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, 2000
Commission file number: 000-29778
MERRY LAND PROPERTIES, INC.
State of Incorporation: Georgia I.R.S. Employer Identification Number: 58-
2412761
___________
P.O. Box 1417
Augusta, Georgia
(Address of Principal Executive Offices)
706 722-6756 30903
(Registrant's Telephone (Zip Code)
Number, Including Area Code)
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 July 25, 2000 was
2,666,966.
Form 10-Q - Merry Land Properties, Inc.
Index
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income - Three months ended June 30,
2000 and 1999 and six months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows - Six months ended June 30,
2000 and 1999 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
Form 10-Q - Part I. Financial Information
Item 1. Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Unaudited
June 30, Dec. 31,
2000 1999
----------- -----------
ASSETS
Real estate assets, at cost:
Land held for mining and development $ 4,107,977 $ 5,905,288
Apartments 96,980,911 95,615,665
Commercial rental property 2,401,449 2,627,652
Furniture and equipment 1,891,295 1,882,536
Development in progress 6,172,984 2,820,564
------------ ------------
Total cost 111,554,616 108,851,705
Accumulated depreciation and depletion (14,736,301) (13,335,596)
------------ ------------
96,818,315 95,516,109
INVESTMENT IN JOINT VENTURE 584,500 -
CASH AND CASH EQUIVALENTS 2,297,358 3,067,372
ESCROWED CASH 1,771,642 1,187,142
OTHER ASSETS
Notes receivable 481,467 564,073
Deferred loan costs 1,614,707 1,111,309
Other receivable 180,702 154,496
Deferred tax asset 5,648,498 5,733,521
Other 231,661 72,603
------------ ------------
8,157,035 7,636,002
------------ ------------
TOTAL ASSETS $109,628,850 $107,406,625
============ ============
NOTES PAYABLE
Line of credit $ 1,500,000 $ 1,500,000
Construction loans 2,021,022 -
Mortgage loans 91,377,342 91,711,187
------------ ------------
94,898,364 93,211,187
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 636,946 631,863
Accrued property taxes 373,012 467,863
Deferred revenue 161,294 172,100
Other 1,095,789 1,262,961
------------ ------------
2,267,041 2,534,787
STOCKHOLDERS' EQUITY
Common stock, at $1 stated value 2,666,966 2,601,300
Capital surplus 9,407,035 9,139,014
Unamortized compensation (1,892,093) (1,710,055)
Cumulative undistributed net earnings 2,783,666 2,648,324
Receivable from ESOP (502,129) (1,017,932)
------------ ------------
12,463,445 11,660,651
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $109,628,850 $107,406,625
============ ============
The accompanying notes are an integral part of these statements.
Form 10-Q - Part I. Financial Information
Item 1. Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
INCOME
Rental income $4,681,055 $2,062,043 $9,268,540 $4,070,347
Royalty income 197,012 526,047 305,180 938,830
Interest income 55,179 76,410 93,287 144,974
Management fees 46,998 231,844 67,480 432,606
Development fees 162,500 428,766 314,171 1,014,516
Long term gain (loss) 53,305 - 53,305 (29,512)
Other income 12,380 - 12,380 -
---------- ---------- ---------- ----------
5,208,429 3,325,110 10,114,343 6,571,761
EXPENSES
Rental expense 1,722,309 812,660 3,347,168 1,577,353
Interest expense 1,787,034 843,299 3,549,919 1,684,328
Depreciation 756,841 359,776 1,400,705 718,144
Amortization 26,586 - 53,172 -
General and administrative
expense 812,531 652,945 1,544,664 1,171,347
---------- ---------- ---------- ----------
5,105,301 2,668,680 9,895,628 5,151,172
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEM 103,128 656,430 218,715 1,420,589
Income taxes 39,962 66,512 83,373 386,230
---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY
ITEM 63,166 589,918 135,342 1,034,359
Extraordinary gain -
discount on repayment of
debt, net of income
tax provision of $441,746 - 721,969 - 721,969
---------- ---------- ---------- ----------
NET INCOME 63,166 1,311,887 135,342 1,756,328
Discount on redemption of
preferred stock - 1,163,715 - 1,163,715
---------- ---------- ---------- ----------
NET INCOME - COMMON $ 63,166 $2,475,602 $ 135,342 $2,920,043
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES
Basic 2,216,669 2,181,070 2,216,669 2,181,070
Diluted 2,321,782 2,264,523 2,307,350 2,246,043
EARNINGS PER COMMON SHARE
Basic $ 0.03 $ 1.14 $ 0.06 $ 1.34
========== ========== ========== ==========
