================================================================================
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
September 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 September 30, 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 -
September 30, 2000 and December 31, 1999 .......................3
Consolidated Statements of Income - Three months ended September 30,
2000 and 1999, and nine months ended September 30, 2000 and 1999...4
Consolidated Statements of Cash Flows -
Nine months ended September 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
Sept. 30, 2000 Dec. 31, 1999
---------------- -----------------
ASSETS
Real estate assets, at cost:
Land held for mining and development $ 4,518,956 $ 5,905,288
Apartments 97,725,694 95,615,665
Commercial rental property 2,401,449 2,627,652
Furniture and equipment 1,900,860 1,882,536
Development in progress 7,606,861 2,820,564
---------------- -----------------
Total cost 114,153,820 108,851,705
Accumulated depreciation and depletion (15,404,720) (13,335,596)
---------------- -----------------
98,749,100 95,516,109
INVESTMENT IN JOINT VENTURE 584,500 -
CASH AND CASH EQUIVALENTS 2,588,327 3,067,372
ESCROWED CASH 1,943,443 1,187,142
OTHER ASSETS
Notes receivable 472,149 564,073
Deferred loan costs 1,587,134 1,111,309
Other receivable 264,937 154,496
Deferred tax asset 5,517,000 5,733,521
Other 136,388 72,603
---------------- -----------------
7,977,608 7,636,002
---------------- -----------------
TOTAL ASSETS $111,842,978 $107,406,625
================ =================
NOTES PAYABLE
Line of credit $ 1,500,000 $ 1,500,000
Construction loans 3,349,702 -
Mortgage loans 91,215,230 91,711,187
---------------- -----------------
96,064,932 93,211,187
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 643,145 631,863
Accrued property taxes 770,269 467,863
Deferred revenue 175,146 172,100
Other 1,326,916 1,262,961
---------------- -----------------
2,915,476 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 (1,820,405) (1,710,055)
Cumulative undistributed net earnings 2,970,559 2,648,324
Receivable from ESOP (361,585) (1,017,932)
---------------- -----------------
12,862,570 11,660,651
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $111,842,978 $107,406,625
================ =================
The accompanying notes are an integral part of
these consolidated balance sheets.
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months Nine months
ended Sept. 30, ended Sept. 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
INCOME
Rental income $ 4,846,040 $ 3,157,572 $14,114,580 $ 7,227,919
Royalty income 151,676 288,011 456,856 1,226,841
Interest income 53,363 51,909 146,650 196,883
Management fees 45,409 148,877 112,889 581,483
Development fees 172,500 329,980 486,671 1,344,496
Long term gain (loss) 59,091 - 112,396 (29,512)
Other income 10,404 190,995 22,784 190,995
----------- ----------- ----------- -----------
5,338,483 4,167,344 15,452,826 10,739,105
EXPENSES
Rental expense 1,772,675 1,236,755 5,119,843 2,814,108
Interest expense 1,776,303 1,259,105 5,326,222 2,943,433
Depreciation 668,419 448,234 2,069,124 1,166,378
General and administrative expense 776,458 711,663 2,321,121 1,883,010
Amortization 26,587 16,805 79,759 16,805
----------- ----------- ----------- -----------
5,020,442 3,672,562 14,916,069 8,823,734
INCOME BEFORE TAXES
AND EXTRAORDINARY ITEM 318,041 494,782 536,757 1,915,371
----------- ----------- ----------- -----------
Income taxes 131,150 193,454 214,523 579,684
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 186,891 301,328 322,234 1,335,687
----------- ----------- ----------- -----------
Extraordinary gain -
discount on repayment of
debt, net of income tax
provision of $441,746 - - - 721,969
----------- ----------- ----------- -----------
NET INCOME 186,891 301,328 322,234 2,057,656
Discount on redemption of
preferred stock - - - 1,163,715
----------- ----------- ----------- -----------
NET INCOME - COMMON $ 186,891 $ 301,328 $ 322,234 $ 3,221,371
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
Basic 2,216,669 2,187,070 2,216,669 2,183,070
Diluted 2,334,114 2,252,814 2,316,271 2,254,340
EARNINGS PER COMMON SHARE
Basic $ .08 $ .14 $ .15 $ 1.48
=========== =========== =========== ===========
Diluted $ .08 $ .13 $ .14 $ 1.43
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
Form 10-Q - Part I. Financial Information
Item 1- Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months ended Sept. 30
