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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended
June 30, 2001
Commission file number:
000-29778
Merry Land Properties, Inc.
State of Incorporation: Georgia I.R.S. Employer Identification Number:
58-2412761
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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 31, 2001 was
2,702,966.
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Form 10-Q - Merry Land Properties, Inc.
Index
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 ...3
Consolidated Statements of Income - Three months ended June 30, 2001
and 2000 and six months ended June 30, 2001 and 2000...............4
Consolidated Statements of Cash Flows - six months ended June 30,
2001 and 2000......................................................5
Notes to Consolidated Financial Statements...........................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................17
Item 2. Changes in Securities and Use of Proceeds...........................17
Item 3. Defaults upon Senior Securities.....................................17
Item 4. Submission of Matters to a Vote of Security Holders.................17
Item 5. Other Information...................................................17
Item 6. Exhibits and Reports on Form 8-K....................................18
SIGNATURES...................................................................19
Form 10-Q - Part I. Financial Information
Item 1-Financial Statements
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Unaudited
June 30, 2001 December 31, 2000
------------------ ------------------
ASSETS
Real estate assets, at cost:
Land held for mining, development and sale $ 4,194,022 $ 4,055,883
Apartments 100,595,722 98,116,609
Commercial rental property 2,458,363 2,430,478
Furniture and equipment 1,933,107 1,905,830
Development in progress 16,810,141 9,844,356
------------------ ------------------
Total cost 125,991,355 116,353,156
Accumulated depreciation and depletion (17,554,832) (16,151,081)
------------------ ------------------
108,436,523 100,202,075
INVESTMENT IN JOINT VENTURE 471,370 474,542
CASH AND CASH EQUIVALENTS 2,582,666 4,452,189
ESCROWED CASH 1,666,479 1,724,997
OTHER ASSETS
Notes receivable 428,131 462,656
Deferred loan costs 1,517,045 1,495,217
Other receivable 168,532 152,769
Deferred tax asset 5,120,274 5,130,885
Other 281,348 86,738
----------------- ------------------
7,515,330 7,328,265
----------------- ------------------
TOTAL ASSETS $ 120,672,368 $ 114,182,068
================= ==================
NOTES PAYABLE
Line of credit $ - $ 1,500,000
Term loan 2,525,862 -
Construction loans 9,977,643 5,363,868
Mortgage loans 90,648,116 91,029,928
----------------- -------------------
103,151,621 97,893,796
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 672,438 650,261
Accrued property taxes 356,639 67,117
Deferred revenue 156,702 168,998
Construction retainage 999,456 358,124
Payables and accrued liabilities 1,308,025 1,484,607
----------------- ------------------
3,493,260 2,729,107
STOCKHOLDERS EQUITY
Common stock, at $1 stated value, 2,702,966 and 2,666,966 shares
issued and outstanding at June 30, 2001 and December 31, 2000 2,702,966 2,666,966
Capital surplus 9,557,535 9,403,285
Unamortized compensation (1,748,491) (1,751,179)
Cumulative undistributed net earnings 3,657,009 3,629,665
Receivable from ESOP (141,532) (389,572)
----------------- ------------------
14,027,487 13,559,165
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 120,672,368 $ 114,182,068
================= ==================
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 ended June 30, Six months ended June 30,
---------------------------- -----------------------------
2001 2000 2001 2000
------------- ------------ ------------ -------------
INCOME
Rental income $ 4,878,049 $ 4,681,055 $ 9,649,452 $ 9,268,540
Royalty income 159,136 197,012 277,904 305,180
Interest income 38,533 55,179 97,922 93,287
Management and development fees 126,907 209,498 238,884 381,651
Sale of condominiums 200,000 - 502,000 -
Long term gain (loss) - 53,305 - 53,305
Other income 31,828 12,380 31,828 12,380
------------- ------------ ------------ -------------
5,434,453 5,208,429 10,797,990 10,114,343
EXPENSES
Rental expense 1,845,367 1,722,309 3,555,971 3,347,168
Cost of condominiums sold 174,890 - 438,127 -
