TOWN & COUNTRY TRUST
10-Q, 2000-08-11
REAL ESTATE INVESTMENT TRUSTS

Previous: PRIMESOURCE CORP, 10-Q, EX-27, 2000-08-11

Next: TOWN & COUNTRY TRUST, 10-Q, EX-27, 2000-08-11

QuickLinks -- Click here to rapidly navigate through this document

---

---

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, 2000

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)

(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 15,986,235 outstanding as of July 31, 2000

---

---

---

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 June 30, 2000 and as of December 31, 1999.		2
Consolidated statements of operations of The Town and Country Trust for the three-month and six month periods ended June 30, 2000 and 1999.		3
Consolidated statements of cash flows of The Town and Country Trust for the six-month periods ended June 30, 2000 and 1999.		4
Notes to consolidated financial statements.		5
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations		7
Part II: Other Information
Item 1.  Legal Proceedings
Item 2.  Changes in Securities
Item 3.  Defaults Upon Senior Securities
Item 4.  Submission of Matters to a Vote of Security Holders
Item 5.  Other Information
Item 6.  Exhibits or Reports on Form 8-K		10
Signature		11

---

Part I: Financial Information

Item 1. Financial Statements.

The Town and Country Trust
Consolidated Balance Sheets

				(Unaudited)
				June 30, 2000			December 31, 1999
				(in thousands)
Assets
Real estate assets:
	Land			$	103,077		$	99,850
	Buildings and improvements				639,563			624,975
	Other				5,314			4,921
					747,954			729,746
Less accumulated depreciation					(262,840	)		(264,180	)
					485,114			465,566
Cash and cash equivalents					2,557			2,280
Restricted cash					2,065			1,805
Receivables					2,652			2,475
Prepaid expenses and other assets					3,194			4,464
Deferred financing costs, net of allowance for amortization (2000—$1,266, 1999—$982)					4,217			4,259
Total assets				$	499,799		$	480,849
Liabilities and shareholders' equity
Mortgages payable				$	454,979		$	444,941
Notes payable					5,000			—
Accrued interest					2,375			2,348
Accounts payable and other liabilities					6,922			5,456
Security deposits					2,951			2,631
Minority interest					3,618			3,424
Total liabilities					475,845			458,800
Shareholders' equity:
	Common shares of beneficial interest ($.01 par value), 500,000,000 shares authorized, 15,927,235 and 15,790,580 issued and outstanding at June 30, 2000 and December 31, 1999				159			158
	Additional paid-in capital				321,777			319,481
	Accumulated deficit				(294,758	)		(295,698	)
	Unearned compensation—restricted stock				(3,224	)		(1,892	)
					23,954			22,049
Total liabilities and shareholders' equity				$	499,799		$	480,849

See accompanying notes to financial statements.

2

---

The Town and Country Trust

Consolidated Statements of Operations

(Unaudited)

				Three Months Ended June 30,						Six Months Ended June 30,
				2000			1999			2000			1999
				(in thousands, except per share data)
Revenues:
	Revenue from rental operations			$	30,010		$	27,985		$	59,615		$	54,632
	Other				119			81			209			201
					30,129			28,066			59,824			54,833
Expenses:
	Utilities				1,703			1,634			3,599			3,516
	Other property operations				4,711			4,531			9,247			8,625
	Real estate taxes				2,173			2,087			4,408			4,049
	Depreciation				5,792			7,065			11,477			13,928
	Marketing and advertising				1,084			1,004			2,149			1,990
	Repairs and maintenance				2,217			2,137			4,258			4,034
	General and administrative				939			826			1,903			1,599
					18,619			19,284			37,041			37,741
Interest expense					7,753			6,875			15,378			13,356
Interest expense related to the amortization of deferred financing costs					143			131			284			233
					26,515			26,290			52,703			51,330
Income before gain on disposition of property and minority interest					3,614			1,776			7,121			3,503
Gain on disposition of property					9,461			—			9,461			—
Income before minority interest					13,075			1,776			16,582			3,503
Income allocated to minority interest					1,786			243			2,265			480
Net income				$	11,289		$	1,533		$	14,317		$	3,023
Weighted average common shares outstanding—basic					15,592			15,527			15,583			15,526
Dilutive effect of outstanding options and restricted shares					232			243			231			243
Weighted average common shares outstanding—diluted					15,824			15,770			15,814			15,769
Per common share:
Net income—basic				$	.72		$	.10		$	.92		$	.19
Net income—diluted				$	.71		$	.10		$	.91		$	.19
Dividends declared and paid per share outstanding				$	.42		$	.41		$	.84		$	.82

See accompanying notes to financial statements.