Diluted $ 0.03 $ 1.09 $ 0.06 $ 1.30
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
Form 10-Q - Part I. Financial Information
Item 1. Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
-----------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,342 $1,756,328
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sale of real property (53,305) -
Discount on repayment of debt,
net of taxes - (721,969)
Depreciation expense 1,400,705 718,144
Amortization expense 53,172 -
Decrease (increase) in mortgage
escrow 321,066 (360,367)
Amortization of compensation
element of restricted stock grants 151,734 66,640
Income tax expense 83,373 218,230
Increase (decrease) in other payables (167,172) 251,145
Decrease (increase) in other assets (159,058) 63,038
Decrease in dividend payable - (81,111)
Decrease (increase) in other receivables (26,206) 259,834
Increase (decrease) in deferred revenue (10,806) 64,608
Decrease in property taxes payable (94,851) (72,723)
Increase (decrease) in accrued interest 5,083 (444,553)
Other (51,607) (113,986)
----------- -----------
Net cash provided by operating
activities 1,587,470 1,603,308
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes
receivable 82,606 665,963
Capitalized costs, improvements
and replacements (1,457,505) (264,241)
Sale (purchase) of real property 351,642 (826,342)
Investment in joint venture (584,500) -
Expenditures for development (1,543,743) (208,838)
Increase in development escrow (905,566) -
Decrease (increase) in
receivable from ESOP 515,803 (575,915)
----------- -----------
Net cash used in investing
activities (3,541,263) (1,209,373)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments on)
mortgage loans (333,845) 41,241,000
Proceeds from construction loan 2,021,022 -
Repayment of senior debt - (18,317,429)
Repayment of subordinated debt - (18,836,285)
Redemption of preferred stock - (3,836,285)
Increase in deferred loan costs (503,398) (574,819)
----------- -----------
Net cash provided by (used in)
financing activities 1,183,779 (323,818)
----------- -----------
NET INCREASE (DECREASE) IN CASH (770,014) 70,117
CASH AT BEGINNING OF PERIOD 3,067,372 3,995,365
----------- -----------
CASH AT END OF PERIOD $2,297,358 $4,065,482
=========== ===========
Interest paid $3,544,836 $1,935,548
Income taxes paid $ 1,049 $ 169,773
The accompanying notes are an integral part of these statements.
Merry Land Properties, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Merry Land Properties, Inc. was formed on September 3, 1998, as a
corporate subsidiary of Merry Land & Investment Company, Inc. in connection
with a transaction in which Merry Land & Investment Company was merged into
Equity Residential Properties Trust on October 19, 1998. On October 15,
1998, the common stock of Merry Land Properties was spun off to the common
shareholders of Merry Land & Investment Company on the basis of one share
of Merry Land Properties stock for every twenty shares of Merry Land &
Investment Company.
2. BASIS OF PRESENTATION
The consolidated financial statements for the six month periods ended
June 30, 2000 and June 30, 1999, 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.
3. INVESTMENT IN JOINT VENTURE
In March 2000, Merry Land entered into a joint venture with a real
estate investment fund to purchase Cypress Cove apartment community for
approximately $18.8 million. Seventy percent of the cost was funded with
floating rate debt with the remaining thirty percent in cash. Merry Land is
not obligated to repay the joint venture's debt or to make any additional
capital contributions. Under the terms of the joint venture, Merry Land
holds a 10% ownership interest in the joint venture and will provide
property management services to the apartment community for a 3.5% fee.
Merry Land has accounted for the joint venture as an investment under the
cost method of accounting in the accompanying consolidated financial
statements.
4. EARNINGS PER SHARE AND SHARE INFORMATION
Basic earnings per common share is computed on the basis of the
weighted average number of shares outstanding during each period excluding
the unvested shares issued to employees under Merry Land's Management
Incentive Plan. Diluted earnings per share is computed giving effect to
dilutive stock equivalents resulting from outstanding options and
restricted stock using the treasury stock method.
