TCT Town & Country Trust

The Town and Country Trust Reports Second Quarter 2004 Results BALTIMORE, Aug. 6 /PRNewswire-FirstCall/ -- The Town and Country Trust (NYSE:TCT), a multifamily real estate investment trust, today reported results for the second quarter and six months ended June 30, 2004. All per share results are reported on a fully diluted basis. For the second quarter, the Company reported a net loss of $2.4 million, or $0.14 per share, versus net income of $2.6 million, or $0.16 per share, for the second quarter of last year. For the six months ended June 30, 2004, the Company reported a net loss of $1.6 million, or $0.10 per share, compared to net income of $6.5 million, or $0.40 per share, reported for the first half of last year. During the second quarter, the Company revised the estimated useful lives of certain depreciable assets, principally carpet, to more closely approximate their economic lives based on recent experience. This change in accounting estimate resulted in additional depreciation, a non-cash expense, of $5.7 million ($0.29 per share) in both the second quarter and six month 2004 periods. In addition, the Company also recorded impairment losses of $272,000 in the second quarter and $1,672,000 for the six month 2004 period relating to the estimated impairment of its two Charlotte, North Carolina apartment communities. One of these communities was sold during the second quarter and the other, which was held for sale at June 30, was sold on August 5, 2004. Funds From Operations ("FFO") for the second quarter of 2004 was $8.3 million, or $0.42 per share, compared to $9.6 million, or $0.51 per share, for the second quarter last year. FFO for the six month 2004 period was $14.6 million, or $0.75 per share, compared to $19.2 million, or $1.03 per share for the six month period last year. FFO for both 2004 periods was adversely affected by the impairment losses but was unaffected by the additional depreciation recorded in connection with the change in accounting estimate. The Company computes FFO in a manner consistent with the definition adopted by NAREIT (The National Association of Real Estate Investment Trusts) and considers FFO to be its primary supplemental performance measure. A reconciliation of FFO to net income is included in the accompanying Financial Highlights table. For the second quarter, same store net operating income grew by $1.0 million, or 6.7%. Both net income and FFO for the quarter were adversely affected by a number of other factors including (i) the interim investment of the additional capital provided by the Company's 2003 and 2004 financings, (ii) short-term dilution associated with the Company's portfolio repositioning program, (iii) interest expense relating to additional investment in certain redevelopment communities and (iv) increases in certain general and administrative expenses. The impact of these factors was moderated to an extent by a $254,000 decrease in same store operating expenses. Same Store Results In the quarterly comparison, 12,332 apartments in 35 communities (92.6% of total apartments owned at June 30, 2004) were classified as "same store," i.e., owned and held for investment throughout both years. For the second quarter, same store rental revenues grew by 2.8%, principally attributable to rental rate increases, net of concessions, of 2.8%, and a 50 basis point decline in occupancy to 92.7%. On a sequential quarterly basis, same store occupancy grew by 60 basis points from the first quarter 2004. During the second quarter, same store operating expenses decreased by $254,000, or 2.1%, reflecting a $127,000 decrease in utility expense, principally natural gas, and a $110,000 decrease in insurance expense. A reconciliation of NOI to net income is included in the accompanying Financial Highlights. Capital Market Activities Over the past year, the Company has raised additional capital on two separate occasions. In August 2003, the Company sold $74.75 million of 5.375% Convertible Senior Notes and, in January 2004, the Company issued 1.4 million common shares in a private sale at $24.80 per share. Proceeds from both transactions were used, on an interim basis, primarily to repay floating rate debt having an annual