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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, 2001
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: I.R.S. Employer Identification Number:
Georgia 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 4, 2002: Common Stock, $1 stated
value--$11,150,000 (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 4, 2002 was
2,750,086.
Documents incorporated by reference: The 2002 definitive proxy statement
mailed to stockholders for the annual meeting scheduled for April 18, 2002 is
incorporated by reference into Part III of this form 10-K.
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Table of Contents Page
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 14
Item 7A Quantitative and Qualitative Disclosure about Market Risk 22
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
Part I
Item 1--Business
THE COMPANY
Merry Land Properties, Inc. owns interests in eleven apartment communities
containing 2,379 units in Georgia, South Carolina and Florida, and have two more
communities under construction with 97 units currently in service out of a total
of 471 units. We also build and manage apartment communities for other owners.
We believe that our most important asset is our dedicated and enthusiastic staff
of experienced apartment professionals which has built, leased, managed and
maintained over 35,000 apartment units throughout the South.
Our objective is to build shareholder value through buying, developing,
renovating and managing apartment properties for ourselves and for others. We
also own over 3,800 acres of clay lands, which produce substantial mineral
royalty and timber income, and engage in other commercial real estate
activities. 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.
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. 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. 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. Operating data is exchanged using a corporate intranet linking all
communities to the home office and to each other.
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, 2001 Merry Land had a total of 148 employees; 122
worked at apartment communities and 26 were employed at the corporate offices.
Merry Land is a Georgia corporation formed September 3, 1998. Our principal
office is at 209 Seventh Street, Suite 300, 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.
Part I
Item 2--Properties
Apartments. At December 31, 2001 Merry Land owned or had an interest in
thirteen apartment communities containing 2,455 units in Georgia, South
Carolina, and in Florida. They are "garden apartments," in wood frame two and
three-story buildings with individually metered electric and gas service and
individual heating and cooling systems. The apartments are 34% one bedroom
units, 54% two bedroom units and 12% three bedroom units. The units average 986
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 thirteen
communities as of December 31, 2001. (Dollars in thousands, except average cost
and average rent per unit)
Average Average
Date Total Cost Per Unit Size Debt
Name Built Units Cost (1) Unit (Sq. Ft.) Balance
----------------------------- ------ ------- ----------- ------------ ---------- -----------
Wholly Owned Communities
Greentree 1983 194 $ 7,704 $39,710 852 $ 6,590
Hammocks at Long Point (2) 1997 308 20,894 67,836 1,049 18,469
Huntington (2) 1986 147 6,136 41,739 812 4,997
Magnolia Villas (2) (3) 1986 144 5,322 36,955 1,119 4,658
Marsh Cove 1983 188 8,464 45,023 1,053 8,003
West Wind (3) 1985 192 7,757 40,402 1,124 9,023
Merritt at Whitemarsh (4) 2002 - - - - 6,232
------ ------- ----------- ------------ ---------- -----------
Total/Average-Savannah 1987 1,173 56,277 47,976 1,009 57,972
Quarterdeck 1986 230 10,600 46,089 810 9,770
Summit Place (2) 1985 226 7,118 31,497 892 6,959
Waters Edge 1985 200 8,820 44,100 911 7,058
Merritt at James Island (5) 2001 76 5,920 73,484 1,140 13,207
Windsor Place (2) 1985 224 10,268 45,840 953 8,495
------ ------- ----------- ------------ ---------- -----------
Total/Average-Charleston 1986 956 42,726 44,693 910 45,489
Total/Average-Wholly Owned 1987 2,129 $ 99,003 $46,502 964 $103,461
Joint Venture Communities
Cypress Cove (6) 1990 326 $ 19,611 $60,155 1,129 $ 15,506
------ ------- ----------- ------------ ---------- -----------
Total/Average-Joint 1990 326 $ 19,611 $60,155 1,129 $ 15,506
Venture
Total/Average-All 1988 2,455 $118,613 $48,315 986 $118,967
(1) Represents to total acquisition cost of the property plus the capitalized
cost of the improvements made subsequent to acquisition.
(2) Acquired in August 1999.
(3) Presently under contract to sale.
(4) Community presently under construction with none of the 241 units placed in
service. Total construction cost of approximately $19.3 million or $80
thousand per unit.
(5) Community presently under construction with 76 of the 230 total units placed
in service. Total construction cost is estimated to be $17.4 million.
(6) Merry Land holds a 10% equity interest in this apartment community.
Occupancy Rate (1) Average Rent Per Unit (2)
----------------------------- --------------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ------ ------ ------
Wholly Owned Communities
Greentree 96% 96% 97% $ 663 $ 645 $ 618
Hammocks at Long Point 97% 96% 96% 892 861 842
Huntington 97% 96% 95% 679 658 644
Marsh Cove 96% 96% 97% 758 729 698
Magnolia Villa 97% 96% 95% 699 677 648
West Wind 97% 96% 96% 758 748 726
---- ---- ---- ------ ------ ------
Savannah 97% 96% 96% 758 736 712
Merritt at James Island (3) 100% N/A N/A 1,012 N/A N/A
Quarterdeck 97% 99% 100% 791 748 684
Summit Place 96% 96% 97% 575 559 534
Waters Edge 95% 98% 98% 650 685 623
Windsor Place 96% 97% 97% 653 645 608
---- ---- ---- ------ ------ ------
Charleston 96% 97% 98% 696 659 612
Average-Wholly Owned 97% 97% 97% $ 730 $ 703 $ 669
Joint Venture Communities
Cypress Cove (4) 96% 97% N/A $ 790 $ 822 N/A
---- ---- ---- ------ ------ ------
Average-Joint Venture 96% 97% N/A $ 790 $ 822 N/A
Average-All Communities 97% 97% 97% $ 738 $ 719 $ 669
(1) Average physical occupancy at each month end for each period owned by Merry
Land.
(2) Represents weighted average monthly rent charged for occupied units and
rents asked for unoccupied units.
(3) See footnote (5) from table above.
(4) See footnote (6) 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.
Markets. All twelve of Merry Land's 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 96% or more in each of those years.
This strong demand has produced a 3.5% average annual increase in rental rates
at the apartment communities during this period.
Third Party Management Properties. Merry Land currently earns property
management fees from four third party apartment communities containing 935
completed units, from one 326 unit apartment community owned in a joint venture
and from one 69 thousand square foot commercial property. Three of the four
third party apartment communities are either under construction or lease up with
an additional 197 units to be completed in 2002. At the end of 2001, the
management contracts from six other third party apartment communities were not
renewed.
Apartment Communities Under Development. The construction on our 230 unit
Merritt at James Island community in Charleston began in April 2000 but is
currently seven months behind our original schedule. We have leased all 76 units
that were placed in service during 2001. The remaining 154 units should be
placed in service during the first half of 2002.
In February, we broke ground at Merritt at Whitemarsh, a 241 unit luxury
apartment community in Savannah, which will cost approximately $19.3 million.
This project is adjacent to our Hammocks at Long Point property in the high
income Islands submarket of Savannah. The first units will be available for rent
in the first half of 2002 and construction is expected to be completed by the
end of the year.