A reconciliation of the average outstanding shares used in the four
calculations is as follows:
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Weighted average shares
outstanding-basic 2,216,669 2,181,070 2,216,669 2,181,070
Dilutive potential common shares 105,113 83,453 90,681 64,973
--------- --------- --------- ---------
Weighted average shares
outstanding-diluted 2,321,782 2,264,523 2,307,350 2,246,043
5. NOTES RECEIVABLE
At June 30, 2000 and December 31, 1999, notes receivable consisted of
the following:
Note Balances at
-----------------------
Original June 30, December 31,
NOTE Rate Due Amount 2000 1999
- ------------- ----- ----- ---------- ---------- -----------
Brothersville 6.00% 11/12 $ 675,000 $ 395,891 $ 470,957
Brothersville 10.00% 9/02 327,600 31,988 38,195
New Zion 7.00% 11/12 60,000 53,588 54,921
---------- ---------- -----------
$1,062,600 $ 481,467 $ 564,073
6. DEBT
At June 30, 2000 and December 31, 1999, debt consisted of the
following:
Maturity Interest June 30, Dec. 31,
Debt Date Rate 2000 1999
- -------------------------------- -------- ----------- ------------ -----------
Line of credit 6/24/01 LIBOR+1.25% $ 1,500,000 $ 1,500,000
Construction/permanent loan 4/19/40 8.65% (1) 2,021,022 -
Mortgage loan-Huntington LLC 09/01/07 7.97% 5,056,882 5,074,767
Mortgage loan-Magnolia Villas LLC 09/01/07 7.97% 4,713,722 4,730,394
Mortgage loan-Summit Place LLC 09/01/07 7.97% 7,041,240 7,066,145
Mortgage loan-Woodcrest LLC 09/01/07 7.97% 6,320,108 6,342,461
Mortgage loan-Greentree LLC 07/01/09 7.73% 6,673,861 6,699,284
Mortgage loan-Marsh Cove LLC 07/01/09 7.73% 8,105,181 8,136,056
Mortgage loan-Quarterdeck LLC 07/01/09 7.73% 9,897,061 9,934,763
Mortgage loan-Waters Edge LLC 07/01/09 7.73% 7,149,643 7,176,879
Mortgage loan-West Wind LLC 07/01/09 7.73% 9,138,194 9,173,004
Mortgage loan-Hammocks LLC 09/01/11 7.99% 18,687,300 18,753,048
Mortgage loan-Windsor Place LLC 09/01/11 7.99% 8,594,150 8,624,386
----------- -----------
Total $94,898,364 $93,211,187
(1) Represents 8.375% during construction, 8.15% permanent financing and .50%
insurance premium.
In April 2000, Merry Land completed the financing process for its 230
unit apartment Merritt at James Island project in Charleston and has
began construction. The all-in interest rate on this $16.2 million,
forty year government sponsored construction and permanent mortgage
loan is 8.65%.
7. INCOME TAXES
Merry Land is a taxable "C" corporation. The components of the income
tax provision for the six months ended June 30, 2000 are as follows:
Current federal tax $ -
Current state tax -
Deferred federal tax 69,901
Deferred state tax 13,472
------------
$ 83,373
The reconciliation of income tax computed at the U.S. federal
statutory rate to income tax expense for the six months ended June 30, 2000
is as follows:
% of
pretax
$ Amount income
-------- -------
Income tax expense at statutory rate $ 74,363 34.0%
Increases in taxes resulting from:
State and local income taxes, net of federal
income tax benefit 8,660 4.0
Other 349 0.1
-------- -------
$ 83,373 38.1%
8. SEGMENT INFORMATION
Merry Land has four reportable segments: Apartment Communities,
Commercial Properties, Land and Third Party Services. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
Third
Three months ending Party
June 30, 2000 Apartments Commercial Land Services Corporate Consolidated
----------- ---------- ---------- --------- ----------- ------------
Real estate rental revenue $ 4,690,704 $ 58,456 $ 12,895 $ - $ - $ 4,681,055
Real estate expense 1,642,969 56,842 22,498 - - 1,722,309
Depreciation and
amortization 605,874 92,381 1,405 - 83,768 783,428
----------- ---------- ---------- --------- ----------- ------------
Income from real estate 2,360,861 (90,767) (11,008) - (83,768) 2,175,318
Other income - - 197,012 209,498 120,865 527,375
----------- ---------- ---------- --------- ----------- ------------
Segment income 2,360,861 (90,767) 186,004 209,498 37,097 2,702,693
Interest expense - - - - (1,787,034) (1,787,034)
General and administrative - - - (260,156) (552,376) (812,532)
----------- ---------- ---------- --------- ----------- ------------
Income before taxes 2,360,861 (90,767) 186,004 (50,658) (2,302,313) 103,127
Income tax - - - - (39,962) (39,962)
----------- ---------- ----------- --------- ----------- ------------
Net income $ 2,360,861 $ (90,767)$ 186,004 $ (50,658)$(2,342,275)$ 63,165
=========== ========== =========== ========= =========== ============
Capital investments $ 814,415 $ - $ 1,159,916 $ - $ - $ 1,972,215
=========== ========== =========== ========= =========== ============
Total real estate assets $84,197,185 $1,956,843 $10,244,407 $ - $ - $ 96,818,315
=========== ========== =========== ========= =========== ============
Third
Three months ending Party
June 30, 1999 Apartments Commercial Land Services Corporate Consolidated
----------- ---------- ----------- --------- ----------- ------------