interest cost of approximately 2%. These funds are intended to provide long term capital for portfolio improvement and expansion. To date, however, the Company has been unable to find suitable investment opportunities in its preferred markets at acceptable pricing as the investment climate for multifamily properties remains extremely competitive. While the extent and timing of additional property acquisitions are unknown, when this capital is fully invested in real estate, it is expected to provide returns that are significantly higher than 2%. Consequently, these financing transactions had a dilutive effect on second quarter 2004 results. Interest expense on the Convertible Senior Notes during the quarter, including amortization of financing costs, was $1.0 million. Impairment Loss In connection with the Company's strategic decision to exit Charlotte, North Carolina, an additional impairment charge of $272,000 was recorded during the second quarter. One of the two apartment communities was sold during the quarter and the second, which was held for sale at June 30, was sold in early August, 2004. Net cash proceeds of these sales aggregated approximately $31 million which has been temporarily invested in money market instruments. Portfolio Repositioning and Redevelopment One aspect of the Company's program to reposition its portfolio is through the replacement of certain older properties in less desirable locations with newer properties in superior locations with better prospects for cash flow growth. Excluding the Charlotte communities, five older communities have been sold and three newer communities have been acquired since the beginning of 2003. While the newer properties were acquired at initial investment yields, after an appropriate reserve for capital expenditures, that are comparable to the exit yields on the properties sold, the repositioning, nevertheless, had a dilutive effect on second quarter FFO and net income estimated at $1.1 million and $1.3 million, respectively. The second aspect of the Company's repositioning program is the upgrade and repositioning of individual core assets within their respective markets. These improvements are designed to enhance competitiveness by improving the community's ability to raise rents, retain residents and increase occupancy. Although these programs increase the value of the portfolio over time, the benefits are often not immediate and are difficult to measure, particularly in today's challenging apartment markets. The cost of the capital utilized in these redevelopment activities is, however, reflected as incurred in the Company's results. At June 30, 2004, the Company's investment in its same store portfolio was approximately $33 million greater than it was at the end of the second quarter last year. General and administrative expenses During the second quarter, general and administrative expenses increased by $221,000 including $91,000 in increased payroll and related expense, and $98,000 in increased legal fees, Directors and Officers insurance premiums and Sarbanes-Oxley compliance related expenses. Recent Acquisitions During 2003, the Company acquired three apartment communities containing 733 apartment homes. During the second quarter of 2004, these communities experienced occupancy of 92.5% and contributed rental revenues of $2.7 million and net operating income of $1.7 million. Additional information regarding the Company's financial position and results, including selected market operating data, appear in the accompanying tables. The Town and Country Trust is a multifamily real estate investment trust that owns and operates 38 apartment communities with 13,065 apartment homes in the Mid-Atlantic and Florida. Additional information regarding The Town and Country Trust can be found on the Trust's web site at http://www.tctrust.com/ With the exception of historical information, the matters herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied. Examples of such factors that could result in such differences include but are not limited to: interest rate fluctuations; competition for tenants; 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; 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, and other factors referred