<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 September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition Period From______________
to ______________
Commission file number 1-12056
----------------
THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-6613091
- ---------------------------------------- ------------------------
(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)
(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 - 15,787,580
OUTSTANDING AS OF OCTOBER 31, 1999
<PAGE> 2
The Town and Country Trust
Form 10-Q
INDEX
-----
Part I: Financial Information Page
- ----------------------------- ----
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of The Town and Country Trust as of
September 30, 1999 and as of December 31, 1998. 1
Consolidated statements of operations of The Town and Country
Trust for the three-month and nine-month periods ended September
30, 1999 and 1998. 2
Consolidated statements of cash flows of The Town and Country
Trust for the nine-month periods ended September 30, 1999 and
1998. 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 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits or Reports on Form 8-K 9
Signature 10
(i)
<PAGE> 3
Part I: Financial Information
- ------------------------------
The Town and Country Trust
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
-------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------------------
ASSETS (in thousands)
<S> <C> <C>
Real estate assets:
Land $ 94,717 $ 90,146
Buildings and improvements 604,205 571,680
Other 4,613 4,264
-------------------------
703,535 666,090
Less accumulated depreciation (267,581) (248,411)
-------------------------
435,954 417,679
Cash and cash equivalents 1,670 3,784
Restricted cash 1,685 1,455
Receivables 1,797 1,871
Prepaid expenses and other assets 6,719 4,162
Deferred financing costs, net of allowance for amortization
(1999-$846, 1998-$488) 3,867 3,433
-------------------------
Total assets $ 451,692 $ 432,384
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 418,192 $ 385,299
Accrued interest 2,071 1,847
Accounts payable and other liabilities 7,107 6,539
Security deposits 2,487 2,097
Minority interest 2,935 4,994
-------------------------
Total liabilities 432,792 400,776
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 158
Additional paid-in capital 319,411 319,141
Accumulated deficit (298,681) (285,415)
Unearned compensation - restricted stock (1,988) (2,276)
-------------------------
18,900 31,608
-------------------------
Total liabilities and shareholders' equity $ 451,692 $ 432,384
=========================
</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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
-----------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Revenue from rental operations $28,472 $24,960 $83,194 $72,592
Other 112 252 313 495
-------------------------- ------------------------
28,584 25,212 83,507 73,087
Expenses:
Utilities 1,525 1,378 5,041 4,546
Other property operations 4,638 4,407 13,262 11,958
Real estate taxes 2,042 1,778 6,091 5,344
Depreciation 5,376 6,342 19,304 18,853
Marketing and advertising 1,085 977 3,166 2,859
Repairs and maintenance 2,270 1,893 6,304 5,341
General and administrative 893 832 2,493 2,416
-------------------------- ------------------------
17,829 17,607 55,661 51,317
Interest expense 7,022 5,632 20,377 16,430
Interest expense related to the
amortization of deferred
financing costs 125 91 358 272
-------------------------- ------------------------
24,976 23,330 76,396 68,019
-------------------------- ------------------------
Income before minority interest 3,608 1,882 7,111 5,068
Income allocated to minority interest 494 258 974 695
-------------------------- ------------------------
Net income $ 3,114 $ 1,624 $ 6,137 $ 4,373
========================== ========================
Weighted average common shares
outstanding - basic 15,541 15,524 15,531 15,523
Dilutive effect of outstanding options
and restricted shares 238 121 239 163
-------------------------- ------------------------
Weighted average common shares
outstanding - diluted 15,779 15,645 15,770 15,686
========================== ========================
Per common share:
Net income- basic $ 0.20 $ 0.10 $ 0.40 $ 0.28
========================== ========================
Net income- diluted $ 0.20 $ 0.10 $ 0.39 $ 0.28
========================== ========================
Dividends declared and paid per share
outstanding $ 0.41 $ 0.40 $ 1.23 $ 1.20
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
The Town and Country Trust
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
-------------------------------
OPERATING ACTIVITIES (in thousands)
<S> <C> <C>
Income before minority interest $ 7,111 $ 5,068
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 19,304 18,853
Interest expense related to the amortization of deferred financing costs 358 272
Amortization of unearned compensation 288 288
Changes in operating assets and liabilities:
Increase in restricted cash (230) (185)
Increase in receivables, prepaid expenses and other assets (2,483) (1,912)
Increase in accounts payable, other liabilities, accrued interest and
security deposits 1,182 1,965
---------------------------
Net cash provided by operating activities 25,530 24,349
INVESTING ACTIVITIES
Property acquisitions (25,389) (18,719)
Additions of real estate assets, net of disposals (4,529) (3,675)
Additions pursuant to value-added capital improvements program (7,661) (13,942)
---------------------------
Net cash used in investing activities (37,579) (36,336)
FINANCING ACTIVITIES
Borrowings on mortgages payable 57,025 35,750
Payments on mortgages payable (24,132) -
Proceeds from exercise of share options 270 62
Increase in deferred financing costs (792) (5)
Dividends and distributions (22,436) (21,878)
---------------------------
Net cash provided by financing activities 9,935 13,929
---------------------------
(Decrease) increase in cash and cash equivalents (2,114) 1,942
Cash and cash equivalents at beginning of period 3,784 4,259
---------------------------
Cash and cash equivalents at end of period $ 1,670 $ 6,201
===========================
Cash interest paid $ 19,917 $ 17,094
===========================
</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 nine-month periods ended September 30, 1999 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, 1998.
