<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Quarterly Period Ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition Period From______________ to
______________
Commission file number 1-12056
----------------------------
THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
MARYLAND 52-6613091
- ---------------------------------------------------------- --------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 1700
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
- ---------------------------------------------------------- --------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(410) 539-7600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
COMMON SHARES OF BENEFICIAL INTEREST, $.01 PAR VALUE - 15,765,848 OUTSTANDING AS
OF JULY 31, 1998
<PAGE> 2
THE TOWN AND COUNTRY TRUST
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Part I: Financial Information Page
- ----------------------------- ----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of The Town and Country Trust as of June 30, 1998
and as of December 31, 1997. 1
Consolidated statements of operations of The Town and Country Trust for the three-month and six-month periods
ended June 30, 1998 and 1997. 2
Consolidated statements of cash flows of The Town and Country Trust for the six-month periods ended June 30, 1998
and 1997. 3
Notes to consolidated financial statements. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 5
Part II: Other Information
- --------------------------
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits or Reports on Form 8-K 8
Signature 9
</TABLE>
<PAGE> 3
Part I: Financial Information
- -----------------------------
THE TOWN AND COUNTRY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
----------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
----------------------------------------------------
ASSETS (in thousands)
<S> <C> <C>
Real estate assets:
Land $ 80,935 $ 77,566
Buildings and improvements 519,289 492,482
Other 4,509 3,904
----------------------------------------------------
604,733 573,952
Less accumulated depreciation (235,414) (222,946)
----------------------------------------------------
369,319 351,006
Cash and cash equivalents 5,261 4,259
Restricted cash 1,260 1,125
Receivables 2,155 2,030
Prepaid expenses and other assets 2,658 4,240
Deferred financing costs, net of allowance for amortization
(1998-$295, 1997-$114) 3,415 3,591
====================================================
Total assets $ 384,068 $ 366,251
====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 327,000 $ 300,000
Accrued interest 1,753 1,756
Accounts payable and other liabilities 6,476 4,731
Security deposits 1,919 1,698
Minority interest 6,411 7,948
----------------------------------------------------
Total liabilities 343,559 316,133
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 158
Additional paid-in capital 319,123 319,061
Accumulated deficit (276,303) (266,440)
Unearned compensation - restricted stock (2,469) (2,661)
----------------------------------------------------
40,509 50,118
----------------------------------------------------
Total liabilities and shareholders' equity $ 384,068 $ 366,251
====================================================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 4
THE TOWN AND COUNTRY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
--------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 24,157 $ 22,559 $ 47,010 $ 44,983
Other 468 441 864 865
------------------------------------------- -------------------------------------------
24,625 23,000 47,874 45,848
Expenses:
Operating 5,489 5,283 10,718 10,855
Real estate taxes 1,826 1,716 3,567 3,468
Depreciation 6,330 6,099 12,512 12,166
Marketing and advertising 1,000 923 1,882 1,812
Repairs and maintenance 1,819 1,647 3,448 3,153
General and administrative 867 606 1,583 1,168
------------------------------------------- -------------------------------------------
17,331 16,274 33,710 32,622
Interest expense 5,565 4,436 10,797 8,856
Interest expense related to
the amortization of deferred
financing costs 90 542 181 1,084
------------------------------------------- -------------------------------------------
22,986 21,252 44,688 42,562
------------------------------------------- -------------------------------------------
Income before minority interest 1,639 1,748 3,186 3,286
Income allocated to minority 225 239 437 449
interest
------------------------------------------- -------------------------------------------
Net income $ 1,414 $ 1,509 $ 2,749 $ 2,837
=========================================== ===========================================
Weighted average common shares
outstanding - basic 15,523 15,512 15,523 15,512
Dilutive effect of outstanding
options and 170 82 176 82
restricted shares
------------------------------------------- -------------------------------------------
Weighted average common shares
outstanding - diluted 15,693 15,594 15,699 15,594
=========================================== ===========================================
Per common share - basic and diluted:
Net income $ .09 $ .10 $ .18 $ .18
=========================================== ===========================================
Dividends declared and paid
per share outstanding $ .40 $ .40 $ .80 $ .80
=========================================== ===========================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