Interest expense 1,811,107 1,787,034 3,570,609 3,549,919
Depreciation 702,599 756,841 1,403,751 1,400,705
Amortization 26,586 26,586 53,172 53,172
General and administrative expense 870,723 812,531 1,738,407 1,544,664
------------- ------------ ------------ -------------
5,431,272 5,105,301 10,760,037 9,895,628
------------- ------------ ------------ -------------
INCOME BEFORE TAXES 3,181 103,128 37,953 218,715
Income taxes (2,589) 39,962 10,611 83,373
------------- ------------ ------------ -------------
NET INCOME $ 5,770 $ 63,166 $ 27,342 $ 135,342
============= ============ ============ =============
WEIGHTED AVERAGE COMMON SHARES
Basic 2,282,053 2,216,669 2,280,853 2,216,669
Diluted 2,446,093 2,321,782 2,434,348 2,307,350
EARNINGS PER COMMON SHARE
Basic $ 0.00 $ 0.03 $ 0.01 $ 0.06
============= ============ ============ =============
Diluted $ 0.00 $ 0.03 $ 0.01 $ 0.06
============= ============ ============ =============
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,
-----------------------------------------
2001 2000
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,342 $ 135,342
Adjustments to reconcile net income to
net cash provided by operating activities:
Cost of condominiums sold 438,127 -
Gain on sale of real property - (53,305)
Depreciation expense 1,403,751 1,400,705
Amortization expense 53,172 53,172
Amortization of compensation element of restricted stock grants 161,771 151,734
Deferred income tax expense 10,611 83,373
Loss from unconsolidated joint venture 3,172 -
Decrease in payables and accrued liabilities (176,582) (524,200)
Decrease (increase) in property taxes payable 289,522 (94,851)
Increase in other assets (194,610) (159,058)
Increase in other receivables (15,763) (33,626)
Other 53,652 (51,006)
------------------- -------------------
Net cash provided by operating activities 2,054,165 908,280
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for development (7,197,470) (1,185,619)
(Purchase) sale of real property (1,336,849) 351,642
Capitalized costs, improvements and replacements (966,448) (1,457,505)
Increase in investment in joint ventures - (584,500)
Decrease in receivable from ESOP 248,040 515,803
Payments received on note receivable 34,525 82,606
------------------- -------------------
Net cash used in investing activities (9,218,202) (2,277,573)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on mortgage loans (381,812) (333,845)
Proceeds from construction loan 4,613,775 2,021,022
Repayment of line of credit (1,500,000) -
Proceeds from term loan 2,525,862 -
(Increase) decrease in mortgage escrow (197,023) 321,066
Decrease (increase) in development escrow 255,540 (905,566)
Increase in deferred loan costs (21,828) (503,398)
------------------- -------------------
Net cash provided by financing activities 5,294,514 599,279
------------------- -------------------
NET DECREASE IN CASH (1,869,523) (770,014)
CASH AT BEGINNING OF PERIOD $ 4,452,189 $ 3,067,372
------------------- -------------------
CASH AT END OF PERIOD $ 2,582,666 $ 2,297,358
=================== ===================
Interest paid $ 3,982,034 $ 3,544,836
Income taxes paid $ - $ 1,049
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. 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
These financial statements have been prepared by the company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain reclassifications have been made to the fiscal 2000
consolidated financial statements to conform to the fiscal 2001 presentation.
These financial statements should be read in conjunction with the
audited financial statements and notes included in the company's latest annual
report on Form 10K for the fiscal year ended December 31, 2000.
3. Assets Held for Sale
In the first quarter of 2001 Merry Land listed for sale five of the
eleven wholly owned apartment communities, which the company considered to have
less opportunity for growth than the remaining communities. Merry Land has one
of the five presently under contract but there can be no assurance that any of
the apartments will be sold. The aggregate net book value of the five apartment
communities at June 30, 2001 was $33.4 million and the total rental income
generated by these communities for the first six months in 2001 was $397
thousand. The net book value of each community was less than their projected
sales price less closing costs.
