general economic activity, job
growth and household formation in the South remain strong, physical occupancy
for 1997 should exceed 93.3% achieved in 1996.
Rental Operations - Total Portfolio. The operating performance of the
Company's apartment portfolio is summarized in the following table (dollars in
thousands except average monthly rent):
Change from Six Months
% Change 1996 to 1997 1997 1996
-------- ------------ ---- ----
Rents 13.9% $11,818 $96,587 $84,769
Operating expenses(1) 8.6 1,992 25,137 23,145
Taxes and insurance 24.9 2,226 11,170 8,944
Subtotal (1) 13.1 4,218 36,307 32,089
14.4% $7,600 $60,280 $52,680
Average occupancy(2) 0.1% (3) 93.0% 92.9%
Average monthly rent(4) 3.8% $685 $660
Expense ratio (5) (0.3)%(3) 37.6% 37.9%
__________
(1) Excludes depreciation and amortization.
(2) Represents the average physical occupancy at each month end for the
period held.
(3) Represents increase or decrease between periods.
(4) Represents weighted average monthly rent charged for occupied units
and rents asked for unoccupied units at June 30.
(5) Represents total of operating expenses, taxes and insurance divided
by rental revenues.
Acquisitions and the delivery of 742 units from the Company's
development program since the second quarter of 1996 increased the weighted
average number of apartments owned to 25,339 in the six month period of 1997
from 22,892 in the six month period of 1996. Rental revenues and expenses rose
accordingly. Company wide occupancy totaled 93.5% at June 30, 1997 and 93.0%
at June 30, 1996.
The 3.8% increase in portfolio average rental rates in the six month
period of 1997 from the six month period of 1996 resulted from both higher
rents at the Company's continuing properties and also the higher rents charged
at the communities the Company acquired and put in service in 1996 and 1997,
whose monthly rents averaged $751 at June 30, 1997, versus the total portfolio
average of $685.
Rental Operations - Same Store. The performance of the 21,156 units which
the Company held for the six month period of both 1997 and 1996 ("same store"
results), is summarized in the following table (dollars in thousands, except
average monthly rent; see footnotes above):
Change from Six Months
% Change 1996 to 1997 1997 1996
-------- ------------ ---- ----
(s)
Rental income 2.6% $2,011 $80,376 $78,365
Personnel 9.3 712 8,333 7,621
Utilities (25.5) (1,189) 3,477 4,666
Operating 8.2 323 4,288 3,965
Maintenance
and grounds (10.1) (533) 4,722 5,255
Taxes and
insurance 13.5 1,088 9,145 8,057
----- ------ ------- -------
Subtotal (1) 1.4 401 29,965 29,564
3.3% $1,610 $50,411 $48,801
Average
occupancy (2) 0.7% (3) 93.9% 93.2%
Average monthly
rent (4) 3.2% $670 $649
Expense ratio (5) (0.4)% (3) 37.3% 37.7%
Rental income rose by $2.0 million or 2.6% for those properties held for
all of both periods, as a result of 0.7% higher occupancy and 3.2% higher
average rental rates, offset in part by higher rent concessions. At June 30,
1997 same store occupancy was 94.8%, up from 93.4% at June 30, 1996. Rental
concessions at June 30, 1997 equaled approximately 1.6% of market rents.
Operating expenses increased $0.4 million or 1.4% in 1997 from the same
period in 1996. Personnel costs rose $0.7 million, resulting primarily from
higher employee headcount and salaries. Utilities expense decreased by
$1.2 million or 25.5% as the Company has passed a portion of its water expense
to the residents. Accruals for property taxes and insurance increased by $1.1
million to reflect higher projected assessed values and millage rates.
Rental Operations - Development Communities. $33.1 million
was expended in the six month period of 1997 for apartments under development,
bringing the total investment in communities still under development to $100.9
million. At June 30, 1997, 862 units had been placed in service at a cost of
$59.3 million. The Company expects to put approximately 1,200 units in service
in 1997. Some dilution of earnings may occur to the extent that leasing lags
behind the delivery of units.