THE TOWN AND COUNTRY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
----------------------------------------
OPERATING ACTIVITIES (in thousands)
<S> <C> <C>
Income before minority interest $ 3,186 $ 3,286
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 12,512 12,166
Interest expense related to the amortization of deferred financing costs 181 1,084
Amortization of unearned compensation 192 124
Changes in operating assets and liabilities:
Increase in restricted cash (135) (50)
Decrease in funds deposited with mortgagee - 260
Decrease in receivables, prepaid expenses and other assets 1,457 1,581
Increase in accounts payable, other liabilities, accrued interest and
security deposits 1,963 324
-----------------------------------------
Net cash provided by operating activities 19,356 18,775
INVESTING ACTIVITIES
Additions of real estate assets, net of disposals (21,157) (2,327)
Additions pursuant to value-added capital improvements program (9,668) (892)
-----------------------------------------
Net cash used in investing activities (30,825) (3,219)
FINANCING ACTIVITIES
Borrowings on mortgages payable 27,000 -
Payments on notes payable - (300)
Proceeds from exercise of share options 62 -
Increase in deferred financing costs (5) -
Dividends and distributions (14,586) (14,515)
-----------------------------------------
Net cash provided by (used in) financing activities 12,471 (14,815)
-----------------------------------------
Increase in cash and cash equivalents 1,002 741
Cash and cash equivalents at beginning of period 4,259 1,725
-----------------------------------------
Cash and cash equivalents at end of period $ 5,261 $ 2,466
=========================================
Cash interest paid $ 8,864 $ 8,880
=========================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 6
THE TOWN AND COUNTRY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of The Town and Country Trust
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting only of recurring normal accruals,
considered necessary for a fair presentation have been included. Operating
results for the three-month and six-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for a full fiscal
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, restricted shares and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to the Statement 128
requirements.
3. REAL ESTATE ACQUISITION
On March 31, 1998, the Company purchased The Villages of Forest Ridge, a
330-unit garden apartment community located in Charlotte, North Carolina, for
approximately $18,500,000 with funds from its credit facility.
4. SUBSEQUENT EVENT
On July 30, 1998, the Company announced that its Board of Trustees had declared
a dividend for the quarter ended June 30, 1998 in the amount of $.40 per share,
aggregating $6,306,339. Concurrent with the payment of the dividend, a $986,614
limited partnership distribution will be made to the minority interest holders.
The dividend and distribution will be paid on September 10, 1998 to holders of
record on August 14, 1998.
4
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
The following discussion is based primarily on the consolidated financial
statements of the Company as of June 30, 1998 and for the three-month and
six-month periods ended June 30, 1998 and 1997. This information should be read
in conjunction with the accompanying consolidated financial statements and notes
thereto.
The financial statements include all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
The Company believes that funds from operations provides an indicator of its
financial performance. Funds from operations is defined as net income (loss)
excluding adjustments for unconsolidated partnerships and joint ventures as well
as gains (losses) from debt restructuring and sales of property, plus
depreciation of revenue-producing real property. This definition of funds from
operations is consistent with the National Association of Real Estate Investment
Trusts (NAREIT) definition. Funds from operations is affected by the financial
performance of the properties and the capital structure of the Company. Funds
from operations does not represent cash flow from operations as defined by
generally accepted accounting principles and is not necessarily indicative of
cash available to fund all cash flow needs. Funds from operations should not be
considered as an alternative to net income as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity.
Results of Operations - Three Months Ended June 30, 1998 and 1997
- -----------------------------------------------------------------
Income before minority interest for the three months ended June 30, 1998 was
$1,639,000, compared to $1,748,000 for the same period in 1997. Funds from
operations increased to $7,915,000 for the three months ended June 30, 1998 from
$7,797,000 for the three months ended June 30, 1997. Revenues were $24,625,000
for the three months ended June 30, 1998 compared to $23,000,000 for the same
period in 1997, an increase of $1,625,000 or 7.1%. On a same-property basis,
revenues increased by $998,000 or 4.3% due to increases in rental rates and
improvements in occupancy. The balance of the increase in revenues was due to
the property acquisition that occurred on March 31, 1998. Occupancy was 94.4%
for the second quarter of 1998, compared to 92.7% for the second quarter of
1997.
