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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
DECEMBER 31, 2000
Commission file number: 000-29778
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MERRY LAND PROPERTIES, INC.
P.O. Box 1417
Augusta, Georgia 30903
706-722-6756
State of Incorporation: Georgia I.R.S. Employer Identification Number: 58-2412761
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 stated value
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(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and nonvoting common equity held by non
affiliates of the registrant on March 5, 2001: Common Stock, $1 stated
value--$10,277,354 (all shares other than those owned or controlled by officers,
directors, and 5% stockholders).
The number of shares of common stock outstanding as of March 5, 2001 was
2,712,966.
Documents incorporated by reference: The 2001 definitive proxy statement mailed
to stockholders for the annual meeting scheduled for April 19, 2001 is
incorporated by reference into Part III of this form 10-K.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholders' Matters 10
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 8 Financial Statements and Supplementary Data 23
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and Management 36
Item 13 Certain Relationships and Related Transactions 36
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37
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PART I
Item 1--Business
THE COMPANY
Merry Land Properties, Inc. We own interests in twelve apartment
communities containing 2,627 units in Georgia, South Carolina and Florida, and
have two more communities of our own under construction. We also build and
manage apartment communities for other owners. However we believe that our most
important asset, by far, is our dedicated and enthusiastic staff of experienced
apartment professionals. This team together has built, leased, managed and
maintained over 35,000 apartment units throughout the South and is one of the
nation's leaders in the apartment industry.
Objective. Merry Land's objective is to build shareholder value through
buying, developing, renovating and managing apartment properties for ourselves
and for others. We also own over 4,000 acres of clay lands, which produce
substantial mineral royalty and timber income, and engage in other commercial
real estate activities.
Our Markets. We operate in the southeastern United States where our
company and its predecessor have been active for over twenty years. Within this
region we have focused on the coastal apartment markets which are experiencing
strong economic growth as the baby boom generation approaches retirement age and
moves in large numbers to resort areas. This in turn has led to high job growth
and strong housing demand, creating exceptional opportunities for well conceived
and well managed projects.
Organization. Merry Land maintains a centralized organization with
headquarters in Augusta and satellite offices in Savannah and Atlanta, which
support its property management and development activities.
Each apartment community functions as an individual business unit
according to well developed policies and procedures. Every community is operated
by an on site property manager and staff whom we extensively train in sales,
management, accounting, maintenance and other disciplines. Corporate level
specialists in the fields of training, marketing, maintenance and information
technology serve the communities. Operating data is exchanged using a corporate
intranet linking all communities to the home office and to each other.
Property Management. We believe that property management is of critical
importance to long-term success in the apartment business. The emphasis of the
property management staff is on what we call "First Class Service", a
customer-focused, marketing oriented form of management. Our objective is to
produce consistently high levels of customer service and high levels of
financial performance at every Merry Land location. This is achieved through an
extensive program of recruiting and training and a continual emphasis on
professional development and performance based compensation programs.
Merry Land also provides apartment management and development services
to other owners of apartment communities. We intend to expand these services to
other property owners or developers as opportunities arise.
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A significant portion of the compensation of apartment on site
personnel is tied to achievement of each apartment community's annual budget for
revenue and expenses. All employees have the opportunity to become stockholders
through an Employee Stock Ownership Plan. Key corporate level employees
participate in a restricted stock grant plan, further aligning their interests
with those of our stockholders. At December 31, 2000 Merry Land had a total of
94 employees; 72 worked at apartment communities, and 22 were employed at the
corporate offices.
Merry Land is a Georgia corporation formed September 3, 1998. Our
principal office is at 624 Ellis Street, Augusta, Georgia 30901 and our
telephone number is (706) 722-6756.
History. On October 15, 1998 the shares of Merry Land Properties, Inc.,
a newly created subsidiary of Merry Land & Investment Company, Inc. were spun
out as a dividend to the old Merry Land's stockholders in conjunction with that
company's merger into another REIT. The old Merry Land was one of the nation's
leading apartment companies, which owned and operated 135 communities with
35,000 apartment units acquired or developed throughout the southeast and Texas.
The old Merry Land's common shares, with a market value in excess of a billion
dollars, were listed on the New York Stock Exchange.
Accounting Predecessor. While Merry Land has operated only since
October 15, 1998; we are required to present financial statements for the years
2000, 1999 and 1998. Accordingly, only the Consolidated Balance Sheets for
December 31, 1998 and later periods and the 1999 and 2000 Consolidated
Statements of Income are actual financial statements prepared for a real
company. All other statements are those of an "accounting predecessor" which
have been constructed in accordance with the rules of the Securities and
Exchange Commission applicable for subsidiaries, which have been spun off. These
rules stipulate that statements shall be prepared as if the entity had existed
prior to the existence of the new company.
Management has estimated common and corporate level expenses, which
would have been incurred on behalf of the accounting predecessor by the old
Merry Land and has allocated such expenses based on their best estimate of the
time and effort that would have been expended. Property management costs have
been estimated and allocated on a per unit basis. The assets contributed to
Merry Land by the old Merry Land were not encumbered by mortgage debt at any
time prior to the spin off and the financial statements for the accounting
predecessor for periods prior to the spin off do not include any debt or related
interest expense.
The old Merry Land was qualified to be taxed as a real estate
investment trust and was not subject to federal income taxation on distributed
income. Accordingly, no provision for income tax is included in the accompanying
financial statements for periods prior to the spin off.
Amounts shown for periods and dates prior to the spin off assume lower
levels of general and administrative expenses than have actually been incurred
after the spin off and exclude any debt, interest expense or income taxes.
Accordingly, comparisons of periods subsequent to the spin off with periods
prior to the spin off may be difficult and misleading.
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PART I
Item 2--Properties
Apartments. At December 31, 2000 Merry Land owned or had an interest in
twelve apartment communities containing 2,627 units in Georgia, South Carolina,
and in Florida. They are "garden apartments", in wood frame two and three-story
buildings without elevators, with individually metered electric and gas service
and individual heating and cooling systems. The apartments are 33% one bedroom
units, 57% two bedroom units and 10% three bedroom units. The units average 971
square feet in area, 13 years of age, and are well equipped with modern
appliances and other conveniences. The communities are generally heavily
landscaped and offer extensive amenities. Most include swimming pools, tennis
courts, clubrooms, exercise facilities and hot tubs.
The following tables set forth certain information regarding these
twelve communities and their mortgage debt. (Dollars in thousands, except
average cost and average rent per unit)
Average Average
Date Cost Unit Size Debt
Name Location Built Units Cost (1) Per Unit (Sq. Ft.) Balance
---------- ------ ---------- ---------- --------- ---------- ----------
Wholly Owned Communities
Woodcrest (2) Augusta 1982 248 $ 6,061 $ 24,440 875 $ 6,297
------ ---------- ---------- --------- ---------- ----------
Total/Average Augusta 1982 248 6,061 24,440 875 6,297
Greentree Savannah 1983 194 7,651 39,438 852 6,647
Hammocks at Long Point (2) Savannah 1997 308 20,789 67,497 1,049 18,619
Huntington (2) Savannah 1986 147 5,841 39,735 812 5,038
Magnolia Villas (2) Savannah 1986 144 5,272 36,611 1,119 4,696
Marsh Cove Savannah 1983 188 8,359 44,463 1,053 8,073
West Wind Savannah 1985 192 7,703 40,120 1,124 9,102
------ ---------- ---------- --------- ---------- ----------
Total/Average Savannah 1988 1,173 55,615 47,413 1,009 52,175
Quarterdeck Charleston 1986 230 10,412 45,270 810 9,858
Summit Place (2) Charleston 1985 226 7,079 31,323 892 7,015
Waters Edge Charleston 1985 200 8,734 43,670 911 7,121
Windsor Place (2) Charleston 1985 224 10,214 45,598 953 8,563
------ ---------- ---------- --------- ---------- ----------
Total/Average Charleston 1985 880 36,439 41,408 890 32,557
Total-/Avg-Wholly Owned 1986 2,301 98,115 42,640 949 91,029
Joint Venture Communities
Cypress Cove (3) Melbourne 1990 326 19,606 60,141 1,129 15,647
------ ---------- ---------- --------- ---------- ----------
Total/Average-Joint Venture 1990 326 19,606 60,141 1,129 15,647
Total/Average-All 1987 2,627 $ 117,721 $ 44,812 971 $ 106,676
(1) Represents to total acquisition cost of the property plus the
capitalized cost of the improvements made subsequent to acquisition.
(2) Acquired on August 24, 1999 from Equity Residential Properties Trust
Limited Liability Companies.
(3) Merry Land holds an indirect 10% general partner interest in this
apartment community, which was acquired on March 31, 2000.
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Average
Rent Per
Occupancy Rate (1) Unit (2)
------------------------ ------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Wholly Owned Communities
Greentree 96% 97% 94% $645 $618 $600
Hammocks at Lg. Pt 96 96 92 861 842 816
Huntington 96 95 96 658 644 496
Marsh Cove 96 97 98 729 698 677
Magnolia Villa 96 95 93 677 648 545
Quarterdeck 99 100 100 748 684 634
Summit Place 96 97 97 559 534 620
Waters Edge 98 98 97 685 623 574
West Wind 96 96 98 748 726 708
Windsor Place 97 97 99 645 608 600
Woodcrest 96 96 88 526 516 677
-- -- -- --- --- ---
Avg.-Wholly Owned 97% 97% 95% $685 $654 $631
Joint Venture Communities
Cypress Cove (3) 97% n/a n/a $822 n/a n/a
--- --- --- ---- --- ---
Avg.-Joint Venture 97% n/a n/a $822 n/a n/a
--- --- --- ---
Avg.-All Communities 97% 97% 95% $702 $654 $631
(1) Average physical occupancy at each month end for each period ended.
(2) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units.
(3) See footnote (3) from table above.