----------------------------
2000 1999
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 322,234 $ 2,057,657
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of real property (112,396) -
Discount on repayment of debt, net of taxes - (721,969)
Depreciation expense 2,069,124 1,166,378
Amortization expense 79,759 16,805
Decrease (increase) in mortgage escrow 120,670 (1,342,970)
Amortization of compensation element
of restricted stock grants 223,336 100,036
Income tax expense 214,523 579,684
Increase in other payables 61,004 642,925
Decrease (increase) in other assets (63,785) 70,668
Decrease (increase) in other receivables (117,669) 192,298
Increase (decrease) in deferred revenue 3,046 (97,065)
Increase in property taxes payable 302,406 440,400
Increase in accrued interest expense 11,282 164,396
Decrease in dividend payable - (81,111)
Other (24,893) (210,000)
------------ -------------
Net cash provided by operating activities 3,088,641 2,978,132
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 91,924 751,724
Capitalized costs, improvements and replacements (2,194,089) (627,137)
Purchase of real property - (54,355,001)
Sale of real property 530,038 -
Decrease (increase) in investment in joint ventures (584,500) 6,000
Expenditures for development (3,568,355) (229,397)
Increase in development escrow (876,971) -
Decrease (increase) in receivable from ESOP 656,347 (676,840)
------------ -------------
Net cash provided by investing activities (5,945,606) (55,130,651)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) mortgage loans (495,957) 91,883,261
Proceeds from Line of Credit - 1,500,000
Proceeds from construction loans 3,349,702 -
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 (475,825) (961,037)
------------ -------------
Net cash used in financing activities 2,377,920 51,432,225
NET DECREASE IN CASH (479,045) (720,294)
CASH AT BEGINNING OF PERIOD 3,067,372 3,995,365
------------ -------------
CASH AT END OF PERIOD $ 2,588,327 $ 3,275,071
============ =============
Interest paid $ 5,650,076 $ 2,585,704
Income taxes paid $ - $ 168,074
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 nine month periods ended
September 30, 2000 and September 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 two
calculations is as follows:
Three months ending Nine months ending
------------------------- ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
----------- ----------- ----------- ----------
Weighted average shares
outstanding-basic 2,216,669 2,187,070 2,216,669 2,183,070
Dilutive potential common shares 117,445 65,744 99,602 71,270
----------- ----------- ----------- ----------
Weighted average shares
outstanding-diluted 2,334,114 2,252,814 2,316,271 2,254,340
5. Notes Receivable
At September 30, 2000 and December 31, 1999, notes receivable consisted of
the following:
Note Balances at
-----------------------------------------
Original September 30, December 31,
Note Rate Due Amount 2000 2000
----------------- ------ ------ ---------- ------------- ------------
Augusta Partners 10.00% 10/99 $ 695,000 $ 390,478 $ 470,957
Brothersville 10.00% 09/02 327,600 28,767 38,195
New Zion 7.00% 11/12 60,000 52,904 54,921
---------- ------------- ------------
$1,082,600 $ 472,149 $ 564,073
6. Debt
At September 30, 2000 and December 31, 1999, debt consisted of the
following:
Debt Maturity date Interest rate Sept. 30, 2000 Dec. 31, 1999
- ---- ------------- ------------- -------------- -------------
Line of credit 06/24/01 LIBOR + 1.25% $ 1,500,000 $ 1,500,000
Construction/permanent loan 04/19/40 8.65%(1) 3,349,702 -
Mortgage loan-Huntington LLC 09/01/07 7.97% 5,048,217 5,074,767
Mortgage loan-Magnolia Villas LLC 09/01/07 7.97% 4,705,646 4,730,394
Mortgage loan-Summit Place LLC 09/01/07 7.97% 7,029,176 7,066,145
Mortgage loan-Woodcrest LLC 09/01/07 7.97% 6,309,279 6,342,461
Mortgage loan-Greentree LLC 07/01/09 7.73% 6,661,480 6,699,284
Mortgage loan-Marsh Cove LLC 07/01/09 7.73% 8,090,143 8,136,056
Mortgage loan-Quarterdeck LLC 07/01/09 7.73% 9,878,700 9,934,763
Mortgage loan-Waters Edge LLC 07/01/09 7.73% 7,136,379 7,176,879
Mortgage loan-West Wind LLC 07/01/09 7.73% 9,121,240 9,173,004
Mortgage loan-Hammocks LLC 09/01/11 7.99% 18,655,464 18,753,048
Mortgage loan-Windsor Place LLC 09/01/11 7.99% 8,579,506 8,624,386
------------- -------------
Total $96,064,932 $93,211,187
(1) Represents 8.375% during construction, 8.15% permanent financing and
.50% insurance premium.