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
unvested shares issued to employees under our 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 June 30, Six months ended June 30,
---------------------------- --------------------------------
2001 2000 2001 2000
------------ ------------- -------------- --------------
Weighted average shares outstanding-basic 2,282,053 2,216,669 2,280,853 2,216,669
Dilutive potential common shares 164,040 105,113 153,495 90,681
------------ ------------- -------------- --------------
Weighted average shares outstanding-diluted 2,446,093 2,321,782 2,434,348 2,307,350
5. Segment Information
Merry Land has three reportable segments: Apartment Communities,
Commercial Properties and Land, and Third Party Services. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
Commercial Third Party
Apartments & Land Services Corporate Consolidated
-------------- ------------- ------------- ----------- ---------------
Three months ending June 30, 2001
Real estate rental revenue $ 4,807,159 $ 70,890 $ - $ $ 4,878,049
-
Real estate expense (1,742,840) (102,527) - - (1,845,367)
Depreciation and amortization (610,422) (52,127) - (66,636) (729,185)
-------------- ------------- ------------- ----------- ---------------
Income from real estate 2,453,897 (83,764) - (66,636) 2,303,497
Other income 35,000 184,246 126,907 35,360 381,513
-------------- ------------- ------------- ----------- ---------------
Segment income 2,488,897 100,482 126,907 (31,276) 2,685,010
Interest expense - - - (1,811,107) (1,811,107)
General and administrative (140,395) (91,343) (140,791) (498,193) (870,722)
-------------- ------------- ------------- ----------- ---------------
Income before taxes 2,348,502 9,139 (13,884) (2,340,576) 3,181
Income tax - - - 2,589 2,589
-------------- ------------- ------------- ----------- ---------------
Net income $ 2,348,502 $ 9,139 $ (13,884) $(2,337,987) $ 5,770
============== ============= ============= =========== ===============
Capital investments $ 359,369 $ 3,662,232 $ $ 6,593 $ 4,028,194
-
============== ============= ============= =========== ===============
Total real estate assets $85,382,351 $22,772,857 $ $ 281,315 $108,436,523
-
============== ============= ============= =========== ================
Commercial Third Party
Three months ending June 30, 2000 Apartments & Land Services Corporate Consolidated
-------------- ------------- ------------- ----------- ----------------
Real estate rental revenue $ 4,609,704 $ 71,351 $ - $ - $ 4,681,055
Real estate expense (1,642,969) (79,340) - - (1,722,309)
Depreciation and amortization (605,874) (93,786) - (83,768) (783,428)
-------------- ------------- ------------- ----------- ----------------
Income from real estate 2,360,861 (101,775) - (83,768) 2,175,318
Other income - 412,817 46,998 67,560 527,375
-------------- ------------- ------------- ----------- ----------------
Segment income 2,360,861 311,042 46,998 (16,208) 2,702,693
Interest expense - - - (1,787,034) (1,787,034)
General and administrative (86,370) (64,334) (42,372) (619,456) (812,532)
-------------- ------------- ------------- ----------- ----------------
Income before taxes 2,274,491 246,708 4,626 (2,422,698) 103,127
Income tax - - - (39,962) (39,962)
-------------- ------------- ------------- ----------- ----------------
Net income $ 2,274,491 $ 246,708 $ 4,626 $(2,462,660) $ 63,165
============== ============= ============= =========== ================
Capital investments $ 814,415 $ 1,159,916 $ - $ (2,116) $ 1,972,215
============== ============= ============= =========== ================
Total real estate assets $84,197,185 $12,201,250 $ - $ 419,880 $ 96,818,315
============== ============= ============= =========== ================
Commercial Third Party
Apartments & Land Services Corporate Consolidated
-------------- ------------- ------------- ----------- ----------------
Six months ending June 30, 2001
Real estate rental revenue $ 9,503,560 $ 145,892 $ - $ - $ 9,649,452
Real estate expense (3,363,790) (192,181) - - (3,555,971)
Depreciation and amortization (1,220,844) (104,254) - (131,825) (1,456,923)
-------------- ------------- ------------- ----------- ----------------
Income from real estate 4,918,926 (150,543) - (131,825) 4,636,558
Other income 35,000 361,777 218,884 94,749 710,410
-------------- ------------- ------------- ----------- ----------------
Segment income 4,953,926 211,234 218,884 (37,076) 5,346,968
Interest expense - - - (3,570,609) (3,570,609)
General and administrative (386,854) (184,884) (247,900) (918,768) (1,738,406)
