<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-38183
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
GROVE PROPERTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 06-139108
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
598 ASYLUM AVENUE
HARTFORD, CONNECTICUT 06105
(860) 246-1126
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOSEPH R. LABROSSE
CHIEF FINANCIAL OFFICER
GROVE PROPERTY TRUST
598 ASYLUM AVENUE
HARTFORD, CONNECTICUT 06105
(860) 246-1126
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------
COPIES TO:
PAUL G. HUGHES JOHN J. KELLEY III
CUMMINGS & LOCKWOOD KING & SPALDING
FOUR STAMFORD PLAZA 191 PEACHTREE STREET
STAMFORD, CONNECTICUT 06904 ATLANTA, GEORGIA 30303
(203) 351-4207 (404) 572-4600
(203) 351-4499 (FACSIMILE) (404) 572-5100 (FACSIMILE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable following the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest,
par value $0.01....... 5,175,000 shares $11.75 $60,806,250 $18,426.14(3)
</TABLE>
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(1) Includes 675,000 shares which the Underwriters have the right to purchase
solely to cover over-allotments and up to 1,358,525 shares which may be
sold directly by the Company to certain investors.
(2) Estimated pursuant to Rule 457(c) of the rules and regulations under the
Securities Act of 1933 solely for the purpose of calculating the
registration fee, based upon the average of the high and low sales price
of the Common Shares as reported on the American Stock Exchange Composite
Tape on October 14, 1997.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1997
PROSPECTUS
4,500,000 SHARES
GROVE PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
LOGO
--------
Grove Property Trust ("Grove" or the "Company") is a self-managed and self-
administered equity real estate investment trust ("REIT") that is engaged in
the acquisition, repositioning, management and operation of mid-priced
multifamily communities in the Northeastern United States. Grove currently owns
interests in and operates 29 multifamily properties containing a total of 2,763
units in Connecticut, Massachusetts and Rhode Island (the "Apartment
Communities"). For the six months ended June 30, 1997, the Apartment
Communities had an average economic occupancy rate of approximately 96.4% and
an average monthly rental rate of approximately $697 per unit.
All of the common shares of beneficial interest, par value $0.01 per share,
of the Company (the "Common Shares") offered hereby are being sold by the
Company. Of the 4,500,000 Common Shares offered hereby, 3,141,475 shares are
being offered to the public in an underwritten public offering (the "Offering")
and 1,358,525 Common Shares are being offered directly to certain investors at
the price to public set forth below (the "Concurrent Offering," together with
the Offering, the "Offerings"). Any shares not purchased in the Concurrent
Offering will be added to the shares offered by the Underwriters in the
Offering. The closing of the Offering is not contingent on the closing of the
Concurrent Offering. See "The Concurrent Offering."
The Company makes regular distributions to its shareholders and expects to
increase its annual distribution following the completion of the Offering to
$0.68 per share. The Company intends to make a distribution based on its
historical distribution rate to holders of record as of the business day
preceding the closing of the Offering for the period beginning October 1, 1997
and ending on such record date, followed by a distribution to holders of record
as of December 31, 1997 for the period beginning the date of closing of the
Offering and ending on December 31, 1997. See "Distribution Policy."
The Common Shares are traded on the Emerging Company Marketplace of the
American Stock Exchange (the "AMEX") under the symbol "GVE.EC." The Common
Shares have been approved for listing on the AMEX (Regular List) under the
symbol "GVE," subject to notice of issuance. On October 29, 1997, the last
reported sale price for the Common Shares was $11.50 per share.
To ensure that the Company maintains its qualification as a REIT, actual and
constructive ownership of Common Shares by any person is limited by the
Company's Third Amended and Restated Declaration of Trust. See "Description of
Shares of Beneficial Interest--Restrictions on Transfer."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting." No underwriting discounts or commissions will be
paid in connection with the Common Shares sold in the Concurrent Offering.
(2) Before deducting expenses payable by the Company estimated at $1,200,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 675,000 Common Shares, on the same terms as the Offering,
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and $ ,
respectively, assuming that all Common Shares offered in the Concurrent
Offering are purchased.
--------
The Common Shares being offered in the Offering are being offered by the
several Underwriters named herein, subject to prior sale, when, as and if
accepted by them, and subject to certain conditions. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that certificates for the Common Shares
offered in the Offering will be available for delivery on or about ,
1997, at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
--------
SMITH BARNEY INC. LEHMAN BROTHERS
, 1997
<PAGE>
Top Photo:
Front View of Company's Apartment Community, Dean Estates in Taunton, Ma.
Bottom Left Photo:
Front View of Company's Apartment Community, Arbor Commons in Ellington, Ct.
Bottom Right Photo:
View of Entrance to Company's Apartment Community, River's Bend in Windsor, Ct.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. fOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES OFFERED
HEREBY ON THE EMERGING COMPANY MARKETPLACE OF THE AMERICAN STOCK EXCHANGE IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES ACT. SEE
"UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY....................................................... 1
The Company............................................................. 1
Business Objectives and Growth Strategies............................... 3
Recent Developments..................................................... 3
The Properties.......................................................... 4
Company Structure....................................................... 6
The Offerings........................................................... 7
Summary Selected Financial Information.................................. 7
RISK FACTORS............................................................. 10
Absence of Appraisals................................................... 10
Real Estate Investment Considerations................................... 10
Expansion into New Geographic Markets................................... 12
Dependence on Limited Geographic Area................................... 12
Limitation on Control of Partially Owned Properties..................... 13
Real Estate Financing Risks............................................. 13
Potential Conflicts of Interest......................................... 13
Dependence on Key Personnel............................................. 14
Adverse Tax Consequences of Failure to Qualify as a REIT................ 14
Required Distributions; Potential Requirements to Borrow................ 15
Limits on Changes in Control............................................ 16
Possible Environmental Liabilities...................................... 17
Shares Available for Future Sale........................................ 18
Changes in Investment and Financing Practices Without Shareholder
Approval............................................................... 19
Share Price Volatility.................................................. 20
Uninsured Loss.......................................................... 20
Offer and Sale of Unregistered Securities............................... 20
THE COMPANY.............................................................. 22
Overview................................................................ 22
Business Objectives and Growth Strategies............................... 23
The Operating Partnership............................................... 26
THE CONCURRENT OFFERING.................................................. 26
USE OF PROCEEDS.......................................................... 27
DISTRIBUTION POLICY...................................................... 28
PRICE RANGE OF COMMON SHARES AND DIVIDENDS............................... 29
CAPITALIZATION........................................................... 30
SELECTED FINANCIAL INFORMATION........................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 34
Overview................................................................ 34
Results of Operations................................................... 34
Liquidity and Capital Resources......................................... 38
Funds from Operations................................................... 39
Seasonality............................................................. 39
Inflation............................................................... 39
BUSINESS AND PROPERTIES.................................................. 40
Multifamily Market Overview............................................. 40
The Apartment Communities............................................... 46
Summary of Features and Amenities of the Apartment Communities and the
Apartment Acquisition Community........................................ 48
The Retail Properties................................................... 50
The Excluded Properties................................................. 50
Management Strategies................................................... 50
Property Management..................................................... 51
Employees............................................................... 53
Competition............................................................. 53
Legal Proceedings....................................................... 53
Regulation.............................................................. 53
Environmental Matters................................................... 54
Insurance............................................................... 55
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT................................................................ 56
Trust Managers and Executive Officers.................................... 56
Committees of the Board.................................................. 58
Compensation of the Trust Managers....................................... 58
Executive Compensation................................................... 59
Employment Agreements.................................................... 59
Non-Competition Agreements............................................... 59
Option Plans............................................................. 60
CERTAIN RELATIONSHIPS AND TRANSACTIONS.................................... 61
The January 1996 Acquisition............................................. 61
Property Management and Construction Services............................ 61
Loans by NAVAB Associates................................................ 61
The Consolidation Transactions........................................... 61
Management of Excluded Properties........................................ 62
The May 1997 Acquisitions................................................ 62
The July 1997 Acquisitions............................................... 63
The September 1997 Acquisitions.......................................... 63
Brokerage Services....................................................... 63
Guarantees by Damon and
Brian Navarro........................................................... 64
PRINCIPAL SHAREHOLDERS.................................................... 65
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST.............................. 66
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS................................................................... 70
Duration................................................................. 70
Board of Trust Managers.................................................. 70
Meetings of Shareholders................................................. 70
Preferred Shares......................................................... 70
Business Combinations.................................................... 71
Control Share Acquisitions............................................... 71
Amendment of the Charter................................................. 72
Termination of the Company and REIT Status............................... 72
Transactions Between the Company and its Trustees or Officers............ 72
Limitation of Liability and Indemnification.............................. 72
Maryland Asset Requirements.............................................. 73
PRACTICES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES............... 73
SHARES AVAILABLE FOR FUTURE SALE.......................................... 75
Registration Rights...................................................... 76
THE OPERATING PARTNERSHIP AGREEMENT....................................... 77
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 80
Taxation of the Company.................................................. 80
Failure To Qualify....................................................... 85
Taxation of Taxable U.S. Shareholders Generally.......................... 85
Taxation of Tax-Exempt Shareholders...................................... 86
Taxation of Non-U.S. Shareholders........................................ 87
Tax Aspects of Operating Partnership and Subsidiary Partnerships......... 90
Other Tax Consequences................................................... 91
UNDERWRITING.............................................................. 92
EXPERTS................................................................... 93
LEGAL MATTERS............................................................. 94
AVAILABLE INFORMATION..................................................... 94
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 95
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements (including the notes
thereto) appearing elsewhere in this Prospectus or incorporated by reference
herein. Unless the context otherwise requires, references herein to the
"Company" or "Grove" refer to Grove Property Trust, a Maryland real estate
investment trust, and its subsidiaries, including Grove Operating, L.P., a
Delaware limited partnership (the "Operating Partnership"). As used herein, the
term "Concurrent Offering" means the proposed offering by the Company in a
separate transaction at the public offering price per share to certain
investors of 1,358,525 Common Shares. See "The Concurrent Offering." Prior to
the date of this Prospectus, no offer has been made by the Company with respect
to the Concurrent Offering and there can be no assurance that the Concurrent
Offering will be consummated or that all of the Common Shares offered in the
Concurrent Offering will be sold. Consummation of the Offering is not
contingent on consummation of the Concurrent Offering. Any shares not purchased
in the Concurrent Offering will be added to the Shares offered by the
Underwriters in the Offering. Unless otherwise indicated, the information in
this Prospectus assumes that the Underwriters' over-allotment option is not
exercised and that all of the shares offered in the Concurrent Offering will be
sold. On February 10, 1997, the Board of Trust Managers of the Company declared
a share dividend aggregating 26,250 Common Shares and concurrently declared a
1.125-for-one common share split. All shares outstanding and per share amounts
have been restated to reflect these changes in capital structure.
THE COMPANY
Grove Property Trust ("Grove" or the "Company") is a self-managed and self-
administered equity real estate investment trust ("REIT") that is engaged in
the acquisition, repositioning, management and operation of mid-priced
multifamily communities in the Northeastern United States. The Company is a
fully integrated real estate organization with in-house acquisition,
repositioning and renovation, financing, marketing, leasing and property
management expertise. Grove believes that its regional focus, experience in
acquiring and renovating under-managed apartment communities, reputation for
quality and experienced management team provide it with a strong competitive
position in the highly fragmented Northeastern apartment market.
Grove currently owns interests in and operates 29 multifamily properties
containing a total of 2,763 units in Connecticut, Massachusetts and Rhode
Island (the "Apartment Communities") and one community shopping center in
Massachusetts containing approximately 79,000 rentable square feet (the "Retail
Property"; together with the Apartment Communities, the "Properties").
Approximately 81%, 14% and 5% of the total units in the Apartment Communities
are located in Connecticut, Massachusetts and Rhode Island, respectively. For
the six months ended June 30, 1997, the Apartment Communities had an average
economic occupancy rate of approximately 96.4% and an average monthly rental
rate of approximately $697 per unit. The Apartment Communities are mid-priced
apartment properties consisting primarily of two- and three-story buildings in
landscaped settings. The Apartment Communities are well located within their
markets and appeal to middle income residents who are generally "renters by
necessity." Twenty of the Apartment Communities, representing approximately 79%
of the total number of units in the Company's portfolio, have undergone
extensive renovation within the last seven years.
The Company believes that the "same community" comparison data shown in the
table below for the 23 Apartment Communities owned by Grove or its predecessors
since the beginning of 1995 reflect the strength of Grove's management team and
the general economic recovery that has taken place in the Company's markets
over the last twelve months.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
<S> <C> <C> <C> <C>
Average Monthly Rental Rate Per Unit
(1).................................. $ 680 $ 696 $ 691 $ 711
Average Economic Occupancy Rate (2)... 95.7% 96.4% 96.2% 96.6%
Net Operating Income (000's) (3)...... $9,125 $9,294 $ 4,395 $ 4,863
</TABLE>
- --------
(1)Average monthly rental rate per unit is derived by dividing gross potential
rental income by the total number of leasable units.
(2) Average economic occupancy rate is derived by dividing actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(3)Excludes intercompany management fees.
1
<PAGE>
The Company has entered into agreements to acquire one additional multifamily
property (the "Apartment Acquisition Community") containing a total of 100
units for approximately $4.2 million, including closing costs, and commenced an
exchange offer to purchase two affiliate-owned retail properties containing a
total of approximately 16,400 rentable square feet (the "Retail Acquisition
Properties"; together with the Apartment Acquisition Community, the
"Acquisition Properties") for an aggregate of approximately $4.4 million. The
Company believes the Acquisition Properties are being purchased at discounts of
approximately 30% to 40% of replacement cost. The Company intends to close on
the purchases of the Acquisition Properties before the end of 1997, although
there can be no assurance that such purchases will close. The Acquisition
Properties are well located in Ellington, Connecticut and Edgartown (Martha's
Vineyard), Massachusetts. Management has an in-depth understanding of these
markets and believes that the Acquisition Properties are well constructed and
of comparable quality to the Properties.
Grove believes that opportunities for acquisitions in the Northeastern United
States are particularly attractive at this time because the region is generally
characterized by: (i) limited new construction due to significant barriers to
entry resulting from high construction costs, limited land availability, strict
zoning laws and extended permitting processes; (ii) a limited number of
publicly traded companies focusing on the acquisition of under-managed, mid-
priced multifamily communities; (iii) highly fragmented markets with many
small-to-medium sized companies that own older apartment properties in which
the owners are looking to sell with minimal tax impact and (iv) many older
apartment properties where maintenance and improvements have been deferred and
where the Company believes selective capital improvements and professional
management may create opportunities for increased rents. The Company intends to
continue its acquisition efforts in existing and new markets in the
Northeastern United States and may eventually expand its acquisition activity
into the Mid-Atlantic United States as appropriate opportunities arise.
Grove's predecessors commenced operations in 1980. The Company completed its
initial public offering in 1994 with the acquisition of three apartment
properties. At that time, affiliates of Grove owned additional apartment
properties and other real estate assets outside of the REIT and conducted
management and acquisition activities through entities that were also owned
outside of the REIT. In 1996, management began to undertake a number of
strategic initiatives intended to maximize shareholder value. In March 1997,
the Company completed the following: (i) the creation of an umbrella
partnership REIT (an "UPREIT") structure by forming the Operating Partnership
to facilitate the consolidating transactions described below and to provide
potential sellers with a mechanism to defer their tax liability; (ii) the
acquisition through the Operating Partnership of 20 properties owned by
affiliates of Grove; (iii) the acquisition of the property management assets
and related liabilities of Grove Property Services Limited Partnership ("GPS"),
the entity that managed the properties owned by Grove as well as the 20
properties owned by affiliates of Grove; (iv) a $30 million private placement
(3,333,333 shares at $9.00 per share) of equity securities to investors that
included, among others, four investment funds managed by Morgan Stanley Asset
Management, Inc. (collectively, "MSAM") and the Oregon Public Employees'
Retirement Fund (the "Oregon Retirement Fund") as advised by ABKB/LaSalle
Securities Limited and (v) the closing of a $25 million revolving credit
facility and a $15 million term loan facility.
The Company is led by an experienced management team, whose five senior
executives have an average of approximately 16 years real estate experience in
the multifamily sector and an average of approximately 14 years experience with
the Company or its predecessors. In the aggregate, since 1980, Grove's senior
management team has been responsible for the acquisition of approximately 45
apartment properties containing a total of approximately 4,500 units and the
management of approximately 55 apartment properties containing a total of
approximately 5,250 units within the Northeastern United States. Upon
completion of the Offerings, Grove will
2
<PAGE>
own approximately 74% of the total partnership interests (the "Common Units")
in the Operating Partnership and the Executive Officers (defined below) and the
trust managers (the "Trust Managers") of Grove will own, directly or
indirectly, in the aggregate, approximately 10.0% of the equity of the Company
through ownership of Common Units and Common Shares. The Company's address is
598 Asylum Avenue, Hartford, Connecticut 06105. Its telephone number is (860)
246-1126.
BUSINESS OBJECTIVES AND GROWTH STRATEGIES
Grove's primary business objectives are to increase the value of the
Company's portfolio of properties and to maximize shareholder value by
maintaining long-term growth in cash available for distribution to its
shareholders. The Company intends to accomplish these objectives by (i)
actively acquiring and, where appropriate, repositioning and renovating under-
managed multifamily properties at significant discounts to replacement cost and
at returns that enhance shareholder value; (ii) aggressively managing its
portfolio to increase revenues and reduce operating costs; (iii) maintaining a
conservative ratio of debt to total market capitalization and (iv) consistently
providing quality service and a desirable living environment to all of its
residents. Grove is currently negotiating to increase the borrowing capacity
under its revolving credit facility from $25 million to approximately $50
million to continue to fund its growth.
RECENT DEVELOPMENTS
Since the end of 1996, the Company has undertaken a number of strategic
initiatives intended to increase the value of the Company's portfolio of
properties and to maximize shareholder value. These initiatives include:
. Forming the Operating Partnership and converting to an UPREIT structure
to facilitate the consolidation transactions discussed above and to
provide flexibility to the Company in acquiring additional properties;
. Increasing the Company's portfolio of Apartment Communities from four
containing a total of approximately 260 units to 29 containing a total
of 2,763 units, including 28 Apartment Communities formerly controlled
by affiliates of certain of the Company's Executive Officers;
. Acquiring the property management assets and related liabilities of GPS,
the entity that managed the properties owned by Grove as well as the 20
properties owned by affiliates of Grove;
. Completing a private placement of 3,333,333 Common Shares for an
aggregate of approximately $30 million to a group of investors including
MSAM and the Oregon Retirement Fund;
. Entering into a $25 million revolving credit facility (the "Credit
Facility") with a BankBoston company to provide the Company with
additional funds for acquisitions;
. Entering into a $15 million term loan facility with Citicorp Real
Estate, Inc.;
. Increasing to 100% the Company's ownership interest in the entity owning
349 of the 432 units at the River's Bend apartments; and
. Entering into agreements to acquire the Acquisition Properties, which
the Company intends to complete in 1997.
3
<PAGE>
THE PROPERTIES
Apartment Communities. The following table sets forth certain information
concerning the Apartment Communities and the Apartment Acquisition Community.
<TABLE>
<CAPTION>
AVERAGE AVERAGE
ECONOMIC MONTHLY
OCCUPANCY RENTAL RATE
RATE(1) PER UNIT(2)
---------------- ----------------
NUMBER AVERAGE YEAR 6 MOS. YEAR 6 MOS.
PERCENTAGE OF YEAR YEAR SQ. FT. ENDED ENDED ENDED ENDED
PROPERTY TOWN/CITY OWNERSHIP UNITS BUILT RENOVATED PER UNIT 12/31/96 6/30/97 12/31/96 6/30/97
- ----------------------- ---------------- ---------- ------ ----- --------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APARTMENT COMMUNITIES
CONNECTICUT
208-210 Main St.(3) Manchester 100% 28 1969 1988 929 97.8% 95.8% $761 $776
Arbor Commons(3) Ellington 100% 28 1975 1988 780 97.6% 101.6% 686 691
Avonplace Avon 98% 145 1973 1995 1,542 99.1% 98.9% 845 857
Barons Apartments Southington 100% 54 1970 1994 900 95.8% 97.8% 684 704
Bradford Apartments Newington 91% 64 1964 1989 894 91.6% 98.5% 686 690
Brooksyde(4) West Hartford 100% 80 1945 1997 800 94.0% 94.2% 643 669
Burgundy Studios(4) Middletown 100% 102 1973 1996 443 96.7% 98.7% 430 433
Cambridge Estates Norwich 100% 92 1977 1990 939 97.4% 99.1% 715 731
Colonial Village Plainville 100% 104 1968 1989 981 96.5% 94.3% 726 735
Dogwood Hills Hamden 100% 46 1971 1993 1,330 98.2% 97.2% 722 737
Summit & Birch Hill(4) Farmington 100% 184 1967 1996 937 96.5% 97.3% 745 773
Fox Hill Apartments Enfield 97% 168 1974 1991 796 96.5% 95.6% 642 658
Fox Hill Commons Vernon 100% 74 1965 1989 849 97.1% 97.6% 692 703
Greenfield
Village(4)(5) Rocky Hill 100% 127 1965 1997 729 -- -- -- --
Hamden Centre Hamden 100% 65 1968 1993 873 96.2% 94.2% 637 650
Glastonbury Center Glastonbury 100% 104 1962 1989 961 95.6% 90.5% 773 793
Loomis Manor West Hartford 91% 43 1948 1990 1,138 100.0% 100.0% 826 838
Ocean Reef New London 96% 163 1962 1995 829 94.4% 93.8% 633 644
Park Place West West Hartford 100% 63 1961 1989 861 97.9% 97.8% 656 667
Sandalwood(4)(6) New London 96% 39 1977 1996 517 61.7% 98.9% 453 457
Westwynd Apartments West Hartford 91% 46 1969 1990 901 95.2% 95.6% 648 654
River's Bend Windsor 100% 349 1973 1996 1,000 95.3% 95.7% 714 742
Woodbridge Newington 100% 73 1968 1991 792 94.7% 99.8% 712 719
MASSACHUSETTS
Dean Estates Taunton 100% 58 1984 N/A 1,014 94.9% 94.5% 668 682
Four Winds(4) Fall River 100% 168 1987 1996 1,089 90.5% 94.7% 627 678
Security Manor Westfield 88% 63 1971 1988 1,150 99.1% 99.9% 576 581
Van Deene Manor(3) West Springfield 88% 109 1970 1990 664 98.5% 98.4% 609 615
RHODE ISLAND
Dean Estates II Cranston 96% 48 1970 1994 1,170 93.5% 95.2% 687 697
Royale Cranston 96% 76 1976 1993 1,151 96.9% 97.2% 684 695
----- ----- ------ ------ ---- ----
SUBTOTAL/WEIGHTED AVERAGE 2,763 989 95.7% 96.4% $680 $697
----- ===== ====== ====== ==== ====
SAME COMMUNITY WEIGHTED AVERAGE(4) 96.2% 96.6% $696 $711
====== ====== ==== ====
APARTMENT ACQUISITION COMMUNITY
CONNECTICUT
High Meadow Ellington 100% 100 1975 N/A 605 90.0% 97.2% 580 590
----- ----- ------ ------ ---- ----
TOTAL/WEIGHTED AVERAGE 2,863 966 95.6% 96.5% $676 $694
===== ===== ====== ====== ==== ====
</TABLE>
- --------
(1) Average economic occupancy rate is derived by dividing actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(2) Average monthly rental rate per unit is derived by dividing gross potential
rental income by the total number of leasable units.
(3) The following Apartment Communities contain additional space which is
rented to commercial tenants:
<TABLE>
<CAPTION>
APARTMENT COMMERCIAL
COMMUNITY SQ. FT.
--------- ----------
<S> <C>
208-210 Main St. ................. 9,597
Arbor Commons..................... 4,016
Van Deene Manor................... 1,630
------
Total........................... 15,243
======
</TABLE>
4
<PAGE>
(4) The same community weighted average amounts represent the average occupancy
and rental rates for the 23 Apartment Communities owned by Grove or its
affiliated predecessors for the years 1995 and 1996 and the six months
ended June 30, 1997. Six Properties were purchased by Grove or its
affiliated predecessors during the years 1995 and 1996 and the six months
ended June 30, 1997 and have been excluded from the same community amounts.
The following sets forth the acquisition date for such Apartment
Communities:
<TABLE>
<CAPTION>
APARTMENT ACQUISITION
COMMUNITY DATE
--------- -----------
<S> <C>
Brooksyde........................ Oct-96
Burgundy Studios................. Oct-95
Summit & Birch Hill.............. Feb-95
Greenfield Village............... Jul-97
Sandalwood ...................... Dec-95
Four Winds....................... Oct-95
</TABLE>
(5) Greenfield Village was purchased by the Company in July 1997, subsequent to
the periods covered by this table.
(6) Sandalwood was purchased in December 1995. The property was not leasable
until September 1996.
Retail Properties. The following table sets forth certain information
concerning the Retail Property and Retail Acquisition Properties.
<TABLE>
<CAPTION>
AVERAGE
AVERAGE ANNUAL
ECONOMIC RENTAL RATE PER
OCCUPANCY RATE(1) SQ. FT.(2)
------------------ ----------------
YEAR 6 MOS. YEAR 6 MOS.
YEAR YEAR RENTABLE ENDED ENDED ENDED ENDED
PROPERTY TOWN/CITY PRIMARY TENANTS BUILT RENOVATED SQ. FT. 12/31/96 6/30/97 12/31/96 6/30/97
- ----------------- ---------- ------------------------ ------ --------- -------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL PROPERTY
MASSACHUSETTS
Longmeadow Shops Longmeadow CVS, Cherry & Webb, 1962 1994-96 79,012 97.9% 97.5% $12.28 $12.88
BankBoston, Blockbuster,
Talbots, Fleet Bank
RETAIL ACQUISITION PROPERTIES
MASSACHUSETTS
Corner Block Edgartown Compass Bank, 1800's 1988 5,400 100.0% 100.0% 30.38 34.42
Wallace & Company,
Mardells
Wharf Building Edgartown Sunglass Hut, 1800's 1996 11,027 100.0% 100.0% 21.77 28.69
Wharf Pub, ------ -------- -------- ------ ------
The Great Put On,
Destinations
SUBTOTAL/WEIGHTED AVERAGE 16,427 100.0% 100.0% 24.60 30.57
------ -------- -------- ------ ------
TOTAL/WEIGHTED AVERAGE 95,439 98.3% 97.9% $14.40 $15.92
====== ======== ======== ====== ======
</TABLE>
- --------
(1) Average economic occupancy rate is derived by dividing actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt.
(2) Average annual rental rate per square foot is derived by dividing total
revenue collected by leased square footage.
5
<PAGE>
COMPANY STRUCTURE
The following diagram describes the ownership structure of Grove and the
Operating Partnership upon completion of the Offerings.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------------
Grove Property Trust
--------------------
74% Interest --------------------------
(Sole Interest Partner) FORMER LIMITED PARTNERS
OF SUBSIDIARY PARTNERSHIPS
0.01% to AND FORMER PARTNERS
1.0% --------------------- 26% Limited GPS WHO PARTICIPATED IN
General Grove Operating, L.P. Partner Interest CONSOLIDATION
Partner (9 Properties) TRANSACTIONS AND
Interests -------------------- EXCHANGE OFFERS
--------------------------
88% to 100% Interest
(Sole Interest Partner) -----------------------------
REMAINING LIMITED PARTNERS OF
-------------------------- 0% to 12% Limited SUBSIDIARY PARTNERSHIPS
Subsidiary Partnerships(1) Partner Interest ----------------------------
(21 Properties)
--------------------------
</TABLE>
- --------
(1) Twenty-one of the Properties are owned by certain partnerships in which the
Grove Property Trust is the sole general partner and in which the Operating
Partnership owns between 88% and 100% of the limited partner interests
(collectively, the "Subsidiary Partnerships").
The following table sets forth the ownership of Common Shares and Common
Units upon completion of the Offerings.
<TABLE>
<CAPTION>
WITHOUT EXCHANGE OF WITH EXCHANGE OF
COMMON UNITS COMMON UNITS(1)
-------------------- ---------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OF TOTAL SHARES OF TOTAL
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Public(2).......................... 5,829,450 68.96% 5,829,450 50.88%
Executive Officers and Trust Manag-
ers(3)............................ 96,684 1.14% 1,148,776 10.03%
MSAM(4)............................ 1,690,766 20.00% 1,690,766 14.76%
ABKB/LaSalle(5).................... 836,929 9.90% 836,929 7.30%
Continuing Investors(6)............ -- -- 1,951,814 17.03%
--------- ------ ---------- ------
Total............................ 8,453,829 100.00% 11,457,735 100.00%
========= ====== ========== ======
</TABLE>
- --------
(1) Assumes that all Common Units are redeemed by the holders thereof and that
the Company exercises its right to issue Common Shares on a one-for-one
basis upon such redemption.
(2) Includes the 3,141,475 Common Shares offered in the Offering.
(3) Excludes Common Shares which could be acquired upon exercise of options and
warrants and Common Shares owned by MSAM as to which a Trust Manager has
shared voting and investment power.
(4) Includes the 777,778 Common Shares currently held by MSAM and the 912,988
to be offered to MSAM in the Concurrent Offering.
(5) Includes the 391,392 Common Shares currently held by the Oregon Retirement
Fund, the 87,000 Common Shares to be offered to the Oregon Retirement Fund
in the Concurrent Offering and 358,537 Common Shares to be offered to
certain other investment funds advised by ABKB/LaSalle Securities Limited
in the Concurrent Offering (such funds and the Oregon Retirement Fund
collectively, "ABKB/LaSalle")
(6) The Continuing Investors are holders of Common Units who are former limited
partners of the Subsidiary Partnerships and former partners of GPS.
6
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Shares offered hereby:
Offering......................... 3,141,475
Concurrent Offering(1)........... 1,358,525
----------
Total.......................... 4,500,000
==========
Common Shares and Common Units out-
standing
after the Offerings(1)(2)......... 11,457,735
Use of Proceeds.................... To repay outstanding indebtedness,
including indebtedness incurred to fund a
portion of the purchase price of the
Acquisition Properties, and for working
capital and other general purposes. See
"Use of Proceeds."
Proposed AMEX Symbol............... "GVE" (The Common Shares currently trade on
the Emerging Company Marketplace of the
AMEX under the symbol "GVE.EC.")
</TABLE>
- --------
(1) Any shares not purchased in the Concurrent Offering will be added to the
shares offered by the Underwriters in the Offering. There can be no
assurance that all of the Common Shares offered in the Concurrent Offering
will be sold. See "The Concurrent Offering."
(2) Includes 3,003,906 Common Shares reserved for issuance if the Company
elects to issue Common Shares rather than cash upon redemption of Common
Units. Excludes 117,726 Common Shares reserved for issuance under the
Company's 1994 Share Option Plan (the "1994 Plan") and 900,000 Common
Shares reserved for issuance under the 1996 Share Incentive Plan (the "1996
Plan"), 50,000 Common Shares reserved for issuance upon exercise of an
option granted to a consultant to the Company and 47,248 Common Shares
reserved for issuance upon exercise of a warrant held by Barclay
Investments, Inc., the underwriter for the Company's initial public
offering in 1994.
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial and operating data
on a historical and pro forma basis for the Company and on a combined
historical basis for GPS and the Property Partnerships (defined in the
Company's financial statements as those partnerships that were parties to the
transactions completed in March 1997). The following information should be read
in conjunction with all of the financial statements and notes thereto included
or incorporated by reference in this Prospectus. The historical operating
information of the Company and GPS and the Property Partnerships for the years
ended December 31, 1996 and 1995 has been derived from the historical combined
financial statements audited by Ernst & Young LLP, independent auditors, whose
reports with respect thereto are included elsewhere in this Prospectus. The
operating information for the six months ended June 30, 1997 and 1996 has been
derived from the unaudited financial statements of the Company also included
elsewhere in this Prospectus. In the opinion of management, the unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for the six months ended June 30, 1997 and
1996 are not necessarily indicative of the results to be obtained for the full
fiscal year.
The unaudited pro forma information assumes that the transactions completed
in March 1997, the Offerings, and the acquisition of the Acquisition Properties
and six properties acquired after March 1997 all occurred on January 1, 1996
with respect to operating data. With respect to the balance sheet data, to the
extent not already consummated by June 30, 1997, the unaudited pro forma
information assumes that such acquisitions occurred on June 30, 1997. In
management's opinion, all adjustments necessary to present fairly the effects
of these transactions have been made. The unaudited pro forma information is
not necessarily indicative of what the actual results of operations or
financial condition of the Company would have been for the periods or at the
dates indicated, nor does it purport to represent the Company's future
financial condition or results of operations as of any future date or for any
future periods.
7
<PAGE>
<TABLE>
<CAPTION>
GPS AND PROPERTY
PARTNERSHIPS
COMPANY HISTORICAL HISTORICAL COMPANY PRO FORMA
------------------------------------ ------------------ ---------------------------------
YEARS ENDED SIX MONTHS ENDED YEARS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
---------------- ------------------ ------------------ ------------ --------------------
1996 1995 1997 1996 1996 1995 1996 1997 1996
------- ------- --------- ------- -------- -------- ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING INFORMATION:
Revenues:
Rental income.......... $ 2,046 $ 1,287 $ 5,438 $ 1,001 $ 12,906 $ 11,965 $ 23,531 $ 12,349 $ 11,563
Property management.... -- -- 218 -- 777 815 381 210 190
Interest and other..... 36 30 128 20 1,138 1,103 553 391 233
------- ------- --------- ------- -------- -------- --------- --------- ---------
Total revenues........ 2,082 1,317 5,784 1,021 14,821 13,883 24,465 12,950 11,986
------- ------- --------- ------- -------- -------- --------- --------- ---------
Expenses:
Property operating and
maintenance........... 656 406 1,964 346 5,705 5,276 8,929 4,931 4,632
Real estate taxes...... 208 148 542 102 1,299 1,234 2,590 1,278 1,255
Related party
management fees....... 109 67 22 53 -- -- -- -- --
General and
administrative........ 67 56 347 40 279 261 949 475 474
------- ------- --------- ------- -------- -------- --------- --------- ---------
Total operating
expenses............. 1,040 677 2,875 541 7,283 6,771 12,468 6,684 6,361
------- ------- --------- ------- -------- -------- --------- --------- ---------
Net operating income.... 1,042 640 2,909 480 7,538 7,112 11,997 6,266 5,625
Interest expense........ 394 85 777 189 3,856 3,829 2,274 1,081 1,110
Depreciation and
amortization........... 387 217 1,155 198 3,055 3,140 5,305 2,640 2,572
------- ------- --------- ------- -------- -------- --------- --------- ---------
Income before items
shown below............ 261 338 977 93 627 143 4,418 2,545 1,943
Minority interests in
consolidated
partnerships........... -- -- 49 -- -- -- -- 26 --
Minority interest in
Operating Partnership.. -- -- 314 -- -- -- 1,158 660 509
Extraordinary gain on
debt restructuring..... -- -- -- -- -- 2,186 -- -- --
------- ------- --------- ------- -------- -------- --------- --------- ---------
Net income.............. $ 261 $ 338 $ 614 $ 93 $ 627 $ 2,329 $ 3,260 $ 1,859 $ 1,434
======= ======= ========= ======= ======== ======== ========= ========= =========
Net income per common
share.................. $ 0.42 $ 0.55 $ 0.24 $ 0.15 -- -- $ 0.39 $ 0.22 $ 0.17
Weighted average number
of common shares
outstanding............ 620,102 620,102 2,627,601 620,102 -- -- 8,453,829 8,453,829 8,453,829
OTHER INFORMATION:
Funds from
operations(1).......... $ 595 $ 517 $ 1,271 $ 269 $ -- $ -- $ 6,674 $ 3,529 $ 3,098
Cash flow from:(2)
Operating activities... 781 585 626 309 3,232 3,317 -- -- --
Investment activities.. (303) (99) (1,011) (49) (1,144) (3,419) -- -- --
Number of Apartment
Communities (end of
period)................ 4 3 26 4 20 20 30 30 30
Number of apartment
units (end of period).. 257 165 2,348 257 1,514 1,514 2,863 2,863 2,863
Average monthly rental
rate per unit.......... $ 693 $ 660 $ 687 $ 687 $ 693 $ 677 $ 676 $ 694 $ 673
Average economic
occupancy rate......... 97.0% 97.8% 96.7% 97.5% 96.7% 96.4% 95.6% 96.5% 95.8%
Number of Retail
Properties............. -- -- 1 -- 1 1 3 3 3
BALANCE SHEET
INFORMATION:
Real estate, before
accumulated
depreciation........... $ 9,798 $ 5,393 $ 121,003 $ 9,721 $ 77,833 $ 76,835 -- $ 150,130 --
Total assets............ 9,521 5,241 98,424 9,583 59,866 61,678 -- 130,343 --
Total mortgage and
revolving credit
facility debt.......... 5,669 1,190 45,853 5,681 48,643 46,786 -- 29,550 --
Minority interests...... -- -- 23,883 -- -- -- -- 26,522 --
Shareholders'/owners'
equity................. 3,483 3,703 24,840 3,918 7,795 12,259 -- 70,423 --
</TABLE>
(continued on next page)
8
<PAGE>
(continued from previous page)
- --------
(1) The Company generally considers Funds from Operations ("FFO") to be a
useful measure of the operating performance of an equity REIT because,
together with net income and cash flow, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures. FFO does not
represent net income or cash flow from operations as defined by generally
accepted accounting principles ("GAAP") and does not necessarily indicate
that cash flow will be sufficient to fund cash needs. It should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flow as a measure of liquidity. FFO does
not measure whether cash flow is sufficient to fund all of the Company's
cash needs, including principal amortization, capital improvements and
distributions to shareholders. FFO also does not represent cash flow
generated from operating, investing or financing activities as defined by
GAAP. Further, FFO as disclosed by other REIT's may not be comparable to
the Company's calculation of FFO. The Company uses the NAREIT definition of
FFO. FFO is defined as income before gains (losses) on investments and
extraordinary items (computed in accordance with GAAP) plus real estate
depreciation, less preferred dividends and after adjustment for significant
non-recurring items, if any. The Company believes that in order to
facilitate a clear understanding of its operating results, FFO should be
examined in conjunction with the net income as presented in the financial
statements and information included elsewhere in this Prospectus.
