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Washington, D.C. 20549
_________________
FORM 10-K
______________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
DECEMBER 31, 1999
Commission file number: 000-29778
________________
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
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 stated value
(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 6, 2000: Common Stock, $1
stated value-$8,885,700 (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 6, 2000 was
2,646,966.
Documents incorporated by reference: The 2000 definitive proxy statement
mailed to stockholders for the annual meeting scheduled for April 20, 2000,
is incorporated by reference into Part III of this form 10-K.
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business 3
Item 2 Properties 6
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 35
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
Part I
Item 1--Business
THE COMPANY
MERRY LAND PROPERTIES, INC. Merry Land owns, operates and develops
real estate, primarily in the apartment industry. At December 31, 1999,
our assets totaled $107.4 million and included eleven apartment communities
located in Savannah and Augusta, Georgia, and Charleston, South Carolina,
approximately 4,000 acres of clay land which produce mining royalties, a
number of small commercial properties, and other tracts of land suitable
for sale or development. We also provide third party property management
and development consulting services to others.
OBJECTIVE. Our objective is to build stockholder value through active
involvement in the apartment business and other commercial real estate
activities. This includes the investment, development, rehabilitation and
management of properties for ourselves and for others. We operate in the
Southeastern United States, with emphasis on the coastal areas in that
region where we and our predecessor, Merry Land & Investment Company, Inc.,
"Old Merry Land", have been active for over eighteen years. We believe
these areas 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. This in turn should lead to higher job growth and stronger housing
demand, creating exceptional opportunities for well conceived and well
managed real estate projects.
BUSINESS PLAN. To achieve our objectives, Merry Land seeks to maximize
both the cash flow and value of its apartment communities by effective
property management, and to create additional cash flow and value by
developing or buying apartment communities. While Merry Land will conduct
the bulk of its activity in the apartment industry, we also are involved in
other areas of real estate, including commercial property ownership and
management, condominium conversion, and residential lot development and
sales.
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.
Most of Merry Land's employees are veterans of Old Merry Land. The
Chief Executive Officer, Chief Operating Officer, and Chief Financial
Officer all held the same positions at the old company. They and other key
employees bring to the new Merry Land many years of experience in the
apartment business, giving the company a high level of competence in the
apartment industry and related fields.
Each apartment community functions as an individual business unit
according to well developed policies and procedures. Each 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.
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. Corporate
level employees participate in a restricted stock grant plan, further
aligning their interests with those of our stockholders. At December 31,
1999, Merry Land had a total of 96 employees; 77 worked at apartment
communities, and 19 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 Old Merry Land, were spun out as a
dividend to Old Merry Land's stockholders in conjunction with that
company's merger into Equity Residential Properties Trust, "Equity
Residential". 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. Old Merry
Land's common shares, with a market value in excess of a billion dollars,
were listed on the New York Stock Exchange. Our predecessor company's
training, maintenance, accounting and other operating systems were among
the most progressive in the industry.
ACCOUNTING PREDECESSOR. While Merry Land has operated only since
October 15, 1998; we are required to present financial statements for the
years 1999, 1998 and 1997. Accordingly, only the Consolidated Balance
Sheets for December 31, 1998 and later periods and the 1999 Consolidated
Statement 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 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 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.
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.
PART I
Item 2--Properties
APARTMENTS. Merry Land owns eleven apartment communities containing
2,301 units in Savannah and Augusta, Georgia and Charleston, South
Carolina. 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 32%
one bedroom units, 59% two bedroom units and 9% three bedroom units. The
units average 949 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 the
communities and the mortgage debt (dollars in thousands, except average
cost and rent per unit):
Average Average
Date Cost Unit Size Debt
Name Location Built Units Cost(1) Per Unit (Sq.Ft.) Balance
- ---- -------- ----- ----- ------ -------- ------- -------
Woodcrest Augusta 1982 248 $6,000 $24,195 875 $ 6,342
Total/Average Augusta 1982 248 6,000 24,195 875 6,342
Greentree Savannah 1983 194 7,578 39,061 852 6,699
Hammocks at Long
Point (2) Savannah 1997 308 20,715 67,255 1,049 18,753
Huntington (2) Savannah 1986 147 5,747 39,092 812 5,075
Magnolia Villas (2) Savannah 1986 144 5,002 34,736 1,119 4,731
Marsh Cove Savannah 1983 188 8,263 43,954 1,053 8,136
West Wind Savannah 1985 192 7,448 38,792 1,124 9,173
---- ----- ------ ------ ----- ------
Total/Average Savannah 1988 1,173 54,753 46,677 1,009 52,567
Quarterdeck Charleston 1986 230 9,855 42,848 810 9,935
Summit Place (2) Charleston 1985 226 6,957 30,782 892 7,066
Waters Edge Charleston 1985 200 8,326 41,629 911 7,177
Windsor Place (2) Charleston 1985 224 9,725 43,417 953 8,624
---- --- ------ ------ ---
Total Average Charleston 1985 880 34,863 39,617 890 32,802
Total/Average 1986 2,301 $95,616 $41,554 949 $91,711
==== ===== ======= ======= === =======
(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.
Average Rent
Occupancy Rate (1) Per Unit (2)
------------------ ------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Greentree 97% 94% 92% $618 $600 $594
Hammocks at Lg. Pt 96 92 77 842 816 776
Huntington 95 96 94 644 496 616
Marsh Cove 97 98 90 698 677 658
Magnolia Villa 95 93 94 648 545 621
Quarterdeck 100 100 99 684 634 616
Summit Place 97 97 93 534 620 480
Waters Edge 98 97 97 623 574 570
West Wind 96 98 96 726 708 684
Windsor Place 97 99 98 608 600 551
Woodcrest 96 88 78 516 677 525
-- -- -- --- --- ---
Average 97% 95% 91% $654 $631 $611
== == == ==== ==== ====
(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.
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, 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.
MARKETS. Ten of Merry Land's eleven 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 90% or more in each of those
years. This strong demand has produced a 3.0% average annual increase in
rental rates at the apartment communities during this period.
OTHER PROPERTIES. Merry Land owns four land parcels containing a total
of 84 acres with a book value of $3.8 million, which are zoned to allow the
development of approximately 750 apartment units. We intend to commence
construction in March 2000 of Merritt at James Island, a 230 unit luxury
apartment community, on a 22 acre parcel that is adjacent to our
Quarterdeck apartment community in Charleston. The anticipated cost of
development of $17 million is expected to be financed primarily through
mortgage financing. We are considering the development of another community
on the 19 acre tract adjacent to our Hammocks at Long Point apartment
community in Savannah.
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 are in the process of
obtaining zoning and regulatory approvals for the development and marketing
of this tract for up to nine single family lots.
CALHOUN STREET FOR-SALE CONDOMINIUM PROPERTY. In May 1999 the company
acquired an historic house in downtown Charleston which contained ten
apartment units and which we are renovating the building into seven
condominium units for sale to the public. The projects cost is
approximately $1.5 million and will be financed by cash on hand, cash flow
or our line of credit.