In March, we closed the purchase for $1.3 million of a 28.8 acre tract of
land located in Jasper County, South Carolina near Hilton Head Island which is
suitable for the construction of a 254 unit apartment community. We plan to
build apartments on this tract when market conditions are favorable.
Calhoun Street For-Sale Condominium Property. We completed the renovation
of this property located in downtown Charleston in October 2000 for a total of
$1.7 million. Four of the seven units have been sold, all in 2001, for a total
of $1.1 million, resulting in a pretax gain of $221 thousand.
Commercial Properties. Merry Land owns two office buildings and a warehouse
in the Augusta area including our headquarters building. These properties,
aggregating approximately 140,000 square feet, have a net book value of $1.8
million.
Other Properties. Merry Land owns five land parcels containing a total of
74 acres with a book value of $3.2 million which may be suitable for the
development of apartments or other uses.
Land. Merry Land owns approximately 4,131 acres of unimproved land in
Georgia and South Carolina with a book value of $1.0 million. Since 1980, brick
manufacturer Boral Bricks, Inc. has had a long term clay mining lease on 2,848
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. In
November 2001 we established a 390 acre "wetlands mitigation bank" within this
Brickyard Tract, which permanently sets aside this area as a wildlife and
ecological preserve. This tract will be managed under lease by the Southeastern
Natural Science Academy as part of that organization's Phinizy Swamp Nature
Park. We have begun marketing mitigation credits in hopes of earning a
satisfactory profit on the project.
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 trade on the NASDAQ Small Cap Market under the symbol
"MRYP." Shown in the table below are high, low and closing sales prices of the
company's common shares:
High Low Close Dividends
2001 4th Quarter $8.15 $7.00 $7.75 $0.00
3rd Quarter $8.20 $7.02 $7.02 $0.00
2nd Quarter $7.80 $6.49 $7.55 $0.00
1st Quarter $7.56 $5.13 $7.56 $0.00
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
On December 31, 2001, the closing sales price for Merry Land's common stock
was $7.75 per share and there were approximately 1,350 record holders of the
common stock. In addition, we estimate that additional 4,500 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 Consolidated
Statements of Income, and with respect to the company's Consolidated Balance
Sheets 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, the date of its spin off from Merry Land & Investment
Company. 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 attached footnote*. (In
thousands, except per share amounts and apartment units)
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Operating Data
Income from operations:
Rental income $ 19,210 $ 19,063 $ 12,064 $ 8,121 $ 7,774
Royalty income 599 609 1,359 1,693 1,401
Management fees 594 166 598 149 -
Development fees 20 1,213 1,587 515 -
Sale of condominiums, net of cost 221 - - - -
Rental expense, property taxes and (7,123) (6,676) (4,542) (3,449) (3,022)
insurance
Depreciation of real estate owned (2,682) (2,596) (1,504) (1,291) (1,284)
General & administrative (3,778) (3,495) (2,715) (654) (120)
----------- ------------ ------------ ------------ -----------
7,061 8,284 6,847 5,084 4,749
Other income:
Interest income 134 211 232 137 84
Long term gain from sale of properties 2,608 473 - - -
Other investment income 26 34 (30) - -
----------- ------------ ------------ ------------ -----------
2,768 718 202 137 84
Expenses:
Interest expense 6,958 7,095 4,633 695 -
Amortization & depreciation-other 265 325 376 265 224
Impairment charge - - - 1,666 -
----------- ------------ ------------ ------------ -----------
Income before taxes and extraordinary item 2,606 1,582 2,040 2,595 4,609
Income tax expense (benefit) 990 601 629 ( 462) -
----------- ------------ ------------ ------------ -----------
Income before extraordinary item 1,616 981 1,411 3,057 4,609
Extraordinary gain, discount on repayment
of debt (net of taxes) - - 722 - -
----------- ------------ ------------ ------------ -----------
Net income 1,616 981 2,133 3,057 4,609
Discount on redemption of preferred stock - - 1,164 - -
----------- ------------ ------------ ------------ -----------
Net income, common $ 1,616 $ 981 $ 3,297 $ 3,057 $ 4,609
Weighted average common shares 2,292 2,229 2,191
2,113 1,923
Weighted average diluted common shares 2,457 2,324 2,264 1,946
2,129
Earnings per common share-basic $ 0.71 $ 0.44 $ 1.50 $ 1.45 $ 2.40
Earnings per common share-diluted $ 0.66 $ 0.42 $ 1.46 $ 1.44 $ 2.37
Common dividends paid $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Balance Sheet Data
Real estate and other fixed assets $ 111,321 $100,202 $ 95,516 $40,982 $42,596
Cash and short term investments 3,602 4,452 3,067 3,995 -
Other assets 8,778 9,528 8,824 9,766 1,412
----------- ------------ ------------ ------------ -----------
Total assets $ 123,701 $114,182 $107,407 $54,743 $44,008
=========== ============ ============ ============ ===========
Debt $ 103,461 $ 97,894 $ 93,211 $ 38,317 $ -
Other liabilities 4,493 2,729 2,535 2,209 629
Preferred stock - - - 5,000 -
Investment by Merry Land & Investment
Company, Inc. - - - - 43,379
Common stock and retained earnings 15,747 13,559 11,661 9,217 -
----------- ------------ ------------ ------------ -----------
Total liabilities and stockholders' equity $ 123,701 $114,182 $107,407 $ 54,743 $44,008
=========== ============ ============ ============ ===========
Other Data
Apartment units-100% owned 2,129 2,301 2,301 1,004 1,004
Apartment units-partnership interest 326 326 - - -
Apartment units-managed, including owned 3,390 3,103 2,357 2,712 -
Apartment units-under development 395 471 230 - -
*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.
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.
Part II
Item 7--Management's Discussion and Analysis of Financial Condition and Results
of Operations
Recent Events
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 August 2001, we sold Woodcrest apartments,
a 248 unit community in Augusta that Merry Land's predecessor had built in 1982.
We presently have under contract for sale two more of our older apartment
communities, West Wind and Magnolia Villas apartments, both located in Savannah.
Proceeds from these sales, should either be consummated, will be reinvested in
newer projects. In the meantime, there would be a temporary reduction in rental
income until the proceeds can be reinvested.
Results of Operations for the Years Ended December 31, 2001, 2000, and 1999
Rental Operations-All Apartments. At December 31, 2001 Merry Land wholly
owned 2,053 apartment units in ten communities and had received 76 completed
units from a community under construction. Five of the stabilized communities
were owned for all of 1999 while five were bought in August 1999.
The following table describes the operating performance of these eleven
apartment communities and Woodcrest apartments which was sold in August 2001.
(Dollars in thousands, except average monthly rent)
Twelve Months
% Change from ---------------------------------------
Change 2000 to 2001 2001 2000 1999
-------------- --------------- ------------- ----------- -------------
Rental income 1.1 % $ 208 $18,847 $18,639 $11,532
Operating expenses 6.5 411 6,772 6,361 4,149
Depreciation and amortization 3.8 91 2,479 2,388 1,503
-------------- --------------- ------------- ----------- -------------
Total expenses 5.7 502 9,251 8,749 5,652
Operating income after depreciation (3.0)% $(294) $ 9,596 $ 9,890 $ 5,880
Average occupancy (1) (0.8)% N/A 95.8% 96.6% 97.5%
Average monthly rent (2) 6.7 % $ 46 $ 731 $ 685 $ 654
Expense ratio (3) 1.7 % N/A 35.9% 34.2% 36.0%
(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.