(2) Pro forma information relating to cash flow from operating and investing
activities has not been included because the Company believes that the
information would not be meaningful due to the number of assumptions
required in order to calculate this information.
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Shares offered hereby should consider
carefully the risk factors set forth below, as well as the other information
contained or incorporated by reference herein, before making an investment in
the Common Shares offered hereby. Certain statements contained or incorporated
by reference herein constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These statements
include, among other things, statements concerning results of operations, cash
available for distributions, required capital expenditures, sources of growth,
economic conditions and trends and plans and objectives of management for
future operations. Such forward looking statements involve risks and
uncertainties that may cause actual results to differ materially, depending on
a variety of important factors. Important factors that contribute to such
risks and uncertainties include, but are not limited to: (i) those identified
under this caption; (ii) changes in general business and economic conditions;
and (iii) other factors which may be described from time to time in the
Company's filings with the Securities and Exchange Commission (the
"Commission").
ABSENCE OF APPRAISALS
The Company obtained an appraisal for only one of the Properties and is not
obtaining appraisals for the Acquisition Properties. Of the remaining
Properties, 28 were acquired from affiliates of the executive officers named
under "Management--Executive Compensation" (the "Executive Officers"). The
purchase prices for such Properties were not negotiated in arms' length
transactions. If the fair market values of the Properties are materially
different from the amounts paid by the Company, there could be a material and
adverse effect on the financial performance of the Company and the value of
the Common Shares.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Real property investments are subject to varying degrees of risk.
The financial returns available from equity investments in apartment
properties depend on the amount of revenue generated and expenses incurred in
operating the properties. If the Properties do not generate revenue sufficient
to meet operating expenses, debt service, if any, and capital expenditures,
the Company's income and ability to make distributions to its shareholders
will be adversely affected. An apartment property's income and value may be
affected by the national and regional economic climates, local real estate
conditions, such as an oversupply of apartments or a reduction in demand for
apartments, availability of "for purchase" housing, the attractiveness of the
Apartment Communities to residents, competition from other apartment
properties, the ability of the owner to provide adequate maintenance and to
obtain adequate insurance and increased operating costs (including real estate
taxes). The Company's income will be adversely affected if a significant
number of residents are unable to pay rent or if the apartments cannot be
rented on favorable terms. Further, certain significant expenditures
associated with equity investments in real estate (such as mortgage payments,
if any, real estate taxes and maintenance costs) are generally not reduced
when circumstances cause a reduction in rental income. In addition, the net
income to Grove from any of the Properties may be adversely affected by such
factors, among others, as changes in zoning, building, environmental, rent
control and other laws and regulations, population shifts, which may affect
the demand for rental housing in the Company's markets, changes in real
property taxes and interest rates, the availability of financing, weather and
acts of God (such as earthquakes, hurricanes and floods) and other factors
beyond the control of Grove that may significantly affect the Company's
revenue and operating expenses. The Company is also exposed to the various
types of litigation that may be brought against a property owner or manager.
Illiquidity of Real Estate. Investments in real estate are relatively
illiquid and, therefore, will tend to restrict the Company's ability to vary
its portfolio of properties promptly in response to changes in economic or
other conditions. Consequently, if the Operating Partnership were to be
liquidated, the proceeds realized by the Company might be less than the
Company's total investment in the Operating Partnership. In addition, the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
places limits on the amount of
10
<PAGE>
gross income the Company may realize from sales of real property assets held
for fewer than four years, which may affect the Company's ability to sell the
Properties without adversely affecting returns to holders of Common Shares.
Future Property Acquisitions. In the normal course of its business, and in
the pursuit of its business and growth strategies, the Company continually
evaluates potential acquisitions in the Northeast. The Company intends to
continue to acquire multifamily properties and, in certain circumstances,
select retail properties if attractive opportunities arise. In addition to
general investment risks associated with any new real estate investment,
acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the costs of improvements
to bring an acquired property up to standards established for the market
position intended for that property will prove inaccurate. Properties acquired
may have characteristics or deficiencies unknown to the Company affecting
their valuation or revenue potential, and it is possible that their operating
performance may decline under the Company's management. No assurance can be
given that the Company will identify suitable acquisitions, complete
acquisitions on terms favorable to it or successfully integrate acquired
properties into the Company's portfolio. If financing is not available on
acceptable terms for new acquisitions or renovations, further acquisitions
might be curtailed. Furthermore, the fact that the Company must distribute 95%
of its REIT taxable income in order to maintain its qualification as a REIT
under the Internal Revenue Code will limit the ability of the Company to rely
upon income from operations or cash flow from operations to finance new
acquisitions.
Risks of Repositioning and Renovation. The Company intends to reposition or
renovate certain of the Properties and other properties it may acquire in the
future. In connection with any such project, the Company will bear certain
risks, including delays or cost overruns, that may increase project costs and
could make such projects uneconomical, and the risk that occupancy or rental
rates at a property once such a project has been completed will not be
sufficient to enable the Company to pay operating expenses or earn its
anticipated rate of return on its investment. In case of an unsuccessful
repositioning or renovation project, the Company's loss could exceed its
investment in such project. In cases where the Company owns less than the
entire interest in a property, the Company may nevertheless be required to
bear the entire cost of a repositioning or renovation project at such
property.
Risks Relating to Distributions. The Company pays regular distributions to
its shareholders and expects to increase its annual distribution rate
following closing of the Offering to $0.68 per Common Share (assuming the
issuance of all shares offered hereby). The Company expects to set a record
date for the payment of a dividend based on its historical distribution rate
to holders of Common Shares at the close of business on the business day
immediately prior to the closing of the Offering with respect to the period
commencing October 1, 1997 and ending on such record date. The Company then
expects to set a record date for the payment of a dividend to holders of
Common Shares on December 31, 1997 with respect to the period commencing on
the closing date of the Offering and ending December 31, 1997. The Company's
annual distribution rate to shareholders for the year ended December 31, 1996
was 86.5% of the Company's cash available for distribution ("CAD"), defined by
the Company as FFO plus depreciation on personal property and amortization of
financing costs, less mortgage principal payments and recurring capital
improvements for such period and was 66.3% for the six months ended June 30,
1997. See "Distribution Policy." The Company's determination to increase
distributions as described above was based on expectations with respect to pro
forma REIT taxable income following the Offerings and is intended to ensure
the Company's continuing ability to qualify for REIT status. In particular,
the Company is seeking to ensure its continuing compliance with the
requirement that it distribute annually at least 95% of its REIT taxable
income. No assurance can be given, however, that actual CAD following the
Offerings will not be substantially below the Company's expectations. In
addition, the Company's ability to make distributions will depend, in large
part, on the performance of the Properties and any properties it may acquire
in the future, including occupancy levels, expenditures with respect to the
Properties and newly acquired properties, the amount of the Company's debt and
the interest rates thereon and other costs relating to the Properties and the
newly acquired properties, as well as the absence of significant expenditures
relating to environmental or other
11
<PAGE>
regulatory matters. Most of these matters are beyond the control of the
Company and any significant difference between the Company's expectations with
respect to these matters and actual results could have a material adverse
effect on the Company and its ability to make or sustain distributions.
Compliance with Applicable Laws. The Properties and the Acquisition
Properties are subject to various federal, state and local regulatory
requirements, such as requirements of the Americans with Disabilities Act (the
"ADA") and state and local fire and safety requirements. The ADA may require
modifications to existing buildings or restrict certain renovations by
requiring access to such buildings, and apartments in the buildings, by
disabled persons. In addition, the Fair Housing Amendments Act of 1988
("FHAA") requires apartment communities first occupied after March 13, 1990 to
be accessible to the handicapped. Failure to comply with these laws could
result in the imposition of fines or an award of damages to private litigants.
Additional legislation may impose further burdens or restrictions on owners
with respect to access by disabled persons. The costs of compliance with such
laws may be substantial, and limits or restrictions on completion of certain
renovations may reduce overall returns on the Company's investments. Although
the Company believes that the Properties and the Acquisition Properties are in
substantial compliance with such laws as currently in effect, the Company may
incur additional costs to comply with such laws. Although the Company believes
that such costs will not have a material adverse effect on the Company, if
required changes involve a greater expenditure than the Company currently
anticipates or if the changes must be made on a more accelerated basis than it
anticipates, the Company's cash flow and ability to make expected
distributions could be adversely affected.
Competition. There are numerous real estate companies, including those
operating in the markets in which the Properties and the Acquisition
Properties are located, which compete with the Company in seeking properties
for acquisition, and for tenants to occupy such properties. The Company may
compete with companies that have greater resources and whose officers and
directors or trustees have more experience than the Company's officers and
Trust Managers. Further, the availability of single-family housing and other
forms of multifamily residential properties, such as manufactured housing
communities, provide alternatives to residents and potential residents of
apartment communities. The availability of such alternatives and competition
generated thereby could increase in the future. These competitive factors
could adversely affect the Company's financial performance and results of
operations.
EXPANSION INTO NEW GEOGRAPHIC MARKETS
The Company currently intends to seek to acquire properties in geographic
markets other than those markets in which the Properties and the Acquisition
Properties are located, including other states in the Northeast and Mid-
Atlantic regions. Such regions may include markets in which the Company has
little or no experience in the acquisition and management of multifamily or
other properties. Any such new geographic market may be substantially
dissimilar to the markets in which the Company currently owns and operates the
Properties, and management of the Company may be unfamiliar with prevailing
economic conditions, trends in real estate and other factors in such markets,
which may adversely affect the Company's ability to acquire properties in such
new geographic markets for competitive purchase prices and to manage such
properties effectively and profitably thereafter. Payment of purchase prices
for such properties in excess of their fair market value or Grove's inability
to manage such properties so as to cause them to be profitable would have an
adverse effect on the results of operations of the Company.
DEPENDENCE ON LIMITED GEOGRAPHIC AREA
The Properties and the Acquisition Properties are located in Connecticut,
Rhode Island and Massachusetts and consist principally of multifamily
residential communities. Of the 2,763 units in the Company's portfolio, 2,241,
or 81%, are located in Connecticut. The Company's cash flow, ability to make
distributions to its shareholders and the value of the Common Shares are
therefore particularly dependent upon general business and economic
conditions, such as employment levels, average salaries, population and
industrial growth and the demand for rental apartments, in Connecticut and in
the individual markets in which the Properties are located. In recent years
the values of residential rental properties in the Northeastern United States
have fluctuated as a
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result of these and other factors. Changes in such factors in Grove's markets
could have a material adverse effect on the Company's business, financial
condition and results of operations.
LIMITATION ON CONTROL OF PARTIALLY OWNED PROPERTIES
Twelve of the Properties are not entirely owned by the Company, and the
Company may hereafter acquire properties in which it will own less than the
entire interest. To the extent that other persons continue to have a minority
interest in such properties, the Company may have certain fiduciary
responsibilities to such persons which it will need to consider when making
decisions that affect those properties (including decisions regarding sale,
refinancing and the timing and amount of distributions from such properties).
Potential conflicts and other problems which could adversely affect the
Company and its results of operations could arise as a consequence of these
ownership arrangements.
REAL ESTATE FINANCING RISKS
Debt Service Obligations. The Company will be subject to the risks normally
associated with debt financing, including the risk that the Company's cash
flow will be insufficient to meet required payments of principal and interest.
If the Company or a partnership in which it invests were unable to meet its
debt service obligations under its mortgage loans, the lender could foreclose
on the relevant property, in which case the Company would lose the property
and its associated investment and revenue stream. All indebtedness of the
Company is secured by mortgages on certain of the Properties. The cross-
collateralization of the mortgages on various of the Properties reduces
flexibility in selling individual properties.
Variable Rate Debt and Maturities. The Company's debt includes both fixed
rate and variable rate debt with interest rates that adjust based upon
prevailing market interest rates. A substantial portion of the Company's debt
may bear interest at variable rates. Upon completion of the Offerings and the
application of the net proceeds therefrom, the Company will have an aggregate
of $29.5 million in term debt outstanding, with $25 million available, subject
to certain limitations, for borrowing under the Credit Facility. The Company
is negotiating to increase its available revolving credit to $50 million. The
Credit Facility bears interest at variable rates. An increase in interest
rates could have a material adverse effect on the Company's results of
operations and on its ability to make distributions on the Common Shares. Debt
outstanding, assuming completion of the Offerings, application of the proceeds
therefrom and consummation of the purchases of the Acquisition Properties,
would require principal repayments of $200,000, $200,000 and $2.1 million in
1998, 1999 and 2000, respectively, and $27 million is due thereafter. If
principal payments due at maturity cannot be refinanced, extended or repaid
with the proceeds of other capital raising transactions, the Company may not
be able to pay distributions at expected levels and repay all such maturing
debt. If the Company were unable to refinance its indebtedness on acceptable
terms, or at all, the Company might be forced to dispose of one or more of the
Properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect the cash available for distribution.
No Limitation on Debt. Grove has followed a practice of limiting its ratio
of debt to total market capitalization (i.e., total debt of the Company as a
percentage of total market capitalization, defined as the sum of the aggregate
market value of the issued and outstanding Common Shares and Common Units
exchangeable for Common Shares and the total debt of the Company) to less than
60%. The organizational documents of the Company, however, do not limit the
amount or percentage of indebtedness that it may incur. Therefore, the Company
may change this practice regarding indebtedness without the vote of the
holders of Common Shares. If this practice is changed, the Company could
become more highly leveraged, resulting in an increased risk of default on the
obligations of the Company and an increase in debt service requirements which
could adversely affect the Company's financial condition and results of
operations and, consequently, the Company's ability to pay distributions on
the Common Shares.
POTENTIAL CONFLICTS OF INTEREST
The Executive Officers or entities affiliated with the Executive Officers
have in the past been parties to transactions with Grove or its affiliates. Of
the Company's 30 Properties, 29 Properties were acquired by the
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Company from entities affiliated with Executive Officers. The Company has
recently commenced an exchange offer with an affiliate to purchase all of the
partnership interests in two specialty retail properties located in the
historic district of Edgartown (Martha's Vineyard), Massachusetts. The Company
may in the future explore the possibility of purchasing other properties from
its affiliates or affiliates of the Executive Officers. As a result, these
persons may have interests that conflict with those of the other shareholders
of the Company. In addition, there can be no assurance that the prices paid by
Grove in connection with such transactions accurately reflected or will
accurately reflect the fair market value of the subject properties. While the
Company has entered into non-competition agreements with each of the Executive
Officers and certain of their affiliates designed to minimize conflicts of
interest, and the Company's Third Amended and Restated Declaration of Trust
(the "Charter") includes a provision which requires the composition of the
Board of Trust Managers (the "Board") at all times to consist of a majority of
Independent Trust Managers (as defined in the Charter), there can be no
assurance that the provisions of the non-competition agreements or the Charter
will be successful in eliminating the impact of conflicts of interest between
the Executive Officers and the Company. Accordingly, the interests of Grove's
shareholders may not have been, and in the future may not be, reflected fully
in all decisions made or actions taken or to be taken by certain officers of
the Company. See "Certain Relationships and Transactions."
In the Consolidation Transactions (defined below), certain affiliates of the
Executive Officers entered into a Contribution Agreement (the "Contribution
Agreement") with the Company and the Operating Partnership pursuant to which
20 Properties owned by such affiliates were contributed to the Operating
Partnership in exchange for Common Units and cash. Because of substantial
economic interests of the Executive Officers in entities which are parties to
the Contribution Agreement, there is a potential for a conflict of interest
with respect to the obligations of the Executive Officers as executive
officers of the Company in enforcing the terms of the Contribution Agreement.
The failure to enforce the material terms of the Contribution Agreement,
particularly the indemnification provisions and the remedy provisions for
breaches of representations and warranties, could result in losses to the
Company and could adversely affect the cash available for distribution. See
"Certain Relationships and Transactions."
In addition, affiliates of the Executive Officers that have contributed
properties to the Company in the past, may have unrealized gain in their
interests in such properties. The sale of such properties by the Company could
cause adverse tax consequences to such Executive Officers or affiliates.
Although decisions regarding such dispositions must be made by the Board, a
majority of which is composed of Independent Trust Managers, the interests of
the Company and such Executive Officers and affiliates could be different in
connection with the disposition of such properties.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of all of the Executive Officers.
While Grove believes that it could find replacements for these key personnel,
the loss of their services could have a material adverse effect on the
operations of the Company. Currently, Grove has no intention to secure key-man
life insurance for the Executive Officers.
ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company currently intends to continue operating so as to qualify as a
REIT under the Internal Revenue Code. A REIT generally is not taxed at the
corporate level on income it currently distributes to shareholders so long as
it distributes at least 95% of its REIT taxable income annually. No assurance
can be given that the Company will be able to operate in a manner so as to
remain so qualified. Qualification as a REIT involves the application of
highly technical and complex provisions of the Internal Revenue Code for which
there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect its ability to continue to qualify as a REIT.
The complexity of these provisions and of the applicable income tax
regulations that have been promulgated under the Internal Revenue Code is
greater in the case of a REIT that holds its assets through a partnership. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not change tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such
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qualification. Grove is relying on the opinion of Cummings & Lockwood, counsel
to the Company, to the effect that, based on various assumptions relating to
the organization and operation of the Company and representations made by
Grove as to certain factual matters, the Company's organization and method of
operation meets, and will allow the Company to continue to meet, the
requirements for qualification and taxation as a REIT. Such opinion, however,
is not binding upon the Internal Revenue Service. See "Certain Federal Income
Tax Considerations."
If the Company fails to qualify as a REIT in any taxable year, the Company
will not be allowed a deduction for distributions to shareholders in computing
its taxable income and will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at the applicable
corporate rate. In addition, unless it were entitled to relief under certain
statutory provisions, the Company also would be disqualified from treatment as
a REIT for the four taxable years following the year during which
qualification is lost. This disqualification would reduce Grove's cash
available for investment or distribution to shareholders because of the
additional tax liability of the Company for the year or years involved. If the
Company were to fail to qualify as a REIT, it no longer would be subject to
the distribution requirements of the Internal Revenue Code, and, to the extent
that distributions to shareholders would have been made in anticipation of the
Company's qualifying as a REIT, the Company might be required to borrow funds
or to liquidate certain of its assets to pay the applicable corporate tax.
Although the Company currently intends to continue to operate in a manner
designed to continue to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Board,
without the approval of the shareholders, to decide to revoke the REIT
election.
REQUIRED DISTRIBUTIONS; POTENTIAL REQUIREMENTS TO BORROW
To obtain the favorable tax treatment accorded to a REIT under the Internal
Revenue Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its REIT taxable income. The Company will be
subject to income tax on any undistributed REIT taxable income and net capital
gain, and to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less
than the sum of 85% of its ordinary income plus 95% of its capital gain net
income for the calendar year, plus 100% of its undistributed income from prior
years.
Grove intends to make distributions to its shareholders to comply with the
distribution provisions of the Internal Revenue Code and to avoid income taxes
and the nondeductible 4% excise tax. The Company's income consists primarily
of the Company's share of the income of the Operating Partnership, and the
Company's cash flow consists primarily of its share of distributions from the
Operating Partnership. In turn, the Operating Partnership's income and cash
flow consists primarily of its share of the income and cash flow,
respectively, of the properties it owns or controls. Differences in timing
between the receipt of income and the payment of expenses in arriving at
taxable income (of the Company or the Operating Partnership) and the effect of
nondeductible capital expenditures, the creation of reserves or required debt
amortization payments could require the Company to borrow funds through the
Operating Partnership on a short-term or long-term basis to meet its
distribution requirements even if management believes that the then-prevailing
market conditions are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations. If
Grove is unable to obtain such borrowings, the Company could be disqualified
from REIT treatment.
Distributions by the Operating Partnership are determined by the Company, as
the sole general partner, through the Board, and are dependent on a number of
factors, including the amount of cash available for distribution, the
Operating Partnership's financial condition and the financial condition of
each property in which the Company holds an interest, any decision by the
Board to reinvest rather than distribute funds, the capital expenditure
requirements relating to the properties in which the Company holds an
interest, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code and such other factors as the Board deems relevant.
There is no assurance that the Company will be able to continue to satisfy the
annual distribution requirement so as to qualify as a REIT.
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For federal income tax purposes, distributions paid to holders of Common
Shares may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. The Company provides the holders of Common
Shares with an annual statement indicating the tax character of the
distributions.
LIMITS ON CHANGES IN CONTROL
Certain provisions of the Charter and the Bylaws of the Company and of
Maryland law (described below) may have the effect of (i) discouraging a
change of control of the Company; (ii) deterring tender offers for Common
Shares, which offers may be attractive to the Company's shareholders or (iii)
limiting the opportunity for the Company's shareholders to receive a premium
for the Common Shares that might otherwise exist if an investor attempted to
assemble a block of Common Shares in excess of the Ownership Limit (as defined
below) or the Constructive Ownership Limit (as defined below) or to effect a
change of control of the Company.
Ownership Limits. For the Company to maintain its qualification as a REIT,
not more than 50% in value of the outstanding capital shares may be owned,
actually or constructively under the applicable attribution rules of the
Internal Revenue Code, by five or fewer individuals (including certain tax-
exempt entities, other than, in general, qualified domestic pension funds) at
any time during the last half of any taxable year of the Company (the "five or
fewer" requirement). The Charter contains certain restrictions on the
ownership and transfer of Common Shares and Preferred Shares (as defined
below) (together, "Equity Shares"), described below, which are intended to
prevent concentration of share ownership. These restrictions, however, may not
ensure that the Company will be able to satisfy the "five or fewer"
requirement in all cases. If the Company fails to satisfy such requirement,
the Company's status as a REIT will terminate. See "--Adverse Tax Consequences
of Failure to Qualify as a REIT."
The Charter does not permit any person to own more than 5.0% of the number
of outstanding Equity Shares (subject to adjustment by the Board) (the
"Ownership Limit") or to own constructively (within the meaning of the
Internal Revenue Code) in excess of 9.8% of the number of outstanding Equity
Shares (the "Constructive Ownership Limit") and the executive officers in the
aggregate may not own more than 20% of the outstanding Equity Shares (by
number or value, whichever is the more restrictive) (the "Executive Officer
Ownership Limit"), subject to certain exceptions. Each percentage is based on
the value or the number of shares, whichever is more restrictive. In addition,
no shareholder of the Company may sell, transfer, assign, devise or otherwise
dispose of Equity Shares if such a disposition would result in (i) Equity
Shares being owned by fewer than 100 shareholders; (ii) the Company's being
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code or (iii) the Company's failing to qualify as a REIT.
Under the Charter, any attempted transfer of shares by a person, or other
change in the capital structure of the Company, which would violate one of the
limitations described above, unless compliance with such limitations has been
waived by the Board, will cause the shares in excess of such limits (the
"Excess Shares") to be transferred automatically to a special trust for the
benefit of a charitable beneficiary (a "Special Trust") or, if, for any
reason, the transfer to a Special Trust is not automatically effective, the
attempted transfer resulting in such violation will be deemed void ab initio.
Upon any transfer that results in Excess Shares pursuant to the foregoing,
such Excess Shares will be deemed to have been transferred to the trustee of a
Special Trust and will be considered issued and outstanding shares. The
trustee of the Special Trust will be entitled to voting, dividend and other
distribution rights on such Excess Shares, and any dividend or other
distribution paid prior to the discovery by the Company that the Common and/or
Preferred Shares have been transferred so as to be deemed Excess Shares must
be repaid to the trustee of the Special Trust upon demand. The Board may waive
the Ownership Limit, the Constructive Ownership Limit or the Executive Officer
Ownership Limit with respect to a particular shareholder if it is satisfied,
based on the receipt of certain representations and undertakings from the
person seeking to own shares in excess of the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, that
such ownership in excess of the Ownership Limit, the Constructive Ownership
Limit or the Executive Officer Ownership Limit will not jeopardize the
Company's status as a REIT. Subject to certain limitations, the Board may from
time to time increase or decrease the Ownership Limit or the Constructive
Ownership Limit.
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Preferred Shares. The Charter permits the Board to issue up to 1,000
preferred shares of beneficial interest, par value $0.01 per share ("Preferred
Shares"), and to establish the preferences and rights (including the right to
vote and the right to convert into Common Shares) of any such Preferred Shares
issued. Thus, the Board could authorize the issuance of Preferred Shares with
terms and conditions which could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the Common
Shares might receive a premium for their Common Shares over the then-
prevailing market price of the Common Shares.
Staggered Board. The Board has three classes of Trust Managers who serve for
three-year terms, with the term of one class expiring in each year. A Trust
Manager may be removed only for cause (as defined in the Charter) and only by
the affirmative vote of the holders of at least two-thirds of the Common
Shares then outstanding and entitled to vote.
Maryland Business Combination Law. Under the Maryland General Corporation
Law, as may be amended from time to time (the "MGCL"), certain "business
combinations" (including certain issuances of equity securities) between a
Maryland real estate investment trust such as the Company and any person who
owns 10.0% or more of the voting power of the trust's shares (an "Interested
Shareholder") or an affiliate thereof are prohibited for five years after the
most recent date on which the Interested Shareholder became an Interested
Shareholder. Thereafter, any such business combination must be approved by a
super-majority vote unless, among other conditions, the holders of Common
Shares receive a minimum price (as defined in the MGCL) for their shares and
the consideration is received in cash or in the same form as previously paid
by the Interested Shareholder for its shares.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
required to investigate and clean up hazardous or toxic substances or
petroleum products released on, under, in or emitting from such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean up
responsibility and liability without regard to whether the owner knew of or
caused the presence of the contaminants, and the liability under such laws has
been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for an allocation of responsibility. The cost of
investigation, remediation or removal of such substances may be substantial,
and the presence of such substances or the failure to remediate the
contamination properly on such property may adversely affect the owner's
ability to sell or rent such property or to borrow using such property as
collateral. Moreover, certain loan documents provide for recourse liability in
connection with the presence of hazardous or toxic materials. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of the Properties or any properties it acquires in the
future, the Company is potentially liable for such costs.
Federal legislation requires owners and landlords of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers of
the properties any known lead-paint hazards and will impose treble damages for
failure to give the required notice. The existence of lead-based paint in a
property may result in lead poisoning in children residing therein if chips or
particles of lead-based paint are ingested, and the Company may be held liable
under state laws for any injuries caused by ingestion of lead-based paint by
children living at the Apartment Communities or any apartment communities
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior Phase
I) or similar environmental assessments by independent environmental
consultants. Phase I assessments are intended to discover information
regarding, and to evaluate the environmental condition of, the surveyed
property and surrounding properties.
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Phase I assessments generally include a historical review, a public records
review, a preliminary investigation of the surveyed site and surrounding
properties, and preparation and issuance of a written report, but do not
include soil sampling or subsurface investigations.
Certain environmental laws impose liability for release of asbestos-
containing materials ("ACM's") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
suffered by reason of ACM's. Because of its ownership and operation of the
Properties, the Company, the Operating Partnership and any partnership holding
an interest in any of the Properties is potentially liable for such costs.
Various environmental laws and regulations also control how certain
activities can or must be conducted at the Properties. Such requirements
govern maintenance activities, renovation projects and other worker operations
involving asbestos or lead-based paint. They also may govern air emissions,
wastewater discharges, waste management or similar activities related to
operation of the Properties. No assurance can be given that the cost of
complying with such requirements in connection with any of the Properties will
not require any material expenditures by the Company in the future.
Under various laws and regulations, owners and operators of underground and
aboveground storage tanks containing petroleum are obligated to meet certain
construction and operating standards. In addition, such tank owners and
operators are responsible for remediating any contamination caused by
petroleum released from such tanks. While currently available information does
not indicate that the Company currently has any material liabilities related
to such tanks, no assurance can be given that the Company will not be required
to make such material expenditures in the future.
Grove's environmental assessments of the Properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on its business, assets or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nonetheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. No assurance can be given (i) that existing
environmental studies for the Properties and the Acquisition Properties reveal
all environmental liabilities; (ii) that any prior owner thereof or tenant
therein or unrelated third party did not and will not in the future create any
environmental condition with material adverse consequences to the Company;
(iii) that future laws or regulations or changes or new interpretations of
existing laws or regulations will not require any material expenditures by, or
create any environmental liabilities for, the Company in the future or (iv)
that past, current or future operations or conditions associated with land or
property in the vicinity of the Properties or the Acquisition Properties, such
as the presence of leaking underground storage tanks, will not have a material
adverse effect on the business, financial condition and results of operations
of the Company.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of Common Shares, or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Shares. Upon completion of the Offerings, the Company will have
8,453,829 Common Shares outstanding. Of these shares, 3,587,012 shares sold in
the Offerings will be freely tradable without restriction and 912,988 shares
to be offered to an "affiliate" (as defined in Rule 144 under the Securities
Act) in the Concurrent Offering may be sold subject to the volume, manner of
sale and other restrictions of Rule 144. Of the remaining 3,953,829 shares,
3,430,017 shares are deemed "restricted shares" under Rule 144, as they were
originally issued by the Company in private transactions in reliance upon
exemptions under the Securities Act. The restricted shares may not be sold
except in compliance with the registration requirements of the Securities Act
or pursuant to an exemption from registration, including sales pursuant to
Rule 144. Of the restricted shares, 874,462 shares are held by persons who may
be "affiliates" of the Company, and thus may be sold only pursuant to Rule
144, and 2,555,555 shares are held by persons who are not affiliates. The
Company has registered for resale 3,333,333 of such restricted shares pursuant
to a registration statement on Form S-3 filed by the Company (the "Shelf
Registration Statement"). The 96,684 shares held by Executive Officers and
Trust Managers of the Company and 1,169,170 of the shares covered by
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the Shelf Registration Statement are subject to lock-up agreements that
prohibit their resale for a period of 180 days from the date of this
Prospectus without the prior consent of Smith Barney Inc. The Company intends
to exercise its right to prohibit sales of the remaining 2,164,163 shares
under the Shelf Registration Statement for a period of 90 days from the date
of this Prospectus. After the expiration of such periods, these shares may be
freely sold, subject to the volume limitations and other provisions of Rule
144 with respect to the shares held by the Trust Managers, the Executive
Officers and other affiliates of the Company.
The Operating Partnership, in connection with the Consolidation
Transactions, issued to persons other than the Company an aggregate of
2,114,439 Common Units. The Company has subsequently issued an aggregate of
748,515 Common Units in acquisitions of other Properties. Common Units may be
redeemed for cash based on their fair market value or, at the Company's
option, for Common Shares on a one-for-one basis. In certain circumstances,
the Company may not be able to exercise its option to satisfy such redemption
rights with Common Shares because of tax or securities law limitations. An
exercise of redemption rights in such circumstances could adversely affect the
Operating Partnership's liquidity because it would then be required to satisfy
such rights with cash. The Contribution Agreement (as defined under "--
Potential Conflicts of Interest") prohibits the redemption of Common Units for
a period of one year after the closing in March 1997 of the acquisition of 20
properties owned by affiliates of Grove for which the Operating Partnership
issued Common Units and the private placement by the Company of Common Shares
(collectively, the "Consolidation Transactions"). The Company granted certain
registration rights to the holders of the Common Units. Thus, an aggregate of
2,114,439 shares may be sold in the public market after March 14, 1998,
assuming the immediate redemption of all Common Units for Common Shares at
such time and concurrent exercise of such registration rights. In addition, an
aggregate of 1,115,368 Common Shares have been reserved for issuance pursuant
to the 1994 Plan, the 1996 Plan and other outstanding options and warrants.
No prediction can be made as to the effect, if any, that future sales of
Common Shares, including the Common Shares offered hereby, or the availability
of such shares for future sale will have on the market price of the Common
Shares.
The Board has the authority, without shareholder approval, to issue
additional Common Shares and other Equity Shares, or to cause the Operating
Partnership to issue additional Common Units or other classes of units of
interest in the Operating Partnership in any manner it deems appropriate,
including in exchange for property. Shareholders of the Company (other than
MSAM and the Oregon Retirement Fund who have certain preemptive rights which
will expire upon completion of the Offerings) will have no preemptive right to
purchase shares or units issued in any such offerings, and any such offerings
might cause a dilution of the shareholders' investment in the Company.
CHANGES IN INVESTMENT AND FINANCING PRACTICES WITHOUT SHAREHOLDER APPROVAL
The Board will determine the Company's investment and financing practices,
its growth strategy and its debt, capitalization, distribution and operating
practices. Although the Board has no present intention to revise or
amend these strategies and practices, the Board may do so at any time without
a vote of the Company's shareholders. Accordingly, the Company's shareholders
will have no control over changes in strategies and practices of the Company,
and such changes may not serve the interests of all the Company's shareholders
and could adversely affect the Company's financial condition or results of
operations.
Risks Involved in Acquisitions Through Partnerships. The Company has and may
in the future invest in apartment properties through partnerships instead of
purchasing apartment properties directly or through wholly-owned subsidiaries.
Partnerships may, under certain circumstances, involve risks not otherwise
present in a direct acquisition of properties. These include the risks that
the Company's partner: (i) might become bankrupt; (ii) might at any time have
economic or business interests or goals which are inconsistent with the
business interests or goals of the Company or (iii) might be in a position to
take action contrary to the instructions or the requests of the Company or
contrary to the Company's practices or objectives. There is no limitation in
the Charter as to the amount of investment the Company may make in
partnerships.
