<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________________ to _______________
Commission File No. 001-12056
THE TOWN AND COUNTRY TRUST
- -----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 52-6613091
- ---------------------------------- ---------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
100 S. Charles Street
Baltimore, Maryland 21201
- --------------------------------------- ---------------------------------
(Address of Principal Executive Office) (ZIP Code)
(410) 539-7600
- -----------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
- ------------------- --------------------------------------------
Common Shares of
Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
[Cover Continued on Following Page]
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[Cover Continued From Previous Page]
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 period 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 27, 1998: $241,015,551.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:
15,765,015 Common Shares of Beneficial Interest, $.01 Par
Value, at February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Document In Which Incorporated
- -------- ---------------------
Portions of the Registrant's II and IV
1997 Annual Report to Shareholders
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PART I
ITEM 1. BUSINESS
GENERAL
The Registrant is a self-administered and self-managed real estate
investment trust that was formed to continue and expand the Registrant's
predecessor's business of owning, managing and acquiring multifamily properties.
The Registrant was organized in Maryland on May 19, 1993 and commenced
operations on August 23, 1993 upon completion of its initial public offering of
15,511,765 common shares of beneficial interest.
The Registrant currently owns and operates 35 multifamily properties (the
"Properties") comprising 13,631 apartment units located in Maryland,
Pennsylvania, Virginia, and Delaware. Of the Properties, twenty-six (the
"Original Properties") had been owned and managed as a single business since
1979 by the Registrant's predecessor, The TC Companies, which was comprised of
twenty-six general partnerships (the "Original Property Partnerships") and The
Town and Country Management Corporation ("Town and Country"). Each of the
Original Property Partnerships was established to acquire a specific Original
Property and was owned 50% by a limited partnership beneficially owned by Alfred
Lerner and 50% by a limited partnership of which Harvey Schulweis is a general
partner. The Original Properties had been managed since 1979 by Town and
Country, a company exclusively engaged in the management of those Properties,
under the direction of the Registrant's executive officers. In connection with
the Registrant's initial public offering, Town and Country became a division of
The TC Operating Limited Partnership ("Operating Partnership"). Concurrently
with the closing of the Registrant's initial public offering, the Registrant
acquired six multifamily properties, comprising 1,817 apartment units, for an
aggregate consideration of $120.1 million. In fiscal 1994, the Registrant
acquired three additional multifamily properties, comprising 896 apartment
units, for an aggregate consideration of $52.759 million, which was paid with
funds drawn on the Registrant's line of credit. Each of the Purchased Properties
and such nine additional Properties is owned by a separate general partnership
which collectively, together with the Original Property Partnerships, are
referred to herein as the "Property Partnerships".
The Registrant and a wholly-owned subsidiary are the sole general partners
of and together own an 86.0% general partnership interest in the Operating
Partnership, which was formed in connection with the Registrant's initial public
offering. The remaining 14.0% limited partnership interest in the Operating
Partnership was retained by certain of the predecessor owners of
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The TC Companies, including Messrs. Lerner and Schulweis, as consideration for
their contribution to the Operating Partnership of the majority interests in The
TC Companies. As a general partner of the Operating Partnership, the Registrant
has full and complete control over the management of the Operating Partnership
and, through wholly-owned subsidiaries, over each of the Properties. The
Registrant and the Operating Partnership together indirectly own 100% of each
Property.
INDEBTEDNESS
In September, 1997, the Registrant, the Property Partnerships, the
Registrant's wholly-owned subsidiaries, the Operating Partnership and a general
partnership of which the Operating Partnership and a wholly-owned subsidiary of
the Registrant are the sole partners entered into a financing agreement with
Washington Mortgage Financial Group, Ltd. (the "Lender"). Pursuant to this
financing agreement, the Registrant is permitted to borrow up to $375 million,
which amount may be increased, in certain circumstances, to up to $450 million.
$300 million has been advanced and is outstanding under this financing
agreement, which amount bears interest at a fixed rate of 6.91% and matures on
April 1, 2008. The remaining $75 million is available as a revolving credit
facility bearing interest at an imputed variable rate which is the aggregate of
the market interest rate for certain Fannie Mae-backed obligations at the time
of each such advance plus an agreed-upon spread. As of December 31, 1997, no
revolving credit advances were outstanding. The Registrant has purchased an
interest rate protection contract which limits the maximum variable interest
rate to 10.5%. Each revolving credit advance shall mature not less than three
nor more than nine months from the date of such advance, and in no event later
than April 1, 2008. At the Registrant's option, any outstanding portion of the
$75 million revolving credit facility can be converted to a fixed-rate loan
maturing on April 1, 2008. This financing agreement is secured, inter alia, by
first and second priority mortgages on each of the Properties and by guaranties
executed by each of the Property Partnerships in favor of the Lender. A portion
of the funds provided under this financing agreement was used to refinance the
Registrant's outstanding publicly-issued and bank mortgage indebtedness of $290
million, which had scheduled maturities of August, 1998.
COMPETITION
All of the Properties are located in developed areas. There are numerous
other apartment properties within the market area of each Property. The number
of competitive apartment properties in such area could have a material effect on
the rental market for the apartments at a Property and the rents which may be
charged for such apartments. The Registrant competes for tenants and
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acquisitions with others who may have greater financial resources than the
Registrant.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for costs of
removal or remediation of certain hazardous or toxic substances on, under or in
such property. Such enactments often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure properly to
remediate such substances, may affect adversely the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for release
of asbestos-containing materials ("ACMs") into the air and third parties may
seek recovery from owners or operators of real property for personal injury
associated with ACMs. In connection with its ownership and operation of the
Properties, the Registrant, the Operating Partnership, or any of their
respective direct or indirect subsidiaries, as the case may be, potentially may
be liable for such costs. A number of the Properties formerly contained
underground fuel oil storage tanks. The Registrant has removed all of these
tanks.
EMPLOYEES
As of December 31, 1997 the Registrant had 438 employees.
ITEM 2. PROPERTIES.
The Properties consist of 35 multifamily properties comprising 13,631
apartment units located in suburban Baltimore, suburban Washington, D.C.,
southeastern Pennsylvania and Delaware.
Each of the Properties is owned by a separate Property Partnership in which
The TC Property Company owns a 99% general partnership interest and in which The
Town and Country Holding Corporation, a wholly-owned subsidiary of the
Registrant, owns a 1% general partnership interest. The TC Property Company is a
special purpose general partnership owned 99% by the Operating Partnership and
1% by The Town and Country Holding Corporation.
The average occupancy rate for all Properties for fiscal 1997 and fiscal 1996
was 92.9% and 94.0%, respectively. Tenant leases are generally for one-year
terms, with automatic two-month
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renewals after the completion of the first year, and often require security
deposits. Approximately 96% of the apartments in the Properties are one-bedroom
and two-bedroom apartments. The balance are three-bedroom apartments. The
Properties typically consist of two- and three-story buildings in a landscaped
setting, many with amenities such as swimming pools, tennis courts, playgrounds
and community buildings. All apartments offer air conditioning. The majority of
such buildings are of brick construction and all of the Original Properties are
located in mature, fully-developed neighborhoods. As part of a comprehensive
on-going maintenance program, The TC Companies invested, on average,
approximately $2.8 million per year in capital improvements to the Original
Properties from 1980 through the acquisition of the Original Properties by the
Operating Partnership, which capital improvements included items such as
roofing, carpeting, appliances, paving, boilers and air conditioning.
The following table presents certain additional information concerning the
Properties:
<TABLE>
<CAPTION>
1997
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
SUBURBAN BALTIMORE
T & C Bowleys Quarters 348,005 462 92.4%
Baltimore, Maryland
T & C Charlesmont 411,349 565 93.5%
Dundalk, Maryland
T & C Cockeysville 502,878 540 96.2%
Cockeysville, Maryland
T & C Foxhaven 404,628 460 83.3%
Baltimore, Maryland
T & C Gardenwood 427,760 492 91.5%
Baltimore, Maryland
T & C Hallfield 63,276 75 97.1%
Perry Hall, Maryland
T & C Harford 297,077 336 94.2%
Carney, Maryland
T & C Hollows 291,091 336 94.9%
Glen Burnie, Maryland
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<CAPTION>
1997
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
T & C Ridgeview 217,849 257 93.2%
Rossville, Maryland
T & C Rolling Road 324,401 384 93.7%
Baltimore, Maryland
T & C Rossville 532,264 692 92.6%
Rossville, Maryland
T & C West/Greensview 1,199,359 1,350 94.2%
West Commercial
Elliott City, Maryland
T & C Woodhill 281,860 334 92.5%
Glen Burnie, Maryland
T & C Woodmoor 341,188 424 74.3%
Baltimore, Maryland
Versailles-North Charles 252,669 210 98.0%
Towson, Maryland
Stonegate 282,072 260 96.1%
Elkton, Maryland
SUBURBAN WASHINGTON, D.C.
T & C Montgomery Knolls 198,330 210 92.1%
Gaithersburg, Maryland
T & C Tall Oaks 368,224 352 93.3%
Laurel, Maryland
T & C Willow Lake 380,748 456 93.1%
Laurel, Maryland
Fox Run 210,891 218 96.1%
Germantown, Maryland
SOUTHEASTERN PENNSYLVANIA
T & C Hidden Village 223,006 264 94.0%
Allentown, Pennsylvania
T & C Colonial Crest 275,379 329 91.9%
Emmaus, Pennsylvania
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<CAPTION>
1997
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
T & C Hanover 186,366 215 93.1%
Hanover, Pennsylvania
T & C Colonial Park 507,224 626 94.4%
Harrisburg, Pennsylvania
T & C Union Deposit 378,374 468 89.4%
Harrisburg, Pennsylvania
T & C Lancaster 343,350 413 90.8%
Lancaster, Pennsylvania
T & C Oakview 228,294 272 96.3%
Lancaster, Pennsylvania
T & C York 313,940 396 89.5%
York, Pennsylvania
Rolling Hills 145,100 184 96.3%
York, Pennsylvania
VIRGINIA PROPERTIES
Barton's Crossing 436,876 532 91.2%
Alexandria, Virginia
University Heights 400,122 466 94.2%
Ashburn, Virginia
The Glen at Leesburg 123,950 134 98.3%
Leesburg, Virginia
The Village at 220,748 283 93.4%
McNair Farms
Herndon, Virginia
Carlyle Station 386,545 408 96.0%
Manassas, Virginia
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<CAPTION>
1997
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
<S> <C> <C> <C>
DELAWARE PROPERTY
Christina Mill 182,604 228 98.0%
Newark, Delaware
Total 11,687,797 13,631
========== ======
- ----------------------
<FN>
(1) Represents total square footage of apartment units at each Property.
(2) Average occupancy is defined as gross potential rent less vacancy allowance
divided by gross potential rent for the period, expressed as a percentage.
</TABLE>
MANAGEMENT OF THE PROPERTIES
Each of the Properties is managed on a day-to-day basis by Town and Country,
which has managed the Original Properties since 1979. Town and Country became a
division of the Operating Partnership in connection with the Registrant's
initial public offering.
Prior to the Registrant's initial public offering, Mr.
Lerner, Michael H. Rosen and Jennifer C. Munch had served as
President, Executive Vice President, responsible for all day-to-
day operations, and Controller, responsible for all financial
operations, respectively, of Town and Country since 1979. Mr.
Schulweis had been a Vice President of Town and Country since
1979. Prior to 1979, Mr. Rosen and Mrs. Munch had served in
similar capacities for the predecessor owners of the Original
Properties since 1975 and 1968, respectively.
Town and Country emphasizes involved, hands-on management in the operation
of the Properties. Town and Country's two Senior Vice President/Regional
Managers generally visit each Property in their respective regions at least once
a week, while Mr. Rosen generally visits every Property at least monthly. The
Regional Managers supervise the Property Managers at each Property in their
region, who in turn supervise the Assistant Property Managers, leasing
representatives and office, maintenance, custodial and grounds personnel at each
Property. The performance of each Property is evaluated regularly by senior
management.
Since 1979, Town and Country has operated its own internal credit and
collection bureau, headquartered in suburban Baltimore with an additional office
in Pennsylvania. This unit investigates the credit and verifies the references
of all tenant applications to the Properties through various means, including
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access to major national credit bureaus. The credit and collection bureau also
actively seeks to recover any delinquent rental payments from former tenants of
the Properties.
The Registrant's management manages all of the Properties and makes all
strategic decisions concerning, and retains final authority over, all operating
matters at the Properties. The Registrant's management continues to supervise
Town and Country, which performs day-to-day property management functions at the
Properties and will manage any additional properties purchased by the Registrant
in the future. These functions include rental management, data processing,
maintenance, accounting, marketing, promotion and security. A program of regular
preventive maintenance has been and will continue to be used by Town and
Country, together with renovations and refurbishing, to preserve and enhance the
value of the Registrant's portfolio.
ITEM 3. LEGAL PROCEEDINGS
There were no legal proceedings pending at December 31, 1997 or as of the
date of this report to which the Registrant, the Operating Partnership or any of
the Property Partnerships is a party or to which the Properties are subject that
are likely to have a material adverse impact on the Registrant's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The age (as of February 27, 1998), business experience during the past five
years and offices presently held by Messrs. Lerner and Schulweis are set forth
in Item 10 on pages 12 and 13 of this Form 10-K, which information is
incorporated herein by reference. Such information in respect of each of the
Registrant's Executive Officers who are not Trustees is reported below. The
Registrant's Bylaws provide that officers shall hold office until their
successors are elected and qualified.
Michael H. Rosen: Age 54. Mr. Rosen has served as Executive Vice
President of the Registrant since the Registrant's initial public offering.
Prior to such time, he had served as Executive Vice President of Town and
Country, responsible for all day-to-day operations, since 1979.
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Jennifer C. Munch: Age 50. Mrs. Munch has served as Vice
President--Treasurer of the Registrant since the Registrant's initial public
offering. Prior to such time, she had served as Controller of Town and Country,
responsible for all financial operations, since 1979, Vice President--Controller
since 1983, and Senior Vice President--Controller since December 1991. Mrs.
Munch is a Certified Public Accountant.