-------------- ------------- ------------- ----------- ----------------
Income before taxes 4,567,072 26,350 (29,016) (4,526,453) 37,953
Income tax - - - (10,611) (10,611)
-------------- ------------- ------------- ----------- ----------------
Net income $ 4,567,072 $ 26,350 $ (29,016) $(4,537,064) $ 27,342
============== ============= ============= =========== ================
Capital investments $ 707,374 $ 8,766,116 $ - $ 27,277 $ 9,500,767
============== ============= ============= =========== ================
Total real estate assets $85,382,351 $22,772,857 $ - $ 281,315 $108,436,523
============== ============= ============= =========== ================
Third Party
Apartments Commercial Services Corporate Consolidated
-------------- ------------- ------------- ----------- -----------------
Six months ending June 30, 2000
Real estate rental revenue $ 9,118,266 $ 150,274 $ - $ - $ 9,268,540
Real estate expense (3,192,764) (154,404) - - (3,347,168)
Depreciation and amortization (1,179,370) (104,254) - (170,254) (1,453,878)
-------------- ------------- ------------- ---------- -----------------
Income from real estate 4,746,132 (108,384) - (170,254) 4,467,494
Other income - 672,656 67,480 105,668 845,804
-------------- ------------- ------------- ----------- -----------------
Segment income 4,746,132 564,272 67,480 (64,586) 5,313,298
Interest expense - - - (3,549,919) (3,549,919)
General and administrative (366,246) (130,855) (49,183) (998,380) (1,544,664)
-------------- ------------- ------------- ----------- -----------------
Income before taxes 4,379,886 433,417 18,297 (4,612,885) 218,715
Income tax - - - (83,373) (83,373)
-------------- ------------- ------------- ----------- -----------------
Net income $ 4,379,886 $ 433,417 $ 18,297 $(4,696,258) $ 135,342
============== ============= ============= =========== =================
Capital investments $ 1,430,982 $ 1,561,507 $ - $ 8,759 $ 3,001,248
============== ============= ============= =========== =================
Total real estate assets $84,197,185 $12,201,250 $ - $ 419,880 $ 96,818,315
============== ============= ============= =========== =================
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
Apartments
At June 30, 2001 Merry Land owned or had an interest in 2,627 apartment
units in twelve communities and 18 completed units from a community under
construction. These communities are described in the following table (dollars in
thousands).
Six months ended June 30,
----------------------------------------------
Average Average
Occupancy (2) Rental Rate (3)
Cost Per --------------------- ----------------------
Community Units Year Built Unit (1) 2001 2000 2001 2000
- ---------------------- -------- ---------- ----------- ---------- --------- ---------- ----------
Wholly Owned Communities
- --------------------------------
Woodcrest (4)(5) 248 1982 $24,542 98% 96% $530 $526
--------- ---------- ----------- ---------- ---------- ---------- -----------
Total-Augusta 248 1982 24,542 98% 96% 530 526
Quarterdeck 230 1986 $45,749 97% 98% $774 $716
Summit Place (4) 226 1985 31,414 97% 97% 562 550
Waters Edge 200 1985 43,928 96% 98% 665 648
James Island (6) 18 2001 75,395 17% - 969 -
Windsor Place (4) 224 1985 45,737 97% 97% 658 633
--------- ---------- ----------- ---------- ---------- ---------- -----------
Total-Charleston 898 1985 47,386 97% 98% 671 637
Greentree 194 1983 $39,522 97% 95% $652 $633
Hammocks 308 1997 67,659 97% 95% 870 852
Huntington 147 1986 41,739 96% 95% 665 656
Magnolia Villas (4) 144 1986 36,826 96% 96% 690 665
Marsh Cove 188 1983 44,669 96% 97% 738 712
West Wind (4) 192 1985 40,326 96% 94% 752 739
--------- ---------- ----------- ---------- ---------- ---------- -----------
Total-Savannah 1,173 1988 47,813 96% 95% 746 727
Total-Wholly Owned 2,319 1986 $45,159 97% 96% $694 $671
Joint Venture Communities
- --------------------------------
Cypress Cove (7) 326 1990 $60,156 98% 97% $767 $718
--------- ---------- ----------- ---------- --------- ---------- -----------
Total-Joint Venture 326 1990 60,156 98% 97% 767 718
Total-all 2,645 1987 $47,008 97% 96% $703 $677
(1) Average cost per unit at June 30, 2001 on the twelve completed communities.
Estimated cost per unit for the James Island development community.
(2) The average physical occupancy at each month end for the period held.
(3) The weighted average monthly rent charged for occupied owned units and
rents asked for unoccupied owned units at June 30.
(4) Communities listed for sale.
(5) Presently under sales contract.
(6) Community presently under construction with 18 of the 230 total units
placed in service.