Residents. Residents at Merry Land's apartments typically earn middle
and upper middle levels of incomes. They include young professionals,
white-collar workers, medical personnel, teachers, and members of the military,
single parents, single adults and young families. These residents are generally
"renters by choice" - who have the means to own homes but choose to live in
apartment communities because of their current employment, family or other
personal circumstances. We believe that demand for our apartments is primarily
dependent on the general economic strength of each market's economy and level of
job creation and household formation, and to a lesser extent on prevailing
interest rate levels for home mortgage loans. There is a steady turnover of
leases at the communities, allowing rents to be adjusted upward as demand
allows. Leases are generally for terms of six to twelve months. About two-thirds
of the units turn over each year, a rate we believe is typical for higher end
apartment communities.
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Markets. Ten of Merry Land's eleven wholly owned apartment communities
are located in the southern coastal cities of Savannah, Georgia and Charleston,
South Carolina. We believe that these cities will experience economic growth
well above national and regional averages as the baby boom generation approaches
retirement age and tends to move in large numbers, either seasonally or
permanently, to resort areas. Physical occupancy at our communities has been
high over the last five years, averaging 94% or more in each of those years.
This strong demand has produced a 4% average annual increase in rental rates at
the apartment communities during this period.
Charleston has experienced heavy development of new apartment units in
the past year and reported city wide occupancy has fallen to 91.5% at the end of
2000 from 94% at the end of 1999 and is expected to fall to 90% within the next
year. Savannah and Augusta have experienced lower levels of construction.
Third Party Management Properties. Merry Land currently earns property
management fees on six third party properties and one property owned in joint
venture. At the end of 2000 the company managed 802 units from three residential
apartment communities and one 69 thousand square foot commercial property. In
early 2001 the company added an additional 828 units from three residential
apartment communities bringing the total apartments fee managed to 1,630 units.
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 $18.8 million. Merry Land holds a 10% general partnership interest and
provides property management services.
Apartment Communities Under Development. Merry Land owns a 10 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 project cost is being funded with non-recourse
financing. The first units will be available for rent in April 2001 and
construction will be completed in the fall of 2001.
In January 2001 we began 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 approximately $19 million
projected cost is being funded by $14.5 million in recourse financing. The first
units will be available for rent in late fall of 2001 and construction is
expected to be completed in the summer of 2002.
Other Properties. Merry Land owns two land parcels containing a total
of 15 acres with a book value of $688 thousand, which are zoned to allow the
development of approximately 199 apartment units.
Residential Lots. The Waters Edge residential lots are on a 35 acre
site adjacent to our Waters Edge community, which lies along the Ashley River in
the Summerville area of Charleston. We expect to begin either the development
and/or the marketing of this tract for up to nine single family lots in 2001.
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Calhoun Street For-Sale Condominium Property. Renovation of this
property located in downtown Charleston was completed in October 2000 for a
total of $1.6 million. One of the seven units has been sold and another is
presently under contract. We remain optimistic about the success of this
project.
Commercial Properties. Merry Land owns three commercial properties in
the Augusta area, primarily small office buildings, including our headquarters
building. These properties, aggregating approximately 140,000 square feet, have
a net book value of $1.9 million. In contemplation of the likely disposal of
some of these assets, we wrote down the carrying cost of two of these properties
to their estimated value as determined in the company's formation and startup in
late 1998.
Commercial Sites. Merry Land owns two commercial land sites in Savannah
and Nashville containing 24 acres with a book value of $2.1 million. We intend
to sell or develop these tracts.
Land. Merry Land owns approximately 4,620 acres of unimproved land in
Georgia and South Carolina with a book value of $1.3 million. Since 1980, brick
manufacturer Boral Bricks, Inc. has had a long term clay mining lease on 2,448
acres of this land. Merry Land also leases 100 acres to another company for the
mining of sand and gravel and leases other tracts for agriculture and grows
timber on much of the remaining land. Approximately 3,000 acres of this land is
the "Brickyard Tract" in Augusta, Richmond County, Georgia that consists of
mined-out ponds, wetlands and flood plains where traditional development is
severely restricted or prohibited. We are evaluating the feasibility of
establishing a wetland mitigation bank on a portion of the Brickyard Tract.
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PART I
Item 3--Legal Proceedings
None
Item 4--Submission of Matters to a Vote of Security Holders
None
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PART II
Item 5--Market for the Registrant's Common Stock and Related Stockholders'
Matters
COMMON STOCK
Merry Land's shares began trading on the NASDAQ Small Cap Market under
the symbol "MRYP" on October 16, 1998. Shown in the table below are high, low
and closing sales prices of the company's common shares:
HIGH LOW CLOSE DIVIDENDS
----- ----- ----- ---------
2000 4th Quarter $6.03 $5.13 $5.38 $0.00
3rd Quarter 5.88 5.19 5.44 0.00
2nd Quarter 6.13 5.19 5.19 0.00
1st Quarter 5.88 4.63 5.63 0.00
1999 4th Quarter 6.38 5.00 5.25 0.00
3rd Quarter 5.63 4.88 5.50 0.00
2nd Quarter 6.50 4.75 4.94 0.00
1st Quarter 7.00 3.50 5.88 0.00
1998 Period 10/16/98 through $6.00 $3.44 $3.63 $0.00
12/31/98
On December 31, 2000, the closing sales price for Merry Land's common
stock was $5.38 per share and there were approximately 1,500 record holders of
the common stock. In addition, we estimate that additional 5,000 stockholders
hold their shares in "street name".
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PART II
Item 6--Selected Financial Data
SELECTED FINANCIAL DATA
The following selected financial data with respect to the company's Consolidated
Statements of Income for the years ended December 31, 2000, 1999, 1998, 1997,
and 1996, and with respect to the company's Consolidated Balance Sheets as of
December 31, 2000, 1999, 1998, 1997 and 1996, have been derived from the
company's financial statements for such years which have been audited by Arthur
Andersen LLP. Merry Land has operated only since October 15, 1998. Accordingly,
financial data for prior periods are for an "accounting predecessor" which has
been constructed in accordance with the rules of the Securities and Exchange
Commission as described in the Notes to the Financial Statements. (In thousands
except per share amounts and apartment units)
2000 1999 1998 1997 1996
---------- ---------- -------- -------- --------
OPERATING DATA
Income from operations:
Rental income $ 19,063 $ 12,064 $ 8,121 $ 7,774 $ 7,523
Royalty income 609 1,359 1,693 1,401 369
Management fees 166 598 149 -- --
Development fees 1,213 1,587 515 -- --
Rental expense, property taxes and insurance 6,676 4,542 3,449 3,022 2,912
Depreciation of real estate owned 2,596 1,504 1,291 1,284 1,213
---------- ---------- -------- -------- --------
11,779 9,562 5,738 4,869 3,767
Other income:
Loss from debt forgiveness -- (30) -- -- --
Interest income 211 232 137 84 70
Long term gain 473 -- -- -- --
Joint venture income 34 -- -- -- --
---------- ---------- -------- -------- --------
718 202 137 84 70
Expenses:
Interest expense 7,095 4,633 695 -- --
Amortization & depreciation-other 325 376 265 224 145
General & administrative 3,495 2,715 654 120 108
Impairment charge -- -- 1,666 -- --
---------- ---------- -------- -------- --------
10,915 7,724 3,280 344 253
Income from continuing operations 1,582 2,040 2,595 4,609 3,584
Non recurring cost -- -- -- -- --
---------- ---------- -------- -------- --------
Income before taxes and extraordinary gain 1,582 2,040 2,595 4,609 3,584
Income tax (expense) benefit (601) (629) 462 -- --
---------- ---------- -------- -------- --------
Income before extraordinary gain of 981 1,411 3,057 4,609 3,584
Extraordinary Gain-discount on repayment
debt (net of taxes) -- 722 -- -- --
---------- ---------- -------- -------- --------
Net income 981 2,133 3,057 4,609 3,584
Discount on redemption of preferred stock -- 1,164 -- -- --
---------- ---------- -------- -------- --------
Net income-common $ 981 $ 3,297 $ 3,057 $ 4,609 $ 3,584
========== ========== ======== ======== ========
Weighted average common shares 2,229 2,191 2,113 1,923 1,796
Weighted average diluted common shares 2,324 2,264 2,129 1,946 1,834
Earnings per common share-basic $ 0.44 $ 1.50 $ 1.45 $ 2.40 $ 2.00
Earnings per common share-diluted $ 0.42 $ 1.46 $ 1.44 $ 2.37 $ 1.95
Common dividends paid $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
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BALANCE SHEET DATA
Real estate and other fixed assets $ 100,202 $ 95,516 $ 40,982 $ 42,596 $ 41,558
Cash and short term investments 4,452 3,067 3,995 -- --
Other assets 9,528 8,824 9,766 1,412 726
---------- ---------- -------- -------- --------
Total assets $ 114,182 $ 107,407 $ 54,743 $ 44,008 $ 42,284
========== ========== ======== ======== ========
Debt $ 97,894 $ 93,211 $ 38,317 $ -- $ --
Other liabilities 2,729 2,535 2,209 629 337
Preferred stock -- -- 5,000 -- --
Investment by Merry Land & Investment
Company, Inc. -- -- -- 43,379 41,947
Common stock and retained earnings 13,559 11,661 9,217 -- --
---------- ---------- -------- -------- --------
Total liabilities and stockholders' equity $ 114,182 $ 107,407 $ 54,743 $ 44,008 $ 42,284
========== ========== ======== ======== ========
OTHER DATA
Apartment units-100% owned 2,301 2,301 1,004 1,004 1,004
Apartment units-partnership interest 326 -- -- -- --
Apartment units-managed 3,103 2,357 2,712 -- --
Apartment units-under development 471 230 -- -- --
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PART II
Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operations
RECENT EVENTS
In January 2001 we began 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 development cost
is being funded by $14.5 million in recourse financing. The first units will be
available for rent in late fall of 2001 and construction is expected to be
completed in the summer of 2002.