COMMERCIAL PROPERTIES. Merry Land owns five commercial properties in
the Augusta area, primarily small office buildings, including our
headquarters building. Three buildings are located in the depressed
downtown Augusta rental market and are in varying stages of physical
obsolescence. In contemplation of the likely disposal of these assets, we
wrote down the carrying cost of several of these properties to their
estimated value as determined in the company's formation and startup in
late 1998. This produced a pretax charge of $1.7 million in 1998. These
properties, aggregating approximately 170,000 square feet, have a net book
value of $2.3 million.
COMMERCIAL SITES. Merry Land owns six commercial land sites in
Augusta, Jacksonville, Miami, Savannah and Nashville containing 46 acres
with a book value of $2.6 million. We intend to either sell or develop
these properties.
LAND. Merry Land owns approximately 4,800 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 2,522 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 which consists of mined-out ponds, wetlands and flood
plains where traditional development is severely restricted or prohibited.
We are investigating alternative uses for this tract, such as wetland
mitigation banking, which could eventually produce significant income.
PART I
Item 3--Legal Proceedings
None
Item 4--Submission of Matters to a Vote of Security Holders
None
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 SmallCap Market under
the symbol "MRYP" on October 16, 1998. Shown in the table below are high
and low sales prices of the company's common shares:
HIGH LOW DIVIDENDS
----- ----- ---------
C>
1999 4th Quarter $6.38 $5.00 $0.00
3rd Quarter $5.63 $4.88 $0.00
2nd Quarter $6.50 $4.75 $0.00
1st Quarter $7.00 $3.50 $0.00
1998 Period 10/16/98 through 12/31/98 $6.00 $3.44 $0.00
On December 31, 1999, the closing sales price for Merry Land's common
stock was $5.25 per share and there were approximately 1,959 record holders
of the common stock. In addition, we estimate that additional 6,000
stockholders hold their shares in "street name".
PART II
Item 6--Selected Financial Data
SELECTED FINANCIAL DATA
The following selected financial data with respect to the company's
statements of income for the years ended December 31, 1999, 1998, 1997,
1996, and 1995 and with respect to the company's balance sheets as of
December 31, 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. The following summary of financial data with respect
to the company's balance sheet as of December 31, 1995 have been derived
from the company's unaudited financial statements for such year. 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.)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
OPERATING DATA
Income from operations:
Rental income $12,064 $8,121 $7,774 $7,523 $7,260
Royalty income 1,359 1,693 1,401 369 436
Management fees 598 149 - - -
Development fees 1,587 515 - - -
Rental expense,
property taxes and
insurance 4,542 3,449 3,022 2,912 2,849
Depreciation of
real estate owned 1,504 1,291 1,284 1,213 1,191
----- ----- ----- ----- -----
9,562 5,738 4,869 3,767 3,656
Other income:
Discount on receivable
redemption (30) - - - -
Interest income 232 137 84 70 72
--- --- -- -- --
202 137 84 70 72
Expenses:
Interest expense 4,633 694 - - -
Amortization &
depreciation-other 376 265 224 145 84
General &
administrative 2,715 655 120 108 90
Impairment Charge - 1,666 - - -
----- ----- --- --- ---
7,724 3,280 344 253 174
Income before taxes and
extraordinary item 2,040 2,595 4,609 3,584 3,554
Income tax (expense)
benefit (629) 462 - - -
------ ----- ----- ----- -----
Income before
extraordinary item 1,411 3,057 4,609 3,584 3,554
Extraordinary gain-
discount on repayment of
debt, net of taxes 722 - - - -
----- ----- ----- ----- -----
Net income 2,133 3,057 4,609 3,584 3,554
Discount on redemption of
preferred stock 1,164 - - - -
----- ----- ----- ----- -----
Net income-common $3,297 $3,057 $4,609 $3,584 $3,554
====== ====== ====== ====== ======
Weighted average common
shares-basic 2,191 2,113 1,923 1,796 1,668
Weighted average common
shares-diluted 2,264 2,129 1,946 1,834 1,704
Earnings per common
share-basic $1.50 $1.45 $2.40 $2.00 $2.13
Earnings per common
share-diluted $1.46 $1.44 $2.37 $1.95 $2.09
Common dividends paid $ - $ - $ - $ - $ -
BALANCE SHEET DATA
Real estate and other
fixed assets $ 95,516 $40,982 $42,596 $41,558 $42,508
Cash and short
term investments 3,067 3,995 - - -
Other assets 8,824 9,766 1,412 726 751
------- ------ ------ ------ ------
Total assets $107,407 $54,743 $44,008 $42,284 $43,259
======== ======= ======= ======= =======
Debt $ 93,211 $38,317 $ - $ - $ -
Other liabilities 2,535 2,209 629 337 394
Preferred stock - 5,000 - - -
Investment by Merry
Land & Investment
Company, Inc. - - 43,379 41,947 42,865
Common stock
and retained earnings 11,661 9,217 - - -
------- ------ ------ ------ ------
Total liabilities and
stockholders'equity $107,407 $54,743 $44,008 $42,284 $43,259
======== ======= ======= ======= =======
OTHER DATA
Apartment units owned 2,301 1,004 1,004 1,004 1,004
Apartment units managed 2,357 2,712 - - -
PART II
Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations
RECENT EVENTS
In the fourth quarter 1999, Merry Land Properties, Inc. filed a
registration statement with the SEC describing a proposed distribution of
rights to our existing stockholders which entitle our stockholders to
purchase Convertible Trust Preferred Securities of Merry Land Capital
Trust, a Delaware business trust owned by Merry Land. These securities will
accrue distributions to their holders and will be convertible into Merry
Land's common stock. The company hopes to complete the securities offering
during 2000.
OVERVIEW
In 1999, our income came primarily from three sources - apartment
rents (net of rental and interest expense), $2.9 million; mineral
royalties, $1.4 million; and property and development management fees, $2.2
million. Since we have largely completed Old Merry Land's development
pipeline for Equity Residential Properties Trust in 1999, development and
management fees will drop sharply in 2000. In addition, one of our clay
royalty agreements has expired, and this year's mineral royalties will
total only about half of last year's amounts. Nevertheless, we do not
anticipate a dramatic falloff in total operating income since we have been
able to replace these sources of income in large part with rental income
from six apartment communities we acquired during the year.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCOUNTING PREDECESSOR. While Merry Land has operated only since
October 15, 1998, we are required to present financial statements for the
years 1999, 1998 and 1997. Accordingly, only the Consolidated Balance
Sheets for December 31, 1999 and December 31, 1998 and the Consolidated
Statement of Income for the period ended December 31, 1999 are financial
statements prepared for a real company. All other Consolidated Balance
Sheets and Consolidated Statements of Income are for an "accounting
predecessor" which have been constructed in accordance with the rules of
the Securities and Exchange Commission as described in the Notes to the
Financial Statements.