Real estate rental revenue $ 1,991,985 $ 46,939 $ 23,119 $ - $ - $ 2,062,043
Real estate expense 710,660 74,989 27,011 - - 812,660
Depreciation and
amortization 276,451 9,052 1,406 - 72,867 359,776
----------- ---------- ----------- --------- ----------- ------------
Income from real estate 1,004,874 (37,102) (5,298) - (72,867) 889,607
Other income - - 526,047 660,610 76,410 1,263,067
----------- ---------- ----------- --------- ----------- ------------
Segment income 1,004,874 (37,102) 520,749 660,610 3,543 2,152,674
Interest expense - - - - (843,299) (843,299)
General and administrative - - - (345,229) (307,716) (652,945)
----------- ---------- ----------- --------- ----------- ------------
Income before taxes and
extraordinary item 1,004,874 (37,102) 520,749 315,381 (1,147,472) 656,430
Income tax - - - - (66,512) (66,512)
----------- ---------- ----------- --------- ----------- ------------
Income before
extraordinary item $ 1,004,874 $ (37,102)$ 520,749 $ 315,381 $(1,213,984)$ 589,918
Extraordinary item - - - - 721,969 721,969
----------- ---------- ----------- --------- ----------- ------------
Net income $ 1,004,874 $ (37,102)$ 520,749 $ 315,381 $ (492,015)$ 1,311,887
=========== ========== =========== ========= =========== ============
Capital investments $ 207,356 $ - $ 162,859 $ - $ 232,799 $ 603,014
=========== ========== =========== ========= =========== ============
Total real estate assets $30,534,847 $2,307,014 $ 8,285,814 $ - $ 680,882 $ 41,808,557
=========== ========== =========== ========= =========== ============
Third
Six months ending Party
June 30, 2000 Apartments Commercial Land Services Corporate Consolidated
----------- ---------- ----------- ---------- ----------- ------------
Real estate rental revenue $ 9,118,266 $ 127,089 $ 23,185 $ - $ - $ 9,268,540
Real estate expense 3,192,764 115,138 39,266 - - 3,347,168
Depreciation and
amortization 1,179,370 101,443 2,811 - 170,254 1,453,878
----------- ---------- ----------- ---------- ----------- ------------
Income from real estate 4,746,132 (89,492) (18,892) - (170,254) 4,467,494
Other income - - 305,180 381,651 158,973 845,804
----------- ---------- ----------- ---------- ----------- ------------
Segment income 4,746,132 (89,492) 286,288 681,651 (11,281) 5,313,298
Interest expense - - - - (3,549,919) (3,549,919)
General and administrative - - - (546,284) (998,380) (1,544,664)
----------- ---------- ----------- ---------- ----------- ------------
Income before taxes 2,360,861 (89,492) 286,288 (164,633) (4,559,580) 218,715
Income tax - - - - (83,373) (83,373)
----------- ---------- ----------- ---------- ----------- ------------
Net income $ 4,746,132 $ (89,492)$ 286,288 $ (164,633)$(4,642,953)$ 135,342
=========== ========== =========== ========== =========== ============
Capital investments $ 1,430,982 $ - $ 1,561,507 $ - $ - $ 3,001,248
=========== ========== =========== ========== =========== ============
Total real estate assets $84,197,185 $1,956,843 $10,244,407 $ - $ - $ 96,818,315
=========== ========== =========== ========== =========== ============
Third
Six months ending Party
June 30, 1999 Apartments Commercial Land Services Corporate Consolidated
----------- ---------- ----------- ---------- ----------- ------------
Real estate rental revenue $ 3,938,971 $ 84,967 $ 46,409 $ - $ - $ 4,070,347
Real estate expense 1,397,337 126,763 53,253 - - 1,577,353
Depreciation and
amortization 552,901 18,104 1,406 - 145,733 718,144
----------- ---------- ----------- ---------- ----------- ------------
Income from real estate 1,988,733 (59,900) (8,250) - (145,733) 1,774,850
Other income - - 938,830 1,447,122 115,462 2,501,414
----------- ---------- ----------- ---------- ----------- ------------
Segment income 1,988,733 (59,900) 930,580 1,447,122 (30,271) 4,276,264
Interest expense - - - - (1,684,328) (1,684,328)
General and administrative - - - (466,121) (705,226) (1,171,347)
----------- ---------- ----------- ---------- ----------- ------------
Income before taxes and
extraordinary item 1,988,733 (59,900) 930,580 981,001 (2,419,825) 1,420,589
Income tax - - - - (386,230) (386,230)
----------- ---------- ----------- ---------- ----------- ------------
Income before
extraordinary item $ 1,988,733 $ (59,900)$ 930,580 $ 981,001 $(2,806,055)$ 1,034,359
Extraordinary item - - - - 721,969 721,969
----------- ---------- ----------- ---------- ----------- ------------
Net income $ 1,988,733 $ (59,900)$ 930,580 $ 981,001 $(2,084,086)$ 1,756,328
=========== ========== =========== ========== =========== ============
Capital investments $ 267,726 $ - $ 208,838 $ - $ 242,187 $ 718,751
=========== ========== =========== ========== =========== ============
Total real estate assets $30,534,847 $2,307,014 $ 8,285,814 $ - $ 680,882 $ 41,808,557
=========== ========== =========== ========== =========== ============
Form 10-Q - Part I. Financial Information
Item 2.