3

---

The Town and Country Trust
Consolidated Statements of Cash Flows
(Unaudited)

				Six Months Ended June 30,
				2000			1999
				(in thousands)
Operating activities
Income before minority interest				$	16,582		$	3,503
Adjustments to reconcile income before minority interest to net cash provided by operating activities:
	Gain from disposition of property				(9,461	)		—
	Depreciation				11,477			13,928
	Interest expense related to the amortization of deferred financing costs				284			233
	Amortization of unearned compensation				295			192
	Changes in operating assets and liabilities:
		Increase in restricted cash			(260	)		(180	)
		Decrease in receivables, prepaid expenses and other assets			1,093			1,702
		Increase in accounts payable, other liabilities, accrued interest and security deposits			1,813			889
Net cash provided by operating activities					21,823			20,267
Investing activities
Property acquisitions					(33,038	)		(25,355	)
Additions to real estate assets					(2,974	)		(3,112	)
Net proceeds from disposition of property					19,633			—
Additions pursuant to value-added capital improvements program					(5,185	)		(5,074	)
Net cash used in investing activities					(21,564	)		(33,541	)
Financing activities
Borrowings on mortgages payable					16,200			53,525
Payments on mortgages payable					(6,162	)		(24,102	)
Borrowings on notes payable					5,000			—
Proceeds from exercise of share options					670			64
Payment of financing costs					(242	)		(686	)
Dividends and distributions					(15,448	)		(14,953	)
Net cash provided by financing activities					18			13,848
Increase in cash and cash equivalents					277			574
Cash and cash equivalents at beginning of period					2,280			3,784
Cash and cash equivalents at end of period				$	2,557		$	4,358
Cash interest paid				$	15,684		$	13,705

See accompanying notes to financial statements.

4

---

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, 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, and the six months ended June 30, 2000, 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
Town and Country Gardens East		Palm Beach Gardens, FL		June 22, 2000		448		$	32,500,000

    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.

    On June 22, 2000 the Company sold the Colonial Park garden apartment community consisting of 626 units in Harrisburg, PA. The proceeds of the sale of Colonial Park were used to acquire the Gardens East community, in Palm Beach Gardens, Florida, 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 June 30, 2000.

3.  Notes Payable

    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.

4.  Subsequent Events

    On July 27, 2000 the Company announced that its Board of Trustees had declared a dividend for the quarter ended June 30, 2000 in the amount of $.42 per share, aggregating $6,714,219. Concurrent with the payment of the dividend, a $1,035,944 limited partnership distribution will be made to the minority interest holders. The dividend and distribution will be paid on September 8, 2000 to holders of record on August 18, 2000.

5

---

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, 2000 and for the three-month and six-month periods ended June 30, 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. 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, 2000 and 1999

    Income before minority interest for the three months ended June 30, 2000 was $13,075,000 compared to $1,776,000 for the same period in 1999. Funds from operations increased by 6.3% to $9,345,000 for the three months ended June 30, 2000 from $8,788,000 for the three months ended June 30, 1999. Revenues were $30,129,000 for the three months ended June 30, 2000 compared to $28,066,000 for the same period in 1999, an increase of $2,063,000 or 7.4%. On a same-property basis (i.e., those properties owned by the Company for all of 2000 and 1999), revenue increased by $1,172,000 or 4.6% due to increases in rental rates. Properties acquired during 1999 and the second quarter of 2000 net of the reduction in revenue from the sale of two properties contributed $891,000 in revenue increases during the quarter. Occupancy was 94.6% for the second quarter of 2000 for all properties and 95.1% on a same-store basis compared to 94.9% and 95.6%, respectively, for the second quarter of 1999.

    Total expenses excluding depreciation and interest were $12,827,000 for the three months ended June 30, 2000 compared to $12,219,000 for the same period in 1999, an increase of $608,000. Of this increase, $417,000 is due to the net effect of the newly-acquired properties and the disposition of two properties. Same-store operating expenses, excluding general and administrative expenses and depreciation, increased by $78,000 or 0.8% over the second quarter of 1999. General and administrative expenses increased by $113,000 or 13.6% from the same period in 1999.

    Interest expense increased by $878,000 over that expense in the second quarter of 1999 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.

Results of Operations—Six Months Ended June 30, 2000 and 1999

    Income before minority interest for the six months ended June 30, 2000 was $16,582,000, compared to $3,503,000 for the same period in 1999. Funds from operations increased by 6.7% to $18,480,000 for the six months ended June 30, 2000 from $17,325,000 for the six months ended June 30, 1999. Revenues were $59,824,000 for the six months ended June 30, 2000 compared to $54,833,000 for the same period in 1999, an increase of $4,991,000 or 9.1%. On a same-property basis, revenue increased by $2,408,000 or 4.8%, over the first six months of 1999 due to increases in rental rates and improvements in occupancy.

6

---

Properties acquired during 1999 and the second quarter of 2000 contributed $2,583,000 in revenue increase during the quarter, net of the reduction in revenue from the sale of two properties. Occupancy was 94.5% for the first six months of 2000 for all properties and 95.1% on a same-store basis compared to 94.5% and 95.0%, respectively, for the first half of 1999.