RENTAL OPERATIONS-ALL APARTMENTS. At December 31, 1999, Merry Land
owned eleven apartment communities, five of which were owned for all of
1999 and six of which were bought in August 1999. Prior to the October 1998
spin off, Old Merry Land owned all eleven of these communities. The
following table describes the operating performance of all eleven
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 1998 To 1999 1999 1998 1997
------ ------------ ---- ---- ----
Rental income 51.0% $3,893.6 $11,532.3 7,638.7 $7,355.3
Operating expenses 37.1 1,123.9 4,149.2 3,025.3 2,749.0
Depreciation and
amortization 28.3 332.0 1,503.4 1,171.4 1,176.0
---- ------- ------- ------- -------
Total expenses 34.7 1,455.9 5,652.6 4,196.7 3,925.0
Operating income 70.8% $2,437.7 $5,879.7 $3,442.0 $3,430.3
Average occupancy (1) - 0.2% 97.5% 97.3% 96.6%
Average monthly rent (2) 2.5% $16 $654 $638 $624
Expense ratio (3) - (3.6)% 36.0% 39.6% 37.4%
(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, which increased the weighted average number of apartment units owned
to 1,480 in 1999 from 1,004 in 1998, accounted for most of the 51.0%
increase in apartment income and the 34.7% increase in expenses in 1999.
These six communities contributed $3.5 million in rental income, which was
offset by $1.3 million in operating expenses and $400 thousand in
depreciation, netting $1.8 million of operating income during 1999.
The 2.5% increase in portfolio average rental rates in 1999 from 1998
resulted from 5.0% higher rents at the company's continuing properties, but
was offset somewhat by the lower rents charged at the communities the
company acquired, whose monthly rents averaged $642 at December 31, 1999
versus the continuing portfolio average of $670.
In 1998 rental income increased $283 thousand, or 3.9%, for the five
apartment communities owned during that year because of 2.2% higher rents
and 0.7% higher occupancy over 1997. Expenses rose $272 thousand, or 6.9%,
due primarily to increases in operating, maintenance and grounds, taxes and
insurance expenses.
RENTAL OPERATIONS-SAME STORE APARTMENTS. 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 1998 for months which they
were owned by both Merry Land and Old Merry Land (dollars in thousands,
except average monthly rent; see footnotes above):
Twelve Months
% Change From -------------------
Change 1998 To 1999 1999 1998
------ ------------ ---- ----
Rental income 4.6% $ 349.6 $7,988.3 $7,638.7
Personnel - (0.4) 1,022.0 1,022.4
Utilities (5.5) (15.4) 262.5 277.9
Operating (8.8) (24.2) 251.3 275.5
Maintenance and grounds (26.2) (186.4) 525.4 711.8
Taxes and insurance 5.7 42.3 780.0 737.7
Depreciation and
amortization (5.3) (62.0) 1,109.4 1,171.4
----- ------ ------- -------
Total expenses (5.9) (246.1) 3,950.6 4,196.7
Operating income 17.3% $ 595.7 $4,037.7 $3,442.0
Average occupancy (1) - 0.4% 97.7% 97.3%
Average monthly rent (2) 5.0% $32 $670 $638
Expense ratio (3) - (4.0)% 35.6% 39.6%
For the year ended December 31, 1999, rental income increased $350
thousand, or 4.6%, for the five apartment communities because of 5.0%
higher rents over the same period in 1998. In the aggregate, the
Charleston and Savannah rental markets were strong in both 1999 and 1998 as
demand for apartments exceeded additions to supply. Charleston rents
increased to $656, or 8.3%; and Savannah rents increased to $680, or 2.9%,
during this period. The Charleston apartment market will see significant
additions to supply in 2000, which may adversely affect occupancy and rent
rates in that city. We believe that physical occupancy should remain
satisfactory despite these deliveries of new units if general economic
activity, job growth and household formation remain strong.
Total operating expenses excluding depreciation for the year were down
$184 thousand, or 9.1%. On site expenses, including personnel, operating,
utilities, and maintenance expenses were down $226 thousand as a result of
aggressive expense control. Taxes and insurance increased $42 thousand
because of increases in assessed values, millage rates and higher insurance
premiums.
RENTAL OPERATIONS-COMMERCIAL. Gross rental income for commercial
properties decreased from 1998 by $192 thousand, or 46.7%, primarily as a
result of reduced occupancy following our merger in 1998. The company owns
six commercial properties in the Augusta area containing a total of 169,915
square feet, including the office building where the company's headquarters
are located. Three buildings containing approximately 75,000 square feet
are located in the depressed downtown Augusta rental market and are in
varying stages of physical obsolescence. Consequently, occupancy for all
six commercial properties was less than 50% at December 3
In 1998 gross rental income rose by $74 thousand, or 21.8%,
for commercial properties because of increased occupancy. Total expenses
were up $26 thousand, or 4.8%, in 1998 primarily due to higher utilities
and maintenance expenses resulting from higher occupancy.
LAND. The company owns approximately 4,800 acres of unimproved land,
of which 3,144 acres are subject to clay and sand mining leases. Land
income decreased to $1.5 million in 1999 from $1.7 million in 1998. The
expiration of one of the royalty agreements caused a $400 thousand decrease
in clay royalty income. This was partially offset by the $200 thousand
increase in timber sales.
MORTGAGE INTEREST INCOME. Interest income from mortgage
notes receivable totaled $52 thousand in 1999, down from $106 thousand and
$84 thousand in 1998 and 1997, respectively. This decrease resulted from
the repayment of outstanding obligations in 1999.
PROPERTY MANAGEMENT AND DEVELOPMENT FEES. Management fee income
increased 300% to $598 thousand in 1999 from $149 thousand in 1998.
Development fee income increased 220% to $1.6 million from $500 thousand.
These increases are the result of the company receiving no development and
management fees prior to its being spun off in October 1998.
With the exception of a $100 thousand development fee in 1999 from
Godley Station, a third party development contract in Savannah, these fees
were earned under agreements with Equity Residential under which the
company provided property management and development consulting services
for twelve Equity Residential apartment communities that had been owned by
Old Merry Land. Six of these were stabilized communities whose outstanding
ownership interests were acquired by Merry Land in 1999. The remaining six
communities were either under lease up or development and are currently
owned by Equity Residential. At December 31, 1999, the property management
assignments with Equity Residential had been completed, while approximately
$900 thousand remains to be earned under the development agreement. The
company intends to seek other third party property management and
development consulting business, but we expect fee income to decline
substantially in coming quarters.
INTEREST EXPENSE. The assets contributed to the company by Old Merry
Land were not encumbered by mortgage debt at any time prior to the spin off
in 1998. Therefore, the financial statements for the accounting
predecessor to Merry Land for periods prior to the spin off assume that
there was no debt or related interest expense.
