TOWN & COUNTRY TRUST, 10-Q, 2000-05-15

TOWN & COUNTRY TRUST
10-Q, 2000-05-15
REAL ESTATE INVESTMENT TRUSTS

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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, 2000

/ /	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 (State or other jurisdiction of incorporation or organization)		52-6613091 (I.R.S. Employer Identification No.)
SUITE 1700
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND (Address of principal executive offices)		21201 (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—15,923,836 outstanding as of April 30, 2000

The Town and Country Trust

Form 10-Q

INDEX

		Page
Part I: Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated balance sheets of The Town and Country Trust as of March 31, 2000 and as of December 31, 1999.	2
	Consolidated statements of operations of The Town and Country Trust for the three-month periods ended March 31, 2000 and 1999.	3
	Consolidated statements of cash flows of The Town and Country Trust for the three-month periods ended March 31, 2000 and 1999.	4
	Notes to consolidated financial statements.	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	6
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

Part I: Financial Information

The Town and Country Trust

Consolidated Balance Sheets

	(Unaudited)
	March 31, 2000			December 31, 1999
	(in thousands)
Assets
Real estate assets:
Land	$	99,850		$	99,850
Buildings and improvements		627,521			624,975
Other		5,189			4,921

		732,560			729,746
Less accumulated depreciation		(269,864	)		(264,180	)

		462,696			465,566
Cash and cash equivalents		3,605			2,280
Restricted cash		1,865			1,805
Receivables		2,247			2,475
Prepaid expenses and other assets		4,414			4,464
Deferred financing costs, net of allowance for amortization (2000-$1,123, 1999-$982)		4,131			4,259

Total assets	$	478,958		$	480,849

Liabilities and shareholders' equity
Mortgages payable	$	444,861		$	444,941
Accrued interest		2,346			2,348
Accounts payable and other liabilities		7,002			5,456
Security deposits		2,753			2,631
Minority interest		2,868			3,424

Total liabilities		459,830			458,800
Shareholders' equity:
Common shares of beneficial interest ($.01 par value), 500,000,000 shares authorized, 15,923,836 and 15,790,580 issued and outstanding at March 31, 2000 and December 31, 1999		159			158
Additional paid-in capital		321,725			319,481
Accumulated deficit		(299,359	)		(295,698	)
Unearned compensation—restricted stock		(3,397	)		(1,892	)

		19,128			22,049

Total liabilities and shareholders' equity	$	478,958		$	480,849

See accompanying notes to financial statements.

The Town and Country Trust

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2000		1999
	(in thousands, except per share data)
Revenues:
Revenue from rental operations	$	29,604	$	26,647
Other		89		120

		29,693		26,767
Expenses:
Utilities		1,897		1,882
Other property operations		4,535		4,094
Real estate taxes		2,235		1,962
Depreciation		5,684		6,863
Marketing and advertising		1,064		986
Repairs and maintenance		2,041		1,897
General and administrative		964		773

		18,420		18,457
Interest expense		7,625		6,481
Interest expense related to the amortization of deferred financing costs		141		102

		26,186		25,040

Income before minority interest		3,507		1,727
Income allocated to minority interest		480		237

Net income	$	3,027	$	1,490

Weighted average common shares outstanding—basic		15,573		15,525
Dilutive effect of outstanding options and restricted shares		220		123

Weighted average common shares outstanding—diluted		15,793		15,648

Per common share—basic and diluted:
Net income	$	.19	$	.10

Dividends declared and paid per share outstanding	$	.42	$	.41

See accompanying notes to financial statements.

The Town and Country Trust

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2000			1999
	(in thousands)
Operating activities
Income before minority interest	$	3,507		$	1,727
Adjustments to reconcile income before minority interest to net cash provided by operating activities:
Depreciation		5,684			6,863
Interest expense related to the amortization of deferred financing costs		141			102
Amortization of unearned compensation		122			96
Changes in operating assets and liabilities:
Increase in restricted cash		(60	)		(105	)
Decrease in receivables, prepaid expenses and other assets		278			339
Increase in accounts payable, other liabilities, accrued interest and security deposits		1,666			762

Net cash provided by operating activities		11,338			9,784
Investing activities
Property acquisitions		—			(25,306	)
Additions to real estate assets, net of disposals		(1,330	)		(1,163	)
Additions pursuant to value-added capital improvements program		(1,484	)		(2,768	)

Net cash used in investing activities		(2,814	)		(29,237	)
Financing activities
Borrowings on mortgages payable		3,000			49,425
Payments on mortgages payable		(3,080	)		(24,073	)
Proceeds from exercise of share options		618			—
Increase in deferred financing costs		(13	)		(621	)
Dividends and distributions		(7,724	)		(7,476	)

Net cash (used in) provided by financing activities		(7,199	)		17,255

Increase (decrease) in cash and cash equivalents		1,325			(2,198	)
Cash and cash equivalents at beginning of period		2,280			3,784

Cash and cash equivalents at end of period	$	3,605		$	1,586

Cash interest paid	$	7,686		$	6,946

See accompanying notes to financial statements.

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, 2000 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, 1999.