Alan W. Lasker: Age 51. Mr. Lasker has served as Vice
President-Finance of the Registrant since July 24, 1997 and as Senior Vice
President of Schulweis Realty, Inc., real estate ownership and management, since
1991. Mr. Lasker is a Certified Public Accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES OF BENEFICIAL
INTEREST AND RELATED SHAREHOLDER MATTERS
Information in response to this Item is set forth on the inside back cover
page of the Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information in response to this item is set forth on page 32 of the
Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which information
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information in response to this Item is set forth on pages 29 through 31 of
the Registrant's 1997 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) FINANCIAL STATEMENTS
The financial statements, together with the report thereon of Ernst & Young
LLP dated January 29, 1998, appearing on page 28 of the Registrant's 1997 Annual
Report to Shareholders (Exhibit 13), are incorporated herein by reference.
(B) SUPPLEMENTARY DATA
Information in response to this Item is set forth in the financial statement
schedules set forth on pages F-1 through F-3 of this Form 10-K.
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ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item in respect of the Registrant's
Executive Officers who are not Trustees is set forth in Item 4 on pages 10 and
11 of this Form 10-K and is incorporated herein by reference.
The information concerning the Registrant's Trustees is set forth in
the following table and is based in part on information received from the
respective Trustees and in part on the Registrant's records. Each of the
nominees first became a Trustee in connection with the formation of the
Registrant in 1993.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Alfred Lerner 64 Chairman of the Board of the Registrant
Harvey Schulweis 57 Chief Executive Officer and President of the
Registrant
James H. Berick 64 Chairman of Berick, Pearlman & Mills Co., L.P.A.,
attorneys
H. Grant Hathaway 70 Retired, formerly Vice Chairman, MNC Financial,
Inc., bank holding company
Milton A. Wolf 73 President of Milton A. Wolf Investors,
investments, and Chairman of Zehman-Wolf
Management, Inc., real estate management and
development
</TABLE>
Mr. Lerner has been the Chairman of the Board of the Registrant since
its formation in May 1993. In addition, Mr. Lerner served as the Chief Executive
Officer of the Registrant from May 1993 until October 1997. Mr. Lerner also has
served as the Chairman of the Board and Chief Executive Officer of MBNA
Corporation, a bank holding company, since its inception as a public company in
1991. From 1979 until 1993, Mr. Lerner was the President of The Town and Country
Management Corporation. He was the Chairman of the Board and Chief Executive
Officer of MNC Financial, Inc. from September 1990 until July 1991, and was its
Chairman of the Board from July 1991 until October 1993. Mr. Lerner was the
Chairman of the Board of The Progressive Corporation, an insurance holding
company, from 1988 until April 1993. He is a member of the Boards of Trustees of
Columbia University, the Cleveland Clinic Foundation and Case Western Reserve
University. He also is the President of the Cleveland Clinic Foundation.
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Mr. Schulweis has been the Chief Executive Officer of the Registrant
since October 1997 and the President of the Registrant since its formation in
May 1993. Mr. Schulweis has been the President of Schulweis Realty, Inc., real
estate ownership and management, since 1991. He is a Certified Public Accountant
and a member of the Executive Committee of the National Realty Committee and is
a past member of the Board of Governors of the Real Estate Board of New York.
Mr. Schulweis has been both an owner and an investor in a significant number of
real estate projects. Of such projects in which Mr. Schulweis or an affiliate is
a general partner, two were sold through foreclosure proceedings, one in 1994
and one in 1996.
Mr. Berick has been a Trustee of the Registrant since its formation in
May 1993. He has been the Chairman of Berick, Pearlman & Mills Co., L.P.A.,
since July 1986 and was the President and Treasurer of Realty ReFund Trust, a
real estate investment trust, from 1990 through January 1998. Mr. Berick is a
Director of MBNA Corporation and A. Schulman, Inc.
Mr. Hathaway, now retired, has been a Trustee of the Registrant since
its formation in May 1993. In addition, he served as the Vice Chairman of MNC
Financial, Inc. from 1990 until 1993. He also served as Vice Chairman of
Maryland National Bank from 1990 until 1993 and was its President and Chief
Executive Officer in 1991. Mr. Hathaway was the President and Chief Executive
Officer of American Security Bank, N.A. in 1991 and the Chairman and Chief
Executive Officer of Equitable Bank, N.A. from 1979 until 1990. Mr. Hathaway
also served as the President of Equitable Bancorporation from 1975 until 1990
and as its Chief Executive Officer from 1981 until 1990. Mr. Hathaway is the
Chairman of The Kennedy Krieger Institute Development and Resource Board.
Dr. Wolf has served as a Trustee of the Registrant since its formation
in May 1993. In addition, he has served as the President of Milton A. Wolf
Investors and as the Chairman of Zehman-Wolf Management, Inc. since 1980. Dr.
Wolf was the United States Ambassador to Austria from 1977 until 1980. From 1981
until 1987, Ambassador Wolf served as a Distinguished Professorial Lecturer in
Economics at Case Western Reserve University. Ambassador Wolf also is a Director
of American Greetings Corp. Ambassador Wolf holds a Ph.D in Economics from Case
Western Reserve University and holds honorary doctoral degrees from Cleveland
State University and Case Western Reserve University. He is Chairman of the
American Austrian Foundation, Vice Chairman of the Council of American
Ambassadors and is a member of the Council on Foreign Relations, the Academy of
Political Science and the American Economic Association. Ambassador Wolf serves
on the Boards of Trustees of Case Western Reserve University and the Cleveland
Clinic Foundation.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or to be paid by
the Registrant or its subsidiaries in respect of services rendered during the
Registrant's fiscal year ended December 31, 1997 to the Registrant's Chief
Executive Officer and each of the Registrant's other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ---------------------
COMPENSATION RESTRICTED
------------------ STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS AWARDS(1) (SHARES) COMPENSATION
- --------------------------- ----------- ------ ----- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred Lerner, 1997 $200,000 $ 0 $ 0 0 $ 0
Chairman of the Board, 1996 $200,000 $ 0 $ 0 0 $ 0
Chief Executive Officer until 1995 $200,000 $ 0 $ 0 0 $ 0
October 1997
Harvey Schulweis, 1997 $200,000 $ 0 $ 756,250 40,000(2) $ 0
President, Chief Executive 1996 $200,000 $ 0 $ 203,125 0 $ 0
Officer since October 1997 1995 $200,000 $ 0 $ 472,656 25,000 $ 0
Michael H. Rosen, 1997 $175,000 $75,000 $ 94,531 20,000(2) $96,250(3)
Executive Vice President 1996 $175,000 $75,000 $ 0 0 $95,731
1995 $193,750 $93,750 $1,289,063 20,000 $95,776
Jennifer C. Munch, 1997 $110,000 $50,000 $ 32,141 10,000(2) $34,061(3)
Vice President-Treasurer 1996 $110,000 $40,000 $ 0 0 $33,542
1995 $116,250 $42,500 $ 300,781 10,000 $33,587
Alan W. Lasker, 1997 $110,000 $15,000 $ 272,250 15,000(2) $ 6,114(3)
Vice President-Finance 1996 $110,000 $10,000 $ 0 0 $ 5,667
1995 $110,000 $10,000 $ 0 10,000 $ 5,712
- --------------
<FN>
(1) The total number of restricted shares and the aggregate market
value thereof at December 31, 1997 are as follows: Mr. Lerner
held no restricted shares; Messrs. Schulweis and Rosen each
held 100,000 restricted shares having an aggregate market
value of $1,768,750; Mrs. Munch held 24,000 restricted shares
having an aggregate market value of $424,500; and Mr. Lasker
held 18,000 restricted shares having an aggregate market value
of $318,375. Dividends accrue and are paid on the restricted
shares. The aggregate market value is based on the fair market
value at December 31, 1997 of $17.6875 per share.
(2) These options were granted under the 1997 Plan and such grants are
subject to approval of the 1997 Plan by the Registrant's Shareholders.
(3) Amounts shown include the following: Registrant or subsidiary
contributions to defined-contribution plan--$7,638 for each of Mr.
Rosen and Mrs. Munch and $5,538 for Mr. Lasker; Registrant or
subsidiary payments of term life insurance premiums--$864 for Mr.
Rosen, $522 for Mrs. Munch and $576 for Mr. Lasker;
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and Registrant or subsidiary payments of split-dollar life
insurance premiums--$87,748 for Mr. Rosen and $25,901 for Mrs.
Munch.
</TABLE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during fiscal year 1997 to the named executive officers. In accordance
with the rules of the Securities and Exchange Commission, the table shows the
hypothetical gains or "option spreads" that would exist for the respective
options. The gains are based on assumed rates of annual compounded share price
appreciation of 5% or 10% from the date the options were granted over the full
option term of ten years. No gain to the optionees is possible without an
increase in share price which will benefit all Shareholders proportionately.
Regardless of the theoretical value of an option, its ultimate value will depend
on the market value of the Common Shares at a future date and that value will
depend on a variety of factors, including the overall condition of the stock
market and the Registrant's results of operations and financial condition. There
can be no assurance that the values reflected in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
------------------------------------------ ANNUAL RATES
% OF TOTAL OF SHARE PRICE
OPTIONS APPRECIATION
GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE OR (4) GRANT DATE
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------- PRESENT
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5% 10% VALUE(5)
- ------------------ ------ ------- --------- ---------- -- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alfred Lerner 0 0% $ 0 N/A $ 0 & 0 $ 0
Harvey Schulweis 40,000 33.33% $15.125 06/17/07 $380,600 $964,200 $23,600
Michael H. Rosen 20,000 16.67% $15.125 06/17/07 $190,300 $482,100 $11,800
Jennifer C. Munch 10,000 8.33% $15.125 06/17/07 $ 95,150 $241,050 $ 5,900
Alan W. Lasker 15,000 12.50% $15.125 06/17/07 $142,725 $361,575 $ 8,850
- ---------------
<FN>
(1) All options for Common Shares were granted pursuant to the
1997 Plan and such grants are subject to approval of the 1997
Plan by the Registrant's Shareholders. Such options become
exercisable at the rate of one-third per year, commencing on
the first anniversary of the date of grant of the option.
Mr. Lerner did not receive a 1997 stock option grant at his
request.
(2) Based upon 120,000 options granted to all employees.
(3) Fair market value on the date of grant (June 17, 1997).
(4) The potential realizable values illustrated at 5% and 10% compounded
annual appreciation assume that the price of the Registrant's Common
Shares increases to $24.64 and $39.23 per
-15-
<PAGE> 16
share, respectively, over the 10-year term of the options. If the named
executive officers realize these values, the Registrant's Shareholders
will realize aggregate appreciation in the price of the Registrant's
outstanding Common Shares of approximately $150 million or $380
million, respectively, over the same period.
(5) Amounts reflect the estimated present value of the grant as of
the grant date using the Black-Scholes option pricing model.
The following assumptions were used to estimate the grant date
present value: (1) each option for Common Shares is exercised
immediately upon vesting (averaging two years from the
June 17, 1997 grant date); (2) expected volatility or
fluctuation of the Registrant's share price of approximately
18% each year calculated based on historical fluctuations;
(3) expected dividend rate of $1.60 per Common Share based on
current dividend levels; and (4) discount to present value
based on an annual rate of return of 6.1%, which was the
approximate rate at the grant date for a five-year zero coupon
bond.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE(1)
- ---- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Alfred Lerner 0 $0 0/0 $ 0/$ 0
Harvey Schulweis 0 $0 91,667/48,333 $281,772/$133,228
Michael H. Rosen 0 $0 63,333/26,667 $196,040/$ 75,835
Jennifer C. Munch 0 $0 36,667/13,333 $112,710/$ 37,915
Alan W. Lasker 0 $0 6,667/18,333 $ 24,585/$ 50,728
- ---------------------
<FN>
(1) Amounts shown include options granted under the 1997 Plan, which Plan
is subject to the approval of the Registrant's Shareholders.
</TABLE>
COMPENSATION OF TRUSTEES
The Registrant pays an annual fee of $25,000, plus a fee of $2,500 for
each meeting attended, to its Trustees who are not employees of the Registrant
or any of its subsidiaries. Trustees who are employees of the Registrant are not
paid any Trustees' fees. The Registrant reimburses the Trustees for travel
expenses incurred in connection with their activities on behalf of the
Registrant.
-16-
<PAGE> 17
Pursuant to the Amended and Restated 1993 Long Term Incentive Plan (the
"1993 Plan") adopted by the Trust, each Trustee who is not otherwise an employee
of the Registrant or its subsidiaries or affiliates automatically receives, on
each January 2, an annual grant of options to purchase 2,000 Common Shares
having an exercise price equal to 100% of the fair market value of the Common
Shares at the date of grant of such option. In addition, each of the
Registrant's current non-employee Trustees, upon joining the Board, received an
initial grant of options to purchase 2,000 Common Shares at an exercise price
equal to the initial public offering price of $22.00. Should any additional
Trustees be elected in the future, each such Trustee would receive an initial
grant of options to purchase 2,000 Common Shares having an exercise price equal
to 100% of the fair market value of the Common Shares as of such date. Future
option grants to non-employee Trustees may be made pursuant to either the 1993
Plan or the 1997 Long Term Incentive Plan (the "1997 Plan") adopted by the
Registrant, which Plan is subject to approval by the Registrant's Shareholders.
The provisions of the 1997 Plan in respect of grants of options to non-employee
Trustees are identical to the provisions in respect thereof under the 1993 Plan.
However, the 1997 Plan provides that annual option grants to non-employee
Trustees under the 1997 Plan shall not duplicate any such grants under the 1993
Plan.
CERTAIN RELATED TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Michael H. Rosen, the Executive Vice President of the Registrant, is
indebted to the Registrant in connection with the consolidation of certain
personal indebtedness in the amount of $340,000 as of February 27, 1998.
$300,000 of this indebtedness bears interest at a rate comparable to the rate
earned on the Registrant's invested funds. As of February 27, 1998, such rate
was 5.09%. The balance of the indebtedness does not bear interest; however, the
Registrant has deferred compensation otherwise due Mr.
Rosen in the amount of such balance.
James H. Berick, a Trustee, is Chairman of the law firm Berick,
Pearlman & Mills Co., L.P.A., general counsel to the Registrant, which received
legal fees from the Registrant during the year ended December 31, 1997 in the
amount of $372,076.
-17-
<PAGE> 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of February 27, 1998 in
respect of beneficial ownership of Common Shares by each person known to the
Registrant to own 5% or more of its Common Shares, by each current Trustee and
nominee for election as Trustee, by each named executive officer and by all
Trustees and executive officers as a group.
