<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 June 30, 1997
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
- --------------------------------- --------------------------------------------
(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 - 15,754,065
OUTSTANDING AS OF JULY 24, 1997
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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 June 30, 1997
and as of December 31, 1996. 1
Consolidated statements of operations of The Town and Country Trust for the three-month and
six-month periods ended June 30, 1997 and 1996. 2
Consolidated statements of cash flows of The Town and Country Trust for the six-month periods
ended June 30, 1997 and 1996. 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
<TABLE>
<CAPTION>
(Unaudited)
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JUNE 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS (in thousands)
Real estate assets:
Land $ 77,566 $ 77,566
Buildings and improvements 486,196 483,119
Other 3,900 3,758
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567,662 564,443
Less accumulated depreciation (210,855) (198,689)
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356,807 365,754
Cash and cash equivalents 2,466 1,725
Funds deposited with mortgagee 5,770 6,030
Restricted cash 1,055 1,005
Receivables 1,418 1,413
Prepaid expenses and other assets 2,271 3,857
Deferred financing costs, net of allowance for amortization
(1997-$7,351, 1996-$6,267) 2,528 3,612
=====================================================
Total assets $ 372,315 $ 383,396
=====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 232,000 $ 232,000
Secured notes payable 58,109 58,409
Accrued interest 4,840 4,817
Accounts payable and other liabilities 4,815 4,552
Security deposits 1,668 1,630
Minority interest 9,719 11,243
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Total liabilities 311,151 312,651
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 157 157
Additional paid-in capital 317,791 317,791
Accumulated deficit (255,096) (245,391)
Unearned compensation - restricted stock (1,688) (1,812)
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61,164 70,745
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Total liabilities and shareholders' equity $ 372,315 $ 383,396
=====================================================
</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 JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
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(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 22,559 $ 22,458 $ 44,983 $ 44,491
Other 441 358 865 706
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23,000 22,816 45,848 45,197
Expenses:
Operating 4,771 4,798 9,807 9,993
Real estate taxes 1,716 1,769 3,468 3,549
Depreciation 6,099 6,099 12,166 12,176
Marketing and advertising 923 883 1,812 1,727
Repairs and maintenance 1,647 1,610 3,153 3,115
General and administrative 1,118 1,159 2,216 2,233
----------------------------------------------- ------------------------------------------------
16,274 16,318 32,622 32,793
Interest expense 4,436 4,420 8,856 8,862
Interest expense related to
the amortization of
deferred financing costs 542 542 1,084 1,083
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21,252 21,280 42,562 42,738
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Income before minority interest 1,748 1,536 3,286 2,459
Income allocated to minority
interest 239 210 449 337
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Net income $ 1,509 $ 1,326 $ 2,837 $ 2,122
=============================================== ================================================
Weighted average common shares
outstanding 15,569 15,530 15,569 15,537
=============================================== ================================================
Net income per share $ .10 $ .09 $ .18 $ .14
=============================================== ================================================
Dividends declared and paid
per share outstanding $ .40 $ .40 $ .80 $ .80
=============================================== ================================================
</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>
SIX MONTHS ENDED JUNE 30,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES (in thousands)
Income before minority interest $ 3,286 $ 2,459
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 12,166 12,176
Interest expense related to the amortization of deferred financing costs 1,084 1,083
Amortization of unearned compensation 124 140
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (50) 25
Decrease in funds deposited with mortgagee 260 98
Decrease in receivables, prepaid expenses and other assets 1,581 1,619
Increase in accounts payable, other liabilities, accrued interest and
security deposits 324 1,144
-----------------------------------------
Net cash provided by operating activities 18,775 18,744
INVESTING ACTIVITIES
Additions of real estate assets, net of disposals (2,327) (1,775)
Additions pursuant to value-added capital improvements program (892) (1,262)
-----------------------------------------
Net cash used in investing activities (3,219) (3,037)
FINANCING ACTIVITIES
Payments on notes payable (300) -
Proceeds from exercise of share options - 4
Borrowings on notes payable - 500
Increase in deferred financing costs - (61)
Dividends and distributions (14,515) (14,503)
-----------------------------------------
Net cash used in financing activities (14,815) (14,060)
-----------------------------------------
Increase in cash and cash equivalents 741 1,647
Cash and cash equivalents at beginning of period 1,725 1,313
-----------------------------------------
Cash and cash equivalents at end of period $ 2,466 $ 2,960
=========================================
Cash interest paid $ 8,880 $ 8,985
=========================================
</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 six-month periods ended June
30, 1997 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, 1996.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in no change in
primary earnings per share for the quarters ended June 30, 1997 and 1996. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these quarters is not expected to be material.