Total expenses excluding depreciation and interest were $11,001,000 for the
three months ended June 30, 1998 compared to $10,175,000 for the same period in
1997, an increase of $826,000, due in part to the acquisition of the new
property. Operating expenses on a same-property basis increased by only $122,000
or 2.3%. Marketing and advertising, real estate taxes and repairs and
maintenance increased by $359,000 due in part to the acquisition of the new
property. General and administrative expenses increased by $261,000 due in part
to the Company's expansion of its acquisitions program. Depreciation increased
by $231,000 for the three months ended June 30, 1998 over the same period in
1997 due in part to costs related to the acquisition of the new property.
Interest expense increased by $1,129,000 from the expense in the second quarter
of 1997 due to increases in the amount of borrowings and interest rates that
resulted from the new long-term credit facility and the financing of the new
acquisition.
5
<PAGE> 8
Results of Operations - Six Months Ended June 30, 1998 and 1997
- ---------------------------------------------------------------
Income before minority interest for the six months ended June 30, 1998 was
$3,186,000, compared to $3,286,000 for the same period in 1997. Funds from
operations increased by 1.6% to $15,592,000 for the six months ended June 30,
1998 from $15,352,000 for the six months ended June 30, 1997. Revenues were
$47,874,000 for the six months ended June 30, 1998 compared to $45,848,000 for
the same period in 1997, an increase of $2,026,000 or 4.4%. On a same-property
basis, revenue increased by $1,392,000, or 3.0%, over the first six months of
1997 due to increases in rental rates and improvements in occupancy. The balance
of the increase in revenues is due to the property acquisition that occurred on
March 31, 1998. Occupancy was 93.4% compared to 92.7% for the six months ended
June 30, 1997.
Total expenses excluding depreciation and interest were $21,198,000 for the six
months ended June 30, 1998 compared to $20,456,000 for the same period in 1997,
an increase of $742,000. Operating expenses decreased by $137,000 despite the
acquisition of a new property. Repairs and maintenance expenses increased by
$295,000. All other expenses except depreciation increased by $169,000, due in
part to the acquisition of the new property. General and administrative expenses
increased by $415,000 due in part to the start up of the property acquisition
program. Depreciation for the six months ended June 30, 1998 increased by
$346,000 over the six months ended June 30, 1997 due in part to the acquisition
of the new property.
Interest expense for the six months ended June 30, 1998 increased by $1,941,000
from the expense in the same period of 1997 due to increases in the amount of
borrowings and interest rates that resulted from the new long-term credit
facility and additional borrowings in order to purchase the new acquisition.
Liquidity and Capital Resources
- -------------------------------
Operating activities provided unrestricted cash for the six months ended June
30, 1998 of $19,356,000, of which $14,586,000 was paid out in dividends and
distributions.
In September, 1997 the Company entered into an agreement that provides a
$375,000,000 secured credit facility. The initial borrowing under the facility
of $300,000,000 matures in 2008 and bears a fixed interest rate of 6.91%. The
majority of the proceeds of the initial borrowing was used to refinance the
Company's publicly-issued and bank mortgage indebtedness which had scheduled
maturities of August, 1998.
The remaining $75,000,000 is available as a 10 1/2 year, variable rate revolving
credit facility which can be converted at the Company's option to a fixed-rate
term loan maturing in 2008. The Company intends to use these funds for property
acquisitions and to expand the recently instituted extensive capital improvement
program for certain of the Company's existing properties, as described below.
The Company used a portion of these funds to purchase a 330-unit garden
apartment community on March 31, 1998.
The Company has commenced a two-year program that provides for approximately
$25,000,000 in capital improvements to certain properties. The improvements
include paving, roofs, vinyl siding and the expansion of the on-going program to
make such revenue-enhancing improvements as the modernization of kitchens and
bathrooms and the installation of washers, dryers and carpeting within
6
<PAGE> 9
certain apartment units. $13,207,000 in costs have been incurred related to this
new program through June 30, 1998.