Operating income after depreciation was down 3.0% in 2001 on revenue growth
of 1.1% and an operating expense increase of 6.5%. Rental income was reduced
$555 thousand by the sale of the Woodcrest apartments. This was offset by $300
thousand in additional revenue from the 76 units placed in service at Merritt at
James Island and by a $464 thousand increase in revenue from other owned
communities. The increase in operating expenses was primarily due to an increase
in insurance costs, which have resulted from soaring premiums in the property
insurance industry.
Operating income from Woodcrest was $515 thousand in 2001 compared to $875
thousand in 2000. Total rental income from the community was $1.0 million in
2001 and $1.5 million in 2000.
Operating income from the Merritt at James Island was $57 thousand in 2001.
Average monthly rent increased 6.7% in 2001 primarily due to the sale of
Woodcrest, whose $528 average rent at sale was 28% below the company average.
The average rent at Merritt at James Island was $1,012 at December 31, 2001.
The 68% increase in net operating income in 2000 from 1999 stemmed from the
purchase of six apartment communities, or 1,297 units previously owned by our
predecessor, in the third quarter of 1999. These six new communities contributed
$5.6 million in operating income in 2000 as compared to $1.8 million in 1999.
Rental Operations-Same Store. The following table compares the performance
of the 2,053 units which the company held for all of 2000 ("same store" results)
to their performance in 2001. (Dollars in thousands, except average monthly
rent; see footnotes on previous page)
Twelve months
% Change from --------------------------
Change 2000 to 2001 2001 2000
------------ -------------- ------------- ------------
Rental income 2.4 % $464 $ 17,560 $ 17,096
Personnel (2.8) (55) 1,919 1,974
Utilities 2.0 11 552 541
Operating 5.9 31 557 526
Maintenance and grounds 6.1 81 1,409 1,328
Taxes and insurance 20.6 297 1,741 1,444
Depreciation and amortization 4.8 107 2,359 2,252
------------ -------------- ------------- ------------
Total expenses 5.9 472 8,537 8,065
Operating income after depreciation (0.1)% $ (8) $ 9,023 $ 9,031
Average occupancy (1) (0.2)% N/A 96.4% 96.6%
Average monthly rent (2) 2.4 % $ 17 $ 721 $ 704
Expense ratio (3) 1.5 % N/A 35.5% 34.0%
Operating income before depreciation at our same store communities was up
only 0.9% in 2001. Total rental revenues rose 2.7% for the full year, while
fourth quarter growth was just 1.6%. As the economy and our apartment markets
softened, occupancy at December 31, 2001 fell to 95.6% from 96.4% a year ago,
while average rent rose 2.4% in 2001 compared to a 4.7% increase in the prior
year. Also contributing to flat earnings growth was a 109% increase in insurance
costs and a 9% increase in property taxes.
Charleston operating income before depreciation was down 0.5% with a 1.6%
decrease in occupancy and a 1.4% increase in average rents while Savannah's
income was up 1.8% with a 0.7% increase in occupancy and 3.1% increase in
average rents. We expect continued softness in these markets throughout 2002.
Rental Operations-Commercial. The company owns three commercial properties
in the Augusta area whose overall occupancy was less than 70% at December 31,
2001. Equity Residential Properties Trust has entered into a four year lease for
the remainder of the Ellis Street office building where our corporate offices
are now located. We will relocate our offices to newly renovated space in our
Leonard Building also in downtown Augusta.
Operating income before depreciation improved to $88 thousand in 2001 from
$17 thousand in 2000 and a net loss of $37 thousand in 1999. Rental revenue
increased to $336 thousand in 2001 from $244 thousand in 2000 and $215 thousand
in 1999.
Land. We own 4,131 acres of unimproved land, of which 2,948 acres are
subject to clay and sand mining leases. Land income, for the most part mineral
royalties and timber sales, decreased 21% to $627 thousand in 2001 from $789
thousand in 2000 due to a $145 thousand reduction in timber sales. Total royalty
income decreased in both 2001 and 2000 from 1999 primarily to the expiration of
a clay royalty agreement in 1999.
In November 2001, we established a 390-acre "wetlands mitigation bank"
within our 2,848 acre Brickyard Tract in Augusta, which permanently sets aside
this area as a wildlife and ecological preserve. We have begun marketing
mitigation credits in hopes of earning a satisfactory profit on the project.
Mortgage Interest Income. Interest income from mortgage notes receivable
totaled $28 thousand in 2001, down from $36 thousand and $52 thousand in 2000
and 1999, respectively. The decreases result from the payments against the
outstanding receivables.
Property Management Fees. Management fee income increased $428 thousand in
2001 from 2000 due to the increase in third party units managed. However, the
contracts on several of these communities have not been renewed for 2002 and
this business must be replaced in order for 2002 income to equal that of 2001.
Management fees decreased $432 thousand in 2000 from 1999 due to the
completion of management agreements with Equity Residential on seven communities
and due to the company's acquisition in August 1999 of six other Equity
residential apartment communities that had been managed by Merry Land.
Development Fees. Development fee income was $20 thousand for 2001, down
from $1.2 million in 2000 and $1.6 million in 1999. Fee income in 2001 arose
from Godley Station, a third party development contract in Savannah, while all
but $180 thousand in development fees in 2000 and 1999 were earned under
agreements with Equity Residential in connection with our predecessor's merger
into that company.
Sale of Condominiums. We have sold four out of the seven Calhoun Street
units, all in 2001, for $1.1 million, recognizing a pretax gain of $221
thousand. Construction on these condominiums was completed in October 2000.
Long Term Gain. In December 2001, we closed the sale of the 489-acre
LaBorde tract of clay land in Richland County, South Carolina for $1.1 million,
recognizing a pretax gain of $609 thousand. We retained the right to any clay
royalties, should the tract be mined under the current clay lease.
In August 2001, we sold the 248 unit Woodcrest apartment community for $8.0
million, recognizing a pretax gain of $2.0 million. The community was acquired
in August 1999 for $6.0 million under a purchase option entered into during the
1998 merger agreement of Merry Land & Investment Company and Equity Residential.
The book value at the closing date was $5.9 million.
During 2000 the company sold three parcels of land and two commercial
buildings for a total of $1.3 million and a pretax gain of $452 thousand. In
addition, Merry Land sold several acres of the Brickyard Tract in Augusta for a
pretax gain of $21 thousand.
Equity Investment Income. Merry Land reported a $9 thousand loss and $34
thousand income in equity investment income from the Cypress Cove joint venture
in 2001 and 2000, respectively. This was in addition to the $106 thousand and
$74 thousand in management fee income earned related to our services for the
property in 2001 and 2000, respectively.
Interest and Dividend Expense. Total interest expense decreased $137
thousand to $7.0 million in 2001, from $7.1 million in 2000. An increase in
construction loan interest incurred at our two communities under construction
was offset somewhat by the increase in interest capitalized related to these
developments and by the decrease in mortgage interest expense resulting from the
purchaser's assumption of the Woodcrest apartment's mortgage in August 2001.
