<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the Quarterly Period Ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the Transition Period From _____________ to ______________
Commission file number 1-12056
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THE TOWN AND COUNTRY TRUST
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(Exact name of registrant as specified in its charter)
MARYLAND 52-6613091
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 1700
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
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(Address of principal executive offices) (Zip Code)
(410) 539-7600
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address, or former fiscal year,
if changed since last report)
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 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
COMMON SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE - 15,677,690 OUTSTANDING AS
OF OCTOBER 31, 1996
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The Town and Country Trust
Form 10-Q
INDEX
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PART I: FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of The Town and Country Trust
as of September 30, 1996 and as of December 31, 1995. 1
Consolidated statements of operations of
The Town and Country Trust for the three-month and
nine-month periods ended September 30, 1996 and 1995. 2
Consolidated statements of cash flows of
The Town and Country Trust for the nine-month periods
ended September 30, 1996 and 1995. 3
Notes to consolidated financial statements. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 5. Other Information 7
Item 6. Exhibits or Reports on Form 8-K 7
Signature 8
(i)
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PART I: FINANCIAL INFORMATION
The Town and Country Trust
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-----------------------------
<S> <C> <C>
ASSETS (in thousands)
Real estate assets:
Land $ 77,566 $ 77,566
Buildings and improvements 481,664 477,083
Other 3,706 3,451
---------------------------
562,936 558,100
Less accumulated depreciation (192,651) (174,551)
---------------------------
370,285 383,549
Cash and cash equivalents 1,241 1,313
Funds deposited with mortgagee 2,623 5,723
Restricted cash 980 1,035
Receivables 1,384 1,196
Prepaid expenses and other assets 5,125 3,872
Deferred financing costs, net of allowance for
amortization (1996-$5,725, 1995-$4,101) 4,154 5,717
---------------------------
Total assets $ 385,792 $ 402,405
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 232,000 $ 232,000
Secured notes payable 58,409 56,809
Accrued interest 2,087 4,853
Accounts payable and other liabilities 4,874 2,881
Security deposits 1,643 1,667
Minority interest 11,900 14,294
---------------------------
Total liabilities 310,913 312,504
Shareholders' equity:
Common shares of beneficial interest
($.01 par value),
500,000,000 shares authorized 157 157
Additional paid-in capital 317,790 317,584
Accumulated deficit (241,195) (225,964)
Unearned compensation - restricted stock (1,873) (1,876)
---------------------------
74,879 89,901
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Total liabilities and shareholders' equity $ 385,792 $ 402,405
===========================
</TABLE>
See accompanying notes to financial statements.
1
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The Town and Country Trust
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
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(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 22,673 $ 22,249 $ 67,164 $ 65,868
Other 380 370 1,086 1,124
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23,053 22,619 68,250 66,992
Expenses:
Operating 4,899 4,729 14,892 13,953
Real estate taxes 1,747 1,798 5,296 5,404
Depreciation 6,068 6,024 18,244 18,109
Marketing and advertising 882 781 2,609 2,391
Repairs and maintenance 1,682 1,666 4,797 4,705
General and administrative 1,119 1,135 3,352 3,372
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16,397 16,133 49,190 47,934
Interest expense 4,438 4,595 13,300 13,872
Interest expense related to the
amortization of deferred financing
costs 541 544 1,624 1,708
Retirement of unamortized deferred
financing costs -- 309 -- 309
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21,376 21,581 64,114 63,823
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Income before minority interest 1,677 1,038 4,136 3,169
Income allocated to minority interest 229 142 566 434
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Net income $ 1,448 $ 896 $ 3,570 $ 2,735
=========================== ===========================
Weighted average common
shares outstanding 15,545,070 15,513,534 15,545,026 15,520,020
Net income per share $ .09 $ .06 $ .23 $ .18
=========================== ===========================
Dividends declared and paid
per share outstanding $ .40 $ .40 $ 1.20 $ 1.20
=========================== ===========================
</TABLE>
See accompanying notes to financial statements.