In October 1998 and in connection with the spin off, the company
received its assets subject to $18.3 million of senior debt, $20.0 million
of subordinated debt, and $5.0 million of preferred stock. Interest
expense related to these obligations totaled $695 thousand in 1998; all
accrued after the spin off and included $81 thousand of dividends accrued
on the company's preferred stock. During this period, the average rate on
the senior debt was 7.8% and the rate on the subordinated debt and
preferred stock was 8.0%. These obligations were repaid in June 1999.
Interest expense related to these obligations totaled $1.6 million for the
twelve months ended December 31, 1999 and included $193 thousand of
dividends accrued on the company's preferred stock.
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 on the
company's line of credit totaled $50 thousand. Interest capitalized related
to development in progress was $179 thousand in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses totaled $2.7 million in 1999 and $516 thousand for the period
October 15, 1998 to December 31, 1998. 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
Old Merry Land in accordance with the rules and regulations of the
Securities and Exchange Commission applicable for subsidiaries which have
been spun off. Management has allocated such expenses based on their best
estimate under these guidelines of time and effort that would have been
expended for the benefit of the accounting predecessor.
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 $2.0 million in 1999 from $2.6 million in
1998 and $4.6 million in 1997. 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.
The decrease in income before taxes and extraordinary item in 1999
from 1998 was primarily related to the higher general and administrative
expense of $2.1 million and higher interest expense of $3.9 million,
partially offset by higher net rental income primarily from an increase in
the number of apartments owned and by higher development and management
fees from the agreements with Equity Residential.
The decrease in income before taxes in 1998 from 1997 related to the
higher general and administrative expense of $491 thousand, higher interest
expense of $695 thousand, and the $1.7 million impairment charge. These
1998 increases in expenses were partially offset by increases in mineral
royalties and fee income from third party property management and
development consulting.
INCOME TAXES. As a REIT, the accounting predecessor to Merry Land was
not subject to income taxes. The income tax expense for the twelve month
period ended December 31, 1999 was $1.0 million, which included a $442
thousand net income tax provision on the discount on repayment of the
subordinated debt. The expense consisted of $748 thousand in current income
tax benefit and $1.7 million in deferred income tax expense.
A net income tax benefit in 1998 related to the period from October
15, 1998 to December 31, 1998 totaled $463 thousand, and consisted of $124
thousand in current income tax expense and $587 thousand in deferred income
tax benefit. The deferred income tax benefit arose primarily from the book
and tax timing differences.
DISCOUNT ON REPAYMENT OF DEBT AND ON REDEMPTION OF PREFERRED STOCK. In
June 1999 we closed $41.2 million in mortgage financing and the proceeds
were used to repay the senior debt, subordinated debt and preferred stock
that were issued in connection with the merger and spin off. 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.
FUNDS FROM OPERATIONS. Funds from operations were $3.2 million for the
twelve month period ended December 31, 1999 and were $680 thousand from
October 15, 1998 to December 31, 1998, the period in 1998 that the company
operated as an independent public entity. The following is a reconciliation
of net income to funds from operations. (data in thousands):
January 1, 1999 Oct 15, 1998
to to
December 31, 1999 Dec 31, 1998
----------------- ------------
Net income (loss) available for common $3,296.9 $(648.6)
Add depreciation of operating real estate owned 1,504.1 248.6
Add discount on receivable redemption 29.5 -
Add impairment charge - 1,666.5
Add tax benefit (expense) resulting from permanent
difference in book and tax basis 251.6 (586.4)
Less extraordinary gain (722.0) -
Less discount on redemption of preferred stock (1,163.7) -
-------- -------
Funds from operations available to common shares $3,196.4 $ 680.1
======== =======
Weighted average common shares outstanding--
Basic 2,191.5 2,181.1
Diluted 2,263.8 2,191.6
The company believes that funds from operations are an important
measure of its operating performance. Funds from operations do not
represent cash flows from operations as defined by generally accepted
accounting principles, GAAP, and should not be considered as an alternative
to net income, or as an indicator of the company's operating performance,
or as a measure of the company's liquidity. The company defines funds from
operations as net income computed in accordance with GAAP, excluding all
non-recurring items and net realized gains (losses), plus depreciation of
operating real estate.
PROJECTS UNDER DEVELOPMENT. The company owns a 22 acre tract adjacent
to its Quarterdeck Apartments in Charleston on which it expects to begin
construction in March 2000 of Merritt at James Island, a 230 unit apartment
community. The $17.0 million projected cost is expected to be funded with
non-recourse financing. The first units are expected to be available for
rental in fall 2000.
In 1999 the company acquired a historic building in downtown
Charleston which we are currently renovating into seven condominium units
for sale to the public. The building cost $825 thousand and the total
estimated costs of renovation are $700 thousand. We expect to realize
income from the sale of the condominiums in 2000.
We are pursuing the development of a 35 acre tract adjacent to our
Waters Edge community that lies along the Ashley River in the Summerville
area of Charleston for up to nine single family lots. We are in the
process of obtaining zoning and regulatory approvals and if successful, we
will spend approximately $700 thousand on road and infrastructure and then
begin marketing the lots for sale.
We are evaluating the feasibility of establishing a wetland mitigation
bank on a portion of the Merry tract located in Augusta. If successful in
establishing the bank, we would be accorded credits for preserving,
creating or enhancing wetlands and these credits could be sold to others
who have destroyed wetlands elsewhere. While we believe our prospects for
establishing a bank are good, there seems to be a limited demand for
credits in our local service area. Demand may limit the feasibility of this
venture.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL STRUCTURE
At December 31, 1999, total debt equaled 89% of total capitalization
at cost and 87% of total capitalization with equity valued at market
(2,601,300 shares outstanding at the December 31, 1999 closing price of
$5.25 per share). At December 31, 1999, the company's financial structure
was as follows (dollars in thousands):
Equity at
Book % of Total Market value % of Total
-------- ---------- ------------ ----------
Line of Credit $ 1,500 2% $ 1,500 1%
Mortgage loans 91,711 87 91,711 86
------ -- ------ --
Total debt 93,211 89 93,211 87
Common stock 11,661 11 13,657 13
------ -- ------ --
Total capitalization $104,872 100% $106,868 100%
======== === ======== ===
Eleven separate wholly owned limited liability companies own our eleven
apartment communities. The existing mortgage financing restricts any of the
limitedliability 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 are not available to pay the debts of
the company and its liabilities do not constitute obligations of the company.
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 the senior debt,
subordinated debt and preferred stock that were issued in connection with
the merger and spin off. The five loans have 10 year terms, bearing
interest at 7.73% and are secured by five of the company's apartment
communities. In addition, the company obtained at the time of the mortgage
refinancing a $2 million unsecured line of credit that bear interest at
LIBOR plus 1.25%.