<TABLE>
<CAPTION>
SHARES % OF OWNERSHIP TOTAL SHARES
BENEFICIALLY OUTSTANDING OF SHARE AND SHARE
NAME OWNED(1)(2) SHARES EQUIVALENTS(3) EQUIVALENTS/%(4)
- ---- ----------- ------ -------------- ----------------
<S> <C> <C> <C> <C>
Alfred Lerner
25875 Science Park Drive
Beachwood, Ohio 44122 1,000,000 6.3% 2,152,299 3,152,299/17.3%
Harvey Schulweis 310,000 2.0% 215,230 525,230/2.9%
James H. Berick 17,200(5) * -- --
H. Grant Hathaway 62,000 * -- --
Milton A. Wolf 78,800(6) 1.1% -- --
Michael H. Rosen 170,000 * -- --
Jennifer C. Munch 71,612(7) * -- --
Alan W. Lasker 29,000 * -- --
All Trustees and Executive
Officers as a Group
(8 persons) 1,738,612 11.0%
- --------------------------
<FN>
*Less than 1% of the Common Shares outstanding
(1) Includes the following number of Common Shares which are not owned but
can be purchased within 60 days upon the exercise of options granted
under the 1993 Plan: 12,000 by each of James H. Berick, H. Grant
Hathaway and Milton A. Wolf; 100,000 by Mr. Schulweis; 70,000 by Mr.
Rosen; 40,000 by Mrs. Munch; and 10,000 by Mr. Lasker.
(2) Includes the following number of restricted Common Shares awarded under
the 1993 Plan: 100,000 for Mr. Schulweis, 100,000 for Mr. Rosen, 24,000
for Mrs. Munch and 18,000 for Mr. Lasker.
(3) In consideration of the contributions of their interests in
the Registrant's original properties as part of the formation
of the Registrant, Messrs. Lerner and Schulweis retained
beneficial ownership of their limited partnership interests in
the Operating Partnership, in which the Registrant is an
86.00% general partner. As of February 27, 1998, Messrs.
Lerner and Schulweis owned 12.10% and 1.21% limited
partnership interests, respectively, in the Operating
-18-
<PAGE> 19
Partnership. The limited partners of the Operating Partnership share
proportionately with the Registrant, as general partner, in the net
income or loss and any distributions of the Operating Partnership;
therefore, Mr. Lerner's 12.10% limited partnership interest in the
Operating Partnership is the economic equivalent of 2,152,299 Common
Shares of the Registrant and Mr. Schulweis' 1.21% limited partnership
interest in the Operating Partnership is the economic equivalent of
215,230 Common Shares of the Registrant. Pursuant to the partnership
agreement of the Operating Partnership, Messrs. Lerner and Schulweis
each may convert his limited partnership interest into such number of
Common Shares.
(4) Percentage shown calculated based on conversion of all share
equivalents into Common Shares.
(5) Includes 1,200 shares held solely by Mr. Berick's wife, beneficial
ownership of which Mr. Berick disclaims.
(6) Includes 4,500 shares held solely by Dr. Wolf's wife and 800 shares
held solely by Dr. Wolf's wife as guardian for their adult child,
beneficial ownership of which Dr. Wolf disclaims.
(7) Includes 606 shares held solely by Mrs. Munch's husband, beneficial
ownership of which Mrs. Munch disclaims.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is set forth in Item 11 on page 17 of
this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
PAGE
----
(1) Financial Statements:
Report of Independent Auditors 28*
Consolidated Balance Sheets of
the Registrant at December 31, 1997 18*
and at December 31, 1996
-19-
<PAGE> 20
Consolidated Statements of
Operations of the Registrant for
the years ended December 31, 1997,
December 31, 1996 and December 31, 19*
1995
Consolidated Statements of
Shareholders' Equity of the
Registrant for the years ended
December 31, 1997, December 31,
1996 and December 31, 1995 20*
Consolidated Statements of Cash
Flows of the Registrant for
the years ended December 31, 1997,
December 31, 1996 and
December 31, 1995 21*
Notes to Consolidated
Financial Statements of the
Registrant 22*
*Incorporated by reference from the indicated page of the Registrant's
1997 Annual Report to Shareholders. With the exception of this information and
the information incorporated in Items 5, 6, 7 and 8, the 1997 Annual Report to
Shareholders is not deemed filed as part of this report.
(2) Financial Statement Schedules:
Schedule III--Real Estate and
Accumulated Depreciation F-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits
Exhibit
Number
- ------
3.1 First Amended and Restated Declaration of Trust
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-11 (No.
33-63150)).
3.2 By-Laws (incorporated by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form
S-ll (No. 33-63150)).
-20-
<PAGE> 21
10.1 Amended and Restated Agreement of Limited Partnership
of The TC Operating Limited Partnership dated as of
January 26, 1995 (incorporated by reference to Exhibit
10.1(b) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
10.2* Registrant's Amended and Restated 1993 Long Term
Incentive Plan (incorporated by reference to Exhibit
10.9 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993).
10.3* Registrant's 1997 Long Term Incentive Plan.
10.4 Master Credit Facility Agreement, dated as of September
26, 1997, entered into by and among the Registrant, the
TC Operating Limited Partnership, The Town and Country
Holding Corporation, The TC Property Company, The Town
and Country Oriole Corporation, each of the Property
Partnerships and Washington Mortgage Financial Group,
Ltd. (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
10.5 Form of Payment Guaranty executed by each of the
Property Partnerships in favor of Washington Mortgage
Financial Group, Ltd. (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.6 Form of Amended and Restated Multifamily Deed of Trust,
together with Riders thereto, executed by each of the
Property Partnerships (incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.7 Form of Amended and Restated Indemnity Multifamily Deed
of Trust, together with Riders thereto, executed by
each of the Property Partnerships (incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
13 The Registrant's 1997 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Powers of Attorney
-21-
<PAGE> 22
27 Financial Data Schedule1
*Compensation plan or arrangement required to be filed as an
exhibit hereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
Registrant's fiscal year ended December 31, 1997.
- --------
1Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/Harvey Schulweis
--------------------------------
Harvey Schulweis,
President
Dated: January 30, 1998
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Harvey Schulweis Principal Executive January 30, 1998
- ----------------------- Officer, Principal -----------------
Harvey Schulweis Financial Officer and
Trustee
/s/ Jennifer C. Munch Principal Accounting February 12, 1998
- ----------------------- Officer -----------------
Jennifer C. Munch
Alfred Lerner* Trustee
James H. Berick* Trustee
H. Grant Hathaway* Trustee
Milton A. Wolf* Trustee
*By: /s/ Harvey Schulweis
-----------------------------
Harvey Schulweis,
Attorney-in-Fact
- ----------------
*Powers of attorney authorizing Harvey Schulweis to sign this annual report on
Form 10-K on behalf of certain Trustees of the Registrant are being filed with
the Securities and Exchange Commission herewith (Exhibit 24).
-23-
<PAGE> 24
Schedule III--Real Estate and Accumulated Depreciation
The Town and Country Trust
December 31, 1997
<TABLE>
<CAPTION>
SUBSEQUENT TO GROSS AMOUNT AT WHICH
INITIAL COST (c) ACQUISITION (d) CARRIED AT CLOSE OF PERIOD
----------------------- --------------- -----------------------------------
NON-RECOURSE BUILDINGS, BUILDINGS, BUILDINGS,
PROPERTY MORTGAGE EQUIPMENT & EQUIPMENT & EQUIPMENT & TOTAL
DESCRIPTION(a) DEBT (b) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS (e)
-------------- -------- ---- ------------ ------------ ---- ------------ -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
MARYLAND
Foxhaven $ 8,397 $ 1,849 $ 11,929 $ 1,019 $ 1,849 $ 12,948 $ 14,797
Gardenwood 11,080 - 17,182 1,332 - 18,514 18,514
West/Greensview/ 32,688 8,824 37,783 3,330 8,824 41,113 49,937
West Commercial
Montgomery 5,058 1,505 6,889 565 1,505 7,454 8,959
Hollows 7,230 1,424 10,401 594 1,424 10,995 12,419
Rolling Road 8,491 - 13,376 1,053 - 14,429 14,429
South 6,602 1,317 10,097 766 1,317 10,863 12,180
Woodmoor 7,081 1,690 11,110 1,217 1,690 12,327 14,017
Hallfield Manor 1,535 320 2,240 148 320 2,388 2,708
Ridgeview 5,382 1,138 7,513 535 1,138 8,048 9,186
Charlesmont 10,292 2,049 13,972 1,276 2,049 15,248 17,297
East 8,692 1,795 10,549 1,196 1,795 11,745 13,540
Harford 7,398 1,474 10,511 613 1,474 11,124 12,598
Laurel 8,718 1,397 9,845 780 1,397 10,625 12,022
Montpelier 10,233 1,781 14,088 2,055 1,781 16,143 17,924
North 12,429 2,749 18,151 1,594 2,749 19,745 22,494
Northeast 14,456 3,136 19,944 1,135 3,136 21,079 24,215
Versailles 7,010 1,599 10,921 2,126 1,599 13,047 14,646
Fox Run 500 2,498 11,412 255 2,498 11,667 14,165
Stonegate 10,993 2,887 13,261 189 2,887 13,450 16,337
PENNSYLVANIA
Allentown 5,416 1,229 7,447 483 1,229 7,930 9,159
Harrisburg East 7,748 2,181 12,531 1,058 2,181 13,589 15,770
Emmaus 8,077 1,394 9,577 1,095 1,394 10,672 12,066
Hanover 3,837 590 4,946 754 590 5,700 6,290
Harrisburg 12,349 3,033 16,905 1,446 3,033 18,351 21,384
Lancaster East 5,432 812 8,249 741 812 8,990 9,802
Lancaster West 8,322 1,285 12,794 1,171 1,285 13,965 15,250
York 8,047 1,951 10,622 922 1,951 11,544 13,495
Rolling Hills 4,750 1,282 5,842 318 1,282 6,160 7,442
VIRGINIA
Barton's Crossing 25,250 7,320 33,845 1,099 7,320 34,944 42,264
The Glen 500 1,157 5,269 187 1,157 5,456 6,613
McNair Farms 500 3,564 16,237 581 3,564 16,818 20,382
University Heights 500 5,789 26,371 246 5,789 26,617 32,406
Carlyle Station 15,101 4,259 19,610 349 4,259 19,959 24,218
DELAWARE
Christina Mill 8,906 2,288 10,454 141 2,288 10,595 12,883
MISCELLANEOUS 1,000 - 814 1,330 - 2,144 2,144
INVESTMENTS
Total ========= ======== ========== ======= ======= ======== =========
$ 300,000 $ 77,566 $ 462,687 $33,699 $77,566 $496,386 $ 573,952
========= ======== ========== ======= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
PROPERTY DEPRECIATION DATE USEFUL
DESCRIPTION(a) (f) ACQUIRED LIFE
-------------- --- -------- ----
<S> <C> <C> <C>
MARYLAND
Foxhaven $ 7,687 1993 (i) (h)
Gardenwood 10,363 1993 (i) (h)
West/Greensview/ 22,136 1993 (i) (h)
West Commercial
Montgomery 3,892 1993 (i) (h)
Hollows 6,359 1993 (i) (h)
Rolling Road 8,050 1993 (i) (h)
South 6,369 1993 (i) (h)
Woodmoor 7,137 1993 (i) (h)
Hallfield Manor 1,448 1993 (i) (h)
Ridgeview 4,671 1993 (i) (h)
Charlesmont 8,439 1993 (i) (h)
East 6,032 1993 (i) (h)
Harford 6,832 1993 (i) (h)
Laurel 5,654 1993 (i) (h)
Montpelier 8,220 1993 (i) (h)
North 11,033 1993 (i) (h)
Northeast 12,009 1993 (i) (h)
Versailles 6,440 1993 (i) (h)
Fox Run 2,444 1993 (h)
Stonegate 1,703 1994 (h)
PENNSYLVANIA
Allentown 4,641 1993 (i) (h)
Harrisburg East 7,931 1993 (i) (h)
Emmaus 5,412 1993 (i) (h)
Hanover 3,299 1993 (i) (h)
Harrisburg 10,904 1993 (i) (h)
Lancaster East 4,907 1993 (i) (h)
Lancaster West 7,531 1993 (i) (h)
York 6,844 1993 (i) (h)
Rolling Hills 1,335 1993 (h)
VIRGINIA
Barton's Crossing 7,634 1993 (h)
The Glen 1,204 1993 (h)
McNair Farms 3,668 1993 (h)
University Heights 5,908 1993 (h)
Carlyle Station 2,431 1994 (h)
DELAWARE
Christina Mill 1,313 1994 (h)
MISCELLANEOUS 1,066 1993 (h)
INVESTMENTS
Total ---------
$ 222,946
=========
</TABLE>
F-1
<PAGE> 25
Notes to Schedule III
The Town and Country Trust
(In thousands)
(a) All properties are garden apartment communities with the exception of one
commercial building included in the West/Greensview/West Commercial
Partnership.
(b) See description of mortgages payable in Note 4 of Notes to Consolidated
Financial Statements of the Company.
(c) Initial cost for properties originally acquired from the Predecessor (see
note (i) below) represents the historical cost as of August 23, 1993 plus
the acquisition of non-controlled interests in the Predecessor on August
23, 1993. The initial cost of all other property acquisitions represents
the cost to purchase the property at the date of acquisition.
(d) The aggregate cost of land, buildings and equipment on a Federal Income
Tax basis is $448,106,278 at December 31, 1997.
<TABLE>
<CAPTION>
(e) Reconciliation of Real Estate Properties
----------------------------------------------------------------
<S> <C>
Balance at January 1, 1994 $ 491,489
Acquisitions of new partnerships 53,259
Other additions, net of dispositions during 1994 6,595
---------
Balance at December 31, 1994 551,343
Other additions, net of dispositions during 1995 6,757
---------
Balance at December 31, 1995 558,100
Other additions, net of dispositions during 1996 6,343
---------
Balance at December 31, 1996 564,443
Other additions net of dispositions 9,509
=========
Balance at December 31, 1997 $ 573,952
=========
(f) Reconciliation of Accumulated Depreciation
---------------------------------------------------------------
Balance at January 1, 1994 $ 127,124
1994 depreciation expense, net of retirements 23,380
---------
Balance at December 31, 1994 150,504
1995 depreciation expense, net of retirements 24,047
---------
Balance at December 31, 1995 174,551
1996 depreciation expense, net of retirements 24,138
---------
Balance at December 31, 1996 198,689
1997 depreciation expense, net of retirements 24,257
=========
=========
Balance at December 31, 1997 $ 222,946
=========
</TABLE>
F-2
<PAGE> 26
Notes to Schedule III (continued)
The Town and Country Trust
(In thousands)
(h) Depreciation is computed based upon the following estimated lives:
<TABLE>
<CAPTION>
Assets acquired Assets acquired
prior to subsequent to December
January 1, 1994 31, 1993
-------------------------------------------------------
<S> <C> <C>
Buildings 27.5 years 40 years
Building improvements 15 to 19 years 20 years
Furniture, fixtures and equipment 3 to 7 years 5 to 12 years
</TABLE>
(i) Denotes property originally purchased in 1979 by the Predecessor.