Rental income from the properties is received on a monthly basis. All cash
accumulated for the payment of quarterly dividends is invested in short-term
instruments. Management believes that the Company will have access to the
capital resources necessary to expand and develop its business. The Company
expects that adequate cash will be available to fund its operating and
administrative expenses, capital expenditures, debt service obligations and
payments of dividends in the foreseeable future.
Safe Harbor Statement
- ---------------------
With the exception of historical information, the matters discussed in this
Report are forward-looking statements that involve risks and uncertainties and
actual results could differ materially from those discussed. Certain statements
herein and in future filings by the Trust with the Securities and Exchange
Commission and in written and oral statements made by or with the approval of
any authorized executive officer of the Trust constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Trust intends that such
forward-looking statements be subject to the safe harbors created by such Acts.
The words and phrases "looking ahead," "we are confident," "should be," "will
be," "predicted," "believe," "expect," "anticipate," and similar expressions
identify forward-looking statements. These forward-looking statements reflect
the Trust's current views in respect of future events and financial performance,
but are subject to many uncertainties and factors relating to the Trust's
operations and business environment which may cause the actual results of the
Trust to differ materially from any future results expressed or implied by such
forward-looking statements. Examples of such uncertainties include, but are not
limited to, competition for tenants and acquisitions from others, many of whom
may have greater financial resources than the Trust; changes in rental rates
which may be charged by the Trust in response to market rental rate changes or
otherwise; changes in federal income tax laws and regulations; any changes in
the Trust's capacity to acquire additional apartment properties and any changes
in the Trust's financial condition or operating results due to an acquisition of
additional apartment properties; unanticipated increases in operating expenses
due to factors such as casualties to the Trust's apartment properties or adverse
weather conditions in the geographic locations of the Trust's apartment
properties; interest rate fluctuations; and local economic and business
conditions, including, without limitation, conditions which may affect public
securities markets generally, the real estate investment trust industry, or the
markets in which the Trust's apartment properties are located. The Trust
undertakes no obligation to update publicly or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
7
<PAGE> 10
Part II: Other Information
- --------------------------
Items 1 through 3 and 5 are not applicable or the answer to such items
is negative; therefore, the items have been omitted and no reference is required
in this report.
Item 4. - Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------
(a) The Registrant's annual meeting of shareholders was held on April 30, 1998.
(b) The following Trustees were elected at such annual meeting, each for a one
year term expiring in 1999:
Alfred Lerner
Harvey Schulweis
James H. Berick
H. Grant Hathaway
Milton A. Wolf
(c) The following matters were voted on at the annual meeting of shareholders:
(1) Election of Trustees:
---------------------
<TABLE>
<CAPTION>
Broker
Trustee Name Votes For Abstentions Non-Votes
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alfred Lerner 12,333,947 353,375 0
Harvey Schulweis 12,335,732 351,590 0
James H. Berick 12,329,117 358,205 0
H. Grant Hathaway 12,331,507 355,815 0
Milton A. Wolf 12,333,107 354,215 0
</TABLE>
(2) Approval of the Trust's 1997 Long Term Incentive Plan:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
7,100,602 1,697,660 143,155 3,745,905
</TABLE>
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule(1)
(b) No reports on Form 8-K have been filed in the quarter for
which this Report is filed.
- --------
(1) Filed only in electronic format pursuant to Item 601(b)(27) of Regulation
S-K
8
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOWN AND COUNTRY TRUST
Date: August 10, 1998 /s/ Jennifer C. Munch
---------------------- ------------------------------
Jennifer C. Munch
Vice President - Treasurer
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,521
<SECURITIES> 0
<RECEIVABLES> 2,155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,334
<PP&E> 604,733
<DEPRECIATION> 235,414
<TOTAL-ASSETS> 384,068
<CURRENT-LIABILITIES> 10,148
<BONDS> 327,000
0
0
<COMMON> 158
<OTHER-SE> 40,351
<TOTAL-LIABILITY-AND-EQUITY> 384,068
<SALES> 0
<TOTAL-REVENUES> 47,874
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,978
<INCOME-PRETAX> 3,186
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,749
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