(7) Merry Land holds a 10% general partner interest in this apartment community.
The company listed five communities for sale earlier this year which
were considered to have less opportunity for growth than the remaining
communities. One community is presently under contract and we are continuing to
negotiate with bidders for the other four. Proceeds from these sales, should any
of them be consummated, will be reinvested in newer residential communities or
new developments. Any sale would result in recognition of gain and a
corresponding increase in our company's net book value, but would reduce future
net cash generated from apartments until the proceeds could be reinvested in
other income producing properties.
In June we took delivery of our leasing office and first residential
building at Merritt at James Island in Charleston. Three of the 18 units
delivered were occupied at June 30. The project, which should cost approximately
$17.8 million, is 71% complete.
The company started construction in the first quarter of 2001 on the
Merritt at Whitemarsh Island, a 241 unit luxury apartment community in Savannah.
The site work is largely completed and framing has begun. Total construction
cost will be approximately $19.5 million and the project was 21% complete at
June 30.
In March we closed the purchase for $1.3 million of a 28.8 acre tract
of land located in Jasper County, South Carolina near Hilton Head Island, which
is suitable for the construction of a 254 unit apartment community. The site is
located on heavily traveled Highway 170 between Hilton Head and Beaufort, and is
within commuting distance of the fast growing Airport area of Savannah, Georgia.
We plan to build apartments on this tract when market conditions are favorable.
Results of Operations for the Six Months Ended June 30, 2001 and 2000
Rental Operations-All Apartments. The following table describes
the operating performance of the company's wholly owned apartment
communities. (Dollars in thousands, except average monthly rent)
Six months ended June 30,
% Change from ------------------------------------
Change 2000 to 2001 2001 2000
------------ ----------------- ----------------- ----------------
Rental income 4.2% $386 $9,504 $9,118
Total expenses 4.9% 213 4,585 4,372
------------ ----------------- ----------------- ----------------
Operating income 3.6% $173 $4,919 $4,746
Average occupancy (1) - 0.5% 96.7% 96.2%
Average monthly rent (2) 3.4% $ 23 $ 694 $ 671
Expense ratio (3) - 0.1% 35.1% 35.0%
(1) The average physical occupancy at each month end for the period held.
(2) The weighted average monthly rent charged for occupied owned units and rents
asked for unoccupied owned units at June 30. (3) Total operating expenses
(excluding depreciation and amortization) divided by rental revenues.
During the second quarter we placed in service the clubhouse and the
first 18 apartment units of the Merritt at James Island development. The net
operating loss from this community in lease up was $20 thousand for the first
six months in 2001.
Rental Operations-Same Store Apartments. The following table compares
the performance of all 2,301 units of our eleven wholly owned residential
communities, which we owned for the first six months of both 2001 and 2000.
("Same store" results) (Dollars in thousands, except average monthly rent)
Six months ended June 30,
% Change from ------------------------------------
Change 2000 to 2001 2001 2000
----------- ----------------- ----------------- ----------------
Rental income 4.0% $367 $9,485 $9,118
Personnel 3.0% 31 1,084 1,053
Utilities 0.2% 1 286 286
Operating (2.5)% (8) 332 340
Maintenance and grounds 0.6% 4 703 699
Taxes and insurance 12.9% 105 920 815
Depreciation 3.5% 41 1,221 1,179
----------- ----------------- ----------------- ----------------
Total expenses 4.0% 174 4,546 4,372
Operating income 4.1% $193 $4,939 $4,746
Average occupancy (1) - 0.5% 96.7% 96.2%
Average monthly rent (2) 3.1% $ 21 $ 692 $ 671
Expense ratio (3) - 0.1% 35.1% 35.0%
(1) The average physical occupancy at each month end for the period held.
(2) The weighted average monthly rent charged for occupied owned units and rents
asked for unoccupied owned units at June 30.
(3) The total operating expenses (excluding depreciation and amortization)
divided by rental revenues.
Our owned apartment communities are performing well despite heavy
building in Charleston and a weakening national economy. Same store net
operating income before depreciation was up 4.0% for the first two quarters on
revenue growth of 4.0% and an operating expense increase of 4.2%. Charleston net
operating income was up 2.0% with a 0.9% decrease in occupancy and a 4.5%
increase in average rents while Savannah net operating income was up 5.4% with a
1.3% increase in occupancy and a 2.6% increase in average rents.