164 units of Madison at River Sound, 200 units of Madison at
Adams Farm, and 84 units of Hammocks at Long Point were delivered in the
first six months of 1997. The operating results for the six month period of
1997 and 1996 for all development units in service is summarized in the
following table (dollars in thousands; see footnotes above):
Six months
1997 1996
---- ----
Units 1,289 547
Rental income $3,802 $1,672
Operating expense (1) 1,050 535
Taxes and insurance 263 127
------ ------
Subtotal (1) 1,313 662
------ ------
$2,489 $1,010
At June 30, 1997, 76.6% of the units delivered at Cherry Creek, Madison
at River Sound, Madison at Adams Farm, and Hammocks at Long Point were leased
at an average rental rate of $748 per unit.
Rental Operations - Other Communities. "Other communities" are those not
included in same store communities or development communities. These include
communities bought or sold in part or in whole in 1996 or 1997. At June 30,
1997, these communities included 3,785 units. The performance of the other
communities for the six month period of 1997 and 1996 are summarized in the
following table (dollars in thousands; see footnotes above):
Six months
1997 1996
---- ----
Units 3,785 1,721
Rental income $12,409 $4,732
Operating expense (1) 3,267 1,104
Taxes and insurance 1,762 759
------- ------
Subtotal (1) 5,029 1,863
------- ------
$7,380 $2,869
Interest, Dividend and Other Income. Other income increased and dividend
income decreased as the Company essentially completed the liquidation of its
holdings of equity security investments. Interest, dividend and other income
are summarized in the following table (dollars in thousands):
Six months
1997 1996
---- ----
Interest income $1,486 $1,044
Dividend income 601 1,930
Other income 5,051 2,634
------ ------
Total $7,138 $5,608
Interest Expense. Interest expense "net of capitalized interest" totaled
$11.0 million in the six month period of 1997, down from $11.4 million in the
six month period of 1996. Average debt outstanding rose to $389.8 million in
the six month period of 1997 from $367.1 million in the six month period of
1996, primarily as a result of the assumption of mortgage notes in 1996
related to apartment acquisitions. The weighted average interest rate charged
on all the Company s debt increased to 7.1% in the six month period of 1997
from 7.0% for the six month period in 1996 as a result of an average interest
rate of 8.7% on the mortgage debt assumed. During the six month period of
1997, $2.7 million of interest related to the Company s development projects
was capitalized versus $1.1 million in the six month period of 1996 due to a
higher level of development underway.
General and Administrative Expenses. General and administrative expenses
for the six month period of 1997 were $2.4 million, representing 2.5% of
rental revenues and 4.6% of funds from operations. General and administrative
expenses increased $1.1 million in the first six months in 1997 versus the
first six months in 1996 due primarily to higher corporate headcount and their
associated costs. In 1997, the Company has added positions in the areas of
property management, acquisitions, development, accounting, and administration
in order to provide better service to its residents and to compete more
effectively in a rapidly evolving industry. The Company expects that its
overhead expense measured as a percentage of revenues will remain among the
lowest of apartment REITs.
Net Income. Net income totaled $36.0 million in the six month period of
1997 and $30.7 million for the six month period of 1996. Net income available
for common shareholders totaled $24.4 million in the six month period of 1997
and $20.8 million for the six month period of 1996. The increases in net
income and net income available for common shareholders for 1997 compared to
1996 arose principally from substantially increased operating income from
apartments due to the growth of the Company s apartment holdings, as well as
increases in other income. Net income per common share in the six month period
of 1997 increased to $.64 from $.61 in the six month period of 1996.
Dividends to Preferred Shareholders. Dividends to preferred shareholders
totaled $11.7 million in the six month period of 1997 and $9.9 million in the
six month period of 1996. Preferred dividends are summarized in the following
table (dollars in thousands):
Six months
1997 1996
---- ----
Series A Preferred share dividends $ 222 $ 563
Series B Preferred share dividends 4,410 4,410
Series C Preferred share dividends 4,945 4,945
Series D Preferred share dividends 2,073 ---
------- ------
Total preferred dividends $11,650 $9,918
The increase in preferred dividends arose from the issuance of $50.0
million of Series D preferred shares in December, 1996. Holders of the
Company's Series A Preferred Stock have converted 4.4 million of the 4.6
million Series A shares originally issued in June 1993 into 5.8 million shares
of the Company's common stock as the common dividend was raised above the
equivalent preferred dividend.