to in the Trust's periodic and other reports filed with the Securities and Exchange Commission. The Town and Country Trust Financial Highlights (In thousands, except per share data - unaudited) Three Months Six Months Ended June 30, Ended June 30, 2004 2003 Change 2004 2003 Change Revenues: Gross rental income $32,381 $29,743 8.9% $64,578 $58,458 10.5% Less: Vacancy and credit loss 2,346 2,117 10.8% 5,003 4,397 13.8% Net rental income 30,035 27,626 8.7% 59,575 54,061 10.2% Other rental revenue 1,334 1,249 6.8% 2,662 2,570 3.6% Total rental revenues 31,369 28,875 8.6% 62,237 56,631 9.9% Operating expenses: Real estate taxes and insurance 3,371 3,158 6.7% 6,754 6,153 9.8% Utilities 1,718 1,785 -3.8% 3,931 3,826 2.7% Repairs and maintenance 4,016 3,722 7.9% 7,402 7,010 5.6% Marketing and advertising 1,200 1,064 12.8% 2,308 1,999 15.5% Management expense 1,607 1,737 -7.5% 3,384 3,311 2.2% Other 1,259 1,278 -1.5% 2,513 2,385 5.4% Total operating expenses 13,171 12,744 3.4% 26,292 24,684 6.5% Net operating income (NOI) (c) 18,198 16,131 12.8% 35,945 31,947 12.5% Real estate depreciation and amortization 11,644 5,096 128.5% 17,037 9,639 76.8% Interest expense 8,325 6,831 21.9% 16,306 13,318 22.4% General and administrative expenses 1,365 1,144 19.3% 3,192 2,297 39.0% Other depreciation and amortization 284 178 548 355 (Loss) income before discontinued operations and minority interests (a) (3,420) 2,882 (1,138) 6,338 Loss (income) allocated to minority interest from continuing operations 433 (385) 136 (847) Minority interest distribution in excess of earnings (b) - (573) - (975) (Loss) income from continuing operations (2,987) 1,924 (1,002) 4,516 Discontinued Operations: Income from discontinued operations 894 769 945 2,236 Impairment of assets held for disposition (272) - (1,672) - (Income) loss allocated to minority interest from discontinued operations (79) (103) 97 (299) Income (loss) from discontinued operations 543 666 (630) 1,937 Net (loss) income $(2,444) $2,590 $(1,632) $6,453 Basic (loss) earnings per share: (Loss) income from continuing operations $(0.17) $0.12 $(0.06) $0.28 Income (loss) from discontinued operations 0.03 0.04 (0.04) 0.12 Net (loss) income $(0.14) $0.16 $(0.10) $0.40 Diluted (loss) earnings per share: (Loss) income from continuing operations $(0.17) $0.12 $(0.06) $0.28 Income (loss) from discontinued operations 0.03 0.04 (0.04) 0.12 Net (loss) income $(0.14) $0.16 $(0.10) $0.40 Weighted average common shares outstanding-basic 17,018 15,997 16,745 15,990 Dilutive effect of outstanding options and restricted shares (c) - 291 - 257 Weighted average common shares outstanding-diluted 17,018 16,288 16,745 16,247 Dividends declared per share $0.43 $0.43 $0.86 $0.86 Funds from operations (d): Net (loss) income $(2,444) $2,590 $(1,632) $6,453 (Loss) income allocated to minority interest (354) 1,061 (233) 2,121 Gain on involuntary conversion (558) - (558) (621) Real estate depreciation (e) 11,644 5,903 17,037 11,294 Funds from operations $8,288 $9,554 -13.3% $14,614 $19,247 -24.1% Funds from operations per share: Basic $0.43 $0.52 $0.76 $1.04 Diluted $0.42 $0.51 -17.5% $0.75 $1.03 -27.2% See accompanying Notes to Supplemental Information The Town and Country Trust Same Store Market Operating Data Three Months Three Months Ended Ended June 30, March 31, 2004 2003 Change 2004 Property Operating Income ($000's) Rental revenue $28,607 $27,826 2.8% $28,114 Operating expenses 12,132 12,386 -2.1% 12,121 Same Store net operating income (NOI) $16,475 $15,440 6.7% $15,993 Reconciliation of Same Store NOI to Continuing NOI Same Store net operating income (NOI) $16,475 $15,440 $15,993 2003 Acquisitions rental revenue 2,763 1,050 2,754 2003 Acquisitions operating expenses (1,040) (359) (1,000) Net operating income (NOI) $18,198 $16,131 $17,747 Rental Revenue ($000's) Baltimore $9,882 $9,603 2.9% $9,704 Metropolitan Washington, DC Northern Virginia 5,561 5,374 3.5% 5,417 Maryland Suburbs 3,391 3,127 8.4% 3,248 Pennsylvania 3,789 3,852 -1.6% 3,793 Orlando, Florida 1,943 1,830 6.2% 1,927 Sarasota/Bradenton, Florida 1,726 1,649 4.7% 1,708 Newark, Delaware 1,140 1,217 -6.3% 1,133 Palm Beach Gardens, Florida 1,175 1,174 0.1% 1,184 Total $28,607 $27,826 2.8% $28,114 Average Monthly Rent (net of