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Risks Involved in Investments in Securities Related to Real Estate. The
Company has and may in the future pursue its investment objectives through the
ownership of securities or partnership interests of entities engaged in the
ownership of real estate. Ownership of such securities or partnership
interests may not entitle the Company to control the ownership, operation or
management of the underlying real estate. In addition, the Company may have no
ability to control the distributions with respect to such securities, which
may adversely affect the Company's ability to make distributions on the Common
Shares. Furthermore, if the Company desires to control an issuer of securities
or partnership interests, it may be prevented from doing so by the limitations
on percentage ownership and gross income tests which must be satisfied by the
Company in order for the Company to qualify as a REIT. The Company intends to
operate its business in a manner that will not require the Company to register
under the Investment Company Act of 1940 and the Company's shareholders will
therefore not have the protection of that Act.
The Company may also invest in mortgages or mortgage-related securities and
may do so as a strategy for ultimately acquiring the underlying property. In
general, investments in mortgages include the risk that borrowers may not be
able to make debt service payments or pay principal when due, the risk that
the value of the mortgaged property may be less than the principal amount of
the mortgage note securing such property and the risk that interest rates
payable on the mortgages may be lower than the Company's cost of funds to
acquire these mortgages. In any of these events, cash available for
distributions and the Company's ability to make distributions on the Common
Shares could be adversely affected.
SHARE PRICE VOLATILITY
The price of the Common Shares may be subject to wide fluctuations in
response to quarterly variations in operating results or announcement of
acquisitions. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which could adversely affect the market
price of the Common Shares. Further, the daily trading volumes of REIT's in
general and the Company's shares in particular may be lower than the trading
volumes of certain other industries. As a result, investors in the Company who
desire to liquidate substantial holdings at a particular time may find that
they are unable to dispose of their shares in the market without causing a
substantial decline in the market value of such shares. See "Price Range of
Common Shares and Dividends."
UNINSURED LOSS
The Company carries comprehensive liability, fire, flood (where required)
and extended coverage and rental loss insurance on all of the Properties with
policy specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses which may be either
uninsurable or not economically insurable, such as those resulting from
earthquakes, floods, tidal waves, explosion of water pipes, nuclear hazards,
wars, civil disturbances and environmental matters. Should an uninsured loss
or a loss in excess of insured limits occur, the Company could lose both its
investment in and anticipated profits and cash flow from a property while it
would continue to be obligated on any mortgage indebtedness or other financial
obligations on such property. Any such loss would adversely affect the Company
and its financial condition and results of operations. Moreover, as the
general partner of the Operating Partnership, the Company generally will be
liable for any of the Operating Partnership's unsatisfied obligations other
than non-recourse obligations. Similarly, as the general partner of other
partnerships which hold certain of the Properties, the Company generally will
be liable for any unsatisfied obligations of such partnerships other than non-
recourse obligations.
OFFER AND SALE OF UNREGISTERED SECURITIES
The Company offered and sold 3,333,333 Common Shares and the Operating
Partnership issued 2,114,439 Common Units in the Consolidation Transactions.
Upon consummation of acquisition transactions which occurred after the
Consolidation Transactions, the Operating Partnership issued an additional
748,515 Common Units. The offer and sale of such Common Shares and such Common
Units was not registered under the Securities Act in reliance upon the
exemption from registration under Section 4(2) of the Securities Act. If it
were to be determined that the offer and sale of the Common Shares and Common
Units issued in the
20
<PAGE>
Consolidation Transactions should have been registered under the Securities
Act, the holders of such Common Shares and Common Units could be given the
right under federal securities laws to rescind their investment, or to pursue
other claims against the Company which could adversely affect the financial
condition of the Company or its ability to make expected distributions to its
shareholders. Although the Company does not believe it will have any material
liability for failure to register the Common Shares and Common Units issued in
connection with the Consolidation Transactions under the Securities Act and
has received an opinion of Cummings & Lockwood to this effect, there can be no
assurance in this regard.
21
<PAGE>
THE COMPANY
OVERVIEW
The Company is a self-managed and self-administered REIT that is engaged in
the acquisition, repositioning, management and operation of mid-priced
multifamily properties in the Northeastern United States. The Company is a
fully integrated real estate organization with in-house acquisition,
repositioning and renovation, financing, marketing, leasing and property
management expertise. Grove believes that its regional focus, experience in
acquiring and renovating under-managed apartment communities, reputation for
quality and experienced management team provide it with a strong competitive
position in the highly fragmented Northeastern apartment market.
Grove currently owns interests in and operates 29 multifamily properties
containing a total of 2,763 units in Connecticut, Massachusetts and Rhode
Island and one community shopping center in Massachusetts containing
approximately 79,000 rentable square feet. Approximately 81%, 14% and 5% of
the total units in the Apartment Communities are located in Connecticut,
Massachusetts and Rhode Island, respectively. For the six months ended June
30, 1997, the Apartment Communities had an average economic occupancy rate of
approximately 96.4% and an average monthly rental rate of approximately $697
per unit. The Apartment Communities are mid-priced apartment properties
consisting primarily of two- and three-story buildings in landscaped settings.
The Apartment Communities are well located within their markets and appeal to
middle income residents who are generally "renters by necessity." Twenty of
the Apartment Communities, representing approximately 79% of the total number
of units in the Company's portfolio, have undergone extensive renovation
within the last seven years.
The Company believes that the "same community" comparison data shown below
for the 23 Apartment Communities owned by Grove or its predecessors since the
beginning of 1995 reflect the strength of Grove's management team and the
general economic recovery that has taken place in the Company's markets over
the last twelve months.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ -------- --------
<S> <C> <C> <C> <C>
Average Monthly Rental Rate Per Unit
(1).................................. $ 680 $ 696 $ 691 $ 711
Average Economic Occupancy Rate (2)... 95.7% 96.4% 96.2% 96.6%
Net Operating Income (000's) (3)...... $9,125 $9,294 $ 4,395 $ 4,863
</TABLE>
- --------
(1) Average monthly rental rate is derived by dividing gross potential rental
income by the total number of leasable units.
(2) Average economic occupancy rate is derived by dividing actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(3) Excludes intercompany management fees.
Grove's predecessors commenced operations in 1980. The Company completed its
initial public offering in 1994 with the acquisition of three apartment
properties. At that time, affiliates of Grove owned additional apartment
properties and other real estate assets outside of the REIT and conducted
management and acquisition activities through entities that were also owned
outside of the REIT. In 1996, management began to undertake a number of
strategic initiatives intended to maximize shareholder value. In March 1997,
the Company completed the following: (i) the creation of an UPREIT structure
by forming the Operating Partnership to facilitate the consolidating
transactions described below and to provide potential sellers with a mechanism
to defer their tax liability; (ii) the acquisition through the Operating
Partnership of 20 properties owned by affiliates of Grove; (iii) the
acquisition of the property management assets and related liabilities of GPS,
the entity that managed the properties owned by Grove as well as the 20
properties owned by affiliates of Grove; (iv) a $30 million private placement
(3,333,333 shares at $9.00 per share) of equity securities to investors that
included, among others,
22
<PAGE>
four investment funds managed by MSAM and the Oregon Retirement Fund and (v)
the closing of a $25 million Credit Facility and a $15 million term loan
facility. See "Certain Relationships and Transactions--The Consolidation
Transactions."
The Company is led by an experienced management team, whose five senior
executives have an average of approximately 16 years real estate experience in
the multifamily sector and an average of approximately 14 years experience
with the Company or its predecessors. In the aggregate, since 1980, Grove's
senior management team has been responsible for the acquisition of
approximately 45 apartment properties containing a total of approximately
4,500 units and the management of approximately 55 apartment properties
containing a total of approximately 5,250 units within the Northeastern United
States. Upon completion of the Offerings, Grove will own approximately 74% of
the Common Units in the Operating Partnership, and the Executive Officers and
the Trust Managers of Grove will own, directly or indirectly, in the
aggregate, approximately 10.0% of the equity of the Company through ownership
of Common Units and Common Shares.
BUSINESS OBJECTIVES AND GROWTH STRATEGIES
Grove's primary business objectives are to increase the value of the
Company's portfolio of properties and to maximize shareholder value by
maintaining long-term growth in cash available for distribution to its
shareholders. The Company intends to accomplish these objectives by (i)
actively acquiring and, where appropriate, repositioning and renovating under-
managed multifamily properties at significant discounts to replacement costs
and at returns that enhance shareholder value; (ii) aggressively managing its
portfolio to increase revenues and reduce operating costs; (iii) maintaining a
conservative ratio of debt to total market capitalization and (iv)
consistently providing quality service and a desirable living environment to
all of its residents. Grove is currently negotiating to increase the borrowing
capacity under its Credit Facility from $25 million to approximately $50
million to continue to fund its growth.
Acquisitions. The Company's primary growth strategy is to acquire under-
managed, mid-priced apartment properties in the Northeastern United States.
Grove believes that opportunities for acquisitions in the Northeastern United
States are particularly attractive at this time because the region is
generally characterized by: (i) limited new construction due to significant
barriers to entry resulting from high construction costs, limited land
availability, strict zoning laws and extended permitting processes; (ii) a
limited number of publicly traded companies focusing on the acquisition of
under-managed, mid-priced multifamily communities; (iii) highly fragmented
markets with many small-to-medium sized companies that own older apartment
properties in which the owners are looking to sell with minimal tax impact and
(iv) many older apartment properties where maintenance and improvements have
been deferred and where the Company believes selective capital improvements
and professional management may create opportunities for increased rents.
Although the Company's principal focus is the acquisition of under-managed
apartment communities, it will continue to examine select mixed-use and
specialty retail properties that meet the Company's return requirements.
The Company intends to continue its acquisition efforts in existing and new
markets in the Northeastern United States and may eventually expand its
acquisition activity into the Mid-Atlantic United States as appropriate
opportunities arise. The Company defines the Northeastern United States as
Connecticut, Massachusetts, Rhode Island, New York, Pennsylvania, New Jersey,
New Hampshire, Vermont and Maine and the Mid-Atlantic United States as
Delaware, Maryland, Virginia and Washington, D.C.
When evaluating potential acquisitions, the Company considers: (i) the
demographic characteristics and resident profile of the neighborhood; (ii) the
age and quality of the property; (iii) the current and projected cash flow of
the property and the ability to increase cash flow through return-oriented
capital improvements; (iv) the potential for capital appreciation of the
property; (v) the terms of leases, including the potential for rent increases;
(vi) the potential for economic growth and the tax and regulatory environment
of the community in which the property is located; (vii) the occupancy of and
demand for properties of a similar type in the market and (viii) competition
from existing properties and the potential for the construction of new
properties in the area. The
23
<PAGE>
Company intends to continue to acquire multifamily properties with physical
and market characteristics similar to the Apartment Communities.
The Company believes that an important strategic focus for growth is the
acquisition of under-managed apartment portfolios that are owned and operated
by private individuals with little or no tax basis remaining in the properties
in such portfolios. The Company believes that its status as a publicly traded
REIT conducting business through the Operating Partnership enhances its
ability to acquire properties by providing sellers a means to defer federal
income taxes on gain through the use of Common Units as consideration for such
acquisitions. Grove believes that there are a significant number of potential
sellers in the Northeastern United States seeking to sell on a tax deferred
basis. Several owners of apartment portfolios have contacted senior management
and expressed an interest in selling their portfolios in return for Common
Units. Through their extensive experience and involvement in the Northeastern
market, the Executive Officers have developed relationships with a diverse
network of potentially motivated sellers of multifamily properties.
Grove currently classifies itself as an opportunistic buyer that falls
between the large commodity buyers, who make money on economies of scale, and
the smaller buyers, who are constrained by their limited access to capital.
The Company's acquisitions of Apartment Communities have ranged from
approximately $4 million to $15 million and typically range in size from 75 to
300 units. The Company believes this is a unique market niche that offers
significant upside potential because it is not currently targeted by most
institutional or publicly traded buyers in the Northeastern United States.
Repositioning and Renovation. The Company believes that it can continue to
increase shareholder value through repositioning and renovating newly acquired
properties as well as existing properties in its portfolio. When pursuing an
acquisition, members of the Company's in-house acquisition, development and
property management teams work closely together in underwriting the
transaction and evaluating potential renovation and repositioning strategies
and budgets. The officers of Grove have extensive experience in the renovation
and repositioning of multifamily properties. The Company and the prior
affiliated owners of the Apartment Communities have completed extensive
renovations to a majority of the Apartment Communities. Of the existing 29
Apartment Communities, 20 Apartment Communities, representing approximately
79% of the apartment units in the Company's portfolio, have undergone
extensive renovation within the last seven years, including 14 Apartment
Communities, representing approximately 60% of the apartment units in the
Company's portfolio, that have undergone extensive renovation within the last
five years. Additionally, the Company continually reviews its portfolio to
determine where opportunities exist to make incremental capital improvements
that meet its targeted return on cost. Typical renovations include replacing
carpets, appliances, kitchen cabinets, counter tops, bathroom fixtures and
vanities as well as upgrading landscaping, adding fitness centers and
community rooms, adding additional apartment units, repaving existing parking
spaces and adding additional parking spaces.
The Company engages in two types of repositioning and renovation projects.
One type of repositioning and renovation project includes those undertaken at
stabilized properties in its existing portfolio. When evaluating a capital
improvement project on a stabilized property, the Company typically sets an
initial return on cost target of approximately 15%.
The second type of repositioning and renovation project includes those
undertaken in connection with acquisitions. In evaluating these types of
projects, the Company not only sets initial return targets but also return
targets over a period of several years. Set forth below is certain return on
cost and other information regarding the six most recent repositioning and
renovation projects related to acquisitions that were stabilized for the six
months ended June 30, 1997.
24
<PAGE>
<TABLE>
<CAPTION>
1995 1996
---------------------------------- ----------------------------------
ANNUAL ANNUAL
AVERAGE NET RETURN ON AVERAGE NET RETURN ON
ACQUISITION CAPITALIZED OPERATING CAPITALIZED CAPITALIZED OPERATING CAPITALIZED
PROPERTY DATE(1) COST(2) INCOME(3) COST(4) COST(2) INCOME(3) COST(4)
-------- ----------- ------------ --------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Longmeadow Shops Feb-94 $ 5,821,668 $ 706,527 12.1% $ 5,984,879 $ 898,332 15.0%
River's Bend May-94 12,186,607 1,249,428 10.3% 13,131,989 1,283,473 9.8%
Summit & Birch Hill Feb-95 8,121,587 783,262 9.6%(6) 8,375,179 830,693 9.9%
Four Winds Oct-95 -- -- -- 6,330,568 580,503 9.2%
Burgundy Studios Nov-95 -- -- -- 1,998,763 252,796 12.6%
Sandalwood(7) Dec-95 -- -- -- -- -- --
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------
SIX MONTH
AVERAGE NET RETURN ON
CAPITALIZED OPERATING CAPITALIZED
PROPERTY COST(2) INCOME(3) COST(4)(5)
-------- ------------ --------- -----------
<S> <C> <C> <C>
Longmeadow Shops $ 6,008,305 $427,048 7.1%
River's Bend 13,509,527 712,391 5.2%
Summit & Birch Hill 8,496,366 435,630 5.1%
Four Winds 6,295,849 346,729 5.5%
Burgundy Studios 2,074,371 138,365 6.7%
Sandalwood(7) 661,237 52,527 7.9%
</TABLE>
- -------
(1) Acquisition date represents the date the Property was acquired by the
Company's predecessors.
(2) Average capitalized cost represents the average capitalized cost for the
specified period incurred in connection with the initial acquisition and
subsequent capital improvements.
(3) Net operating income is derived by subtracting total operating expenses
for the specified period for the Property, including an intercompany
management fee of approximately 5%, from total revenue for the specified
period.
(4) Annual return on capitalized cost is derived by dividing net operating
income for the specified period by average capitalized cost for the
specified period.
(5) The returns represent the results of six months of operations. Typically
the Apartment Communities generate more net operating income in the last
half of the year than the first half due to seasonality.
(6) Summit & Birch Hill was purchased in February 1995, and, therefore, the
annual return on capitalized cost is presented for approximately a 10
month period.
(7) Sandalwood was not available for rent until September 1996. The property
was not leaseable at acquisition and required complete renovation and
repositioning.
Aggressive Management. The Company is led by an experienced management team,
whose five senior executives have an average of approximately 16 years real
estate experience in the multifamily sector and an average of approximately 14
years experience with the Company or its predecessors. The Company
aggressively manages its portfolio with the goal of increasing revenues and
reducing operating costs. Grove believes that proactive marketing of the
Apartment Communities is key to increasing revenues. Accordingly, the Company
markets the Apartment Communities on a continual basis, instead of waiting for
vacancies to occur. The Company uses a variety of marketing alternatives to
promote its portfolio, including newspaper advertising, resident referrals,
apartment guides, the Internet, point-of-purchase materials and well-
maintained properties. In addition, on-site property management staff monitor
the success of Grove's marketing programs by preparing marketing reports that
track each Apartment Community's occupancy, lease expiration, prospective
resident traffic, unit availability, renewal rates, rental rates and resident
profile information.
In addition to seeking to increase revenues, the Company focuses on reducing
operating costs by minimizing resident turnover, controlling expenses,
providing regular preventative maintenance, making periodic renovations,
utilizing effective management systems and motivating the Company's employees.
Historically, costs associated with resident turnover have caused the biggest
increase in Grove's operating costs. In order to reduce these costs, the
Company focuses on limiting turnover by providing high quality customer
service throughout the lease term as well as renewal incentives. The Company
also takes advantage of economies of scale by utilizing a limited number of
outside suppliers and contractors who grant the Company volume-based
discounts. Grove also encourages price competition among such suppliers and
contractors. The Company believes that its seasonal preventative maintenance
programs and periodic renovations of Apartment Communities lower operating
costs over the life of the Apartment Communities and may increase the long-
term value of its portfolio. Grove's management systems also allow the Company
to control operating costs further. Each Community's information systems
provide on-site management, regional property managers and accounting
personnel with information on vacancies, collections, leasing and budget
compliance. By constantly monitoring this information, the Company can ensure
that operating costs are minimized and budgeted targets are met or exceeded.
Additionally, Grove encourages employees to control operating costs closely by
maintaining a bonus program under which employees can earn bonuses of up to an
additional 25% of their monthly base salaries based upon their respective
Apartment Community's out-performing profitability goals.
Conservative Debt Ratio. Grove believes in maintaining a conservative ratio
of debt to total market capitalization and, accordingly, has maintained a
ratio of debt to total market capitalization of less than 60%. The
organizational documents of
25
<PAGE>
the Company, however, do not limit the amount or percentage of indebtedness
that it may incur. As of June 30, 1997, giving effect to the acquisition of
all properties or interests therein acquired since June 30, 1997, the
Acquisition Properties and the closing of the Offerings, the debt to total
market capitalization of the Company was approximately 18.3%.
Quality Service. The Company believes that providing quality service and a
desirable living environment to all residents is critical to realizing its
business objectives. As such, the focus of Grove's on-site management program
is to provide prompt, courteous and responsive service to all of its
residents. The Company concentrates on hiring employees who understand the
importance of customer service. In order to monitor and continuously improve
its on-site performance, Grove uses various resident surveys, including
soliciting service satisfaction responses for maintenance services, conducting
periodic resident surveys and interviewing departing residents. At certain
Apartment Communities, the Company provides amenities, such as clubhouses,
tennis courts, basketball courts, swimming pools and fitness centers, to
further enhance resident satisfaction.
THE OPERATING PARTNERSHIP
The Operating Partnership was formed to act as the vehicle for the
consolidation of the Properties and the acquisition of future properties.
Grove is the sole general partner of the Operating Partnership and thereby
controls the Operating Partnership. Grove is the sole general partner of each
of the Subsidiary Partnerships. Using the Operating Partnership, the Company
is able to acquire properties in exchange for Common Units, which represent
limited partnership interests in the Operating Partnership. The recipients of
Common Units are restricted from transferring such Common Units for a period
of one year from the acquisition date. The Common Units are redeemable after
such time for cash (based on the fair market value of an equivalent number of
Common Shares at the time of such redemption) or, at the Company's option, for
Common Shares of the Company on a one-for-one basis, subject to certain anti-
dilution adjustments and exceptions. With the Operating Partnership, the
Company is able to offer attractive purchase terms to owners of properties who
have little or no tax basis remaining in such properties. In many cases, the
tax liability incurred by such owners upon a transfer of such properties would
be prohibitive if the purchase price were paid in cash. By utilizing the
Operating Partnership structure, the Company can make payment in Common Units,
thereby deferring all or a portion of an owner's federal income tax liability.
Upon completion of the Offerings, Grove will own approximately 74% of the
total partnership interests in the Operating Partnership, consisting of
Grove's ownership of 8,453,829 Common Units.
THE CONCURRENT OFFERING
The Company is hereby offering MSAM the opportunity to purchase 912,988
Common Shares in the Concurrent Offering at the price to public set forth on
the cover page hereof. The Company also is hereby offering ABKB/LaSalle the
opportunity to purchase 445,537 Common Shares in the Concurrent Offering at
the price to public. A portion of the Concurrent Offering is required to be
made pursuant to previously existing preemptive rights held by MSAM and the
Oregon Retirement Fund. Such preemptive rights will terminate upon completion
of the Offering. The Company believes that any purchase of Common Shares by
MSAM and ABKB/LaSalle will be for investment purposes and not with a view to
distributing such shares to the public. No assurance can be given that any
shares will be purchased in the Concurrent Offering. Any shares not purchased
in the Concurrent Offering will be added to the shares offered by the
Underwriters in the Offering.
26
<PAGE>
USE OF PROCEEDS
Based on an assumed offering price of $11.50 per share (the closing price of
the Common Shares on October 29, 1997), (i) the net proceeds to the Company
from the Offering (after estimated underwriting discounts and commissions and
estimated expenses of the Offering) are expected to be approximately $33
million (approximately $40.3 million if the Underwriters' over-allotment
option is exercised in full) and (ii) the net proceeds to the Company from the
Concurrent Offering, if consummated, are expected to be approximately $15.2
million.
The Company will contribute all of the net proceeds of the Offerings to the
Operating Partnership in exchange for a number of Common Units equal to the
number of Common Shares issued in the Offerings. Such proceeds will be used:
(i) to repay $37 million of mortgage and credit facility indebtedness secured
by certain of the Properties, bearing interest at rates ranging from 7.5% to
LIBOR plus 1.2% (6.9% as of June 30, 1997), with maturity dates from 1998 to
2000; (ii) to repay approximately $8 million of indebtedness to be incurred in
connection with the purchase of the Acquisition Properties, bearing interest
at 1.2% above LIBOR (6.9% as of June 30, 1997) and maturing in 2000 and (iii)
for working capital and other general purposes. The Company regularly
evaluates acquisition opportunities consistent with its business objectives
and growth strategies. The Company may use the proceeds of the Offerings or
amounts available under its Credit Facility for additional acquisitions.
Pending the uses described above, the net proceeds will be invested in
interest bearing accounts and short-term, interest-bearing securities, which
are consistent with the Company's intention to continue to qualify for
taxation as a REIT.
27
<PAGE>
DISTRIBUTION POLICY
Grove has made a quarterly distribution to its holders of Common Shares in
each quarter since the closing of its initial public offering in 1994.
Distributions for the year ended December 31, 1995 totaled $475,125,
representing 90.3% of CAD. Distributions for the year ended December 31, 1996
totaled $481,688, representing 86.5% of CAD. Distributions for the six months
ended June 30, 1997 totaled $843,874, representing 66.3% of CAD.
Following the Offering, the Company intends to increase its regular annual
distributions to $0.68 per Common Share (assuming the issuance of all shares
offered hereby). The Company expects to set a record date for the payment of a
dividend based on its historical distribution rate to holders of Common Shares
at the close of business on the business day immediately prior to the closing
of the Offering with respect to the period commencing October 1, 1997 and
ending on such record date. The Company then expects to set a record date for
the payment of a dividend to holders of Common Shares on December 31, 1997
with respect to the period commencing on the closing date of the Offering and
ending December 31, 1997. The Company's determination to increase
distributions as described above was based on its expectations with respect to
pro forma REIT taxable income following the Offerings and is intended to
ensure its continuing ability to qualify for REIT status. In particular, the
Company is seeking to ensure its continued compliance with the requirement
that it distribute at least 95% of its REIT taxable income annually. Although
the Company intends to maintain the stated distribution rate, future
distributions will be made at the discretion of the Board.
The Company's ability to make distributions to its shareholders is dependent
upon its receipt of distributions from the Operating Partnership. Grove
intends to cause the Operating Partnership to distribute to its partners
sufficient amounts to permit the Company to make regular quarterly
distributions to its shareholders. The Operating Partnership's primary source
of revenue consists of income from the Properties. The actual return that the
Company will realize will be affected by a number of factors, including the
revenue received from the Properties, the distributions and other payments
received from the Subsidiary Partnerships, the operating expenses of the
Company and the Operating Partnership, the interest expense incurred on their
respective borrowings, the ability of tenants to meet their obligations,
general leasing activity and unanticipated capital expenditures.
The Board may vary the percentage of CAD which is distributed if the actual
results of operations, economic conditions or other factors differ from the
assumptions used in the Company's estimates. Common Units and Common Shares
will receive equal distributions. Under the federal income tax provisions
affecting REIT's, to obtain the favorable tax treatment accorded to a REIT
under the Internal Revenue Code, the Company is required each year to
distribute to its shareholders at least 95% of its REIT taxable income.
Moreover, the Company is required each year to distribute to its shareholders
at least 85% of its ordinary income and 95% of any capital gain income as
dividends to avoid certain excise taxes applicable to REIT's. Under certain
circumstances, the Company may be required to make distributions in excess of
its CAD in order to meet such distribution requirements. In such event, the
Company would seek to borrow the amount of deficiency or to sell assets to
obtain the cash necessary to make distributions to retain its qualification as
a REIT for federal income tax purposes.
The future payment of dividends by the Company will be at the discretion of
the Board and will depend on numerous factors, including the actual cash flow
of the Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Internal Revenue
Code and such other factors as the Board deems relevant.
28
<PAGE>
PRICE RANGE OF COMMON SHARES AND DIVIDENDS
The Common Shares are listed on the Emerging Company Marketplace of the AMEX
under the symbol "GVE.EC." The Common Shares have been approved for listing on
the AMEX (Regular List) under the symbol "GVE," subject to notice of issuance.
On October 29, 1997, there were approximately 122 holders of record of the
Common Shares. On October 29, 1997, the last reported sale price of the Common
Shares on the AMEX was $11.50. The following table sets forth for the periods
indicated the high and low sale prices as reported on the AMEX and the
dividends declared and paid by the Company on each Common Share for each such
period. All prices and dividends have been adjusted to reflect the share split
and share dividend paid by the Company in March 1997.
<TABLE>
<CAPTION>
DIVIDEND PER
HIGH LOW COMMON SHARE
------- ------- ------------
1995 QUARTER ENDING
-------------------
<S> <C> <C> <C>
March 31, 1995................................ $ 7.514 $ 6.561 $0.1884
June 30, 1995................................. 7.619 6.984 0.1926
September 30, 1995............................ 7.302 6.138 0.1926
December 31, 1995............................. 7.566 6.138 0.1926
1996 QUARTER ENDING
-------------------
March 31, 1996................................ $ 8.572 $ 7.090 $0.1926
June 30, 1996................................. 8.466 7.619 0.1947
September 30, 1996............................ 8.043 7.514 0.1947
December 31, 1996............................. 8.148 6.773 0.1947
1997 QUARTER ENDING(1)
----------------------
March 31, 1997................................ $10.371 $ 7.719 $0.1558(2)
June 30, 1997................................. 11.250 9.625 0.1890(3)
September 30, 1997............................ 12.375 10.625 0.1575
December 31, 1997 (through October 29, 1997).. 12.000 11.250 --
</TABLE>
- --------
(1) In connection with the Consolidation Transactions, the Company changed its
distribution practice. The Company concluded that its decision to reduce
its annual distribution per Common Share from $.78 to $.63, thereby
increasing the amount of cash available to the Company for reinvestment,
would increase the interest of institutional and other investors in owning
Common Shares. The Company emphasized in its announcement that the
decision was made for the foregoing reason and not in response to any
adverse occurrence with respect to the business or operations of the
Company.
(2) Represents the dividend declared and paid for the period beginning on
January 1, 1997 and ending on March 14, 1997, the date of the consummation
of the Consolidation Transactions.
(3) Represents the dividend declared and paid for the period beginning on
March 15, 1997 and ending June 30, 1997.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 on an historical basis, on a pro forma basis giving effect to the
acquisition of all properties or interests therein acquired since June 30,
1997 and the Acquisition Properties, and on a pro forma basis as adjusted to
give effect to the completion of the Offerings (at an assumed offering price
of $11.50 per share) and the application of the net proceeds therefrom as
described under "Use of Proceeds." The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements
of the Company and notes thereto included or incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Mortgage notes payable.................. $ 44,028 $ 53,800 $ 29,550
Borrowings under Revolving Credit Facil-
ity.................................... 1,825 20,675 --
-------- -------- --------
Total debt................................ 45,853 74,475 29,550
Minority interests in consolidated
partnerships............................. 6,395 1,495 1,495
Minority interest in the Operating
Partnership.............................. 17,488 22,415 25,027
Shareholders' Equity:
Preferred Shares, $.01 par value, 1,000
shares authorized, none issued or
outstanding............................ -- -- --
Common Shares, $.01 par value,
13,999,000 shares authorized, 620,102
shares (historical and pro forma) and
8,453,829 shares (pro forma as
adjusted) issued and outstanding(1).... 40 40 85
Additional paid-in capital................ 25,466 25,466 71,004
Distributions in excess of earnings....... (666) (666) (666)
-------- -------- --------
Total shareholders' equity................ 24,840 24,840 70,423
-------- -------- --------
Total capitalization.................. $ 94,576 $123,225 $126,495
======== ======== ========
</TABLE>
- --------
(1) Excludes 2,862,954 (actual) and 3,003,906 (pro forma and pro forma as
adjusted) Common Shares issuable on redemption of Common Units, 117,726
and 900,000 Common Shares reserved for issuance under the 1994 Plan and
the 1996 Plan, respectively, 50,000 Common Shares reserved for issuance
upon exercise of an option granted to a consultant to the Company and
47,248 Common Shares reserved for issuance upon exercise of a warrant held
by Barclay Investments, Inc., the underwriter for the Company's initial
public offering in 1994.
30
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and operating data on a
historical and pro forma basis for the Company and on a combined historical
basis for GPS and the Property Partnerships (defined in the Company's
financial statements as those partnerships that were parties to the
transactions completed in March 1997). The following information should be
read in conjunction with all of the financial statements and notes thereto
included or incorporated by reference in this Prospectus. The historical
operating information of the Company and GPS and the Property Partnerships for
the years ended December 31, 1996 and 1995 has been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose reports with respect thereto are included
elsewhere in this Prospectus. The operating information for the six months
ended June 30, 1997 and 1996 has been derived from the unaudited financial
statements of the Company also included elsewhere in this Prospectus. In the
opinion of management, the unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation of the financial position and
results of operations for these periods. The results of operations for the six
months ended June 30, 1997 and 1996 are not necessarily indicative of the
results to be obtained for the full fiscal year.
The unaudited pro forma information assumes that the transactions completed
in March 1997, the Offerings, and the acquisition of the Acquisition
Properties and six properties acquired after March 1997 all occurred on
January 1, 1996 with respect to operating data. With respect to the balance
sheet data, to the extent not already consummated by June 30, 1997, the
unaudited pro forma information assumes that such acquisitions occurred on
June 30, 1997. In management's opinion, all adjustments necessary to present
fairly the effects of these transactions have been made. The unaudited pro
forma information is not necessarily indicative of what the actual results of
operations or financial condition of the Company would have been for the
periods or at the dates indicated, nor does it purport to represent the
Company's future financial condition or results of operations as of any future
date or for any future periods.
31
<PAGE>
<TABLE>
<CAPTION>
GPS AND PROPERTY
PARTNERSHIPS
COMPANY HISTORICAL HISTORICAL COMPANY PRO FORMA
------------------------------------ ------------------ ---------------------------------
YEARS ENDED SIX MONTHS ENDED YEARS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
---------------- ------------------ ------------------ ------------ --------------------
1996 1995 1997 1996 1996 1995 1996 1997 1996
------- ------- --------- ------- -------- -------- ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING INFORMATION:
Revenues:
Rental income.......... $ 2,046 $ 1,287 $ 5,438 $ 1,001 $ 12,906 $ 11,965 $ 23,531 $ 12,349 $ 11,563
Property management.... -- -- 218 -- 777 815 381 210 190
Interest and other..... 36 30 128 20 1,138 1,103 553 391 233
------- ------- --------- ------- -------- -------- --------- --------- ---------
Total revenues........ 2,082 1,317 5,784 1,021 14,821 13,883 24,465 12,950 11,986
------- ------- --------- ------- -------- -------- --------- --------- ---------
Expenses:
Property operating and
maintenance........... 656 406 1,964 346 5,705 5,276 8,929 4,931 4,632
Real estate taxes...... 208 148 542 102 1,299 1,234 2,590 1,278 1,255
Related party
management fees....... 109 67 22 53 -- -- -- -- --
General and
administrative........ 67 56 347 40 279 261 949 475 474
------- ------- --------- ------- -------- -------- --------- --------- ---------
Total operating
expenses............. 1,040 677 2,875 541 7,283 6,771 12,468 6,684 6,361
------- ------- --------- ------- -------- -------- --------- --------- ---------
Net operating income.... 1,042 640 2,909 480 7,538 7,112 11,997 6,266 5,625
Interest expense........ 394 85 777 189 3,856 3,829 2,274 1,081 1,110
Depreciation and
amortization........... 387 217 1,155 198 3,055 3,140 5,305 2,640 2,572
------- ------- --------- ------- -------- -------- --------- --------- ---------
Income before items
shown below............ 261 338 977 93 627 143 4,418 2,545 1,943
Minority interests in
consolidated
partnerships........... -- -- 49 -- -- -- -- 26 --
Minority interest in
Operating Partnership.. -- -- 314 -- -- -- 1,158 660 509
Extraordinary gain on
debt restructuring..... -- -- -- -- -- 2,186 -- -- --
------- ------- --------- ------- -------- -------- --------- --------- ---------
Net income.............. $ 261 $ 338 $ 614 $ 93 $ 627 $ 2,329 $ 3,260 $ 1,859 $ 1,434
======= ======= ========= ======= ======== ======== ========= ========= =========
Net income per common
share.................. $ 0.42 $ 0.55 $ 0.24 $ 0.15 -- -- $ 0.39 $ 0.22 $ 0.17
Weighted average number
of common shares
outstanding............ 620,102 620,102 2,627,601 620,102 -- -- 8,453,829 8,453,829 8,453,829
OTHER INFORMATION:
Funds from
operations(1).......... $ 595 $ 517 $ 1,271 $ 269 $ -- $ -- $ 6,674 $ 3,529 $ 3,098
Cash flow from:(2)
Operating activities... 781 585 626 309 3,232 3,317 -- -- --
Investment activities.. (303) (99) (1,011) (49) (1,144) (3,419) -- -- --
Number of Apartment
Communities (end of
period)................ 4 3 26 4 20 20 31 31 31
Number of apartment
units (end of period).. 257 165 2,348 257 1,514 1,514 2,763 2,763 2,763
Average monthly rental
rate per unit.......... $ 693 $ 660 $ 687 $ 687 $ 693 $ 677 $ 676 $ 694 $ 673
Average economic
occupancy rate......... 97.0% 97.8% 96.7% 97.5% 96.7% 96.4% 95.6% 96.5% 95.8%
Number of Retail
Properties............. -- -- 1 -- 1 1 3 3 3
BALANCE SHEET
INFORMATION:
Real estate, before
accumulated
depreciation........... $ 9,798 $ 5,393 $ 121,003 $ 9,721 $ 77,833 $ 76,835 -- $ 150,130 --
Total assets............ 9,521 5,241 98,424 9,583 59,866 61,678 -- 130,343 --
Total mortgage and
revolving credit
facility debt.......... 5,669 1,190 45,853 5,681 48,643 46,786 -- 29,550 --
Minority interests...... -- -- 23,883 -- -- -- -- 26,522 --
Shareholders'/owners'
equity................. 3,483 3,703 24,840 3,918 7,795 12,259 -- 70,423 --
</TABLE>
(continued on next page)
32
<PAGE>
(continued from previous page)
- --------
(1) The Company generally considers FFO to be a useful measure of the
operating performance of an equity REIT because, together with net income
and cash flow, FFO provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions
and other capital expenditures. FFO does not represent net income or cash
flow from operations as defined by GAAP and does not necessarily indicate
that cash flow will be sufficient to fund cash needs. It should not be
considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
FFO does not measure whether cash flow is sufficient to fund all of the
Company's cash needs, including principal amortization, capital
improvements and distributions to shareholders. FFO also does not
represent cash flow generated from operating, investing or financing
activities as defined by GAAP. Further, FFO as disclosed by other REIT's
may not be comparable to the Company's calculation of FFO. The Company
uses the NAREIT definition of FFO. FFO is defined as income before gains
(losses) on investments and extraordinary items (computed in accordance
with GAAP) plus real estate depreciation, less preferred dividends and
after adjustment for significant non-recurring items, if any. The Company
believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with the net
income as presented in the financial statements and information included
elsewhere in this Prospectus.