Funds From Operations. Funds from operations rose 15.1% to $52.1 million
in the six month period of 1997 as compared to $45.2 million in the six month
period of 1996. Funds from operations available to common shares rose 20.4% to
$42.5 million in the six month period of 1997 compared to $35.3 million in the
six month period of 1996. These increases were principally due to increased
rental operating income resulting from the growth of the Company's apartment
holdings and increased other income produced by the active management of cash
raised in securities offerings which was not yet invested in apartments. On a
fully diluted per share basis, funds from operations increased 7.0% to $1.07
in 1997 from $1.00 in 1996. Other income from securities totaled $5.0
million, or $.10 per share for the first two quarters of 1997 versus $2.5
million, or $.06 per share for the first two quarters of 1996. "Core FFO",
those earnings produced exclusively by non cash management activities, rose
3.2% to $.97 per share from $.94 per share for the first two quarters of 1997.
The following is a reconciliation of net income to funds from operations
(data in thousands, except per share data):
Six months
1997 1996
---- ----
Net income $36,045 $30,683
Less preferred dividends paid 11,650 9,919
------- -------
Net income available for common shares 24,395 20,764
Add depreciation of real estate owned 18,964 16,266
Less net realized gains 855 1,715
Funds from operations available to ------- -------
common shares 42,504 35,315
Add convertible preferred dividends 9,577 9,919
------- -------
Funds from operations-fully diluted $52,081 $45,234
Weighted average common shares
outstanding -
Primary 38,164 34,265
Fully diluted 48,481 45,106
Funds from operations per share-
Primary $ 1.11 $ 1.03
Fully diluted $ 1.07 $ 1.00
Other income from
securities (fully diluted) $ .10 $ .06
Core funds from operations
(fully diluted) $ .97 $ .94
The Company believes that funds from operations is an important measure
of its operating performance. Funds from operations does not represent cash
flows from operations as defined by generally accepted accounting principles,
GAAP, and should not be considered as an alternative to net income or as an
indicator of the Company's operating performance, or as a measure of the
Company's liquidity. Based on published recommendations of a task force of the
National Association of Real Estate Investment Trusts, the Company defines
funds from operations as net income computed in accordance with GAAP,
excluding non-recurring costs and net realized gains, plus depreciation of
real property. This revised definition eliminates from funds from operations
any amortization of debt costs and any non-real estate depreciation. Revision
of the definition reduced the Company s funds from operations by $0.5 million
and $0.4 million in the six month periods of 1997 and 1996, respectively.
Liquidity and Capital Resources
Financial Structure. The Company s senior notes and its preferred stock
are rated investment grade by Standard & Poor s Corporation (BBB+/BBB),
Moody's Investors Services, Inc. (Baa2/Baa3) and Duff & Phelps Credit Rating
Co. (BBB+/BBB). At June 30, 1997, total debt equaled 34% of total capitaliza-
tion 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 $ 13,500 1% $ 13,500 1%
Mortgage loans 27,469 2 27,469 2
6.625% senior unsecured
notes, 1999 40,000 3 40,000 3
6.625% senior unsecured
notes, 2000 40,000 3 40,000 3
6.625% senior unsecured
notes, 2001 40,000 3 40,000 3
7.25% senior unsecured
notes, 2002 40,000 3 40,000 3
6.875% senior unsecured
notes, 2003 40,000 3 40,000 3
6.875% senior unsecured
notes, 2004 40,000 3 40,000 3
7.25% senior unsecured
notes, 2005 120,000 13 120,000 6
-------- --- -------- ---
Total debt 400,969 34% 400,969 27%
Series D preferred stock 50,000 4% 50,000 3%
Common and preferred stock(1) 748,740 62% 1,060,802 70%
-------- --- --------- ---
Total equity 798,740 66% 1,110,802 73%
Total capitalization $1,199,709 100% $1,511,771 100%
__________ ---------- --- ----------- ---
(1) Assumes conversion of all outstanding convertible preferred stock into
common stock.