7. Income Taxes
Merry Land is a taxable "C" corporation. The components of the income tax
provision for the nine months ended September 30, 2000 are as follows:
Current federal tax $ -
Current state tax -
Deferred federal tax 180,615
Deferred state tax 33,908
------------
$214,523
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense for the nine months ended September 30, 2000 is as
follows:
% of pretax
Amount income
---------- -----------
Income tax expense at statutory rate $182,497 34.0%
Increases in taxes resulting from:
State and local income taxes,
net of federal income tax benefit 21,255 4.0%
Other 10,771 2.0%
---------- -----------
$214,523 40.0%
8. Segment Information
The Company 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.
Three months ending Third Party
Sept. 30, 2000 Apartments Commercial Land Services Corporate Consolidated
----------- ----------- ----------- ----------- ------------ ------------
Real estate rental revenue $ 4,784,026 $ 55,114 $ 6,900 $ - $ - $ 4,846,040
Real estate expense 1,687,434 57,094 28,147 - - 1,772,675
Depreciation and amortization 566,157 50,721 1,406 - 76,722 695,006
----------- ----------- ----------- ----------- ------------ ------------
Income from real estate 2,530,435 (52,701) (22,653) - (76,722) 2,378,359
Other income - - 151,676 217,909 122,858 492,443
----------- ----------- ----------- ----------- ------------ ------------
Segment income 2,530,435 (52,701) 129,023 217,909 46,136 2,870,802
Interest expense - - - - 1,776,303 1,776,303
General and administrative - - - 120,928 655,530 776,458
----------- ----------- ----------- ----------- ------------ ------------
Income before taxes and
extraordinary item 2,530,435 (52,701) 129,023 96,981 (2,385,697) 318,041
----------- ----------- ----------- ----------- ------------ ------------
Income tax - - - - 131,150 131,150
Income before extraordinary item 2,530,435 (52,701) 129,023 96,981 (2,516,847) 186,891
----------- ----------- ----------- ----------- ------------ ------------
Extraordinary item - - - - - -
Net income $ 2,530,435 $ (52,701) $ 129,023 $ 96,981 $ (2,516,847) $ 186,891
=========== =========== =========== =========== ============ ============
Capital investments $ 744,783 $ - $ 1,834,241 $ - $ 9,565 $ 2,588,589
Total real estate assets $84,375,811 $1,906,121 $12,087,859 $ - $ 379,309 $ 98,749,100
Three months ending Third Party
Sept. 30, 1999 Apartments Commercial Land Services Corporate Consolidated
------------ ----------- ----------- ----------- ------------ ------------
Real estate rental revenue $ 3,076,679 $ 66,867 $ 14,026 $ - $ - $ 3,157,572
Real estate expense 1,151,212 63,980 21,563 - - 1,236,755
Depreciation and amortization 370,641 6,102 1,405 - 86,891 465,039
------------ ----------- ----------- ----------- ------------ ------------
Income from real estate 1,554,826 (3,215) (8,942) - (86,891) 1,455,778
Other income - - 479,006 478,857 51,909 1,009,772
------------ ----------- ----------- ----------- ------------ ------------
Segment income 1,554,826 (3,215) 470,064 478,857 (34,982) 2,465,550
Interest expense - - - - (1,259,105) (1,259,105)
General and administrative - - - (223,668) (487,995) (711,663)
------------ ----------- ----------- ----------- ------------ ------------
Income before taxes and
extraordinary item 1,554,826 (3,215) 470,064 255,189 (1,782,082) 494,782
------------ ----------- ----------- ----------- ------------ ------------