    Total expenses excluding depreciation and interest were $25,564,000 for the six months ended June 30, 2000 compared to $23,813,000 for the same period in 1999, an increase of $1,751,000. Of this increase, $1,179,000 is due to the newly-acquired properties net of the reduction in expense from the sale of two properties. Same-store operating expenses and general and administrative expenses, excluding depreciation, increased by $572,000 or 2.6% over the first six months of 1999. Depreciation for the six months ended June 30, 2000 decreased by $2,451,000 from the six months ended June 30, 1999 due to the new acquisitions offset by items that became fully depreciated.

    Interest expense for the six months ended June 30, 2000 increased by $2,022,000 from the expense in the same period of 1999 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, 2000 of $21,823,000 of which $15,448,000 was paid out in dividends and distributions.

    During 1999 and the first six months of 2000, the Company acquired five properties, comprising 1,560 units, located in Orlando, Sarasota, Bradenton and Palm Beach Gardens, Florida. The total contract price of these acquisitions was $96,800,000. The acquisitions were funded through borrowings on the revolving credit facility, the revolving line of credit, property specific debt and in two cases, the sale of properties.

    In September 1997, the Company entered into an agreement that provides a $375,000,000 collateralized financing facility. This facility was increased to $382,000,000 in connection with the addition of Gardens East to the collateral pool as a replacement for the property that was sold. The initial borrowing under the facility of $300,000,000 matures in 2008 and bears a fixed interest rate of 6.91%. The remaining $82,000,000 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. 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, 2000 were $377,200,000.

    The Company has a $50,000,000 revolving line of credit with a bank. 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. Initially, the line of credit was available solely for acquisitions. However, on April 10, 2000 the Company modified the terms to provide that $10,000,000 of the facility may be used for working capital purposes. As of June 30, 2000, $21,250,000 was outstanding under this facility.

7

---

    The following table sets forth certain information regarding the Company's outstanding indebtedness as of June 30, 2000 (in thousands):

									June 30, 2000
							% of Debt
				Amount					Interest Rate
Fixed Rate Debt:		Collateralized facility		$	300,000		65.9	%	6.91%
		Conventional mortgages			61,529		13.5	%	6.81%-7.85%
					361,529		79.4	%
Floating Rate Debt:		Revolving credit facility			77,200		17.0	%	6.95%
		Line of Credit			16,250		3.6	%	7.84%
					93,450		20.6	%
Total Mortgage Debt:				$	454,979		100.0	%	7.00%
Note Payable				$	5,000

    Rental income from the properties is received on a monthly basis. All cash accumulated for the payment of quarterly dividends is invested in short-term instruments. Management believes that the Company will have access to the capital resources necessary to expand and develop its business. The Company expects that adequate cash will be available to fund its operating and administrative expenses, capital expenditures, debt service obligations and payments of dividends in the foreseeable future.

Safe Harbor Statement

    With the exception of historical information, the matters discussed in this Report are forward-looking statements that involve risks and uncertainties and actual results could differ materially from those discussed. Certain statements herein and in future filings by the Trust with the Securities and Exchange Commission and in written and oral statements made by or with the approval of any authorized executive officer of the Trust constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Trust intends that such forward-looking statements be subject to the safe harbors created by such Acts. The words and phrases "looking ahead," "we are confident," "should be," "will be," "predicted," "believe," "expect," "anticipate," and similar expressions identify forward-looking statements. These forward-looking statements reflect the Trust's current views in respect of future events and financial performance, but are subject to many uncertainties and factors relating to the Trust's operations and business environment which may cause the actual results of the Trust to differ materially from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties include, but are not limited to, competition for tenants and acquisitions from others, many of whom may have greater financial resources than the Trust; changes in rental rates which may be charged by the Trust in response to market rental rate changes or otherwise; changes in federal income tax laws and regulations; any changes in the Trust's capacity to acquire additional apartment properties and any changes in the Trust's financial condition or operating results due to an acquisition of additional apartment properties; unanticipated increases in operating expenses due to factors such as casualties to the Trust's apartment properties or adverse weather conditions in the geographic locations of the Trust's apartment properties; interest rate fluctuations; and local economic and business conditions, including, without limitation, conditions which may affect public securities markets generally, the real estate investment trust industry, or the markets in which the Trust's apartment properties are located. The Trust undertakes no obligation to update publicly or revise any forward-looking statements whether as a result of new information, future events or otherwise.

8

---

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)		Exhibit Number		Exhibit
		27		Financial Data Schedule1

(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

---

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

10

---

QuickLinks

Part I: Financial Information
Item 1. Financial Statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Part II: Other Information

SIGNATURE

FAQ | Privacy | Terms Of Service | Contact