(Dollars in thousands for the following table)
Twelve months
Change from -----------------------------------------------
2000 to 2001 2001 2000 1999
------------------- --------------- -------------- --------------
Line of credit $(117) $ - $ 117 $ 50
Term loan 90 90 - -
Construction loans 706 881 175 -
Mortgage loans (256) 7,051 7,307 3,140
Senior debt - - - 655
Subordinated debt - - - 774
Preferred stock - - - 193
------------------- --------------- -------------- --------------
Total interest expense 423 8,022 7,599 4,812
Capitalized for development (560) (1,064) (504) (179)
------------------- --------------- -------------- --------------
Net interest expense $(137) $6,958 $7,095 $4,633
Capitalized interest related to development increased to $1.1 million in
2001 from $504 thousand in 2000 primarily due to the ongoing construction of the
Merritt at James Island community and to the start of construction at the
Merritt at Whitemarsh in Savannah. Capitalized interest increased by $325
thousand in 2000 from 1999 due to the start of construction of the Merritt at
James Island in April 2000 and to the development of the 214 Calhoun Street
condominiums in Charleston.
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.
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.
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. The related interest
expense, including dividends accrued on the preferred stock, totaled $1.6
million for 1999.
General and Administrative Expenses. General and administrative expenses
increased to $3.8 million for 2001 from $3.5 million in 2000 and $2.7 million in
1999. The 8% increase in 2001 was primarily due to a greater number of corporate
employees and an increase in third party management costs. The $800 thousand
increase in 2000 from 1999 was due to a greater number of employees, fees
related to a proposed stock rights offering, and increased acquisition costs.
Income Before Taxes and Extraordinary Item. Income before taxes and
extraordinary item increased $1.0 million, or 65%, to $2.6 million for the
twelve months ended December 31, 2001 from $1.6 million for 2000. The $2.1
million increase in gains from the sale of real estate assets and the $400
thousand increase in third party management fee income were reduced by the $200
thousand decrease in apartment income (net of rental and interest expense), the
$1.0 million decrease in development income and the $300 thousand increase in
corporate administrative expense.
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 $800
thousand increase in general and administrative expense, the $2.5 million
increase in interest expense, and the $800 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 $500 thousand gain from the sale of real estate assets.
Income Taxes. Income tax expense for 2001 totaled $991 thousand, which
consisted entirely of deferred income tax expense.
The income tax expense for 2000 was $601 thousand and was $1.0 million for
1999. The expense for 1999 included a $442 thousand income tax provision on the
discount on repayment of the subordinated debt.
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.
Funds From Operations. Funds from operations totaled $3.0 million for 2001
compared to $3.4 million in 2000. The following is a reconciliation of net
income to funds from operations. (In thousands)
Twelve months
------------------------
2001 2000
----------- ----------
Net income $1,616 $ 981
Add depreciation of real estate owned 2,767 2,598
Less long term capital gain-net of tax effect (1,613) (294)
Add tax benefit resulting from permanent
difference in book and tax basis 209 113
----------- ----------
Funds from operations available to common shares $2,979 $3,398
=========== ==========
Weighted average common shares outstanding--
Basic 2,292 2,229
Diluted 2,457 2,324
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. In February 2001 construction began at the
Merritt at Whitemarsh, a 241 unit luxury apartment community in Savannah, which
will cost approximately $19.3 million. At December 31, 2001 the total project
cost was $10.6 million and the construction was approximately 55% complete. The
first buildings are expected to be delivered in May 2002 and construction should
be completed by the end of 2002.
Construction is over 90% complete on the Merritt at James Island, a 230
unit luxury apartment community in Charleston, on which the general contractor
is well behind schedule. A total of $15.5 million had been spent on the
estimated $17.4 million project at the end of 2001. Disputes related to this
contract could result in future litigation and an immaterial increase in cost.
All 76 units that had been delivered were leased and the remaining 154 units are
expected to be completed by the end of the second quarter 2002.
In March 2001, we closed the purchase for $1.3 million of a 28.8 acre tract
located in Jasper County, South Carolina near Hilton Head Island which is
suitable for the construction of a 254 unit apartment community. We plan to
build apartments on this tract when market conditions are favorable.
Liquidity and Capital Resources
Financial Structure. We use debt to finance most of our acquisition and
development activities and, as a result, are a highly leveraged company. Since
the end of 2000 total debt has increased by $5.6 million primarily due to a
$14.1 million increase in construction loans, which was offset by the assumption
of the $6.3 million mortgage by the purchaser of the Woodcrest apartments, by
the repayment of the $1.5 million line of credit in March 2001 with proceeds of
the new term loan, and by the $700 thousand in principal paid on the remaining
mortgages. The $2.8 million term loan was both originated and repaid during
2001.
At December 31, 2001 total debt equaled 87% of total capitalization at cost
and 83% of total capitalization with equity valued at market (2,714,086 shares
outstanding at the December 31, 2001, closing price of $7.75 per share) (Dollars
in thousands)
Equity at
Book % of total FMV % of total
------------- ------------ -------------- ------------
Mortgage loans $ 84,022 70% $ 84,022 67%
Construction loans 19,439 16 19,439 16
------------- ------------ -------------- ------------
Total debt 103,461 87 103,461 83
Common 15,747 13 21,034 17
------------- ------------ -------------- ------------
Total capitalization $119,208 100% $124,495 100%
Ten separate wholly owned limited liability companies own our ten
stabilized 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. At December 31, 2001, the amount of cash restricted by the mortgages
was approximately $1.5 million.
Liquidity. We expect to meet our short-term liquidity requirements with
working capital, cash provided by operating activities, lines of credit,
construction loans, and the possible sale of land or other assets. Our primary
short-term liquidity needs include operating expenses, capital improvements,
purchase of land, and the development of both the Merritt at Whitemarsh and the
Merritt at James Island communities. Possible additional construction costs and
a slower than projected lease up of the two development communities may have a
negative impact on our short term cash requirements. In addition, a weakening
national economy might continue to affect the cash generated by our stabilized
communities.
We expect to meet our long-term liquidity requirements from a variety of
sources including operating cash flow, additional mortgage loans and other
borrowings, the possible sale of apartment communities and other assets and the
issuance and sale of debt and equity securities in public and private markets.
Our long-term liquidity needs include the maturity of the mortgage debt and the
financing of acquisitions and development.
Cash Flows. Cash and cash equivalents totaled $3.6 million at December 31,
2001, down $900 thousand from $4.5 million at December 31, 2000. While net cash
provided by existing operations was $4.6 million, the company utilized $1.5
million for capital expenditures on existing properties. We also spent $3.1
million net of construction loans on two developments and acquired the Jasper
County, South Carolina development land for $1.3 million. The Jasper County land
was financed by a portion of the new $2.8 million term loan; the loan's
remaining proceeds were used to pay off the $1.5 million line of credit. We
realized net proceeds of $1.6 million from the sale of the Woodcrest apartments
and $1.1 million from the sale of the LaBorde land. We used $2.8 million of the
net proceeds from the sale of the Calhoun Street condominiums, the Woodcrest
apartments and the Laborde land to pay down the new term loan. We also received
a net $400 thousand from the repayment of our loan to the ESOP and other
receivables and spent a total of $1.4 million on mortgage principal and
additional escrow payments.
