<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, 1998
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
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 - 15,765,015 OUTSTANDING AS
OF APRIL 30, 1998
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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, 1998
and as of December 31, 1997. 1
Consolidated statements of operations of The Town and Country Trust for the three-month
periods ended March 31, 1998 and 1997. 2
Consolidated statements of cash flows of The Town and Country Trust for the three-month
periods ended March 31, 1998 and 1997. 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>
<PAGE> 3
Part I: Financial Information
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The Town and Country Trust
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
---------------------------
MARCH 31, DECEMBER 31,
---------------------------
1998 1997
<S> <C> <C>
ASSETS (in thousands)
Real estate assets:
Land $ 80,923 $ 77,566
Buildings and improvements 513,045 492,482
Other 4,230 3,904
---------------------------
598,198 573,952
Less accumulated depreciation (229,111) (222,946)
---------------------------
369,087 351,006
Cash and cash equivalents 5,679 4,259
Restricted cash 1,175 1,125
Receivables 1,734 2,030
Prepaid expenses and other assets 3,476 4,240
Deferred financing costs, net of allowance for amortization
(1998-$205, 1997-$114) 3,505 3,591
---------------------------
Total assets $ 384,656 $ 366,251
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 322,350 $ 300,000
Accrued interest 1,757 1,756
Accounts payable and other liabilities 6,255 4,731
Security deposits 1,827 1,698
Minority interest 7,173 7,948
---------------------------
Total liabilities 339,362 316,133
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 158
Additional paid-in capital 319,111 319,061
Accumulated deficit (271,410) (266,440)
Unearned compensation - restricted stock (2,565) (2,661)
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45,294 50,118
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Total liabilities and shareholders' equity $ 384,656 $ 366,251
===========================
</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
1998 1997
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(in thousands, except per share data)
<S> <C> <C>
Revenues:
Rental $22,853 $22,425
Other 396 423
----------------------
23,249 22,848
Expenses:
Operating 5,229 5,573
Real estate taxes 1,741 1,752
Depreciation 6,182 6,067
Marketing and advertising 882 889
Repairs and maintenance 1,629 1,506
General and administrative 716 562
----------------------
16,379 16,349
Interest expense 5,232 4,419
Interest expense related to the
amortization of deferred financing costs 91 542
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21,702 21,310
----------------------
Income before minority interest 1,547 1,538
Income allocated to minority interest 212 210
----------------------
Net income $ 1,335 $ 1,328
======================
Weighted average common shares outstanding - basic 15,522 15,512
Dilutive effect of outstanding options and restricted shares 176 64
----------------------
Weighted average common shares outstanding - diluted 15,698 15,576
======================
Per common share - basic and diluted: $ .09 % .09
Net income
======================
Dividends declared and paid per share outstanding $ .40 $ .40
======================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
The Town and Country Trust
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 1997
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES (in thousands)
Income before minority interest $ 1,547 $ 1,538
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 6,182 6,067
Interest expense related to the amortization of deferred financing costs 91 542
Amortization of unearned compensation 96 62
Changes in operating assets and liabilities:
Increase in restricted cash (50) (25)
Decrease in funds deposited with mortgagee -- 2,689
Decrease in receivables, prepaid expenses and other assets 1,060 922
Increase (decrease) in accounts payable, other liabilities, accrued
interest and security deposits 1,654 (2,643)
-------------------------
Net cash provided by operating activities 10,580 9,152
INVESTING ACTIVITIES
Additions of real estate assets, net of disposal proceeds (19,727) (862)
Additions pursuant to value-added capital improvements program (4,536) (288)
-------------------------
Net cash used in investing activities (24,263) (1,150)
FINANCING ACTIVITIES
Borrowings on mortgages payable 22,350 --
Payments on notes payable -- (150)
Proceeds from exercise of share options 50 --
Increase in deferred financing costs (5) --
Dividends and distributions (7,292) (7,257)
-------------------------
Net cash used in financing activities 15,103 (7,407)
-------------------------
Increase in cash and cash equivalents
1,420 595
Cash and cash equivalents at beginning of period
4,259 1,725
-------------------------
Cash and cash equivalents at end of period $ 5,679 $ 2,320
=========================
Cash interest paid $ 4,396 $ 7,229
=========================
</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, 1998 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, 1997.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, restricted shares and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to the Statement 128
requirements.
3. REAL ESTATE ACQUISITION
On March 31, 1998, the Company purchased The Villages of Forest Ridge, a
330-unit garden apartment community located in Charlotte, North Carolina, for
approximately $18,500,000 with funds from its recently obtained credit facility.