3. SHAREHOLDERS' EQUITY
On June 17, 1997, the Company granted 76,375 restricted Common Shares to certain
officers 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 July 24, 1997, the Company announced that its Board of Trustees had declared
a dividend for the quarter ended June 30, 1997 of $.40 per share, aggregating
$6,301,626. 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 September 10, 1997 to holders of
record on August 15, 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
---------------------
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust (the "Company") as of June 30, 1997 and
for the three-month and six-month periods ended June 30, 1997 and 1996. 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 June 30, 1997 and 1996
- -----------------------------------------------------------------
Income before minority interest for the three months ended June 30, 1997 was
$1,748,000, compared to $1,536,000 for the same period in 1996. Funds From
Operations increased to $7,797,000 for the three months ended June 30, 1997 from
$7,569,000 for the three months ended June 30, 1996. Revenues were $23,000,000
for the three months ended June 30, 1997 compared to $22,816,000 for the same
period in 1996, an increase of $184,000. This increase was due primarily to an
increase in rental rates. Occupancy was 92.7% for the second quarter of 1997,
compared to 94.1% for the second quarter of 1996.
Total expenses excluding depreciation and interest were $10,175,000 for the
three months ended June 30, 1997 compared to $10,219,000 for the same period in
1996, a decrease of $44,000. Operating expenses decreased by $27,000. Marketing
and advertising expenses increased by $40,000. All other expenses except
depreciation decreased by $57,000 as a result of management's successful efforts
to control costs.
Interest expense increased by $16,000 from the expense in the second quarter of
1996 due to changes in the interest rate on the Company's floating rate debt. In
January, 1996, the Company entered into an interest rate swap agreement which
has the effect of fixing the interest rate on all but $1,409,000 of its floating
rate indebtedness at a blended rate of 6.5% until maturity on August 17, 1998.
5
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Results of Operations - Six Months Ended June 30, 1997 and 1996
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Income before minority interest for the six months ended June 30, 1997 was
$3,286,000, compared to $2,459,000 for the same period in 1996. Funds From
Operations increased by 5.9% to $15,352,000 for the six months ended June 30,
1997 from $14,501,000 for the six months ended June 30, 1996. Revenues were
$45,848,000 for the six months ended June 30, 1997 compared to $45,197,000 for
the same period in 1996, an increase of $651,000, or 1.4%. This increase was due
primarily to increases in rental rates. Occupancy was 92.7% for the six months
ended June 30, 1997, compared to 93.6% for the six months ended June 30, 1996.
Total expenses excluding depreciation and interest were $20,456,000 for the six
months ended June 30, 1997 compared to $20,617,000 for the same period in 1996,
a decrease of $161,000, or .8%. Operating expenses decreased by $186,000.
Marketing and advertising expenses increased by $85,000. All other expenses
except depreciation decreased by $60,000, as a result of management's successful
efforts to control costs.
Interest expense for the six months ended June 30, 1997 decreased by $6,000 from
the expense in the same period of 1996 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 the interest rate
on all but $1,409,000 of its floating rate indebtedness at a blended rate of
6.5% until maturity on August 17, 1998.
Liquidity and Capital Resources
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Operating activities provided unrestricted cash for the six months ended June
30, 1997 of $18,775,000, of which $14,515,000 was paid out in dividends and
distributions.