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.
Inflation. Substantially all of our leases are for terms of one year or
less, which should enable us to replace existing leases with new leases at
higher rental rates in times of rising prices. We believe that this would offset
the effect of cost increases stemming from inflation.
Forward Looking Statements. This filing includes statements that are
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding
expectations with respect to market conditions, development projects,
acquisitions, occupancy rates, capital requirements, sources of funds, expense
levels, operating performance, and other matters. These assumptions and
statements are subject to various factors, unknown risks and uncertainties,
including general economic conditions, local market factors, delays and cost
overruns in construction, completion and rent up of development communities,
performance of consultants or other third parties, environmental concerns, and
interest rates, any of which may cause actual results to differ from the
company's current expectations.
Item 7A--Quantitative and Qualitative Disclosures about Market Risk.
The company does not enter into contracts for trading purposes and does not
use leveraged instruments. None of the company's notes receivable has variable
interest rates. The following table summarizes Merry Land's risk associated with
notes payable and notes receivable as of December 31, 2001. The table includes
principal payments and the related weighted average interest rates by expected
year of maturity. (Dollars in thousands)
Expected fiscal year of maturity
---------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total Fair value
------ ------ ------ ------ ------ ---------- -------- -----------
Debt: $817 $919 $974 $1,075 $1,177 $ 98,499 $103,461 $103,461
Avg. interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 8.0% 8.0%
Notes receivable: $ 49 $ 40 $ 42 $ 42 $ 47 $ 158 $ 378 $ 378
Avg. interest rate 7.0% 6.1% 6.1% 6.1% 6.1% 6.2% 6.3%
Part II
Item 8--Financial Statements and Supplementary Data
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2001 December 31, 2000
------------------- --------------------
ASSETS
Real estate assets, at cost:
Land held for mining, development and sale $ 4,658,330 $ 4,055,883
Apartments 99,002,511 98,116,609
Commercial rental property 2,564,034 2,430,478
Furniture and equipment 1,971,482 1,905,830
Development in progress 21,828,302 9,844,356
------------------ -------------------
Total cost 130,024,659 116,353,156
Accumulated depreciation and depletion (18,703,603) (16,151,081)
------------------ -------------------
111,321,056 100,202,075
EQUITY INVESTMENT 421,932 474,512
CASH AND CASH EQUIVALENTS 3,601,636 4,452,189
ESCROWED CASH 1,963,745 1,724,997
OTHER ASSETS
Notes receivable 377,867 462,656
Deferred loan costs 1,393,741 1,495,217
Other receivables 375,036 152,769
Deferred tax asset 4,140,846 5,130,885
Other 105,310 86,768
------------------ -------------------
6,392,800 7,328,295
------------------ -------------------
TOTAL ASSETS $123,701,169 $114,182,068
================== ===================
NOTES PAYABLE
Line of credit $ - $ 1,500,000
Construction loans 19,438,919 5,363,868
Mortgage loans 84,021,636 91,029,928
------------------ -------------------
103,460,555 97,893,796
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued interest 694,166 650,261
Accrued property taxes 563,816 67,117
Deferred revenue 28,747 168,998
Construction retainage 1,431,717 358,124
Payables and accrued liabilities 1,774,708 1,484,607
------------------ -------------------
4,493,154 2,729,107
STOCKHOLDERS' EQUITY
Common stock, at $1 stated value, 2,714,086 and 2,666,966 shares issued and
outstanding in 2001 and 2000, respectively. 2,714,086 2,666,966
Capital surplus 9,686,018 9,403,285
Unamortized compensation (1,725,590) (1,751,179)
Cumulative undistributed net earnings 5,245,288 3,629,665
Receivable from ESOP (172,342) (389,572)
------------------ -------------------
15,747,460 13,559,165
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $123,701,169 $114,182,068
================== ===================
The accompanying notes are an integral part of these
consolidated balance sheets.
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
-----------------------------------------------------------
2001 2000 1999
--------------------- ------------------- -----------------
INCOME
Rental income $19,210,263 $19,063,360 $12,063,730
Royalty income 599,266 608,860 1,358,685
Interest income 133,960 211,066 231,667
Management fees 593,632 166,375 598,344
Development fees 20,000 1,212,771 1,586,996
Sale of condominiums 1,081,700 - -
Long term gain on sale of property and land 2,608,315 472,542 -
Other income 26,197 34,429 (29,512)
--------------------- ------------------- -----------------
24,273,333 21,769,403 15,809,910
EXPENSES
Rental expense 7,123,331 6,675,830 4,542,132
Cost of condominiums sold 860,685 - -
Interest expense 6,958,125 7,095,054 4,633,046
Depreciation 2,844,723 2,815,534 1,838,735
Amortization 102,572 106,345 40,571
General and administrative expense 3,777,752 3,494,660 2,715,103
--------------------- ------------------- -----------------
21,667,188 20,187,423 13,769,587
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM 2,606,145 1,581,980 2,040,323
Income tax expense 990,524 600,639 629,095
INCOME BEFORE EXTRAORDINARY ITEM 1,615,621 981,341 1,411,228
Extraordinary gain - discount on repayment of debt, net of
income tax provision of $441,746 - - 721,969
--------------------- ------------------- -----------------
NET INCOME 1,615,621 981,341 2,133,197
Discount on redemption of preferred stock - - 1,163,715
--------------------- ------------------- -----------------
NET INCOME - COMMON $ 1,615,621 $ 981,341 $ 3,296,912
===================== =================== =================
WEIGHTED AVERAGE COMMON SHARES
Basic 2,292,491 2,228,515 2,191,469
Diluted 2,456,803 2,324,364 2,263,768
EARNINGS PER COMMON SHARE
Basic $ 0.71 $ 0.44 $ 1.50
Diluted $ 0.66 $ 0.42 $ 1.46
The accompanying notes are an integral part of these consolidated
statements.