(2) Pro forma information relating to cash flow from operating and investing
activities has not been included because the Company believes that the
information would not be meaningful due to the number of assumptions
required in order to calculate this information.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Information" and the financial statements (including the notes
thereto) appearing elsewhere in this Prospectus or incorporated by reference
herein.
OVERVIEW
The Company is a self-managed and self-administered equity REIT that is
engaged in the acquisition, repositioning, management and operation of mid-
priced multifamily communities in the Northeastern United States. Grove
currently owns interests in and operates 29 Apartment Communities and one
Retail Property. Grove's predecessors commenced operations in 1980, and the
Company completed its initial public offering in 1994.
The financial history of the Company can be viewed in distinct phases based
upon the acquisitions of the Properties, which were acquired at various times
since the Company's formation. From its initial public offering in 1994
through the end of 1995, the Company owned three properties (Barons, Hamden
Center and Dogwood Hills) (collectively, the "Original Properties"). In
January 1996, the Company acquired Cambridge Estates. In March 1997, the
Company completed the Consolidation Transactions in which it acquired 20
properties and GPS (collectively, the "Consolidation Properties"). In June
1997, the Company acquired two additional properties (Four Winds and
Brooksyde) and a 29% controlling interest in the partnership that owned a
majority of the units in River's Bend (Four Winds, Brooksyde and River's Bend,
collectively, the "June Acquisition Properties"). In July 1997, the Company
acquired Greenfield Village, and in September 1997, the Company acquired two
additional properties (Glastonbury and Summit & Birch Hill). The Company has
agreements to acquire the two Retail Acquisition Properties (Wharf Building
and Corner Block) from an affiliate of the Company and to acquire the
Apartment Acquisition Property (High Meadow) from a non-affiliate. As a result
of these transactions, the financial statements included herein include
various Properties at various times and for various periods.
The Company receives income primarily from rental revenue from the
Properties and, to a lesser extent, from the management of certain properties
substantially owned by affiliates of the Company. The Company expects that
revenue growth will come from additional property acquisitions and from
increases in rents in its current portfolio.
RESULTS OF OPERATIONS
Due to the significance of the transactions completed since the end of 1996,
the Company believes that comparing pro forma results for the six months ended
June 30, 1997 against pro forma results for the comparable period in 1996 as
if all Properties and Acquisition Properties were owned by the Company since
January 1, 1996 is most meaningful for a complete understanding of the
Company's results of operations. The unaudited pro forma information presented
below includes all adjustments necessary in management's opinion to present
fairly the effects of these transactions and is not necessarily indicative of
what the Company's actual results of operations or financial condition would
have been for the periods or at the dates indicated, nor does it purport to
represent the Company's financial condition or results of operations as of any
future date or for any future period.
THE COMPANY
Pro forma six months ended June 30, 1997 compared to pro forma six months
ended June 30, 1996.
Rental income for the Properties and the Acquisition Properties increased
$786,000 from $11,563,000 to $12,349,000 for the six months ended June 30,
1997, as compared to the corresponding period in 1996. Approximately $107,000
of such increase was due to the operations of Sandalwood. Sandalwood was
acquired in December 1995 by a predecessor of the Company and was redeveloped
during 1996. Construction was not
34
<PAGE>
completed until October 1996. During renovation, Sandalwood was only partially
occupied and was not stabilized until January 1997. Approximately $163,000 of
the increase is due to increases in rental rates at Four Winds which resulted
primarily from a repositioning project in which the Company converted from
electric to gas heating systems. By making this conversion, the Company was
able to include heat in rents which contributed to the increase in monthly
rental rates. The average monthly rental rate for the Apartment Communities
and the Apartment Acquisition Community increased to $694 per unit for the six
months ended June 30, 1997 from $673 for the same period in 1996. The average
economic occupancy rate for the Apartment Communities and the Apartment
Acquisition Community increased to 96.5% for the six months ended June 30,
1997 from 95.8% for the same period in 1996. The average annual rental rate
per square foot for the Retail Property and the Retail Acquisition Properties
increased to $15.92 for the six months ended June 30, 1997 from $14.26 for the
same period in 1996 because of new tenants and scheduled rent increases.
Property management revenue increased $20,000 from $190,000 to $210,000 for
the six months endedJune 30, 1997, as compared to the corresponding period in
1996. The increase was due primarily to the increase in rental income on which
management fees were based.
Interest and other income increased $158,000 from $233,000 to $391,000 for
the six months ended June 30, 1997, as compared to the corresponding period in
1996. The increase in interest and other income was due in part to a $50,000
increase in interest income resulting from higher cash balances during the six
months ended June 30, 1997 and a $32,000 reimbursement received during such
period.
Real estate taxes increased $23,000 from $1,255,000 to $1,278,000 for the
six months ended June 30, 1997 as compared to the corresponding period in
1996. The increase was due to the increases in property tax rates from 1996 to
1997.
Property operating and maintenance expenses increased $299,000 from
$4,632,000 to $4,931,000 for the six months ended June 30, 1997, as compared
to the corresponding period in 1996. The increase was due in part to the
Company's incurring additional operating costs of approximately $70,000 in
connection with the conversion from electric to gas heating systems at Four
Winds and due to other miscellaneous increases in operating expenses. As a
percentage of rental and property management revenue, property operating and
maintenance expenses were 39.3% for the six months ended June 30, 1997, as
compared to 39.4% for the six months ended June 30, 1996.
Interest expense decreased $29,000 from $1,110,000 to $1,081,000 for the six
months ended June 30, 1997 as compared to the corresponding period in 1996 due
to lower interest rates.
Net income increased $425,000 from $1,434,000 to $1,859,000 for the six
months ended June 30, 1997, as compared to the corresponding period in 1996.
The increase was due primarily to an increase in rental income of $786,000, an
increase in interest and other income of $158,000 and a decrease in interest
expense of $29,000, offset in part by an increase in property operating and
maintenance expenses of $299,000, an increase in real estate taxes of $23,000
and an increase in depreciation and amortization expense of $68,000.
Historical six months ended June 30, 1997 compared to historical six months
ended June 30, 1996.
Total revenues increased $4,763,000 from $1,021,000 to $5,784,000 during the
six months ended June 30, 1997, as compared to the corresponding period in
1996. Approximately $4,480,000 of the increase is due to the operations of the
Consolidation Properties and the June Acquisition Properties. Additionally,
$218,000 of the increase was related to property management revenues which
represent fees earned on management services provided to properties owned by
affiliated entities. Such revenue was derived from management contracts
acquired in conjunction with the Consolidation Transactions; therefore, there
was no comparable revenue during the corresponding period in 1996. The
remainder of the increase in total revenues is attributable to increases in
rental rates, offset by slight decreases in occupancy experienced at the
Original Properties and Cambridge Estates, discussed below.
35
<PAGE>
The Original Properties and Cambridge Estates (acquired in January 1996)
experienced increases in rental rates in the six months ended June 30, 1997,
which were slightly offset by decreases in occupancy, having the net effect of
increasing revenues. The average monthly rental rates for the Original
Properties and Cambridge Estates increased to $709 per unit for the six months
ended June 30, 1997 from $687 for the six months ended June 30, 1996. Average
physical occupancy for the Original Properties and Cambridge Estates decreased
to 97.6% for the six months ended June 30, 1997 from 97.9% for the
corresponding period in 1996. Average physical occupancy for the Original
Properties and Cambridge Estates decreased to 97.5% at June 30, 1997 from
98.2% at June 30, 1996. At June 30, 1997, the average physical occupancy for
the Original Properties, Cambridge Estates, the Consolidation Properties and
the June Acquisition Properties was 97.3%.
Real estate taxes increased $440,000 from $102,000 to $542,000 during the
six months ended June 30, 1997, as compared to the corresponding period in
1996. The increase results primarily from the acquisition of the Consolidation
Properties and the June Acquisition Properties. Also related party management
fees decreased $31,000 from $53,000 to $22,000. This decrease was due to the
Company's acquisition of GPS in the Consolidation Transactions, resulting in
the elimination as of March 14, 1997 of all such expenses in consolidation.
Property operating and maintenance expenses increased $1,618,000 from
$346,000 to $1,964,000 during the six months ended June 30, 1997, as compared
to the corresponding period in 1996. The increase was primarily due to the
operations of the Consolidation Properties and the June Acquisition
Properties.
General and administrative expenses increased $307,000 from $40,000 to
$347,000 during the six months ended June 30, 1997, as compared to the
corresponding period in 1996. This increase was primarily due to the increased
costs associated with the change in size and structure of the Company.
Interest expense increased $588,000 from $189,000 to $777,000 during the six
months ended June 30, 1997, as compared to the corresponding period in 1996.
The increase was primarily due to the $39.3 million mortgage debt assumed
and/or refinanced as part of the acquisitions of the Consolidation Properties
and the June Acquisition Properties.
Depreciation and amortization increased $957,000 from $198,000 to $1,155,000
during the six months ended June 30, 1997, as compared to the corresponding
period in 1996. This increase results from approximately $966,000 attributable
to the acquisitions of the Consolidation Properties and the June Acquisition
Properties.
The Company's net income increased $521,000 from $93,000 to $614,000 during
the six months ended June 30, 1997, as compared to the corresponding period in
1996. Approximately $59,000 of this increase resulted from the net effect of
decreased expenses and increased rental rates at the Original Properties and
Cambridge Estates. The remaining increase was due to the operations of the
Consolidation Properties and the June Acquisition Properties.
Historical year ended December 31, 1996 compared to historical year ended
December 1995.
Total revenues increased $765,000 from $1,317,000 to $2,082,000 for the
years ended December 31, 1995 and 1996, respectively. Approximately $733,000
of such increase was due to the operations of Cambridge Estates, and the
remainder is attributable to a small decrease in occupancy at the Original
Properties offset by increases in rental rates, which resulted in increased
revenues. The average monthly rental rate for the Original Properties
increased to $679 per unit for the year ended December 31, 1996 from $660 for
the year ended December 31, 1995. Average physical occupancy decreased to
97.6% for the year ended December 31, 1996 from 97.8% for the year ended
December 31, 1995. Physical occupancy at December 31, 1996 for the Original
Properties and Cambridge Estates was 97.4%.
Property operating and maintenance expenses increased $250,000 from $406,000
for the year ended December 31, 1995 to $656,000 for the year ended December
31, 1996. Approximately $233,000 of the increase was due to the operations of
Cambridge Estates. Additionally, the Original Properties experienced an
increase in operating and maintenance expenses due primarily to the harsh
winter experienced in the New England area in 1996 compared to the more mild
winter experienced in 1995.
36
<PAGE>
Real estate taxes increased $60,000 from $148,000 to $208,000 and general
and administrative expenses increased $11,000 from $56,000 to $67,000 for the
years ended December 31, 1995 and 1996, respectively. Related party management
fees increased $42,000 from $67,000 to $109,000 for the years ended December
31, 1995 and 1996, respectively. These increases were due primarily to the
acquisition of Cambridge Estates.
Interest expense increased $309,000 from $85,000 to $394,000 for the years
ended December 31, 1995 and 1996, respectively. This increase was due to the
$4,500,000 mortgage note payable used to finance the acquisition of Cambridge
Estates. Depreciation and amortization increased $170,000, primarily as a
result of the acquisition of Cambridge Estates.
The Company's net income decreased $77,000 from $338,000 to $261,000 for the
years endedDecember 31, 1995 and 1996, respectively. Approximately $54,000 of
the decrease was due to a loss experienced by Cambridge Estates, primarily due
to depreciation and amortization associated with Cambridge Estates. The
decrease in net income for the Original Properties of approximately $23,000
was due to an increase in property operating and maintenance expenses as
discussed above.
CONSOLIDATION PROPERTIES
The following is a discussion of the results of the combined operations of
GPS and the Subsidiary Partnerships (the "Consolidation Properties") for the
years ended December 31, 1995 and December 31, 1996. The Consolidation
Properties were acquired by the Company on March 14, 1997 in connection with
the Consolidation Transactions.
Historical year ended December 31, 1996 compared to historical year ended
December 31, 1995.
The Consolidation Properties included two properties acquired by affiliates
in 1995, Burgundy Studios (102 apartments) acquired in September 1995 and
Sandalwood (39 apartments) acquired in December 1995. Sandalwood was
redeveloped during 1996. Construction was completed in October 1996. The total
apartment units included in the Consolidation Properties were 1,495 at
December 31, 1996 compared to 1,456 at December 31, 1995.
Rental income for the Consolidation Properties increased $941,000 to
$12,906,000 in 1996 from $11,965,000 in 1995. The increase was due to the
increase in total apartment units discussed above, together with increases in
rental rates. The average rental rates for the apartments in the Consolidation
Properties increased to $693 per unit for the year ended December 31, 1996
from $677 for the year ended December 31, 1995. Average physical occupancy for
the apartments in the Consolidation Properties decreased to 95.7% for the year
ended December 31, 1996 from 95.8% for the year ended December 31, 1995. The
average physical occupancy of the commercial properties increased to 97.9% for
the year ended December 31, 1996 from 90.9% for the year ended December 31,
1995. The average rent per square foot for the commercial properties increased
to $12.00 for the year ended December 31, 1996 from $9.84 for the year ended
December 31, 1995.
Property management revenue for GPS decreased $38,000 to $777,000 in 1996,
from $815,000 in 1995.
Interest and other income for the Consolidation Properties increased $35,000
to $1,138,000 in 1996 from $1,103,000 in 1995 primarily due to an increase in
sales of condominiums at the Avonplace.
Real estate taxes for the properties increased $65,000 from $1,234,000 in
1995 to $1,299,000 in 1996, due primarily to an increase in the number of
properties included in the Consolidation Properties for 1996.
Property operating and maintenance expenses for the Consolidation Properties
increased $294,000 from $2,918,000 in 1995 to $3,212,000 in 1996. The increase
was due primarily to the additional expenses of Burgundy and Sandalwood. As a
percentage of rental revenue, other property operating expenses were 24.9% for
1996, compared to 34.4% for 1995.
37
<PAGE>
Interest expense for the Consolidation Properties increased $27,000 from
$3,829,000 in 1995 to $3,856,000 in 1996. The increase was primarily due to
the increased debt levels related to the acquisitions and refinancings of
certain of the properties during 1996, offset by lower interest rates during
1996.
Income before extraordinary items for the Consolidation Properties increased
$484,000 to $627,000 for the year ended December 31, 1996 from $143,000 for
the year ended December 31, 1995. Net income decreased $1,702,000 to $627,000
for the year ended December 31, 1996 from $2,329,000 for the year ended
December 31, 1995. These variations were due primarily to an increase in
rental income of $941,000, a decrease in depreciation and amortization of
$85,000, offset in part by an increase in other property operating expenses of
$294,000, an increase in payroll of $135,000, an increase in general and
administrative of $18,000, an increase in real estate taxed of $65,000, an
increase in interest expense of $27,000 and a decrease in extraordinary item-
gain on restructuring of debt of $2,186,000. The extraordinary item represents
gains on restructuring of debt on various mortgages due to banks.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, assuming completion of the Offerings, totaled
$4,554,000 as of June 30, 1997. The Company's pro forma ratio of debt to total
market capitalization as of June 30, 1997 was 18.3%, based on a total market
capitalization of $161,314,000 (consisting of 3,003,906 Common Units and
8,453,829 Common Shares valued at $11.50 per share/unit plus term debt of
$29,550,000). On an historical basis, cash and cash equivalents totaled
$1,762,000 as of June 30, 1997. The Company's historical ratio of debt,
including the Credit Facility, to total market capitalization on June 30, 1997
was 39.9% based on total market capitalization of $114,793,000, based on
2,534,622 Common Units and 3,953,829 Common Shares outstanding valued at
$10.625 per share/unit plus term debt of $45,853,000, including the Credit
Facility.
Cash provided by operating activities was $626,000 for the six months ended
June 30, 1997. Cash used in investing activities was $1,011,000 for the six
months ended June 30, 1997. Net cash provided by financing activities was
$1,766,000 for the six months ended June 30, 1997.
On June 18, 1997, the Company declared a "long" period dividend of $0.189
per share for the period from March 14, 1997 to June 30, 1997. The dividend
was paid on July 16, 1997 to shareholders of record on June 30, 1997. On March
10, 1997, the Company declared a "short" period dividend of $0.1558 per share
for the period from January 1, 1997 to March 13, 1997, which was paid on March
28, 1997 to shareholders of record on March 10, 1997. The dividends declared
during the period of $0.373 per share resulted in a 66.4% payout of FFO for
the six months ended June 30, 1997.
The Operating Partnership declared a distribution of $0.189 per Common Unit
for all unit holders for the period March 14, 1997 to June 30, 1997. The
distribution amount was prorated for unit holders who were not unit holders
for the entire period of March 14, 1997 to June 30, 1997. The distribution was
paid on July 26, 1997.
In March 1997, the Operating Partnership entered into the Credit Facility, a
three year revolving credit facility, guaranteed by Grove, for up to $25.0
million. Borrowings under the Credit Facility are collateralized by nine of
the Properties and bear interest payable monthly at a floating rate of 1.2%
above the 30, 60, or 90 day LIBOR rate. The Credit Facility is available to
fund future property acquisitions, up to $4.0 million is available to fund
working capital needs, and up to $2.0 million is available to fund the
redemption of Common Units or the purchase of Common Shares by the Operating
Partnership.
The Company intends to meet its short-term liquidity requirements through
cash on hand, cash flow provided by operations and funds from the Credit
Facility. The Company considers its ability to generate cash to be adequate
and expects it to continue to be adequate to meet operating requirements and
pay shareholder dividends in accordance with REIT requirements. The Company
may use other sources of capital to finance
38
<PAGE>
additional acquisitions including, but not limited to, the selling of
additional equity interest in the Company, non-distributed FFO, the issuance
of debt securities, funds from the Credit Facility, and exchanging Common
Shares or Common Units for properties or interests in properties.
The Company regularly evaluates properties for possible acquisition or
disposition. Individual properties may be acquired through direct purchase of
the property or through the purchase of the entity owning such property and
may be made for cash or securities of the Company or the Operating
Partnership. In connection with any acquisition, the Company may incur
additional indebtedness. The Company is currently negotiating to increase its
borrowing capacity under its revolving credit facility from $25 million to $50
million. If the Company acquires or disposes of any property, such acquisition
or disposition could have a significant effect on the Company's financial
condition, results of operations or cash flow.
FUNDS FROM OPERATIONS
Industry analysts generally consider FFO an appropriate measure of
performance of an equity REIT. FFO is defined as income before gains (losses)
on investments and extraordinary items (computed in accordance with GAAP) plus
real estate depreciation, less preferred dividends and after adjustment for
significant non-recurring items, if any. This definition conforms to the
recommendations set forth in a White Paper adopted by NAREIT in early 1995.
The Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with the net income
as presented in the financial statements and information included elsewhere in
this Prospectus. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs. FFO should not be considered as an alternative
to net income as an indication of the Company's performance or as an
alternative to cash flow as a measure of liquidity.
FFO increased $431,000 from $3,098,000 for the six months ended June 30,
1996 to $3,529,000 for the six months ended June 30, 1997 on a pro forma
basis.
FFO increased $1,002,000 from $269,000 for the six months ended June 30,
1996 to $1,271,000 for the six months ended June 30, 1997 on an historical
basis. Dividends declared for the six months ended June 30, 1997 were
$844,000, representing 66.4% of FFO. Dividends declared for the six months
ended June 30, 1996 were $240,000, representing 89.6% of FFO. FFO per share
was $0.48 and $0.43 for the six months ended June 30, 1997 and 1996,
respectively.
FFO increased $78,000 from $517,000 for the year ended December 31, 1995 to
$595,000 for the year ended December 31, 1996. Dividends declared for the year
ended December 31, 1996 was $481,000, representing 80.8% of FFO. Dividends
declared for the year ended December 31, 1995 was $475,000, representing 91.9%
of FFO. FFO per share was $0.96 and $0.83 for the year ended December 31, 1996
and 1995, respectively.
SEASONALITY
Historically, net income from the Properties has been lower in the first and
second quarters than in the remainder of the year due to higher utility
charges, snow removal and other weather related expenses in the first and
second quarters and an historical increase in rental revenues in the second
half of the year.
INFLATION
Substantially all of the leases at the properties are for a term of one year
or less, which may enable the Company to seek increased rents upon renewal or
reletting. Such short-term leases generally lessen the risk to the Company of
the potential adverse effects of inflation.
39
<PAGE>
BUSINESS AND PROPERTIES
MULTIFAMILY MARKET OVERVIEW
All of the Properties are located in the New England region of the United
States and the Company intends to continue to focus its acquisition efforts in
existing and new markets in the Northeastern United States. The Company
defines the Northeastern United States as Connecticut, Massachusetts, Rhode
Island, New York, Pennsylvania, New Jersey, New Hampshire, Vermont and Maine
and New England as Connecticut, Massachusetts, Rhode Island, New Hampshire,
Vermont and Maine. According to the U.S. Census Bureau reports, in 1996 the
Northeastern United States represented approximately 19.4% of total United
States population, of which approximately 37.7% lived in rental housing. The
Company believes that the limited supply of newly constructed multifamily
properties, coupled with stable or increasing demand fundamentals, may create
opportunities for increased rents in the Northeastern market.
Supply of New Multifamily Units. Relatively few new multifamily units have
been built in the Northeast since 1990. The lack of newly constructed
multifamily properties is illustrated by the table below, which shows the
number of building permits that have been issued since 1986. For the period
from 1991 through 1996, permits were issued to build 81,861 multifamily units
in the Northeast, representing approximately 64.3% fewer than the 229,201
units permitted in the period from 1986 through 1991. Further, a
disproportionate number of building permits included in the data for the
Northeast region is attributable to New York State, where none of the
Properties is located. For the period from 1991 through 1996, permits were
issued to build 50,085 multifamily units in the Northeast region excluding New
York, representing approximately 70.7% fewer than the 170,896 units permitted
in the period from 1986 through 1991. The decline in permit issuances has been
even more dramatic in New England, where all of the Properties are located.
For the period from 1991 through 1996, permits were issued to build 17,272
multifamily units in New England, representing approximately 80.1% fewer than
the 87,737 units permitted in the period from 1986 through 1991. In 1996,
permits were issued to build 20,150 multifamily units in the Northeast, of
which permits to build 10,420, or approximately 52.0%, were issued in New York
and 3,389, or approximately 16.8%, were issued in New England.
[GRAPH]
Multifamily Permit Activity
1986-1997
Northeast Northeast w/o NY New England
1986 57,074 45,128 26,285
1987 56,581 42,997 24,496
1988 47,239 35,768 18,730
1989 35,885 24,587 10,324
1990 20,635 14,175 5,365
1991 11,787 8,241 2,537
1992 10,667 7,037 2,288
1993 13,304 9,188 3,174
1994 12,463 7,190 2,866
1995 13,486 8,695 3,018
1996 20,154 9,734 3,389
Source: M/PF Research Analysis of U.S. Bureau of the Census (5+ Units)
40
<PAGE>
The Company believes that the reduced building permit issuance in the
Northeastern United States since the early 1990's has translated into limited
new construction starts. The chart below shows the number of new construction
starts in the Northeast as well as Northeast construction starts as a
percentage of total United States construction starts for the period from 1986
to 1996.
[GRAPH]
Multifamily Housing Starts in the Northeast
1986-1996
Number of Starts Percent of United States
1986 59,000 10.9%
1987 59,000 14.4%
1988 48,000 13.8%
1989 41,000 12.9%
1990 23,000 8.6%
1991 8,000 5.8%
1992 11,000 7.9%
1993 7,000 5.3%
1994 15,000 6.7%
1995 15,000 6.1%
1996 16,000 5.9%
Source: M/PF Research analysis of U.S. Bureau of the Census (5+ Units)
The Company believes that the limited number of permits issued and new
construction starts in the 1990's resulted from several factors, including
high construction costs, limited land availability, strict zoning laws and
extended permitting processes. Given that these barriers to entry continue to
exist, the Company believes that the supply of newly constructed units in the
Northeast should remain relatively constant for the next several years.
41
<PAGE>
Age of Existing Rental Stock. In addition to constrained supply, the
inventory of existing multifamily stock in the Northeast is significantly
older than the national average. As the following graph illustrates,
approximately 13.1% of multifamily units in the Northeast have been built
since 1980, compared with approximately 33.2% for the United States as a
whole.
[GRAPH]
Age of Multifamily Housing Stock
Percent Built from 1980-1996
United States 33.2%
Northeast 13.1%
Source: M/PF Research Analysis of U.S. Bureau of the Census (5+ Units)
Furthermore, as the following graph illustrates, the vast majority of
multifamily units in the Northeast were built before 1970, with significantly
fewer units built in each four-year period thereafter.
[GRAPH]
Age of Multifamily Housing Stock in the Northeast
Pre 1970-1997*
Pre 1970 68.0%
1970-1974 14.1%
1975-1979 4.8%
1980-1984 4.1%
1985-1989 6.0%
1990-1994 2.0%
1995-1997 1.0%
* Total housing stock is estimated by M/PF Research to be 4,549,291 units as of
December 31, 1997.
Source: M/PF Research Analysis of U.S. Bureau of the Census (5+ Units)
The age of multifamily housing stock in the Northeast, coupled with the low
levels of new construction, is beneficial to Grove's growth prospects. The
Company believes that maintenance and improvements have been deferred at many
of these older properties. Accordingly, the Company believes the predominance
of older, under-managed properties in the Northeast creates numerous
acquisition, renovation and repositioning opportunities.
42
<PAGE>
Demand Growth. The Company believes that the demand for multifamily units in
the Northeast region is partially attributable to certain macroeconomic
factors, including job and population growth. The graph below shows the
increase in the number of jobs in the Northeast as the region recovered from
an economic downturn in the early 1990's.
[GRAPH]
Number of Jobs in the Northeast
1990-1996
Average Employment
1990 23,377,158
1991 22,511,183
1992 22,256,033
1993 22,416,717
1994 22,763,825
1995 23,051,683
1996 23,301,358
Source: M/PF Research analysis of U.S. Bureau of the Census
According to The Rosen Consulting Group ("Rosen"), a doubling in employment
growth rates is expected to occur for 1995 through 1997 in the major markets
that it follows in the Northeast, including Boston, Hartford, Stamford,
Northern New Jersey, New York City, Philadelphia, Pittsburgh and Rochester.
Rosen's projections for 1997 show 244,800 additional jobs being created in
these markets, in addition to the 175,900 additional jobs created in 1996.
43
<PAGE>
The Company believes that demand continues to increase due, in part, to
population growth. The total population in the Northeast has increased each
year since 1990, as illustrated by the following graph.
[GRAPH]
Northeast Population
1990-1996
1990 50,857,291
1991 50,954,026
1992 51,097,031
1993 51,292,552
1994 51,426,298
1995 51,505,491
1996 51,580,085
Source: M/PF Research analysis of U.S. Bureau of the Census
A further factor potentially influencing future demand for multifamily
properties is the relatively high cost of home ownership in many markets in
the Northeast. According to a report by the National Association of Realtors
ranking home prices in 135 U.S. metropolitan markets for the second quarter of
1997, five of the ten most expensive home ownership markets were in the
Northeast. The Company believes that the relatively high cost of ownership in
the area will continue in the future. In addition, the upfront expenses
associated with home ownership, including initial down payments and closing
costs, make home ownership unobtainable for a certain percentage of the
population.
Occupancy and Rental Rates. The previously discussed factors, which have
affected the Northeast region's supply and demand fundamentals, have
translated into strengthening occupancy and rental rate statistics. Greater
demand for apartments has caused an increase in occupancy and resulted in
overall occupancy rates that exceed the national average. In 1996, the average
occupancy rate for all apartments in the Northeast increased to 96.5% or
approximately 3.2 percentage points over 1995. This increase caused the
average occupancy rate for the Northeast to exceed the average occupancy rate
for the United States by approximately 2.1 percentage points in 1996. The
Company believes this above average occupancy rate has contributed to
increased rental rates in the Northeast.
44
<PAGE>
The occupancy rates for the Northeast region for the years 1993 through 1996
are shown in the graph below.
[GRAPH]
Apartment Occupancy Rate
1993-1996
US Northeast
1993 93.8% 92.5%
1994 94.2% 93.5%
1995 93.9% 93.3%
1996 94.4% 96.5%
Source: M/PF Research analysis of U.S. Bureau of the Census
The average rental rates for the Northeast region for the years 1993 through
1996 are shown in the graph below.
[GRAPH]
Average Rental Rate Per Unit
1993-1996
US Northeast
1993 $615 $748
1994 $666 $741
1995 $679 $743
1996 $711 $770
Source: M/PF Research analysis of U.S. Bureau of the Census
45
<PAGE>
Public Ownership Opportunities. The Company believes that in addition to the
strong supply and demand fundamentals in the Northeastern market, its ability
to execute its business objectives and growth strategies is further supported
by the limited number of publicly traded companies focusing on multifamily
properties in the Northeast. As the following graph illustrates, REIT
ownership of apartment units in the Northeast is nominal at 0.42% of total
units in the Northeast, as compared to 3.18% REIT ownership of apartment units
in the entire United States. The Company believes that this low level of REIT
ownership in the Northeast will contribute to its ability to execute its
acquisition strategy.
[GRAPH]
Percentage of Apartment Units Owned by Public REIT's
As of June 30, 1997
United States 3.18%
Northeast 0.42%
Source: Rosen Consulting Group
THE APARTMENT COMMUNITIES
The Company currently owns interests in and operates 29 Apartment
Communities containing a total of 2,763 units. The Apartment Communities are
mid-priced apartment properties that consist primarily of two- and three-story
buildings in landscaped settings. The Apartment Communities are well located
within their markets and appeal to middle income residents who are generally
"renters by necessity." The Apartment Communities are located in the following
states:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
APARTMENT NUMBER OF OF TOTAL
STATE COMMUNITIES APARTMENT UNITS APARTMENT UNITS
----- ----------- --------------- ---------------
<S> <C> <C> <C>
Connecticut...................... 23 2,241 81%
Massachusetts.................... 4 398 14%
Rhode Island..................... 2 124 5%
--- ----- ---
Total.......................... 29 2,763 100%
=== ===== ===
</TABLE>
Of the existing Apartment Communities, 20 Apartment Communities,
representing approximately 79% of the apartment units in the Company's
portfolio, have undergone extensive renovation within the last seven years,
including 14 Apartment Communities, representing approximately 60% of the
apartment units in the Company's portfolio, that have undergone extensive
renovation within the last five years. The Company continually reviews its
portfolio to determine where opportunities exist to make incremental capital
improvements that meet its targeted return on cost.
Of the 29 Apartment Communities, 11 have 100 units or more, with the largest
having 349 units and the smallest having 28 units. The average size of the
Apartment Communities is approximately 95 units. Of the 2,763 units in the
Apartment Communities, 183 units or approximately 6.6% are studios, 993 units
or approximately
46
<PAGE>
35.9% are one bedrooms, 1,577 units or approximately 57.1% are two bedrooms
and 10 units or approximately 0.4% are three bedrooms. The Apartment
Communities contain an aggregate of approximately 2.6 million rentable square
feet with an average unit size of approximately 989 square feet. For the six
months ended June 30, 1997, the Apartment Communities had an average economic
occupancy rate of approximately 96.4% and an average monthly rental rate of
approximately $697 per unit.
The Company has entered into a contract to acquire a 100-unit multifamily
apartment community in Ellington, Connecticut for an aggregate purchase price
of $4.2 million (including estimated closing costs). The property was
constructed in 1975. The Company expects to invest approximately $250,000 in
capital improvements to such property over a period of three years. The
Company believes that the purchase price represents a discount of
approximately 30% to 40% of replacement cost.
The following tables present information concerning the features and
amenities of the Apartment Communities and the Apartment Acquisition
Community.
47
<PAGE>
COMMUNITY FEATURES
<TABLE>
<CAPTION>
AVERAGE
ECONOMIC
OCCUPANCY RATE(1)
-------------------
AVERAGE
NUMBER SQ. FT. YEAR 6 MOS.
PERCENTAGE YEAR YEAR OF PER ENDED ENDED
PROPERTY TOWN/CITY OWNERSHIP BUILT RENOVATED UNITS UNIT STUDIO 1 BR 2 BR 3BR 12/31/96 6/30/97
- ----------------- ---------------- ---------- ----- --------- ------ ------- ------ ----- ----- --- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APARTMENT
COMMUNITIES
CONNECTICUT
208-210 Main
St.(3) Manchester 100% 1969 1988 28 929 -- 8 20 -- 97.8% 95.8%
Arbor Commons(3) Ellington 100% 1975 1988 28 780 -- 28 -- -- 97.6% 101.6%
Avonplace Avon 98% 1973 1995 145 1,542 -- 38 98 9 99.1% 98.9%
Barons
Apartments Southington 100% 1970 1994 54 900 -- 16 38 -- 95.8% 97.8%
Bradford
Apartments Newington 91% 1964 1989 64 894 -- 24 40 -- 91.6% 98.5%
Brooksyde(4) West Hartford 100% 1945 1997 80 800 -- 40 40 -- 94.0% 94.2%
Burgundy
Studios(4) Middletown 100% 1973 1996 102 443 102 -- -- -- 96.7% 98.7%
Cambridge
Estates Norwich 100% 1977 1990 92 939 -- 42 50 -- 97.4% 99.1%
Colonial Village Plainville 100% 1968 1989 104 981 28 16 60 -- 96.5% 94.3%
Dogwood Hills Hamden 100% 1971 1993 46 1,330 -- 23 23 -- 98.2% 97.2%
Summit & Birch
Hill Farmington 100% 1967 1996 184 937 -- 92 92 -- 96.5% 97.3%
Fox Hill
Apartments Enfield 97% 1974 1991 168 796 8 124 36 -- 96.5% 95.6%
Fox Hill Commons Vernon 100% 1965 1989 74 849 -- 24 50 -- 97.1% 97.6%
Greenfield
Village(4)(5) Rocky Hill 100% 1965 1997 127 729 -- 71 56 -- -- --
Hamden Centre Hamden 100% 1968 1993 65 873 1 30 34 -- 96.2% 94.2%
Glastonbury
Center Glastonbury 100% 1962 1989 104 961 -- 20 84 -- 95.6% 90.5%
Loomis Manor West Hartford 91% 1948 1990 43 1,138 -- 1 42 -- 100.0% 100.0%
Ocean Reef New London 96% 1962 1995 163 829 8 52 103 -- 94.4% 93.8%
Park Place West West Hartford 100% 1961 1989 63 861 2 30 30 1 97.9% 97.8%
Sandalwood(4)(6) New London 96% 1977 1996 39 517 27 12 -- -- 61.7% 98.9%
Westwynd
Apartments West Hartford 91% 1969 1990 46 901 -- 33 13 -- 95.2% 95.6%
River's Bend Windsor 100% 1973 1996 349 1,000 -- 69 280 -- 95.3% 95.7%
Woodbridge Newington 100% 1968 1991 73 792 -- 24 49 -- 94.7% 99.8%
MASSACHUSETTS
Dean Estates Taunton 100% 1984 -- 58 1,014 4 6 48 -- 94.9% 94.5%
Four Winds(4) Fall River 100% 1987 1996 168 1,089 -- 6 162 -- 90.5% 94.7%
Security Manor Westfield 88% 1971 1988 63 1,150 -- 45 18 -- 99.1% 99.9%
Van Deene
Manor(3) West Springfield 88% 1970 1990 109 664 -- 47 62 -- 98.5% 98.4%
RHODE ISLAND
Dean Estates II Cranston 96% 1970 1994 48 1,170 -- 24 24 -- 93.5% 95.2%
Royale Cranston 96% 1976 1993 76 1,151 3 48 25 -- 96.9% 97.2%
----- ----- --- ----- ----- --- --------- --------
SUBTOTAL/WEIGHTED
AVERAGE 2,763 989 183 993 1,577 10 95.7% 96.4%
===== ===== === ===== ===== === ========= ========
SAME COMMUNITY
WEIGHTED
AVERAGE(4) 96.2% 96.6%
========= ========
APARTMENT
ACQUISITION
COMMUNITY
CONNECTICUT
High Meadow Ellington 100% 1975 -- 100 605 -- 98 2 -- 90.0% 97.2%
----- ----- --- ----- ----- --- --------- --------
SUBTOTAL/WEIGHTED
AVERAGE 100 605 -- 98 2 -- 90.0% 97.2%
----- ----- --- ----- ----- --- --------- --------
TOTAL/WEIGHTED
AVERAGE 2,863 980 183 1,091 1,579 10 95.6% 96.5%
===== ===== === ===== ===== === ========= ========
<CAPTION>
AVERAGE MONTHLY
RENTAL RATE
PER UNIT(2)
----------------
YEAR 6 MOS.