Income tax - - - - (193,454) (193,454)
Income before extraordinary item 1,554,826 (3,215) 470,064 255,189 (1,975,536) 301,328
------------ ----------- ----------- ----------- ------------ ------------
Extraordinary item - - - - - -
Net income $ 1,554,826 $ (3,215) $ 470,064 $ 255,189 $ (1,975,536) $ 301,328
============ =========== =========== =========== ============ ============
Capital investments $ 110,224 $ - $ 102,604 $ - $ (174,466) $ 38,362
Total real estate assets $83,995,185 $2,300,911 $8,362,499 $ - $ 590,972 $ 95,249,567
Nine months ending Third Party
Sept. 30, 2000 Apartments Commercial Land Services Corporate Consolidated
------------ ----------- ----------- ----------- ------------ ------------
Real estate rental revenue $13,902,292 $ 182,203 $ 30,085 $ - $ - $14,114,580
Real estate expense 4,880,198 172,232 67,413 - - 5,119,843
Depreciation and amortization 1,745,527 152,164 4,217 - 246,976 2,148,884
------------ ----------- ----------- ----------- ------------ ------------
Income from real estate 7,276,567 (142,193) (41,545) - (246,976) 6,845,853
Other income - - 456,856 599,560 281,831 1,338,247
------------ ----------- ----------- ----------- ------------ ------------
Segment income 7,276,567 (142,193) 415,311 599,560 34,855 8,184,100
Interest expense - - - - 5,326,222 5,326,222
General and administrative - - - 667,212 1,653,909 2,321,121
------------ ----------- ----------- ----------- ------------ ------------
Income before taxes and
extraordinary item 7,276,567 (142,193) 415,311 (67,652) (6,945,276) 536,757
------------ ----------- ----------- ----------- ------------ ------------
Income tax - - - - 214,523 214,523
Income before extraordinary item 7,276,567 (142,193) 415,311 (67,652) (7,159,799) 322,234
------------ ----------- ----------- ----------- ------------ ------------
Extraordinary item - - - - - -
Net income $ 7,276,567 $ (142,193) $ 415,311 $ (67,652) $(7,159,799) $ 322,234
============ =========== =========== =========== ============ ============
Capital investments $ 2,175,765 $ - $ 3,395,748 $ - $ 18,324 $ 5,589,837
Total real estate assets $ 84,375,811 $ 1,906,121 $12,087,859 $ - $ 379,309 $98,749,100
Nine months ending Third Party
Sept. 30, 1999 Apartments Commercial Land Services Corporate Consolidated
------------ ----------- ----------- ----------- ------------ ------------
Real estate rental revenue $ 7,015,650 $ 151,834 $ 60,435 $ - $ - $ 7,227,919
Real estate expense 2,548,549 190,743 74,816 - - 2,814,108
Depreciation and amortization 923,542 24,206 2,811 - 232,624 1,183,183
------------ ----------- ---------- ----------- ------------ ------------
Income from real estate 3,543,559 (63,115) (17,192) - (232,624) 3,230,628
Other income - - 1,417,836 1,925,979 167,371 3,511,186
------------ ----------- ---------- ----------- ------------ ------------
Segment income 3,543,559 (63,115) 1,400,644 1,925,979 (65,253) 6,741,814
Interest expense - - - - (2,943,433) (2,943,433)
General and administrative - - - (689,789) (1,193,221) (1,883,010)
------------ ----------- ---------- ----------- ------------ ------------
Income before taxes and
extraordinary item 3,543,559 (63,115) 1,400,644 1,236,190 (4,201,907) 1,915,371
------------ ----------- ---------- ----------- ------------ ------------
Income tax - - - - (579,684) (579,684)
Income before extraordinary item 3,543,559 (63,115) 1,400,644 1,236,190 (4,781,591) 1,335,687