Merry Land Properties, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT EVENTS
During the last few quarters, Merry Land had considered offering its
existing shareholders the right to purchase Convertible Trust Preferred
Securities of Merry Land Capital Trust, a Delaware business trust owned by
Merry Land. These securities would have accrued distributions to their
holders and would have been convertible into Merry Land's common stock.
However, due to the current market conditions, we have decided to postpone
indefinitely this stock rights offering.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
RENTAL OPERATIONS-ALL APARTMENTS. At June 30, 2000, Merry Land owned
eleven apartment communities, as described in the following table:
Six Months ended June 30,
---------------------------------
Average Average
Occupancy Rental
(1) Rate (2)
-------------- --------------
Community Units 2000 1999 2000 1999
- -------------------- ------ ------ ------ ------ ------
Woodcrest 248 95.9% - % (3) $526 $ - (3)
------ ------ ------ ------ ------
Total Augusta 248 95.9 - 526 -
Quarterdeck 230 98.2 99.7 716 655
Summit Place 226 97.1 - (3) 550 - (3)
Waters Edge 200 97.8 98.6 648 598
Windsor Place 224 97.4 - (3) 633 - (3)
------ ------ ------ ------ ------
Total Charleston 880 97.6 99.2 637 628
Greentree 194 95.1 96.5 633 604
Hammocks at Long Point 308 94.8 - (3) 852 - (3)
Huntington 147 95.2 - (3) 656 - (3)
Magnolia Villas 144 95.8 - (3) 665 - (3)
Marsh Cove 188 96.5 97.0 712 684
West Wind 192 94.2 95.3 739 708
------ ------ ------ ------ ------
Total Savannah 1,173 95.2 96.3 727 665
Total 2,301 96.2% 97.5% $671 $649
(1) Represents the average physical occupancy at each month end for the
period held.
(2) Represents weighted average monthly rent charged for occupied owned
units and rents asked for unoccupied owned units at June 30.
(3) Acquired on August 24, 1999.
The following table describes the operating performance of all Merry
Land's apartment communities (dollars in thousands, except average monthly
rent):
Six Months ended June 30,
% Change from ------------------------
Change 1999 to 2000 2000 1999
------ ------------ ---------- ----------
Rental income 132% $ 5,179 $ 9,118 $ 3,939
Total expenses (1) 124 2,422 4,372 1,950
------ ------------ ---------- ----------
Operating income 139% $ 2,757 $ 4,746 $ 1,989
Average occupancy (2) - (1.3)% 96.2% 97.5%
Average monthly rent (3) 3.4% $ 22 $ 671 $ 649
Expense ratio (4) - (0.4)% 35.1% 35.5%
(1) Represents operating, real estate taxes, insurance and depreciation
expenses.
(2) Represents the average physical occupancy at each month end for the
period held.
(3) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at June 30.
(4) Represents total operating expenses (excluding depreciation and
amortization) divided by rental revenues.
Merry Land's purchase of six of its eleven apartment communities in
August 1999, accounted for most of the increase in apartment rental income
and operating expenses. These communities contributed $5.0 million in
rental income, offset by $1.7 million in operating expenses and $0.6
million in depreciation, netting $2.7 million of operating income before
debt service during the first six months of 2000.
The average rent rates for all communities at the end of the second
quarter of 2000 increased 3.4% from the end of the second quarter of 1999.
The decrease in occupancy during the first six month period of 2000
resulted from a decline in average occupancy in both the Savannah and
Charleston communities. Occupancy in Charleston and Savannah had improved
to an overall average of 97.4% at June 30, 2000.