OVERVIEW
In 2000 our income came primarily from four sources - apartment rents
(net of rental and interest expense), $5.3 million; mineral royalties, $609
thousand; property and development management fees, $1.4 million; and sale of
land and commercial buildings, $473 thousand. Since we have largely completed
the old Merry Land's development pipeline for Equity Residential Properties
Trust during 1999 and 2000, development fees will drop sharply in 2001. Lower
fee income will be replaced by rental income in 2001.
One of our objectives has been to convert assets that do not meet our
current investment criteria into cash and to put those funds into conforming
investments in our chosen markets. In addition to the land and commercial
buildings we sold for $1.4 million in cash in 2000, we have also listed in 2001
for sale five of our older apartment communities which have less opportunity for
cash flow growth than our remaining communities and which may require increasing
capital expenditures as they age. Proceeds from these sales, should any or all
of them be consummated, will be reinvested in newer projects with only a
temporary reduction in rental income.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Accounting Predecessor. While Merry Land has operated only since
October 15, 1998 we are required to present financial statements for the years
2000, 1999, and 1998. Accordingly, only the Consolidated Balance Sheets for
December 31, 2000, and December 31, 1999, and the Consolidated Statements of
Income for the periods ending December 31, 2000, and December 31, 1999, are
financial statements prepared for a real company. The 1998 Consolidated
Statements of Income are for an "accounting predecessor" which has been
constructed in accordance with the rules of the Securities and Exchange
Commission as described in the Notes to the Financial Statements.
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Rental Operations-All Apartments. At December 31, 2000 Merry Land owned
eleven apartment communities, five of which were owned for all of 1999 and six
of which were bought in August 1999. The old Merry Land had owned all eleven of
these communities prior to the October 1998 spin off. The following table
describes the operating performance of all communities following the purchase of
the six communities in August 1999 and the original five communities for periods
prior to that. (Dollars in thousands, except average monthly rent)
Twelve Months
% Change from ------------------------------------------
Change 1999 to 2000 2000 1999 1998
------ ------------ --------- --------- --------
Rental income 61.6% $ 7,107 $ 18,639 $ 11,532 $ 7,639
Operating expenses 53.3 2,212 6,361 4,149 3,025
Depreciation and amortization 58.9 885 2,388 1,503 1,172
------ --------- --------- --------- --------
Total expenses 54.8 3,097 8,749 5,652 4,197
Operating income 68.2% $ 4,010 $ 9,890 $ 5,880 $ 3,442
Average occupancy (1) -- (0.9)% 96.6% 97.5% 97.3%
Average monthly rent (2) 4.7% $ 31 $ 685 $ 654 $ 638
Expense ratio (3) -- (1.8)% 34.2% 36.0% 39.6%
- ---------------
(1) Represents the average physical occupancy at each month end for the
period held.
(2) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units at December 31.
(3) Represents total operating expenses divided by rental revenues.
The purchase of six apartment communities in the third quarter of 1999
increased the weighted average number of apartment units owned to 2,301 in 2000,
from 1,480 in 1999, and 1,004 in 1998. These six new communities contributed
$5.6 million in operating income in 2000 as compared to $1.8 million in 1999.
The 4.7% increase in portfolio average rental rates in 2000 from 1999
resulted from 6.3% higher rents at the company's continuing properties and the
3.4% higher rents at the six communities acquired in 1999.
In 1999 operating income increased by $2.4 million from 1998 due to the
$1.8 million contributed by the 1,297 units purchased in August 1999 and due to
the 5.0% increase in average rents and the aggressive expense control on the
five communities owned for all of 1998 and 1999.
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Rental Operations-Same Store. The following table compares the
performance of the 1,004 units, which the company held for all of 1999 ("same
store" results) to their performance in 2000. (Dollars in thousands, except
average monthly rent; see footnotes on previous page)
Twelve months
% Change from ----------------------
Change 1999 to 2000 2000 1999
------ ------------ ------ ------
Rental income 5.1% $ 407 $8,395 $7,988
Personnel (4.8) (49) 973 1,022
Utilities 2.9 6 269 263
Operating 2.1 6 257 251
Maintenance and grounds 30.1 159 684 525
Taxes and insurance (5.3) (42) 738 780
Depreciation and amortization 2.6 30 1,139 1,109
---- ----- ------ ------
Total expenses 2.8 110 4,060 3,950
Operating income 7.3% $ 297 $4,335 $4,038
Average occupancy (1) -- (0.7)% 97.0% 97.7%
Average monthly rent (2) 6.3% $ 42 $ 712 $ 670
Expense ratio (3) -- (0.8)% 34.8% 35.6%
For the year ended December 31, 2000 net operating income increased
7.3% for the five apartment communities as a result of 5.1% higher rental income
and 2.8% higher expenses. The 0.7% decrease in occupancy was more than offset by
the 6.3% growth in rent rates. In the aggregate, the Charleston and Savannah
rental markets were strong in both 2000 and 1999 as demand for apartments
exceeded additions to supply. Charleston rents increased to $719, or 9.6%, and
Savannah rents increased to $707, or 4.0%, during this period.
Charleston's citywide occupancy had fallen to 91.5% at the end of 2000,
from 94% at the end of 1999 due to an increase in the level of new apartment
construction. We believe the citywide occupancy could continue to drop to around
90% at the end of 2001 and put pressure on our operating results.
Total operating expenses, excluding depreciation for the year, were up
2.9%. The 30% increase in maintenance expense was partially offset by the
decrease in personnel expense and taxes and insurance expense. Maintenance
expense increased primarily due to higher turnover costs and increased corporate
repair projects. Taxes and insurance expense decreased due to lower millage
rates in Savannah.
Rental Operations-Commercial. The company now owns three commercial
properties in the Augusta area after selling two buildings located in downtown
Augusta during 2000. Occupancy for the two remaining properties, other than our
corporate office, was less than 60% at December 31, 2000.
The net income before depreciation increased $54 thousand in 2000 from
a net loss of $37 thousand in 1999 due to reduced maintenance and utility
expenses and slightly higher occupancy.
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16
Gross rental income in 1999 had decreased 46.7% from 1998, primarily as
a result of reduced occupancy following our spin off in 1998.
Land. Land net operating income decreased to $697 thousand in 2000 from
$1.5 million in 1999 and $1.7 million in 1998 due primarily to the expiration of
one of the clay royalty agreements in 1999. (Dollars in thousands)
Twelve months
% Change from --------------------------------------
Change 1999 to 2000 2000 1999 1998
----- ------------ ------ -------- --------
Rental income (1) (42)% $ (132) $ 180 $ 312 $ 70
Royalty:
Sand (20) (29) 117 146 129
Clay (59) (721) 492 1,213 1,565
----- ------- ------ -------- --------
Total royalty (55) (750) 609 1,359 1,694
Gross operating income (53)% $ (882) $ 789 $ 1,671 $ 1,764
(1) Includes timber sales of $145 thousand and $200 thousand in 2000 and
1999, respectively.
Mortgage Interest Income. Interest income from mortgage notes
receivable totaled $36 thousand in 2000, down from $52 thousand and $106
thousand in 1999 and 1998, respectively. The decreases resulted from the
repayment of outstanding obligations in 1999.
Property Management Fees. Management fee income decreased $432
thousand, or 72%, to $166 thousand in 2000 from $598 thousand in 1999 due to the
completion of the management agreements with Equity Residential on seven Equity
Residential lease-up communities and due to the acquisition in August 1999 of
six other Equity Residential apartment communities that had been fee managed by
Merry Land. Property management fees are expected to increase somewhat in 2001
due to the completion of lease up of the existing communities and the addition
of new third party contracts. (Dollars in thousands)
2000 1999 1998
----------------- ------------------- -------------------
Units Fees Units Fees Units Fees
----- ----- ------ ------- ------ -------
Equity Residential development -- $ -- 1,635 $ 330 1,917 $ 74
Equity Residential joint ventures (1) -- -- 1,297 248 1,297 75
Other communities 873 166 56 20 -- --
----- ----- ------ ------- ------ -------
Total 873 $ 166 2,988 $ 598 3,214 $ 149
(1) Acquired on August 24, 1999 from Equity Residential Properties Trust
Limited Liability Companies.
Development Fees. Development fee income decreased 25% to $1.2 million
in 2000, from $1.6 million in 1999. With the exception of $180 thousand in
development fees from Godley Station, a third party development contract in
Savannah, all development fees in 1998, 1999 and 2000 were earned under
agreements with Equity Residential whereby the company provided development
consulting services for seven Equity Residential apartment development
communities that had been owned by the old Merry Land. At December 31, 2000 the
development assignments with Equity Residential had been completed and we expect
development fee income to decline substantially in 2001.
16
17
Long Term Gain. During 2000 the company sold three parcels of land and
two commercial buildings for a total of $1.3 million and a gain of $452
thousand. In addition, Merry Land sold several acres of the Brickyard Tract in
Augusta for a gain of $21 thousand.
Other Investment Income. Merry Land earned $34 thousand in investment
income from the Cypress Cove joint venture in 2000 in addition to the $74
thousand the company earned in management fees.
Interest and Dividend Expense. Total interest and preferred dividend
expense increased $2.5 million to $7.1 million in 2000, from $4.6 million in
1999 primarily due to the additional mortgages related to the August 1999
acquisition of six apartment communities. (Dollars in thousands)
Twelve months ended December 31,
Change from ---------------------------------------
1999 to 2000 2000 1999 1998
------------ ----- ------ ------
Line of credit $ 67 $ 117 $ 50 $ --
Construction loans 175 175 -- --
Mortgage loans 4,167 7,307 3,140 --
Senior debt (655) -- 655 285
Subordinated debt (774) -- 774 329
Preferred stock (193) -- 193 81
-------- ------ ------ ------
Total interest expense 2,787 7,599 4,812 695
Capitalized for development (325) (504) (179) --
-------- ------ ------ ------
Net interest expense $ 2,462 $7,095 $4,633 $ 695
Interest expense related to the $91 million mortgage loans totaled $7.3
million in 2000, an increase of $4.1 million from 1999. During 1999 interest
expense related to the $41.2 million mortgage loans closed in June 1999, and the
$50.7 million mortgage loans closed in August 1999, totaled $1.7 million and
$1.5 million, respectively.