F-3
<PAGE> 1
Exhibit 10.3
The Registrant's 1997 Long Term Incentive Plan
<PAGE> 2
THE TOWN AND COUNTRY TRUST
1997 LONG TERM INCENTIVE PLAN
1. ESTABLISHMENT AND PURPOSE
The Town and Country Trust (the "Company") hereby establishes the 1997
LONG TERM INCENTIVE PLAN (the "Plan"). The Plan permits the grant of share
options and restricted or unrestricted share awards.
The purpose of the Plan is to promote the long term growth and
profitability of the Company by providing trustees, officers and other key
employees of the Company and its subsidiaries with incentives to improve
shareholder value and contribute to the success of the Company and to enable the
Company to attract, retain and reward the best available persons for positions
of substantial responsibility.
2. DEFINITIONS
(a) "Cause" means the occurrence of one of the following:
(i) Conviction for a felony or for any crime or
offense lesser than a felony involving the property of the
Company, a subsidiary or a partnership in which the Company
has a direct or indirect interest.
(ii) Conduct that has caused demonstrable and serious
injury to the Company, a subsidiary or a partnership in which
the Company has a direct or indirect interest, monetary or
otherwise, as evidenced by a final determination of a court or
governmental agency of competent jurisdiction in effect after
exhaustion or lapse of all rights of appeals.
(iii) Gross neglect or dereliction of duty to the
Company or other grave misconduct by the participant and
failure to cure such situation within 30 days after receipt of
notice thereof from the Chief Executive Officer of the
Company. If the participant initiating such misconduct is the
Chief Executive Officer of the Company, the committee
appointed pursuant to Section 3 (the "Committee"), as
authorized by not less than two-thirds of all of its members
shall give such notice to the Chief Executive Officer.
10.3-1
<PAGE> 3
(b) "Change in Control" shall mean the occurrence of
either:
(i) a change of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, or any successor provision thereto,
promulgated under the Securities Exchange Act of 1934
("Exchange Act"); provided that, without limitation, a Change
in Control shall be deemed to have occurred if (a) any
"person" or "group" (as those terms are used in Sections 13(d)
and 14(d), respectively, of the Exchange Act), other than
Alfred Lerner or a "group" including Alfred Lerner, is or
becomes the "beneficial owner" (as defined in Rule 13d-3
issued under the Exchange Act), directly or indirectly, of
securities of the Company entitled to cast 25% or more of the
votes entitled to be cast for the election of trustees of the
Company by the holders of its then outstanding securities; and
(b) at any time during the period of 36 months subsequent to
the securities acquisition described above, individuals who at
the beginning of such period constitute the Board of Trustees
cease for any reason to constitute at least the majority
thereof unless the nomination for election of each new trustee
was approved by a vote of at least two-thirds of the trustees
still in office who were trustees at the beginning of such 36
month period; or
(ii) any "person" or "group," as described above,
other than Alfred Lerner or a "group" including Alfred Lerner,
is or becomes the "beneficial owner," directly or indirectly,
of securities of the Company entitled to cast 40% or more of
the votes entitled to be cast for the election of trustees of
the Company by the holders of its then outstanding securities.
(c) "Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute.
(d) "Common Shares" means Common Shares of Beneficial
Interest of the Company.
(e) "Competition" means acting as a director, trustee,
partner, officer, employee, consultant or advisor with or to, or
acquiring an ownership interest in excess of 5% of, a corporation,
partnership, firm or other entity that engages in any business which
competes with the Company or any subsidiary of the Company as
determined by the Board of Trustees in its sole discretion.
10.3-2
<PAGE> 4
(f) "Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the Code, as determined by the
Committee.
(g) "Fair Market Value" of a Common Share for any purpose
shall be determined in accordance with policies adopted by the
Committee.
(h) "Retirement" means retirement as defined under the Town
and Country Management Corporation's pension or any successor plan
thereto, if any, or termination of employment on retirement with the
approval of the Committee.
(i) "Subsidiary" and "subsidiaries" mean only a corporation or
corporations within the meaning of the definition of "subsidiary
corporation" provided in Section 424(f) of the Code, or any successor
statute of similar import.
3. ADMINISTRATION
(a) The Plan shall be administered by a Committee of not less
than three trustees of the Company.
(b) The Committee, consistent with the provisions of the Plan,
shall be authorized to (i) select persons to participate in the Plan
subject to the provisions of Section 5 hereof, (ii) determine the form
and substance of grants made under the Plan to each participant, and
the conditions and restrictions, if any, subject to which such grants
will be made, (iii) interpret the Plan and (iv) adopt, amend, or
rescind such rules and regulations for carrying out the Plan as it may
deem appropriate. Decisions of the Committee on all matters relating to
the Plan shall be in the Committee's sole discretion and shall be
conclusive and binding on all parties, including the Company, its
shareholders and the participants in the Plan. The validity,
construction and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with applicable
federal and state laws and rules and regulations promulgated pursuant
thereto.
(c) The Committee shall have no authority to administer,
modify or interpret Section 7 of the Plan or any grants or awards made
pursuant to Section 7.
4. SHARES AVAILABLE FOR THE PLAN
Subject to adjustments as provided in Section 14, an aggregate of
1,200,000 Common Shares may be issued pursuant to the Plan. If any grant under
the Plan expires or terminates unexercised, becomes unexercisable or is
forfeited as to any
10.3-3
<PAGE> 5
Common Shares, such unpurchased or forfeited Common Shares shall thereafter be
available for further grants under the Plan, except as otherwise provided by
applicable rule of the Securities and Exchange Commission.
5. PARTICIPATION
(a) Participation in the Plan, except for Section 7, is
limited to those officers and other key employees of the Company and
its Subsidiaries selected by the Committee, including trustees who are
officers of the Company. Trustees who are not officers or employees of
the Company or a Subsidiary are not eligible to participate in the Plan
except as provided in Section 7. Only trustees who are not officers or
employees of the Company are eligible to participate under Section 7.
(b) Nothing in the Plan or in any grant thereunder shall
confer any right on an employee to continue in the employ of the
Company or shall interfere in any way with the right of the Company to
terminate an employee at any time.
6. EMPLOYEE SHARE OPTIONS
Subject to the other applicable provisions of the Plan, the Committee
from time to time may grant to eligible participants non-qualified share options
or incentive share options. Incentive share options shall be treated as, and are
intended to qualify as, "incentive stock options", as that term is defined in
Section 422 of the Code. The options granted shall be subject to the following
terms and conditions:
(a) Price. The price per share payable upon the exercise of
each option ("exercise price") shall not be less than 100% of the Fair
Market Value of the Common Shares on the date the option is granted.
(b) Payment. Options may be exercised in whole or in part upon
payment of the exercise price of the Common Shares to be acquired.
Payment may be made in cash or, if authorized by the Committee, in
Common Shares or a combination of cash and Common Shares. The Fair
Market Value of Common Shares delivered on exercise of options shall be
determined on the date of exercise. Common Shares delivered in payment
of the exercise price may be already owned Common Shares or, if
approved by the Committee, Common Shares acquired upon exercise of the
option. Any fractional Common Share will be paid in cash. The Company,
in accordance with policies approved by the Committee, may make or
guarantee loans to participants to assist them to exercise options.
10.3-4
<PAGE> 6
(c) Terms of Options. The term during which each option may be
exercised shall be determined by the Committee, but in no event shall
an option be exercisable (i) prior to six months, or (ii) more than ten
years, from the date the option is granted. All rights to purchase
Common Shares pursuant to an option shall, unless sooner terminated,
expire at the date designated by the Committee. The Committee shall
determine the date on which each option shall become exercisable and
may provide that an option shall become exercisable in installments or
upon the occurrence of specified events. The shares constituting each
installment may be purchased in whole or in part at any time after such
installment becomes exercisable, subject to such minimum exercise
requirement as may be designated by the Committee. The Committee may
accelerate the time at which any option may be exercised, and may
impose resale restrictions on all or a portion of the Common Shares
delivered upon exercise of any option. Prior to the exercise of the
option and issuance of the Common Shares issuable upon exercise of the
option, the optionee shall have no rights to any dividends or other
distributions in respect of such shares or be entitled to any voting
rights on any Common Shares subject to outstanding options.
(d) Termination of Employment.
(i) If a participant ceases to be an employee of the
Company or any subsidiary due to death or Disability, each of
the participant's options shall become fully vested and
exercisable and shall remain so for a period of one year from
the date of termination of employment, but in no event after
its expiration date.
(ii) If a participant ceases to be an employee of the
Company upon Retirement, each option of the participant shall
become fully vested and exercisable and shall remain so for a
period of two years from the date of Retirement, but in no
event after its expiration date. If the participant engages in
Competition without written approval from the Company to do
so, any unexercised options will be forfeited.
(iii) If a participant ceases to be an employee of
the Company due to Cause, all of the participant's options
shall be forfeited immediately.
(iv) If a participant ceases to be an employee of the
Company for any reason other than death, Disability,
Retirement or Cause, each option of the participant which is
vested and exercisable shall remain so for a period of ninety
days from the date of
10.3-5
<PAGE> 7
termination of employment, but in no event after its
expiration date, and then shall terminate. Options which have
not vested at the termination date will be forfeited. If the
participant engages in Competition without written approval
from the Company to do so, all unexercised options will be
forfeited.
(e) Restrictions on Incentive Share Options.
(i) The aggregate Fair Market Value (determined as of
the grant date) of Common Shares in respect of which all
incentive share options first become exercisable by any
participant in any calendar year under this or any other plan
of the Company or any related or predecessor corporation of
the Company (as defined in the applicable regulations under
the Code) may not exceed $100,000. If any incentive share
option(s) granted under the Plan would cause such dollar
limits to be exceeded, then the excess portion of the
incentive share option(s) shall become exercisable in the next
or succeeding calendar year in which its exercisability would
not violate the dollar limitations.
(ii) The exercise price of any incentive share option
granted to a participant who owns (within the meaning of
Section 422(b)(6) of the Code, after the application of the
attribution rules in Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of shares of the
Company or any related corporation shall be not less than 110%
of the Fair Market Value of the Common Shares on the grant
date and the term of such option shall not exceed five years.
(iii) In the event that a participant ceases to be an
employee of the Company or a subsidiary due to a reason other
than Disability, the participant's incentive share options
shall be treated as incentive share options only if exercised
by the participant within ninety days after the date of
termination of employment.
(iv) No option shall be an incentive share option
unless so designated by the Committee at the time of grant.
7. NON-EMPLOYEE TRUSTEE SHARE OPTIONS
(a) Each person who becomes a non-employee trustee of the
Company shall be granted a non-qualified share option to purchase 2,000
Common Shares on the date the person becomes a trustee. The exercise
price shall be the closing price of
10.3-6
<PAGE> 8
the Common Shares on the New York Stock Exchange on the
grant date.
(b) Each person who is a non-employee trustee on January 2 of
each year beginning on and after January 2, 1998 shall be granted an
option to purchase 2,000 Common Shares on that date or the next day the
New York Stock Exchange is open for trading. The exercise price shall
be the closing price of the Common Shares on the New York Stock
Exchange on the grant date.
(c) Options may be exercised in whole or in part by payment of
the exercise price for the Common Shares to be acquired. Payment must
be made in cash.
(d) All options shall be exercisable immediately following the
effective date of grant. The term during which each option may be
exercised shall be ten years from the date it is granted. All rights to
purchase shares pursuant to an option shall, unless sooner terminated,
expire ninety days after the grantee is no longer an eligible trustee.
No option granted under this Section 7 shall be duplicative of any
non-employee trustee option granted under the Company's Amended and
Restated 1993 Long Term Incentive Plan.
8. RESTRICTED AND UNRESTRICTED SHARE AWARDS
(a) Subject to the other applicable provisions of the Plan,
the Committee at any time and from time to time may award Common Shares
to such participants and in such amounts as it determines. Each award
of Common Shares shall specify the applicable restrictions, if any, on
such shares, the duration of such restrictions, and the time or times
at which such restrictions shall lapse in respect of all or a portion
of the Common Shares that are part of the award. The Committee may
reduce or shorten the duration of any restriction applicable to any
shares awarded to any participant under the Plan.
(b) Restricted shares may be issued at the time of award,
subject to forfeiture if the restrictions do not lapse, or upon lapse
of the restrictions. If Common Shares are issued at the time of the
award, the participant may be required to pay nominal consideration in
accordance with state law and will be required to deposit the
certificates with the Company during the period of restriction thereon
and to execute a blank stock power therefor. Except as otherwise
provided by the Committee, during such period of restriction the
participant shall have all of the rights of a holder of Common Shares,
including but not limited to the rights to receive dividends or other
distributions in
10.3-7
<PAGE> 9
respect of such shares (or amounts equivalent to such dividends or
distributions) and to vote. If Common Shares are issued upon lapse of
restrictions, the Committee may provide that the participant will be
entitled to receive any amounts per share pursuant to any dividend or
distribution paid by the Company on its Common Shares to shareholders
of record after the award and prior to the issuance of the shares.
(c) Except as otherwise provided by the Committee, on
termination of a grantee's employment due to death, Disability,
Retirement or a Change in Control during any period of restriction, all
restrictions on Common Shares awarded to such grantee shall lapse. On
termination of a grantee's employment for any other reason, all
restricted shares in respect of which restrictions have not lapsed
shall be forfeited to the Company.
9. WITHHOLDING OF TAXES
(a) As a condition to any grant or payment by the Company
under the Plan or to the delivery of certificates for Common Shares
issued under the Plan, the Company may require that the grantee pay to
the Company in cash or, if permitted in accordance with other
provisions of the Plan or approved by the Committee, in Common Shares
valued at Fair Market Value on the date as of which the withholding tax
liability is determined, any federal, state or local taxes of any kind
required by law to be withheld in respect of any grant, payment or
issuance or delivery of Common Shares.