ENDED ENDED
PROPERTY 12/31/96 6/30/97
- ------------------ -------- -------
<S> <C> <C>
APARTMENT
COMMUNITIES
CONNECTICUT
208-210 Main
St.(3) $761 $776
Arbor Commons(3) 686 691
Avonplace 845 857
Barons
Apartments 684 704
Bradford
Apartments 686 690
Brooksyde(4) 643 669
Burgundy
Studios(4) 430 433
Cambridge
Estates 715 731
Colonial Village 726 735
Dogwood Hills 722 737
Summit & Birch
Hill 745 773
Fox Hill
Apartments 642 658
Fox Hill Commons 692 703
Greenfield
Village(4)(5) -- --
Hamden Centre 637 650
Glastonbury
Center 773 793
Loomis Manor 826 838
Ocean Reef 633 644
Park Place West 656 667
Sandalwood(4)(6) 453 457
Westwynd
Apartments 648 654
River's Bend 714 742
Woodbridge 712 719
MASSACHUSETTS
Dean Estates 668 682
Four Winds(4) 627 678
Security Manor 576 581
Van Deene
Manor(3) 609 615
RHODE ISLAND
Dean Estates II 687 697
Royale 684 695
-------- -------
SUBTOTAL/WEIGHTED
AVERAGE $680 $697
======== =======
SAME COMMUNITY
WEIGHTED
AVERAGE(4) $696 $711
======== =======
APARTMENT
ACQUISITION
COMMUNITY
CONNECTICUT
High Meadow 580 590
-------- -------
SUBTOTAL/WEIGHTED
AVERAGE 580 590
-------- -------
TOTAL/WEIGHTED
AVERAGE $676 $694
======== =======
</TABLE>
- ----
(1) Average economic occupancy rate is derived by dividing actual collected
rental income by actual collected rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(2) Average monthly rental rate per unit is derived by dividing gross
potential rental income by total number of leasable units.
(3) The following Apartment Communities contain additional space which is
rented to commercial tenants:
<TABLE>
<CAPTION>
COMMERCIAL
APARTMENT COMMUNITY SQ. FT.
------------------- ----------
<S> <C>
208-210 Main St. ................. 9,597
Arbor Commons..................... 4,016
Van Deene Manor................... 1,630
------
Total............................ 15,243
======
</TABLE>
(4) The same community weighted average amounts represent the average
occupancy and rental rates for the twenty-three communities owned by Grove
or its affiliated predecessors for the years 1995 and 1996 and the six
months ended June 30, 1997. Six Properties were purchased by Grove or its
affiliated predecessors during the years 1995 and 1996 and the six months
ended June 30, 1997.
The following sets forth the acquisition date for such Apartment Communities
and have been excluded from the same community amounts:
<TABLE>
<CAPTION>
APARTMENT COMMUNITY ACQUISITION DATE
------------------- ----------------
<S> <C>
Brooksyde................... Oct-96
Burgundy Studios............ Oct-95
Summit & Birch Hill......... Feb-95
Greenfield Village.......... Jul-97
Sandalwood.................. Dec-95
Four Winds.................. Oct-95
</TABLE>
(5) Greenfield Village was purchased by the Company in July 1997, subsequent
to the periods covered by this table.
(6) Sandalwood was purchased in December 1995. The property was not leasable
until the September 1996.
48
<PAGE>
COMMUNITY AMENITIES
<TABLE>
<CAPTION>
NUMBER PATIO HARD- CABLE OUT-
OF PARKING OR LAUNDRY MINI- WOOD DISH- TV SIDE
PROPERTY TOWN/CITY UNITS SPACES BALCONY HOOKUPS BLINDS CARPETING FLOORS REFRIG. WASHERS READY STORAGE
- ----------------- ---------------- ------ ------- ------- ------- ------ --------- ------ ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APARTMENT COMMUNITIES
CONNECTICUT
208-210 Main St. Manchester 28 42 Yes Yes Yes Yes No Yes Yes Yes Yes
Arbor Commons Ellington 28 90 Yes No Yes Yes No Yes Yes Yes Yes
Avonplace Avon 145 392 Yes No Yes Yes No Yes Yes Yes Yes
Barons
Apartments Southington 54 100 No No Yes Yes No Yes No Yes Yes
Bradford
Apartments Newington 64 150 No No Yes Yes No Yes No Yes Yes
Brooksyde West Hartford 80 120 No No Yes Yes Yes Yes No Yes Yes
Burgundy Studios Middletown 102 116 Yes No Yes Yes No Yes No Yes No
Cambridge
Estates Norwich 92 190 Yes No Yes Yes No Yes Yes Yes Yes
Colonial Village Plainville 104 200 Yes Yes Yes Yes Yes Yes Yes Yes Yes
Dogwood Hills Hamden 46 68 Yes No Yes Yes No Yes Yes Yes No
Summit & Birch
Hill Farmington 184 90 Yes No Yes Yes No Yes Yes Yes Yes
Fox Hill
Apartments Enfield 168 283 Yes No Yes Yes No Yes Yes Yes Yes
Fox Hill Commons Vernon 74 148 Yes Yes Yes Yes No Yes No Yes Yes
Greenfield
Village Rocky Hill 127 190 No No Yes Yes No Yes Yes Yes Yes
Hamden Centre Hamden 65 130 No No Yes Yes No Yes Yes Yes No
Glastonbury
Center Glastonbury 104 156 No No Yes Yes Yes Yes Yes Yes Yes
Loomis Manor West Hartford 43 42 No No Yes Yes No Yes No Yes Yes
Ocean Reef New London 163 175 No No Yes Yes No Yes No Yes Yes
Park Place West West Hartford 63 106 No No Yes Yes No Yes Yes Yes No
River's Bend Windsor 349 864 Yes No Yes Yes No Yes Yes Yes Yes
Sandalwood New London 39 55 Yes No Yes Yes No Yes No Yes No
Westwynd
Apartments West Hartford 46 70 No No Yes Yes No Yes No Yes Yes
Woodbridge Newington 73 90 No No Yes Yes No Yes Yes Yes Yes
MASSACHUSETTS
Dean Estates Taunton 58 97 Yes No Yes Yes No Yes Yes Yes No
Four Winds Fall River 168 300 Yes Yes Yes Yes No Yes Yes Yes No
Security Manor Westfield 63 63 No No Yes Yes No Yes No Yes Yes
Van Deene Manor West Springfield 109 163 No No Yes Yes No Yes No Yes Yes
RHODE ISLAND
Dean Estates II Cranston 48 75 Yes No Yes Yes No Yes Yes Yes Yes
Royale Cranston 76 160 Yes No Yes Yes No Yes Yes Yes Yes
APARTMENT ACQUISITION COMMUNITY
CONNECTICUT
High Meadow Ellington 100 200 Yes No Yes Yes No Yes No Yes Yes
<CAPTION>
PROPERTY ADDITIONAL AMENITIES
- ----------------- ------------------------
<S> <C>
APARTMENT COMMUNITIES
CONNECTICUT
208-210 Main St. Garages
Arbor Commons
Avonplace Clubhouse, Fitness
Center, Swimming Pool,
Tennis Courts,
Basketball Courts
Barons
Apartments
Bradford
Apartments Playground
Brooksyde Garages
Burgundy Studios
Cambridge
Estates
Colonial Village
Dogwood Hills Carports, Clubhouse,
Fitness Center, Swimming
Pool
Summit & Birch
Hill Carports, Swimming Pool
Fox Hill Swimming Pool, Tennis
Apartments Courts
Fox Hill Commons
Greenfield
Village Swimming Pool
Hamden Centre
Glastonbury
Center Swimming Pool
Loomis Manor
Ocean Reef Fitness Center
Park Place West
River's Bend Clubhouse, Fitness
Center, 2 Swimming Pools
(indoor & outdoor),
Basketball Courts, Boat
Launch, Hiking Trails,
Water Front Picnic Area
Sandalwood
Westwynd
Apartments Fitness Center
Woodbridge
MASSACHUSETTS
Clubhouse, Tennis
Dean Estates Courts,
Four Winds Clubhouse, Fitness
Center, 2 Swimming Pools
(indoor & outdoor),
Jacuzzi,
Basketball Courts
Security Manor
Van Deene Manor
RHODE ISLAND
Dean Estates II Swimming Pool
Fitness Center, Swimming
Royale Pool
APARTMENT ACQUISITION COMMUNITY
CONNECTICUT
High Meadow
</TABLE>
49
<PAGE>
THE RETAIL PROPERTIES
Although the Company's principal focus is the acquisition of under-managed
apartment communities, it will continue to examine select mixed-use and
specialty retail properties that meet management's return requirements. The
Company currently owns a community shopping center in Longmeadow,
Massachusetts that contains approximately 79,000 rentable square feet of
retail and office space. The shopping center was originally constructed by an
unaffiliated owner in 1962 and subsequently expanded in 1978, purchased by an
affiliate of the Company in 1994 and renovated and retenanted by management at
various times from 1994 through 1996. For the six months ended June 30, 1997,
the shopping center had an average annual rental rate of approximately $12.88
per square foot and was approximately 97.5% leased to creditworthy tenants
including, among others, CVS, Talbots, Cherry & Webb, Blockbuster Video,
BankBoston and Fleet Bank.
In addition, the Company has commenced an exchange offer with an affiliate
to purchase all of the partnership interests in two specialty retail
properties that are well located in the historic district of Edgartown,
Massachusetts, one of the most affluent towns in Martha's Vineyard. The
exchange offer is scheduled to close on October 31, 1997. The total purchase
price is approximately $4.4 million, of which $2.9 million will be paid in
cash and $1.5 million will be paid through the issuance of approximately
141,000 Common Units to which the Board assigned a value per unit of $10.50,
the approximate fair market value of one Common Share as of the date the
exchange offer began. The two properties were originally constructed in the
1800's. The first building, known as the Wharf Building, contains
approximately 11,000 rentable square feet, and was renovated by the current
owner in 1996. As of June 30, 1997, the Wharf Building had an average annual
rental rate of approximately $28.68 per square foot and was 100% leased to
Sunglass Hut and three well-known local tenants, the Wharf Pub, the Great Put
On and Destinations. The second building, known as the Cornerblock, contains
approximately 5,400 rentable square feet, and was substantially renovated by
an unaffiliated predecessor owner in 1988. For the six months ended June 30,
1997, the Cornerblock had an average annual rental rate of approximately
$34.42 per square foot and was 100% leased to Compass Bank and two well-known
local tenants, Mardells and Wallace & Company.
THE EXCLUDED PROPERTIES
The Executive Officers hold a direct or indirect interest in nine properties
in which the Company has no ownership interest (the "Excluded Properties").
The Excluded Properties consist of (i) a hotel on Martha's Vineyard; (ii)
three commercial properties, two of which contain residential apartment units
in Mystic, Connecticut; (iii) one commercial property that contains seasonal
retail stores in Watch Hill, Rhode Island; (iv) two apartment communities, one
in Stafford, Connecticut and the other in Fall River, Massachusetts and (v)
two apartment buildings, one of which contains some retail space, in Hartford,
Connecticut. With the exception of the two Hartford properties, each of the
Excluded Properties is currently for sale. The Excluded Properties have not
been acquired by the Company because the Company believes that such properties
do not meet its strategic or investment objectives. The Company currently
provides management services for the Excluded Properties pursuant to
management agreements with the owners of the Excluded Properties. See "Certain
Relationships and Transactions."
MANAGEMENT STRATEGIES
Management believes that providing its employees with a positive, rewarding
work environment contributes to the achievement of its business objectives.
Grove believes its on-site employees are the primary means for delivering
service and value to residents of the Company's properties. In order to ensure
that its employees respond effectively to the needs of residents and are
rewarded for their initiatives, the Company has developed a comprehensive
management strategy. Key elements of this strategy include: (i) hiring quality
employees; (ii) encouraging teamwork to pursue common goals; (iii) utilizing
effective employee training programs and management information systems and
(iv) measuring performance and providing employees with incentives.
Grove believes that ensuring on-site management success begins with hiring
quality employees. Because the focus of Grove's on-site management program is
to provide prompt, courteous and responsive service to all
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of its residents, the Company concentrates on hiring individuals who
understand the importance of customer service. Grove seeks out
entrepreneurial, self-motivated, highly-organized, creative people with
positive attitudes, effective communications skills, strong customer service
skills and sales and marketing experience. In hiring apartment maintenance
technicians, the Company seeks individuals with strong technical backgrounds
who will be courteous and responsive to residents.
The Company encourages its employees to use teamwork to pursue common goals
and emphasizes collective decision making in which all employees participate.
To do so, Grove holds weekly and monthly on-site goal meetings at each of the
Apartment Communities. At these meetings, all on-site employees participate in
planning, budgeting and trouble-shooting. In addition, the Company holds
quarterly meetings for its regional property managers, on-site property
managers and senior maintenance personnel at which quarterly results of the
Company, performance of each of the Apartment Communities and other issues are
discussed. The Company also distributes a quarterly employee newsletter that
updates all employees on the Company's financial performance and includes
recent examples of exceptional service to residents.
Grove utilizes effective employee training programs and management
information systems. Personnel are trained extensively and are encouraged, and
in certain cases required, to continue their education through Company-
designed, in-house courses and participation in outside seminars. At their
quarterly meetings, regional property managers, on-site property managers and
senior maintenance personnel attend seminars given by outside consultants. In
addition, Grove supports its employees by updating its management systems. The
management systems at each of the Apartment Communities provide on-site
management, regional property managers and accounting personnel with
meaningful and accurate information, including information on vacancies,
collections, leasing and budget compliance. By monitoring this information,
the Company seeks to ensure that operating costs are minimized and budgeted
targets are met or exceeded.
Grove believes that measuring on-site performance and providing employees
with incentives are essential. The Company views each Property as a separate
business and profit center and, accordingly, measures various performance
criteria at each Property on a monthly basis, including budget compliance, net
operating income, economic occupancy, cash flow and gross potential rent. In
addition, Grove's regional managers make weekly visits to each Property and
accounting personnel make monthly visits to each Property. The information
generated is used to set team and personal goals. The Company also uses
various resident surveys to measure on-site performance, including soliciting
service satisfaction responses for maintenance services, conducting periodic
resident surveys and interviewing departing residents. Additionally, Grove
employs a program in which new leasing employees pose as potential residents
at a number of the Apartment Communities and provide constructive criticism
and feedback to fellow leasing agents.
The Company has created a number of incentives, as well as opportunities for
long-term career advancement, to reward and retain its outstanding employees.
Grove maintains a bonus program under which all property management and
maintenance personnel can earn bonuses of up to an additional 25% of their
monthly base salaries based upon their respective Apartment Community's out-
performing profitability goals. At its quarterly meetings for regional
property managers, on-site property managers and senior maintenance personnel,
the Company recognizes outstanding performance by awarding merit certificates
and cash bonuses. In addition, regional property managers and other senior-
level employees will receive options to purchase Common Shares at the closing
of the Offering that will generally vest over three years. The Company also
demonstrates its commitment to its employees by showing a preference for
promoting from within.
PROPERTY MANAGEMENT
Grove manages its portfolio through its staff of approximately 130 full-time
professional and support personnel and approximately 40 part-time support
personnel, including the Chief Operating Officer and regional property
managers at the corporate level and property managers, service technicians,
leasing agents, porters and landscapers at the property level. The chief
operating officer, regional property managers and on-site personnel are
supported by seven accounting and administrative employees.
The management team's in-depth experience and size enable it to deliver
uninterrupted quality services, thereby promoting resident satisfaction and
improving resident retention. During 1995, 1996 and the six months
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ended June 30, 1997 (annualized), the Company experienced average retention
rates of 60%, 61% and 60%, respectively. Grove's property management division
plays a critical role in the Company's growth strategy of acquiring,
repositioning and effectively managing previously under-managed properties to
increase revenues and reduce operating cost. Before the Company makes an
acquisition, the property management division works closely with the Company's
acquisition and development teams to evaluate potential repositioning
strategies. Once a property has been acquired, the management division
implements on-site management programs, accounting systems, marketing systems
and resident quality control and retention procedures.
On-site property management teams perform leasing and rent collection
functions and coordinate resident services. The focus of the Company's on-site
management program is to provide prompt, courteous and responsive service to
its residents. For 1996 and the six months ended June 30, 1997, the percentage
of residents returning service satisfaction responses that rated the Company's
maintenance services as "excellent" or "good" was 93.8% and 94.6%,
respectively.
Grove's marketing personnel attempt to ensure that each Apartment Community
is effectively marketed through aggressive promotion and realistic pricing.
The Company uses newspaper advertisements, resident referrals, apartment
guides and the Internet to market and advertise the Apartment Communities.
Approximately 55% of the Company's apartments are leased through newspaper
advertisements, approximately 20% through resident referrals, approximately
20% through apartment guides and approximately 5% through the Internet. Grove
typically offers residents a referral incentive bonus of approximately $100.
The Company supplements its marketing and advertising with point-of-purchase
materials and well-maintained properties.
The Company's marketing personnel proactively market the Apartment
Communities on a continual basis, rather than waiting until vacancies occur,
and take steps necessary to avoid turnover by quality residents, which steps
include high quality customer service throughout the lease term as well as
renewal incentives. In addition, on-site property management staff monitor the
success of the Company's aggressive marketing programs by preparing marketing
reports that track each Apartment Community's occupancy, lease expiration,
prospective resident traffic, unit availability, renewal rates, rental rates
and resident profile information. All members of the on-site staff participate
in weekly goal-setting sessions to evaluate these marketing reports and
examine issues related to resident underwriting.
On-site management is aided by the regional managers and accounting
personnel. Regional managers monitor performance criteria at each Apartment
Community on a weekly and monthly basis and visit the Apartment Communities on
a weekly basis. The accounting division is managed by the Company's
Controller. The accounting staff audits and monitors each Apartment
Community's financial records, including monthly income and expense reports,
bank statement reconciliations, rent rolls, economic reports and budget
compliance. Staff members visit each site on a regular basis to conduct on-
site audits, supervise bookkeeping and provide ongoing training to personnel.
The information generated during these visits is used by the Company's on-site
management staff to set team and personal goals that relate to budget and
fiscal matters on a weekly and monthly basis.
Prior to entering into leases, Grove conducts thorough background
investigations of potential residents, including credit checks, prior landlord
checks and employer verifications. Substantially all of the apartments in the
Apartment Communities are rented pursuant to standard twelve-month leases,
which facilitate uniform lease administration by helping to standardize rent
collections, security deposit dispositions, evictions, repairs and renewals.
The Company typically requires residents to provide security deposits equal to
one month's rent. In addition, the Company manages lease expirations to ensure
that vacancies occur on a staggered basis.
The Company's marketing and leasing procedures are designed to ensure
compliance with all federal, state and local laws and regulations.
Underwriting guidelines for prospective residents comply with FHAA and ADA
regulations and are designed to stabilize cash flows. None of the Apartment
Communities is currently subject to rent control or rent stabilization
regulation.
In addition to managing the Properties, the Company provides management
services for nine properties in which the Executive Officers have interests.
See "Certain Relationships and Transactions--Management of Excluded
Properties."
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EMPLOYEES
As of September 30, 1997, the Company employed approximately 170 persons,
including the five Executive Officers, none of whom is represented by a labor
union. The Company considers its relations with its employees to be good.
COMPETITION
All of the Apartment Communities are located in developed areas that include
other apartment communities. The number of competitive apartment properties in
a particular area could have a material effect on the Company's ability to
lease apartment units at the Apartment Communities or at any newly developed
or acquired properties and on the rents charged. There are numerous real
estate companies, including those operating in the markets in which the
Properties and the Acquisition Properties are located, which compete with the
Company in seeking properties for acquisition and for tenants to occupy such
properties. The Company may compete with companies that have greater resources
than the Company and whose officers and directors or trustees may have more
experience than the Company's officers and Trust Managers. Further, the
availability of single-family housing and other forms of multifamily
residential properties, such as manufactured housing communities, provide
alternatives to existing and potential residents of apartment communities. The
availability of such alternatives and competition generated thereby could
increase in the future.
LEGAL PROCEEDINGS
Neither the Company nor the Properties are presently subject to any material
litigation, nor, to the Company's knowledge, is material litigation threatened
against the Company or any of the Properties other than routine litigation
arising in the ordinary course of business, some of which is expected to be
covered by liability insurance and all of which, collectively, is not expected
to have a material adverse effect on the business, financial condition or
results of operations of the Company.
REGULATION
General. Multifamily apartment properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas.
The Company believes that under present laws, ordinances and regulations, it
has the necessary permits and approvals to operate the Properties.
Americans With Disabilities Act. The Properties and any newly acquired
properties must comply with Title III of the ADA to the extent that such
properties are "public accommodations" and/or "commercial facilities" (each as
defined by the ADA). Compliance with the ADA could require removal of
structural barriers to handicapped access in certain public areas of the
Properties where such removal is readily achievable. The ADA does not,
however, consider residential properties, such as multifamily properties, to
be public accommodations or commercial facilities, except to the extent
portions of such facilities, such as a leasing office, are open to the public.
Noncompliance with ADA requirements could result in imposition of fines or an
award of damages to private litigants. Although the Company believes that the
Properties and the Acquisition Properties are in substantial compliance with
all requirements under the ADA and applicable state laws as currently in
effect, the Company may incur additional costs to comply with such laws.
Although the Company believes that such costs will not have a material adverse
effect on the Company, if required changes involve greater expenditures than
the Company currently anticipates, or if the changes must be made on a more
accelerated basis than it anticipates, the Company's cash flow and ability to
make expected distributions could be adversely affected. The Company believes
that its competitors face similar costs to comply with requirements of the
ADA.
Fair Housing Amendments Act of 1988. The FHAA requires multifamily
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHAA could result in the imposition of
fines or an award of damages to private litigants. The Company believes that
the Properties and the Acquisition Properties that are subject to the FHAA are
in substantial compliance with such law.
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Rent Control Legislation. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to
recover increases in operating expenses and costs of capital improvements from
residents. Enactment of such laws has been considered from time to time in
other jurisdictions, although such laws have not been adopted in the
jurisdictions in which the Company operates. The Company does not presently
intend to acquire multifamily properties in jurisdictions that are either
subject to rent control or in which rent limiting legislation exists.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations
relating to the protection of the environment, a current or previous owner or
operator of real estate may be held liable for the costs of investigations or
performing removal or remediation of certain hazardous or toxic substances or
petroleum products released on, under, in, emitting from, or located on, under
or in the property and may be held liable to a governmental entity or third
parties for damages, investigation, remediation, or other costs associated
with such contamination. These laws often impose liability without regard to
whether the owner was responsible for, or even knew of, the presence of such
hazardous or toxic substances or petroleum products. The costs of
investigation, removal or remediation of such substances may be substantial,
and the presence of such substances may adversely affect the owner's ability
to rent or sell the property or to borrow using such property as collateral
and may expose it to liability resulting from any release or exposure of such
substances. Moreover, certain loan documents provide for recourse liability in
connection with hazardous or toxic substances. Persons who arrange for the
disposal or treatment of hazardous or toxic substances at another location may
also be liable for the costs of removal or remediation of such substances at
the disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of ACM's into the air, and third parties may also seek recovery from
owners or operators of real properties for personal injury associated with
ACM's and other hazardous or toxic substances or petroleum products. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties regulated by such laws, ordinances, and
regulations relating to the protection of the environment or as having
arranged for the off-site disposal or treatment of hazardous or toxic
substances and, therefore, if environmental contamination were to be found at
such real properties or off-site locations, the Company could be potentially
liable for removal or remediation costs, as well as certain other related
costs, including governmental penalties and injuries to persons and property.
Federal legislation requires owners and landlords of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers of
the properties any known lead-paint hazards and will impose treble damages for
failure to give the required notice. The existence of lead-based paint in a
property may result in lead poisoning in children residing therein if chips or
particles of lead-based paint are ingested, and the Company may be held liable
under state laws for any injuries caused by ingestion of lead-based paint by
children living at the Apartment Communities or any apartment properties
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior Phase
I) or similar environmental assessments by independent environmental
consultants. Phase I assessments are intended to discover information
regarding, and to evaluate the environmental condition of, the surveyed
property and surrounding properties. Phase I assessments generally include a
historical review, a public records review, a preliminary investigation of the
surveyed site and surrounding properties, and preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
The environmental assessments disclose that certain underground storage
tanks ("UST's"), which have been removed from the Sandalwood, Fox Hill Commons
and Ocean Reef, need to be registered with the Connecticut Department of
Environmental Protection ("DEP"). The environmental assessments also disclose
that four properties include floor drains which need to be sealed or for which
permits must be obtained from DEP. The Company intends to comply with the DEP
registration and permit requirements related to UST's and floor drains.
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Various environmental laws and regulations also control how certain
activities can or must be conducted at the Properties and the Acquisition
Properties. Such requirements govern maintenance activities, renovation
projects and other worker operations involving asbestos or lead-based paint.
They also may govern air emissions, wastewater discharges, waste management or
similar activities related to operation of the Properties and the Acquisition
Properties. No assurance can be given that the cost of complying with such
requirements in connection with any of the Properties or the Acquisition
Properties will not require any material expenditures by the Company in the
future.
Under various laws and regulations, owners and operators of underground and
aboveground storage tanks containing petroleum are obligated to meet certain
construction and operating standards. In addition, such tank owners and
operators are responsible for remediating any contamination caused by
petroleum released from such tanks. While currently available information does
not indicate that the Company currently has any material liabilities related
to such tanks, no assurance can be given that the Company will not be required
to make such material expenditures in the future.
Grove's environmental assessments of the Properties have not revealed any
environmental liability that the Company believes would have a material
adverse effect on its business, assets or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nonetheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that material environmental liabilities exist of
which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations or new interpretations of existing laws
or regulations will not impose any material environmental liability or (ii)
the current environmental condition of the Properties or the Acquisition
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties or the Acquisition Properties
(such as the presence of leaking UST's), or by third parties unrelated to the
Company so as to impose any material environmental liability.
INSURANCE
Grove carries comprehensive liability, fire, flood (where required) and
extended coverage and rental loss insurance on all of the Properties with
policy specifications, insured limits and deductibles customarily carried for
similar properties. There are, however, certain types of losses which may be
either uninsurable or not economically insurable, such as those resulting from
earthquakes, floods, tidal waves, explosion of water pipes, nuclear hazards,
wars, civil disturbances and environmental matters. Should an uninsured loss
or a loss in excess of insured limits occur, Grove could lose both its
investment in and anticipated profits and cash flow from such property while
it would continue to be obligated on any mortgage indebtedness or other
financial obligations on such property. Any such loss would adversely affect
the Company and its financial condition and results of operations. Management
of the Company believes that the Company and the Properties are insured in
accordance with industry standards.
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MANAGEMENT
TRUST MANAGERS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to Trust
Managers and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ---- --- --------------------------
<S> <C> <C>
Damon D. Navarro........ 43 Chairman of the Board, President and Chief Executive Officer
Joseph R. LaBrosse...... 34 Chief Financial Officer, Secretary, Treasurer and Trust Manager
Edmund F. Navarro....... 36 Chief Operating Officer and Trust Manager
Theodore R. Bigman...... 34 Trust Manager
James F. Twaddell....... 56 Trust Manager
Harold V. Gorman........ 52 Trust Manager
J. Joseph Garrahy....... 65 Trust Manager
Brian A. Navarro........ 42 Executive Vice President--Acquisitions
Gerald A. McNamara...... 56 Executive Vice President--Marketing and Strategic Planning
</TABLE>
Pursuant to the terms of the Charter, the Board must consist of not less
than two nor more than 15 persons, of which a majority must be "Independent
Trust Managers" (who are neither executive officers nor affiliates of the
Company). Trust Managers are divided into three classes serving staggered
three-year terms. The terms of Messrs. Edward Navarro and Twaddell will expire
at the Annual Meeting of Shareholders to be held in 1998; the terms of Messrs.
Garrahy and LaBrosse will expire at the Annual Meeting of Shareholders to be
held in 1999; and the terms of Messrs. Damon Navarro, Gorman and Bigman will
expire at the Annual Meeting of Shareholders to be held in 2000. Trust
Managers whose terms expire at the next annual meeting will hold office until
their successors are duly elected and qualified. The Charter requires majority
approval by the Independent Trust Managers of the Company for all Board
decisions. Currently, the Independent Trust Managers are Messrs. Bigman,
Twaddell, Gorman and Garrahy.
Damon D. Navarro is Chairman of the Board, President and Chief Executive
Officer of the Company. Mr. Navarro co-founded the Company's predecessor in
1980 and is responsible for new business development and strategic planning.
Mr. Navarro is a graduate of the University of Rhode Island with a degree in
Finance.
Joseph R. LaBrosse is Chief Financial Officer, Secretary and Treasurer, as
well as a Trust Manager of the Company. Mr. LaBrosse is responsible for
financing, loan portfolio management, financial reporting, tax planning, cash
management, strategic budgeting and planning. Prior to joining the Company's
predecessor in 1988, Mr. LaBrosse was a real estate tax consultant at Arthur
Andersen & Company in Hartford, Connecticut. Mr. LaBrosse is a magna cum laude
graduate of the University of Connecticut with a degree in Accounting. He is
also a licensed Certified Public Accountant and a member of the American
Institute of Certified Public Accountants, the Connecticut Society of
Certified Public Accountants and the Real Estate Finance Association.
Edmund F. Navarro is Chief Operating Officer and a Trust Manager of the
Company. Mr. Navarro is responsible for managing the day-to-day operations of
the Company and its 170 employees. Mr. Navarro became a principal of Grove's
predecessor in 1983. Prior to his employment with the Company, Mr. Navarro was
a Media Marketing Planner with Vitt Media International in New York City. Mr.
Navarro is a graduate of the University of Rhode Island with a degree in
Marketing.
Theodore R. Bigman has been a Trust Manager of the Company since April,
1997. From 1987 to 1995, he was a Director at Credit Suisse First Boston in
the real estate group, establishing and managing their REIT effort. He had
primary responsibility for $2.5 billion of initial public offerings by REIT's.
Previously, he had extensive real estate experience in a wide variety of
transactions involving the financing and sale of both individual assets and
portfolios of real estate assets, as well as the acquisition of several real
estate companies. Since 1995, he has been a Principal of Morgan Stanley Asset
Management Inc., a subsidiary of Morgan Stanley, responsible for its real
estate securities investment management business. He graduated from Brandeis
University in 1983 with a B.A. in Economics and received an M.B.A. from
Harvard University in 1987.
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James F. Twaddell is a Trust Manager of the Company. Mr. Twaddell is a
member of the investment banking group of Schnieder Securities, Inc., located
in Providence, Rhode Island. From 1974 through 1995, Mr. Twaddell served as
Chairman of Barclay Investments, Inc., a member firm of the National
Association of Securities Dealers, Inc. (the "NASD"). Mr. Twaddell also served
as Chairman of Regional Investment Brokers, Inc., a 125-member cooperative
association of regional investment bankers and broker/dealers conducting
business throughout the United States. For the 1993-1995 term, he was elected
to serve on both the NASD District 11 Committee and the District Business
Conduct Committee. He has served as Chairman of the Board of First Mutual
Fund, a 30-year old publicly-traded mutual fund, since 1979. Mr. Twaddell
received his B.A. from Brown University in 1961.
Harold V. Gorman is a Trust Manager of the Company. From 1968 to 1993, Mr.
Gorman served as Vice President and Assistant General Counsel of Heublein,
Inc. From October 1993 to March 31, 1995, he served as Vice President/General
Counsel to the Paddington Corporation. Since April 1, 1995, Mr. Gorman has
served as Vice President and Senior Regulatory Counsel for Heublein, Inc.,
located in Hartford, Connecticut. He received his B.A. from Wesleyan
University in 1965 and his J.D. from the University of Connecticut Law School.
Mr. Gorman is a member of each of the Connecticut Bar Association, the
American Bar Association and the Board of Directors of the Arthritis Society.
J. Joseph Garrahy is a Trust Manager of the Company. Governor Garrahy began
his career in public service in 1962 as a Rhode Island State Senator. In 1968,
he was elected Lieutenant Governor of Rhode Island, where he served four two-
year terms. In 1976, Governor Garrahy was elected Governor of Rhode Island,
and was reelected in 1978, 1980 and 1982. He served as Chairman of the
National Governors' Association's Subcommittee on Health Policy in 1977 and
the National Governors' Association's Human Services Committee as Chairman of
the Coalition of Northeast Governors' Committee on Transportation. Governor
Garrahy was a Senior Vice President with the merchant banking firm of G.
William Miller & Company, Inc. of Washington, D.C. from 1985 to 1990. Governor
Garrahy has served as President of J. Joseph Garrahy & Associates, Inc., a
consulting firm, in Providence, Rhode Island, since its formation in 1990.
Governor Garrahy attended the University of Buffalo and the University of
Rhode Island.
Brian A. Navarro is Executive Vice President--Acquisitions of the Company.
Mr. Navarro is responsible for the acquisition and disposition of properties
for the Company. Prior to co-founding the Company's predecessor in 1980, Mr.
Navarro acquired, renovated and sold over 30 residential properties in the
Hartford, Connecticut, Springfield, Massachusetts and Westerly, Rhode Island
markets. Mr. Navarro is a graduate of the University of Connecticut with a
degree in Finance and a concentration in Real Estate.
Gerald A. McNamara is Executive Vice President--Marketing and Strategic
Planning of the Company. Mr. McNamara has been a principal and vice president
of the Company and its predecessor since 1982. Mr. McNamara is responsible for
public relations and strategic planning. Prior to joining the Company,
Mr. McNamara was Senior Vice President of Heublein International, responsible
for its food and beverage operations overseas. Mr. McNamara is a graduate of
Trinity College with a degree in History and Economics.