Interest expense on the Merritt at James Island Apartment Community's
construction loan totaled $175 thousand in 2000. Construction began in April
2000 and, at the end of 2000, the company had borrowed $5.4 million against the
$16.2 million loan commitment.
Interest capitalized related to development in progress increased $325
thousand to $504 thousand in 2000, from $179 thousand in 1999, due to the
construction on the Merritt at James Island apartment community and the Calhoun
Street condominium units. Interest expenditures are expected to increase in 2001
due to the completion and permanent financing of Merritt at James Island and the
commencement of construction in January 2001 on the Merritt at Whitemarsh
apartment community in Savannah. The total construction loan commitment on the
Merritt at Whitemarsh development is $14.5 million.
The $18.3 million of senior debt, $20.0 million of subordinated debt,
and $5.0 million of preferred stock obligations incurred in connection with the
October 15, 1998 spin off were repaid in June 1999. Interest expense, including
dividends accrued on the preferred stock, totaled $1.6 million and $695 thousand
for 1999 and 1998, respectively.
The assets contributed to the company by the old Merry Land were not
encumbered by mortgage debt at any time prior to the spin off in 1998.
Therefore, the financial statements for
17
18
the accounting predecessor to Merry Land for periods prior to the spin off
assume that there was no debt or related interest expense.
General and Administrative Expenses. General and administrative
expenses totaled $3.5 million in 2000 and $2.7 million in 1999. The increase was
due to a greater number of employees, the fees related to the company's proposed
stock rights offering, and increased acquisition costs.
Expense for the period October 15, 1998 to December 31, 1998 was $516
thousand. For periods prior to the spin off, management has estimated common and
corporate level expenses, which might have been incurred on behalf of the
accounting predecessor to Merry Land by the old Merry Land.
Impairment Charge. In conjunction with the likely disposition of
several of our commercial properties, the company wrote down the carrying cost
of several of these assets to their estimated value as determined in the
company's formation and startup. This produced a pretax charge in 1998 of $1.7
million.
Income Before Taxes and Extraordinary Item. Income before taxes and
extraordinary item decreased to $1.6 million in 2000 from $2.0 million in 1999.
This decrease was primarily related to the $779 thousand increase in general and
administrative expense, the $2.5 million increase in interest expense, and the
$806 thousand decrease in development and management fee income. These decreases
were partially offset by the $4.0 million increase in net rental income
primarily from an increase in the number of apartments owned and the $473
thousand gain from the sale of real estate assets.
In 1998 income before taxes and extraordinary item was $2.6 million. As
discussed in Note 1 to the financial statements, general and administrative
expenses estimated in the statements were considerably less prior to the spin
off than after the spin off and there was no interest expense incurred prior to
the spin off.
Income Taxes. The income tax expense for 2000 was $601 thousand that
consisted of a $51 thousand current income tax benefit and $652 thousand
deferred income tax expense.
The income tax expense for 1999 was $1.0 million, which included a $442
thousand income tax provision on the discount on repayment of the subordinated
debt.
The income tax benefit in 1998, which related to the period from
October 15, 1998 to December 31, 1998, arose primarily from the impairment
charge taken against several of the Augusta commercial properties. As a REIT,
the accounting predecessor to Merry Land was not subject to income taxes.
Discount on Repayment of Debt and on Redemption of Preferred Stock. In
June 1999 there was an extraordinary gain from the discount on the repayment of
subordinated debt of $722 thousand, net of income taxes of $442 thousand. The
discount on redemption of the preferred stock was $1.2 million.
18
19
Funds From Operations. Funds from operations was $3.4 million for 2000
compared to $3.2 million in 1999. The following is a reconciliation of net
income to funds from operations. (Dollars in thousands)
2000 1999
--------- ---------
Net income available for common $ 981 $ 3,297
Add depreciation of operating real estate owned 2,598 1,504
Add long term capital (gain) loss net of tax effect (294) 29
Add tax benefit resulting from permanent
difference in book and tax basis 113 252
Less extraordinary gain -- (722)
Less discount on redemption of preferred stock -- (1,164)
--------- ---------
Funds from operations available to common shares $ 3,398 $ 3,196
========= =========
Weighted average common shares outstanding--
Basic 2,229 2,192
Diluted 2,324 2,264
Even though 2000's FFO was only $202 thousand greater than last year,
recurring FFO is at a higher level compared to 1999. FFO in 1999 included $1.8
million in development and management income from Merry Land's agreement with
Equity Residential to complete our predecessor's pipeline and $248 thousand in
management fee income from the six joint venture communities that were acquired
in August 1999. In addition, clay royalty payments decreased $721 thousand as
one of the royalty agreements expired. However, as a direct result of the six
1999 apartment acquisitions, the 2000 apartment operating income before
depreciation increased $4.6 million and $2.0 million net of the incremental
mortgage interest.
The company believes that funds from operations is an important measure
of its operating performance. Funds from operations does not represent cash
flows from operations as defined by generally accepted accounting principles,
GAAP, and should not be considered as an alternative to net income, or as an
indicator of the company's operating performance, or as a measure of the
company's liquidity. The company defines funds from operations as net income
computed in accordance with GAAP, excluding all non-recurring items and net
realized gains (losses), plus depreciation of operating real estate.
Projects Under Development. Merry Land began construction in April 2000
of Merritt at James Island, a 230 unit apartment community, located in
Charleston. The $17.3 million projected cost is being funded with non-recourse
financing. The first units will be available for rent in April 2001 and
construction will be completed in fall 2001.
In January 2001 we began the construction of Merritt at Whitemarsh, a
241 unit luxury apartment community, located in Savannah. Total construction
costs will be approximately $19 million and the first units should be available
for rent this fall.
The Waters Edge residential lots are on a 35 acre site adjacent to our
Waters Edge community, which lies along the Ashley River in the Summerville area
of Charleston. We expect to begin development and marketing of this tract for up
to nine single family lots in 2001. Total development cost is projected to be
approximately $1.2 million.
19
20
Renovation of the Calhoun Street condominiums located in downtown
Charleston was completed in October 2000 for a total investment of $1.6 million.
One of the seven units has been sold.
LIQUIDITY AND CAPITAL RESOURCES
Financial Structure. At December 31, 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 December 31, 2000, closing price
of $5.375 per share). At December 31, 2000 the company's financial structure was
as follows: (Dollars in thousands)
Equity at
Book % of total FMV % of total
---------- ---------- ---------- ----------
Mortgage loans $ 91,030 82% $ 91,030 81%
Construction loans 5,364 5 5,364 5
Line of credit 1,500 1 1,500 1
---------- ----- ---------- -----
Total debt 97,894 88 97,894 87
Common 13,559 12 14,335 13
---------- ----- ---------- -----
Total capitalization $ 111,453 100% $ 112,229 100%
Eleven separate wholly owned limited liability companies own our eleven
apartment communities. The existing mortgage financing restricts any of the
limited liability companies from making loans to the company, and distributions
from each limited liability company may be restricted because of loan
requirements to maintain adequate capitalization. Each limited liability company
is a separate legal entity and its assets and liabilities are neither available
to pay the debts of the company nor constitute obligations of the company.
In April 2000 the company began construction on the Merritt at James
Island apartment community. The total loan commitment is $16.2 million
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 and the possible
sale of some or all of five apartment communities. Our primary short-term
liquidity needs include, but are not limited to, operating expenses, capital
improvements, the development of the Merritt at James Island and Merritt at
Whitemarsh communities, the Waters Edge land development and a Sun City, South
Carolina land acquisition. Capital improvements are expected to decrease
substantially in 2001.
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.
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 sale of securities were made
pursuant to the registration statement.
20
21
Cash Flows. Cash and cash equivalents totaled $4.5 million on December
31, 2000, an increase of $1.4 million from December 31, 1999. The $4.6 million
net cash provided from operating activities and the $1.3 million cash provided
from the sale of real estate was partially offset by the $475 thousand invested
in the Cypress Cove community joint venture, $2.0 million spent on improvements
on the residential communities, net of the $600 thousand mortgage reserve
reimbursements, and the $2.0 million spent on development expenditures,
including escrows and deferred loan costs, and net of the $5.4 million
construction loan proceeds. The $730 thousand received from both the ESOP and
other notes receivable were offset by the $681 thousand in mortgage principal
payments.
Cash and cash equivalents totaled $3.1 million on December 31, 1999, a
decrease of $900 thousand from December 31, 1998. The $4.6 million net cash
provided from operating activities was offset primarily by the $2.2 million used
to acquire the ownership interests in six apartment communities, the $1.2
million increase in mortgage escrows, the $825 thousand to acquire the Calhoun
Street condominium building and the $1.0 million for improvements on the
residential communities. In addition, the $800 thousand received from the
repayment of a mortgage notes receivable was offset by the $1.0 million lent to
the Employee Stock Ownership Plan.
Inflation. Substantially, all of the company's leases are for terms of
one year or less, which should enable the company to replace existing leases
with new leases at higher rent rates in times of rising prices. The company
believes 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.
21
22
Quantitative and Qualitative Disclosures about Market Risk. At December
31, 2000 the company's only remaining variable rate debt consisted of a $2.0
million line of credit. While the line of credit matures in June 2001, the $1.5
million outstanding on the line of credit is expected be paid off in early 2001
and replaced by a $3.0 million secured loan due in August 2002. The interest
rate on this new loan will be approximately LIBOR plus 2% and secured by the
Calhoun Street condominiums and a Sun City, South Carolina development tract.