(b) Unless otherwise determined by the Committee, a
participant may also deliver Common Shares, including Common Shares
acquired upon exercise of the option, in satisfaction of any amount the
Company is required to withhold for taxes in connection with the
exercise of an option subject, if the optionee is subject to Section
16(b) of the Securities Exchange Act of 1934, to such restrictions as
may be imposed from time to time by the Securities and Exchange
Commission.
(c) An election to deliver Common Shares to pay withholding
taxes must be made on or before the date the amount of tax to be
withheld is determined, and once made will be irrevocable. The
withholding tax obligation that may be paid by the withholding or
delivery of Common Shares may not exceed the participant's estimated
federal, state and local income tax obligations in connection with the
exercise of the option or the sale of Common Shares received upon
exercise of the option. The Fair Market Value of the Common Shares to
be withheld or delivered will be the Fair Market Value on the date as
of which the amount of tax to be withheld is determined.
10.3-8
<PAGE> 10
(d) The Company, to the extent permitted or required by law,
shall have the right to deduct from any payment of any kind (including
salary or bonus) otherwise due to a grantee any federal, state or local
taxes of any kind required by law to be withheld in respect of any
grant or payment or the issuance or delivery of Common Shares under the
Plan, or to retain or sell without notice a sufficient number of Common
Shares to be issued to such grantee to provide for any such taxes.
10. WRITTEN AGREEMENT
Each employee to whom a grant is made under the Plan shall enter into a
written agreement with the Company that shall contain such provisions,
consistent with the provisions of the Plan, as may be established by the
Committee.
11. TRANSFERABILITY
No option or restricted share award (prior to lapse of the
restrictions), granted under the Plan shall be transferable by an employee
otherwise than by will or the laws of descent and distribution. An option may be
exercised only by the optionee or grantee thereof or his or her guardian or
legal representative.
12. LISTING AND REGISTRATION
If the Committee determines that the listing, registration or
qualification upon any securities exchange, or under any law, of Common Shares
subject to any option or award is necessary or desirable as a condition of, or
in connection with, the grant or the issuance or purchase of Common Shares
thereunder, no such option may be exercised in whole or in part and no shares
may be issued unless such listing, registration or qualification is effected to
the satisfaction of the Committee.
13. TRANSFER OF EMPLOYEE
Transfer of an employee from the Company to a Subsidiary, from a
Subsidiary to the Company, or from one Subsidiary to another, shall not be
considered a termination of employment. Nor shall it be considered a termination
of employment if an employee is placed on military or sick leave or such other
leave of absence which is considered by the Company as continuing intact the
employment relationship, until the employee's right to reemployment shall no
longer be guaranteed either by law or contract.
10.3-9
<PAGE> 11
14. ADJUSTMENT; BUSINESS COMBINATIONS
(a) In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, share exchange,
consolidation, substantial distribution of assets, or any other change
in the corporate structure or shares of the Company, the number and
kind of shares reserved for issuance under the Plan, the number and
kind of shares covered by outstanding options and awards made under the
Plan, the exercise price of outstanding options, and the number and
kind of shares to be covered by options to be granted pursuant to
Section 7 of the Plan shall be appropriately adjusted.
(b) In the event of any merger, share exchange, consolidation
or other reorganization in which the Company is not the surviving or
continuing corporation, or in which the Company's shareholders become
entitled to receive cash, securities of the Company other than voting
Common Shares or securities of another issuer, or in the event of a
Change in Control, (a) all outstanding options shall become vested and
immediately exercisable and (b) all restrictions on restricted shares
shall immediately lapse, at a date not later than the effective date of
the transaction, notwithstanding any restriction on exercise or
vesting.
15. TERMINATION AND MODIFICATION OF THE PLAN
(a) The Board of Trustees, without approval of the
shareholders, may modify or terminate the Plan, except that no
modification shall become effective without prior approval of the
shareholders of the Company if shareholder approval would be required
for continued compliance with Rule 16b-3 of the Securities and Exchange
Commission, or if the modification would (a) increase the total amount
of shares which may be issued under the Plan (except as provided in
Section 14 hereof), (b) change the class of employees eligible to
participate, (c) materially increase benefits to participants, or (d)
extend the period during which options may be granted or exercised. No
amendment to Section 7 of the Plan shall be made more than once every
six months other than to conform with changes in the Code or the rules
thereunder.
(b) No termination of the Plan shall affect outstanding
options or awards previously made under the Plan.
(c) The Committee may amend or modify the grant of any
outstanding option or award in any manner to the extent that the
Committee would have had the authority to make such grant as so
modified or amended, including without
10.3-10
<PAGE> 12
limitation to change the date or dates as of which an option becomes
exercisable or restrictions on shares are to lapse. However, no
modification may be made that would materially adversely affect any
grant previously made under the Plan without the approval of the
grantee. The Committee shall be authorized to make modifications to the
Plan and outstanding awards of a minor or administrative nature or that
may be required, authorized or made desirable by Federal or state laws
applicable to the Company and/or the participants. The Board of
Trustees shall exercise the power referred to in this paragraph in
respect of Section 7 of the Plan or options granted thereunder.
16. LIMITATION ON BENEFITS
Notwithstanding any other provision of the Plan, no option may be
exercised and no award will vest to the extent such exercise, vesting or payment
will create an "excess parachute payment" as defined in Section 280G of the
Code, and the portion of the option or award creating the excess parachute
payment shall be forfeited and canceled.
17. EFFECTIVE DATE
The Plan shall become effective as of June 17, 1997, the date of its
adoption by the Board of Trustees of the Company. The Plan shall be subject to
ratification within twelve months of the effective date by an affirmative vote
of a majority of Common Shares present and entitled to vote at a shareholders'
meeting at which a quorum representing a majority of the outstanding Common
Shares is present.
18. TERMINATION DATE
No further grants may be made under the Plan following the close of
business on the day preceding the tenth anniversary of the effective date of the
Plan.
10.3-11
<PAGE> 1
Exhibit 13
T C
The Town and Country Trust A Real Estate Investment Trust
[DRAWING OF A TREE-LINED PATH]
Annual Report
T 97
<PAGE> 2
The highlight of 1997 was a comprehensive refinancing which repositioned The
Town and Country Trust for the future and achieved these important corporate
objectives: [ ] provided funds for new acquisitions and development, [ ]
provided the wherewithal for expansion of our capital improvement program, and
[ ] eliminated the perceived risk from significant debt maturities in 1998.
[PHOTO: WATERMARK OF EXTERIOR
LIGHT FIXTURES]
<PAGE> 3
HIGHLIGHTS OF FINANCIAL RESULTS
-------------------------------
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Funds from Operations (FFO) $ 29,277,000 $30,547,000 $31,771,000
(baseline $27,000,000)
FFO per share (assuming dilution) $1.63 $1.69 $1.75
(baseline $1.50)
Earnings before interest
(baseline $45,000,000) $50,195,000 $50,739,000 $52,130,000
Revenues
(baseline $85,000,000) $89,455,000 $91,163,000 $92,648,000
</TABLE>
The Town and Country Trust 1997
<PAGE> 4
DEAR SHAREHOLDER: The Trust, since becoming a public entity in 1993, has
realized consistent growth in operating income and funds
from operations as a result of the strength of our
properties and the skills of our management team.
In October we replaced our outstanding debt with a
collateralized financing, guaranteed by Fannie Mae,
which initially funded $300 million of mortgage-
backed securities at a fixed interest rate of 6.91%, maturing in 2008. In
addition, the new facility made available up to an additional $75 million,
variable rate revolving credit facility which can be converted to a fixed rate
term loan maturing in 2008 at our option. The borrowing can be further expanded
by an additional $75 million to a total of $450 million under certain
circumstances.
We are planning to utilize our liquidity by actively seeking acquisitions and
have enlarged our horizons beyond our present focus in the mid-Atlantic region.
And, we have earmarked $25 million of the financing proceeds for further capital
improvements of our current portfolio.
In 1997 funds from operations increased by 4.0% over 1996 results to a total of
$31,771,000, or $1.75 per share on a diluted basis. In addition, our occupancy
has remained strong at approximately 93%. We have continued to maintain, upgrade
and modernize our properties by investing a total of $16,000,000 in repairs and
maintenance, recurring capital expenditures and revenue-enhancing improvements.
We have maintained the annual dividend rate at $1.60 by declaring a dividend of
$0.40 per share for the fourth quarter.
Our properties continue to enjoy a reputation for quality and our commitment to
maintain this level is reflected in our expanding capital improvement program.
We expect the program to enhance the Town and Country image and position us
favorably to meet the competitive challenge into the new millennium.
The Trust's highly skilled, experienced and dedicated management team is crucial
to our success. Their diverse talents and commitment drive the fine record of
performance and maintenance of our properties.
While we are well-served by our primary concentration in the mid-Atlantic
market, with its stable and broad-based economy, we are now exploring
acquisition and development opportunities in other areas throughout the eastern
half of the United States that meet our investment criteria.
We appreciate your continued support.
/s/ Alfred Lerner /s/ Harvey Schulweis
---------------------- ---------------------
Alfred Lerner Harvey Schulweis
Chairman President and
Chief Executive Officer
<PAGE> 5
MANAGEMENT
At the heart of the Trust's operations is our highly skilled property management
team, all seasoned experts in our particular niche. Their dedication and diverse
talents have made it possible to consistently increase revenues and
profitability through judicious use of the available resources to improve the
quality of the properties and increase rentals. Our record of high occupancy and
low turnover is a direct result of our caring personnel and their emphasis on
the well-being of our residents. Their hands-on approach and "whatever it
takes" philosophy puts our team at the disposal of residents 24 hours a day,
seven days a week. This kind of dedication and commitment is a distinguishing
feature of all of our communities that extends from the top echelons through the
service and office staff, to our custodians and groundskeepers.
[PHOTOS: 5 IN-LINE BLACK AND WHITE
PHOTOS, THE FIRST OF 3 MEN IN
CONVERSATION, THE SECOND OF
A WOMAN TALKING ON THE TELEPHONE,
THE THIRD OF A WOMAN IN AN
OFFICE LOOKING THROUGH A
WINDOW, THE FOURTH OF A
MAN WATERING SHRUBBERY,
AND THE FIFTH OF A MAN
PERFORMING MAINTENANCE ON
A HAND RAIL.]
<PAGE> 6
[DRAWING:FULL COLOR PICTURE OF AN
APPLE TREE HEAVILY LADEN WITH
FRUIT, ON A ROLLING HILLSIDE]
High Occupancy, Low Turnover
<PAGE> 7
resident satisfaction
[WATERMARK: THE WORDS "RESIDENT SATISFACTION"
IN REPETITION]
<PAGE> 8
Treating our residents as important customers provides us both with resident
satisfaction and strong economic rewards. Our focus is sustained by
sophisticated training and retraining of our staff at every level and by open
lines of communication between management and residents and within the
management group itself. Loyalty and longevity throughout the organization
reflect the special pride our leadership has engendered and strong career paths
we offer. The senior management group has worked together for more than twenty
years. Among all employees, 25 percent have been with Town and Country more
than ten years and 39 percent, more than five years.
[PHOTOS: 4 IN-LINE BLACK AND
WHITE PHOTOGRAPHS, THE
FIRST OF A MAN SITTING AT A
DESK, THE SECOND OF 2
MEN IN CONVERSATION, THE
THIRD OF A WOMAN HOLDING
PAPERWORK AND TALKING
ON THE TELEPHONE, AND THE
FOURTH OF A WOMAN
SMILING.]
<PAGE> 9
THE PROPERTIES
Town and Country communities enjoy a high regard in our region for delivering
exceptional value at moderate rentals to our targeted middle-class residents.
We have established a reputation for superbly maintained, effectively-run
properties with spacious floor plans in convenient locations, typically near
schools and shopping. We offer residents a broad range of amenities that are
especially attractive in their price category, including clubhouses, swimming
pools, fitness centers, tennis courts and, most recently, business centers.
Some apartments provide fireplaces and loft bedrooms.
[PHOTOS: 4 IN-LINE BLACK AND WHITE
PHOTOS, THE FIRST OF AN APARTMENT
BUILDING AT VERSAILLES-NORTH
CHARLES, THE SECOND OF
AN APARTMENT BUILDING AT FOX RUN,
THE THIRD OF THE SWIMMING POOL AND
APARTMENT BUILDINGS AT FOX RUN AND
THE FOURTH OF THE EXERCISE
ROOM AT CHRISTINA MILL.]
<PAGE> 10
[DRAWING FULL-COLOR DRAWING OF A WELL-MANICURED
GARDEN WITH A LARGE LETTER "Q" IN THE
BACKROUND AND ROWS OF RED AND YELLOW FLOWERS
IN THE FOREGROUND]
REPUTATION FOR QUALITY
<PAGE> 11
$25 MILLION FOR CAPITAL IMPROVEMENTS.
[WATERMARK: THE WORDS "CAPITAL IMPROVEMENTS" IN
REPETITION]
<PAGE> 12
Town and Country has a historic commitment to maintenance and improvement
practices that add value and rentability to the properties, generate consistent
rent increases and enhance the lifestyle of our residents. The new infusion of
funds from the refinancing will make an additional $25 million available for
our capital improvement program. This will make modernization and upgrading
possible on a scale that will effectively reposition a number of our properties
and reinforce the image and competitive edge of the entire portfolio now and
into the next century.
[PHOTOS: 4 IN-LINE BLACK AND WHITE
PHOTOS, THE FIRST OF 2 MEN
INSTALLING A RAILING AT T&C WILLOW
LAKE, THE SECOND OF AN APARTMENT
BUILDING AT FOX RUN, THE
THIRD OF AN APARTMENT
BUILDING AT THE VILLAGE AT
MCNAIR FARMS, AND THE
FOURTH OF A LAKE WITH FOUNTAIN
AND TWO APARTMENT BUILDINGS
AT STONEGATE.]
<PAGE> 13
THE MARKETS
The mid-Atlantic region has been the operating arena for Town and Country. It
features a strong, diversified economic base, low unemployment and scarcity of
land for competitive development, so that demand for housing in our price range
will be consistent without the threat of oversupply. Our highest concentration
is in the suburbs of Baltimore, a metropolitan area that is at last coming into
its own. We are proud to be strongly established in a market that is now being
discovered by major investors as it evolves from a blue collar to a white collar
business environment. It has become the capital of marine biotechnology, is the
home of Johns Hopkins University and benefits, along with the entire
Maryland/Delaware corridor, from the presence of such corporate giants as
DuPont, MBNA and Chrysler and the University of Delaware. Our plans for
expansion include not only possible new construction adjacent to existing
properties in proven markets, but also acquisition and development in other
areas in the South, Midwest and New England that meet our investment criteria.