In August 1999, the company obtained $50.7 million in additional
mortgage financing and $1.5 million against our line of credit to purchase
the remaining interests held by Equity Residential in the six limited
liability companies which owned six other apartment communities that had
been owned by our predecessor. These six non-recourse loans have eight to
twelve year terms and bear interest at 7.97% (for the eight year term
loans) and 7.99% (for the twelve year term loans).
LIQUIDITY.
We expect to meet our short-term liquidity requirements with working
capital, cash provided by operating activities, construction loans and a
line of credit which we have established with a commercial bank. Our
primary short-term liquidity needs are operating expenses, capital
improvements, the proposed development of the Merritt at James Island
community, the condominium conversion of the Calhoun Street apartments, and
the Waters Edge land development.
We expect to meet our long-term liquidity requirements from a variety
of sources including operating cash flow, additional mortgage loans and
other borrowings, and the issuance and sale of debt and equity securities
in public and private markets. Our long-term liquidity needs include the
maturity of mortgage debt and the financing of acquisitions and
development. The proceeds from the Convertible Trust Preferred Securities
offering will be used to repay the outstanding balance under the line of
credit and for general corporate purposes, including capital improvements
to our existing properties, the acquisition of additional apartment
communities, and the development and construction of new apartment
communities.
CASH FLOWS.
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 $2.2 million
used to acquire the ownership interests in the six apartment communities
owned by Equity Residential, $800 thousand to acquire the Calhoun Street
apartments and $1.0 million for repairs, replacements and improvements on
the residential communities. In addition, $800 thousand received from the
repayment of mortgage notes receivable was offset by the $1.0 million lent
to the Employee Stock Ownership Plan.
YEAR 2000 DISCLOSURE.
The Year 2000 problem existed because many computer programs used only
the last two digits to refer to a year. Therefore, these computer programs
might have recognized the year 2000 as the year 1900. It was feared by some
that this could have resulted in system failures or miscalculations causing
disruption of normal business operations, including a temporary inability
to process transactions or collect rents. This did not occur.
The company did not experience any material disruption of operations.
The contingency plans we had in place in the event of unanticipated
equipment and systems failures were not required to be implemented.
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.
Item 7A--Quantitative and Qualitative Disclosures about Market Risk.
During the twelve months ended December 31, 1999, the company reduced
its outstanding variable rate debt. In June 1999, the company closed on
$41.2 million of ten-year, fixed rate mortgage financing and the proceeds
were used to repay the company's obligations under the senior debt,
subordinated debt and preferred stock. The senior debt had a principal
balance of $18.3 million, a maturity date of October 1999 and a variable
interest rate of LIBOR plus 2.5%. At December 31, 1999, the company's only
remaining variable rate debt consisted of a $2.0 million line of credit. At
that date, there was an outstanding balance of $1.5 million under the line
with a variable interest rate of LIBOR plus 1.25%. The line of credit
matures in June 2001.
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,
1999. 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, 1999.
EXPECTED FISCAL YEAR OF MATURITY
--------------------------------------------------------------------------------
(In thousands) 2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Debt:
Fixed rate $681.3 $758.9 $822.6 $889.6 $942.7 $87,616.1 $91,711.2 $91,711.2
Avg.interest rat 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% -
Variable rate $ - $1,500.0 $ - $ - $ - $ - $ 1,500.0 $ 1,500.0
Avg. interest rate - 6.9% - - - - 6.9% -
Notes receivable:
Fixed rate $ 51.1 $ 54.9 $ 44.4 $ 42.2 $ 42.2 $ 329.3 $ 564.1 564.1
Avg. interest rate 7.3% 7.3% 6.5% 6.1% 6.1% 6.1% 6.4%
PART II
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DEC. 31, 1999 DEC. 31, 1998
------------- -------------
ASSETS
Real estate assets, at cost:
Land held for mining and development $ 5,905,288 $ 7,255,130
Apartments 95,615,665 40,765,214
Development in progress 2,820,564 -
Commercial rental property 2,627,652 2,622,024
Furniture and equipment 1,882,536 1,836,144
----------- ----------
Total cost 108,851,705 52,478,512
Accumulated depreciation and depletion (13,335,596) (11,496,904)
---------- ----------
95,516,109 40,981,608
CASH AND CASH EQUIVALENTS 3,067,372 3,995,365
ESCROWED CASH 1,187,142 -
OTHER ASSETS
Notes receivable 564,073 1,342,246
Deferred loan costs 1,111,309 -
Other receivables 154,496 1,434,512
Deferred tax asset 5,733,521 6,909,857
Other 72,603 79,620
------ ------
7,636,002 9,766,235
------------ -----------
TOTAL ASSETS $107,406,625 $54,743,208
============ ===========
NOTES PAYABLE
Line of credit $1,500,000 -
Mortgage loans 91,711,187 -
Senior debt - 18,317,429
Subordinated debt - 20,000,000
---------- ----------
93,211,187 38,317,429
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 631,863 444,553
Accrued income taxes - 123,846
Accrued property taxes 467,863 309,936
Accrued dividends payable - 81,111
Deferred revenue 172,100 771,627
Other 1,262,961 477,967
--------- ---------
2,534,787 2,209,040
PREFERRED STOCK - 5,000,000
STOCKHOLDERS' EQUITY
Common stock, at $1 stated value, 2,601,300
shares issued and outstanding 2,601,300 2,597,633
Capital surplus 9,139,014 9,121,985
Unamortized compensation (1,710,055) (1,854,291)
Cumulative undistributed net earnings (deficit) 2,648,324 (648,588)
Note receivable from ESOP (1,017,932) -
---------- ---------
11,660,651 9,216,739
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,406,625 $54,743,208
============ ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Accounting
Predecessor)
Years ended December 31, 1999 1998 1997
- ------------------------ ---- ---- ----
< S>
INCOME
Rental income $12,063,730 $8,120,569 $7,774,310
Royalty income 1,358,685 1,693,489 1,401,363
Interest income 231,667 136,644 83,816
Discount on receivable redemption (29,512) - -
Management fees 598,344 148,958 -
Development fees 1,586,996 515,016 -
---------- ---------- ---------
15,809,910 10,614,676 9,259,489
EXPENSES
Rental expense 4,542,132 3,449,045 3,022,300
Interest expense 4,633,046 694,462 -
Depreciation 1,838,735 1,556,457 1,507,721
Amortization 40,571 - -
General and administrative expense 2,715,103 653,401 120,481
Impairment charge - 1,666,463 -
---------- --------- ---------
13,769,587 8,019,828 4,650,502
---------- --------- ---------
INCOME BEFORE TAXES AND EXTRAORDINARY
ITEM 2,040,323 2,594,848 4,608,987
Income tax (expense) benefit (629,095) 462,597 -
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 1,411,228 3,057,445 4,608,987
Extraordinary gain - discount on
repayment of debt, net of income tax
provision of $441,746 721,969 - -
------- ------- -------
NET INCOME 2,133,197 3,057,445 4,608,987
Discount on redemption of preferred
stock 1,163,715 - -
---------- ---------- ----------
NET INCOME - COMMON $3,296,912 $3,057,445 $4,608,987
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
Basic 2,191,469 2,113,393 1,923,000
Diluted 2,263,768 2,129,479 1,946,000
EARNINGS PER COMMON SHARE
Basic $1.50 $1.45 $2.40
Diluted $1.46 $1.44 $2.37
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.