Proceeds from the Calhoun Street sales will be used to pay down the loan.
The company does not enter into contracts for trading purposes and does
not use leveraged instruments. None of the company's notes receivable have
variable interest rates. The following table summarizes Merry Land's risk
associated with notes payable and notes receivable as of December 31, 2000. The
table includes principal payments and the related weighted average interest
rates by expected year of maturity. The variable rate represents the floating
interest rate calculated at December 31, 2000. (Dollars in thousands)
Expected fiscal year of maturity
----------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair value
------- ------ -------- -------- -------- ---------- --------- ----------
Debt:
Fixed rate $ 763 $ 849 $ 919 $ 975 $ 1,076 $ 103,242 $ 107,824 $107,824
Avg. interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 8.0% 8.0% --
Variable rate $ 1,500 -- -- -- -- -- $ 1,500 $ 1,500
Avg. interest rate 7.8% -- -- -- -- -- 7.8% --
Notes receivable:
Fixed rate $ 52 $ 47 $ 40 $ 42 $ 42 $ 240 $ 463 $ 463
Avg. interest rate 7.3% 6.9% 6.1% 6.1% 6.1% 6.2% 6.3% --
22
23
PART II
Item 8. Financial Statements and Supplementary Data
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Dec. 31, 2000 Dec. 31, 1999
------------- -------------
ASSETS
Real estate assets, at cost:
Land held for mining and development $ 4,055,883 $ 5,905,288
Apartments 98,116,609 95,615,665
Development in progress 9,844,356 2,820,564
Commercial rental property 2,430,478 2,627,652
Furniture and equipment 1,905,830 1,882,536
------------- -------------
Total cost 116,353,156 108,851,705
Accumulated depreciation and depletion (16,151,081) (13,335,596)
------------- -------------
100,202,075 95,516,109
INVESTMENT IN JOINT VENTURE 474,512 --
CASH AND CASH EQUIVALENTS 4,452,189 3,067,372
ESCROWED CASH 1,724,997 1,187,142
OTHER ASSETS
Notes receivable 462,656 564,073
Deferred loan costs 1,495,217 1,111,309
Other receivables 152,769 154,496
Deferred tax asset 5,130,885 5,733,521
Other 86,768 72,603
------------- -------------
7,328,295 7,636,002
------------- -------------
TOTAL ASSETS $ 114,182,068 $ 107,406,625
============= =============
NOTES PAYABLE
Line of credit $ 1,500,000 $ 1,500,000
Construction loans 5,363,868 --
Mortgage loans 91,029,928 91,711,187
------------- -------------
97,893,796 93,211,187
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 650,261 631,863
Accrued property taxes 67,117 467,863
Deferred revenue 168,998 172,100
Payables and accrued liabilities 1,842,731 1,262,961
------------- -------------
2,729,107 2,534,787
STOCKHOLDERS' EQUITY
Common stock, at $1 stated value, 2,666,966 and 2,601,300 shares issued and
outstanding in 2000 and 1999, respectively 2,666,966 2,601,300
Capital surplus 9,403,285 9,139,014
Unamortized compensation (1,751,179) (1,710,055)
Cumulative undistributed net earnings 3,629,665 2,648,324
Note receivable from ESOP (389,572) (1,017,932)
------------- -------------
13,559,165 11,660,651
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 114,182,068 $ 107,406,625
============= =============
The accompanying notes are an integral part
of these consolidated balance sheets.
23
24
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
------------------------------------------------
(Accounting
predecessor)
2000 1999 1998
------------ ------------ ------------
INCOME
Rental income $ 19,063,360 $ 12,063,730 $ 8,120,569
Royalty income 608,860 1,358,685 1,693,489
Interest income 211,066 231,667 136,644
Discount on receivable redemption -- (29,512) --
Management fees 166,375 598,344 148,958
Development fees 1,212,771 1,586,996 515,016
Other investment income 34,429 -- --
Long term gains 472,542 -- --
------------ ------------ ------------
21,769,403 15,809,910 10,614,676
EXPENSES
Rental expense 6,675,830 4,542,132 3,449,045
Interest expense 7,095,054 4,633,046 694,462
Depreciation 2,815,534 1,838,735 1,556,457
Amortization 106,345 40,571 --
General and administrative expense 3,494,660 2,715,103 653,401
Impairment charge -- -- 1,666,463
------------ ------------ ------------
20,187,423 13,769,587 8,019,828
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM 1,581,980 2,040,323 2,594,848
Income tax (expense) benefit (600,639) (629,095) 462,597
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 981,341 1,411,228 3,057,445
Extraordinary gain - discount on repayment of debt, net of
income tax provision of $441,746 -- 721,969 --
------------ ------------ ------------
NET INCOME 981,341 2,133,197 3,057,445
Discount on redemption of preferred stock -- 1,163,715 --
------------ ------------ ------------
NET INCOME - COMMON $ 981,341 $ 3,296,912 $ 3,057,445
============ ============ ============
Weighted average common shares
Basic 2,228,515 2,191,469 2,113,393
Diluted 2,324,364 2,263,768 2,129,479
EARNINGS PER COMMON SHARE
Basic $ 0.44 $ 1.50 $ 1.45
Diluted $ 0.42 $ 1.46 $ 1.44
The accompanying notes are an integral part of these consolidated statements.
Specific reference is made to Note 2 where the basis of presentation for
these statements is described and the lack of comparability between
periods is discussed for 1998.
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25
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
------------------------------------------------
(Accounting
predecessor)
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 981,341 $ 2,133,197 $ 3,057,445
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of real property (472,542) -- --
Discount on repayment of debt, net of taxes -- (721,969) --
Depreciation expense 2,815,534 1,838,735 1,556,457
Amortization expense 106,345 40,571 --
Amortization of compensation element of restricted
stock grants 289,261 133,432 161,086
Impairment charge -- -- 1,666,463
Deferred income tax expense (benefit) 600,639 1,058,230 (586,443)
Increase in payable and accrued liabilities 576,547 806,767 422,252
Decrease in other receivables 3,278 1,280,016 --
(Decrease) increase in deferred revenue (3,102) (599,527) 440,931
(Decrease) increase in property taxes payable (400,746) 157,927 65,309
Increase in accrued interest expenses 18,398 187,310 444,553
(Decrease) increase in dividend payable -- (81,111) 81,111
Other 119,801 (401,273) (271,673)
------------ ------------ ------------
Net cash provided by operating activities 4,634,754 5,832,305 7,037,491
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 101,417 748,661 69,481
Capitalized costs, improvements and replacements (2,619,949) (1,048,705) (1,599,960)
Purchase of real property -- (55,324,488) --
Sale of real property 1,266,097 -- --
Investment in joint ventures (474,512) -- --
Expenditures for development (5,805,851) -- --
Decrease (increase) in receivable from ESOP 628,360 (1,017,932)
------------ ------------ ------------
Net cash used in investing activities (6,904,438) (56,642,464) (1,530,479)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments of) net proceeds from mortgage loans (681,259) 91,711,187 --
Decrease (increase) in mortgage escrow 628,126 (1,187,142) --
Proceeds from line of credit 1,500,000 --
Proceeds from construction loans 5,363,868 -- --
Increase in development escrow (1,165,981) -- --
Repayment of senior debt -- (18,317,429) --
Repayment of subordinated debt -- (18,836,285) --
Repayment of preferred stock -- (3,836,285) --
Increase in deferred loan costs (490,253) (1,151,880) --
Contributions from Merry Land & Investment Co., Inc. 1,554,584
Other capital contributions -- -- 2,400,000
Distributions to Merry Land & Investment Co., Inc. -- -- (5,466,231)
------------ ------------ ------------
Net cash used in financing activities 3,654,501 49,882,166 (1,511,647)
NET INCREASE (DECREASE) IN CASH $ 1,384,817 $ (927,993) $ 3,995,365
CASH AT BEGINNING OF PERIOD $ 3,067,372 $ 3,995,365 $ --
------------ ------------ ------------
CASH AT END OF PERIOD $ 4,452,189 $ 3,067,372 $ 3,995,365
============ ============ ============
Interest paid $ 7,580,699 $ 4,180,096 $ 168,798
Income taxes paid $ -- $ -- $ --
Non cash transactions:
Deferred tax asset from initial contribution $ -- $ -- $ 6,323,414
Issuance of debt in initial capitalization $ -- $ -- $ 38,317,429
Issuance of preferred stock in initial contribution $ -- $ -- $ 5,000,000
The accompanying notes are an integral part of these consolidated statements.
Specific reference is made in Note 2 where the basis of presentation for these
statements is described and the lack of comparability
between periods is discussed for 1998.