2. Real Estate Acquisitions

During the year ended December 31, 1999, the Company purchased the following apartment communities:

Property	Location	Date of Acquisition	Number of Units	Contract Amount
Town and Country at Kirkman	Orlando, FL	March 31, 1999	370	$	25,000,000
Town and Country Heron's Run	Sarasota, FL	October 5, 1999	274	$	15,000,000
Town and Country McIntosh	Sarasota, FL	October 5, 1999	212	$	10,900,000
Town and Country Perico	Bradenton, FL	October 5, 1999	256	$	13,400,000

On October 5, 1999 the Company sold the Union Deposit garden apartment community consisting of 468 units in Harrisburg, PA. The proceeds of the sale of Union Deposit were used to acquire the Heron's Run community, in Sarasota, FL, a transaction that was treated as a tax-free exchange.

The other acquisitions were funded through the use of mortgage loans and the Company's credit facilities. Results of operations for the property partnerships listed above are included in the Company's statements of operations for the periods from the date of acquisition through March 31, 2000.

3. Subsequent Events

On April 10, 2000, the Company modified its existing $50,000,000 line of credit. Under the modified terms of this facility, which was originally available only for acquisitions, $10,000,000 may be used for working capital purposes.

On May 4, 2000, the Company announced that its Board of Trustees had declared a dividend for the quarter ended March 31, 2000 of $.42 per share, aggregating $6,688,011. Concurrent with the payment of the dividend, a $1,035,945 limited partnership distribution will be made to the minority interest holders. The dividend and distribution will be paid on June 9, 2000 to holders of record on May 12, 2000.

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 March 31, 2000 and for the three-month periods ended March 31, 2000 and 1999. 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, 2000 and 1999

Income before minority interest for the three months ended March 31, 2000 was $3,507,000 compared to $1,727,000 for the same period in 1999. Funds from operations increased by 7.0% to $9,134,000 for the three months ended March 31, 2000 from $8,537,000 for the three months ended March 31, 1999. Revenues were $29,693,000 for the three months ended March 31, 2000 compared to $26,767,000 for the same period in 1999, an increase of $2,926,000 or 10.9%. On a same-property basis (i.e. those properties owned by the Company for all of 2000 and 1999), revenue increased by $1,254,000 or 4.8% due to increases in rental rates and improvements in occupancy. Properties acquired during 1999 contributed $1,254,000 in revenue during the quarter. Occupancy was 94.4% for the first quarter of 2000 for all properties and 94.9% on a same-store basis compared to 94.2% and 94.3%, respectively, for the first quarter of 1999.

Total expenses excluding depreciation and interest were $12,736,000 for the three months ended March 31, 2000 compared to $11,594,000 for the same period in 1999, an increase of $1,142,000. Of this increase, $737,600 is due to the net effect of the newly-acquired properties and the disposition of one property. Same-store operating expenses, excluding general and administrative expenses and depreciation, increased by $213,100 or 2.0% over the first quarter of 1999.

Interest expense increased by $1,144,000 over that expense in the first quarter of 1999 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.

Liquidity and Capital Resources

Cash from operations for the three months ended March 31, 2000 was $11,338,000 of which $7,724,000 was paid out in dividends and distributions.

During 1999, the Company acquired four properties, comprising 1,112 units, located in Orlando, Sarasota and Bradenton, Florida. The total contract price of these acquisitions was $64,300,000. The acquisitions were funded through borrowings on the revolving credit facility, the revolving line of credit, property specific debt and in one case, the sale of a property.

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 10¹/2 year, variable-rate revolving credit facility which can be converted to a fixed-rate term loan maturing in 2008 at the Company's option. These funds are available 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, 2000 were $367,000,000.

The Company has a $50,000,000 revolving line of credit with a bank to be used for acquisitions. Borrowing under this facility bears 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, 2000, $16,250,000 was outstanding under this facility.

The following table sets forth certain information regarding the Company's outstanding indebtedness as of March 31, 2000 (in thousands):

		Amount		% of Debt		March 31, 2000 Interest Rate
Fixed Rate Debt:	Collateralized facility	$	300,000	67.4	%	6.91%
	Conventional mortgages		61,611	13.9	%	6.81%-7.85%

			361,611	81.3	%

Floating Rate Debt:	Revolving credit facility		67,000	15.0	%	6.45%
	Line of Credit		16,250	3.7	%	7.33%

			83,250	18.7	%

Total Mortgage Debt:		$	444,861	100.0	%	6.91%

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 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; 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.

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 May 4, 2000.
(b): The following Trustees were elected at such annual meeting, each for a one-year term expiring in 2001:

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:

Trustee Name	Votes For	Abstentions
Alfred Lerner	14,718,356	423,354
Harvey Schulweis	14,720,972	420,738
James H. Berick	14,880,621	261,089
H. Grant Hathaway	15,040,514	101,196
Milton A. Wolf	15,039,514	102,196

Item 6.—Exhibits and Reports on Form 8-K

(a): Exhibits

Exhibit Number		Exhibit

10.1		Loan Modification Agreement Among the Registrants, The TC Operating Limited Partnership, The TC Property Company II and Allfirst Bank (formerly known as The First National Bank of Maryland) Dated April 10, 2000
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

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 12, 2000	/s/ JENNIFER C. MUNCH Jennifer C. Munch Senior Vice President—Treasurer (Principal Accounting Officer)

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