During the year ended December 31, 1995, the Company entered into a secured
financing agreement ("SFA") pursuant to which it is permitted to borrow a
maximum of $62,000,000. The balance of the proceeds will be available, in part,
to fund the Company's ongoing program of revenue-enhancing capital improvements.
The SFA matures on August 17, 1998 and is secured by liens on three of the
Company's properties.
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 SFA.
In order to reduce its exposure to interest rate fluctuations, in January 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 have the
effect of fixing the interest rate on all but $1,409,000 of the Company's
floating rate indebtedness at 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
6
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operating and administrative expenses, capital expenditures, debt service
obligations and payments of dividends in the foreseeable future.
Safe Harbor Statement
- ---------------------
With the exception of historical information, the matters discussed in this
Report are forward-looking statements that involve risks and uncertainties and
actual results could differ materially from those discussed. Certain statements
herein and in future filings by the Trust with the Securities and Exchange
Commission and in written and oral statements made by or with the approval of
any authorized executive officer of the Trust constitute "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. The Trust intends that such
forward-looking statements be subject to the safe harbors created by such Acts.
The words and phrases "looking ahead," "we are confident," "should be," "will
be," "predicted," "believe," "expect," "anticipate," and similar expressions
identify forward-looking statements. These forward-looking statements reflect
the Trust's current views in respect of future events and financial performance,
but are subject to many uncertainties and factors relating to the Trust's
operations and business environment which may cause the actual results of the
Trust to differ materially from any future results expressed or implied by such
forward-looking statements. Examples of such uncertainties include, but are not
limited to, the Trust's ability to refinance its indebtedness or the terms and
conditions on which the Trust is able to refinance its indebtedness; interest
rate fluctuations; competition for tenants and acquisitions from others, many of
whom may have greater financial resources than the Trust; changes in rental
rates which may be charged by the Trust in response to market rental rate
changes or otherwise; changes in federal income tax laws and regulations; any
changes in the Trust's capacity to acquire additional apartment properties and
any changes in the Trust's financial condition or operating results due to an
acquisition of additional apartment properties; unanticipated increases in
operating expenses due to factors such as casualties to the Trust's apartment
properties or adverse weather conditions in the geographic locations of the
Trust's apartment properties; and local economic and business conditions,
including, without limitation, conditions which may affect public securities
markets generally, the real estate investment trust industry, or the markets in
which the Trust's apartment properties are located. The Trust undertakes no
obligation to update publicly or revise any forward-looking statements whether
as a result of new information, future events or otherwise.
7
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Part II: Other Information
---------------------------
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
--------------------------------------------------------------
(a) The Registrant's annual meeting of shareholders was held on May 1,
1997.
(b) The following Trustees were elected at such annual meeting, each for a
one year term expiring in 1998:
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:
---------------------
<TABLE>
<CAPTION>
Broker
Trustee Name Votes For Abstentions Non-Votes
------------ --------- ----------- ---------
<S> <C> <C> <C>
Alfred Lerner 13,496,440 94,739 0
Harvey Schulweis 13,494,640 96,539 0
James H. Berick 13,493,790 97,389 0
H. Grant Hathaway 13,493,670 97,509 0
Milton A. Wolf 13,489,470 101,709 0
</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)
(b) No reports on Form 8-K have been filed in 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
8
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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: August 11, 1997 /s/ Jennifer C. Munch
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Jennifer C. Munch
Vice President - Treasurer
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,291
<SECURITIES> 0
<RECEIVABLES> 1,418
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,980
<PP&E> 567,662
<DEPRECIATION> 210,855
<TOTAL-ASSETS> 372,315
<CURRENT-LIABILITIES> 11,323
<BONDS> 290,109
0
0
<COMMON> 157
<OTHER-SE> 61,007
<TOTAL-LIABILITY-AND-EQUITY> 372,315
<SALES> 0
<TOTAL-REVENUES> 45,848
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,940
<INCOME-PRETAX> 3,286
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,837
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