------------ ----------- ---------- ----------- ------------ ------------
Extraordinary item - - - - 721,969 721,969
Net income $ 3,543,559 $ (63,115) $1,400,644 $ 1,236,190 $(4,059,622) $ 2,057,656
============ =========== ========== =========== ============ ============
Capital investments $ 377,950 $ - $ 311,442 $ - $ 67,721 $ 757,113
Total real estate assets $ 83,995,185 $ 2,300,911 $8,362,499 $ - $ 590,972 $95,249,567
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
On October 17, 2000, both Merry Land Properties, Inc. and Merry Land
Capital Trust filed a request for withdrawal of the registration of a proposed
rights offering of trust preferred securities of Merry Land Capital Trust. The
company has elected not to proceed with the stock rights offering due to
unfavorable market conditions. No offers or sales of securities were made
pursuant to the registration statement.
In October 2000, we sold two small tracts of commercial land located in
Florida for $875 thousand and recorded a long-term gain of $366 thousand.
Results of Operations for the Nine Months Ended September 30, 2000 and 1999
Rental Operations - All Apartments. At September 30, 2000, Merry Land
owned eleven apartment communities, as described in the following table:
Nine Months ended September 30
----------------------------------------
Average Average
Occupancy (1) Rental Rate (2)
--------------------- ----------------
Community Units 2000 1999 2000 1999
- ------------------------ ----- ----- ----- ------ ------
Woodcrest (3) 248 96.3% 96.4% $523 $509
----- ----- ----- ------ ------
Total Augusta 248 96.3 96.4 523 509
Quarterdeck 230 98.6 99.6 736 675
Summit Place (3) 226 96.9 96.5 560 528
Waters Edge 200 97.9 97.9 659 609
Windsor Place (3) 224 97.7 98.2 640 598
----- ----- ----- ------ ------
Total Charleston 880 97.8 98.5 649 603
Greentree 194 96.0 97.1 639 612
Hammocks at Long Point (3) 308 95.8 95.0 855 836
Huntington (3) 147 95.7 97.6 654 638
Magnolia Villas (3) 144 96.4 96.9 674 639
Marsh Cove 188 96.7 97.6 722 692
West Wind 192 95.5 95.9 744 720
----- ----- ----- ----- ------
Total Savannah 1,173 96.0 96.9 732 708
Total 2,301 96.7% 97.5% $678 $646
(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 September 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):
Nine Months ended September 30,
% Change from -------------------------------
Change 1999 to 2000 2000 1999
------ ------------ --------- ---------
Rental income 98.1% $ 6,886 $ 13,902 $ 7,016
Total expenses (1) 90.8% 3,153 6,625 3,472
------ ------------ --------- ---------
Operating income 105.3% $ 3,733 $ 7,277 $ 3,544
Average occupancy (2) - (0.8%) 96.7% 97.5%
Average monthly rent (3) 4.9% $ 32 $ 678 $ 646
Expense ratio (4) - (1.2%) 35.1% 36.3%
(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 September 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 $3.6 million of the increase in apartment net
operating income. These communities contributed $7.6 million in rental income,
offset by $2.6 million in operating expenses and $.9 million in depreciation,
netting $4.1 million of operating income before debt service during the first
nine months of 2000.
The average rent rates for all communities at the end of the third
quarter of 2000 increased 4.9% from the end of the third quarter of 1999. The
decrease in occupancy during the first nine 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 September 30, 2000.
