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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 March 31, 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
------------------
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
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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 - 15,662,065
OUTSTANDING AS OF MAY 10, 1996
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The Town and Country Trust
Form 10-Q
INDEX
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<TABLE>
<CAPTION>
Part I: Financial Information Page
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<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of The Town and Country Trust as of March 31, 1996
and as of December 31, 1995. 1
Consolidated statements of operations of The Town and Country Trust for the three-month periods ended March 31,
1996 and 1995. 2
Consolidated statements of cash flows of The Town and Country Trust for the three-month periods ended March 31,
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
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Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits or Reports on Form 8-K 8
Signature 9
</TABLE>
(i)
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Part I: Financial Information
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The Town and Country Trust
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
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(in thousands)
<S> <C> <C>
ASSETS
Real estate assets:
Land $ 77,566 $ 77,566
Buildings and improvements 478,181 477,083
Other 3,579 3,451
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559,326 558,100
Less accumulated depreciation (180,554) (174,551)
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378,772 383,549
Cash and cash equivalents 1,329 1,313
Funds deposited with mortgagee 3,120 5,723
Restricted cash 1,035 1,035
Receivables 1,299 1,196
Prepaid expenses and other assets 3,301 3,872
Deferred financing costs, net of allowance for amortization
(1996-$4,642, 1995-$4,101) 5,237 5,717
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Total assets $ 394,093 $ 402,405
=====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 232,000 $ 232,000
Secured notes payable 57,309 56,809
Accrued interest 2,069 4,853
Accounts payable and other liabilities 3,117 2,881
Security deposits 1,657 1,667
Minority interest 13,434 14,294
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Total liabilities 309,586 312,504
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 157 157
Additional paid-in capital 317,588 317,584
Accumulated deficit (231,432) (225,964)
Unearned compensation - restricted stock (1,806) (1,876)
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84,507 89,901
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Total liabilities and shareholders' equity $ 394,093 $ 402,405
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</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 MARCH 31
1996 1995
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(in thousands, except per share data)
<S> <C> <C>
Revenues:
Rental $ 22,033 $ 21,665
Other 348 375
----------------------------------------------------
22,381 22,040
Expenses:
Operating 5,195 4,624
Real estate taxes 1,780 1,808
Depreciation 6,077 6,027
Marketing and advertising 844 799
Repairs and maintenance 1,505 1,543
General and administrative 1,074 1,174
----------------------------------------------------
16,475 15,975
Interest expense 4,442 4,625
Interest expense related to the amortization of deferred
financing costs 541 571
----------------------------------------------------
21,458 21,171
----------------------------------------------------
Income before minority interest 923 869
Income allocated to minority interest 127 119
----------------------------------------------------
Net income $ 796 $ 750
====================================================
Weighted average common shares outstanding 15,534 15,512
Net income per share outstanding $ .05 $ .05
====================================================
Dividend declared and paid per share outstanding $ .40 $ .40
====================================================
See accompanying notes to financial statements.
</TABLE>
2
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The Town and Country Trust
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1996 1995
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OPERATING ACTIVITIES (in thousands)
<S> <C> <C>
Income before minority interest $ 923 $ 869
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 6,077 6,027
Interest expense related to the amortization of deferred financing costs 541 571
Amortization of unearned compensation 70 -
Loss on sales of property and equipment 2 -
Changes in operating assets and liabilities:
Decrease in restricted cash - 15
Decrease in funds deposited with mortgagee 2,603 2,338
Decrease in receivables, prepaid expenses and other assets 449 1,294
Decrease in accounts payable, other liabilities, accrued interest and
security deposits (2,558) (2,497)
-----------------------------------------
Net cash provided by operating activities 8,107 8,617
INVESTING ACTIVITIES
Additions of real estate assets, net of disposals (718) (966)
Additions pursuant to value-added capital improvements program (565) (397)
-----------------------------------------
Net cash used in investing activities (1,283) (1,363)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 4 -
Borrowings on notes payable 500 -
Increase in deferred financing costs (61) (91)
Dividends and distributions (7,251) (7,191)
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Net cash used in financing activities (6,808) (7,282)
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Increase (decrease) in cash and cash equivalents 16 (28)
Cash and cash equivalents at beginning of period 1,313 1,959
-----------------------------------------
Cash and cash equivalents at end of period $ 1,329 $ 1,931
=========================================
Cash interest paid $ 7,256 $ 7,578
=========================================
See accompanying notes to financial statements.