<PAGE> 14
[DRAWING FULL-COLOR PICTURE OF A LARGE KEY
STUCK VERTICALLY IN THE GROUND
SURROUNDED BY MANY PEOPLE, WITH
ROLLING HILLS IN THE BACKROUND AND
A RIVER IN THE FOREGROUND]
CONSISTENT DEMAND
<PAGE> 15
[DRAWING: FULL-COLOR PICTURE OF A VILLAGE SITUATED
ON ROLLING HILLS WITH AN EYE DEPICTED
IN THE SKY IN THE BACKROUND
AND A RIVER IN THE FOREGROUND.]
NEW DIRECTIONS FOR GROWTH
<PAGE> 16
VISION FOR THE FUTURE
We are serious about expanding the size of this company now. Our direction will
continue to be defined by focused management, property type and market
characteristics. We will build on our strengths in markets where they can be
most profitably applied, meeting the housing needs of the middle class with
accommodations that set the standard for attractiveness, price and service. Town
and Country is poised for growth. With our new financial wherewithal and this
disciplined approach, we will explore opportunities for new investment wherever
they can be found. And we will continue to invest in our existing portfolio.
<PAGE> 17
PORTFOLIO
[MAP SHOWING THE LOCATION OF THE 35
PROPERTIES NAMED BELOW]
Name Location Number of Units
- ---------------------------------------------------------------
Maryland
l Fox Run Germantown 218
2 Stonegate Elkton 260
3 Town & Country Bowley's Quarters Baltimore 462
4 Town & Country Charlesmont Dundalk 565
5 Town & Country Cockeysville Cockeysville 540
6 Town & Country Foxhaven Baltimore 460
7 Town & Country Gardenwood Baltimore 492
8 Town & Country Hallfield Perry Hall 75
9 Town & Country Harford Carney 336
10 Town & Country Hollows Glen Burnie 336
11 Town & Country Montgomery Knolls Gaithersburg 210
12 Town & Country Ridgeview Rossville 257
13 Town & Country Rolling Road Baltimore 384
l4 Town & Country Rossville Rossville 692
l5 Town & Country Tall Oaks Laurel 352
l6 Town & Country West/Greensview Ellicott City 1,350
l7 Town & Country Willow Lake Laurel 456
l8 Town & Country Woodhill Glen Burnie 334
l9 Town & Country Woodmoor Baltimore 424
20 Versailles - North Charles Towson 210
- ---------------------------------------------------------------
Name Location Number of Units
- ---------------------------------------------------------------
Pennsylvania
2l Colonial Crest Emmaus Emmaus 329
22 Hidden Village Allentown 264
23 Rolling Hills York 184
24 Town & Country Colonial Park Harrisburg 626
25 Town & Country Hanover Hanover 215
26 Town & Country Lancaster West Lancaster 413
27 Town & Country Lancaster East Lancaster 272
28 Town & Country Union Deposit Harrisburg 468
29 Town & Country York York 396
- --------------------------------------------------------------
Virginia
30 Barton's Crossing Alexandria 532
31 Carlyle Station Manassas 408
32 The Glen at Leesburg Leesburg 134
33 University Heights Ashburn 466
34 The Village at McNair Farms Herndon 283
- ---------------------------------------------------------------
Delaware
35 Christina Mill Newark 228
-------
Total Units 13,631
<PAGE> 18
Financial Report
[WATERMARK OF NUMBERS AND DOLLAR SIGNS IN
REPETITION]
<PAGE> 19
THE TOWN AND COUNTRY TRUST
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate assets:
Land $ 77,566 $ 77,566
Buildings and improvements 492,482 483,119
Other 3,904 3,758
-------------------------------
573,952 564,443
Less accumulated depreciation (222,946) (198,689)
-------------------------------
351,006 365,754
Cash and cash equivalents 4,259 1,725
Funds deposited with mortgagee - 6,030
Restricted cash 1,125 1,005
Receivables 2,030 1,413
Prepaid expenses and other assets 4,240 3,857
Deferred financing costs, net of allowance for amortization
(1997 - $114; 1996 - $6,267) 3,591 3,612
-------------------------------
Total assets $ 366,251 $383,396
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 300,000 $232,000
Secured notes payable - 58,409
Accrued interest 1,756 4,817
Accounts payable and other liabilities 4,731 4,552
Security deposits 1,698 1,630
Minority interest 7,948 11,243
-------------------------------
Total liabilities 316,133 312,651
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 157
Additional paid-in capital 319,061 317,791
Accumulated deficit (266,440) (245,391)
Unearned compensation - restricted stock (2,661) (1,812)
-------------------------------
50,118 70,745
-------------------------------
Total liabilities and shareholders' equity $ 366,251 $383,396
===============================
See accompanying notes to financial statements.
</TABLE>
18
<PAGE> 20
THE TOWN AND COUNTRY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(in thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental $ 90,960 $89,624 $88,000
Other 1,688 1,539 1,455
-------------------------------------
92,648 91,163 89,455
Expenses:
Operating 21,173 21,482 20,441
Real estate taxes 6,837 6,969 7,181
Depreciation 24,311 24,282 24,147
Marketing and advertising 3,577 3,321 3,076
Repairs and maintenance 6,517 6,320 6,173
General and administrative 2,414 2,333 2,389
-------------------------------------
64,829 64,707 63,407
Interest expense 18,601 17,750 18,427
Interest expense related to the amortization
of deferred financing costs 1,559 2,166 2,244
Retirement of unamortized deferred financing costs - - 312
-------------------------------------
84,989 84,623 84,390
-------------------------------------
Income before minority interest and extraordinary item 7,659 6,540 5,065
Income allocated to minority interest 1,048 895 695
-------------------------------------
Income before extraordinary item 6,611 5,645 4,370
Extraordinary item - cost related to refinancing of debt
(net of $397 minority interest) (2,512) - -
-------------------------------------
Net income $ 4,099 $ 5,645 $ 4,370
=====================================
Weighted average common shares outstanding - basic 15,513 15,512 15,512
Dilutive effect of outstanding options and
restricted shares 176 47 10
Weighted average common shares outstanding - diluted 15,689 15,559 15,522
=====================================
Per common share - basic and diluted:
Income before extraordinary item $ .42 $ .36 $ .28
Extraordinary item (.16) - -
-------------------------------------
Net income $ .26 $ .36 $ .28
=====================================
Dividends declared and paid per share outstanding $ 1.60 $ 1.60 $ 1.60
=====================================
Tax treatment of dividends (unaudited):
Ordinary income $ 1.08 $ 1.23 $ 1.06
=====================================
Return of capital $ .52 $ .37 $ .54
=====================================
See accompanying notes to financial statements.
</TABLE>
19
<PAGE> 21
THE TOWN AND COUNTRY TRUST
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Common
Shares of Beneficial
Interest Additional
------------------------ Paid-in Accumulated Unearned
(in thousands, except per share data) Shares Amount Capital Deficit Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 15,512 $ 155 $ 315,523 $(205,335) -
Net income - - - 4,370 -
Common shares of beneficial interest - - - - -
issued under Long Term Incentive Plan 150 2 2,061 - $ (2,063)
Dividends declared and paid ($1.60 per share) - - - (24,999) -
Earned compensation under
Long Term Incentive Plan - - - - 187
------ ------ ------- --------- -------
Balance at December 31, 1995 15,662 157 317,584 (225,964) (1,876)
Net income - - - 5,645 -
Common shares of beneficial interest
issued under Long Term Incentive Plan 15 - 203 - (203)
Dividends declared and paid ($1.60 per share) - - - (25,072) -
Earned compensation under
Long Term Incentive Plan - - - - 267
Share options exercised 1 - 4 - -
------ ------ ------- --------- -------
Balance at December 31, 1996 15,678 157 317,791 (245,391) (1,812)
Net income - - - 4,099 -
Common shares of beneficial interest
issued under Long Term Incentive Plan 76 1 1,164 - (1,165)
Dividends declared and paid ($1.60 per share) - - - (25,148) -
Earned compensation under
Long Term Incentive Plan - - - - 316
Share options exercised 7 - 106 - -
------ ------ ------- --------- -------
Balance at December 31, 1997 15,761 $ 158 $ 319,061 $(266,440) $ (2,661)
====== ====== ======= ========= =======
See accompanying notes to financial statements.
</TABLE>
20
<PAGE> 22
THE TOWN AND COUNTRY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
- --------------------------------------------------------------------------------------
Income before minority interest and extraordinary item $ 7,659 $ 6,540 $ 5,065
Adjustments to reconcile income before minority interest and
extraordinary item to net cash provided by operating activities:
Depreciation 24,311 24,282 24,147
Interest expense related to the amortization
of deferred financing costs 1,559 2,166 2,244
Retirement of unamortized deferred financing costs - - 312
Amortization of unearned compensation 316 267 187
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (120) 30 15
Decrease (increase) in funds deposited with mortgagee 6,030 (307) 531
(Increase) decrease in receivables, prepaid expenses
and other assets (1,000) (292) 133
(Decrease) increase in accounts payable, other
liabilities, accrued interest and security deposits (2,814) 1,598 (406)
---------------------------------------
Net cash provided by operating activities 35,941 34,284 32,228
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- --------------------------------------------------------------------------------------
Additions of real estate assets, net of disposals (4,378) (4,120) (4,127)
Additions pursuant to value-added capital
improvements program (5,185) (2,277) (2,654)
---------------------------------------
Net cash used in investing activities (9,563) (6,397) (6,781)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- --------------------------------------------------------------------------------------
Borrowings on mortgages payable 300,000 - -
Payments on original mortgages (232,000) - -
Payments on notes payable (58,409) - (52,510)
Proceeds from exercise of share options 106 4 -
Borrowings on notes payable - 1,600 56,809
Costs related to refinancing of debt (742) - -
Increase in deferred financing costs (3,705) (61) (1,447)
Dividends and distributions (29,094) (29,018) (28,945)
---------------------------------------
Net cash used in financing activities (23,844) (27,475) (26,093)
---------------------------------------
Increase (decrease) in cash and cash equivalents 2,534 412 (646)
Cash and cash equivalents at beginning of period 1,725 1,313 1,959
---------------------------------------
Cash and cash equivalents at end of period $ 4,259 $ 1,725 $ 1,313
=======================================
Cash interest paid $ 21,709 $ 17,982 $ 18,342
=======================================
See accompanying notes to financial statements.
</TABLE>
21
<PAGE> 23
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION The Town and Country Trust (the "Trust"), in conjunction with its
subsidiaries (collectively the "Company"), is a self-administered and
self-managed Real Estate Investment Trust organized to own, manage and acquire
multifamily residential properties. The Company was organized in Maryland on May
19, 1993 and commenced operations on August 23, 1993 upon completion of its
initial public offering of 15,511,765 common shares of beneficial interest.
Concurrent with the equity offering, The Town and Country Funding Corporation,
an affiliated special purpose corporation, acting as an agent for The TC
Property Partnerships, made a public offering of $232,000,000 of secured notes.
In conjunction with the consummation of the equity and debt offerings, a
series of transactions occurred: the Company acquired an 86% general partnership
interest in The TC Operating Limited Partnership (the "Operating Partnership");
the remaining 14% limited partnership interest in the Operating Partnership was
retained by the minority interest owners as consideration for their contribution
to the Operating Partnership of controlled interests in The Town and Country
Management Corporation and 26 property partnerships (the "TC Companies").
Certain previously non-controlled interests in the TC Companies were acquired by
the Company for a cash payment and the assumption of liabilities totaling
$161,156,000 and six previously non-controlled property partnerships were
acquired by the Operating Partnership for $120,094,000. The TC Companies, along
with the property partnerships acquired subsequent to the public offering, total
35 property partnerships located in Maryland, Pennsylvania, Virginia and
Delaware, and are collectively referred to as "The TC Property Partnerships."
All operating expenses of the Trust will be borne pro-rata by the general and
limited partners of the Operating Partnership in proportion to their interests
in the properties.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company
include the accounts of the Trust and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
RECLASSIFICATIONS Certain amounts previously reported have been reclassified to
conform with the 1997 presentation.
INCOME TAXES The Trust has made an election to be taxed as a Real Estate
Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code. As a REIT, the Trust generally will not be subject to Federal income tax
to the extent that it distributes at least 95% of its REIT taxable income to its
shareholders. If the Trust fails to qualify as a REIT in any taxable year, the
Trust will be subject to Federal income tax (including any applicable
Alternative Minimum Tax) at regular corporate rates on its taxable income. Even
if the Trust qualifies for taxation as a REIT, the Trust may be subject to
certain state and local taxes on its income and property and to Federal income
and excise taxes on its undistributed income.
The Company makes a number of special allocations for tax purposes only. In
general, 100% of the interest deductions related to $232,000,000 of borrowings
will be allocated to the Trust and 85% of depreciation deductions related to 32
of the properties will be allocated to the minority interest ownership.
REAL ESTATE AND DEPRECIATION Real estate assets are stated at cost, net of
accumulated depreciation unless an impairment indicator exists. If impairment
conditions exist, the Company makes an assessment of the recoverability of the
carrying amounts of the properties by estimating the future undiscounted cash
flows, excluding interest charges. If the carrying amount exceeds the aggregate
future cash flows, the Company would recognize an impairment loss to the extent
the carrying amount exceeds the discounted fair value of the property. Any
long-lived assets to be disposed of are valued at estimated fair value less cost
to sell. Based on such periodic assessments, no impairments have been determined
and, therefore, no real estate carrying amounts have been adjusted.
All costs related to the improvement or replacement of fixed assets are
capitalized. Maintenance and repairs are charged to expense as incurred.
Provision for depreciation is computed using the straight-line method over the
estimated useful lives of the assets, as follows:
<TABLE>
---------------------------------------------------------
<S> <C>
Buildings 40 years
Major Improvements 20 years
Furniture, Fixtures and Equipment 5 to 12 years
</TABLE>
22
<PAGE> 24
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
DEFERRED FINANCING COSTS Deferred financing costs consist of certain fees
incurred in the financing of indebtedness which are being amortized to interest
expense using the straight-line method over the term of the related debt.
INTEREST RATE RISK MANAGEMENT The Company uses interest rate protection
agreements and interest rate swap agreements to reduce the potential impact of
increases in interest rates relating to the floating rate portion of borrowings.
