<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Quarterly Period Ended March 31, 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 - 15,767,181
OUTSTANDING AS OF APRIL 30, 1999
<PAGE> 2
The Town and Country Trust
Form 10-Q
INDEX
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I: Financial Information
- -----------------------------
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of The Town and Country Trust as of March 31, 1999
and as of December 31, 1998. 1
Consolidated statements of operations of The Town and Country Trust for the three-month
periods ended March 31, 1999 and 1998. 2
Consolidated statements of cash flows of The Town and Country Trust for the three-month periods ended March 31,
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 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)
-----------------------------------------------------
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS (in thousands)
Real estate assets:
Land $ 94,702 $ 90,146
Buildings and improvements 596,230 571,680
Other 4,368 4,264
-----------------------------------------------------
695,300 666,090
Less accumulated depreciation (255,247) (248,411)
-----------------------------------------------------
440,053 417,679
Cash and cash equivalents 1,586 3,784
Restricted cash 1,560 1,455
Receivables 1,861 1,871
Prepaid expenses and other assets 3,833 4,162
Deferred financing costs, net of allowance for amortization
(1999-$590, 1998-$488) 3,952 3,433
-----------------------------------------------------
Total assets $ 452,845 $ 432,384
=====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable $ 410,651 $ 385,299
Accrued interest 1,795 1,847
Accounts payable and other liabilities 7,162 6,539
Security deposits 2,288 2,097
Minority interest 4,220 4,994
-----------------------------------------------------
Total liabilities 426,116 400,776
Shareholders' equity:
Common shares of beneficial interest ($.01 par value),
500,000,000 shares authorized 158 158
Additional paid-in capital 319,141 319,141
Accumulated deficit (290,390) (285,415)
Unearned compensation - restricted stock (2,180) (2,276)
-----------------------------------------------------
26,729 31,608
-----------------------------------------------------
Total liabilities and shareholders' equity $ 452,845 $ 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 MARCH 31
1999 1998
-------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenues:
Revenue from rental operations $ 26,702 $ 23,145
Other 120 104
-------------------------------------------------
26,822 23,249
Expenses:
Utilities 1,882 1,710
Other property operations 4,094 3,519
Real estate taxes 1,962 1,741
Depreciation 6,863 6,182
Marketing and advertising 1,041 882
Repairs and maintenance 1,897 1,629
General and administrative 773 716
-------------------------------------------------
18,512 16,379
Interest expense 6,481 5,232
Interest expense related to the
amortization of deferred financing costs 102 91
-------------------------------------------------
25,095 21,702
-------------------------------------------------
Income before minority interest 1,727 1,547
Income allocated to minority interest 237 212
-------------------------------------------------
Net income $ 1,490 $ 1,335
=================================================
Weighted average common shares outstanding - basic 15,525 15,522
Dilutive effect of outstanding options and restricted shares 123 176
-------------------------------------------------
Weighted average common shares outstanding - diluted 15,648 15,698
=================================================
Per common share - basic and diluted:
Net income $ .10 $ .09
=================================================
Dividends declared and paid per share outstanding $ .41 $ .40
=================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
The Town and Country Trust
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
----------------------------------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Income before minority interest $ 1,727 $ 1,547
Adjustments to reconcile income before minority interest to net cash provided by
operating activities:
Depreciation 6,863 6,182
Interest expense related to the amortization of deferred financing costs 102 91
Amortization of unearned compensation 96 96
Changes in operating assets and liabilities:
Increase in restricted cash (105) (50)
Decrease in receivables, prepaid expenses and other assets 339 1,060
Increase in accounts payable, other liabilities, accrued interest and
security deposits 762 1,654
----------------------------------------
Net cash provided by operating activities 9,784 10,580
INVESTING ACTIVITIES
Property acquisitions (25,306) (18,654)
Additions of real estate assets, net of disposals (1,163) (1,073)
Additions pursuant to value-added capital improvements program (2,768) (4,536)
----------------------------------------
Net cash used in investing activities (29,237) (24,263)
FINANCING ACTIVITIES
Borrowings on mortgages payable 49,425 22,350
Payments on mortgages payable (24,073) -
Proceeds from exercise of share options - 50
Increase in deferred financing costs (621) (5)
Dividends and distributions (7,476) (7,292)
----------------------------------------
Net cash provided by financing activities 17,255 15,103
----------------------------------------
(Decrease) increase in cash and cash equivalents (2,198) 1,420
Cash and cash equivalents at beginning of period 3,784 4,259
----------------------------------------
Cash and cash equivalents at end of period $ 1,586 $ 5,679
========================================
Cash interest paid $ 6,946 $ 5,556
========================================
</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 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of recurring
normal accruals, considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 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 loan
facilities, and in one case, the assumption of existing mortgage debt. 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 March 31, 1999.