</TABLE>
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 period ended March 31, 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. SUBSEQUENT EVENT
On April 25, 1996, the Company announced that its Board of Trustees had declared
a dividend for the quarter ended March 31, 1996 of $.40 per share, aggregating
$6,264,826. 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 June 10, 1996 to holders of record on
May 16, 1996.
4
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
-------------
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust (the "Company") as of March 31, 1996
and for the three-month periods ended March 31, 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 March 31, 1996 and 1995
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Income before minority interest for the three months ended March 31, 1996 was
$923,000, compared to $869,000 for the same period in 1995. Funds From
Operations, using the new definition adopted by NAREIT, increased to $6,932,000
for the three months ended March 31, 1996 from $6,834,000 for the three months
ended March 31, 1995. Revenues were $22,381,000 for the three months ended March
31, 1996 compared to $22,040,000 for the same period in 1995, an increase of
$341,000, or 1.5%. This increase was due to increases in rental rates. Occupancy
remained strong at 93.2% for the first quarter of 1996, compared to 93.7% for
the first quarter of 1995.
Total expenses excluding depreciation and interest were $10,398,000 for the
three months ended March 31, 1996 compared to $9,948,000 for the same period in
1995, an increase of $450,000. Operating expenses increased by $571,000, of
which approximately $400,000 is attributable to the unusually severe winter
weather conditions in the Company's operating region. Marketing and advertising
expenses increased by $45,000. All other expenses except depreciation decreased
by $166,000, as a result of management's successful efforts to control costs.
Interest expense decreased by $183,000 from the expense in the first 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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Liquidity and Capital Resources
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Operating activities provided unrestricted cash for the three months ended March
31, 1996 of $8,107,000 of which $7,251,000 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 Company anticipates that such capital improvements will result
in significant rental increases. 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
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Items 1 through 3 and 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 4. - Submission of Matters to a Vote of Security Holders
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(a) The Registrant's annual meeting of shareholders was held on April 25,
1996.
(b) The following Trustees were elected at such annual meeting, each for a
one-year term expiring in 1997:
Alfred Lerner
Harvey Schulweis
James H. Berick
H. Grant Hathaway
Milton A. Wolf
(c) The following matter was voted on at the annual meeting of
shareholders:
(1) Election of Trustees:
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<TABLE>
<CAPTION>
Trustee Name Votes For Abstentions
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<S> <C> <C>
Alfred Lerner 13,336,612 85,470
Harvey Schulweis 13,334,162 87,920
James H. Berick 13,334,112 87,970
H. Grant Hathaway 13,333,881 88,201
Milton A. Wolf 13,337,042 85,040
</TABLE>
Item 6. - Exhibits and Reports on Form 8-K
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(a) Exhibit
Number Exhibit
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27 Financial Data Schedule(1)
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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: May 10, 1996 /s/ Jennifer C. Munch
----------------------------- ------------------------------
Jennifer C. Munch
Vice President - Treasurer
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,484
<SECURITIES> 0
<RECEIVABLES> 1,299
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,084
<PP&E> 559,326
<DEPRECIATION> 180,554
<TOTAL-ASSETS> 394,093
<CURRENT-LIABILITIES> 6,843
<BONDS> 289,309
<COMMON> 157
0
0
<OTHER-SE> 84,350
<TOTAL-LIABILITY-AND-EQUITY> 394,093
<SALES> 0
<TOTAL-REVENUES> 22,381
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,983
<INCOME-PRETAX> 923
<INCOME-TAX> 0
<INCOME-CONTINUING> 796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 796
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