concessions) Baltimore 760 727 4.5% 747 Metropolitan Washington, DC Northern Virginia 1,055 1,035 1.9% 1,046 Maryland Suburbs 930 904 2.9% 929 Pennsylvania 653 629 3.8% 649 Orlando, Florida 714 703 1.6% 718 Sarasota/Bradenton, Florida 755 742 1.8% 751 Newark, Delaware 844 875 -3.5% 879 Palm Beach Gardens, Florida 898 898 0.0% 896 Total $807 $785 2.8% $802 Occupancy Baltimore 91.5% 93.1% -1.6% 91.6% Metropolitan Washington, DC Northern Virginia 94.5% 93.7% 0.8% 93.1% Maryland Suburbs 94.5% 91.2% 3.3% 91.9% Pennsylvania 90.1% 94.9% -4.8% 90.3% Orlando, Florida 93.8% 91.0% 2.8% 92.9% Sarasota/Bradenton, Florida 94.6% 92.6% 2.0% 95.1% Newark, Delaware 92.0% 94.6% -2.6% 88.0% Palm Beach Gardens, Florida 93.3% 95.2% -1.9% 95.4% Total 92.7% 93.2% -0.5% 92.1% The Town and Country Trust Same Store Market Operating Data Six Months Ended June 30, 2004 2003 Change Property Operating Income ($000's) Rental revenue $56,720 $55,580 2.1% Operating expenses 24,252 24,324 -0.3% Same Store net operating income (NOI) $32,468 $31,256 3.9% Reconciliation of Same Store NOI to Continuing NOI Same Store net operating income (NOI) $32,468 $31,256 2003 Acquisitions rental revenue 5,517 1,050 2003 Acquisitions operating expenses (2,040) (359) Net operating income (NOI) $35,945 $31,947 Rental Revenue ($000's) Baltimore $19,585 $19,065 2.7% Metropolitan Washington, DC Northern Virginia 10,978 10,718 2.4% Maryland Suburbs 6,639 6,281 5.7% Pennsylvania 7,582 7,662 -1.0% Orlando, Florida 3,870 3,725 3.9% Sarasota/Bradenton, Florida 3,434 3,327 3.2% Newark, Delaware 2,273 2,445 -7.0% Palm Beach Gardens, Florida 2,359 2,357 0.1% Total $56,720 $55,580 2.1% Average Monthly Rent (net of concessions) Baltimore 754 724 4.1% Metropolitan Washington, DC Northern Virginia 1,050 1,039 1.1% Maryland Suburbs 930 904 2.9% Pennsylvania 651 632 3.0% Orlando, Florida 716 714 0.3% Sarasota/Bradenton, Florida 753 746 0.9% Newark, Delaware 861 873 -1.4% Palm Beach Gardens, Florida 897 900 -0.3% Total $805 $786 2.4% Occupancy Baltimore 91.5% 92.7% -1.2% Metropolitan Washington, DC Northern Virginia 93.8% 93.1% 0.7% Maryland Suburbs 93.2% 91.9% 1.3% Pennsylvania 90.2% 94.1% -3.9% Orlando, Florida 93.4% 90.5% 2.9% Sarasota/Bradenton, Florida 94.8% 93.3% 1.5% Newark, Delaware 90.0% 95.2% -5.2% Palm Beach Gardens, Florida 94.3% 95.0% -0.7% Total 92.4% 92.9% -0.5% Community Information Communities 2004 2003 Held for Same Acquisitions Disposition Total Store Market: Baltimore 10 2 12 Metropolitan Washington, DC Northern Virginia 5 1 6 Maryland Suburbs 4 4 Pennsylvania 7 7 Orlando, Florida 3 3 Sarasota/Bradenton, Florida 3 3 Charlotte 1 1 Newark, Delaware 2 2 Palm Beach Gardens, Florida 1 1 Total 35 3 1 39 Apartment Homes % of 2004 2003 Held for Total Same Acquisitions Disposition Total Portfolio Market: Store Baltimore 4,592 405 4,997 37.5% Metropolitan Washington, DC Northern Virginia 1,823 328 2,151 16.2% Maryland Suburbs 1,236 1,236 9.3% Pennsylvania 2,073 2,073 15.6% Orlando, Florida 930 930 7.0% Sarasota/Bradenton, Florida 742 742 5.6% Charlotte 250 250 1.9% Newark, Delaware 488 488 3.7% Palm Beach Gardens, Florida 448 448 3.2% Total 12,332 733 250 13,315 100.0% The Town and Country Trust Summary Balance Sheets (In thousands, unaudited) June 30, December 31, 2004 2003 Assets: Real estate, at cost $830,527 $814,766 Accumulated depreciation (293,978) (276,603) Net real estate assets 536,549 538,163 Real estate and other assets held for disposition 18,237 32,561 Other assets 26,509 18,266 Total Assets $581,295 $588,990 Liabilities and shareholders' equity: Mortgage debt $426,619 $427,318 5.375% Convertible Senior Notes due 2023 74,750 74,750 Mortgage debt and other liabilities held for disposition 141 23,734 Other liabilities 15,729 16,270 Minority interest 7,945 7,556 Shareholders' equity 56,111 39,362 Total liabilities and shareholders' equity $581,295 $588,990 Capitalization June 30, 2004 (In thousands, except per share data) % of % of Total Interest Amount Debt Capitalization Rate Maturity Debt: Secured Fixed Rate: Fannie Mae (f) $340,000 67.9% 6.64% April, 2008 Freddie Mac 33,175 6.6% 6.81% April, 2009 Freddie Mac 17,561 3.5% 7.85% Nov., 2009 Freddie Mac 24,731 4.9% 4.15% April, 2007 Total Secured Fixed Rate Debt 415,467 82.9% 41.4% 