<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 March 31, 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
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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 APRIL 30, 1997
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The Town and Country Trust
Form 10-Q
INDEX
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<CAPTION>
Page
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<S> <C>
Part I: Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of The Town and Country Trust as of March 31,
1997 and as of December 31, 1996. 1
Consolidated statements of operations of The Town and Country Trust for the
three-month periods ended March 31, 1997 and 1996.
2
Consolidated statements of cash flows of The Town and Country Trust for the
three-month periods ended March 31, 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
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
The Town and Country Trust
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
--------------------------------
MARCH 31, 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 484,184 483,119
Other 3,843 3,758
--------------------------------
565,593 564,443
Less accumulated depreciation (204,756) (198,689)
--------------------------------
360,837 365,754
Cash and cash equivalents 2,320 1,725
Funds deposited with mortgagee 3,341 6,030
Restricted cash 1,030 1,005
Receivables 1,422 1,413
Prepaid expenses and other assets 2,926 3,857
Deferred financing costs, net of allowance for amortization
(1997-$6,809, 1996-$6,267) 3,070 3,612
--------------------------------
Total assets $ 374,946 $ 383,396
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 232,000 $ 232,000
Secured notes payable 58,259 58,409
Accrued interest 2,066 4,817
Accounts payable and other liabilities 4,634 4,552
Security deposits 1,656 1,630
Minority interest 10,467 11,243
--------------------------------
Total liabilities 309,082 312,651
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 (250,334) (245,391)
Unearned compensation - restricted stock (1,750) (1,812)
--------------------------------
65,864 70,745
--------------------------------
Total liabilities and shareholders' equity $ 374,946 $ 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 MARCH 31
1997 1996
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(in thousands, except per share data)
<S> <C> <C>
Revenues:
Rental $22,425 $22,033
Other 423 348
--------------------------------
22,848 22,381
Expenses:
Operating 5,037 5,195
Real estate taxes 1,752 1,780
Depreciation 6,067 6,077
Marketing and advertising 889 844
Repairs and maintenance 1,506 1,505
General and administrative 1,098 1,074
--------------------------------
16,349 16,475
Interest expense 4,419 4,442
Interest expense related to the
amortization of deferred financing costs 542 541
--------------------------------
21,310 21,458
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Income before minority interest 1,538 923
Income allocated to minority interest 210 127
--------------------------------
Net income $ 1,328 $ 796
================================
Weighted average common shares
outstanding 15,561 15,534
Net income per share $ .09 $ .05
================================
Dividends declared and paid per share outstanding $ .40 $ .40
================================
</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>
THREE MONTHS ENDED MARCH 31
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES (in thousands)
Income before minority interest $ 1,538 $ 923
Adjustments to reconcile income before minority interest to net cash
provided by operating activities:
Depreciation 6,067 6,077
Interest expense related to the amortization of deferred
financing costs 542 541
Amortization of unearned compensation 62 70
Changes in operating assets and liabilities:
Increase in restricted cash (25) -
Decrease in funds deposited with mortgagee 2,689 2,603
Decrease in receivables, prepaid expenses and other assets 922 449
Decrease in accounts payable, other liabilities, accrued
interest and security deposits (2,643) (2,558)
--------------------------------
Net cash provided by operating activities 9,152 8,105
INVESTING ACTIVITIES
Additions of real estate assets, net of disposals (862) (716)
Additions pursuant to value-added capital improvements program (288) (565)
--------------------------------
Net cash used in investing activities (1,150) (1,281)
FINANCING ACTIVITIES
Payments on notes payable (150) -
Proceeds from issuance of common stock - 4
Borrowings on notes payable - 500
Increase in deferred financing costs - (61)
Dividends and distributions (7,257) (7,251)
--------------------------------
Net cash used in financing activities (7,407) (6,808)
--------------------------------
Increase in cash and cash equivalents 595 16
Cash and cash equivalents at beginning of period 1,725 1,313
--------------------------------
Cash and cash equivalents at end of period $ 2,320 $ 1,329
================================
Cash interest paid $ 7,229 $ 7,256
================================
</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 period
ended March 31, 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 March 31, 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. SUBSEQUENT EVENT
On May 1, 1997, the Company announced that its Board of Trustees had declared a
dividend for the quarter ended March 31, 1997 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 June 10, 1997 to holders of record on
May 16, 1997.
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 March 31, 1997
and for the three-month periods ended March 31, 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 March 31, 1997 and 1996
Income before minority interest for the three months ended March 31, 1997 was
$1,538,000, compared to $923,000 for the same period in 1996. Funds From
Operations increased by 9.0% to $7,555,000 for the three months ended March
31, 1997 from $6,932,000 for the three months ended March 31, 1996. Revenues
were $22,848,000 for the three months ended March 31, 1997 compared to
$22,381,000 for the same period in 1996, an increase of $467,000, or 2.1%.
This increase was due to increases in rental rates. Occupancy remained
consistent at 92.7% for the first quarter of 1997, compared to 93.2% for the
first quarter of 1996.
Total expenses excluding depreciation and interest were $10,282,000 for the
three months ended March 31, 1997 compared to $10,398,000 for the same period
in 1996, a decrease of $116,000 or 1.1%. Operating expenses decreased by
$158,000. Marketing and advertising expenses increased by $45,000. All other
expenses except depreciation decreased by $3,000 as a result of management's
successful efforts to control costs.
Interest expense decreased by $23,000 from the expense in the first quarter of
1996 due to decreases 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 its floating rate
indebtedness at a blended rate of 6.5% until maturity on August 17, 1998.
5
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Liquidity and Capital Resources
Operating activities provided unrestricted cash for the three months ended
March 31, 1997 of $9,152,000, of which $7,257,000 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 the Company's 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.
Safe Harbor Statement
With the exception of historical information, the matters discussed in this
Report to Shareholders 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
6
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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
(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.
- ----------------
(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: May 12, 1997 /s/ Jennifer C. Munch
----------------- ------------------------------
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 AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,691
<SECURITIES> 0
<RECEIVABLES> 1,422
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,039
<PP&E> 565,593
<DEPRECIATION> 204,756
<TOTAL-ASSETS> 374,946
<CURRENT-LIABILITIES> 8,356
<BONDS> 290,259
<COMMON> 157
0
0
<OTHER-SE> 65,707
<TOTAL-LIABILITY-AND-EQUITY> 374,946
<SALES> 0
<TOTAL-REVENUES> 22,848
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,961
<INCOME-PRETAX> 1,538
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,328
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