Messrs. Damon, Brian and Edmund Navarro are brothers. No family
relationships exist among any of the other Trust Managers or Executive
Officers of the Company. No arrangement or understanding exists between any
Trust Manager or Executive Officer or any other person pursuant to which any
Trust Manager or Executive Officer was selected as a Trust Manager or
Executive Officer, except that Mr. Bigman was elected to the Board following
the closing of the Consolidation Transactions in accordance with an agreement
with MSAM. The agreement that requires the election of a nominee of MSAM will
terminate upon consummation of the Offerings. Subject to the provisions of
their respective employment agreements, if any, executive officers of the
Company are elected by and serve at the discretion of the Board. See "--
Employment Agreements" and "--Non-Competition Agreements."
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COMMITTEES OF THE BOARD
Audit Committee. An Audit Committee of the Board has been established,
consisting of two Independent Trust Managers. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of audit
engagements, approves professional services provided by the independent public
accountants, reviews the independence of the independent public accountants,
considers the range of audit and non-audit fees and reviews the adequacy of
the Company's internal accounting controls. The current members of the Audit
Committee are Messrs. Gorman and Garrahy.
Acquisition and Investment Committee. The Board has established an
Acquisition and Investment Committee. The Acquisition and Investment Committee
has the authority to acquire, dispose of and finance investments for the
Company (including the direct or indirect purchase or sale by the Company of
real estate properties or interests in real estate properties) and to execute
contracts and agreements, including those related to the borrowing of money by
the Company or the purchase or sale by the Company of direct or indirect
interests in real properties, and generally to exercise all other powers of
the Trust Managers except those which require action by all Trust Managers or
the Independent Trust Managers under the Charter or Bylaws or under applicable
law. The current members of the Acquisition and Investment Committee are
Messrs. Garrahy, E. Navarro and Bigman.
Compensation Committee. The Board has established a Compensation Committee,
currently consisting of Independent Trust Managers. The Compensation Committee
has the authority to determine compensation for the Company's Executive
Officers and to administer the 1994 Plan and the 1996 Plan. The Compensation
Committee has the authority to grant share options in accordance with the 1994
Plan to the Trust Managers, Executive Officers, other key employees of the
Company and consultants and to grant share options and share appreciation
rights to the Trust Managers, Executive Officers and other key employees of
the Company in accordance with the 1996 Plan. The current members of the
Compensation Committee are Messrs. Twaddell and Gorman.
COMPENSATION OF THE TRUST MANAGERS
Currently, the Company pays the Non-Employee Trust Managers a fee of $1,000
for attending each meeting of the Board. Trust Managers who are employees of
the Company are not paid any trust manager fees. In addition, the Company
reimburses the Trust Managers for travel expenses incurred in connection with
their activities on behalf of the Company.
The 1996 Plan provides that each Non-Employee Trust Manager who is first
elected or appointed after the 1996 Annual Meeting of Shareholders receives an
automatic initial grant of a nonqualified stock option to purchase 10,000
Common Shares. In addition, promptly following the date of each Annual Meeting
of Shareholders, each Non-Employee Trust Manager elected by the shareholders
will receive an additional automatic grant of an option to purchase 5,000
Common Shares; provided, however, that no Non-Employee Trust Manager will
receive more than one such automatic grant in any calendar year. The exercise
price for grants to Non-Employee Trust Managers under the 1996 Plan is 100% of
the fair market value of the Common Shares on the date of grant. Each such
option will expire ten years from the grant date (subject to earlier
termination). Upon the consummation of the Consolidation Transactions, each
Non-Employee Trust Manager received a grant of an option to purchase 10,000
Common Shares at an exercise price equal to the fair market value of the
Common Shares on the date of grant. Non-Employee Trust Managers who assist the
Company in locating acquisitions which are consummated receive a finder's fee
of 0.2% of the acquisition purchase price plus an additional 0.1% if they
participate in the negotiations.
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<PAGE>
EXECUTIVE COMPENSATION
The annual base salary of each of Damon D. Navarro, Joseph R. LaBrosse, Brian
A. Navarro and Edmund F. Navarro will increase to $100,000, and the annual base
salary of Gerald A. McNamara will increase to $50,000, upon consummation of the
Offering. Upon consummation of the Offering, it is expected that the
Compensation Committee will grant certain employees, including the Executive
Officers, options to purchase 500,000 Common Shares in the amounts set forth in
the table below. The Options granted under the 1994 Plan and the 1996 Plan
prior to and at the Offering are set forth below.
OPTION GRANTS
<TABLE>
<CAPTION>
OFFICER/EMPLOYEE PRIOR TO THE OFFERING AT THE OFFERING TOTAL
---------------- --------------------- --------------- -------
<S> <C> <C> <C>
Damon D. Navarro............... 105,280 102,133 207,413
Joseph R. LaBrosse............. 33,227 76,601 109,828
Brian A. Navarro............... 103,880 102,133 206,013
Edmund F. Navarro.............. 103,880 102,133 206,013
Gerald A. McNamara............. 27,678 40,000 67,678
Other Employees................ 0 77,000 77,000
------- ------- -------
Total........................ 373,945 500,000 873,945
======= ======= =======
</TABLE>
EMPLOYMENT AGREEMENTS
The Executive Officers of the Company entered into employment agreements in
March 1997, as amended (collectively, the "Employment Agreements"), which
provide for annual base salaries of $100,000 for Messrs. Damon, Edmund and
Brian Navarro and Joseph LaBrosse and of $50,000 for Mr. Gerald McNamara,
effective upon consummation of the Offering. The Employment Agreements provide
that the Executive Officers shall devote a substantial part of their business
time to the operations of Grove. The Employment Agreements provide for an
initial three-year term which is automatically extended for an additional year
upon expiration of the initial term and any extension period unless either
Grove or the Executive Officer provides the other with at least 120 days' prior
written notice that such term will not be extended. If the Employment
Agreements are terminated by Grove "without cause" or are terminated by the
Executive Officer after a "change in control" or for "good reason," the
Executive Officer will be entitled to a lump sum payment equal to 200 percent
of such Executive Officer's annual base salary plus an amount equal to the
aggregate value of all bonuses, whether cash, shares, options, or otherwise,
granted to such Executive Officer for the previous year.
NON-COMPETITION AGREEMENTS
The Executive Officers are parties to non-competition agreements with the
Company (the "Non-Competition Agreements"). The Non-Competition Agreements
preclude the Executive Officers from directly or indirectly developing,
redeveloping, acquiring, managing or operating multifamily or retail mixed-use
properties, other than the Excluded Properties for so long as they are
Executive Officers, Trust Managers, holders of 5% or more of the outstanding
Common Shares or employees of, or consultants to, the Company, and for a period
of twenty-four months after termination of their affiliation with the Company
other than in the event of termination of employment by the Company without
cause or by an Executive Officer in the event of a "change in control" or "for
good reason."
The Executive Officers control or share control, and have substantial
economic interest in, the limited partnerships that own the Excluded
Properties. Ownership and management of the Excluded Properties are
specifically exempted from the provisions of the Non-Competition Agreements.
Certain of the Excluded Properties may compete with some of the Properties for
tenants or require the attention of certain Executive Officers, which could
give rise to conflicts of interest. With the exception of two properties, each
of the Excluded Properties is currently for sale.
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<PAGE>
OPTION PLANS
The Company has in effect the 1994 Plan and the 1996 Plan pursuant to which
117,726 Common Shares and 900,000 Common Shares are reserved, respectively.
The 1994 Plan is administered by the Compensation Committee. No further
options will be granted under the 1994 Plan. Pursuant to the 1994 Plan, options
to purchase an aggregate of 66,147 Common Shares were automatically granted to
certain eligible participants upon consummation of the Company's initial public
offering. These options were incentive stock options ("ISO's") and were granted
to the Executive Officers of the Company in consideration of their agreement to
serve without base compensation pursuant to their then respective employment
agreements with the Company. These ISO's had an exercise price equal to the
public offering price of the Common Shares sold by the Company in its initial
public offering in 1994, although such prices have been adjusted to reflect the
stock dividend paid and the stock split declared by the Company in 1997. These
ISO's, having terms expiring in June 2004, are all currently exercisable.
Under the 1994 Plan, each Trust Manager who was not also an employee of the
Company (a "Non-Employee Trustee") automatically received upon his initial
election to the Board, a non-qualified stock option (a "Non-Employee Trustee
Option") to purchase 2,000 Common Shares. On each anniversary of his election
to the Board through 1996, each Non-Employee Trustee also received a Non-
Employee Trustee Option to purchase 1,000 Common Shares. The exercise price for
each Common Share covered by a Non-Employee Trustee Option was the fair market
value of a Common Share on the date of grant. Each Non-Employee Trustee Option
expires on the tenth anniversary of the date of grant and, generally, becomes
exercisable in increments of 33 1/3% on each of the first three anniversaries
of the date of grant
Options under the 1994 Plan are not transferable and may not be assigned,
provided, however, that the estate of a deceased holder can exercise options.
Options generally will be exercisable by the holder thereof subject to terms
fixed by the Compensation Committee. However, an option will be exercisable
immediately upon the happening of any of the following (but in no event
subsequent to the expiration of the term of an option): (i) the holder's
retirement on or after attainment of age 62; (ii) the holder's disability or
death; (iii) a "change in control" of the Company (as defined in the 1994 Plan)
or (iv) except with respect to Non-Employee Trustee Options, the occurrence of
such special circumstances or events as the Compensation Committee determines
merit special considerations.
Awards under the 1996 Plan may be granted to officers and key employees of
the Company or its subsidiaries. Awards are also granted pursuant to formulas
specified in the 1996 Plan to Non-Employee Trust Managers. All employees of the
Company and its subsidiaries, including its Executive Officers, are eligible to
receive awards under the 1996 Plan, subject to the discretion of the
Compensation Committee to determine the particular individuals who, from time
to time, will be selected to receive awards. In addition, stock option awards
have been and will be granted automatically to Non-Employee Trust Managers
pursuant to the terms set forth in the 1996 Plan. Awards to employees under the
1996 Plan may be in the form of nonqualified share options, incentive share
options, share appreciation rights ("SAR's") restricted shares and other share-
based incentive awards. Awards may be granted singly, in tandem or in
combination with other awards.
All awards under the 1996 Plan will be granted subject to the Ownership
Limit, the Constructive Ownership Limit and the Executive Officer Ownership
Limit and the other restrictions on transfer of Equity Shares contained in the
Charter.
The 1996 Plan provides that each Non-Employee Trust Manager who is first
elected or appointed after March 10, 1997 (the date of shareholder approval of
the 1996 Plan) will receive an automatic initial grant of a nonqualified share
option to purchase 10,000 Common Shares. In addition, promptly following the
date of each Annual Meeting of Shareholders, each Non-Employee Trust Manager
elected by the shareholders (including any
director reelected at such meeting) will receive an additional automatic grant
of an option to purchase 5,000 Common Shares; provided, however, that no Non-
Employee Trust Manager will receive more than one such automatic grant in any
calendar year. In addition, pursuant to the 1996 Plan, each of the three Non-
Employee Trust Managers in office at the closing of the Consolidation
Transactions automatically received a nonqualified share option to purchase
10,000 Common Shares.
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Since January 1, 1995, the Company has completed a number of transactions in
which Damon Navarro, Edmund Navarro and Joseph LaBrosse, Executive Officers
and Trust Managers of the Company, and Brian Navarro and Gerald McNamara,
Executive Officers of the Company, have had a direct or indirect interest.
THE JANUARY 1996 ACQUISITION
In January 1996, the Company acquired Cambridge Estates, an apartment
property containing 92 apartment units located in Norwich, Connecticut, from
Grove Cambridge Associates Limited Partnership for $4,250,000. Grove Cambridge
Associates Limited Partnership was owned 99% by Grove Norwich Associates
Limited Partnership, 0.5% by Grove Investment Group, Inc. and 0.5% by an
unrelated third party. Grove Norwich Associates Limited Partnership and Grove
Investment Group, Inc., in turn, were owned 50% and 100%, respectively by
Messrs. Damon, Brian and Edmund Navarro. In accordance with the Company's then
effective Second Restated and Amended Declaration of Trust, this transaction
was approved by a majority of the Company's Independent Trust Managers and the
value of Cambridge Estates was appraised by a third-party appraiser. The
purchase price was used to repay loans in the amount of $4,250,000, a majority
of which had been guaranteed by certain of the Executive Officers. Each of
Grove Cambridge Associates Limited Partnership, Grove Norwich Associates
Limited Partnership and Grove Investment Group, Inc. was either dissolved or
acquired by the Company.
PROPERTY MANAGEMENT AND CONSTRUCTION SERVICES
Prior to the consummation of the Consolidation Transactions, GPS, a
partnership owned 100% by Messrs. Damon, Brian and Edmund Navarro and Joseph
LaBrosse, provided all of the operating and support functions for the
operation of the Company's four Properties, including building management and
leasing. The management agreement between the Company and GPS provided for a
management fee equal to 5% of gross rental revenues, as defined. Management
fees paid by the Company (excluding its predecessors) to GPS in 1995, 1996 and
for the six months ended June 30, 1997 were $66,781, $108,731 and $21,795,
respectively. The management-related assets and liabilities of GPS were
acquired in the Consolidation Transactions and GPS is no longer active.
Grove Development Corporation, which was owned 100% by Messrs. Damon, Brian
and Edmund Navarro, provided construction services to the Company prior to
consummation of the Consolidation Transactions. These services were generally
provided at the cost of materials and labor plus a project management and
supervision fee equal to 20% of the direct project costs. During 1995, 1996
and for the six months ended June 30, 1997, the Company (excluding its
predecessors) paid Grove Development Corporation $14,607, $12,488 and $0,
respectively, for construction services, including reimbursement for the cost
of materials and labor. Grove Development Corporation was acquired by the
Company in the Consolidation Transactions.
LOANS BY NAVAB ASSOCIATES
NAVAB Associates (owned one-quarter each by Damon and Brian Navarro and
Ronald and George Abdow) ("NAVAB") from time to time prior to the
Consolidation Transactions made unsecured demand loans to certain of the
Company's predecessors, with interest payable monthly at a rate equal to 2.5%
over the prime rate. In addition, certain of the Company's predecessors made
unsecured demand loans to NAVAB, with interest payable monthly at a rate equal
to 1.5% below the prime rate. In connection with the Consolidation
Transactions, the Company's predecessors paid $1,286,586 to NAVAB and NAVAB
paid to the Company's predecessors $742,873 as payment in full of the amount
due to or from NAVAB. Substantially all of such net amount was used by NAVAB
to repay a bank loan. The Company is not pursuing additional business with
NAVAB and has been informed that the principals of NAVAB intend to dissolve
the entity.
THE CONSOLIDATION TRANSACTIONS
In March 1997, the Company completed the following: (i) the creation of an
UPREIT structure by forming the Operating Partnership to facilitate the
Consolidation Transactions and to provide potential sellers with a
61
<PAGE>
mechanism to defer their tax liability; (ii) the acquisition through the
Operating Partnership of 20 properties owned by affiliates of Grove; (iii) the
acquisition of the property management assets and related liabilities of GPS,
the entity that managed the properties owned by the REIT as well as the 20
properties owned by affiliates of Grove; (iv) a $30 million private placement
(3,333,333 shares at $9.00 per share) of equity securities to investors that
included, among others, MSAM and the Oregon Retirement Fund; (v) the closing
of a $25 million revolving credit facility and a $15 million term loan
facility and the release of guarantees by certain of the Executive Officers
and (vi) an agreement for National Realty to provide certain property related
services to the Company, which agreement will be terminated concurrently with
the Offering.
The valuation of the properties acquired by the Company in the Consolidation
Transactions was determined based primarily upon a capitalization of net
operating income produced by such properties. This methodology was used
because the Company believed it appropriate to value such properties. No third
party determination of the value was sought or obtained in connection with the
acquisition by the Company of these properties and the value of such
properties was not determined as a result of arms-length negotiations. As a
result, there can be no assurance that the aggregate value of the
consideration paid by the Company for such properties did not exceed the fair
market value of the properties and assets acquired by the Company in
connection with the Consolidation Transactions.
As consideration for their ownership interests in the properties acquired by
the Company in the Consolidation Transactions, persons contributing such
properties to the Company (the "Participants in the Consolidation
Transactions") received an aggregate of 2,114,439 Common Units (having an
aggregate value of approximately $19.0 million, based upon the approximate
market price at the time of the Consolidation Transactions) and $3.4 million
in cash. The Executive Officers received an aggregate of 909,115 Common Units
(having an aggregate value of approximately $8.2 million, based upon the
approximate market price at the time of the Consolidation Transactions) and
$177,669 in cash in connection with the Consolidation Transactions. The
aggregate value of the Common Units received by the Executive Officers
substantially exceeded the book value of the assets that they contributed in
the Consolidation Transactions. The number of Common Units and the cash
received by each of the Executive Officers individually is set forth below.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER COMMON UNITS CASH
----------------- ------------ -------
<S> <C> <C>
Damon D. Navarro....................................... 289,874 $85,797
Brian A. Navarro....................................... 282,322 85,797
Edmund F. Navarro...................................... 247,174 6,075
Joseph R. LaBrosse..................................... 65,833 --
Gerald A. McNamara..................................... 23,912 --
</TABLE>
MANAGEMENT OF EXCLUDED PROPERTIES
Pursuant to management services agreements, the Operating Partnership
provides property management services with respect to the Excluded Properties
and one other property not owned by the Company in which Executive Officers
have a minority ownership interest. Such management services agreements
provide that the Operating Partnership will receive, with respect to each
property, a fee equal to from 5% to 6% of gross income (excluding interest
income). Such management services agreements have terms of one year and will
automatically renew for successive one-year terms if neither party thereto
gives notice of termination within 90 days prior to the end of the then
current term. For the period from March 14, 1997 through June 30, 1997, the
Company received management fees in the aggregate amount of $218,000.
THE MAY 1997 ACQUISITIONS
Pursuant to a Contribution Agreement dated as of May 30, 1997, effective
June 1, 1997, the Company acquired through the Operating Partnership two
apartment communities and a 29% controlling interest in the partnership that
owns 349 of the 432 units in River's Bend, an apartment community located in
Windsor, Connecticut.
62
<PAGE>
In connection with these transactions, the Operating Partnership issued an
aggregate of 420,183 Common Units. The Board assigned a value of $10 for each
of the Common Units issued, based upon the approximate market value of the
Common Shares at that time. The Company also assumed mortgage debt with an
aggregate remaining principal amount of $6.2 million, borrowed $1.8 million
under its Credit Facility and used $68,000 of its available cash. As permitted
under the Charter, the Company did not obtain independent appraisals of such
properties, although the transactions were approved by a majority of the
Independent Trust Managers. Of the Common Units issued in connection with
these transactions, an aggregate of 9,625 were issued to entities controlled
50% by Damon Navarro and 50% by Brian Navarro. An additional 68,441 of such
Common Units were issued to a partnership in which Messrs. Damon, Edmund and
Brian Navarro and Joseph LaBrosse are the general partners. For services
rendered in connection with investor communications, negotiation of the
Contribution Agreement dated as of May 30, 1997 and related agreements,
financial analyses of the acquisitions and structuring the transactions,
National Realty was paid an aggregate of $522,000.
On September 30, 1997, the Company acquired the remaining interest in the
entity owning 349 of the 432 units at River's Bend Apartments from a non-
affiliate for a cash payment of $4.9 million and the assumption of mortgage
debt with an aggregate remaining principal amount of $8.6 million. As a
result, the Company owns all of the entity that owns these 349 units. None of
the Executive Officers of the Company received any portion of such cash
payment.
THE JULY 1997 ACQUISITIONS
On July 2, 1997, the Company acquired 126 condominium units at Greenfield
Village Condominium in Rocky Hill, Connecticut from an unaffiliated third
party. In connection with the purchase of these units, the Company paid
$107,000 for expense and overhead reimbursement to National Realty.
THE SEPTEMBER 1997 ACQUISITIONS
Pursuant to two Offers to Exchange All Outstanding Limited Partnership
Interests in two affiliated partnerships, effective September 1, 1997, the
Company acquired three residential apartment complexes through the Operating
Partnership. In connection with these transactions, the Operating Partnership
issued an aggregate of 328,332 Common Units. The Board assigned a value of
$10.50 for each of the Common Units issued, based upon the approximate market
value of the Common Shares at that time. The Company also assumed mortgage
debt with an aggregate remaining principal amount of $9.8 million, assumed a
short-term liability of $1.1 million, borrowed $750,000 under its Credit
Facility and used $200,000 of its available cash. As permitted under the
Charter, the Company did not obtain independent appraisals of such properties,
although the transactions were approved by a majority of the Independent Trust
Managers. Of the Common Units issued in connection with these transactions,
3,718 were issued to an entity controlled 50% by Damon Navarro and 50% by
Brian Navarro and 794 were issued to an entity owned 32.34% by Damon Navarro
and Brian Navarro. An additional 41,579 of such Common Units were issued to a
partnership in which Messrs. Damon, Edmund and, Brian Navarro and Joseph
LaBrosse are the general partners. In connection with this acquisition, the
Company will pay National Realty a fee estimated to be $50,000.
BROKERAGE SERVICES
Following the consummation of the Consolidation Transactions, National
Realty, which is 100% owned by Messrs. Damon, Brian and Edmund Navarro and
Joseph LaBrosse, provided real estate brokerage and related services to the
Company. Prior to the Consolidation Transactions, these services were provided
by GPS. The real estate brokerage services performed by National Realty for
the Company prior to the completion of the Offering included the finding,
underwriting and negotiation of purchase contracts with respect to properties
to be acquired by the Company, the negotiation of the contracts with respect
to properties to be sold by the Company and certain commercial leasing
services. In connection with such services, National Realty received a
commission on purchases or sales arranged by National Realty of less than 2%.
The brokerage services contracts
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<PAGE>
provided for indemnification by the Operating Partnership of National Realty
and its affiliates for any liability incurred in performing such services,
except in certain circumstances. The brokerage services contracts were not
negotiated on an arm's-length basis and Messrs. Damon, Brian and Edmund
Navarro and Mr. Joseph LaBrosse may have had conflicts of interest (due to
their ownership of National Realty) in connection with the brokerage services
contracts and the provision of real estate brokerage services by National
Realty to the Company. In connection with the Offering, the employees of
National Realty related to its real estate brokerage service will become
employees of the Operating Partnership. Thereafter, the Company believes
National Realty will cease operations.
GUARANTEES BY DAMON AND BRIAN NAVARRO
Guarantees of approximately $20.3 million of mortgage indebtedness on four
of the Properties guaranteed by Messrs. Damon and Brian Navarro will be
released upon the repayment of such indebtedness from the net proceeds of the
Offerings. See "Use of Proceeds."
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of October 1, 1997
concerning the beneficial ownership of Common Shares and Common Units owned
directly or indirectly by (i) each Trust Manager of the Company; (ii) each
Executive Officer of the Company, (iii) all Trust Managers and Executive
Officers as a group, and (iv) each person believed by the Company, based
solely on a review of Schedules 13D filed with the Commission, to be the
beneficial owner, as defined in Rule 13d-3 under the Exchange Act, of more
than 5% of the outstanding Common Shares. Each person named below has sole
voting and investment power with respect to the shares listed, except where
noted.
The information presented assumes that all Common Units are redeemed by the
holders thereof and that the Company issues Common Shares on a one-for-one
basis upon such redemptions.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF COMMON COMMON
BENEFICIAL OWNER(1) SHARES SHARES
- ------------------- --------- -------------
<S> <C> <C>
MSAM.............................................. 777,778 11.2%
1221 Avenue of the Americas
New York, New York 10020
Oregon Retirement Fund............................ 391,392 5.6%
c/o ABKB/LaSalle Securities Limited
100 East Pratt Street
Baltimore, Maryland 21202
Damon D. Navarro.................................. 373,708(2) 5.4%
Joseph R. LaBrosse................................ 87,337(3) 1.3%
Edmund F. Navarro................................. 320,376(4) 4.6%
Theodore R. Bigman................................ 777,778(5) 11.2%
James F. Twaddell................................. 43,311(6) *
Harold V. Gorman.................................. 3,542(7) *
J. Joseph Garrahy................................. 3,542(8) *
Brian A. Navarro.................................. 363,318(9) 5.2%
Gerald A. McNamara................................ 49,117(10) *
Trust Managers and Executive Officers as a Group
(9 Persons)...................................... 2,022,029(11) 28.7%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the business address of each person listed is
598 Asylum Avenue, Hartford, Connecticut 06105.
(2) Includes 330,852 Common Shares which might be acquired by Mr. Navarro
upon redemption of an equal number of Common Units and 22,248 Common
Shares which could be acquired within 60 days upon exercise of options.
(3) Includes 76,883 Common Shares which might be acquired by Mr. LaBrosse
upon redemption of an equal number of Common Units and 5,550 Common
Shares which could be acquired within 60 days upon exercise of options.
(4) Includes 280,357 Common Shares which might be acquired by Mr. Navarro
upon redemption of an equal number of Common Units and 20,848 Common
Shares which could be acquired within 60 days upon exercise of options.
(5) Represents the Common Shares which are owned by MSAM as to which Mr.
Bigman has shared voting and investment power.
(6) Includes 11,221 and 3,542 Common Shares which could be acquired by Mr.
Twaddell within 60 days upon exercise of warrants and options,
respectively.
(7) Common Shares which could be acquired by Mr. Gorman within 60 days upon
exercise of options.
(8) Includes 3,148 Common Shares which could be acquired by Mr. Garrahy
within 60 days upon exercise of options.
(9) Includes 323,299 Common Shares which might be acquired by Mr. Navarro
upon redemption of an equal number of Common Units and 20,848 Common
Shares which could be acquired within 60 days upon exercise of options.
(10) Includes 40,750 Common Shares which might be acquired by Mr. McNamara
upon redemption of an equal number of Common Units and 4,528 Common
Shares which could be acquired within 60 days upon exercise of options.
(11) Includes 1,052,092 Common Shares which might be acquired upon redemption
of an equal number of Common Units and 11,221 and 84,254 Common Shares
which could be acquired within 60 days upon exercise of warrants and
options, respectively.
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<PAGE>
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the Company's capital shares does not purport to be
complete, and is qualified in its entirety by reference to the pertinent
sections of the Charter, which is filed as an exhibit to or incorporated by
reference to the Registration Statement of which this Prospectus is a part
(the "Registration Statement"). See "Available Information."
The Company is a REIT. Rights of shareholders are governed by the Maryland
Real Estate Investment Trust Act and related statutes (collectively, the
"Maryland REIT Act"), the Charter and the Company's Bylaws.
General. The Charter provides that the Company may issue up to 14,000,000
shares of beneficial interest, consisting of 13,999,000 Common Shares and
1,000 Preferred Shares. The Transfer Agent and Registrar for the Common Shares
is The First National Bank of Boston.
Indemnification for, and Limitation on, Liability. Both the Maryland REIT
Act and the Charter provide that no shareholder will be personally liable for
any obligation of the Company solely as a result of his, her or its status as
a shareholder of the Company. The Bylaws further provide that the Company
shall indemnify each shareholder against any claim or liability for which the
shareholder may become subject by reason of being or having been a
shareholder, and that the Company shall pay or reimburse each shareholder for
all legal and other expenses reasonably incurred in connection with any such
claim or liability. In addition, it is the Company's policy that shareholders
assume no personal liability for obligations entered into on behalf of the
Company. However, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain
statutory liability, shareholders may, in some jurisdictions, be personally
liable to the extent that such claims are not satisfied by the Company.
Inasmuch as the Company carries public liability insurance which it believes
will be adequate, any risk of personal liability to shareholders is limited to
a situation in which the Company's assets plus its insurance coverage would be
insufficient to satisfy such claims against the shareholders.
Under the Charter and the Company's Bylaws, the Company has similar
indemnification obligations to the Trust Managers and officers and to persons
who, at the request of the Company, serve or have served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, shareholder or trustee to the maximum
extent permitted by Maryland law as in effect from time to time unless (i)
such person's act or omission was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) such person actually received an improper benefit
or profit in money, property or services actually received or (iii) in the
case of a criminal proceeding, such person had reasonable cause to believe his
or her act or omission was unlawful. The Charter further provides that, to the
maximum extent permitted by Maryland law as in effect from time to time, no
Trust Manager or officer is liable to the Company or any shareholder of the
Company for money damages. Under the Maryland REIT Act, the provision of the
Charter limiting the liability of Trust Managers and officers is not
applicable (a) to the extent that it is proved that the Trust Manager or
officer actually received an improper benefit or profit in money, property or
services, for the amount of the benefit or profit in money, property or
services actually received or (b) to the extent that a judgment or other final
adjudication adverse to the Trust Manager or officer is entered in a
proceeding based on a finding in the proceeding that such Trust Manager's or
officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. Indemnification of any such person by the Company may also be made
in accordance with any indemnification agreement which the Company may enter
into with such person.
Rights with Respect to Dividends and in the Event of Liquidation,
Dissolution or Winding-Up. All issued and outstanding Common Shares are duly
authorized, fully paid and nonassessable. Subject to the preferential rights
of any other shares or series of shares of beneficial interest (if any),
holders of Common Shares are entitled to receive dividends if, as and when
authorized and declared by the Board out of assets legally available therefor,
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
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<PAGE>
Voting Rights. Each outstanding Common Share entitles the holder thereof to
one vote on all matters submitted to a vote of shareholders, including the
election of Trust Managers, and, except as otherwise required by law or except
as provided with respect to any other class or series of shares of beneficial
interest, the holders of Common Shares will possess exclusive voting power.
Shareholders have the right to vote only on the following matters: (i) the
election or removal of Trust Managers; (ii) the amendment of the Charter;
(iii) the voluntary dissolution or termination of the Company; (iv) the
reorganization of the Company and (v) the merger or consolidation of the
Company or the sale or other disposition of all or substantially all of its
assets. There is no cumulative voting in the election of Trust Managers, which
means that the holders of a majority of the outstanding Common Shares can
elect all of the Trust Managers then standing for election, and the holders of
the remaining shares of beneficial interest, if any, will not be able to elect
any Trust Managers. The Charter permits the Trust Managers to amend the
Charter, by a two-thirds vote, from time to time to enable the Company to
qualify as a REIT under the Internal Revenue Code or the Maryland REIT Act
without the affirmative vote or written consent of the shareholders.
The Company's Bylaws contain provisions requiring shareholders to provide
advance notice to the Company before presenting a nomination or bringing any
other business before an annual meeting of the Company's shareholders. Such
notice must be received by the Company not less than 60 nor more than 90 days
before the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days before or 60 days after such first anniversary, then notice by the
shareholders must be delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. The
Company's Bylaws further specify information which must be included in any
such notice. If a shareholder fails to comply with these procedures, any
nomination or other business which the shareholder proposes to bring before
the annual meeting will be considered not properly brought before the meeting.
Other Rights. Under the Charter, holders of Common Shares have no
conversion, sinking fund, redemption or preemptive rights to subscribe for any
securities of the Company. Subject to the provisions of the Charter regarding
Excess Shares, and to any future classification of Common Shares (see "--
Preferred Shares in General" and "--Classification or Reclassification of
Common Shares or Preferred Shares"), Common Shares have equal voting,
dividend, distribution, liquidation and other rights, and have no preference,
exchange or, except as expressly required by the Maryland REIT Act, appraisal
rights.
Preferred Shares in General. Preferred Shares may be issued from time to
time, in one or more series, as authorized by the Board. Prior to issuance of
shares of each series, the Board is required by the Maryland REIT Act and the
Charter to designate for each such series, subject to the provisions of the
Charter regarding Excess Shares, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. The Board could authorize the issuance of Preferred
Shares with terms and conditions which could have the effect of discouraging a
takeover or other transaction which holders of some, or a majority, of the
Common Shares might believe to be in their best interests or in connection
with which holders of some, or a majority, of the Common Shares might receive
a premium for their Common Shares over the then-prevailing market price of
such Common Shares. As of the date hereof, no Preferred Shares are
outstanding.
Classification or Reclassification of Common Shares or Preferred
Shares. Subject to the express terms of any series of Preferred Shares or any
class of Common Shares then outstanding and to the provisions of the Charter
regarding Excess Shares, the Charter authorizes the Board to increase or
decrease the number of, alter the designation of or classify or reclassify any
unissued shares by setting or changing, in any one or more respects, from time
to time before issuing the shares, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of any
series or class of shares.
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Restrictions on Transfer. In order for the Company to qualify as a REIT
under the Internal Revenue Code, Equity Shares (i.e., Common Shares or
Preferred Shares) must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year. Also, not more than 50% of the value of the issued
and outstanding Equity Shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities such as qualified private pension plans) during the last half of a
taxable year or during a proportionate part of a shorter taxable year.
Because the Company expects to continue to qualify as a REIT, the Charter
contains restrictions on the ownership and transfer of Equity Securities which
are intended to assist the Company in complying with these requirements. The
Charter provides that, subject to certain specified exceptions, no person or
entity (other than executive officers of the Company) may beneficially own
more than 5.0% and no person or entity may be deemed to own by virtue of the
applicable constructive ownership provisions of the Internal Revenue Code,
more than 9.8% (by number or value, whichever is more restrictive) of the
outstanding Equity Shares (i.e., the Ownership Limit and the Constructive
Ownership Limit, respectively) and no executive officer of the Company may,
nor may the executive officers in the aggregate, own more than the Executive
Officer Ownership Limit. The Board has waived such limits with respect to MSAM
and the Oregon Retirement Fund. The constructive ownership rules of the
Internal Revenue Code are complex and may cause Equity Shares owned actually
or constructively by a group of related individuals and/or entities to be
owned constructively by one individual or entity. As a result, the acquisition
of less than 5.0% or 20% of the Equity Shares (or the acquisition of an
interest in an entity that owns, actually or constructively, Equity Shares) by
an individual or entity could nevertheless cause that individual, or another
individual or entity, to own constructively in excess of 5.0%, 9.8% or 20% of
the outstanding Equity Shares and, thus, subject such Equity Shares to the
Ownership Limit, the Constructive Ownership Limit or the Executive Officer
Ownership Limit, as the case may be. The Board may, but in no event is
required to, waive the Ownership Limit, the Constructive Ownership Limit or
the Executive Officer Ownership Limit with respect to a particular shareholder
if it determines that such ownership will not jeopardize the Company's status
as a REIT. As a condition to such waiver, the Board may require undertakings
or representations from the applicant with respect to preserving the REIT
status of the Company.
The Charter prohibits a person from beneficially or constructively owning
Equity Shares that would result in the Company's being "closely held" under
Section 856(h) of the Internal Revenue Code or otherwise cause the Company to
fail to qualify as a REIT (including, but not limited to, ownership that would
result in the Company's owning (actually or constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Internal Revenue Code
if the income derived by the Company (either directly or through one or more
partnerships) from such tenant would cause the Company to fail to satisfy any
of the gross income requirements of Section 856(c) of the Internal Revenue
Code). The Charter further provides that any transfer of Equity Shares, if
such transfer would result in Equity Shares being owned by fewer than 100
persons, shall be void ab initio. Any person who acquires or attempts or
intends to acquire Equity Shares that will or may violate any of the foregoing
restrictions on transferability and ownership is required to give written
notice immediately to the Company and to provide the Company with such other
information as the Company may request in order to determine the effect of
such transfer on the Company's status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board determines that it
is no longer in the best interest of the Company to attempt to quality, or to
continue to qualify, as a REIT.