6.55% Secured Floating Rate: Fannie Mae (f) 11,152 2.2% 1.84% April, 2008 Total Secured Floating Rate Debt 11,152 2.2% 1.1% 1.84% Total Mortgage debt 426,619 85.1% 42.5% 6.14% Unsecured: 5.375% Convertible Senior Notes due 2023 74,750 14.9% 5.38% Aug., 2023 Total Unsecured debt 74,750 14.9% 7.5% 5.38% Total Debt $501,369 100.0% 50.0% 6.27% Equity: Common shares outstanding 17,419 OP units 2,467 Total shares and OP units outstanding 19,886 Common share price at June 30, 2004 $25.24 Total equity capitalization, at market $501,906 50.0% Total market capitalization (debt and equity) $1,003,275 100.0% See accompanying Notes to Supplemental Information The Town and Country Trust Notes to Supplemental Information (unaudited) (a) Minority interests represent certain limited partnership interests, equivalent to 2,467,000 shares. (b) In 2003, represents additional allocation of income required under generally accepted accounting principles necessary to keep the minority interest balance as reported in the Company's Balance Sheet from falling below zero. (c) In accordance with SFAS No. 128, "Earnings Per Share," the weighted average number of common shares used in the calculation of diluted per share amounts is adjusted for the dilutive effects of restricted stock and stock options based on the treasure stock method only if an entity records earnings from continuing operations as such adjustments would otherwise be anti- dilutive to earnings per share from continuing operations. For the three and six month periods ended June 30, 2004, the average number of common shares used in the diluted loss per share has not been adjusted for the effects of approximately 270,000 and 290,000, respectively, dilutive shares. (d) Funds from operations ("FFO") is computed as income (loss) (computed in accordance with accounting principles generally accepted in the United States) ("GAAP") excluding gains and losses from sales and involuntary conversions of operating properties, plus real estate depreciation. This computation of FFO is consistent with the formal definition promulgated by the National Association of Real Estate Investment Trusts (NAREIT). The reconciliation of FFO to Income, the most directly comparable financial measure calculated in accordance with GAAP, is included in the Financial Highlights. Management generally considers FFO to be a useful measure for reviewing the comparative operating performance of the Trust between periods or as compared to other companies, without giving effect to real estate depreciation and amortization, which assumes that the value of real estate diminishes predictably over time and which can vary among owners of similar assets based upon historical cost and useful life estimates. Net operating income ("NOI") is defined by the Company as total revenue less property operating expenses. Management generally considers NOI to be an appropriate supplemental measure to help understand the operating performance of the Trust's properties. NOI is a widely used measure within the real estate investment industry, including the multifamily sector. A reconciliation of NOI to Net income is included in the Financial Highlights. FFO and NOI should not be considered alternatives to net income as a measure of performance nor do they represent cash generated from operating activities in accordance with GAAP and, therefore, they should not be considered indicative of cash available to fund cash needs. (e) Includes real estate depreciation on discontinued operations, which is through the date of classification as held for disposition. (f) The information shown for this debt gives effect to two interest rate swap agreements in the aggregate notional amount of $40 million, which have the effect of fixing the interest rate on this amount of debt at approximately 4.63% through April 2007. DATASOURCE: The Town and Country Trust CONTACT: James Dolphin, Executive Vice President, +1-410-539-7600, or Alan W. Lasker, Sr. Vice President and CFO, +1-212-407-2151, both of The Town and Country Trust; or Investor Inquiries: Joseph Calabrese of Financial Relations Board, +1-212-445-8434, for The Town and Country Trust Web site: http://www.tctrust.com/

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