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26
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cumulative
Common stock undistributed
Investment --------------------------- Capital Unamortized net earnings
by parent Shares Amount surplus compensation (deficit)
------------ ------------ ------------ ------------ ------------ -------------
(Accounting predecessor)
BALANCE, DECEMBER 31, 1997 $ 43,379,260 -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============ ============
Net income prior to spin off-Note 1 3,706,033 -- -- -- -- --
Net distributions prior to spin off-Note 1 (3,911,647) -- -- -- -- --
Initial capitalization resulting from the
spin off-Note 1 (43,173,646) 2,151,315 2,151,315 5,152,926 -- --
Capital contribution in connection
with spin off-Note 1 -- -- -- 2,400,000 -- --
Issuance of restricted stock grants -- 446,318 446,318 1,569,059 (2,015,377) --
Amortization of compensation element of
restricted stock -- -- -- -- 161,086 --
Net income (loss) subsequent to spin off -- -- -- -- -- (648,588)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 -- 2,597,633 2,597,633 9,121,985 (1,854,291) (648,588)
============ ============ ============ ============ ============ ============
Net income-common -- -- -- -- -- 3,296,912
Issuance of restricted stock grants -- 6,000 6,000 25,500 -- --
Forfeiture of restricted stock grants -- (2,333) (2,333) (8,471) 10,804 --
Amortization of compensation element of
restricted stock -- -- -- -- 133,432 --
Issuance of notes receivable to the ESOP -- -- -- (1,017,932) -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 -- 2,601,300 2,601,300 8,121,082 (1,710,055) 2,648,324
============ ============ ============ ============ ============ ============
Net income-common -- -- -- -- -- 981,341
Issuance of restricted stock grants -- 80,000 80,000 325,000 (405,000) --
Forfeiture of restricted stock grants -- (14,334) (14,334) (60,729) 75,063 --
Amortization of compensation
element of restricted stock -- -- -- -- 288,813 --
Repayment of notes receivable from
the ESOP -- -- -- 628,360 -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 $ -- 2,666,966 $ 2,666,966 $ 9,013,713 $ (1,751,179) $ 3,629,665
============ ============ ============ ============ ============ ============
Total
stockholders'
equity
-------------
(Accounting predecessor)
BALANCE, DECEMBER 31, 1997 $ 43,379,260
============
Net income prior to spin off-Note 1 3,706,033
Net distributions prior to spin off-Note 1 (3,911,647)
Initial capitalization resulting from the
spin off-Note 1 (35,869,405)
Capital contribution in connection
with spin off-Note 1 2,400,000
Issuance of restricted stock grants --
Amortization of compensation element of 161,086
restricted stock
Net income (loss) subsequent to spin off (648,588)
------------
BALANCE, DECEMBER 31, 1998 9,216,739
============
Net income-common 3,296,912
Issuance of restricted stock grants 31,500
Forfeiture of restricted stock grants --
Amortization of compensation element of
restricted stock 133,432
Issuance of notes receivable to the ESOP (1,017,932)
------------
BALANCE, DECEMBER 31, 1999 11,660,651
============
Net income-common 981,341
Issuance of restricted stock grants --
Forfeiture of restricted stock grants --
Amortization of compensation
element of restricted stock 288,813
Repayment of notes receivable from
the ESOP 628,360
------------
BALANCE, DECEMBER 31, 2000 $ 13,559,165
============
The accompanying notes are an integral part of these consolidated statements.
Specific reference is made to Note 2 where the basis of presentation
for these statements is described and the lack of comparability
between periods is discussed for 1998.
26
27
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, Inc. 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,
Inc.
2. BASIS OF PRESENTATION
The financial statements for periods prior to the spin off include only
those assets and liabilities contributed by Merry Land & Investment Company.
These financial statements have been prepared using Merry Land & Investment
Company's historical basis of the assets and liabilities and the historical
results of operations and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission applicable for
subsidiaries that have been spun off. These rules stipulate that statements
shall be prepared as if the entity had existed prior to the existence of the new
company. Such statements are not those of a real entity, but describe a
hypothetical "accounting predecessor" to Merry Land Properties.
Management has estimated common and corporate level expenses, which
would have been incurred on behalf of the accounting predecessor by Merry Land &
Investment Company and has allocated such expenses based on their best estimate
of the time and effort that would have been expended. Property management costs
have been estimated and allocated on a per unit basis. The assets contributed to
Merry Land Properties by Merry Land & Investment Company were not encumbered by
mortgage debt at any time prior to the spin off and the financial statements for
the accounting predecessor for periods prior to the spin off do not include any
debt or related interest expense.
Merry Land & Investment Company was qualified to be taxed as a real
estate investment trust and was not subject to federal income taxation on
distributed income. Accordingly, no provision for income tax is included in the
accompanying financial statements for periods prior to the spin off.
Amounts shown for periods and dates prior to the spin off assume lower
levels of general and administrative expenses than have actually been incurred
after the spin off and exclude any debt, interest expense or income taxes.
Accordingly, comparisons of periods subsequent to the spin off with periods
prior to the spin off may be difficult and misleading.
27
28
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
company and its wholly owned subsidiary corporations. Any significant
intercompany transactions and accounts have been eliminated in consolidation.
Recognition of Income
The company leases its apartment properties generally for terms of one
year or less. Rental income is recognized when earned. Commercial properties are
leased under operating leases. Rental income is recognized on a straight-line
basis over the terms of the respective leases. The company recognizes mineral
royalty income, both as clay and sand are mined, and also on a straight line
basis over the life of the related agreements depending on the terms of the
underlying leases. Property management and development consulting fee income are
recognized when earned.
Real Estate Assets and Depreciation
Real estate assets are carried at depreciated cost except when it is
determined that the asset's carrying value may not be recoverable. When factors
indicate that a real estate asset held for use should be evaluated for possible
impairment, the company uses an estimate of the future undiscounted net cash
flows of the related asset over the remaining useful life in measuring whether
the asset is recoverable. The impairment is measured as the difference between
the carrying value and the estimated fair value. The company estimates fair
value based on sales prices for comparable assets or discounted future cash
flows. Assets held for sale are valued at the lesser of carrying costs or
estimated fair market value, less costs to sell.
Depreciation of buildings and equipment is computed on the
straight-line method for financial reporting purposes using the following
estimated useful lives:
Apartments 40-50 years
Land improvements 15 years
Commercial rental buildings 40-50 years
Furniture, fixtures, equipment and carpet 5-15 years
Operating equipment 3-5 years
Straight-line and accelerated methods are used for income tax reporting
purposes. Expenditures that extend the lives of assets are capitalized; other
repairs and maintenance are expensed.
28
29
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long Lived Assets to Be Disposed of," requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In October 1998 in
conjunction with formulation of a new business plan for the company's commercial
properties, the company recorded an impairment charge of approximately $1.7
million related to the likely disposal of several commercial properties in
Augusta, Georgia. This charge reduces the company's carrying value in the
properties to the estimated fair value, less selling costs. This resulted in a
carrying value of approximately $775,000 at December 31, 1999 and 1998, which is
included in the commercial rental property in the accompanying consolidated
balance sheets. In 2000, we sold two of these properties for $257,000 at a net
gain of $33,000.
In January 2001 the company identified and classified five apartment
communities as available for sale. These communities had a carrying value of
$33.8 million at December 31, 2000. Management believes that the fair market
value of these five apartment communities exceeds their carrying value at
December 31, 2000.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, all
investments purchased with an original maturity of three months or less are
considered to be cash equivalents.
Income Taxes
In conjunction with the spin off, the company became a taxable "C"
corporation and began accounting for income taxes under SFAS No. 109 "Accounting
for Income Taxes." Deferred income tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the tax rates and regulations that may be in
effect when the differences are expected to reverse.
Earnings Per Share and Share Information
Basic earnings per common share are computed on the basis of the
weighted average number of shares outstanding during each period excluding the
unvested shares issued to employees under the company'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.
For periods prior to the spin off, earnings per share have been
computed giving effect to the distribution ratio of one share of Merry Land
Properties for every twenty common shares of Merry Land & Investment Company.
Accordingly, weighted average common shares outstanding for the accounting
predecessor have been assumed to be 1/20 of the shares outstanding of Merry Land
& Investment Company for the periods prior to the spin off. For the periods
prior to the spin off, dilutive earnings per share are calculated giving effect
to dilutive options of Merry Land & Investment Company using the same ratio.
29
30
A reconciliation of the average outstanding shares used in the two
calculations is as follows:
2000 1999 1998
---------- ---------- ----------
Weighted average shares outstanding-basic 2,228,515 2,191,469 2,113,393
Dilutive potential common shares 95,849 72,299 16,086
---------- ---------- ----------
Weighted average shares outstanding-diluted 2,324,364 2,263,768 2,129,479
Use of Estimates
The presentation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect both the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Statement, as amended in June 1999 by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
Effective Date of SFAS No. 133," is effective for fiscal years beginning after
June 15, 2000. Management will adopt SFAS No. 133 effective January 1, 2001 and,
based on current business activities, believes that it will not have a material
effect on the financial statements.
4. NOTES RECEIVABLE
At December 31, 2000 and 1999 notes receivable consisted of the
following:
Note Balances
Original --------------------
Rate Due Amount 2000 1999
------ ----- ---------- -------- --------
Brothersville 6.00% 11/12 $ 675,000 $384,983 $470,957
Brothersville 10.00% 9/02 327,600 25,465 38,195
New Zion 7.00% 11/12 60,000 52,208 54,921
---------- -------- --------
Total $1,062,600 $462,656 $564,073
30
31
5. DEBT
At December 31, 2000 and 1999 debt consisted of the following:
Maturity
Date Interest Rate 2000 1999
-------- -------------- ------------ ------------
Line of credit 06/24/01 LIBOR+1.25% $ 1,500,000 $ 1,500,000
Construction/permanent loan-James Island LP 04/19/40 8.65%(1) 5,363,868 --
Mortgage Loan-Huntington LLC 09/01/07 7.97% 5,038,259 5,074,767
Mortgage Loan-Magnolia Villas LLC 09/01/07 7.97% 4,696,363 4,730,394
Mortgage Loan-Summit Place LLC 09/01/07 7.97% 7,015,310 7,066,145
Mortgage Loan-Woodcrest LLC 09/01/07 7.97% 6,296,833 6,342,461
Mortgage Loan-Greentree LLC 07/01/09 7.73% 6,647,423 6,699,284
Mortgage Loan-Marsh Cove LLC 07/01/09 7.73% 8,073,072 8,136,056
Mortgage Loan-Quarterdeck LLC 07/01/09 7.73% 9,857,854 9,934,763
Mortgage Loan-Waters Edge LLC 07/01/09 7.73% 7,121,320 7,176,879
Mortgage Loan-West Wind LLC 07/01/09 7.73% 9,101,993 9,173,004
Mortgage Loan-Hammocks LLC 09/01/11 7.99% 18,618,837 18,753,048
Mortgage Loan-Windsor Place LLC 09/01/11 7.99% 8,562,664 8,624,386
------------ ------------
Total $ 97,893,796 $ 93,211,187
(1) Represents 8.375% during construction, 8.15% permanent financing
and 0.5% insurance premiums.