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Accounting
Predecessor)
Years ended December 31, 1999 1998 1997
- ------------------------ ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,133,197 $3,057,445 $4,608,987
Adjustments to reconcile net income
to net cash provided by operating
activities:
Discount on repayment of debt,
net of taxes (721,969) - -
Depreciation expense 1,838,735 1,556,457 1,507,721
Amortization expense 40,571 - -
Amortization of compensation
element of restricted stock grants 133,432 161,086 -
Impairment charge - 1,666,463 -
Income tax expense (benefit) 1,058,230 (586,443) -
Increase in property taxes payable 157,927 65,309 1,385
Increase (decrease) in income
taxes payable (123,246) 123,846 -
Increase (decrease) in deferred
revenue (599,527) 440,931 330,696
Decrease in other receivables 1,280,016 - -
Increase in mortgage escrow (1,187,142) - -
Increase in accrued interest 187,310 444,553 -
Increase in other payables 447,629 107,844 (40,000)
------- ------- -------
Net cash provided by operating
activities 4,645,163 7,037,491 6,408,789
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments received on notes receivable 748,661 69,481 (685,416)
Purchase of real property (54,499,488) - -
Investment in real estate assets (1,873,705) (1,599,960) (2,546,187)
--------- ---------
Net cash used in investing
activities (55,624,532) (1,530,479) (3,231,603)
CASH FLOWS FROM FINANCING ACTIVITES:
Repayment of senior debt (18,317,429) - -
Repayment of subordinated (18,836,285) - -
Redemption of preferred stock (3,836,285) - -
Proceeds from mortgage loans 91,711,187 - -
Proceeds from line of credit 1,500,000 - -
Loan Costs (1,151,880) - -
Loans to ESOP (1,017,932) - -
Contributions from Merry Land
& Investment Co.,Inc. - 1,554,584 2,546,187
Other capital contributions - 2,400,000 -
Distributions to Merry Land &
Investment Co., Inc. - (5,466,231) (5,723,373)
---------- ----------
Net cash used in financing
activities 50,051,376 (1,511,647) (3,177,186)
NET INCREASE (DECREASE) IN CASH $(927,993) $3,995,365 $ -
CASH AT BEGINNING OF PERIOD 3,995,365 - $ -
---------- ----------
CASH AT END OF PERIOD $3,067,372 $3,995,365 $ -
========== ==========
Interest paid $4,180,096 $ 168,798 $ -
Income taxes paid $ 42,152 $ - $ -
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 period is discussed.
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cumulative
Undistributed Total
Investment Common Stock Capital Unamortized Net Earnings Stockholders
By Parent Shares Amount Surplus Compensation (Deficit) Equity
----------- ------------------ ------- ------------ ------------- ------------
(Accounting Predecessor)
BALANCE, DECEMBER 31, 1996 $41,947,459 - $ - $ - $ - $ - $41,947,459
Netincome 4,608,987 - - - - - 4,608,987
Net distributions (3,177,186) - - - - - (3,177,186)
----------- ------ ------ -------- -------- -------- -----------
(Accounting Predecessor)
BALANCE, DECEMBER 31, 1997 43,379,260 - - - - - 43,379,260
Net income prior
to spin off-Note 1 3,706,033 - - - - - 3,706,033
Net distributions prior
to spin off-Note 1 (3,911,647) - - - - - (3,911,647)
Initial capitalization
resulting from
spin off-Note 1 (43,173,646) 2,151,315 2,151,315 5,152,926 - - (35,869,405)
Capital contribution in
connection with
spin off-Note 1 - - - 2,400,000 - - 2,400,000
Issuance of restricted
stock grants - 446,318 446,318 1,569,059 (2,015,377) - -
Amortization ofcompensation
element of restricted
stock grants - - - - 161,086 - 161,086
Net income (loss)
subsequent to spin off - - - - - (648,588) (648,588)
---------- --------- --------- --------- --------- ------- ---------
BALANCE, DECEMBER 31, 1998 - 2,597,633 2,597,633 9,121,985 (1,854,291) (648,588) 9,216,739
Net income-common - - - - - 3,296,912 3,296,912
Issuance of restricted
stock grants - 6,000 6,000 25,500 - - 31,500
Forfeiture of
restricted stock grants - (2,333) (2,333) (8,471) 10,804 - -
Amortization of compensation
element of restricted
stock grants - - - - 133,432 - 133,432
Notes receivable from ESOP - - - (1,017,932) - - (1,017,932)
---------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 $ - 2,601,300 $2,601,300 $8,121,082 $(1,710,055) $2,648,324 $11,660,651
========== ========= ========= ========= =========== =========
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.
MERRY LAND PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Merry Land Properties, Inc., was formed on September 3, 1998, as a
corporate subsidiary of Merry Land & Investment Company, Inc. in connection
with a transaction in which Merry Land & Investment Company was merged into
Equity Residential Properties Trust on October 19, 1998. On October 15,
1998, prior to the merger, Merry Land & Investment Company contributed five
apartment communities, four apartment development sites, five commercial
properties, six commercial sites, 4,816 acres of undeveloped land, and
other assets to Merry Land Properties in exchange for 2,151,315 shares of
common stock, $5,000,000 of preferred stock, $18,317,429 of senior debt and
$20,000,000 of subordinated debt. On October 15, 1998, the common stock of
Merry Land Properties was spun off to the common stockholders 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. When the
merger transaction was completed Merry Land Properties began operating as
an independent public company and the senior debt, subordinated debt and
preferred stock were acquired by Equity Residential. Also, in conjunction
with the merger, Equity Residential made an additional capital contribution
of $2,400,000 to Merry Land Properties.
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 as described above. 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 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. 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.
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 is 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.
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 thousand at December 31, 1999 and 1998, which is included in
commercial rental property in the accompanying consolidated balance sheets.
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 is 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.