2
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The Town and Country Trust
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Income before minority interest $ 4,136 $ 3,169
Adjustments to reconcile income before minority
interest to net cash provided by operating activities:
Depreciation 18,244 18,109
Interest expense related to the amortization of
deferred financing costs 1,624 1,708
Retirement of unamortized deferred financing -- 309
Amortization of unearned compensation 205 117
Changes in operating assets and liabilities:
Decrease in restricted cash 55 15
Decrease in funds deposited with mortgagee 3,100 3,746
(Increase) decrease in receivables, prepaid
expenses and other assets (1,529) 1,664
Decrease in accounts payable, other liabilities,
accrued interest and security deposits (797) (2,199)
----------------------
Net cash provided by operating activities 25,038 26,638
INVESTING ACTIVITIES
Additions of real estate assets, net of disposals (3,044) (3,915)
Additions pursuant to value-added capital improvements program (1,848) (1,616)
----------------------
Net cash used in investing activities (4,892) (5,531)
FINANCING ACTIVITIES
Payments on notes payable -- (52,510)
Proceeds from issuance of common stock 4 --
Borrowings on notes payable 1,600 55,109
Increase in deferred financing costs (61) (1,435)
Dividends and distributions (21,761) (21,694)
----------------------
Net cash used in financing activities (20,218) (20,530)
----------------------
(Decrease) increase in cash and cash equivalents (72) 577
Cash and cash equivalents at beginning of period 1,313 1,959
----------------------
Cash and cash equivalents at end of period $ 1,241 $ 2,536
======================
Cash interest paid $ 16,202 $ 16,486
======================
</TABLE>
See accompanying notes to financial statements.
3
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The Town and Country Trust
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of recurring
normal accruals, considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for a full fiscal year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
2. INTEREST RATE SWAP AGREEMENTS
In order to reduce its exposure to interest rate fluctuations, on January 2,
1996, the Company entered into a series of interest rate swap agreements with a
bank with a total notional amount of $103,100,000. The swap agreements
effectively fix the interest rate on its floating rate indebtedness to a blended
rate of 6.5%. The net interest differential between the fixed rate and the
floating rate (paid by the counterparty) is reported as a component of interest
expense. The swap agreements mature concurrently with the floating rate debt
maturities on August 17, 1998.
3. SHAREHOLDERS' EQUITY
On July 25, 1996, the Company granted 15,625 restricted Common Shares to an
officer pursuant to its Amended and Restated 1993 Long-Term Incentive Plan. The
value of the restricted shares, which is equal to the market price of the Common
Shares at the date of the grant, will be amortized into expense over a vesting
period consistent with the remaining service period until retirement.
4. SUBSEQUENT EVENT
On October 24, 1996, the Company announced that its Board of Trustees had
declared a dividend for the quarter ended September 30, 1996 of $.40 per share,
aggregating $6,271,076. Concurrent with the payment of the dividend, a $986,614
limited partnership distribution will be made to the minority interest holders.
The dividend and distribution will be paid on December 10, 1996 to holders of
record on November 15, 1996.
4
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust (the "Company") as of September 30,
1996 and for the three-month and nine-month periods ended September 30, 1996 and
1995. This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
The financial statements include all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
The Company believes that Funds From Operations provides an indicator of its
financial performance. Historically, Funds From Operations has been defined as
net income (loss) excluding adjustments for unconsolidated partnerships and
joint ventures as well as gains (losses) from debt restructuring and sales of
property, plus depreciation and amortization. During 1995, the National
Association of Real Estate Investment Trusts (NAREIT) adopted a modification to
the definition of Funds From Operations. The modified definition continues to
recommend that depreciation of real property be added back to net income but
excludes certain items including amortization of deferred financing costs and
depreciation of company office improvements. Funds From Operations is affected
by the financial performance of the properties and the capital structure of the
Company. Funds From Operations does not represent cash flow from operations as
defined by generally accepted accounting principles and is not necessarily
indicative of cash available to fund all cash flow needs. Funds From Operations
should not be considered as an alternative to net income as an indicator of
operating performance or as an alternative to cash flow as a measure of
liquidity.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Income before minority interest for the three months ended September 30, 1996
was $1,677,000, compared to $1,038,000 for the same period in 1995. Funds From
Operations, using the new definition adopted by NAREIT, increased to $7,647,000
for the three months ended September 30, 1996 from $7,308,000 for the three
months ended September 30, 1995. Revenues were $23,053,000 for the three months
ended September 30, 1996 compared to $22,619,000 for the same period in 1995, an
increase of $434,000, or 1.9%. This increase was due to increases in rental
rates. Occupancy remained strong at 94.4% for the third quarter of 1996,
compared to 94.6% for the third quarter of 1995.
