<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, 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
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
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 - 15,780,347 OUTSTANDING AS
OF JULY 31, 1999
<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, 1999
and as of December 31, 1998. 1
Consolidated statements of operations of The Town and Country Trust for the three-month and six-month periods
ended June 30, 1999 and 1998. 2
Consolidated statements of cash flows of The Town and Country Trust for the six-month periods ended June 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
</TABLE>
(i)
<PAGE> 3
Part I: Financial Information
- ------- ---------------------
The Town and Country Trust
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
-----------------------
JUNE 30, DECEMBER 31,
1999 1998
-----------------------
ASSETS (in thousands)
<S> <C> <C>
Real estate assets:
Land $ 94,711 $ 90,146
Buildings and improvements 600,245 571,680
Other 4,562 4,264
----------------------
699,518 666,090
Less accumulated depreciation (262,226) (248,411)
----------------------
437,292 417,679
Cash and cash equivalents 4,358 3,784
Restricted cash 1,635 1,455
Receivables 1,525 1,871
Prepaid expenses and other assets 2,806 4,162
Deferred financing costs, net of allowance for amortization
(1999-$721, 1998-$488) 3,886 3,433
----------------------
Total assets $ 451,502 $ 432,384
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 414,722 $ 385,299
Accrued interest 2,065 1,847
Accounts payable and other liabilities 6,936 6,539
Security deposits 2,371 2,097
Minority interest 3,452 4,994
----------------------
Total liabilities 429,546 400,776
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 158
Additional paid-in capital 319,205 319,141
Accumulated deficit (295,323) (285,415)
Unearned compensation - restricted stock (2,084) (2,276)
----------------------
21,956 31,608
----------------------
Total liabilities and shareholders' equity $ 451,502 $ 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Revenue from rental $ 28,020 $ 24,487 $ 54,722 $ 47,632
operations
Other 81 138 201 242
------------------------------------------- -------------------------------------------
28,101 24,625 54,923 47,874
Expenses:
Utilities 1,634 1,457 3,516 3,167
Other property operations 4,531 4,032 8,625 7,551
Real estate taxes 2,087 1,826 4,049 3,567
Depreciation 7,065 6,330 13,928 12,512
Marketing and advertising 1,039 1,000 2,080 1,882
Repairs and maintenance 2,137 1,819 4,034 3,448
General and administrative 826 867 1,599 1,583
------------------------------------------- -------------------------------------------
19,319 17,331 37,831 33,710
Interest expense 6,875 5,565 13,356 10,797
Interest expense related to
the amortization of deferred
financing costs 131 90 233 181
------------------------------------------- -------------------------------------------
26,325 22,986 51,420 44,688
------------------------------------------- -------------------------------------------
Income before minority interest 1,776 1,639 3,503 3,186
Income allocated to minority
interest 243 225 480 437
------------------------------------------- -------------------------------------------
Net income $ 1,533 $ 1,414 $ 3,023 $ 2,749
=========================================== ===========================================
Weighted average common shares
outstanding - basic 15,527 15,523 15,526 15,523
Dilutive effect of outstanding
options and
restricted shares 243 170 243 176
------------------------------------------- -------------------------------------------
Weighted average common shares
outstanding - diluted 15,770 15,693 15,769 15,699
=========================================== ===========================================
Per common share - basic and diluted:
Net income $ .10 $ .09 $ .19 $ .18
=========================================== ===========================================
Dividends declared and paid
per share outstanding $ .41 $ .40 $ .82 $ .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,
1999 1998
-------------------------------
OPERATING ACTIVITIES (in thousands)
<S> <C> <C>
Income before minority interest $ 3,503 $ 3,186
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 13,928 12,512
Interest expense related to the amortization of deferred financing costs 233 181
Amortization of unearned compensation 192 192
Changes in operating assets and liabilities:
Increase in restricted cash (180) (135)
Decrease in receivables, prepaid expenses and other assets 1,702 1,457
Increase in accounts payable, other liabilities, accrued interest and
security deposits 889 1,963
----------------------------------------
Net cash provided by operating activities 20,267 19,356
INVESTING ACTIVITIES
Property acquisitions (25,355) (18,719)
Additions of real estate assets, net of disposals (3,112) (2,438)
Additions pursuant to value-added capital improvements program (5,074) (9,668)
----------------------------------------
Net cash used in investing activities (33,541) (30,825)
FINANCING ACTIVITIES
Borrowings on mortgages payable 53,525 27,000
Payments on mortgages payable (24,102) -
Proceeds from exercise of share options 64 62
Increase in deferred financing costs (686) (5)
Dividends and distributions (14,953) (14,586)
----------------------------------------
Net cash provided by financing activities 13,848 12,471
----------------------------------------
Increase in cash and cash equivalents 574 1,002
Cash and cash equivalents at beginning of period 3,784 4,259
----------------------------------------
Cash and cash equivalents at end of period $ 4,358 $ 5,261
========================================
Cash interest paid $ 13,705 $ 11,185
========================================
</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, 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 June 30, 1999.