Due to the fact that this community was purchased on the last day of the fiscal
quarter, only one day of operations has been included in the Company's statement
of operations for the three months ended March 31, 1998.
4. SUBSEQUENT EVENT
On April 30, 1998, the Company announced that its Board of Trustees had declared
a dividend for the quarter ended March 31, 1998 of $.40 per share, aggregating
$6,306,006. 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, 1998 to holders of record on
May 15, 1998.
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, 1998
and for the three-month periods ended March 31, 1998 and 1997. 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 is 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 of revenue-producing real property. This definition
of funds from operations is consistent with the National Association of Real
Estate Investment Trusts (NAREIT) definition. 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, 1998 and 1997
- ------------------------------------------------------------------
Income before minority interest for the three months ended March 31, 1998 was
$1,547,000, compared to $1,538,000 for the same period in 1997. Funds from
operations increased to $7,677,000 for the three months ended March 31, 1998
from $7,555,000 for the three months ended March 31, 1997. Revenues were
$23,249,000 for the three months ended March 31, 1998 compared to $22,848,000
for the same period in 1997, an increase of $401,000, or 1.8%. This increase was
due to increases in rental rates. Occupancy remained consistent at 92.3% for the
first quarter of 1998, compared to 92.7% for the first quarter of 1997.
Total expenses excluding depreciation and interest were $10,197,000 for the
three months ended March 31, 1998 compared to $10,282,000 for the same period in
1997, a decrease of $85,000 or 0.8%. As a result of management's successful
efforts to control costs operating expenses decreased by $344,000. All other
expenses except depreciation increased by only $259,000.
Interest expense increased by $813,000 from the expense in the first quarter of
1997 due to increases in the amount of borrowings and interest rates that
resulted from the new long-term credit facility.
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, 1998 of $10,580,000, of which $7,292,000 was paid out in dividends and
distributions.
In September, 1997 the Company entered into an agreement that provides a
$375,000,000 secured credit facility. The initial borrowing under the facility
of $300,000,000 matures in 2008 and bears a fixed interest rate of 6.91%. The
majority of the proceeds of the initial borrowing was used to refinance the
Company's publicly-issued and bank mortgage indebtedness which had scheduled
maturities of August, 1998.
The remaining $75,000,000 is available as a 10 1/2 year, variable rate revolving
credit facility which can be converted at the Company's option to a fixed-rate
term loan maturing in 2008. The Company intends to use these funds for property
acquisitions and to expand the recently instituted extensive capital improvement
program for certain of the Company's existing properties, as described below.
The Company used a portion of these funds to purchase a 330-unit garden
apartment community on March 31, 1998.
The Company has commenced a two-year program that provides for approximately
$25,000,000 in capital improvements to certain properties. The improvements
include paving, roofs, vinyl siding and the expansion of the on-going program to
make such revenue-enhancing improvements as the modernization of kitchens and
bathrooms and the installation of washers, dryers and carpeting within certain
apartment units. $8,075,000 in costs have been incurred related to this new
program through March 31, 1998.
Rental income from the properties is received on a monthly basis. All cash
accumulated for the payment of quarterly dividends is invested in short-term
instruments. 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
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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
6
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statements. Examples of such uncertainties include, but are not limited to,
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; interest rate fluctuations; 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
<PAGE> 10
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 April 30,
1998.
(b) The following Trustees were elected at such annual meeting, each for a
one-year term expiring in 1999:
Alfred Lerner
Harvey Schulweis
James H. Berick
H. Grant Hathaway
Milton A. Wolf
(c) The following matters were 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> <C>
Alfred Lerner 12,333,947 353,375 0
Harvey Schulweis 12,335,732 351,590 0
James H. Berick 12,329,117 358,205 0
H. Grant Hathaway 12,331,507 355,815 0
Milton A. Wolf 12,333,107 354,215 0
</TABLE>
(2) Approval of the Trust's 1997 Long Term Incentive Plan:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7,100,602 1,697,660 143,155 3,745,905
</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.
- --------
(1) Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K
8
<PAGE> 11
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, 1998 /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, CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,854
<SECURITIES> 0
<RECEIVABLES> 1,734
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,064
<PP&E> 598,198
<DEPRECIATION> 229,111
<TOTAL-ASSETS> 384,656
<CURRENT-LIABILITIES> 9,839
<BONDS> 322,350
0
0
<COMMON> 158
<OTHER-SE> 45,136
<TOTAL-LIABILITY-AND-EQUITY> 384,656
<SALES> 0
<TOTAL-REVENUES> 23,249
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,323
<INCOME-PRETAX> 1,547
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,335
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