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------------------------------------
2001 2000 1999
---------------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,615,621 $ 981,341 $ 2,133,197
Adjustments to reconcile net income to
net cash provided by operating activities:
Discount on repayment of debt, net of taxes - - (721,969)
Gain on sale of property and land (2,608,315) (472,542) -
Cost of condominiums sold 860,685 - -
Depreciation expense 2,844,723 2,815,534 1,838,735
Amortization of compensation element of restricted 323,940 289,261 133,432
stock grants
Amortization expense 102,572 106,345 40,571
Deferred income tax expense 990,524 600,639 1,058,230
Decrease in dividend payable - - (81,111)
Increase in net payable and liabilities 830,705 194,199 1,152,004
(Increase) decrease in other assets and receivables (388,600) 119,977 279,216
---------------- ---------------- -----------------
Net cash provided by operating activities 4,571,855 4,634,754 5,832,305
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for development (17,174,029) (5,805,851) (629,146)
Purchase of land and real estate (1,336,849) - (54,499,488)
Sale of real property and land 8,978,967 1,266,097 -
Capitalized costs, improvements and replacements (1,498,137) (2,619,949) (1,244,559)
Decrease (increase) in receivable from ESOP 217,230 628,360 (1,017,932)
Distributions from (investments in) equity 52,610 (474,512) -
investment
Payments received on notes receivable 84,789 101,417 748,661
---------------- ---------------- -----------------
Net cash used in investing activities (10,675,419) (6,904,438) (56,642,464)
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from construction loans 14,075,051 5,363,868 -
(Repayment) proceeds from of line of credit (1,500,000) - 1,500,000
(Repayments) proceeds from mortgage loans (7,008,292) (681,259) 91,711,187
Repayment of senior debt - - (18,317,429)
Repayment of subordinate debt - - (18,836,285)
Repayment of preferred stock - - (3,836,285)
(Increase) decrease in mortgage escrow (683,432) 628,126 (1,187,142)
Decrease (increase) increase in development escrow 444,684 (1,165,981) -
Increase (decrease) in deferred loan costs (75,000) (490,253) (1,151,880)
---------------- ---------------- ------------------
Net cash provided by financing activities 5,253,011 3,654,501 49,882,166
NET (DECREASE) INCREASE IN CASH $ (850,553) $ 1,384,817 $ (927,993)
CASH AT BEGINNING OF PERIOD $ 4,452,189 $ 3,067,372 $ 3,995,365
---------------- ---------------- -----------------
CASH AT END OF PERIOD $ 3,601,636 $ 4,452,189 $ 3,067,372
================ ================ =================
Interest paid $ 7,978,737 $ 7,580,699 $ 4,180,096
Income taxes paid $ 487 $ - $ -
The accompanying notes are an integral part of
these consolidated statements.
Merry Land Properties, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Cumulative
undistributed
Common stock net Total
----------------------- Capital Unamortized earnings stockholders'
Shares Amount surplus compensation (deficit) equity
----------- ----------- ------------ ------------- ------------ -------------
BALANCE, DECEMBER 31, 1998 $2,597,633 $2,597,633 $9,121,987 $(1,854,291) $ (648,586) $ 9,216,743
=========== =========== ============ ============= ============ =============
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 - - - 133,432 - 133,432
Issuance of notes receivable to the
ESOP - - (1,017,932) - - (1,017,932)
----------- ----------- ------------ ------------- ------------ -------------
BALANCE, DECEMBER 31, 1999 $2,601,300 $2,601,300 $8,121,084 $(1,710,055) $2,648,326 $11,660,655
=========== =========== ============ ============= ============ =============
Net income-common - - - - 981,341 981,341
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 - 288,813
Repayment of notes receivable from the
ESOP - - 628,360 - - 628,360
----------- ----------- ------------ ------------- ------------ -------------
BALANCE, DECEMBER 31, 2000 $2,666,966 $2,666,966 $9,013,715 $(1,751,179) $3,629,667 $13,559,169
=========== =========== ============ ============= ============ =============
Net income-common - - - - 1,615,621 1,615,621
Issuance of restricted stock grants 71,000 71,000 361,750 (401,250) - 31,500
Forfeiture of restricted stock grants (23,880) (23,880) (79,019) 102,899 - -
Amortization of compensation element
of restricted stock - - - 323,940 - 323,940
Repayment of notes receivable from the
ESOP - - 217,230 - - 217,230
----------- ----------- ------------ ------------- ------------ -------------
BALANCE, DECEMBER 31, 2001 $2,714,086 $2,714,086 $9,513,676 $(1,725,590) $5,245,288 $15,747,460
=========== =========== ============ ============= ============ =============
The accompanying notes are an integral part of
these consolidated statements.
Merry Land Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Merry Land Properties, Inc. was formed on September 3, 1998 as a corporate
subsidiary of Merry Land & Investment Company, Inc. in connection with a
transaction in which Merry Land & Investment Company, 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. 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
along with the wetlands mitigation credit 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.
Long-Lived Assets
Long-lived assets primarily consist of real estate assets. These assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying value
of long-lived assets is periodically reviewed by management and impairment
losses, if any, are recognized when the expected undiscounted future operating
cash flows derived from such assets are less than their carrying value.
Management believes no such impairments have occurred during any of the periods
presented.
At the end of 2001 the company identified and classified two apartment
communities as available for sale. Both are presently under contract and the
sales price, less expected cost to sell, for each community exceeds its carrying
value.
Equity Investment in Joint Venture
In 2000, the company acquired a 10% interest in the Cypress Cove joint
venture, which is accounted for under the equity method of accounting. The
company has recorded $9 thousand of losses and $34 thousand of income related to
its equity interest in the joint venture during 2001 and 2000, respectively. The
company also provided management services to the Cypress Cove property, and has
recorded management fees related to these services of $106 thousand and $74
thousand during 2001 and 2000, respectively.
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.
A reconciliation of the average outstanding shares used in the two
calculations is as follows:
2001 2000 1999
-------------- -------------- --------------
Weighted average shares outstanding-basic 2,292,491 2,228,515 2,191,469
Dilutive potential common shares 164,312 95,849 72,299
-------------- -------------- --------------
Weighted average shares outstanding-diluted 2,456,803 2,324,364 2,263,768
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 adopted
SFAS No. 133 effective January 1, 2001 and, based on current business
activities, it has not had a material effect on the company.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141, among other things, eliminates pooling of interests accounting and
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. SFAS No. 142, among other things, eliminates the
amortization of goodwill and other non-separable intangible assets and requires
that goodwill be evaluated for impairment by applying a fair value-based test.
The company plans to adopt these new standards as of January 1, 2002. The
company had no goodwill or related amortization expense as of December 31, 2001
and accordingly does not believe that this standard will have significant
importance on the company.
In August 2001, the Financial Accounting Standards Board issued SFAS
No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 establishes new rules for measuring impairment of long-lived assets and
accounting for discontinued operations. The company plans to adopt this new
standard on January 1, 2002 and does not believe that the standard will have a
significant impact on the company.
3. Assets Held for Sale
In 2001, Merry Land listed several of the wholly owned apartment
communities, which the company considered to have less opportunity for growth
than the remaining communities. In August 2001, the company sold the Woodcrest
community and presently has both the West Wind Landing and Magnolia Villas
communities under contract. However, there can be no assurance these two or any
other apartments will be sold.
The Woodcrest apartment community was sold for $8.0 million, recognizing a
gain of $2.0 million. The community's net rental income (rental income less
rental expense and depreciation) for 2001 was $515 thousand on gross rents of
$987 thousand and operating expenses, excluding depreciation, of $364 thousand.
Both the Magnolia Villas and West Wind apartment communities are considered
"held for sale" under the provisions of Statement of Financial Accounting
Standard No. 121. Each of these communities assets are included in Apartments in
the accompanying balance sheets and are carried at net book value, which is less
than the contracted sales price less cost to sell for each property. The
aggregate net book value of these two communities at December 31, 2001 was $10.9
million. The aggregate net rental income generated by these communities for the
twelve months ended December 31, 2001 and 2000 was $1.4 million and $1.3
million, respectively. The aggregate depreciation expense for this period was
$383 thousand and $375 thousand, respectively.