Rental Operations-Same Store Apartments. The following table compares
the performance of the 1,004 units which Merry Land held for the nine month
period of both 2000 and 1999 ("same store" results) (dollars in thousands,
except average monthly rent; see footnotes above):
Nine months ended September 30,
% Change from -------------------------------
Change 1999 to 2000 2000 1999
------- ------------ ---------- ----------
Rental income 5.1% $ 301 $ 6,253 $ 5,952
Personnel (8.3) (64) 713 777
Utilities 7.0 14 217 203
Operating 4.0 8 203 195
Maintenance and grounds 32.5 126 514 388
Taxes and insurance 6.1 34 601 567
Depreciation and amortization 5.8 48 876 828
------- ------------ ---------- ----------
Total expenses 5.6 166 3,124 2,958
Operating income 4.5% $ 135 $ 3,129 $ 2,994
Average occupancy (2) - (0.7%) 97.0% 97.7%
Average monthly rent (3) 6.0% $ 40 $ 701 $ 661
Expense ratio (4) - 0.3% 36.0% 35.8%
For the nine months ended September 30, 2000, rental income increased
as a result of a 6.0% increase in average monthly rents offset by a 0.7% decline
in occupancy. At September 30, 2000, the Savannah and Charleston communities'
occupancy had improved to 98.6% and 97.9%, 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
$119 thousand, or 5.6%. On site expenses, including personnel, operating,
utilities, and maintenance expenses were up 5.4% primarily as a result of higher
turnover costs and repairs.
Rental Operations-Commercial. On September 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.
Occupancy for the four commercial properties was approximately 60% at September
30, 2000.
For the nine months ended September 30, 2000, the net operating loss
was $310 thousand compared to a $279 thousand loss for 1999. The $49 thousand
increase in net income before depreciation was offset by the $80 thousand
increase in depreciation expense.
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 $487 thousand
in the first nine months of 2000 from $1.3 million in 1999 due to the expiration
of one of the clay royalty agreements during May 1999. (Dollars in thousands for
the following table.)
Nine months ended September 30,
% Change from -------------------------------
Change 1999 to 2000 2000 1999
------ ------------ --------- ---------
Rents (50%) $ (30) $ 30 $ 60
Royalty:
Sand (23%) (29) 98 127
Clay (67%) (741) 359 1,100
------ ------------ --------- ---------
Total Royalty (63%) (770) 457 1,227
------ ------------ --------- ---------
Total Land (62%) $ (800) $ 487 $ 1,287
Property Management and Development Fees. Property management fee
income fell 81% to $113 thousand in the first nine months of 2000 from $582
thousand in 1999. Development fee income fell 64% to $487 thousand from $1.3
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. In the remainder of 2000 and in 2001, Merry
Land expects to collect another $711 thousand under the Equity Residential
development agreements.
Third party management fees other than those from the Equity
Residential Communities increased from $20 thousand for the first nine months of
1999 to $113 thousand for the same period in 2000. This $93 thousand increase
was primarily due to the additional fees generated from management agreements
for both the Cypress Cove joint venture and Godley Station, a third party
development located in Savannah.
Long Term Gain. During the third quarter 2000, the sale of 12 acres of
land located in the Augusta area resulted in a net long-term gain of $60
thousand.
Joint Venture Income. Merry Land earned $23 thousand in income from its
investment in Cypress Cove community joint venture for the first nine months of
2000, in addition to the management fees.
Interest Expense. Interest expense totaled $5.3 million for the first
nine months of 2000 compared to $2.9 million in 1999 as a result of greater
borrowings outstanding. Interest capitalized related to development in progress
was $347 thousand during the first nine months 2000.