RENTAL OPERATIONS-SAME STORE APARTMENTS. The following table compares
the performance of the 1,004 units which Merry Land held for the six month
period of both 2000 and 1999 ("same store" results) (dollars in thousands,
except average monthly rent; see footnotes above):
Six months ended June 30,
% Change from ________________________
Change 1999 to 2000 2000 1999
------ ------------ ---------- ----------
Rental income 4% $160 $ 4,099 $ 3,939
Personnel (7) (37) 473 510
Utilities 6 7 133 126
Operating (1) (2) 139 141
Maintenance and grounds 25 61 305 244
Taxes and insurance 6 25 401 376
Depreciation and amortization 3 18 571 553
------ ------------ ---------- ----------
Total expenses 4% 72 2,022 1,950
Operating income 4% $ 88 $ 2,077 $ 1,989
Average occupancy (1) - (1.1)% 96.4% 97.5%
Average monthly rent (2) 6.3% $41 $ 690 $ 649
Expense ratio (3) - 0.1% 35.4% 35.5%
For the six months ended June 30, 2000, rental income increased as a
result of a 6.3% increase in average monthly rents offset by a 1.1% decline
in occupancy. At June 30, 2000, the Savannah and Charleston communities'
occupancy had improved to 96.5% and 99.1%, respectively.
The Charleston market will see significant additions to supply in the
remainder of 2000, which may adversely affect occupancy and rent rates in
that city. We believe that physical occupancy should remain satisfactory
despite these deliveries of new units if general economic activity, job
growth and household formation remain strong. Savannah is experiencing more
limited additions to supply.
Total operating expenses excluding depreciation for the year were up
$54 thousand, or 3.9%. On site expenses, including personnel, operating,
utilities, and maintenance expenses were up 2.9% primarily as a result of
higher turnover costs and repairs.
RENTAL OPERATIONS-COMMERCIAL. On June 30, 2000, we owned four
commercial properties in the Augusta area containing a total of 140,240
square feet, including the office building where Merry Land's headquarters
are located. During April and June 2000, we sold the Commerce Building, a
13,600 square foot building, and the Convention Center, a 16,100 square
foot building, for a total of $260 thousand. Occupancy for the four
remaining commercial properties was approximately 55% at June 30, 2000.
For the six months ended June 30, 2000, the net operating loss was
$207 thousand compared to a $205 thousand loss for 1999. Rental income
increased by $42 thousand, or 49.7%, and total expenses increased $44
thousand, or 15.2%, from the same period in 1999 primarily due to higher
occupancy.
LAND. Merry Land owns approximately 4,800 acres of unimproved land, of
which 3,144 acres are subject to clay and sand mining leases and 180 acres
are zoned for apartment or commercial uses. Land income decreased to $328
thousand in the first six months of 2000 from $985 thousand in 1999 due to
the expiration of one of the clay royalty agreements during May 1999.
(Dollars in thousands for the following table.)
Six months ended June 30,
% Change from ------------------------
Change 1999 to 2000 2000 1999
------ ------------ ---------- ----------
Rents (50)% $ (23) $ 23 $ 46
Royalty
Sand (27) (29) 79 108
Clay (73) (605) 226 831
------ ------------ ---------- ----------
Total Royalty (68) (634) 305 939
Total Land (67)% $ (657) $ 328 $ 985
PROPERTY MANAGEMENT AND DEVELOPMENT FEES. Property management fee
income fell 84% to $67 thousand in the first six months of 2000 from $433
thousand in 1999. Development fee income fell 69% to $314 thousand from
$1.0 million. These declines are due to the substantial completion of
several agreements with Equity Residential Properties Trust, under which
Merry Land provided property management and consulting services for twelve
Equity Residential apartment communities under construction. In the
remainder of 2000 and in 2001, Merry Land will collect another $586
thousand under the Equity Residential development agreements and another
$80 thousand from Godley Station, a third party development located in
Savannah.
Third party management fees other than those from the Equity
Residential Communities increased from $6 thousand for the first six months
of 1999 to $46 thousand for the same period in 2000. This $40 thousand
increase was primarily due to the additional fees generated from both the
Cypress Cove Joint Venture's and the Godley Station's 2000 management
agreements. The company received $13 thousand in management fees for the
first six months of 2000 from the Enterprise Mill, however, this contract
will be terminated on August 1, 2000, following the successful lease up of
that community.
LONG TERM GAIN. During the second quarter 2000 the sale of the two
commercial buildings and several tracts of clay land all located in Augusta
resulted in a net long term gain of $53 thousand.
JOINT VENTURE INCOME. Merry Land earned $12 thousand in income from
its investment in Cypress Cove community joint venture for the second
quarter of 2000.