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. Due to the fact that this
community was purchased on the last day of the fiscal quarter, only one day of
operations has been included in the Company's statement of operations for the
three months ended March 31, 1999.
3. SUBSEQUENT EVENT
On April 29, 1999, the Company announced that its Board of Trustees had declared
a dividend for the quarter ended March 31, 1999 of $.41 per share, aggregating
$6,464,544. 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 June 10, 1999 to holders of record on
May 14, 1999.
4
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
-------------
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust (the "Company") as of March 31, 1999
and for the three-month periods ended March 31, 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. Historically, funds from operations is defined as net
income (loss) excluding adjustments for unconsolidated partnerships and joint
ventures as well as gains (losses) from debt restructuring and sales of
property, plus depreciation of revenue-producing real property. This definition
of funds from operations is consistent with the National Association of Real
Estate Investment Trusts (NAREIT) definition. Funds from operations is affected
by the financial performance of the properties and the capital structure of the
Company. Funds from operations does not represent cash flow from operations as
defined by generally accepted accounting principles and is not necessarily
indicative of cash available to fund all cash flow needs. Funds from operations
should not be considered as an alternative to net income as an indicator of
operating performance or as an alternative to cash flow as a measure of
liquidity.
Results of Operations - Three Months Ended March 31, 1999 and 1998
- ------------------------------------------------------------------
Income before minority interest for the three months ended March 31, 1999 was
$1,727,000, compared to $1,547,000 for the same period in 1998. Funds from
operations increased to $8,537,000 for the three months ended March 31, 1999
from $7,677,000 for the three months ended March 31, 1998. Revenues were
$26,822,000 for the three months ended March 31, 1999 compared to $23,249,000
for the same period in 1998, an increase of $3,573,000 or 15.4%. On a
same-property basis, revenue increased by $1,248,000 or 5.4% due to increases in
rental rates and improvements in occupancy. Properties acquired during 1998 and
the first quarter of 1999 contributed $2,332,000 in revenue during the quarter.
Occupancy was 94.2% for the first quarter of 1999 for all properties and 94.3%
on a same-store basis compared to 92.3% for the first quarter of 1998.
Total expenses excluding depreciation and interest were $11,649,000 for the
three months ended March 31, 1999 compared to $10,197,000 for the same period in
1998, an increase of $1,452,000. Of this increase, $921,000 is due to the
newly-acquired properties. Same-store operating expenses, excluding general and
administrative expenses and depreciation, increased by $474,000 or 5.0% over the
first quarter of 1998.
Interest expense increased by $1,249,000 over that expense in the first quarter
of 1998 due to increases in the amount of borrowings that resulted from the
expanded financing facility and borrowings under the line of credit related to
property acquisitions.
5
<PAGE> 8
Liquidity and Capital Resources
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Operating activities provided unrestricted cash for the three months ended March
31, 1999 of $9,784,000 of which $7,476,000 was paid out in dividends and
distributions.
In 1997, the Company 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 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. $22,957,000 in costs have been
incurred related to this new program through March 31, 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 expand the ongoing extensive capital
improvement program for certain of the Company's existing properties. Total
borrowings under the collateralized financing facilities as of March 31, 1999
were $354,500,000.
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
March 31, 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 lines of credit.
The following table sets forth certain information regarding the Company's
outstanding indebtedness as of March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
March 31, 1999
Amount % of Debt Interest Rate
------ --------- -------------
<S> <C> <C> <C> <C>
Fixed Rate Debt: Collateralized facility $300,000 73.1% 6.91%
Conventional mortgages 39,901 9.7% 6.81% - 7.45%
-----------------------------------------
339,901 82.8%
-----------------------------------------
Floating Rate Debt: Revolving credit facility 54,500 13.2% 5.32%
Line of Credit 16,250 4.0% 6.14%
-----------------------------------------
70,750 17.2%
-----------------------------------------
Total Mortgage Debt: $410,651 100.0% 6.67%
=========================================
</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
6
<PAGE> 9
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
Quarterly Report on Form 10-Q 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 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; Year 2000 readiness; 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 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
8
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TOWN AND COUNTRY TRUST
Date: May 13, 1999 /s/ Jennifer C. Munch
---------------------- ------------------------------
Jennifer C. Munch
Vice President - Treasurer
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE
SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,146
<SECURITIES> 0
<RECEIVABLES> 1,861
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,840
<PP&E> 695,300
<DEPRECIATION> 255,247
<TOTAL-ASSETS> 452,845
<CURRENT-LIABILITIES> 11,245
<BONDS> 410,651
0
0
<COMMON> 158
<OTHER-SE> 26,571
<TOTAL-LIABILITY-AND-EQUITY> 452,845
<SALES> 0
<TOTAL-REVENUES> 26,822
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,583
<INCOME-PRETAX> 1,727
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,490
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