At June 30, 1997, the Company had $13.5 million outstanding under its
lines of credit, which mature in September and October, 1997. The Company has
received a firm commitment from First Union National Bank to provide a $150.0
million three-year line of credit facility, which is expected to close in
September, 1997. The first $100.0 million of borrowings under the line bear
interest at 0.65% above the thirty day London Interbank Offered Rates. As
amended, the Company's loan agreements and the covenants under its senior
unsecured notes would allow it to borrow an additional $410.0 million on an
unsecured basis at June 30, 1997.
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 June 30, 1997, the Company had three mortgage loans
outstanding, which were assumed in 1996 in connection with the purchase of
three communities.
Liquidity. Merry Land expects to meet its short-term liquidity require-
ments with cash provided by operating activities and by borrowing under its
line of credit. The Company's primary short-term liquidity needs are operating
expenses, apartment acquisitions, apartment development and capital
improvements. The Company has essentially completed the liquidation of its
holdings of marketable securities which were acquired as a temporary invest-
ment pending the acquisition or development of additional apartment
communities.
The Company expects to meet its long-term liquidity requirements,
including scheduled debt maturities and permanent financing for property
acquisitions and development, from a variety of sources, including operating
cash flow, additional borrowings and the issuance and sale of debt and equity
securities in the public and private markets.
The following table summarizes the Company's capital requirements
resulting from its acquisition and development commitments as of June 30,
1997. Not included in this table are additional acquisitions and developments,
debt repayments or the additional sales of debt or equity securities (dollars
in thousands):
Estimated capital requirements:
------------------------------
Development communities expected costs $238,429
Less development costs paid thru 6/30/97 (119,872)
--------
Development costs through 1999 118,557
Acquisition of communities under development in 1998 61,200
--------
Total future development commitments 179,757
Estimated capital sources:
-------------------------
Cash on hand at 6/30/97 557
Funds available under line of credit 116,500
--------
Total capital sources 117,057
Excess of capital requirements over sources $ 62,700
--------
Cash Flows. The following table summarizes cash flows for the six month
periods of 1997 and 1996 (dollars in thousands):
Sources and Uses of Cash:
Six Months
1997 1996
---- ----
Operating activities $ 52,268 $ 45,366
Sale of Merry Land common stock 8,428 58,327
Net borrowings 13,500 9,600
Sale of real property 20,869 ---
Other 2,257 8
-------- --------
Total sources of cash $ 97,322 $113,301
Acquisitions of and improvements
to properties (74,141) (67,800)
Development of properties (33,086) (22,291)
Dividends paid (41,428) (36,060)
Other (512) (1,027)
--------- ---------
Total uses (149,167) (127,178)
--------- ---------
Increase (decrease) in cash, cash
equivalents and marketable securities ($51,845) ($ 13,877)
Cash, cash equivalents and marketable securities decreased by $51.8
million in 1997 as the Company invested funds raised in the equity offerings
of 1996 in apartments. The Company's operating cash flow increased to $52.3
million in the six month period of 1997 from $45.4 million in the six month
period of 1996. Net rental income from apartments increased as the size of the
portfolio grew. The primary use of cash has been apartment acquisitions,
development and improvements and dividends. Expenditures for apartment
communities under development increased to $33.1 million in the first six
months of 1997 from $22.3 million in the first six months of 1996. The Company
expects development expenditures to increase for the remainder of 1997 as
construction of additional apartment communities commences. Dividends paid in
the six month period of 1997 increased from the same period in 1996 due to an
increase in the average amount of stock outstanding and in the case of the
Company's common stock, an increase in the dividends per share to $0.78 in the
first two quarters of 1997 from $0.74 per share for the first two quarters of
1996.