In June 1999 the company closed $41.2 million in mortgage financing
with five non recourse loans secured by five apartment communities in Charleston
and Savannah. The proceeds were used to repay at a discount the senior debt,
subordinated debt and preferred stock that were issued in connection with the
merger and spin off. The extraordinary gain from the discount on repayment of
subordinated debt, net of income taxes of $441,746, totaled $721,969.
In August 1999 the company obtained $50.7 million in additional
mortgage financing and $1.5 million against the $2.0 million line of credit to
purchase the remaining partnership interests held by Equity Residential in six
apartment communities that had been owned by our predecessor.
In April 2000 the company began construction on the Merritt at James
Island apartment community. The total loan commitment is $16.2 million.
6. MANAGEMENT INCENTIVE PLAN
In October 1998 the stockholders of Merry Land Properties approved the
1998 Management Incentive Plan. In October 1998 fifteen employees, including the
company's three executive officers, received restricted stock grants for a total
of 446,318 shares of the company's common stock, which are forfeitable in the
event the employee terminates service prior to vesting (except upon death or
disability). The common stock received under the original Management Incentive
Plan vested for all employees in fifteen equal annual installments beginning on
the date granted.
31
32
In January 2000 additional restricted stock grants for a total of
50,000 shares were awarded to the three executive officers in lieu of cash
bonuses that will vest in five equal annual installments beginning one year from
the date granted. In addition, the original awards for certain non-executive
employees were amended reducing the vesting period.
In April 2000 the stockholders of the company approved the 2000
Management Incentive Plan under which 250,000 common stock shares were made
available for grants. During 2000 net additional restricted stock grants for a
total of 15,667 shares were awarded to non-key executive employees leaving
240,348 common shares available for grant at the end of 2000.
7. EMPLOYEE STOCK OWNERSHIP PLAN
In October 1998 Merry Land Properties adopted and assumed Merry Land &
Investment Company's Employee Stock Ownership Plan. Under the plan, the company
makes annual contributions to a trust for the benefit of eligible employees in
the form of either cash or common shares of the company. The amount of the
annual contribution is made at the discretion of the Board of Directors. For
2000 the company contributed $268 thousand to the ESOP.
In 1999 the company loaned the ESOP $1.0 million to buy approximately
200,557 shares of Merry Land's common stock. The note bears an interest rate
equal to the thirty-day LIBOR plus 2.5%, which is due in March 2004. The ESOP
paid the company $62 thousand and $37 thousand in interest in 2000 and 1999,
respectively. The loan balance at the end of 2000 was $390 thousand.
In August 2000 the company established a deferred compensation plan
under Code Section 401(k) of the Internal Revenue Code. The company will provide
a 50% match up to 6% of the eligible employees wages. In 2000 the company's
contribution was $22 thousand.
8. PREFERRED STOCK
In June 1999 the company redeemed its $5,000,000 of Preferred Stock at
a $1.2 million discount. For the period from January 1, 1999 to the date of
redemption the company paid preferred stock dividends of $193,333.
9. COMMON DIVIDENDS
The company did not pay any dividends to common stockholders in 2000.
10. INCOME TAXES
As discussed in Note 3, the company is a taxable "C" corporation. It is
assumed that the accounting predecessor distributed sufficient taxable income to
stockholders in the form of dividends to qualify as a REIT, and thus no income
taxes were provided for in periods prior to the spin off.
32
33
The components of the income tax provision (benefit) are as follows:
2000 1999 1998
---------- ---------- ----------
Current federal tax $ -- $ -- $ 104,271
Current state tax -- -- 19,575
Deferred federal tax 515,245 519,040 (493,749)
Deferred state tax 85,394 110,055 (92,694)
---------- ---------- ----------
Income tax provision/(benefit) $ 600,639 $ 629,095 $ (462,597)
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense is as follows:
2000 1999 1998
-------------------------------------------------------------
% Of % Of % Of
Pretax Pretax Pretax
$ Amount Income $ Amount Income $ Amount Income
-------- ------ --------- ------ ----------- ------
Income tax expense at statutory rate $537,874 34.0% $ 693,711 34.0% $ 882,248 34.0%
Increases (reductions) in taxes resulting from:
Benefit from non taxable income under REIT status -- -- -- -- (1,261,051) (48.6)
State and local income taxes, net of federal income tax benefit 62,765 4.0 80,787 4.0 (51,470) (2.0)
Dividends not deductible -- -- 73,389 3.6 30,790 1.2
Other -- -- 69,109 3.4 1,850 0.1
Non taxable clay lease income -- -- (287,901) (14.2) (64,964) (2.5)
-------- ---- --------- ---- ----------- ----
Total income tax expense (benefit) $600,639 38.0% $ 629,095 30.8% $ (462,597) (17.8)%
Significant components of the company's net deferred income taxes are
as follows:
Dec. 31, 2000 Dec. 31, 1999
------------- -------------
Excess of tax basis of assets over book basis
resulting from spin off $ 5,891,529 $ 6,004,135
Net operating loss carry forward 883,992 765,876
Accelerated depreciation (1,644,636) (844,265)
Other -- (192,225)
------------ ------------
Total deferred tax asset $ 5,130,885 $ 5,733,521
SFAS No. 109 requires a valuation allowance be provided to reduce the
amount of the deferred tax assets if it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management has
determined that no valuation allowance at December 31, 2000 or 1999 is required.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management estimates that the carrying value of cash and cash
equivalents, notes receivable and notes payable approximate their fair values
when compared to instruments of similar type, maturity and terms.
33
34
12. SEGMENT INFORMATION
The company 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.
DECEMBER 31, 2000 Apartments Commercial & Land Third Party Services Corporate Consolidated
------------ ----------------- -------------------- ------------ --------------
Real estate rental revenue $ 18,638,647 $ 424,713 $ -- $ -- $ 19,063,360
Real estate expense (6,359,770) (316,060) -- -- (6,675,830)
Depreciation and amortization (2,388,171) (208,559) -- (325,149) (2,921,879)
------------ ------------ ------------ ------------ ------------
Income from real estate 9,890,706 (99,906) -- (325,149) 9,465,651
Other income -- 1,081,402 1,379,146 245,495 2,706,043
------------ ------------ ------------ ------------ ------------
Segment income (loss) 9,890,706 981,496 1,379,146 (79,654) 12,171,694
Interest expense -- -- -- (7,095,054) (7,095,054)
General and administrative
expense -- -- (1,182,646) (2,312,014) (3,494,660)
------------ ------------ ------------ ------------ ------------
Income before taxes and
extraordinary item 9,890,706 981,496 196,500 (9,486,722) 1,581,980
Income tax -- -- -- (600,639) (600,639)
------------ ------------ ------------ ------------ ------------
Income before extraordinary
item 9,890,706 981,496 196,500 (10,087,361) 981,341
Extraordinary item -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income $ 9,890,706 $ 981,486 $ 196,500 $(10,087,361) $ 981,341
============ ============ ============ ============ ============
Capital investments $ 2,566,680 $ 5,309,855 $ -- $ 23,294 $ 7,899,829
============ ============ ============ ============ ============
Total real estate assets $ 84,124,081 $ 15,745,303 $ -- $ 332,691 $100,202,075
============ ============ ============ ============ ============
DECEMBER 31, 1999 Apartments Commercial & Land Third Party Services Corporate Consolidated
------------ ----------------- -------------------- ------------ --------------
Real estate rental revenue $ 11,532,264 $ 531,466 $ -- $ -- $ 12,063,730
Real estate expense (4,149,002) (393,130) -- -- (4,542,132)
Depreciation and amortization (1,503,495) (44,846) -- (330,965) (1,879,306)
------------ ------------ ------------ ------------ ------------
Income from real estate 5,879,767 93,490 -- (330,965) 5,642,292
Other income -- 1,358,685 2,185,340 231,667 3,775,692
------------ ------------ ------------ ------------ ------------
Segment income (loss) 5,879,767 1,452,175 2,185,340 (99,298) 9,417,984
Interest expense -- -- -- (4,633,046) (4,633,046)
General and administrative -- -- (975,997) (1,739,106) (2,715,103)
------------ ------------ ------------ ------------ ------------
Income before taxes 5,879,767 1,452,175 1,209,343 (6,471,450) 2,069,835
Income taxes -- -- -- (629,095) (629,095)
Net realized loss -- -- -- (29,512) (29,512)
------------ ------------ ------------ ------------ ------------
Discount on redemption of
preferred stock -- -- -- 1,163,715 1,163,715
Discount on repayment of debt,
net of taxes -- -- -- 721,969 721,969
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 5,879,767 $ 1,452,175 $ 1,209,343 $ (5,244,373) $3, 296,912
============ ============ ============ ============ ============
Capital investments $ 350,963 $ 5,628 $ -- $ 162,272 $ 1,873,705
============ ============ ============ ============ ============
Total real estate assets $ 84,011,308 $ 2,284,488 $ -- $ 528,203 $ 95,516,109
============ ============ ============ ============ ============
DECEMBER 31, 1998 Apartments Commercial & Land Third Party Services Corporate Consolidated
------------ ----------------- -------------------- ------------ --------------
Real estate rental revenue $ 7,638,710 $ 481,858 $ -- $ -- $ 8,120,568
Real estate expense (3,125,712) (323,333) -- -- (3,449,0450)
Depreciation and amortization (1,171,433) (321,659) -- (63,365) (1,556,457)
Impairment charge -- (1,666,463) -- -- (1,666,463)
------------ ------------ ------------ ------------ ------------
Income from real estate 3,341,565 (1,829,597) -- (63,365) 1,448,603
Other income -- 1,693,489 663,974 136,644 2,494,107
------------ ------------ ------------ ------------ ------------
Segment income (loss) 3,341,565 (136,108) 663,974 73,279 3,942,710
Interest expense -- -- -- (694,462) (694,462)
General and administrative -- -- (194,619) (458,781) (653,400)
------------ ------------ ------------ ------------ ------------
Income before taxes 3,341,565 (136,108) 469,355 (1,079,964) 2,594,848
Income tax benefit -- -- -- 462,597 462,597
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 3,341,565 $ (136,108) $ 469,355 $ (617,367) $ 3,057,445
============ ============ ============ ============ ============
Capital investments $ 387,865 $ 205,175 $ -- $ 72,676 $ 1,599,960
============ ============ ============ ============ ============
Total real estate assets $ 30,664,309 $ 2,319,489 $ -- $ (772,205) $ 40,981,608
============ ============ ============ ============ ============
34
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merry Land Properties, Inc:
We have audited the accompanying Consolidated Balance Sheets of Merry
Land Properties, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
related Consolidated Statements of Income, Changes in Stockholders' Equity, and
Cash Flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Merry Land
Properties, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
- -----------------------------------
Arthur Andersen LLP
Atlanta, Georgia
January 18, 2001
35
36
PART II
Item 9--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10--Directors and Executive Officers of the Registrant
Incorporated by reference to the company's definitive proxy statement
filed with the Securities and Exchange Commission.