A reconciliation of the average outstanding shares used in the two
calculations is as follows:
1999 1998 1997
---- ---- ----
Weighted average shares outstanding-basic 2,191,469 2,113,393 1,923,000
Dilutive potential common shares 72,299 16,086 23,000
--------- --------- ---------
Weighted average shares outstanding-diluted 2,263,768 2,129,479 1,946,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 has evaluated the impact of adopting SFAS
No. 133 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, 1999 and 1998, notes receivable consisted of the
following:
Notes Balances
Original ----------------------
Note Rate Due Amount 1999 1998
- ---- ----- ----- -------- ---- ----
Augusta Partners 10.00% 10/99 $695,000 $ - $ 573,566
Brothersville 6.00% 11/12 675,000 470,957 636,512
Brothersville 10.00% 9/02 327,600 38,195 74,717
New Zion 7.00% 11/12 60,000 54,921 57,451
--------- ------- ---------
$1,757,600 $564,073 $1,342,246
5. Debt
At December 31, 1999 and 1998, debt consisted of the following:
Maturity Interest
Debt date rate 1999 1998
- ---- -------- ---------- ---- ----
Line of credit 06/24/01 LIBOR+1.25% $1,500,000 $ -
Mortgage Loan-Huntington LLC 09/01/07 7.97% 5,074,767 -
Mortgage Loan-Magnolia Villas LLC 09/01/07 7.97% 4,730,394 -
Mortgage Loan-Summit Place LLC 09/01/07 7.97% 7,066,145 -
Mortgage Loan-Woodcrest LLC 09/01/07 7.97% 6,342,461 -
Mortgage Loan-Greentree LLC 07/01/09 7.73% 6,699,284 -
Mortgage Loan-Marsh Cove LLC 07/01/09 7.73% 8,136,056 -
Mortgage Loan-Quarterdeck LLC 07/01/09 7.73% 9,934,763 -
Mortgage Loan-Waters Edge LLC 07/01/09 7.73% 7,176,879 -
Mortgage Loan-West Wind LLC 07/01/09 7.73% 9,173,004 -
Mortgage Loan-Hammocks LLC 09/01/11 7.99% 18,753,048 -
Mortgage Loan-Windsor Place LLC 09/01/11 7.99% 8,624,386 -
Senior debt 10/15/99 LIBOR+2.5% - 18,317,429
Subordinated debt 10/15/13 8.00% - 20,000,000
---------- ----------
Total $93,211,187 $38,317,429
========== ==========
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 the senior debt,
subordinated debt and preferred stock that were issued in connection with
the merger and spin off. The subordinated debt and preferred stock were
repaid at a discount. 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 our line of credit to purchase
the remaining interests held by Equity Residential in the six limited
liability companies which owned six other apartment communities that had
been owned by our predecessor.
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. The common stock received under the original Management Incentive
Plan vested for all employees in fifteen equal annual installments
beginning on the date granted. In January 2000, the original awards for all
non executive employees were amended to reduce the vesting period. As of
December 31, 1999 there were an additional 56,015 common shares available
for grant.
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 1999, the company contributed $272 thousand in cash 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 rate plus 2.5% and is due in March 2004.
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 1999.
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.
The 1997 income tax information has been excluded from the following
tables, as the company was not taxable for the entire year.
The components of the income tax provision (benefit) are as follows:
1999 1998
---- ----
Current federal tax $ - $104,271
Current state tax - 19,575
Deferred federal tax 519,040 (493,749)
Deferred state tax 110,055 (92,694)
------- -------
Total income tax $629,095 $(462,597)
The reconciliation of income tax computed at the U.S. federal
statutory rate to income tax expense is as follows:
1999 1998
------------------ -------------------
% of % of
pretax pretax
$ Amount income $ Amount income
-------- ------ -------- ------
Income tax expense at statutory rate $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 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) (14.1) (64,964) (2.5)
-------- ---- --------- ----
Total income tax expense (benefit) $629,095 30.8% $(462,597) (17.8)%
Significant components of the company's net deferred income taxes are
as follows:
DEFERRED TAX ASSET: DEC. 31, 1999 Dec. 31, 1998
- ------------------- ------------- -------------
Excess of tax basis of assets over book basis
resulting from spin off $6,004,135 $6,956,003
Net operating loss carryforward 765,876 -
Accelerated depreciation (844,265) (41,000)
Other (192,225) (5,146)
---------- ----------
Total deferred tax asset $5,733,521 $6,909,857
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, 1999 or 1998 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.
12. SEGMENT INFORMATION
The company has four reportable segments: Apartment Communities,
Commercial Properties, Land and Third Party Services. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
THIRD
PARTY
DECEMBER 31, 1999 APARTMENTS COMMERCIAL LAND SERVICES CORPORATE CONSOLIDATED
- ----------------- ---------- ---------- -------- -------- --------- ------------
Real estate rental revenue $11,532,264 $219,544 $311,922 $ - $ - $12,063,730
Real estate expense 4,149,002 256,987 136,143 - - 4,542,132
Depreciation and
amortization 1,503,495 40,629 4,217 - 330,965 1,879,306
--------- ------ ------- ----- ------- ----------
Income from real estate 5,879,767 (78,072) 171,562 - (330,965) 5,642,292
Other income - - 1,358,685 2,185,340 231,667 3,775,692
--------- ------ --------- --------- ------- ---------
Segment income (loss) 5,879,767 (78,072) 1,530,247 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 (78,072) 1,530,247 1,209,343 (6,471,450) 2,069,835
Income taxes - - - - (629,095) (629,095)
Loss on redemption of
receivable - - - - (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 $(78,072) $1,530,247 $1,209,343 $(5,244,373) 3,296,912
=========== ========== ========== ========== =========== ===========
Capital investments $ 350,963 $ 5,628 $1,349,842 $ - $167,272 1,873,705
=========== ========== ========== ========== =========== ===========
Total real estate assets $84,011,308 $2,284,488 $8,692,110 $ - $528,203 $95,516,109
=========== ========== ========== ========== =========== ===========
THIRD
PARTY
DECEMBER 31, 1998 APARTMENTS COMMERCIAL LAND SERVICES CORPORATE CONSOLIDATED
- ----------------- ---------- ---------- ---- -------- --------- ------------
Real estate rental revenue $7,638,710 $411,885 $69,973 $ - $ - $ 8,120,568
Real estate expense 3,125,712 248,774 74,559 - - 3,449,045
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 (1,825,011) (4,586) - (63,365) 1,448,603
Other income - - 1,693,489 663,974 136,644 2,494,107
--------- --------- --------- ------- ------- ---------
Segment income (loss) 3,341,565 (1,825,011) 1,688,903 663,974 73,279 3,942,710
Interest expense - - - - (694,462) (694,462)
Insurance expense - - - - (42,066) (42,066)
General and administrative - - - (194,619) (416,715) (611,334)
--------- --------- --------- ------- --------- ---------
Income before taxes 3,341,565 (1,825,011) 1,688,903 469,355 (1,079,964) 2,594,848
Income tax benefit - - - - 462,597 462,597
----------- ----------- ---------- -------- --------- ----------
Net income (loss) $3,341,565 $(1,825,011) $1,688,903 $469,355 $(617,367) $3,057,445
=========== =========== ========== ======== ========= ==========
Capital investments $387,865 $205,175 $834,244 $ - $172,676 $1,599,960
=========== =========== ========== ======== ========= ===========
Total real estate assets $30,664,309 $2,319,489 $7,225,605 $ - $772,205 $40,981,608
=========== =========== ========== ======== ========= ===========
THIRD
PARTY
DECEMBER 31, 1997 APARTMENTS COMMERCIAL LAND SERVICES CORPORATE CONSOLIDATED
- ----------------- ---------- ---------- ---- -------- --------- ------------
Real estate revenue $7,355,313 $338,209 $80,788 $ - $ - $ 7,774,310
Real estate expense 2,749,001 212,883 60,416 - - 3,022,300
Depreciation and
amortization 1,176,016 331,705 - - - 1,507,721
--------- ------- ------ ------ -------- ----------
Income from real estate 3,430,296 (206,379) 20,372 - - 3,244,289
Other income - - 1,401,363 - 83,816 1,485,179
--------- ------- --------- ------ -------- ----------
Segment income (loss) 3,430,296 (206,379) 1,421,735 - 83,816 4,729,468
General and administrative - - - - (120,480) (120,480)
----------- ---------- ---------- -------- --------- -----------
Net income (loss) $3,430,296 $(206,379) $1,421,725 $ - $ (36,664) $ 4,608,988
=========== ========== ========== ======== ========= ===========
Capital investments $750,683 $175,417 $1,805,211 $ - $ 534,876 $ 2,546,187
=========== ========== ========== ======== ========= ===========
Total real estate assets $31,447,876 $3,884,674 $6,391,361 $ - $ 872,388 $42,596,299
=========== ========== ========== ======== ========= ===========
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, 1999 and 1998 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, 1999. 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 generally accepted auditing
standards. 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, 1999 and
1998 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
January 19, 2000
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.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as 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
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 holders of indebtedness of the Company's subsidiaries:
(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 Form S-11 filed October 21, 1999, file
number 333-89469).