Unamortized premiums paid for those agreements are included in deferred
financing costs in the Company's balance sheet. Amounts received under those
agreements are credited as a reduction of interest expense. Any amounts paid
under the interest rate swap agreements are recorded as an increase to interest
expense.
INCOME RECOGNITION Revenues from rental property are recognized when due from
tenants. Leases are generally for one year or less.
EARNINGS PER SHARE 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.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, such as depreciable lives of assets, that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
- --------------------------------------------------------------------------------
Note 2 FUNDS DEPOSITED WITH MORTGAGEE
The Company was required to maintain a payment account and a reserve account
with the properties' mortgage holder prior to the refinancing in 1997. The
payment account was required to fund interest payments as they became due and
the reserve account was required to fund a minimum level of property repairs and
maintenance.
- --------------------------------------------------------------------------------
Note 3 RESTRICTED CASH
Pursuant to Maryland and Delaware state law, the Company maintains certificates
of deposit to cover the aggregate amount of tenant security deposits retained by
the properties in those states. At December 31, 1997 and 1996, the amount of
the certificates of deposit, with a maturity of three months or less, was
$1,125,000 and $1,005,000, respectively.
- --------------------------------------------------------------------------------
Note 4 LONG-TERM BORROWINGS
Concurrent with the offering of common shares of beneficial interest, certain of
The TC Property Partnerships borrowed $185,600,000 of fixed rate notes and
$46,400,000 of floating rate notes from a special-purpose corporation, The Town
and Country Funding Corporation.
During the year ended December 31, 1995, the Company entered into a secured
financing agreement pursuant to which it was permitted to borrow a maximum of
$62,000,000. As of December 31, 1996 the Company had drawn $58,409,000 on this
loan facility.
In September, 1997 the Company entered into an agreement that provides a
$375,000,000 collateralized financing facility. The initial borrowing under the
facility of $300,000,000 matures in 2008 and bears a fixed interest rate
of 6.91%. A portion of the proceeds was used to refinance the Company's
existing publicly-issued and bank mortgage indebtedness which had scheduled
maturities of August, 1998.
23
<PAGE> 25
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The remaining $75,000,000 is available as a 10-1/2 year, variable rate
revolving credit facility. Any outstanding portion can be converted to a fixed
rate term loan maturing in 2008 at the Company's option. These funds will be
available for property acquisitions and to expand the recently instituted
extensive capital improvement program for certain of the Company's existing
properties. The Company purchased an interest rate protection contract which
limits the maximum floating interest rate to approximately 10.5%. In
association with the refinancing, the Company has committed to a two-year
program to provide $25,000,000 in capital improvements to certain properties.
Through the year ended December 31, 1997, $3,539,000 in costs have been
incurred related to this program.
As a result of the refinancing of the publicly-issued and bank mortgage
indebtedness, the Company recorded an extraordinary expense of $2,512,000, net
of minority interest of $397,000. The expense consisted of the write-off of
$2,167,000 of unamortized deferred financing costs and other costs in the amount
of $742,000.
- --------------------------------------------------------------------------------
Note 5 MINORITY INTEREST
In conjunction with the formation of the Company and its majority-owned
Operating Partnership, persons contributing interests in properties to the
Operating Partnership have received limited partnership interests in the
Operating Partnership. The aggregate outstanding limited partnership interests
are convertible into common shares of the Company, and the interests have the
same economic characteristics as 2,466,535 common shares inasmuch as they share
proportionally in the net income or loss and any distributions of the Operating
Partnership. Since the limited partnership interests have the same economic
characteristics as shares, these interests have no impact on earnings per share
calculations.
Minority interest in the accompanying consolidated financial statements
relates to such limited partnership interests.
- --------------------------------------------------------------------------------
Note 6 EMPLOYEE BENEFIT PLANS
SHARE OPTION PLANS In 1993 the Company established a long-term incentive plan
for the purpose of attracting and retaining executive officers, other key
employees and non-employee trustees (the "1993 Plan"). The 1993 Plan provides
for the granting of restricted stock and incentive share options and
non-qualified share options to purchase up to 750,000 shares of the Company's
common shares at a price not less than the fair market value at the date the
options are granted. During 1997 the Company established, subject to
ratification at the 1997 Annual Meeting of Shareholders, an additional long-term
incentive plan (the "1997 Plan" and together with the 1993 Plan, the "Plans").
The 1997 Plan provides for the granting of options to purchase up to 1,200,000
of the Company's common shares at a price not less than the fair market value at
the date the options are granted. The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25") and related Interpretations in accounting for its employee stock options as
permitted under FASB Statement No. 123, Accounting for Stock-Based Compensation,
("Statement 123"). Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Options generally become exercisable in equal installments over a
three-year period, commencing with the first anniversary of the date of grant.
All options expire ten years from the date of grant. During the year ended
December 31, 1997, 6,000 options were granted pursuant to the 1993 Plan at an
exercise price of $14.75. Additionally, 120,000 options were granted pending
approval of the 1997 Plan at an exercise price of $15.125. The proposed share
grants under the 1997 Plan have been included in the share option disclosure.
An additional 1,115,650, 111,375 and 128,500 common shares have been
authorized for issuance in future grants of options under the plans as of
December 31, 1997, 1996 and 1995, respectively. The option price of future
grants may not be less than the fair market value of the shares on the date of
grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options
24
<PAGE> 26
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 6.1% 5.4% 7.7%
Dividend yield 10.6% 11.8% 11.0%
</TABLE>
The model assumed a volatility factor of the expected market price of the
Company's common stock of 0.18 and a weighted-average expected life of the
options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $ 4,057 $ 5,614 $ 4,339
Pro forma net income per share -
basic and diluted $ .26 $ .36 $ .28
</TABLE>
Details of share options are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of shares
------------------------- Weighted
Incentive Non-qualified Option Average
Options Options Price Exercise Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares under option at January 1, 1995 190,580 142,920 $ 14.75-22.00 $15.00
Granted 108,189 39,811 $14.00-14.125 $14.00
Exercised - - - -
Forfeited (11,500) - $ 14.00-14.75 $14.50
------------------------
Shares under option at December 31, 1995 287,269 182,731 $ 14.00-22.00 $14.75
Granted - 6,000 $ 13.50 $13.50
Exercised (300) - $ 14.00 $14.00
Forfeited (3,500) - $ 14.00-14.75 $14.25
------------------------
Shares under option at December 31, 1996 283,469 188,731 $ 13.50-22.00 $14.75
Granted (subject to shareholder approval) 99,672 26,328 $14.75-15.125 $15.10
Exercised (7,350) - $ 14.00-14.75 $14.50
Forfeited (6,150) - $14.00-15.125 $14.60
------------------------
Shares under option at December 31, 1997 369,641 215,059 $ 13.50-22.00 $14.80
========================
Shares exercisable at December 31, 1995 61,360 61,640 $ 14.75-22.00 $15.25
========================
Shares exercisable at December 31, 1996 155,183 122,550 $ 13.50-22.00 $14.875
========================
Shares exercisable at December 31, 1997 237,706 183,461 $ 13.50-22.00 $14.75
========================
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1997, 1996 and 1995 was $.59, $.34 and $.66, respectively. The
weighted average remaining contractual life of options granted is 7.4 years.
25
<PAGE> 27
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PENSION PLAN The Company maintains a non-contributory, defined contribution plan
for the benefit of employees. The plan covers all employees who are twenty and
one-half years old with six months or more service. Employees qualify for
benefits upon reaching the age of sixty-five and early retirees qualify provided
they have reached the age of fifty-five and have completed ten years of service.
After three years of service, employees become 20% vested in employer
contributions which are based on current compensation levels. From the fourth
through the seventh year, vesting increases until full vesting occurs. The
Company expensed $175,000, $195,000 and $239,000 in contributions to the plan
for the years ended December 31, 1997, 1996 and 1995, respectively.
RESTRICTED STOCK On April 10, 1995, the Company granted an aggregate of 150,000
restricted Common Shares to certain officers pursuant to the 1993 Plan. On July
25, 1996, the Company granted an additional 15,625 shares to an officer. On June
17, 1997, the Company granted 76,375 shares to certain officers. The officers
become fully vested in the shares upon retirement from the Company. Should such
officers leave the Company prior to retirement, the shares revert back to the
Company. The market value of the shares awarded, $3,431,000, has been recorded
as unearned compensation - restricted stock and is shown as a separate component
of shareholders' equity. Unearned compensation is being amortized into expense
over the vesting period. The amortization amounted to $316,000, $267,000 and
$187,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN The Company has established a
split-dollar life insurance plan for certain officers pursuant to its Amended
and Restated 1993 Long-Term Incentive Plan. The Company advances the premiums on
life insurance policies for these officers. The policies are assigned to the
Company. In the event of retirement or death, the Company will be repaid the
aggregate amount of premiums paid from the cash surrender value at the time the
benefits are paid. The remaining cash surrender value is paid to the employee or
beneficiary. During the years ended December 31, 1997, 1996 and 1995, the cost
to the Company, representing the excess of premiums paid over the increase in
cash surrender values, was $31,000, $79,000 and $203,000 respectively. The cash
surrender values of the policies are recognized as an asset to the Company.
- --------------------------------------------------------------------------------
Note 7 LEASES
The Company leases certain office facilities and equipment under noncancellable
operating leases. Future minimum rental commitments under noncancellable leases
with remaining terms in excess of one year are as follows at December 31, 1997:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------
<S> <C>
1998 $ 385
1999 391
2000 410
2001 410
2002 410
After 2002 747
--------
Total lease commitments $ 2,753
========
</TABLE>
Total rent expense for the years ended December 31, 1997, 1996 and 1995, was
approximately $374,000, $366,000 and $364,000, respectively.
- --------------------------------------------------------------------------------
Note 8 RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, the Company had an unsecured loan to an officer,
the balance of which was $340,000. $300,000 of the loan balance bears an
interest rate comparable to the rate earned on the Company's invested funds. The
remaining portion of the loan is non-interest bearing.
A Trustee of the Company is chairman of a law firm which is general counsel
to the Company. A partnership which was owned until August 1995 by the owners of
the TC Companies, including the Company's chairman
26
<PAGE> 28
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
and its president, provided cable television service to residents in certain of
the Company's communities, at no monetary benefit to the Company.
- --------------------------------------------------------------------------------
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 1997 and 1996. FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
CARRYING FAIR CARRYING FAIR
(in thousands) AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Deferred financing costs
(interest rate protection and
swap agreements) $ 73 $ 51 $ 326 $ 1,168
Financial liabilities
Mortgages payable
Fixed rate notes $ 300,000 $308,441 $185,600 $181,220
Floating rate notes - - 46,400 46,400
Notes payable - - 58,409 58,409
</TABLE>
The carrying amounts shown in the above table are included in the balance sheet
under the indicated captions. The following methods and assumptions were used to
estimate the fair values of each class of financial instruments:
Deferred financing costs: The amounts reported relate to the interest
rate protection agreement and the interest rate swap agreements. The carrying
amount is comprised of the unamortized premiums paid for these agreements. The
fair value represents what the Company would pay for similar agreements at
December 31, 1997 and 1996 based upon quotes from the agreements'
counterparties.
Mortgages Payable: The fair value of the fixed rate portion of the
Company's mortgages payable is estimated by discounting expected cash flows
based on the Company's incremental borrowing rate for similar types of borrowing
arrangements. The floating rate portion of the Company's mortgages payable
approximated market.
Notes Payable: The notes payable were floating rate indebtedness and
therefore approximated fair value.
- --------------------------------------------------------------------------------
Note 10. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following is a summary of quarterly results of operations for the years
ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
QUARTER ENDED
-----------------------------------------------
(in thousands, except per share data) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $ 22,848 $ 23,000 $ 23,402 $ 23,398
Income from property operations 6,499 6,726 6,732 7,862
Income before extraordinary item 1,328 1,509 1,573 2,201
Extraordinary item (net of minority interest) - - (2,512) -
Net income (loss) 1,328 1,509 (939) 2,201
Net income (loss) per share - basic and diluted .09 .10 (.06) .14
- ----------------------------------------------------------------------------------------------
1996
Revenues $ 22,381 $ 22,816 $ 23,053 $ 22,913
Income from property operations 5,906 6,497 6,657 7,396
Net income 796 1,326 1,448 2,075
Net income per share - basic and diluted .05 .09 .09 .13
</TABLE>
27
<PAGE> 29
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
- --------------------------------------------------------------------------------
Note 11. SUBSEQUENT EVENT
On January 29, 1998 the Company's Board of Trustees declared a dividend for the
quarter ended December 31, 1997 of $.40 per share, aggregating $6,304,566.
Concurrent with the payment of the dividend, a $986,614 limited partnership
ownership distribution will be made to the minority interest holders. The
dividend and distribution will be paid on March 10, 1998 to holders of record on
February 13, 1998.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To The Board of Trustees and Shareholders
The Town and Country Trust
We have audited the accompanying consolidated balance sheets of The Town and
Country Trust and subsidiaries (the "Company") as of December 31, 1997, and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Town and
Country Trust and subsidiaries at December 31, 1997, and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997,in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 29, 1998
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust and its subsidiaries (the "Company") as
of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996
and 1995. This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
On August 23, 1993, the Company completed its initial public offering
of 15,511,765 common shares of beneficial interest. The Town and Country Funding
Corporation, a special purpose corporation affiliated with the Company,
concurrently offered $232,000,000 of secured notes to the public. Upon
consummation of these offerings, the Company acquired a majority ownership
interest in The TC Operating Limited Partnership, the twenty-six original
property partnerships and six additional property partnerships.
The Company believes that funds from operations provides an indicator
of its financial performance. 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
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues
for the year ended December 31, 1997 were $92,648,000 compared to $91,163,000
for the year ended December 31, 1996. This increase of $1,485,000, or 1.6% was
due to increased rental rates and the impact of revenue-enhancing capital
improvements. Occupancy for the year ended December 31, 1997 was 93%, which was
slightly lower than the 94% that the Company experienced for the year ended
December 31, 1996. Funds from operations before minority interest, using the
NAREIT definition, increased by 4.0% to $31,771,000 for the year ended December
31, 1997 from $30,547,000 for the year ended December 31, 1996.
As the result of management's continued efforts to control costs, total
expenses, excluding depreciation and interest, were $40,518,000 for the year
ended December 31, 1997, compared to $40,425,000 for the year ended December 31,
1996, an increase of $93,000 or 0.2%. Operating expenses decreased by $309,000.
All other expenses, except depreciation, increased by only $402,000 in the
aggregate.