Item 11--Executive Compensation
Incorporated by reference to the company's definitive proxy statement
filed with the Securities and Exchange Commission.
Item 12--Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the company's definitive proxy statement
filed with the Securities and Exchange Commission.
Item 13--Certain Relationships and Related Transactions
Incorporated by reference to the company's definitive proxy statement
filed with the Securities and Exchange Commission.
36
37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS. The following financial statements are filed as part of
this report:
Report of Independent Public Accountants
Balance Sheets
Statements of Income
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules
are required to be filed by Item 8 and Item 14(d) of Form 10-K:
Report of Independent Public Accountants on Schedules
Real Estate and Accumulated Depreciation
37
38
3. EXHIBITS
(3.i) Articles of Incorporation, as amended by Articles of Amendment to
Articles of Incorporation re Series A Redeemable Cumulative Preferred
Stock (incorporated by reference to Exhibit 3.i of the company's Annual
Report on Form 10-K filed March 31, 1999)
(3.ii) Bylaws, as amended on January 28, 1999 (incorporated by reference to
Exhibit 3.ii of the company's Annual Report on Form 10-K filed March
31, 1999).
(4) Instruments Defining Rights of Security Holders, Including Indentures:
(4.1) The following instruments each dated August 23, 1999 define the rights
of holder of indebtedness of the company's subsidiary:
(a) Deed to Secure Debt and Security Agreement for ML Hammocks at
Long Point, L.L.C. (incorporated by reference to Exhibit 4.8
(a) to the company's Registration Statement on Form S-11 filed
October 21, 1999, file number 333-89469)
(b) Promissory Note for ML Hammocks at Long Point, L.L.C.
(incorporated herein by reference to Exhibit 4.8(b) to the
company's Registration Statement on For S-11 filed October 21,
1999, file number 333-89469)
(4.2) The following instruments each dated April 18, 2000 define the rights
of holder of indebtedness of the company's subsidiary:
(a) Mortgage for ML James Island Apartments, L.P
(b) Mortgage Note for ML James Island Apartments, L.P.
The company has additional long-term debt that does not exceed ten
(10%) percent of the total assets of Merry Land and its subsidiaries on
a consolidated basis. Merry Land agrees to furnish a copy of any such
instrument to the Commission upon request.
38
39
(10) MATERIAL CONTRACTS
(10.1) The company's 1998 Management Incentive Plan (incorporated herein by
reference to Appendix F to Exhibit 10.1 of the company's Registration
Statement on Form 10 filed September 4, 1998)
(10.2) The company's Directors Stock Compensation Plan (incorporated herein by
reference as Exhibit 4.3 to the company's Registration Statement on
Form S-8 filed April 19, 1999, registration number 333-76521)
(10.3) The company's 2000 Management Incentive Plan (incorporated herein by
reference to Appendix A to the company's definitive proxy statement
filed on Form DEF-14a on March 23, 2000)
(21) Subsidiaries of Merry Land Properties, Inc.
(b) -- Reports on Form 8-K. The registrant filed no reports on Form 8-K
during the last quarter of 1999.
39
40
To Merry Land Properties, Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements included in
this Form 10-K, and have issued our report thereon dated January 18, 2001. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 is the responsibility of the
company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
- -----------------------------------
Arthur Andersen LLP
Atlanta, Georgia
January 18, 2001
40
41
PART IV
Item 14--Schedule XI--Real Estate and Accumulated Depreciation for the Year
Ending December 31, 2000:
Cost capitalized Gross amount at which
Initial cost to company subsequent to acquisition carried at December 31, 2000
--------------------------- ------------------------- -----------------------------------------
Buildings & Carrying Buildings & Total
Residential Land improvements Improvements cost Land improvements (a)
- ----------- ------------ ------------ ------------ -------- ----------- ------------ ------------
Greentree $ 325,000 $ 6,001,731 $ 1,324,455 -- $ 325,806 $ 7,325,380 $ 7,651,186
Hammocks @ Long Point 947,016 19,473,395 369,341 -- 947,016 19,842,736 20,789,752
Huntington 485,100 5,216,010 140,643 -- 485,100 5,356,653 5,841,753
Magnolia Villas 375,551 4,584,385 312,060 -- 375,551 4,896,445 5,271,996
Marsh Cove 329,786 6,649,280 1,379,313 -- 345,467 8,012,912 8,358,379
Quarterdeck 580,000 8,216,250 1,615,269 -- 600,402 9,811,117 10,411,519
Summit Place 392,000 6,477,363 209,512 -- 392,000 6,686,875 7,078,875
Waters Edge 448,000 6,490,069 1,795,747 -- 450,864 8,282,952 8,733,816
West Wind Landing 960,000 5,597,500 1,146,204 -- 960,000 6,743,704 7,703,704
Windsor Place 378,778 9,279,624 555,626 -- 378,778 9,835,250 10,214,028
Woodcrest 89,049 5,830,388 142,164 -- 89,049 5,972,552 6,061,601
------------ ------------ ------------ ---- ----------- ------------ ------------
Total Apartments 5,310,280 83,815,995 8,990,334 -- 5,350,033 92,766,576 98,116,609
Commercial 277,500 1,386,283 766,695 -- 292,420 2,138,058 2,430,478
Development in Progress 2,670,633 -- 7,173,723 -- 9,844,356 -- 9,844,356
Land 3,045,437 -- 1,010,446 -- 4,055,883 -- 4,055.883
------------ ------------ ------------ ---- ----------- ------------ ------------
Total $ 11,303,850 $ 85,202,278 $ 17,941,198 $ -- $19,542,692 $ 94,904,634 $114,447,326
============ ============ ============ ==== =========== ============ ============
Accumulated
depreciation Date of Date Depreciable
Residential (a) construction acquired life
- ----------- ------------ ------------ -------- -----------
Greentree $ 2,723,289 1984 1986 5-50 yr.
Hammocks @ Long Point 574,788 1997 1999 5-50 yr.
Huntington 168,830 1986 1999 5-50 yr.
Magnolia Villas 164,653 1986 1999 5-50 yr.
Marsh Cove 2,849,609 1983 1986 5-50 yr.
Quarterdeck 2,688,040 1987 1989 5-50 yr.
Summit Place 218,995 1985 1999 5-50 yr.
Waters Edge 2,439,214 1985 1988 5-50 yr.
West Wind Landing 1,651,530 1984 1993 5-50 yr.
Windsor Place 316,767 1985 1999 5-50 yr.
Woodcrest 196,813 1982 1999 5-50 yr.
------------
Total Apartments 13,992,528
Commercial 546,049 various various 5-50 yr.
Development in Progress -- various -- --
Land 39,365 various -- --
Total $ 14,577,942
============
Notes:
(a)Reconciliation of total real estate carrying value and accumulated
depreciation for the years ending December 31, 2000, 1999 and 1998 are as
follows:
Real estate cost Accumulated depreciation
------------------------------------------ ------------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
Balance at beginning of period $106,969,169 $ 50,642,369 $ 50,603,514 $ 11,981,262 $ 10,432,965 $ 10,264,894
Additions--acquisitions and improvements 8,364,619 56,326,800 2,842,102 2,596,680 1,548,297 1,304,855
Deductions--sales and impairment charge 886,462 -- 2,803,247 -- -- 1,136,784
------------ ------------ ------------ ------------ ------------ ------------
Balance at end of period $114,447,326 $106,969,169 $ 50,642,369 $ 14,577,942 $ 11,981,262 $ 10,432,965
============ ============ ============ ============ ============ ============
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42
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned,
MERRY LAND PROPERTIES, INC.
(Registrant)
/s/ W. TENNENT HOUSTON March 26, 2001
- ------------------------------------------------- ---------------------
W. Tennent Houston Date
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ DAVID W. COBB Director March 26, 2001
- ----------------------------------
David W. Cobb
/s/ DORRIE E. GREEN Vice President, Chief Financial March 26, 2001
- ---------------------------------- Officer, Secretary and Treasurer
Dorrie E. Green
/s/ W. TENNENT HOUSTON Chairman of the Board and March 26, 2001
- ---------------------------------- Chief Executive Officer
W. Tennent Houston
/s/ JEFFERSON B.A. KNOX Director March 26, 2001
- ----------------------------------
Jefferson B.A. Knox
/s/ STEWART R. SPEED Director March 26, 2001
- ----------------------------------
Stewart R. Speed
/s/ MICHAEL N. THOMPSON President, Chief Operating March 26, 2001
- ---------------------------------- Officer and Director
Michael N. Thompson
42