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.
(10) MATERIAL CONTRACTS.
(10.1) The Company's Development Agreement with ERP Operating Limited
Partnership dated October 19, 1998 (incorporated by reference to
Exhibit 10.1 of the Company's Annual Report on Form 10-K filed March
31, 1999).
(10.2) The Company's Employee Stock Ownership Plan (incorporated by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-
K filed March 31, 1999).
(10.3) 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).
(10.4) 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).
(21) Subsidiaries of Merry Land Properties, Inc.
(27) Financial Data Schedule.
(b) -- Reports on Form 8-K. The registrant filed no reports on Form 8-K
during the last quarter of 1999.
To Merry Land Properties, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in this Form 10-K, and
have issued our report thereon dated January 19,2000. 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 19, 2000
PART IV
Item 14--Schedule XI--Real Estate and Accumulated Depreciation for the Year
Ending December 31, 1999:
COST CAPITALIZED GROSS AMOUNT AT
INITIAL COST SUBSEQUENT WHICH CARRIED AT
TO COMPANY TO ACQUISITION DECEMBER 31, 1999
-------------------- ------------------ ----------------------------- ACCUM. DATE OF DATE DEPREC-
BUILDINGS & CARRYING BUILDING & TOTAL DEPREC- CONSTR- ACQU- -IABLE
RESIDENTIAL LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS (A) -IATION(A) -UCTION -IRED LIFE
- ----------- -------- ---------- ---------- --- -------- ---------- ---------- ---------- ---- ---- -------
Greentree $325,000 $6,001,731 $1,251,045 $- $325,806 $7,251,970 $7,577,776 $2,510,735 1983 1986 5-50yr.
Hammocks @
Long Poin 947,016 19,473,395 294,282 - 947,016 19,767,677 20,714,693 142,159 1990 1999 5-50yr.
Huntingto 485,100 5,216,010 45,396 - 485,100 5,261,406 5,746,506 40,777 1986 1999 5-50yr.
Magnolia
Villas 375,551 4,584,385 42,010 - 375,551 4,626,395 5,001,946 37,243 1986 1999 5-50yr.
Marsh Cove 329,786 6,649,280 1,284,261 - 345,467 7,917,860 8,263,327 2,637,011 1983 1986 5-50yr.
Quarterdeck 580,000 8,216,250 1,058,796 - 600,402 9,254,644 9,855,046 2,433,002 1986 1989 5-50yr.
Summit Plac 392,000 6,477,363 87,423 - 392,000 6,564,786 6,956,786 52,502 1985 1999 5-50yr.
Waters Edge 448,000 6,490,069 1,387,671 - 450,864 7,874,876 8,325,740 2,215,952 1985 1988 5-50
West Wind
Landing 960,000 5,597,500 890,548 - 960,000 6,488,048 7,448,048 1,416,453 1985 1988 5-50yr.
Windsor
Place 378,778 9,279,624 67,063 - 378,778 9,346,687 9,725,465 70,424 1984 1999 5-50yr.
Woodcrest 89,049 5,830,388 80,895 - 89,049 5,911,283 6,000,332 48,099 1982 1999 5-50yr.
------- --------- --------- -- ------- --------- --------- ---------
Total
Apartments 5,310,280 83,815,995 6,489,390 - 5,350,033 90,265,632 95,615,665 11,604,357
========= ========== ========= == ========= ========== ========== ==========
COMMERCIAL 356,000 1,612,486 659,166 - 370,920 2,256,732 2,627,652 343,164 var. var. 5-50yr.
========= ========== ========= == ========= ========= ========== ==========
DEVELOPMENT IN
PROGRESS 1,470,633 - 1,349,931 - 2,820,564 - 2,820,564 - various - -
========= ========== ========= == ========= ========= ========== ==========
LAND 4,245,437 - 1,659,851 - 5,905,288 - 5,905,288 33,742 various - -
========= ========== ========= == ========= ========= ========== ===========
Total $11,382,350 $85,428,481 $10,158,338 $ - $14,446,805 $92,522,364 $106,969,169 $11,981,262
=========== =========== =========== === =========== =========== ============ ===========
NOTES:
Real Estate Cost Accumulated Depreciation
-------------------------------- --------------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Balance at
beinning of period $50,642,369 $50,603,514 $49,677,413 $10,432,965 $10,264,894 $8,891,301
Additions--
acquisitions and
improvements 56,326,800 2,842,102 926,101 1,548,297 1,304,855 1,283,593
Deductions--
impairment charge - 2,803,247 - - 1,136,784 -
Balance at ------------ ----------- ----------- ----------- ----------- -----------
end of period $106,969,169 $50,642,369 $50,603,514 $11,981,262 $10,432,965 $10,264,894
(Registrant)
/S/ W. TENNENT HOUSTON
W. Tennent Houston
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 30, 2000
David W. Cobb
/S/ /DORRIE E. GREEN Vice President, Chief Financial March 30, 2000
Dorrie E. Green Officer, Secretary and Treasurer
/S/ W. TENNENT HOUSTON Chairman of the Board and March 30, 2000
W. Tennent Houston Chief Executive Officer
/S/ BOONE A. KNOX Director March 30, 2000
Boone A.Knox
/S/STEWART R. SPEED Director March 30, 2000
Stewart R. Speed
/S/ MICHAEL N. THOMPSON President, Chief Operating March 30, 2000
Michael N. Thompson Officer and Director