Capital Expenditures. The Company capitalizes the direct and indirect
cost of expenditures for the acquisition or development of apartments and for
replacements and improvements. Replacements are non-revenue producing capital
expenditures which recur on a regular basis, but which have estimated useful
lives of more than one year, such as carpet, vinyl flooring and exterior
repainting. Improvements are expenditures which significantly increase the
revenue producing capability or which significantly reduce the cost of
operating assets. At newly acquired communities, the Company often finds it
necessary to upgrade the physical appearance of the properties and to complete
maintenance and repair work which had been deferred by prior owners. These
activities often result in heavier capital expenditures in the early years
of Company ownership, and some of these expenditures which would be
considered replacements at stabilized communities (as defined below) are
classified as improvements at newly acquired properties. Interest, real
estate taxes and other carrying costs incurred during the development period
of apartments under construction are capitalized and, upon completion of the
project, depreciated over the lives of the projects.
The following table summarizes the capital expenditures for the six
month periods of 1997 and 1996 (dollars in thousands, except per unit data):
Six months
1997 1996
---- ----
Apartment communities:
Acquisitions $ 69,286 $ 61,037
Development projects:
Development costs 30,356 21,149
Capitalized interest 2,730 1,142
Replacements for stabilized
communities (1) 2,560 2,484
Improvements (2) 1,528 3,717
Commercial properties 141 297
Corporate level expenditures 625 264
-------- --------
$107,226 $ 90,090
Per Unit:
Replacements for stabilized
communities (1) $121 $135
Improvements (2) $ 58 $159
__________
(1) Stabilized communities are those
properties which have been owned for at least one full calendar year.
In the six month period of 1997, 21,156 units were stabilized as
compared to 18,411 units in the six month period of 1996.
(2) Improvements include expenditures for all properties owned during
the period, including replacements at newly acquired communities.
The Company expects that the level of expenditures for replacements and
improvements will increase for the remainder of 1997 due primarily to the
installation of water submeters at a number of communities and other
expenditures scheduled for completion to enhance or maintain the Company's
apartment communities position in their markets.
Inflation. Substantially all of the Company's leases are for terms of one
year or less, which should enable the Company to replace existing leases with
new leases at higher rentals in times of rising prices. The Company believes
that this would offset the effect of cost increases stemming from inflation.
This filing includes statements that are "forward looking statements"
regarding expectations with respect to market conditions, development
projects, occupancy rates, capital requirements and sources. These assumptions
and statements are subject to various factors, unknown risks and
uncertainties, including general economic conditions, local market factors,
delays and cost overruns in construction, completion and rent up of development
communities, and performance of consultants or other third parties and
environmental concerns, any of which may cause actual results to differ from
the Company's current expectations.
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
At the Company s Annual Meeting of Shareholders held April 21,
1997, the following vote totals were recorded:
1. Election of Directors: Shares Voted - 31,622,494
For Withheld
--- --------
W. Hale Barrett 31,469,337 (99.5%) 153,157
W. Tennent Houston 31,539,763 (99.7%) 82,731
Robert P. Kirby 31,547,244 (99.8%) 75,250
Boone A. Knox 31,543,065 (99.7%) 79,429
Hugh C. Long II 31,539,994 (99.7%) 82,500
Paul S. Simon 31,543,983 (99.8%) 78,511
Michael N. Thompson 31,530,924 (99.7%) 91,570
2. Approval of the 1997 Stock Option and Incentive Plan: Shares Voted
- 31,622,494
For Against/Abstain
--- ---------------
28,440,740 (89.9%) 3,181,754 (10.1%)
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
--------
(3.i) Amended and Restated Articles of Incorporation (incorporated
herein by reference to Exhibit 4(a) to the Company's Shelf
Registration Statement on Form S-3 filed December 15, 1995,
file number 33-65067), as amended by Articles of Amendment to
Articles of Incorporation re: Series D Preferred Stock
(incorporated herein by reference to Exhibit 4 to the
Company's current report on Form 8-K filed December 11, 1996).
(3.ii) By-laws (incorporated herein by reference to Exhibit 3(ii)
of Item 14 of the Company s Annual Report on Form 10-K for
the year ended December 31, 1993).
(10) Material Contracts.
(10.1) Extension Agreement to Line of Credit
(27) Financial Data Schedules
b. Reports on Form 8-K:
None
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
August 14, 1997