2. REAL ESTATE ACQUISITIONS
During the year ended December 31, 1998, the Company purchased the following
apartment communities:
<TABLE>
<CAPTION>
Date of Number of Contract
------- --------- --------
Property Location Acquisition Units Amount
-------- -------- ----------- ----- ------
<S> <C> <C> <C> <C>
The Villages of Forest Ridge Charlotte, NC March 31, 1998 330 $18,500,000
The Fairington Charlotte, NC October 15, 1998 250 $18,000,000
Windermere Lakes Orlando, FL December 10, 1998 276 $15,200,000
Twelve Oaks Orlando, FL December 10, 1998 284 $16,500,000
</TABLE>
These acquisitions were funded through the use of the Company's revolving credit
facilities, and, in one case, the assumption of existing mortgage debt.
On March 31, 1999, the Company purchased Colonial Grand at Kirkman, a 370-unit
garden apartment community located in Orlando, Florida, for approximately
$25,000,000 with funds from its credit facility. Results of operations for the
property partnerships listed above are included in the Company's statements of
operations for the period from the date of acquisition through September 30,
1999.
4
<PAGE> 7
3. SUBSEQUENT EVENTS
On October 5, 1999 the Company purchased the following garden apartment
communities:
<TABLE>
<CAPTION>
Date of Number of Contract
------- --------- --------
Property Location Acquisition Units Amount
-------- -------- ----------- ----- ------
<S> <C> <C> <C> <C>
Heron's Run Sarasota, FL October 5, 1999 274 $15,000,000
McIntosh Sarasota, FL October 5, 1999 212 $10,900,000
Perico Bradenton, FL October 5, 1999 256 $13,400,000
</TABLE>
Additionally, on the same date, the Company sold the Union Deposit garden
apartment community consisting of 468 units in Harrisburg, Pennsylvania. The
proceeds of the sale of Union Deposit were used to acquire the Heron's Run
property in a transaction that was treated as a tax-free exchange. The Perico
and McIntosh properties were financed with mortgage loans aggregating $18.4
million and with the Company's credit facility.
On November 3, 1999 the Company announced that its Board of Trustees had
declared a dividend for the quarter ended September 30, 1999 in the amount of
$.41 per share, aggregating $6,472,908. Concurrent with the payment of the
dividend, a $1,011,279 limited partnership distribution will be made to the
minority interest holders. The dividend and distribution will be paid on
December 10, 1999 to holders of record on November 19, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust (the "Company") as of September 30,
1999 and for the three-month and nine-month periods ended September 30, 1999 and
1998. 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 current National Association of Real Estate
Investment Trusts (NAREIT) definition. The Company does not anticipate that the
guidance regarding the definition of funds from operations as issued by NAREIT
on November 8, 1999 will have any impact on its calculation. 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.
5
<PAGE> 8
Results of Operations - Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------------------------------
Income before minority interest for the three months ended September 30, 1999
was $3,608,000, compared to $1,882,000 for the same period in 1998. Funds from
operations increased by 9.4% to $8,943,000 for the three months ended September
30, 1999 from $8,174,00 for the three months ended September 30, 1998. Revenues
were $28,584,000 for the three months ended September 30, 1999 compared to
$25,212,000 for the same period in 1998, an increase of $3,372,000 or 13.4%. On
a same-property basis (i.e., those properties owned by the Company for all of
1999 and 1998), revenues increased by $787,000 or 3.2% due primarily to
increases in rental rates as well as improvements in occupancy. Properties
acquired during 1998 and the first quarter of 1999 contributed $2,585,000 in
revenue growth during the quarter. Occupancy was 95.1% for the third quarter for
all properties and 95.6% on a same store basis, compared to 95.2% for the third
quarter of 1998.
Total expenses excluding depreciation, amortization and interest were
$12,453,000 for the three months ended September 30, 1999 compared to
$11,265,000 for the same period in 1998, an increase of $1,188,000, due
primarily to property acquisitions. Same store operating expenses, excluding
general and administrative expense and depreciation, increased by just 0.2% over
the third quarter of 1998.
Interest expense increased by $1,390,000 from the expense in the third quarter
of 1998 due to increases in the amount of borrowings that resulted from the
financing of the capital improvements program and the new acquisitions.