Nine months ended September 30,
Change from -------------------------------
1999 to 2000 2000 1999
------------ ---------- ----------
Line of credit $ 80 $ 87 $ 7
Construction loans 87 87 -
Mortgage loans 4,185 5,499 1,314
Senior debt (655) - 655
Subordinated debt (886) - 886
Preferred stock (81) - 81
------------- ---------- ----------
Total interest expense 2,730 5,673 2,943
Capitalized for development (347) (347) -
------------- ---------- ----------
Net interest $ 2,383 $ 5,326 $ 2,943
General and Administrative Expenses. General and administrative
expenses increased $438 thousand or 23% to $2.3 million for the first nine
months in 2000 from $1.9 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 increased acquisition costs.
Income Before Taxes and Extraordinary Items. Income before taxes and
extraordinary items decreased 72%, to $537 thousand for the nine months ended
September 30, 2000 from $1.9 million for the same period in 1999. The $971
thousand increase in 2000 net operating income after interest expense
contributed by the six communities acquired in August 1999 as compared to 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 nine month period ended
September 30, 2000, totaled $215 thousand, which consisted of $334 thousand in
current income tax benefit and $549 thousand in deferred income tax expense.
Income tax expense for 1999 totaled $580 thousand and consisted of $672 thousand
in current income tax benefit and $1,252 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 2001.
In October 2000, we completed the renovation of a historic building in
downtown Charleston into seven condominium units and these units are presently
available for sale to the public. Our total cost on the project is $1.6 million.
In the fourth quarter of this year, Merry Land expects to begin the
construction of Merritt at Whitemarsh, a 241 unit luxury apartment community, on
19 of the 26 acres owned next to our Hammocks at Long Point Community in
Savannah. The $19 million projected cost will be funded with recourse financing.
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 $968 thousand on road and infrastructure and then begin marketing
the lots.
Funds From Operations. For the nine month period ended September 30,
2000, funds from operations were $2.3 million compared to $2.5 million for the
same period in 1999. The following is a reconciliation of net income to funds
from operations (data in thousands):
Nine months ended September 30,
-------------------------------
2000 1999
--------- ---------
Net income $ 324 $ 3,221
Add depreciation of real estate owned 1,902 951
Add long term capital loss (gain), net of tax (70) 30
Add tax benefit resulting from permanent
difference in book and tax basis 157 155
Less extraordinary gain - (722)
Less discount on redemption of preferred stock - (1,167)
--------- ----------
Funds from operations available to common shares $ 2,313 $ 2,471
========= ==========
Weighted average common shares outstanding
Basic 2,217 2,183
Diluted 2,316 2,254
Even though the first nine month's FFO was $158 thousand less than that
of last year, recurring FFO is at a higher level compared to 1999. FFO in 1999
included $1.3 million in development income from Merry Land's agreement with
Equity Residential to complete our predecessor company's development pipeline
and $319 thousand in management fee income from the six joint venture
communities which were acquired in August 1999. In addition, clay royalty
payments decreased $741 thousand as one of the royalty agreements expired.
However, as a result of the six 1999 apartment acquisitions, the first nine
months 2000 apartment operating income before depreciation increased $4.4
million and $1.7 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 September 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 September 30, 2000 closing price of $5.44 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 1%
Construction loan 3,350 3% 3,350 3%
Mortgage loans 91,215 84% 91,215 83%
------------ ---------- -------------- -----------
Total debt 96,065 88% 96,005 87%
Common stock 12,863 12% 14,508 13%
------------ ---------- -------------- -----------
Total capitalization $ 108,928 100% $ 110,573 100%
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 include but are not limited to operating expenses,
capital improvements, the development of both the Merritt at Whitemarsh and
Merritt at James Island communities.
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 $2.6 million on September
30, 2000, a decrease of $479 million from December 31, 1999. The $3.1 million
net cash provided from operating activities was offset primarily by $2.2 million
for capital improvements on the residential communities, $585 thousand to
acquire the ownership interest in the Cypress Cove joint venture, and $604
thousand to renovate the Calhoun Street condominiums. The $2.5 million in
development and escrow costs on the James Island apartment community were
financed by the construction loan. In addition, the $656 thousand received from
the repayment of receivable due from ESOP was offset by $476 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
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).
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
_________________, 2000