INTEREST EXPENSE. Interest expense totaled $3.8 million for the first
six months of 2000 compared to $1.7 million in 1999 as a result of greater
borrowings outstanding. Interest capitalized related to development in
progress was $202 thousand during the first six months 2000.
Six months ended June 30,
Change from ------------------------
1999 to 2000 2000 1999
------------ ---------- ----------
Line of credit $ 59 $ 59 $ -
Construction loans 30 30 -
Mortgage loans 3,601 3,663 62
Senior debt (656) - 656
Subordinated debt (886) - 886
Preferred stock (81) - 81
------------ ---------- ----------
Total interest expense 2,067 3,752 1,685
Capitalized for development (202) (202) -
------------ ---------- ----------
Net interest $ 3,843 $ 3,550 $ 1,685
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $373 thousand or 31.9% to $1.5 million for the first six
months in 2000 from $1.2 million for the same period in 1999. The increase
was due to higher employee costs, the fees related to the company's
proposed rights offering, and the increase of acquisition costs.
INCOME BEFORE TAXES AND EXTRAORDINARY ITEMS. Income before taxes and
extraordinary items decreased 84.6%, to $219 thousand for the six months
ended June 30, 2000 from $1.4 million for the same period in 1999. The $700
thousand net operating income after interest expense contributed by the six
communities acquired in August 1999 was more than offset by the decreases
in property management and development fee income, and in clay royalty
income.
INCOME TAXES. Income tax expense for the six month period ended June
30, 2000, totaled $83 thousand, which consisted of $272 thousand in current
income tax benefit and $355 thousand in deferred income tax expense. Income
tax expense for 1999 totaled $386 thousand and consisted of $432 thousand
in current income tax benefit and $818 thousand in deferred income tax
expense.
PROJECTS UNDER DEVELOPMENT. Merry Land owns a 22 acre tract adjacent
to its Quarterdeck Apartments in Charleston on which we began construction
in April 2000 of Merritt at James Island, a 230 unit apartment community.
The $17.3 million projected cost is being funded with non-recourse
financing. The first units are expected to be available for rental in late
2000.
In 1999, we acquired a historic building in downtown Charleston which
we are currently renovating into seven condominium units for sale to the
public. Our total cost on the project will be approximately $1.5 million.
We expect to begin realizing income from the sale of the condominiums at
the end of this summer.
In the fourth quarter of this year, Merry Land is considering beginning
the construction of the Merritt at Whitemarsh community on a portion of the
26 acres owned next to our Hammocks at Long Point Community in Savannah.
We are pursuing the development of a 35 acre tract adjacent to our
Waters Edge community that lies along the Ashley River in the Summerville
area of Charleston for up to nine single family lots. We expect to spend
approximately $800 thousand on road and infrastructure and then begin
marketing the lots.
FUNDS FROM OPERATIONS. For the six month period ended June 30, 2000,
funds from operations were $1.5 million compared to $1.7 million for the
same period in 1999. The following is a reconciliation of net income to
funds from operations (data in thousands):
Six months ended June 30,
------------------------
2000 1999
---------- ----------
Net income $ 135 $2,920
Add depreciation of real estate owned 1,284 571
Add long term capital loss (gain) (53) 30
Add tax benefit resulting from permanent difference
in book and tax basis 104 104
Less extraordinary gain - (722)
Less discount on redemption of preferred stock - (1,164)
---------- ----------
Funds from operations available to common shares $1,470 $1,739
---------- ----------
Weighted average common shares outstanding-
Basic 2,217 2,181
Diluted 2,307 2,246
Even though the first six month's FFO was less than that of last year,
recurring FFO is at a higher level compared to 1999. FFO in 1999 included
$1.0 million in development income from Merry Land's agreement with Equity
Residential to complete our predecessor company's development pipeline and
$232 thousand in management fee income from the six joint venture
communities which were acquired in August 1999. In addition, clay royalty
payments decreased $605 thousand as one of the royalty agreements expired.
However, as a result of the six 1999 apartment acquisitions, the first six
months 2000 apartment operating income before depreciation was up $3.3
million and $1.3 million net of the incremental mortgage interest expense.
The company believes that funds from operations are an important
measure of its operating performance. Funds from operations do 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. The company defines funds from
operations as net income computed in accordance with GAAP, excluding non-
recurring items and net realized gains (losses), plus depreciation of
operating real estate.