3. SUBSEQUENT EVENT
On August 4, 1999 the Company announced that its Board of Trustees had declared
a dividend for the quarter ended June 30, 1999 in the amount of $.41 per share,
aggregating $6,469,942. Concurrent with the payment of the dividend, a
$1,011,279 limited partnership distribution will be made to the minority
4
<PAGE> 7
interest holders. The dividend and distribution will be paid on September 10,
1999 to holders of record on August 13, 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 Company as of June 30, 1999 and for the three-month and
six-month periods ended June 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 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, 1999 AND 1998
- -----------------------------------------------------------------
Income before minority interest for the three months ended June 30, 1999 was
$1,776,000, compared to $1,639,000 for the same period in 1998. Funds from
operations increased to $8,788,000 for the three months ended June 30, 1999 from
$7,916,000 for the three months ended June 30, 1998. Revenues were $28,101,000
for the three months ended June 30, 1999 compared to $24,625,000 for the same
period in 1998, an increase of $3,476,000 or 14.1%. On a same-property basis
(i.e., those properties owned by the Company for all of 1999 and 1998), revenues
increased by $902,000 or 3.8% due to increases in rental rates and improvements
in occupancy. Properties acquired during 1998 and the first quarter of 1999
contributed $2,574,000 in revenue during the quarter. Occupancy was 94.9% for
the second quarter for all properties and 95.2% on a same-store basis compared
to 94.4% for the second quarter of 1998.
Total expenses excluding depreciation and interest were $12,254,000 for the
three months ended June 30, 1999 compared to $11,001,000 for the same period in
1998, an increase of $1,253,000. Of this increase, $1,110,000 is due to the
newly-acquired properties. Same-store operating expenses, excluding general and
administrative expenses and depreciation, increased by $185,000 or 1.9% over the
second quarter of 1998. General and administrative expenses decreased by $41,000
or 4.7% from the same period in 1998.
Interest expense increased by $1,310,000 from the expense in the second quarter
of 1998 due primarily to increases in the amount of borrowings that resulted
from the expanded credit facility and borrowings under the line of credit
related to property acquisitions.
5
<PAGE> 8
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- ---------------------------------------------------------------
Income before minority interest for the six months ended June 30, 1999 was
$3,503,000, compared to $3,186,000 for the same period in 1998. Funds from
operations increased by 11.1% to $17,325,000 for the six months ended June 30,
1999 from $15,592,000 for the six months ended June 30, 1998. Revenues were
$54,923,000 for the six months ended June 30, 1999 compared to $47,874,000 for
the same period in 1998, an increase of $7,049,000 or 14.7%. On a same-property
basis, revenue increased by $2,150,000 or 4.6%, over the first six months of
1998 due to increases in rental rates and improvements in occupancy. Properties
acquired during 1998 and the first quarter of 1999 contributed $4,899,000 in
revenues during the quarter. Occupancy was 94.5% for the first six months of
1999 for all properties and 94.8% on a same-store basis compared to 93.4% for
the first half of 1998.
Total expenses excluding depreciation and interest were $23,903,000 for the six
months ended June 30, 1999 compared to $21,198,000 for the same period in 1998,
an increase of $2,705,000. Of this increase, $2,031,000 is due to the
newly-acquired properties. Same-store operating expenses, excluding general and
administrative expenses and depreciation, increased by $659,000 or 3.4% over the
first six months of 1998. Depreciation for the six months ended June 30, 1999
increased by $1,416,000 over the six months ended June 30, 1998 due in part to
the new acquisitions.
Interest expense for the six months ended June 30, 1999 increased by $2,559,000
from the expense in the same period of 1998 due to increases in the amount of
borrowings that resulted from the expanded financing facility and borrowings
related to property acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating activities provided unrestricted cash for the six months ended June
30, 1999 of $20,267,000 of which $14,953,000 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. $26,558,000 in costs related to
this new program have been incurred through June 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 June 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
June 30, 1999, $16,250,000 was outstanding under this facility.
6
<PAGE> 9
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 June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
June 30, 1999
Amount % of Debt Interest Rate
------ --------- -------------
<S> <C> <C> <C> <C>
Fixed Rate Debt: Collateralized facility $300,000 72.3% 6.91%
Conventional mortgages 39,872 9.6% 6.81% - 7.45%
------------------ ----------------------
339,872 82.1%
------------------ ----------------------
Floating Rate Debt: Revolving credit facility 58,600 14.1% 5.82%
Line of Credit 16,250 3.9% 6.13%
------------------ ----------------------
74,850 17.9%
------------------ ----------------------
Total Mortgage Debt: $414,722 100.0% 6.73%
================== ======================
</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.
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.
7
<PAGE> 10
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.
8
<PAGE> 11
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 29, 1999.
(b) The following Trustees were elected at such annual meeting, each for a
one-year term expiring in 2000:
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 14,183,543 274,064 0
Harvey Schulweis 14,181,313 276,294 0
James H. Berick 14,180,753 276,854 0
H. Grant Hathaway 14,180,588 277,019 0
Milton A. Wolf 14,178,628 278,979 0
</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
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: August 11, 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> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,993
<SECURITIES> 0
<RECEIVABLES> 1,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,324
<PP&E> 699,518
<DEPRECIATION> 262,226
<TOTAL-ASSETS> 451,502
<CURRENT-LIABILITIES> 11,372
<BONDS> 414,722
0
0
<COMMON> 158
<OTHER-SE> 21,798
<TOTAL-LIABILITY-AND-EQUITY> 451,502
<SALES> 0
<TOTAL-REVENUES> 54,923
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,589
<INCOME-PRETAX> 3,503
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,023
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