4. Notes Receivable
At December 31, 2001 and 2000 notes receivable consisted of the following:
Note Balances
Original -------------------------------
Rate Due Amount 2001 2000
-------------------- ------------- ---------------------- ------------------ -------------- --------------
Brothersville 6.00% November-2012 $ 675,000 $317,163 $384,983
Brothersville 10.00% September-2002 327,600 11,402 25,465
New Zion 7.00% November-2012 60,000 49,302 52,208
------------------ -------------- --------------
Total $1,062,600 $377,867 $462,656
5. Debt
At December 31, 2001 and 2000 debt consisted of the following:
Maturity Date Interest Rate 2001 2000
--------------- ---------------- ----------------- --------------
Line of credit 06/24/2001 LIBOR+1.25% $ - $ 1,500,000
Construction/permanent loan-James Island LP (1) 04/19/2040 8.65% 13,207,458 5,363,868
Construction loan - Whitemarsh LLC 12/17/2003 LIBOR+2.00% 6,231,461 -
Mortgage Loan-Huntington LLC 09/01/2007 7.97% 4,997,496 5,038,259
Mortgage Loan-Magnolia Villas LLC 09/01/2007 7.97% 4,658,366 4,696,363
Mortgage Loan-Summit Place LLC 09/01/2007 7.97% 6,958,552 7,015,310
Mortgage Loan-Woodcrest LLC 09/01/2007 7.97% - 6,296,833
Mortgage Loan-Greentree LLC 07/01/2009 7.73% 6,589,824 6,647,423
Mortgage Loan-Marsh Cove LLC 07/01/2009 7.73% 8,003,120 8,073,072
Mortgage Loan-Quarterdeck LLC 07/01/2009 7.73% 9,770,383 9,857,854
Mortgage Loan-Waters Edge LLC 07/01/2009 7.73% 7,058,131 7,121,320
Mortgage Loan-West Wind LLC 07/01/2009 7.73% 9,023,125 9,101,993
Mortgage Loan-Hammocks LLC 09/01/2011 7.99% 18,468,921 18,618,837
Mortgage Loan-Windsor Place LLC 09/01/2011 7.99% 8,493,718 8,562,664
----------------- --------------
Total $103,460,555 $97,893,796
(1) Represents 8.375% during construction, 8.15% permanent financing and
0.5% insurance premiums.
In April 2000, the company began construction on the Merritt at James
Island apartment community. The total loan commitment is $16.2 million.
In February 2001, the company began construction on the Merritt at
Whitemarsh apartment community. The total loan commitment is $14.5 million.
In March 2001, the company utilized the proceeds from a $2.8 million term
loan to repay the $1.5 million line of credit and to purchase the Jasper County
development land. During 2001 the term loan was repaid in full out of the
proceeds from the sale of the Calhoun Street condominiums and the sale of the
Woodcrest apartment community and the Laborde tract in Richland County.
The $6.3 million mortgage on Woodcrest was assumed by the purchaser during
the August 2001 sale.
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.
In January 2000, additional restricted stock grants in lieu of cash bonuses
for a total of 50,000 shares were awarded to the three executive officers 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 approximately
16,000 shares were awarded to non-key executive employees.
In January 2001, additional restricted stock grants for a total of 30,000
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. During 2001 additional restricted stock grants net of forfeitures,
totaling 11,000 shares were awarded to non-key executive employees leaving
approximately199,000 common shares available for grant at the end of 2001.
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
2001 the company contributed $170 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 $11 thousand, $62 thousand and $37 thousand in interest in
2001, 2000 and 1999, respectively. The loan balance at the end of 2001 was $172
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 on the employees' contributions. The employees' contributions are limited
to 6% of annual salary. In 2001 and 2000 the company's contribution was $49
thousand and $22 thousand, respectively.
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 2001.
10. Income Taxes
As discussed in Note 3, the company is a taxable "C" corporation.
The components of the income tax provision are as follows:
2001 2000 1999
--------------- --------------- ---------------
Current federal tax $ - $ - $ -
Current state tax - - -
Deferred federal tax 833,960 515,245 519,040
Deferred state tax 156,564 85,394 110,055
--------------- --------------- ---------------
Income tax provision $ 990,524 $ 600,639 $ 629,095
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense is as follows:
2001 2000 1999
-------------------- -------------------- --------------------
% Of % Of % Of
Pretax Pretax Pretax
$ Amount Income $ Amount Income $ Amount Income
--------- ------ --------- ------ --------- ------
Income tax expense at statutory rate $ 886,089 34.0% $ 537,874 34.0% $ 693,711 34.0%
Increases in taxes resulting from:
State and local income taxes, net 104,435 4.0% 62,765 4.0 80,787 4.0
of federal income tax benefit
Dividends not deductible - - - - 73,389 3.6
Other - - - - 69,109 3.4
Non taxable clay lease income - - - - (287,901) (14.2)
--------- ------ --------- ------ --------- ------
Total income tax expense $ 990,524 38.0% $ 600,639 38.0% $ 629,095 30.8%
Significant components of the company's net deferred income taxes are as
follows:
Dec. 31, 2001 Dec. 31, 2000
------------- -------------
Excess of tax basis of assets over book basis resulting from spin off $5,330,923 $5,891,529
Net operating loss carry forward 887,673 883,992
Accelerated depreciation (2,077,750) (1,644,636)
----------- -----------
Total deferred tax asset $4,140,846 $5,130,885
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, 2001 or 2000 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 three reportable segments: Apartment Communities,
Commercial Properties and Land, and Third Party Services. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
Commercial & Third Party
December 31, 2001 Apartments Land Services Corporate Consolidated
--------------- ---------------- ---------------- ---------------- ------------------
Real estate rental revenue $ 18,847,009 $ 363,254 $ - $ - $ 19,210,263
Real estate expense (6,771,861) (351,470) - - (7,123,331)
Depreciation and amortization (2,479,393) (208,508) - (259,394) (2,947,295)
--------------- ---------------- ---------------- ---------------- ------------------
Income from real estate 9,595,755 (196,724) - (259,394) 9,139,637
Other income 2,034,284 1,449,337 593,672 125,092 4,202,385
--------------- ---------------- ---------------- ---------------- ------------------
Segment income (loss) 11,630,039 1,252,613 593,672 (134,302) 13,342,022
Interest expense - - - (6,958,125) (6,958,125)
General and administrative (900,444) (398,706) (776,103) (1,702,499) (3,777,752)
--------------- ---------------- ---------------- ---------------- ------------------
Income before taxes 10,729,595 853,907 (182,431) (8,794,926) 2,606,145
Income tax - - - (990,524) (990,524)
--------------- ---------------- ---------------- ---------------- ------------------
Net income $ 10,729,595 $ 853,907 $ (182,431) $ (9,785,450) $ 1,615,621
=============== ================ ================ ================ ==================
Capital investments $ 1,027,938 $17,578,576 $ - $ 65,652 $ 18,672,166
=============== ================ ================ ================ ==================
Total real estate assets $ 82,822,790 $28,256,746 $ - $ 241,520 $111,321,056
=============== ================ ================ ================ ==================
Commercial & Third Party
December 31, 2000 Apartments Land Services Corporate Consolidated
--------------- ---------------- ---------------- ---------------- ------------------
Real estate rental revenue $ 18,638,647 $ 424,713 $ - $ - $ 19,063,360
Real estate expense (6,359,770) (316,110) - - (6,675,880)
Depreciation and amortization (2,388,171) (208,508) - (325,150) (2,921,829)
--------------- ---------------- ---------------- ---------------- ------------------
Income from real estate 9,890,706 (99,905) - (325,150) 9,465,651
Other income - 2,294,173 166,375 245,495 2,706,043
--------------- ---------------- ---------------- ---------------- ------------------
Segment income 9,890,706 2,194,268 166,375 (79,655) 12,171,694
Interest expense - - - (7,095,054) (7,095,054)
General and administrative (740,754) (280,891) (151,949) (2,321,066) (3,494,660)
--------------- ---------------- ---------------- ---------------- ------------------
Income before taxes 9,149,952 1,913,377 14,426 (9,495,775) 1,581,980
Income tax - - - (600,639) (600,639)
--------------- ---------------- ---------------- ---------------- ------------------
Net income $ 9,149,952 $ 1,913,377 $ 14,426 $(10,096,414) $ 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
=============== ================ ================ ================ ==================
Commercial & Third Party
December 31, 1999 Apartments Land 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 - 2,945,681 598,344 202,155 3,746,180
--------------- ---------------- ---------------- ---------------- ------------------
Segment income 5,879,767 3,039,171 598,344 (128,810) 9,388,472
Interest expense - - - (4,633,046) (4,633,046)
General and administrative (299,058) (379,691) (297,248) (1,739,106) (2,715,103)
--------------- ---------------- ---------------- ---------------- ------------------
Income before taxes 5,580,709 2,659,480 301,096 (6,500,962) 2,040,323
Income tax - - - (629,095) (629,095)
--------------- ---------------- ---------------- ---------------- ------------------
Net income before extraordinary item 5,580,709 2,659,480 301,096 (7,130,057) 1,411,228
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 $ 5,580,709 $ 2,659,480 $ 301,096 $ (5,244,373) $ 3,296,912
=============== ================ ================ ================ ==================
Capital investments $ 54,872,481 $ 1,454,146 $ - $ 46,566 $ 56,373,193
=============== ================ ================ ================ ==================
Total real estate assets $ 84,011,308 $10,976,598 $ - $ 528,204 $ 95,516,110
=============== ================ ================ ================ ==================
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, 2001 and 2000, 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, 2001.