Results of Operations - Nine Months Ended September 30, 1999 and 1998
- ---------------------------------------------------------------------
Income before minority interest for the nine months ended September 30, 1999 was
$7,111,000, compared to $5,068,000 for the same period in 1998. Funds from
operations increased by $2,502,000 or 10.5% to $26,268,000 for the nine months
ended September 30, 1999 from $23,766,000 for the nine months ended September
30, 1998. Revenues were $83,507,000 for the nine months ended September 30, 1999
compared to $73,087,000 for the same period in 1998, an increase of $10,420,000,
or 14.3%. On a same-property basis, revenues increased by $2,936,000 or 4.1% for
the first nine months of 1999 over the same period in 1998 due to increases in
rental rates as well as improvements in occupancy. Properties acquired during
1998 and the first quarter of 1999 contributed $7,484,000 in revenue growth
during the period. Occupancy was 94.7% for all properties for the nine months
ended September 30, 1999 and 95.0% on a same store basis, compared to 94.0% for
the nine months ended September 30, 1998.
Total expenses, excluding depreciation amortization and interest were
$36,357,000 for the nine months ended September 30, 1999 compared to $32,464,000
for the same period in 1998, an increase of $3,893,000, or 12.0%. Of this
increase, $3,141,000 is due to the newly-acquired properties. Same store
operating expenses, excluding general and administrative expenses and
depreciation, increased by $675,000, or 2.3%, over the third quarter of 1998.
Depreciation for the nine months ended September 30, 1999 increased by $451,000,
or 2.4%, from $18,853,000 to $19,304,000, over the nine months ended September
30, 1998 due in part to acquisitions of new properties, offset by reductions in
depreciation as some assets became fully depreciated.
Interest expense for the nine months ended September 30, 1999 increased by
$3,947,000 to $20,377,000 from $16,430,000 for the same period of 1998 due to
increases in the amount of borrowings that resulted from the financing of the
capital improvements program and the new acquisitions.
6
<PAGE> 9
Liquidity and Capital Resources
- -------------------------------
Operating activities provided unrestricted cash for the nine months ended
September 30, 1999 of $25,530,000 of which $22,436,00 was paid out in dividends
and distributions.
In 1997, the Company commenced a two-year program that provides for
approximately $30,000,000 in capital improvements to certain properties. The
improvements include paving, roofs, vinyl siding and the expansion of an
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. $28,962,000 in costs related to
this new program have been incurred through September 30, 1999.
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%. 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 continue the ongoing extensive capital
improvement program for certain of the Company's existing properties. Total
borrowings under the collateralized financing facilities as of September 30,
1999 were $358,600,000.
The Company has a $50,000,000 revolving line of credit with a bank to be used
for acquisitions. Borrowing under this facility will bear interest at 120 basis
points over LIBOR. Individual draws under the facility mature in eighteen
months, and the initial term of the facility expires in September, 2001. As of
September 30, 1999, $16,250,000 was outstanding under this facility.
The Company has obtained permanent financing for three of the properties that
were acquired in 1998. The proceeds of the financing were used to repay
borrowings under the Company's credit facilities.
The following table sets forth certain information regarding the Company's
outstanding indebtedness as of September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
June 30, 1999
Amount % of Debt Interest Rate
------ --------- -------------
<S> <C> <C> <C>
Fixed Rate Debt: Collateralized facility $300,000 71.7% 6.91%
Conventional mortgages 43,342 10.4% 6.81% - 7.59%
---------------------------------
343,342 82.1%
---------------------------------
Floating Rate Debt: Revolving credit facility 58,600 14.0% 5.82%
Line of Credit 16,250 3.9% 6.57%
---------------------------------
74,850 17.9%
---------------------------------
Total Mortgage Debt: $418,192 100.0% 6.75%
=================================
</TABLE>
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.
7
<PAGE> 10
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 Company 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 Company 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 Company 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 Company's current views in respect of future events and
financial performance, but are subject to many uncertainties and factors
relating to the Company's operations and business environment which may cause
the actual results of the Company 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 Company; changes in rental rates which may be charged by the Company in
response to market rental rate changes or otherwise; changes in federal income
tax laws and regulations; any changes in the Company's capacity to acquire
additional apartment properties and any changes in the Company'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 Company's apartment properties or adverse weather conditions
in the geographic locations of the Company'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 Company's
apartment properties are located. The Company undertakes no obligation to update
publicly or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
8
<PAGE> 11
Part II: Other Information
--------------------------
Items 1 through 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 6. - Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) 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
9
<PAGE> 12
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: November 12, 1999 /s/ Jennifer C. Munch
------------------- ------------------------------
Jennifer C. Munch
Vice President - Treasurer
(Principal Accounting Officer)
10
<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
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,355
<SECURITIES> 0
<RECEIVABLES> 1,797
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,871
<PP&E> 703,535
<DEPRECIATION> 267,581
<TOTAL-ASSETS> 451,692
<CURRENT-LIABILITIES> 11,665
<BONDS> 418,192
0
0
<COMMON> 158
<OTHER-SE> 18,742
<TOTAL-LIABILITY-AND-EQUITY> 451,692
<SALES> 0
<TOTAL-REVENUES> 83,507
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 55,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,735
<INCOME-PRETAX> 7,111
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,137
<EPS-BASIC> .40
<EPS-DILUTED> .39
</TABLE>