The increase in operating expense was primarily due to the increases in
insurance, turnover costs and leasing personnel costs. Hazard insurance doubled
as a result of general market conditions in the industry and our recent loss
experience. An increase in resident turnover and contract service expense was
offset by lower maintenance employee expense and other maintenance costs.
We expect Savannah's occupancy to remain stable for the rest of 2001.
Charleston has experienced heavy new apartment construction and we expect that
citywide occupancy could continue to fall throughout the year.
Rental Operations-Commercial. The company owns three commercial
properties in the Augusta area whose overall occupancy was less than 70% at June
30, 2001. Net income before depreciation was zero for the first six months of
2001 compared to $12 thousand in 2000.
Land. We own approximately 4,659 acres of unimproved land, of which
2,548 acres are subject to clay and sand mining leases. Gross income, primarily
mineral royalties, decreased 11% to $291 thousand in the first two quarters of
2001 from $328 thousand in 2000.
Property Management Fees. Management fee income increased to $219
thousand in the first six months of 2001 from $67 thousand in 2000 due to the
addition of 1,459 units under third party contracts. The company added 828 and
431 of these additional units in the first and second quarter of 2001,
respectively. We are actively seeking additional third party contracts. (Dollars
in thousands)
Six Months ended June 30,
-----------------------------------------
2001 2000
------------------ -------------------
Units Fees Units Fees
--------- -------- --------- ---------
Residential
Stabilized 1,502 $157 382 $ 39
Lease up or development 559 48 220 8
--------- -------- --------- ---------
Total 2,061 205 602 47
Commercial 15 14 15 20
--------- -------- --------- ---------
Total 2,076 $219 617 $ 67
Development Fees. Development fee income was $20 thousand for the first
six months in 2001, down from $314 thousand in 2000. A total of $285 thousand of
the development fees in 2000 were earned from services provided to Equity
Residential. All development contracts with Equity Residential were completed
during 2000.
Sale of Condominiums. During the first two quarters 2001 we sold two of
the seven condominium units at 214 Calhoun Street in Charleston for $502
thousand and a profit $64 thousand. We presently have two additional units under
contract for sale on this $1.7 million dollar project.
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 long term gain of $53 thousand.
Interest Expense. Interest expense remained flat at $3.6 million for
the first six months of 2001 and 2000. An increase in construction loan interest
was offset by the increase in interest capitalized related to development and
the slightly lower mortgage interest expense.
Capitalized interest increased $232 thousand primarily due to the
ongoing construction of the Merritt at James Island apartment community in
Charleston and the Merritt at Whitemarsh apartment community in Savannah. At
June 30, 2001, we had borrowed $10.0 million against the $16.2 million James
Island loan and had not yet drawn against the $14.5 million Whitemarsh loan. We
spent approximately $3.9 million on Whitemarsh, including loan closing costs, in
the first two quarters 2001. (Dollars in thousands)
Six months ended June 30,
Change from -----------------------------------
2000 to 2001 2001 2000
--------------- ---------------- ---------------
Line of credit $ (59) $ - $ 59
Term loan 67 67 -
Construction loans 293 323 30
Mortgage loans (48) 3,615 3,663
--------------- ---------------- ---------------
Total interest cost 253 4,005 3,752
Capitalized for development (232) (434) (202)
--------------- ---------------- ---------------
Interest expense $ 21 $3,571 $3,550
General and Administrative Expenses. General and administrative
expenses increased $194 thousand, or 13%, to $1.7 million for the first six
months in 2001 from $1.5 million in 2000. The increase was due to a greater
number of employees, and increased third party management travel and salary
costs.
Income Before Taxes. Income before taxes decreased $181 thousand, or
83%, to $38 thousand for the six months ended June 30, 2001 from $219 thousand
for 2000. The $221 thousand increase in apartment income (net of rental and
interest expense) and $151 thousand increase in third party management fee
income was more than offset by the $230 thousand decrease in development income,
the $162 thousand decrease in commercial and other land income and the $156
thousand increase in corporate administrative expense.