Total expenses excluding depreciation and interest were $10,329,000 for the
three months ended September 30, 1996 compared to $10,109,000 for the same
period in 1995, an increase of $220,000 or 2.2%. Operating expenses increased by
$170,000. Marketing and advertising expenses increased by $101,000. All other
expenses except depreciation decreased by $51,000.
Interest expense decreased by $157,000 from the expense in the third quarter of
1995 due to decreases in the interest rate on the Company's floating rate debt.
In order to eliminate its exposure to interest rate fluctuations, on January 2,
1996, the Company entered into an interest rate swap agreement which has the
effect of fixing at 6.5% its floating rate indebtedness until maturity on August
17, 1998.
5
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RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Income before minority interest for the nine months ended September 30, 1996 was
$4,136,000, compared to $3,169,000 for the same period in 1995. Funds From
Operations, using the new definition adopted by NAREIT, increased to $22,148,000
for the nine months ended September 30, 1996 from $21,399,000 for the nine
months ended September 30, 1995. Revenues were $68,250,000 for the nine months
ended September 30, 1996 compared to $66,992,000 for the same period in 1995, an
increase of $1,258,000, or 1.9%. This increase was due to increases in rental
rates.
Total expenses excluding depreciation and interest were $30,946,000 for the nine
months ended September 30, 1996 compared to $29,825,000 for the same period in
1995, an increase of $1,121,000. Operating expenses increased by $939,000, of
which approximately $500,000 is attributable to the unusually severe winter
weather conditions in the Company's operating region. Marketing and advertising
expenses increased by $218,000. All other expenses except depreciation decreased
by $36,000, as a result of management's successful efforts to control costs.
Interest expense for the nine months ended September 30, 1996 decreased by
$572,000 from the expense in the same period of 1995 due to decreases in the
interest rate on the Company's floating rate debt. On January 2, 1996, the
Company entered into an interest rate swap agreement which has the effect of
fixing at 6.5% its floating rate indebtedness until maturity on August 17, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided unrestricted cash for the nine months ended
September 30, 1996 of $25,038,000, of which $21,761,000 was paid out in
dividends and distributions. Borrowings under a secured financing arrangement
provided a portion of the funds that were invested in the properties in the form
of revenue-enhancing capital improvements.
In 1995, the Company commenced a multi-year program that provides for
approximately $6,000,000 in revenue-enhancing capital improvements to certain
properties. The improvements include the modernization of kitchens and bathrooms
as well as the installation of washers, dryers and carpeting within certain
apartment units. Funding for these revenue-enhancing improvements is provided
through internally-generated funds and the loan facility.
In order to reduce its exposure to interest rate fluctuations, on January 2,
1996, the Company entered into a series of interest rate swap agreements with a
bank with a total notional amount of $103,100,000. The swap agreements
effectively fix the interest rate on its floating rate indebtedness to a blended
rate of 6.5%.
Management believes that the Company will have access to the capital resources
necessary to expand and develop its business. The Company expects that adequate
cash will be available to fund its operating and administrative expenses,
capital expenditures, debt service obligations and payments of dividends in the
foreseeable future.
6
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PART II: OTHER INFORMATION
Items 1 through 5 are not applicable or the answer to such items is
negative; therefore, the items have been omitted and no reference is
required in this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number Exhibit
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27 Financial Data Schedule(1)
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
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(1) Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K
7
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOWN AND COUNTRY TRUST
Date: November 7, 1996 /s/ Jennifer C. Munch
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Jennifer C. Munch
Vice President - Treasurer
(Principal Accounting Officer)
8
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,844
<SECURITIES> 0
<RECEIVABLES> 1,384
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,353
<PP&E> 562,936
<DEPRECIATION> 192,651
<TOTAL-ASSETS> 385,792
<CURRENT-LIABILITIES> 8,604
<BONDS> 290,409
<COMMON> 157
0
0
<OTHER-SE> 74,722
<TOTAL-LIABILITY-AND-EQUITY> 385,792
<SALES> 0
<TOTAL-REVENUES> 68,250
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,924
<INCOME-PRETAX> 4,136
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,570
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