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, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
- --------------------------
Arthur Andersen LLP
Atlanta, Georgia
January 17, 2002
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 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
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.
(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 2001.
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 17, 2002. 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 17, 2002
Part IV
Item 14--Schedule XI--Real Estate and Accumulated Depreciation for the Year
Ending December 31, 2001:
Cost capitalized Gross amount at which
Initial cost to company subsequent to acquisition carried at December 31, 2001
------------------------- -------------------------- ----------------------------
Buildings & Carrying Buildings &
Residential Land improvements Improvements cost Land Improvements Total (a)
- ----------- ----------- ------------ ------------- -------- ---------- ------------ ------------
Greentree $ 325,000 $ 6,001,731 $ 1,376,953 $ -- $ 325,000 $ 7,378,684 $ 7,703,684
Hammocks @ Long Point 947,016 19,473,395 473,152 -- 947,016 19,946,547 20,893,563
Huntington 485,100 5,216,010 434,539 -- 485,100 5,650,549 6,135,649
James Island 461,538 5,458,026 - -- 461,538 5,485,026 5,919,564
Magnolia Villas 375,551 4,584,385 361,613 -- 375,551 4,945,998 5,321,549
Marsh Cove 329,786 6,649,280 1,485,339 -- 329,786 8,134,619 8,464,405
Quarterdeck 580,000 8,216,250 1,804,168 -- 580,000 10,020,418 10,600,418
Summit Place 392,000 6,477,363 249,030 -- 392,000 6,726,393 7,118,393
Waters Edge 448,000 6,490,069 1,881,832 -- 448,000 8,371,901 8,819,901
West Wind Landing 960,000 5,597,500 1,199,672 -- 960,000 6,797,172 7,757,172
Windsor Place 378,778 9,279,624 609,811 -- 378,778 9,889,435 10,268,213
---------- ------------ ------------- -------- ---------- ----------- ------------
Total Apartments 5,682,769 83,443,633 9,876,109 -- 5,682,769 93,319,742 99,002,511
Commercial 277,500 1,386,283 900,251 -- 277,500 2,286,534 2,564,034
Development in Progress 3,941,849 -- 17,886,453 -- 3,941,849 17,886,453 21,828,302
Land 2,918,698 -- 1,739,632 -- 4,658,330 -- 4,658,330
Total $11,303,850 $84,829,916 $30,402,445 $ -- $14,560,448 $113,492,729 $128,053,117
=========== ============= ============= ======== =========== ============ ============
Accumulated Date of Date Depreciable
Residential depreciation (a) construction acquired life
- ----------- ---------------- ------------ -------- -----------
Greentree $ 2,931,740 1984 1986 5-50 yr.
Hammocks @ Long Point 1,020,264 1997 1999 5-50 yr.
Huntington 316,933 1986 1999 5-50 yr.
James Island 12,635 2001 2001 5-50 yr.
Magnolia Villas 311,461 1986 1999 5-50 yr.
March Cove 3,057,766 1983 1986 5-50 yr.
Quarterdeck 2,946,526 1987 1989 5-50 yr.
Summit Place 396,448 1985 1999 5-50 yr.
Waters Edge 2,685,011 1985 1988 5-50 yr.
West Wind Landing 1,899,672 1984 1993 5-50 yr.
Windsor Place 601,255
-----------------
$16,179,721
Commercial 748,934 Various Various 5-50 yr.
Development in Progress -- -- -- --
Land 44,986 Various -- --
Total $16,973,641
=================
Notes:
(a) Reconciliation of total real estate carrying value and accumulated
depreciation for the years ending December 31, 2001, 2000 and 1999 are as
follows:
Real estate cost Accumulated depreciation
---------------------------------------------- --------------------------------------------
2001 2000 1999 2001 2000 1999
-------------- -------------- -------------- -------------- ------------- -------------
Balance at beginning of period $114,447,326 $106,969,169 $ 50,642,369 $14,577,942 $11,981,262 $10,432,965
Additions--acquisitions
and improvements 19,684,302 8,364,619 56,326,800 2,687,900 2,596,680 1,548,297
Deductions--sales (6,078,451) (886,462) -- (292,201) -- --
-------------- -------------- -------------- -------------- ------------- -------------
Balance at end of period $128,053,177 $114,447,326 $106,969,169 $16,973,641 $14,577,942 $11,981,262
============== ============== ============== ============== ============= =============
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
- ---------------------------
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 3/27/02
- ---------------------------
David W. Cobb
/s/ DORRIE E. GREEN Vice President, Chief Financial 3/27/02
- --------------------------- Officer, Secretary and Treasurer
Dorrie E. Green
/s/ W. TENNENT HOUSTON Chairman of the Board and 3/27/02
- --------------------------- Chief Executive Officer
W. Tennent Houston
/s/ JEFFERSON B. A. KNOX Director 3/27/02
- ---------------------------
Jefferson B. A. Knox
/s/ STEWART R. SPEED Director 3/27/02
- ---------------------------
Stewart R. Speed
/s/ MICHAEL N. THOMPSON President, Chief Operating 3/27/02
- --------------------------- Officer and Director
Michael N. Thompson