(Dollars in thousands)
Six months ended June 30,
------------------------------------------------------------------
Change from
% Change 2000 to 2001 2001 2000
------------ ----------------- ------------ ------------
Apartment rents (net of interest expense) 21% $ 221 $ 1,251 $ 1,030
Commercial and land (loss) income (285)% (162) (106) 57
Royalties (9)% (27) 278 305
Management fees 222% 151 219 68
Development income (73)% (230) 84 314
Interest and other income 23% 24 130 106
------------ ----------------- ------------ ------------
Income from operations (1)% (24) 1,856 1,881
G&A and other depreciation expense 9% (156) (1,818) (1,662)
------------ ----------------- ------------ ------------
Income before taxes (83)% $(181) $ 38 $ 219
Income Taxes. Income tax expense for the six month period ended June
30, 2001 totaled $11 thousand and consisted of $357 thousand in current income
tax benefit and $368 thousand in deferred income tax expense. Income tax expense
for 2000 totaled $83 thousand and consisted of $272 thousand in current income
tax benefit and $355 thousand in deferred income tax expense.
Funds From Operations. For the first six months of 2001 funds from
operations totaled $1.5 million, which was the same as the first six months in
2000. However, the first six months in 2000 included $285 thousand in non
recurring development fee income.
(Dollars and shares in thousands)
Six months ended June 30,
---------------------------------
2001 2000
--------------- ---------------
Net income $ 27 $ 135
Add: depreciation of real estate owned (1) 1,369 1,284
Less: sale of fixed asset - (53)
Add: tax benefit resulting from permanent difference in book and tax basis 94 104
--------------- ---------------
Funds from operations available to common shares $1,490 $1,470
=============== ===============
Weighted average common shares outstanding-
Basic 2,281 2,217
Diluted 2,434 2,307
(1) Includes depreciation allocated from joint venture investment.
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 accounting principles generally
accepted in the United States, 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. We use debt to finance most of our acquisition and
development activities and, as a result, are a highly leveraged company. At June
30, 2001 total debt equaled 88% of total capitalization at cost and 83% of total
capitalization with equity valued at market. (2,702,966 shares outstanding at
the June 30, 2001 closing price of $7.55 per share) (Dollars in thousands)
Equity at Equity at
Book % Of Market % Of
Value Total Value Total
-------------- ----------- --------------- ------------
Term loan $ 2,526 2% $ 2,526 2%
Construction loan 9,978 9 9,978 8
Mortgage loans 90,648 77 90,648 73
-------------- ----------- --------------- ------------
Total debt 103,152 88 103,152 83
Common stock 14,027 12 20,407 17
-------------- ----------- --------------- ------------
Total capitalization $117,179 100% $123,559 100%
Liquidity. We expect to meet our short-term liquidity requirements with
working capital, cash provided by operating activities, construction loans, and
the possible sale of some or all of five apartment communities and other assets.
Our primary short-term liquidity needs include but are not limited to operating
expenses, capital improvements, and the development of both the Merritt at
Whitemarsh and the 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, the possible sale of apartment communities and other assets and the
issuance and sale of debt and equity securities in public and private markets.
Our long-term liquidity needs include the maturity of the mortgage and term loan
debt and the financing of acquisitions and development.
Cash Flows. Cash and cash equivalents totaled $2.6 million at June 30,
2001, down $1.9 million from $4.5 million at December 31, 2000. While net cash
provided by existing operations was $2.1 million, the company utilized $1.0
million for capital expenditures on existing properties. The company spent $2.3
million net of construction loans on two developments and acquired the Jasper
County, South Carolina development land for $1.3 million. The Jasper County land
was financed by a portion of the new $2.5 million term loan; the loan's
remaining proceeds were used to pay off the $1.5 million line of credit. We also
received a net $248 thousand from the repayment of the ESOP note receivable and
spent a total of $579 thousand on mortgage principal and additional escrow
payments.
Inflation. Substantially all of our 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 the company's reported market
risk since December 31, 2000.
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 19, 2001,
the following vote totals were recorded:
1. Election of Directors: Shares voted- 2,465,993
For Against Abstain
----------- --------- ---------
David W. Cobb 2,456,661 0 9,332
Stewart R. Speed 2,461,647 0 4,346
In addition to Mr. Cobb and Mr. Speed, the following Directors
continued in office following the meeting: W. Tennent Houston,
Michael N. Thompson, and Jefferson B.A. Knox.
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 June 30, 2000, 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, 2000).
b. Reports on Form 8-K. The registrant filed no reports on Form
8-K during the 2nd quarter of 2001.
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 10, 2001