FINANCIAL STRUCTURE. Merry Land uses debt to finance most of its
acquisitions and development activities and, as a result, is a highly
leveraged company. At June 30, 2000, total debt equaled 88% of total
capitalization at cost and 87% of total capitalization with equity valued
at market (2,666,966 shares outstanding at the June 30, 2000 closing price
of $5.1875 per share). At that date, Merry Land's financial structure was
as follows (dollars in thousands):
Equity at Equity at
Book % of Market % of
Value Total Value Total
--------- ------ --------- ------
Line of credit $ 1,500 1% $ 1,500 84%
Construction loan 2,021 2% 2,021 2%
Mortgage loans 91,377 85% 91,377 1%
--------- ------ --------- ------
Total debt 94,898 88% 94,898 87%
Common stock 12,463 12% 13,835 13%
--------- ------ --------- ------
Total capitalization $107,361 100% $108,733 100%
========= ====== ========= ======
LIQUIDITY. We expect to meet our short-term liquidity requirements with
working capital, cash provided by operating activities, construction loans
and a line of credit which we have established with a commercial bank. Our
primary short-term liquidity needs are operating expenses, capital
improvements, the development of both the Merritt at Whitemarsh and Merritt
at James Island communities, the completion of the Calhoun Street
condominiums, and the Waters Edge land development.
We expect to meet our long-term liquidity requirements from a variety
of sources including operating cash flow, additional mortgage loans and
other borrowings, and the issuance and sale of debt and equity securities
in public and private markets. Our long-term liquidity needs include the
maturity of mortgage debt and the financing of acquisitions and
development.
CASH FLOWS. Cash and cash equivalents totaled $2.3 million on June 30,
2000, a decrease of $0.8 million from December 31, 1999. The $1.6 million
net cash provided from operating activities was offset primarily by $1.5
million for capital improvements on the residential communities, $0.6
million to acquire the ownership interest in the Cypress Cove joint
venture, and $0.3 million to renovate the Calhoun Street condominiums. The
$2.0 million in development and escrow costs on the James Island apartment
community were financed by the construction loan. In addition, the $532
thousand received from the repayment of receivable due from ESOP was offset
by $503 thousand in deferred loan costs incurred during the construction
loan closing.
INFLATION. Substantially all of Merry Land's leases are for terms of
one year or less, which should enable us to replace existing leases with
new leases at higher rental rates in times of rising prices. We believe
that this would offset the effect of cost increases stemming from
inflation.
FORWARD LOOKING STATEMENTS. This filing includes statements that are
"forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 regarding expectations with respect to market conditions, development
projects, acquisitions, occupancy rates, capital requirements, sources of
funds, expense levels, operating performance, and other matters. These
assumptions and statements are subject to various factors, unknown risks
and uncertainties, including general economic conditions, local market
factors, delays and cost overruns in construction, completion and rent up
of development communities, performance of consultants or other third
parties, environmental concerns, and interest rates, any of which may cause
actual results to differ from the company's current expectations.
Form 10-Q - Part I. Financial Information
Item 3.
Merry Land Properties, Inc.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to Merry Land's reported market
risk since December 31, 1999.
Form 10-Q - Merry Land Properties, Inc.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
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 20, 2000,
the following vote totals were recorded:
4. Election of Directors: Shares voted - 2,494,329
For Against Abstain
----------------- ------- ------------
Boone A. Knox 2,486,301 (99.7%) 0 8,028 (0.3%)
Michael N. Thompson 2,486,301 (99.7%) 0 8,028 (0.3%)
In addition to Mr. Knox and Thompson, the following Directors continued
in office following the meeting: W. Tennent Houston, David W. Cobb and
Stewart R. Speed.
2. Approval of the 2000 Management Incentive Plan: Shares voted -
2,002,607
For Against Abstain
----------------- ------------- ------------
1,886,647 (94.2%) 88,909 (4.4%) 27,051 (1.4%)
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. EXHIBITS:
(3.i) Articles of Incorporation, as amended by
Articles of Amendment to Articles of Incorporation re Series
A Redeemable Cumulative Preferred Stock (incorporated herein
by reference to Exhibit 3(i) to the company's Annual Report
on Form 10-K filed March 31, 1999, file number 000-29778).
(3.ii) By-laws, as amended on January 28, 1999,
(incorporated herein by reference to Exhibit 3(ii) of Item 14
to the company's Annual Report on Form 10-K for the year
ended December 31, 1999).
(10.1) The Company's 2000 Management Incentive Plan
(incorporated herein by reference to Appendix A to the
company's Proxy Statement on Schedule 14A filed March 23,
2000).
(27) Financial Data Schedules
b. Reports on Form 8-K. The registrant filed no reports on
Form 8-K during the second quarter of 2000.
Form 10-Q - Merry Land Properties, 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 PROPERTIES, INC.
/S/ DORRIE E. GREEN
Dorrie E. Green
Vice President and
Chief Financial Officer
August 14, 2000