The Charter provides that, if any attempted transfer of Equity Shares or any
other event would otherwise result in any person's violating the Ownership
Limit, the Constructive Ownership Limit, the Executive Officer Ownership Limit
or the Charter, then, unless the Board has waived compliance with the
Ownership Limit, the Constructive Ownership Limit or the Executive Officer
Ownership Limit, as the case may be, the shares in excess of the applicable
limit are automatically transferred by operation of law to a Special Trust,
the beneficiary of which will be a qualified charitable organization selected
by the Company (the "Beneficiary"). If for any reason the transfer to the
Special Trust is not effective, the attempted transfer resulting in such
violation will be void ab
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initio and of no force or effect with respect to the purported transferee (the
"Prohibited Transferee") as to that number of Equity Shares in excess of the
Ownership Limit, the Constructive Ownership Limit or the Executive Officer
Ownership Limit, as the case may be, and the Prohibited Transferee shall
acquire no right or interest (or, in the case of any event other than a
purported transfer, the person or entity holding record title to any such
Equity Shares in excess of the Ownership Limit, the Constructive Ownership
Limit or the Executive Officer Ownership Limit, as the case may be (the
"Prohibited Owner") shall cease to own any right or interest) in such Equity
Shares.
Any automatic transfer described in the preceding paragraph shall be deemed
to be effective as of the close of business on the business day prior to the
date of such violative transfer. Within 20 days of receiving notice from the
Company of the transfer of Equity Shares to the Special Trust, the trustee of
the Special Trust (who shall be designated by the Company and be unaffiliated
with the Company and any Prohibited Transferee or Prohibited Owner) (the
"Special Trustee") will be required to sell such shares to a person or entity
who may own such shares without violating the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, as the
case may be, and distribute to the Prohibited Transferee an amount equal to
the lesser of the price paid by the Prohibited Transferee for such Equity
Shares or the net sales proceeds received by the Special Trust for such Equity
Shares.
In the case of any Equity Shares in excess of the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, as the
case may be, resulting from an event other than a transfer, or from a transfer
for no consideration (such as a gift), the Special Trustee will be required to
sell such Equity Shares to a qualified person or entity and distribute to the
Prohibited Owner an amount equal to the lesser of the fair market value of
such Equity Shares as of the date of such event or the sale proceeds received
by the Special Trust for such Equity Shares. In either case, any proceeds in
excess of the amount distributable to the Prohibited Transferee or Prohibited
Owner, as applicable, will be distributed to the Beneficiary. Prior to a sale
by the Special Trust of any Equity Shares in excess of the Ownership Limit,
the Constructive Ownership Limit or the Executive Officer Ownership Limit, the
Special Trustee will be entitled to receive, in trust for the Beneficiary, all
dividends and other distributions paid by the Company with respect to such
Equity Shares. Subject to Maryland law, effective as of the date that such
Equity Shares have been transferred to the Special Trust, the Special Trustee
shall have the authority (at the Special Trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Transferee prior to the
discovery by the Company that such Equity Shares have been transferred to the
Special Trustee and (ii) to recast such vote in accordance with the desires of
the Special Trustee acting for the benefit of the Beneficiary. However, if the
Company has already taken irreversible action, then the Special Trustee shall
not have the authority to rescind and recast such vote. Any dividend or other
distribution paid to the Prohibited Transferee or Prohibited Owner (prior to
the discovery by the Company that such shares had been automatically
transferred to the Special Trust as described above) will be required to be
repaid to the Special Trustee upon demand for distribution to the Beneficiary.
In the event that the transfer to the Special Trust as described above is not
automatically effective (for any reason) to prevent violation of the Ownership
Limit, the Constructive Ownership Limit or the Executive Officer Ownership
Limit, as the case may be, then the Charter provides that the transfer of the
Equity Shares will be void.
In addition, Equity Shares held in the Special Trust shall be deemed to have
been offered for sale to the Company or its designee, at a price per Equity
Share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Special Trust (or, in the case of a devise or
gift, the market price at the time of such devise or gift) and (ii) the market
price on the date the Company or its designee accepts such offer. The Company
shall have the right to accept such offer until the Special Trustee has sold
the Equity Shares held in the Special Trust. Upon such a sale to the Company,
the interest of the Beneficiary in the shares sold shall terminate, and the
Special Trustee shall distribute the net proceeds of the sale to the
Prohibited Transferee or Prohibited Owner, as the case may be, and any
dividends or distributions held by the Special Trustee with respect to such
Equity Shares shall thereupon be paid to the Beneficiary.
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
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Each shareholder will, upon demand, be required to disclose to the Company
in writing such information with respect to the direct, indirect and
constructive ownership of Common Shares as the Board deems reasonably
necessary to comply with the provisions of the Internal Revenue Code
applicable to a REIT. These ownership limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares
over the then prevailing market price or which such holders might believe to
be otherwise in their best interest.
Reports. Shareholders will receive annual reports containing audited
financial statements with a report thereon by the Company's independent
certified public accountants and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal
year.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and to
the Charter and Bylaws of the Company, as amended, which are filed as exhibits
to or incorporated by reference to the Registration Statement.
DURATION
Under the Charter, the Company has a perpetual term, subject to the
authority of the shareholders to terminate the Company's existence and
liquidate its assets and subject to termination pursuant to the Maryland REIT
Act. See "--Termination of the Company and REIT Status."
BOARD OF TRUST MANAGERS
The Charter provides that the number of Trust Managers of the Company may be
established by the Board, but may not be fewer than two nor more than fifteen.
It also provides that the Board must consist of a majority of Independent
Trust Managers at all times. The Company's Bylaws provide that any vacancy
will be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the Trust Managers.
The Charter provides that at each annual meeting of shareholders, the
successors of the class of Trust Managers whose term expires at such meeting
shall be elected to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of their election.
The Charter provides that a Trust Manager may be removed only for cause (as
defined in the Charter) and only by the affirmative vote of holders of not
less than two-thirds of the Equity Shares then outstanding and entitled to
vote in the election of Trust Managers.
MEETINGS OF SHAREHOLDERS
The Charter requires the Company to hold an annual meeting of shareholders
for the election of Trust Managers and the conduct of any other proper
business. Special meetings of shareholders may be called by the Company's
Secretary upon written request of the holders of shares entitled to cast not
less than 25% of all votes entitled to be cast at such meeting. Special
meetings of shareholders may also be called by the Chairman of the Board or
the President or by action of one-third of the Trust Managers.
PREFERRED SHARES
The Charter authorizes the Board to designate one or more series of
Preferred Shares and to determine, with respect to any series of Preferred
Shares, the number of shares constituting such series and the terms,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms
or conditions of redemption.
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BUSINESS COMBINATIONS
Under the MGCL, as applicable to a Maryland REIT, certain "business
combinations" (including mergers, consolidations, share exchanges or, in
certain circumstances, asset transfers or issuances or reclassifications of
equity securities) between a Maryland real estate investment trust and any
Interested Shareholder must be: (i) recommended by the trustees of such trust
and (ii) approved by the affirmative vote of at least: (a) 80% of the votes
entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of beneficial interest other than shares
held by the Interested Shareholder with whom the business combination is to be
effected, unless, among other conditions, the trust's common shareholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by
the Interested Shareholder for its shares. In addition, an Interested
Shareholder or any affiliate thereof may not engage in a "business
combination" with the trust for a period of five years following the most
recent date on which the Interested Shareholder becomes an Interested
Shareholder. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of trustees of the
trust prior to the time that the Interested Shareholder becomes an Interested
Shareholder. An amendment to a Maryland REIT's declaration of trust electing
not to be subject to the foregoing requirements must be approved by the
affirmative vote of at least 80% of the votes entitled to be cast by holders
of outstanding voting shares of beneficial interest of the trust, voting
together as a single voting group, including two-thirds of the votes entitled
to be cast by holders of outstanding voting shares of beneficial interest
other than shares of beneficial interest held by Interested Shareholders. Any
such amendment shall not be effective until 18 months after the vote of
shareholders and does not apply to any business combination of the trust with
an Interested Shareholder on the date of the shareholder vote.
The business combination statute could have the effect of delaying,
deferring or preventing offers to acquire the Company, and of increasing the
difficulty of consummating any such offer.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to a Maryland REIT, provides that "control shares"
of a Maryland real estate investment trust acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter by shareholders,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the trust in question. "Control shares" are voting shares which,
if aggregated with all other shares previously acquired by such acquiror,
would entitle the acquiror to exercise the voting power in the election of
trustees within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third; (ii) one-third or more but less than a majority
or (iii) a majority or more of all voting power. Control shares do not include
shares that the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the trust's board of trustees to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the control shares, except those for which voting rights have
previously been approved, for fair value determined, without regard to the
absence of voting rights, as of the date of the last control share acquisition
by the acquiror or of any meeting of shareholders at which the voting rights
of such shares are considered and not approved. If voting rights for control
shares are approved at a shareholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise
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appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.
The Bylaws contain a provision exempting from the control share provisions
any and all acquisitions by any person of shares of the Company. Although
there can be no assurance that this provision will not be amended or
eliminated, the Bylaws provide that such provision may not be amended or
eliminated without the approval of at least a majority of the Common Shares.
AMENDMENT OF THE CHARTER
The Charter may be amended by the shareholders, only by the affirmative vote
of the holders of not less than two-thirds of the votes entitled to be cast on
the matter. In addition, the Charter may be amended by the Trust Managers, by
a two-thirds vote, from time to time to enable the Company to qualify as a
REIT. The Charter provides that in the event that the Board shall determine,
with the advice of counsel, that any one or more of the provisions of the
Charter (the "Conflicting Provisions") are in conflict with the Maryland REIT
Act, the Internal Revenue Code or other applicable Federal or state law, the
Conflicting Provisions shall be deemed never to have constituted a part of the
Charter, even without any amendment thereof.
TERMINATION OF THE COMPANY AND REIT STATUS
The Charter permits the Board to revoke or otherwise terminate the election
that the Company be taxed as a REIT if the Board determines that it is no
longer in the best interest of Grove for it to continue to qualify as a REIT.
Pursuant to the Charter, the Company may be dissolved or terminated by the
affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast on the matter.
TRANSACTIONS BETWEEN THE COMPANY AND ITS TRUSTEES OR OFFICERS
The Charter provides that any contract or transaction between the Company
and one or more Trust Managers or officers of the Company must be approved by
the Board, including approval by a majority of the Independent Trust Managers.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Act permits a Maryland real estate investment trust to
include in its Charter a provision limiting the liability of its trustees to
the trust and its shareholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
The Company's Bylaws require it to indemnify (i) any present or former Trust
Manager, officer or shareholder (including among the foregoing, any individual
who, while a Trust Manager, officer or shareholder at the express request of
the Company, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, shareholder, partner or trust manager) who has been successful, on
the merits or otherwise, in the defense of a proceeding to which he was made a
party by reason of such status, against reasonable expenses incurred by him in
connection with the proceeding; (ii) any present or former Trust Manager
against any claim or liability to which he may become subject by reason of his
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status as such unless it is established that (a) his act or omission was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty; (b) he actually
received an improper personal benefit in money, property or services or (c) in
the case of a criminal proceeding, he had reasonable cause to believe that his
act or omission was unlawful and (iii) each shareholder or former shareholder
against any claim or liability to which he may become subject by reason of his
status as a shareholder or former shareholder. In addition, the Company's
Bylaws require it to pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a present or former Trust Manager,
officer or shareholder made party to a proceeding by reason of his status as a
Trust Manager, officer or shareholder provided that in the case of a Trust
Manager or officer, the Company shall have received (i) a written affirmation
by the Trust Manager or officer of his good faith belief that he has met the
applicable standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the applicable standard of conduct was not met. The Company's
Bylaws also (i) permit the Company to provide indemnification and payment or
reimbursement of expenses to a present or former Trust Manager, officer or
shareholder who served a predecessor of the Company; (ii) provide that any
indemnification or payment or reimbursement of expenses permitted by the
Bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Section 2-418
of the MGCL for directors of Maryland corporations and (iii) permit the
Company to provide such other and further indemnification or payment or
reimbursement of expenses as may be permitted by the MGCL for directors of
Maryland corporations.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland REIT, the Maryland REIT Act
requires that the Company hold, either directly or indirectly, at least 75% of
the value of its assets in real estate assets, mortgage or mortgage-related
securities, government securities, cash and cash equivalent items, including
high-grade short-term securities and receivables. The Maryland REIT Act also
prohibits using or applying land for farming, agriculture, horticulture or
similar purposes.
PRACTICES AND OBJECTIVES WITH RESPECT TO CERTAIN ACTIVITIES
General. The following is a discussion of certain investment, financing and
other practices of the Company. These practices may be amended or revised from
time to time without a vote of the Company's shareholders, except that the
Company cannot change its policy of holding its assets and conducting its
business principally through the Operating Partnership without the consent of
the holders of Common Units as provided in the Operating Partnership
Agreement. See "Operating Partnership Agreement--Transferability of
Interests." No assurance can be given that the Company's investment objectives
will be attained or that the value of the Company will not decrease.
Investment Objectives and Practices. The Company's investment objective is
to provide quarterly distribution of a portion of cash available for
distribution and achieve long-term capital appreciation through increases in
cash flow from operations, reinvestment of retained cash and growth of the
Company's property portfolio through acquisitions and repositioning. For a
discussion of the Company's growth strategy of property acquisition and
repositioning and related business strategies, see "The Company--Business
Objectives and Growth Strategies." The Company's practice is to acquire assets
primarily for generation of current income and appreciation in long-term
value.
The Company may purchase or lease income-producing multifamily, mixed-use or
specialty retail properties for long-term investment, expand and improve the
properties acquired, or sell such properties, in whole or in part, when
circumstances warrant. Financing or indebtedness of the Properties, or any
properties to be acquired by the Company in the future, may be secured by a
first mortgage. Any such financing or indebtedness will have a priority over
the Common Shares in the event of a forced sale or upon liquidation of any
property in the Company's portfolio.
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While the Company emphasizes equity real estate investments in multifamily
properties, it may, at the discretion of the Board, invest in shoreline or
coastal mixed-use buildings, equity real estate investments in other types of
properties, mortgages (including participating or convertible mortgages),
stock of other REIT's and other real estate interests. The Company does not
presently intend to invest in mortgages or stock of other REIT's. The
investment by the Company in securities of other REIT's, other concerns
engaged in real estate activities or other issues is subject to the percentage
of ownership limitations and gross income tests necessary for REIT
qualification.
Disposition. The Company periodically will review the assets in the
Company's portfolio. The Company has no current intention to dispose of any of
the Properties, or any property that may be acquired in the future, unless the
Board, based in part upon management's periodic reviews, determines that the
disposition of such property is in the best interests of the Company.
Financing Practices. The Company intends to maintain a conservative debt to
total capitalization ratio of 60% or less. Such ratio presents total debt of
the Company as a percentage of the market value of the Common Shares (assuming
the exchange of all Common Units for Common Shares) plus total debt of the
Company. The Company's Charter and Bylaws, however, do not limit the amount of
percentage of indebtedness that the Company may incur. In addition, from time
to time, the Company may modify its debt practice in light of current economic
conditions, relative costs of debt and equity capital, market values of its
properties, general conditions in the market for debt and equity securities,
fluctuations in the fair market prices of the Common Shares, growth and
acquisition opportunities and other factors. Accordingly, the Company may
increase or decrease its debt to total capitalization above or below 60%.
In the event that the Board determines to raise additional equity capital,
the Board has the authority, without approval of the shareholders, to issue
additional Common Shares, Preferred Shares or Common Units in any manner (and
on such terms and for such consideration) it deems appropriate, including in
exchange for property. Existing shareholders will have no preemptive right to
purchase shares issued in any subsequent offering by the Company, and any such
offering might cause a dilution of shareholders' investment in the Company. It
is currently the Company's intention to seek shareholder approval of an
amendment to the Charter to permit the Board to increase or decrease the
number of Common Shares and Preferred Shares which the Company may issue
without any further approval of the Company's shareholders.
Indebtedness incurred by the Company may be in the form of bank borrowings,
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments or financing from institutional investors or other
lenders, any of which indebtedness may be unsecured or may be secured by
mortgages or other interests in the property owned by the Company. The
recourse of the holders of such indebtedness may be to all or any part of the
property of the Company or may be limited to the particular property to which
the indebtedness relates. The proceeds from any borrowings by the Company must
be lent, on the same terms, to the Operating Partnership. See "The Operating
Partnership Agreement--Capital Contribution."
Other. The Company intends to operate in a manner that will not subject it
to regulation under the Investment Company Act of 1940. The Company does not
intend (i) to invest in the securities of other issuers for the purpose of
exercising control over such issuer; (ii) to underwrite securities of other
issuers or (iii) to trade actively in loans or other investments.
The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
purchase or otherwise acquire Common Shares or any of its other securities in
the open market or otherwise may engage in such activities in the future.
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The Company has not made any loans to third parties, although it may in the
future make loans to third parties, including, without limitation, to entities
in which it has an interest. The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issuers,
and the Company does not intend to do so in the future. The Company's
practices with respect to such activities may be reviewed and modified from
time to time by the Board without the vote of the shareholders.
At all times, the Company intends to make investments in such a manner as to
be consistent with the requirements of the Internal Revenue Code to qualify as
a REIT unless, because of circumstances or changes in the Internal Revenue
Code, the Board determines to revoke the Company's REIT election.
The Company has authority to offer its Common Shares, or options to purchase
Common Shares, in exchange for property and to repurchase or otherwise acquire
its Common Shares in the open market or otherwise and may engage in such
activities in the future. The Company expects (but is not obligated) to issue
Common Shares to holders of Common Units in the Operating Partnership upon
exercise of their redemption rights.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
8,453,829 Common Shares, of which 4,110,824 Common Shares will be freely
tradable in the public market by persons who are not then affiliates of the
Company without restriction or registration under the Securities Act. In
addition, the Company has reserved approximately 2.3 million Common Shares for
issuance upon exchange of Common Units and 1,017,726 Common Shares for
issuance upon exercise of options granted under the 1994 Plan and the 1996
Plan. On the date hereof, the Compensation Committee has granted options for
500,000 additional Common Shares with an exercise price equal to the public
offering price set forth on the cover page hereof. See "Management--Executive
Compensation." All of the Common Shares issued in the Offerings will be freely
tradable by persons other than "affiliates" of the Company without
registration or other restrictions under the Securities Act, subject to
limitations on ownership set forth in the Charter. See "Description of Shares
of Beneficial Interest--Restrictions on Transfer." The 3,333,333 Common Shares
issued in March 1997, the Common Shares owned by "affiliates" of the Company,
and the Common Shares issuable at the option of the Company upon exchange of
Common Units (other than those issued pursuant to registration rights as
described below), are deemed to be "restricted securities" within the meaning
of Rule 144, and may not be transferred in the absence of registration under
the Securities Act unless an exemption from registration is available,
including exemptions pursuant to Rule 144. The 3,333,333 Common Shares issued
in March 1997 may be publicly resold pursuant to the Shelf Registration
Statement. The shares held by the Executive Officers and Trust Managers and
1,169,170 of the Common Shares covered by the Shelf Registration Statement are
subject to lock-up agreements that prohibit their resale for a period of 180
days from the date of this Prospectus without the prior consent of Smith
Barney Inc. The Company intends to exercise its right to suspend sales of the
remaining shares under the Shelf Registration Statement for a period of 90
days from the date of this Prospectus. After the expiration of such periods,
these shares may be freely sold, subject to the volume limitations and other
provisions of Rule 144 with respect to the Common Shares held by the Trust
Managers, the Executive Officers and other affiliates of the Company. The
Common Shares are also subject to other restrictions to facilitate the
maintenance of REIT status by the Company. See "Description of Shares of
Beneficial Interest--Restrictions on Transfer."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with them in accordance with Rule 144) who has
beneficially owned "restricted shares" (defined generally as shares acquired
from the issuer or an affiliate in a non-public transaction) for at least one
year, as well as any person who purchased unrestricted shares on the open
market who is an affiliate of the Company, would be entitled to sell, subject
to certain manner of sale, public information and notice requirements, within
any three-month period, a number of Common Shares that does not exceed the
greater of 1% of the then-outstanding number of Common Shares or 1% of the
average weekly trading volume of those shares during the four calendar weeks
preceding each such sale. After restricted shares are held for two years, a
person who is not then an affiliate of
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the Company and has not been an affiliate of the Company at any time during
the 90 days preceding a sale is entitled to sell such shares under Rule 144(k)
without regard to these volume limitations. Sales of Common Shares by
affiliates of the Company will continue to be subject to the volume
limitations, unless resold under an effective registration statement under the
Securities Act.
The Operating Partnership issued a total of 2.3 million Common Units to
affiliates, including the Executive Officers, and non-affiliates in connection
with the Consolidation Transactions, which may be redeemed by holders for cash
or, at the Company's option, exchanged for Common Shares, subject to certain
anti-dilution adjustments.
Common Shares issued at the option of the Company upon the redemption of
Common Units for Common Shares may be sold in the public market pursuant to
the registration rights described below. Future sales of the Common Shares
could have an adverse effect on the market price of Common Shares and the
existence of Common Units, options and Common Shares reserved for issuance at
the option of the Company upon redemption of Common Units, and the exercise of
registration rights (described below) may adversely affect the market price of
Common Shares and/or the terms upon which the Company may be able to obtain
capital through the sale of equity securities.
Each limited partner of the Operating Partnership will have redemption
rights, which will permit the holder, at any time beginning one year after the
issuance of Common Units of the Operating Partnership, to require the
Operating Partnership to redeem part or all of such holder's Common Units for
cash (based on the fair market value of an equivalent number of Common Shares
on the date of such redemption) or, at the option of the Company, to exchange
such Common Units for Common Shares on a one-for-one basis (subject to certain
antidilution adjustments and conditions), subject to indemnification claims.
As of the date hereof, approximately 3,003,906 Common Units are outstanding
which are not held by the Company.
In order to protect the Company's status as a REIT, a holder of Common Units
is prohibited from receiving Common Shares upon redemption of Common Units, to
the extent that as a result of such exchange any person would own or would be
deemed to own a number of Common Shares in excess of the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, or if
ownership of such Common Shares by such holder would otherwise cause the
Company to fail to continue to qualify as a REIT. See "Description of Shares
of Beneficial Interest--Restrictions on Transfer."
REGISTRATION RIGHTS
The Company has granted certain entities and individuals receiving Common
Units certain registration rights with respect to Common Shares which may be
issued upon redemption of such Common Units. Pursuant to a Registration Rights
Agreement with the holders of Common Units issued in the Consolidation
Transactions, the Company has agreed to file and, except as described below,
keep continuously effective beginning promptly one year after the completion
of the Consolidation Transactions a registration statement covering the
issuance of shares upon redemption of Common Units issued in the Consolidation
Transactions and the resale thereof. Pursuant to a Registration Rights
Agreement with the purchasers of Common Shares sold in March 1997, the Company
has filed and will generally keep continuously effective the Shelf
Registration Statement. All such registration rights permit holders to include
shares for sale in any registration statement filed by the Company, subject to
certain exceptions. All such registration rights will be subject to certain
significant conditions, including, but not limited to, the Company's ability
to effect and maintain such registration, customary blackout provisions and
any procedures and limitations which may be imposed by the staff of the
Commission. The Company will bear expenses incident to its registration
obligations upon exercise of such registration rights, except that it will not
bear any underwriting discounts or commissions, transfer taxes or fees of
counsel for selling securityholders relating to registration of registrable
shares; provided that, for an underwritten offering, the Company will not pay
such expenses unless the gross proceeds thereof are at least $10 million.
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THE OPERATING PARTNERSHIP AGREEMENT
The following summary of the Agreement of Limited Partnership of the
Operating Partnership (the "Operating Partnership Agreement") and the
description of certain provisions set forth elsewhere in this Prospectus, are
qualified in their entirety by reference to the Operating Partnership
Agreement, which is filed as an exhibit or incorporated by reference to the
Registration Statement. See "Available Information."
Management. The Operating Partnership has been organized as a Delaware
limited partnership pursuant to the terms of the Operating Partnership
Agreement. Grove is the sole general partner of the Operating Partnership.
Generally, pursuant to the Operating Partnership Agreement, Grove, as the sole
general partner of the Operating Partnership, has full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, including the ability to cause the Operating Partnership to enter
into certain major transactions, including acquisitions, dispositions and
financings, and to make distributions in accordance with the terms of the
Operating Partnership Agreement. The limited partners of the Operating
Partnership have no authority to transact business for, or participate in or
exercise control or management power over, the business and affairs of the
Operating Partnership, except as provided in the Operating Partnership
Agreement and as required by applicable law.
Indemnification. The Operating Partnership Agreement provides for
indemnification of Grove, as general partner, the officers and Trust Managers
or directors of Grove and the Operating Partnership and such other persons as
Grove may designate for any losses, claims, damages, liabilities or expenses
incurred by them by reason of operations of the Operating Partnership in which
they are involved, unless it is established that their conduct was in bad
faith or the result of active and deliberate dishonesty, they received an
improper personal benefit, or they had reason to believe such conduct was
unlawful.
Transferability of Interests. Except as otherwise provided below, the
Operating Partnership Agreement provides that Grove may not voluntarily
withdraw from the Operating Partnership, or transfer or assign its interest in
the Operating Partnership, without the consent of all of the holders of
limited partner interests. Pursuant to the Operating Partnership Agreement,
each limited partner has agreed not to transfer, assign, sell, encumber or
otherwise dispose of, without the consent of Grove, its interest in the
Operating Partnership during the one year period following the date of
issuance of Common Units to such limited partner, other than, subject to a
right of first refusal in favor of Grove, to Grove or to certain other
specified persons who agree to assume the obligations of the transferor under
the Operating Partnership Agreement.
Grove may not engage in any merger, consolidation or other combination with
or into another person, any sale of all or substantially all of its assets or
any reclassification, recapitalization or change of its outstanding equity
interests (a "Termination Transaction"), unless the Termination Transaction
has been approved by holders of at least 66 2/3% of the Common Units
(including Common Units held by the Company) and in connection with which all
holders of Common Units will receive, or will have the right to elect to
receive, for each Common Unit an amount of cash, securities or other property
equal to the product of the number of Common Shares for which each Common Unit
is then exchangeable and the greatest amount of cash, securities, or other
property paid to the holder of one Common Share in consideration of one Common
Share pursuant to the Termination Transaction. If, in connection with the
Termination Transaction, a purchase, tender or exchange offer shall have been
made to and accepted by the holders of more than 33 1/3% of the outstanding
Common Shares, each holder of Common Units will receive, or will have the
right to elect to receive, the greatest amount of cash, securities or other
property which such holder would have received had it exercised its right to
redemption and received Common Shares in exchange for its Common Units
immediately prior to the expiration of such purchase, tender or exchange
offer, and had thereupon accepted such purchase, tender or exchange offer.
Grove also may merge or otherwise combine its assets with another entity if
the following conditions are met: (i) substantially all of the assets directly
or indirectly owned by the surviving entity, other than Common Units held by
Grove, are held, directly or indirectly, by the Operating Partnership or
another limited partnership
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or limited liability company which is the survivor of a merger, consolidation
or combination of assets with the Operating Partnership (in each case, the
"Surviving Partnership"); (ii) the limited partners of the Operating
Partnership own a percentage interest of the Surviving Partnership based on
the relative fair market value of the net assets of the Operating Partnership
and the other net assets of the Surviving Partnership immediately prior to the
consummation of such transaction; (iii) the rights, preferences and privileges
of the limited partners of the Operating Partnership in the Surviving
Partnership are at least as favorable as those in effect immediately prior to
the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the Surviving Partnership; and
(iv) such rights of the limited partners of the Operating Partnership include
the right to exchange their interests in the Surviving Partnership for at
least one of the following: (a) the consideration available to such persons
pursuant to the preceding paragraph or (b) if the ultimate controlling person
of the Surviving Partnership has publicly traded common equity securities,
such common equity securities, with an exchange ratio based on the relative
fair market value of such securities and the Common Shares. For purposes of
this paragraph, the determination of relative fair market values shall be
reasonably determined by Grove as of the time of the Termination Transaction
and, to the extent applicable, shall be no less favorable to the limited
partners of the Operating Partnership than the relative values reflected in
the terms of the Termination Transaction.
In respect of any transaction described in the preceding two paragraphs,
Grove is required to use its commercially reasonable efforts to structure such
transaction to avoid causing the limited partners of the Operating Partnership
to recognize gain for federal income tax purposes by virtue of the occurrence
of or their participation in such transaction.
Issuance of Additional Common Units. As sole general partner of the
Operating Partnership, Grove has the ability to cause the Operating
Partnership to issue additional Common Units representing general and limited
partnership interests in the Operating Partnership, including partnership
interests with such designations, preferences and other special rights as
shall be determined by Grove in its sole discretion and subject to applicable
laws.
Capital Contribution. The Operating Partnership Agreement provides that if
the Operating Partnership requires additional funds at any time or from time
to time in excess of funds available to the Operating Partnership from
borrowings or capital contributions, Grove may incur debt and lend such funds
to the Operating Partnership on the same terms and conditions as are
applicable to Grove's borrowing of such funds. As an alternative to borrowing
funds required by the Operating Partnership, Grove may contribute the amount
of such required funds as an additional capital contribution to the Operating
Partnership. If Grove so contributes additional capital to the Operating
Partnership, Grove's partnership interest in the Operating Partnership will be
increased on a proportionate basis. Conversely, the partnership interests of
the limited partners will be decreased on a proportionate basis in the event
of additional capital contributions by Grove.
Pursuant to the Operating Partnership Agreement, Grove is required to
contribute the net proceeds from the issuance of additional Common Shares to
the Operating Partnership. In accordance with this requirement, Grove will
contribute all of the net proceeds of the Offerings to the Operating
Partnership, and Grove's partnership interest in the Operating Partnership
will be increased on a proportionate basis. See "Use of Proceeds."
Awards Under Employee Benefit Plans. If Common Shares are issued pursuant to
an award granted under any stock incentive, stock option, stock ownership or
employee benefits plan, the Operating Partnership Agreement requires Grove to
contribute to the Operating Partnership, as an additional contribution, any
consideration received by Grove upon such issuance. Upon such contribution,
Grove will be issued a number of Common Units in the Operating Partnership
equal to the number of Common Shares so issued.
Distributions. Distributions made by the Operating Partnership shall be made
first to holders of interests in the Operating Partnership entitled to
preferences in distribution (of which currently there are none) and second on
a pro rata basis to the holders of interests not entitled to any such
preferences.
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Limited Partner Redemption/Exchange Rights. Beginning one year after the
issuance of Common Units to a limited partner, such limited partner of the
Operating Partnership will have the right to require the Operating Partnership
to redeem part or all of such limited partner's Common Units (based on the
fair market value of an equivalent number of Common Shares at the time of such
redemption). The Operating Partnership may redeem such Common Units for cash
or Grove may, at its option, elect to redeem such Common Units, in lieu of
redemption by the Operating Partnership, by delivering to the limited partner
one Common Share for each Common Unit tendered (subject to antidilution
adjustments). In order to protect Grove's status as a REIT, a holder of Common
Units is prohibited from exchanging Common Units for Common Shares to the
extent that such exchange would cause any person to violate restrictions on
ownership and transfer of the Common Shares set forth in the Charter. See
"Description of Shares of Beneficial Interest--Restrictions on Transfer."
Tax Matters. Pursuant to the Operating Partnership Agreement, Grove is the
"tax matters partner" of the Operating Partnership and, as such, will have
authority to make tax elections under the Internal Revenue Code on behalf of
the Operating Partnership.
The net income or net loss of the Operating Partnership generally is
allocated to Grove and the limited partners in accordance with their
percentage interests, subject to compliance with the provisions of Sections
704(b) and 704(c) of the Internal Revenue Code and the applicable Treasury
Regulations. For further discussion of such allocations, see "Federal Income
Tax Considerations--Tax Aspects of Operating Partnership and Property
Partnerships."
Operations. The Operating Partnership Agreement requires that the Operating
Partnership be operated in a manner that will enable Grove to satisfy the
requirements for qualification as a REIT and to avoid any federal income or
excise tax liability.
Representations and Warranties. Each partner of the Operating Partnership
made certain customary representations and warranties regarding such partner's
ability to receive Common Units and enter into the Operating Partnership
Agreement. In addition, each partner of the Operating Partnership which was a
party to the Contribution Agreement made the same representations and
warranties in the Operating Partnership Agreement as such partner made in the
Contribution Agreement including, in the case of the partners affiliated with
Grove at the time of execution of the Contribution Agreement, representations
and warranties which related to, among other things, compliance with laws,
environmental matters, the absence of liens and encumbrances, tenant leases,
litigation, contractual obligations and the existence of insurance. The
Operating Partnership Agreement provides that the representations and
warranties of the partners survive the execution of the Operating Partnership
Agreement.
Certain Limited Partner Approval Rights. The Operating Partnership Agreement
provides that if the limited partners other than Grove own at least 5% of the
outstanding Common Units (including Common Units held by Grove), Grove shall
not, on behalf of the Operating Partnership, take any of the following actions
without the prior consent of the holders of more than 50% (excluding Common
Units held by Grove) of the Common Units representing limited partner
interests: (i) dissolve the Operating Partnership, other than incident to a
merger or sale of substantially all of Grove's asset or (ii) prior to March
14, 2002, sell in a taxable transaction the Fox Hill Commons, Colonial Village
or Woodbridge Apartment Properties, other than incident to a merger or sale of
substantially all of Grove's assets.
Term. The Operating Partnership will continue in full force and effect until
December 31, 2056 or until sooner dissolved pursuant to the terms of the
Operating Partnership Agreement.
Amendments. The Operating Partnership Agreement generally may be amended
only with the consent of the partners holding Common Units in the aggregate at
least equal to 66 2/3% of the Common Units, except (i) to add to the
obligations of the general partner; (ii) to reflect the issuance of additional
partnership interests in the Operating Partnership; (iii) to cure ambiguities
or reflect inconsequential changes which do not adversely and materially
affect the limited partners of the Operating Partnership; (iv) to satisfy
requirements of federal or state law; (v) to reflect changes reasonably
necessary for Grove to maintain status as a REIT and (vi) to modify the manner
in which the capital accounts of the partners in the Operating Partnership are
computed; provided, that
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the Operating Partnership Agreement may not be amended in any manner described
above, or otherwise, to the extent such amendment would adversely affect a
partner of the Operating Partnership, without the consent of such partner, if
the amendment would (i) convert the limited partner's limited partner interest
in the Operating Partnership into a general partner interest; (ii) modify the
limited liability of the limited partner; (iii) alter rights of the partner to
receive certain distributions or allocations (except as permitted under the
Operating Partnership Agreement) or (iv) materially alter or modify the
redemption rights of the partner as set forth in the Operating Partnership
Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding the Company is based on current law, is for general information only
and is not tax advice. This discussion does not purport to deal with all
aspects of taxation that may be relevant to particular shareholders in light
of their personal investment or tax circumstances, or to certain types of
shareholders subject to special treatment under the federal income tax laws,
including certain financial institutions, life insurance companies, dealers in
securities or currencies, shareholders holding Common Shares as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, tax-exempt organizations (except to
the extent discussed under the heading "--Taxation of Tax-Exempt
Shareholders") or foreign corporations and persons who are not citizens or
residents of the United States (except to the extent discussed under the
heading "Taxation of Non-U.S. Shareholders"). In addition, the summary below
does not consider the effect of any foreign, state, local or other tax laws
that may be applicable to prospective shareholders. Cummings & Lockwood, tax
counsel to the Company, is of the opinion that such summary fairly and
accurately summarizes the federal income tax considerations that would be
material to a holder of Common Shares.
EACH INVESTOR IS ADVISED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR
REGARDING THE SPECIAL TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE,
OWNERSHIP AND SALE OF THE COMMON SHARES INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code commencing with its
taxable year ended December 31, 1994. The Company believes that, commencing
with such taxable year, it has been organized and operated in such a manner as
to qualify for taxation as a REIT under the Internal Revenue Code, and the
Company intends to continue to operate in such a manner, but no assurance can
be given that it will operate in such a manner so as to remain so qualified.
The Company has received an opinion from Cummings & Lockwood that the
Company's organization and method of operation are such that it has met the
requirements for qualification and taxation as a REIT for its taxable years
ended December 31, 1994, 1995 and 1996, and that its current organization and
method of operation will allow it to continue to qualify as a REIT for 1997
and subsequent taxable years. Such opinion is based on various assumptions and
various factual representations made by Grove. Such qualification will depend
on the Company's continuing ability to meet, through actual annual operating
results, distribution levels, and diversity of stock ownership, and the
various qualification tests imposed under the Internal Revenue Code. Cummings
& Lockwood will not review compliance with these tests on a continuing basis.