Interest expense for the year ended December 31, 1997 increased by
$851,000 from the expense for the same period in 1996 due to increases in the
amount of borrowings and interest rate that resulted from the new financing
facility.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenues
for the year ended December 31, 1996 were $91,163,000, compared to $89,455,000
for the year ended December 31, 1995. This increase of $1,708,000, or 1.9%, was
due to increased rental rates and the impact of revenue-enhancing capital
improvements. Additionally, during the year ended December 31, 1996, management
renegotiated its laundry contract at more favorable terms which are beneficial
to total revenues over the life of the contract. Occupancy for the year ended
December 31, 1996 remained strong at 94%, consistent with the year ended
December 31, 1995. Funds from operations before minority interest, using the
NAREIT definition, increased to $30,547,000 for the year ended December 31, 1996
from $29,277,000 for the year ended December 31, 1995.
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Total expenses, excluding depreciation and interest, were $40,425,000
for the year ended December 31, 1996, compared to $39,260,000 for the year ended
December 31, 1995, an increase of $1,165,000. Operating expenses increased by
$1,065,000, of which approximately $500,000 is attributable to the unusually
severe winter weather conditions in the Company's operating region during the
first quarter of 1996. The costs associated with the severe winter weather
conditions were in part controlled by management's successful negotiations for
fixed rate prices for utilities such as heating fuel. All other expenses, except
depreciation, increased by only $100,000, in the aggregate, as a result of
management's successful efforts to control costs.
Interest expense for the year ended December 31, 1996 decreased by
$677,000 from the expense for the same period in 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 the interest rate on its floating rate indebtedness at a blended rate of
6.5%.
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided unrestricted cash for the year ended
December 31, 1997 of $35,941,000, of which $29,094,000 was paid out in dividends
and distributions.
In 1995, the Company commenced a multi-year program that provided for
approximately $6,500,000 in revenue-enhancing capital improvements to certain
properties. The improvements include the modernization of kitchens and bathrooms
as well as the initial installation of washers, dryers and carpeting within
certain apartment units. The initial program was completed during 1997.
In September, 1997 the Company entered into an agreement that provides
a $375,000,000 collateralized financing facility. The initial borrowing under
the facility of $300,000,000 matures in 2008 and bears a fixed interest rate of
6.91%. A portion of the proceeds were used to refinance the Company's existing
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 to a fixed-rate term loan
maturing in 2008 at the Company's option. 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.
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. $3,539,000 in costs were incurred
related to this new program through December 31, 1997. The collateralized
financing facility allows for draws to finance this capital improvement program.
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.
- --------------------------------------------------------------------------------
INFLATION
Substantially all of the leases of the properties are for a term of one year or
less, which enables the Company to seek increased rents upon renewal or
reletting of apartment units. Such short-term leases minimize the risk of the
adverse effects of inflation; however, as a general rule, such leases permit
tenants to leave at the end of the lease term without penalty.
30
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the Year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the Year 2000 and thereafter. The total Year 2000
project cost is estimated to be less than $50,000, which will be expensed as
incurred. To date, the Company has incurred and expensed approximately $15,000,
primarily for assessment of the Year 2000 issue and direct software
modifications.
- --------------------------------------------------------------------------------
SAFE HARBOR STATEMENT
With the exception of historical information, the matters discussed in this
Annual 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, 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.
31
<PAGE> 33
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
THE TC
THE TOWN AND COUNTRY TRUST COMPANIES
--------------------------------------------------------- ----------
AUGUST 23, JANUARY 1,
1993 TO 1993 TO
YEARS ENDED DECEMBER 31, DECEMBER 31, AUGUST 22,
(in thousands, except per share data) 1997 1996 1995 1994 1993 1993
- ----------------------------------------------------------------------------------------------------------- ----------
OPERATING DATA
- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 92,648 $ 91,163 $ 89,455 $ 86,077 $ 28,239 $ 39,507
Other operating related expenses 38,104 38,092 36,871 35,893 11,338 17,739
Depreciation 24,311 24,282 24,147 23,399 7,675 6,741
General and administrative expenses 2,414 2,333 2,389 2,775 764 417
Management expense - - - - - 638
--------------------------------------------------------- ----------
Income from operations 27,819 26,456 26,048 24,010 8,462 13,972
Interest expense 18,601 17,750 18,427 16,000 4,616 17,672
Interest expense related to the
amortization of deferred financing costs 1,559 2,166 2,556 1,986 558 742
--------------------------------------------------------- ----------
Income (loss) prior to allocation to
minority interest and extraordinary item 7,659 6,540 5,065 6,024 3,288 (4,442)
Income allocated to minority interest 1,048 895 695 826 451 -
--------------------------------------------------------- ----------
Income (loss) before extraordinary item 6,611 5,645 4,370 5,198 2,837 (4,442)
Extraordinary item - cost related
to refinancing of debt
(net of minority interest) (2,512) - - - - -
--------------------------------------------------------- ----------
Net income (loss) $ 4,099 $ 5,645 $ 4,370 $ 5,198 $ 2,837 $ (4,442)
========================================================= ==========
Per common share - basic and diluted:
Income before extraordinary item $ .42 $ .36 $ .28 $ .34 $ .18
Extraordinary item (.16) - - - -
---------------------------------------------------------
Net income $ .26 $ .36 $ .28 $ .34 $ .18
=========================================================
Dividends declared per share $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ .17
=========================================================
Funds from operations before
minority interest $ 31,771 $ 30,547 $ 29,277 $ 29,271 $ 10,920
Funds from operations applicable
to the Trust's shareholders $ 27,424 $ 26,366 $ 25,263 $ 25,255 $ 9,422
- -----------------------------------------------------------------------------------------------------------------------
THE TOWN AND COUNTRY TRUST
---------------------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT YEAR-END
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate assets, before
accumulated depreciation $573,952 $564,443 $558,100 $551,343 $491,489
Net real estate assets 351,006 365,754 383,549 400,839 364,365
Total assets 366,251 383,396 402,405 422,205 391,413
Total mortgages payable 300,000 232,000 232,000 232,000 232,000
Total notes payable - 58,409 56,809 52,510 -
Shareholders' equity 50,118 70,745 89,901 110,343 130,153
Minority interest 7,948 11,243 14,294 17,545 20,696
<FN>
Note: Financial data has been presented for both The TC Companies, which consisted principally of the original 26
property partnerships, and The Town and Country Trust. All funds from operations information has been presented
under the 1995 NAREIT definition.
The earnings per share amounts prior to 1997 have been restated as required to comply with Statement of
Financial Accounting Standards No. 128, Earnings Per Share. For further discussion of earnings per share and the
impact of Statement No. 128, see the notes to the consolidated financial statements.
</TABLE>
32
<PAGE> 34
- --------------------------
INVESTOR INFORMATION
- --------------------------
THE TOWN AND COUNTRY TRUST
BOARD OF TRUSTEES
Alfred Lerner
Chairman
Harvey Schulweis
President and Chief Executive Officer
James H. Berick, Esq.
Chairman,
Berick, Pearlman & Mills Co., LPA
H. Grant Hathaway
Retired Vice Chairman,
MNC Financial Inc.
and Maryland National Bank
Dr. Milton A. Wolf
United States Ambassador, Retired;
Chairman, Milton A. Wolf Investors;
Chairman, Zehman Wolf Management
EXECUTIVE OFFICERS
Alfred Lerner
Chairman
Harvey Schulweis
President and Chief Executive Officer
Michael H. Rosen
Executive Vice President and
Chief Operating Officer
Jennifer C. Munch
Vice President and Treasurer
Alan W. Lasker
Vice President - Finance
CORPORATE HEADQUARTERS
The Town and Country Trust
100 South Charles Street
Baltimore, Maryland 21201
Telephone: 410.539.7600
TRANSFER AGENT
National City Bank
Cleveland, Ohio 44114
Telephone: 800.622.6757
COMMON STOCK MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
--------------------------------------------
Cash
Sales Price Dividends
Quarter Ended High Low Declared
--------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1996 $15 1/8 $13 $.40
June 30, 1996 $14 3/8 $12 3/4 $.40
September 30, 1996 $14 7/8 $12 7/8 $.40
December 31, 1996 $14 7/8 $14 $.40
March 31, 1997 $15 7/8 $14 1/8 $.40
June 30, 1997 $15 3/4 $14 5/8 $.40
September 30, 1997 $19 1/8 $15 3/16 $.40
December 31, 1997 $19 $16 7/8 $.40
</TABLE>
On January 29, 1998, a cash dividend of $.40
per share was declared, payable March 10,
1998, to shareholders of record as of
February 13, 1998.
At December 31, 1997, the approximate number
of record holders of the Trust's shares was
558. This does not include beneficial owners
for whom Cede & Co. or others act as
nominee.
FORM 10-K
The Trust will be pleased to provide,
without charge, a copy of its 1997 Annual
Report on Form 10-K, filed with the
Securities and Exchange Commission, to any
shareholder upon written request to Harvey
Schulweis, President, The Town and Country
Trust, 100 South Charles Street, Baltimore,
Maryland 21201.
GENERAL COUNSEL
Berick, Pearlman & Mills Co., LPA
Cleveland, Ohio 44114
INDEPENDENT AUDITORS
Ernst & Young LLP
Baltimore, Maryland 21201
STOCK EXCHANGE LISTING
New York Stock Exchange
Symbol: TCT
WEBSITE ADDRESS
www.tctrust.com
[National Association of Real Estate Investment Trusts LOGO;
Stylized "TCT LISTED NYSE"]
<PAGE> 35
TOWN & COUNTRY
THE TOWN AND COUNTRY TRUST 100 South Charles Street Baltimore, Maryland 21201
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
<PAGE> 2
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
The Town and Country Holding Corporation Delaware
The Town and Country Oriole Corporation Delaware
The Town and Country Holding Corporation II Delaware
PARTNERSHIPS OF WHICH THE REGISTRANT, DIRECTLY OR
INDIRECTLY, IS A GENERAL PARTNER
JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------
The TC Operating Limited Partnership Maryland
The TC Property Company Maryland
The TC Property Company II Maryland
The TC-Hallfield Company Maryland
The TC-Ridgeview Company Maryland
The TC-East Company Maryland
The TC-Harford Company Maryland
The TC-North Company Maryland
The TC-Northeast Company Maryland
The TC-Versailles Company Maryland
The TC-Charlesmont Company Maryland
The TC-Hollows Company Maryland
The TC-Laurel Company Maryland
The TC-Montgomery Company Maryland
The TC-Montpelier Company Maryland
The TC-South Company Maryland
The TC-Foxhaven Company Maryland
The TC-Gardenwood Company Maryland
The TC-West/Greensview Company Maryland
The TC-Rolling Road Company Maryland
The TC-Woodmoor Company Maryland
The TC-Allentown Company Maryland
The TC-Harrisburg East Company Maryland
The TC-Emmaus Company Maryland
The TC-Hanover Company Maryland
The TC-Harrisburg Company Maryland
The TC-Lancaster East Company Maryland
The TC-Lancaster West Company Maryland
The TC-York Company Maryland
21-1
<PAGE> 3
JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------
The TC-University Heights Company Maryland
The TC-Barton's Crossing Company Maryland
The TC-Glen Company Maryland
The TC-Fox Run Company Maryland
The TC-McNair Farms Company Maryland
The TC-Rolling Hills Company Maryland
The TC-Stonegate Company Maryland
The TC-Christina Mill Company Maryland
The TC-Carlyle Station Company Maryland
21-2
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
<PAGE> 2
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Town and Country Trust of our report dated January 29, 1998, included in
the 1997 Annual Report to Shareholders of The Town and Country Trust.
Our audits also included the financial statement schedule of The Town and
Country Trust listed in the Index at item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-82932) pertaining to The Town and Country Trust Amended and
Restated 1993 Long -Term Incentive Plan of our report dated January 29, 1998,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
The Town and Country Trust, for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Baltimore, Maryland
March 26, 1998
<PAGE> 1
Exhibit 24
Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
The undersigned Chairman of the Board of Trustees of The Town and
Country Trust (the "Trust"), a Maryland real estate investment trust, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the provisions of the Securities Exchange Act of 1934, as amended,
an Annual Report on Form 10-K for the Trust's fiscal year ended December 31,
1997, hereby constitutes and appoints HARVEY SCHULWEIS and JAMES H. BERICK, and
each of them, with full power of substitution and resubstitution, as attorneys
or attorney to sign for the undersigned and in my name, place and stead, as
Chairman of the Board of Trustees, Trustee and Principal Executive Officer of
said Trust, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of
January, 1998.
/s/ ALFRED LERNER
-------------------------------
Alfred Lerner
24-1
<PAGE> 3
POWER OF ATTORNEY
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1997, hereby constitutes and
appoints ALFRED LERNER, HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of
January, 1998.
/s/ H. GRANT HATHAWAY
-------------------------------
H. Grant Hathaway
24-2
<PAGE> 4
POWER OF ATTORNEY
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1997, hereby constitutes and
appoints ALFRED LERNER and HARVEY SCHULWEIS, and each of them, with full power
of substitution and resubstitution, as attorneys or attorney to sign for the
undersigned and in my name, place and stead, as Trustee of said Trust, said
Annual Report and any and all amendments and exhibits thereto, and any and all
applications and documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report, with full power and authority to do
and perform any and all acts and things whatsoever requisite, necessary or
advisable to be done in the premises, as fully and for all intents and purposes
as the undersigned could do if personally present, hereby approving the acts of
said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of
January, 1998.
/s/ JAMES H. BERICK
-------------------------------
James H. Berick
24-3
<PAGE> 5
POWER OF ATTORNEY
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1997, hereby constitutes and
appoints ALFRED LERNER, HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of
January, 1998.
/s/ MILTON A. WOLF
-------------------------------
Milton A. Wolf
24-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,384
<SECURITIES> 0
<RECEIVABLES> 8,030
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,654
<PP&E> 573,952
<DEPRECIATION> 222,946
<TOTAL-ASSETS> 366,251
<CURRENT-LIABILITIES> 8,185
<BONDS> 300,000
0
0
<COMMON> 158
<OTHER-SE> 49,960
<TOTAL-LIABILITY-AND-EQUITY> 366,251
<SALES> 0
<TOTAL-REVENUES> 92,648
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,160
<INCOME-PRETAX> 7,659
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,611
<DISCONTINUED> 0
<EXTRAORDINARY> (2,512)
<CHANGES> 0
<NET-INCOME> 4,099
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