No assurance can be given that Grove will satisfy such tests on a continuing
basis.
These sections of the Internal Revenue Code, and the corresponding Treasury
Regulations, are highly technical and complex. The following sets forth the
material aspects of the sections that govern the federal income tax treatment
of a REIT and its shareholders. This summary is qualified in its entirety by
the applicable Internal Revenue Code provisions, rules and regulations
promulgated thereunder, and administrative and judicial interpretations
thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the
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"double taxation" (at the corporate and shareholder levels) that generally
results from investment in a regular corporation. However, the Company will be
subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income," including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (defined generally as property acquired
by the Company through foreclosure or otherwise after a default on a loan
secured by the property or a lease of the property) which is held primarily
for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by
which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of
its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, with
respect to any asset (a "Built-In Gain Asset") acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the Built-In Gain Asset in the hands of the Company is determined by
reference to the basis of the asset in the hands of the C corporation, if the
Company recognizes gain on the disposition of such asset during the ten-year
period (the "Recognition Period") beginning on the date on which such asset
was acquired by the Company, then, to the extent of the Built-In Gain (i.e.,
the excess of (a) the fair market value of such asset over (b) the Company's
adjusted basis in such asset, determined as of the beginning of the
Recognition Period), such gain will be subject to tax at the highest regular
corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
built-in gain assume that the Company will make an election pursuant to IRS
Notice 88-19 and that such treatment is not modified by certain revenue
proposals in the Administration's Fiscal Year 1998 Budget Proposal.
Requirements for Qualification. The Internal Revenue Code defines a REIT as
a corporation, trust or association: (i) which is managed by one or more
trustees or directors; (ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest;
(iii) which would be taxable as a domestic corporation, but for Sections 856
through 859 of the Internal Revenue Code; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the
Internal Revenue Code; (v) the beneficial ownership of which is held by 100 or
more persons; (vi) during the last half of each taxable year not more than 50%
in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Internal
Revenue Code to include certain entities) and (vii) which meets certain other
tests, described below, regarding the nature of its income and assets. The
Internal Revenue Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during
at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions
(v) and (vi) will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. For purposes of conditions (v) and
(vi), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a "look-through" exception in the case of condition
(vi).
The Company believes that it has issued sufficient Common Shares with
sufficient diversity of ownership to allow it to satisfy conditions (v) and
(vi). In addition, the Charter provides for restrictions regarding the
transfer and ownership of shares, which restrictions are intended to assist
the Company in continuing to satisfy the share ownership requirements
described in (v) and (vi) above. Such ownership and transfer restrictions are
described
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in "Description of Shares of Beneficial Interest--Restrictions on Transfer."
These restrictions may not ensure that the Company will, in all cases, be able
to satisfy the share ownership requirements described above. If the Company
fails to satisfy such share ownership requirements, the Company's status as a
REIT will terminate. However, commencing with the Company's 1998 taxable year,
the Taxpayer Relief Act of 1997 (the "1997 Act") provides that if the Company
complies with the rules contained in the applicable Treasury Regulations
requiring the Company to ascertain the actual ownership of its shares but the
Company does not know, or would not have known through the exercise of
reasonable diligence, whether it failed to meet the requirement in condition
(vi) above, the Company will be treated as having met such share ownership
requirement. See "--Failure to Qualify."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company has a calendar taxable year.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and
will be deemed to be entitled to the income of the partnership attributable to
such share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Internal Revenue Code, including satisfying the
gross income tests and the asset tests. Thus, the Company's proportionate
share of the assets and items of income of the Operating Partnership
(including the Operating Partnership's share of such items of any subsidiary
partnerships) will be treated as assets and items of income of the Company for
purposes of applying the requirements described herein. A summary of the rules
governing the federal income taxation of partnerships and their partners is
provided below in "--Tax Aspects of the Operating Partnership and Subsidiary
Partnerships." The Company has direct control of the Operating Partnership and
intends to operate it consistent with the requirements for qualification as a
REIT.
Income Tests. In order to maintain its qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from such real property investments,
dividends, interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). Third, subject to
certain exceptions in the year in which the Company is liquidated, short-term
gain from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income (including gross income from prohibited transactions) for each
taxable year. For purposes of applying the 30% gross income test, the holding
period of properties acquired by the Operating Partnership will be deemed to
have commenced on the date of acquisition. The 1997 Act repealed the 30% gross
income test requirement commencing with the Company's 1998 taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Internal Revenue Code provides
that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an owner of 10%
or more of the REIT, actually or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real
property," the REIT generally must not operate or manage the property or
furnish or render
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services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue, except that the REIT may
directly perform services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. Further, under a de
minimis exception provided by the 1997 Act, the independent contractor
requirement will not apply to customary services provided by the Company, the
annual value of which does not exceed 1% of the gross income derived from the
property with respect to which the services are provided. For this purpose,
such services may not be valued at less than 150% of the Company's direct cost
of providing the service. The Company does not and will not: (i) charge rent
for any property that is based in whole or in part on the income or profits of
any person (except by reason of being based on a percentage of receipts or
sales, as described above); (ii) rent any property to a Related Party Tenant
(unless the Board determines in its discretion that the rent received from
such Related Party Tenant is not material and will not jeopardize the
Company's status as a REIT); (iii) derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease) or (iv) perform services considered to be rendered
to the occupant of the property, other than through an independent contractor
from whom the REIT derives no revenue, unless, beginning in 1998, such
services qualify under the 1% de minimis exception.
The Operating Partnership will receive fees in exchange for the performance
of certain third party property management activities. The Company's
proportionate share of these fees will be treated as income of the Company by
virtue of its status as a partner of the Operating Partnership as discussed
above. Such fees will not qualify under the 95% gross income test or the 75%
gross income test. The Company believes, however, that the aggregate amount of
this and other nonqualifying income in any taxable year will not exceed the
limit on nonqualifying income under the gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Internal
Revenue Code. These relief provisions will be generally available if the
Company's failure to meet such tests was due to reasonable cause and not due
to willful neglect and the Company attaches a schedule of the sources of its
income to its federal income tax return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled
to the benefit of these relief provisions. For example, if the Company fails
to satisfy the gross income tests because nonqualifying income that the
Company intentionally incurs exceeds the limits on such income, the IRS could
conclude that the Company's failure to satisfy the tests was not due to
reasonable cause. If these relief provisions are inapplicable to a particular
set of circumstances involving the Company, the Company would not qualify as a
REIT. As discussed above in "--Taxation of the Company--General," even if
these relief provisions apply, a 100% tax would be imposed on an amount equal
to (a) the gross income attributable to the greater of the amount by which the
Company failed the 75% or 95% test multiplied by (b) a fraction intended to
reflect the Company's profitability.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the
ordinary course of business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy
the income tests for qualification as a REIT. Under existing law, whether
property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction.
The Operating Partnership intends to hold its properties for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating its properties and to make such occasional
sales of properties as are consistent with the Operating Partnership's
investment objectives.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets including (i) its allocable share of real estate assets
held by partnerships in which the Company owns a direct or indirect interest
(such as the Operating Partnership) and (ii) stock or debt
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instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) public debt offering of the
Company, cash, cash items and government securities. Second, not more than 25%
of the Company's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's debt and equity securities owned by
the Company may not exceed 5% of the value of the Company's total assets and
the Company may not own more than 10% of any one issuer's outstanding voting
securities.
The Company anticipates that it will continue to satisfy these asset tests.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter (including as a result of the
Company's increasing its interest in the Operating Partnership), the failure
can be cured by the disposition of sufficient nonqualifying assets within 30
days after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests
and to take such other actions within 30 days after the close of any quarter
as may be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (i) the sum of (a) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and by excluding the Company's net capital gain) and (b) 95% of
the excess of the net income, if any, from foreclosure property over the tax
imposed on such income, minus (ii) the excess of the sum of certain items of
noncash income (e.g., income attributable to leveled stepped rents, original
issue discount or purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described in
clause (i)(a) above. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. The amount distributed
must not be preferential--i.e., each holder of Common Shares must receive the
same distribution per share. A REIT may have more than one class of capital
stock, as long as distributions within each class are pro rata and non-
preferential. To the extent that the Company does not distribute all of its
net capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. The Company has made and will
continue to make timely distributions sufficient to satisfy these annual
distribution requirements. In this regard, the Operating Partnership Agreement
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution
requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it
will generally have sufficient cash or liquid assets to enable it to satisfy
the distribution requirements described above. It is possible, however, that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet these distribution requirements due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses
in arriving at taxable income of the Company. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange for short-term, or possibly long-term,
borrowings to pay required dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement described above for a year by paying
"deficiency dividends" to shareholders in a later year, which may be included
in the Company's deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
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Furthermore, if the Company should fail to distribute during each calendar
year (or in the case of distributors with declaration and record dates falling
in the last three months of the calendar year, by the end of January
immediately following such year) at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for
such year, and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Any REIT taxable income
and net capital gain on which this excise tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating
such tax.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which
the Company fails to qualify will not be deductible by the Company nor will
they be required to be made. As a result, the Company's failure to qualify as
a REIT would reduce the cash available for distribution by the Company to its
shareholders. In addition, if the Company fails to qualify as a REIT, all
distributions to shareholders will be taxable as ordinary income, to the
extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations of the Internal Revenue Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also
be disqualified from taxation as a REIT for the four taxable years following
the year during which qualification was lost. It is not possible to state
whether in all circumstances the Company would be entitled to such statutory
relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS GENERALLY
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) is an estate, the income of which is
subject to United States federal income taxation regardless of its source or a
trust if (a) a U.S. Court can exercise primary supervision over the
administration of such trust and (b) one or more U.S. fiduciaries have the
authority to control all of the substantial decisions of such trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Shareholders as ordinary income. Such distributions will not be
eligible for the dividends received deduction otherwise available with respect
to dividends received by U.S. Shareholders that are corporations.
Distributions made by the Company that are properly designated by the Company
as capital gain dividends will be taxable to taxable U.S. Shareholders as gain
from the sale or exchange of a capital asset held for more than one year (to
the extent that they do not exceed the Company's actual net capital gain for
the taxable year) without regard to the period for which a U.S. Shareholder
has held his Common Shares. It is not clear whether such gain will be taxed as
"long-term" capital gain or "mid-term" capital gain under the new capital
gains rates enacted by the 1997 Act. U.S. Shareholders that are corporations
may, however, be required to treat up to 20% of certain capital gain dividends
as ordinary income. To the extent that the Company makes distributions (not
designated as capital gain dividends) in excess of its current and accumulated
earnings and profits, such distributions will be treated first as a tax-free
return of capital to each U.S. Shareholder, reducing the adjusted basis which
such U.S. Shareholder has in his Common Shares for tax purposes by the amount
of such distribution (but not below zero), with distributions in excess of a
U.S. Shareholder's adjusted basis in his shares taxable as capital gain (such
gain being taxed as long-term capital gain if the shares have been held for
more than eighteen months, mid-term capital gain if the shares have been held
for more than one year but not more than eighteen months, or short-term
capital gain if the shares have been held for one year or less), provided that
the shares have been held as a capital asset. Dividends declared by the
Company in October, November or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31 of
such year, provided
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that the dividend is actually paid by the Company on or before January 31 of
the following calendar year. Shareholders may not include in their own income
tax returns any net operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Shareholder of Common Shares will not be treated as passive activity
income, and, as a result, U.S. Shareholders generally will not be able to
apply any "passive losses" against such income or gain. Distributions made by
the Company (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition
of Common Shares, however, will not be treated as investment income under
certain circumstances.
The Company may elect to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains. In such event, the Company would
pay tax on such retained net long-term capital gains. In addition, to the
extent so designated by the Company, a U.S. Shareholder generally would (i)
include its proportionate share of such undistributed capital gains in
computing its capital gains in its return for its taxable year in which the
last day of the Company's taxable year falls (subject to certain limitations
as to the amount so includable), (ii) be deemed to have paid the capital gains
tax imposed on the Company on the designated amounts included in such U.S.
Shareholder's capital gains, (iii) receive a credit or refund for such amount
of tax deemed paid by it, (iv) increase the adjusted basis of its Common
Shares by the difference between the amount of such includable gains and the
tax deemed to have been paid by it, and (v), in the case of a U.S. Shareholder
that is a corporation, appropriately adjust its earnings and profits for the
retained capital gains in accordance with Treasury Regulations to be
prescribed by the Internal Revenue Service (the "IRS"). As noted above, the
tax rate applicable to such capital gains included by the U.S. Shareholder is
not clear under the 1997 Act.
Upon any sale or other disposition of Common Shares, a U.S. Shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such Common Shares for tax purposes. Such gain or loss will
be capital gain or loss if the shares have been held by the U.S. Shareholder
as a capital asset, and will be a mid-term capital gain if such shares are
held more than one year but not more than 18 months, or long-term gain or loss
if such shares have been held for more than 18 months. In general, any loss
recognized by a U.S. Shareholder upon the sale or other disposition of Common
Shares that have been held for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the
extent of capital gain dividends received by such U.S. Shareholder from the
Company which were required to be treated as gain from the sale or exchange of
a capital asset held for more than one year.
Backup Withholding. The Company will report to its U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Shareholder that does not provide the Company
with his correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status to the Company.
See "--Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by
a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder (except certain tax-exempt shareholders described below) has not
held its Common
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Shares as "debt financed property" within the meaning of the Internal Revenue
Code and such shares are not otherwise used in a trade or business (and except
as further discussed below in the case of a "pension held REIT"), the dividend
income from the Company will not be UBTI to a tax-exempt shareholder.
Similarly, income from the sale of Common Shares will not constitute UBTI
unless such tax-exempt shareholder has held such shares as "debt financed
property" within the meaning of the Internal Revenue Code or has used the
shares in a trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Internal
Revenue Code Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively,
income from an investment in the Company will constitute UBTI unless the
organization is able to properly deduct amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its investment in
the Company. Such prospective investors should consult their own tax advisors
concerning these "set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" may be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Internal Revenue Code, (ii) is tax-exempt
under Section 501(a) of the Internal Revenue Code, and (iii) holds more than
10% (by value) of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Internal Revenue Code are referred to below
as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Internal Revenue Code provides
that stock owned by qualified trusts shall be treated, for purposes of the
"not closely held" requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), and (ii) either (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT or
(b) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend
treated as UBTI is equal to the ratio of (i) the UBTI earned by the REIT
(treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (ii) the total gross income of the REIT. A de minimis
exception applies where the percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the "not closely held"
requirement without relying upon the "look-through" exception with respect to
qualified trusts.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United
States federal income tax and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances, including, for example, if the investment in the
Company is connected to the conduct by a Non-U.S. Shareholder of a U.S. trade
or business. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income
tax laws with regard to an investment in Common Shares, including any
reporting requirements.
Distributions by the Company to a Non-U.S. Shareholder that are neither
attributable to gain from sales or exchanges by the Company of United States
real property interests nor designated by the Company as capital gains
dividends will be treated as dividends of ordinary income to the extent that
they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance
of deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as
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effectively connected with the conduct by the Non-U.S. Shareholder of a United
States trade or business. Dividends that are effectively connected with such a
trade or business will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as domestic
shareholders are taxed with respect to such dividends and are generally not
subject to withholding. Any such dividends received by a Non-U.S. Shareholder
that is a corporation may also be subject to an additional branch profits tax
at a 30% rate or such lower rate as may be specified by an applicable income
tax treaty.
Pursuant to Treasury Regulations currently in effect, dividends paid to an
address in a country outside the United States are generally presumed to be
paid to a resident of such country for purposes of determining the
applicability of withholding discussed above and the applicability of a tax
treaty rate. Commencing in 1999, however, a Non-U.S. Shareholder who wishes to
claim the benefit of an applicable treaty rate must satisfy certain
certification and other requirements. Under certain treaties, lower
withholding rates generally applicable to dividends do not apply to dividends
from a REIT, such as the Company. Certain certification and disclosure
requirements must be satisfied to be exempt from withholding under the
"effectively connected" income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Common Shares, but
rather will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to gain from the sale or exchange of his stock,
the tax treatment of which is described below. If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current or accumulated earnings and profits, the distribution will
generally be treated as a dividend for withholding purposes. However, amounts
thus withheld are generally refundable if it is subsequently determined that
such distribution was, in fact, in excess of current or accumulated earnings
and profits of the Company. Under a "technical corrections" provision recently
added to the Internal Revenue Code by the Small Business Job Protection Act of
1996, distributions in excess of earnings and profits may also be subject to a
10% withholding under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") withholding provisions.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) investment in the Common Shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as domestic shareholders
with respect to such gain (except that a shareholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
above) or (ii) the Non-U.S. Shareholder is a nonresident alien individual who
is present in the United States for 183 days or more during the taxable year
and has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of "United States real property interests"
under FIRPTA will cause the Non-U.S. Shareholder to be treated as recognizing
such gain as income effectively connected with a United States trade or
business. Non-U.S. Shareholders would thus generally be entitled to offset its
gross income by allowable deductions and would pay tax on the resulting
taxable income at the same rates applicable to domestic shareholders (subject
to a special alternative minimum tax in the case of nonresident alien
individuals). Also, such gain may be subject to a 30% branch profits tax in
the hands of a Non-U.S. Shareholder that is a corporation and is not entitled
to treaty relief or exemption, as discussed above. The Company is required to
withhold 35% of any distribution that is or could be designated as a capital
gain dividend. That amount is creditable against the Non-U.S. Shareholder's
United States federal income tax liability. To the extent that such
withholding exceeds the actual tax owed by the Non-U.S. Shareholder, the Non-
U.S. Shareholder may claim a refund from the IRS.
The Company or any nominee (e.g., a broker holding shares in street name)
may rely on a certificate of non-foreign status issued in accordance with the
FIRPTA regulations or on a Form W-9 to determine whether withholding is
required on gains realized from the disposition of United States real property
interests. A domestic
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person who holds Common Shares on behalf of a Non-U.S. Shareholder will bear
the burden of withholding, provided that the Company has properly designated
the appropriate portion of a distribution as a capital gain dividend.
Sale of Common Shares. Gain recognized by a Non-U.S. Shareholder upon the
sale or exchange of Common Shares generally will not be subject to United
States taxation unless such shares constitute a "United States real property
interest" within the meaning of FIRPTA. The Common Shares will not constitute
a "United States real property interest" so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock is held directly or indirectly by Non-U.S. Shareholders. The Company
believes that at December 31, 1996 it was a "domestically controlled REIT,"
and therefore that the current sale of Common Shares will not be subject to
taxation under FIRPTA. However, because the Common Shares are publicly traded,
no assurance can be given that the Company will continue to be a
"domestically-controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of Common Shares not otherwise subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident
alien individual who is present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States. In such
case, the nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain. If the gain on the
sale of Common Shares were to be subject to taxation under FIRPTA, the Non-
U.S. Shareholder would be subject to the same treatment as U.S. Shareholders
with respect to such gain (subject to applicable alternative minimum tax,
possible withholding tax and a special alternative minimum tax in the case of
nonresident alien individuals).
If the Company does not qualify as or ceases to be a "domestically-
controlled REIT," gain arising from the sale or exchange by a Non-U.S.
Shareholder of Common Shares would be subject to United States taxation under
FIRPTA as a sale of a "United States real property interest" unless the shares
are "regularly traded" (as defined by applicable Treasury Regulations) on an
established securities market (e.g., the American Stock Exchange) and the
selling Non-U.S. Shareholder did not hold more than 5% of the Common Shares at
any time during the shorter of (i) the period during which the taxpayer held
such interest, or (ii) the five-year period ending on the date of the
disposition of such interest. If gain on the sale or exchange of Common Shares
were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be
subject to regular United States income tax with respect to such gain in the
same manner as a U.S. Shareholder (subject to any applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident
alien individuals and the possible application of the 30% branch profits tax
in the case of foreign corporations), and the purchaser of the stock would be
required to withhold and remit to the IRS 10% of the purchase price. The 10%
withholding tax will not apply if the shares are "regularly traded" in an
established securities market.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by Grove of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a
sale of Common Shares by or through a foreign office of a foreign broker.
Information reporting (but not backup withholding) will apply, however, to a
payment of the proceeds of a sale of Common Shares by a foreign office of a
broker that (a) is a United States person, (b) derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in
the United States or (c) is a "controlled foreign corporation" (generally, a
foreign corporation controlled by United States shareholders) for United
States tax purposes, unless the broker has documentary evidence in its records
that the holder is a Non-U.S. Shareholder and certain other conditions are
met, or the shareholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Common
Shares is subject to both backup withholding and information reporting unless
the shareholder certifies under penalty of perjury that the shareholder is a
Non-U.S. Shareholder, or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
89
<PAGE>
New Withholding Regulations. New Treasury Regulations have been issued
regarding the withholding and information reporting rules discussed above. In
general, the new Treasury Regulations do not alter the substantive withholding
and information reporting requirements but unify current certification
procedures and forms and clarify and modify reliance standards. They are
generally effective for payments made after December 31, 1998, subject to
certain transition rules. Shareholders should consult their tax advisors
regarding the new withholding regulations.
TAX ASPECTS OF OPERATING PARTNERSHIP AND SUBSIDIARY PARTNERSHIPS
General. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership and (to some extent) the
Subsidiary Partnerships. In general, partnerships are "pass-through" entities
which are not subject to federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss, deduction and
credit of a partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive a distribution from the partnership.
The Company will include in its income its proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and
in the computation of its REIT taxable income. Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held by the Operating Partnership (including Operating Partnership's share of
assets held by the Subsidiary Partnerships). See "--Taxation of the Company."
Entity Classification. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge
by the IRS of the status of the Operating Partnership and the Subsidiary
Partnerships as partnerships (as opposed to associations taxable as
corporations) for federal income tax purposes. The Company has received an
opinion of counsel that the Operating Partnership and each Subsidiary
Partnership qualifies as a partnership for federal income tax purposes and not
as an association taxable as a corporation or as a publicly traded partnership
under Section 7704 of the Internal Revenue Code.
The IRS recently finalized and published certain Treasury Regulations (the
"Final Regulations") which provide that a domestic business entity not
otherwise classified as a corporation and which has at least two members (an
"Eligible Entity") may elect to be taxed as a partnership for federal income
tax purposes. In addition, an Eligible Entity which did not exist, or did not
claim a classification, prior to the Effective Date (as defined below), will
be classified as a partnership for federal income tax purposes unless it
elects otherwise. The final Regulations apply for tax periods beginning on or
after January 1, 1997 (the "Effective Date"). Unless it elects otherwise, an
Eligible Entity in existence prior to the Effective Date will have the same
classification for federal income tax purposes that it claimed under the
entity classification Treasury Regulations in effect prior to the Effective
Date, and such classification should not be challenged by the IRS, so long as
there exists a reasonable basis in support of such claimed characterization
under the rules in effect under prior law. The Company believes that there is
a reasonable basis under prior law for treating the Operating Partnership and
the Subsidiary Partnerships as partnerships for federal income tax purposes.
Accordingly, although no absolute assurance can be given that the IRS will not
challenge the status of the Operating Partnership or any Subsidiary
Partnership as a partnership for federal income tax purposes, such challenge
is unlikely. If such challenge were sustained by a court, the Operating
Partnership or a Subsidiary Partnership could be treated as a corporation for
federal income tax purposes and subject to an entity-level tax on its income.
In such a situation the character of the Company's assets and items of gross
income would change and preclude the Company from satisfying the asset tests
and possibly the income tests (see "--Taxation of the Company--Income Tests"
and "--Asset Tests"), and in turn would prevent the Company from qualifying as
a REIT. See "--Taxation of the Company--Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. In addition, a change in the Operating Partnership's (or any
Subsidiary Partnership's) status for tax purposes might be treated as a
taxable event in which case the Company might incur a tax liability without
any related cash distributions.
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply
90
<PAGE>
with the provisions of Section 704(b) of the Internal Revenue Code and the
Treasury Regulations promulgated thereunder. Generally, Section 704(b) and the
Treasury Regulations promulgated thereunder require that partnership
allocations respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of
Section 704(b) of the Internal Revenue Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations With Respect to the Properties. Pursuant to Section 704(c)
of the Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property (such as the Company's properties) that is
contributed to a partnership in exchange for an interest in the partnership,
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at such time (a
"Book-Tax Difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or
legal arrangements among the partners. The Operating Partnership was formed by
way of contributions of appreciated property (including the Properties)
directly or indirectly, through contributions of interests in the Subsidiary
Partnerships. Consequently, the Operating Partnership Agreement requires that
such allocations be made in a manner consistent with Section 704(c) of the
Internal Revenue Code.
Treasury Regulations under Section 704(c) of the Internal Revenue Code
provide partnerships with a choice of several methods of accounting for Book-
Tax Differences, including use of the "traditional method" or the election of
certain methods which would permit any distortions caused by a Book-Tax
Difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. The Operating Partnership and the
Company expect to use the traditional method without curative allocations for
accounting for Book-Tax Differences with respect to the properties initially
contributed to the Operating Partnership.
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value, and
Section 704(c) of the Internal Revenue Code will not apply.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
91
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement between the several Underwriters named below and the Company, each
Underwriter has severally agreed to purchase, and the Company has agreed to
sell to such Underwriter, the number of Common Shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc. ..............................................
Lehman Brothers Inc.............................................
---------
Total......................................................... 3,141,475
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares offered in the
Offering are subject to the approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay
for all of the Common Shares offered in the Offering (other than those covered
by the over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Lehman Brothers Inc. are
acting as the representatives (the "Representatives"), propose to offer part
of the shares directly to the public at the public offering price set forth on
the cover page of this Prospectus and part of the shares to certain dealers at
a price which represents a concession not in excess of $ . per share under
the public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ . per share to certain other
dealers. After the Common Shares are released for sale to the public, the
public offering price and such concessions may be changed by the
Representatives. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 675,000 additional
Common Shares at the price to public set forth on the cover page of this
Prospectus minus the underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments,
if any, in connection with the Offering. To the extent such option is
exercised, each Underwriter will be obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional shares as the
number of shares set forth opposite such Underwriter's name in the preceding
table bears to the total number of shares listed in such table.
In connection with the Offering, the Operating Partnership, the Company, its
Trust Managers and executive officers, and MSAM and the Oregon Retirement Fund
have agreed, subject to certain limited exceptions, not to sell, offer to
sell, solicit an offer to buy, contract to sell, grant any option to purchase
or otherwise transfer or dispose of any Common Shares, except, in the case of
MSAM and the Oregon Retirement Fund, Common Shares purchased in the Concurrent
Offering, or any securities convertible into or exchangeable or exercisable
for Common Shares for a period of 180 days from the date of this Prospectus,
without the prior written consent of Smith Barney Inc., except, in the case of
the Company and the Operating Partnership, for the issuance of such securities
in connection with the acquisition of any property, upon the exercise of any
outstanding options or warrants of the Company or in connection with the
Concurrent Offering.
In connection with this Offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more Common Shares than the total
amount shown on the list of Underwriters and participations which
92
<PAGE>
appears above) and may effect transactions which stabilize, maintain or
otherwise affect the market price of the Common Shares at levels above those
which might otherwise prevail in the open market. Such transactions may
include placing bids for the Common Shares or effecting purchases of the
Common Shares for the purpose of pegging, fixing or maintaining the price of
the Common Shares or for the purpose of reducing a syndicate short position
created in connection with the Offering. A syndicate short position may be
covered by exercise of the option described above in lieu of or in addition to
open market purchases. In addition, the contractual arrangements among the
Underwriters include a provision whereby, if an Underwriter purchases Common
Shares in the open market for the account of the underwriting syndicate and
the securities purchased can be traced to a particular Underwriter or member
of the selling group, the underwriting syndicate may require the Underwriter
or selling group member in question to purchase the Common Shares in question
at the cost price to the syndicate or may recover from (or decline to pay to)
the Underwriter or selling group member in question the selling concession
applicable to the securities in question. The Underwriters are not required to
engage in any of these activities and any such activities, if commenced, may
be discontinued at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities that may be incurred in connection with the Offering,
including liabilities under the Securities Act.
The Common Shares to be sold by the Company in connection with the
Concurrent Offering will be sold at the same price per share as the Common
Shares sold in the Offering. A portion of the Concurrent Offering is required
to be made pursuant to previously existing preemptive rights held by MSAM and
the Oregon Retirement Fund. The Company believes that any purchase by MSAM and
ABKB/LaSalle will be for investment purposes and not with a view to
distributing such shares to the public. The Underwriters will not receive a
discount or commission on the sale of the Common Shares in the Concurrent
Offering. Any shares not purchased in the Concurrent Offering will be added to
the shares offered by the Underwriters in the Offering. See "The Concurrent
Offering."
EXPERTS
The audited financial statements of Grove Property Trust at December 31,
1996, and for each of the two years in the period ended December 31, 1996, the
audited combined financial statements of Grove Property Services Limited
Partnership and Property Partnerships at December 31, 1996, and each of the
two years in the period ended December 31, 1996 and the audited combined
statements of revenues and certain expenses of the: (i) Post-March 1997
Property Acquisitions; (ii) Pending 1997 Property Acquisitions--Affiliates,
for each of the two years in the period ended December 31, 1996 and (iii)
Pending 1997 Property Acquisitions--Non-Affiliates for the year ended December
31, 1996, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
The (i) audited financial statements of Grove Property Trust at December 31,
1996, and for each of the two years in the period ended December 31, 1996,
appearing in Grove Property Trust's Annual Report on Form 10-KSB for the year
ended December 31, 1996, as amended, and the report thereon dated September 2,
1997 and (ii) the statements of revenues and certain expenses of: (a) Four
Winds for the period September 28, 1995 to December 31, 1995 and for the year
ended December 31, 1996; (b) Brooksyde for the periods January 1, 1995 to
September 30, 1995, October 1, 1995 to December 31, 1995 and the year ended
December 31, 1996; (c) River's Bend for the years ended December 31, 1995 and
1996 and (d) Greenfield Village for the years ended December 31, 1995 and
1996, appearing in Grove Property Trust's Current Reports on Forms 8-K dated
May 30, 1997 and July 2, 1997, both as amended, and the reports thereon
included therein, all as incorporated by reference herein, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon included therein, and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
93
<PAGE>
The Company dismissed BDO Siedman, LLP as its independent public accountants
effective August 16, 1996. During the Company's two most recent fiscal years
and the subsequent interim period from January 1, 1996 to August 16, 1996,
there have been no disagreements with the former accountants on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure. The former accountants' report on the financial statements
of the Company for each of the two past fiscal years was unqualified. The
Company has engaged Ernst & Young LLP as its independent public accountants
effective with the dismissal of its former accountants. During the Company's
two most recent fiscal years and the subsequent interim period from January 1,
1996 to August 16, 1996, there were no consultations with the newly engaged
accountants with regard to either the application of accounting principles as
to any specific transaction, either completed or contemplated, the type of
audit opinion that would be rendered on the Company's financial statements, or
any matter of disagreements with the former accountants. The decision to change
accountants was approved by all members of the Board.
LEGAL MATTERS
Certain legal matters with respect to the Registration Statement have been
passed upon for the Company by Cummings & Lockwood, Stamford, Connecticut. The
validity of the Common Shares offered hereby has been passed upon for the
Company by Piper & Marbury L.L.P., Baltimore, Maryland. Certain legal matters
related to the Offering will be passed upon for the Underwriters by King &
Spalding, Atlanta, Georgia. Cummings & Lockwood and King & Spalding will rely
on Piper & Marbury L.L.P., as to certain matters of Maryland law.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, or accessed electronically on the Commission's Web Site at
http://www.sec.gov.
The Common Shares are listed on the AMEX under the symbol "GVE.EC." The
Company's reports, proxy statements, and other information concerning the
Company may also be inspected at the offices of the American Stock Exchange at
86 Trinity Place, New York, New York 10006.
The Company has filed a Registration Statement with the Commission in
accordance with the provisions of the Securities Act with respect to the Common
Shares subject to this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the Common Shares
covered hereby, reference is made to the Registration Statement and the
exhibits filed as part thereof. Statements herein concerning the provisions of
any document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. The Registration Statement and the exhibits may be inspected without
charge at the offices of the Commission, or copies thereof may be obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
94
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference as if fully set forth herein:
1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, as amended;
2. The Company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1997 and June 30, 1997, as amended; and
3. The Company's Current Reports on Form 8-K dated February 13, 1997,
February 21, 1997, March 14, 1997 (2 Reports), May 30, 1997, as amended,
July 2, 1997, as amended, and September 2, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any and all information that has
been incorporated by reference in the Registration Statement (other than
exhibits to such information, unless such exhibits are specifically
incorporated by reference into any such information). Requests should be
directed to the Company at 598 Asylum Avenue, Hartford, Connecticut 06105,
Attention: Joseph R. LaBrosse, Chief Financial Officer, Telephone number:
(860) 246-1126.
95
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
GROVE PROPERTY TRUST (FORMERLY KNOWN AS GROVE REAL ESTATE ASSET TRUST)
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997...... F-2
Notes to Pro Forma Condensed Consolidated Balance Sheet................. F-3
Pro Forma Condensed Consolidated Statements of Income for the Six Months
Ended June 30, 1997 and 1996 and the Year Ended December 31, 1996...... F-4
Notes to Pro Forma Condensed Consolidated Statements of Income.......... F-7
Consolidated Historical Financial Statements:
Report of Independent Auditors.......................................... F-10
Consolidated Balance Sheets as of June 30, 1997 (Unaudited) and December
31, 1996............................................................... F-11
Consolidated Statements of Income for the Six Months Ended June 30, 1997
and 1996 (Unaudited) and for the Years Ended December 31, 1996 and
1995................................................................... F-12
Consolidated Statements of Change in Shareholders' Equity for the Six
Months Ended June 30, 1997 (Unaudited) and for the Years Ended December
31, 1996 and 1995...................................................... F-13
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and
1995................................................................... F-14
Notes to Financial Statements........................................... F-15
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
Combined Financial Statements:
Report of Independent Auditors.......................................... F-23
Combined Balance Sheet as of December 31, 1996.......................... F-24
Combined Statements of Income for the Years Ended December 31, 1996 and
1995................................................................... F-25
Combined Statements of Changes in Owners' Equity for the Years Ended
December 31, 1996 and 1995............................................. F-26
Combined Statements of Cash Flows for the Years Ended December 31, 1996
and 1995............................................................... F-27
Notes to the Combined Financial Statements.............................. F-28
POST MARCH 1997 PROPERTY ACQUISITIONS
Combined Financial Statements:
Report of Independent Auditors.......................................... F-32
Combined Statements of Revenues and Certain Expenses for the Six Months
Ended June 30, 1997 (Unaudited) and for the Years Ended December 31,
1996 and 1995.......................................................... F-33
Notes to the Combined Statements of Revenues and Certain Expenses....... F-34
PENDING 1997 PROPERTY ACQUISITIONS--AFFILIATES
Combined Financial Statements:
Report of Independent Auditors.......................................... F-35
Combined Statements of Revenue and Certain Expenses for the Six Months
Ended June 30, 1997 (Unaudited) and for the Years Ended December 31,
1996 and 1995.......................................................... F-36
Notes to the Combined Statements of Revenue and Certain Expenses........ F-37
PENDING 1997 PROPERTY ACQUISITIONS--NON-AFFILIATES
Financial Statements:
Report of Independent Auditors.......................................... F-38
Statements of Revenues and Certain Expenses for the Six Months Ended
June 30, 1997 (Unaudited) and for the Year Ended December 31, 1996..... F-39
Notes to the Statements of Revenues and Certain Expenses................ F-40
</TABLE>
F-1
<PAGE>
GROVE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
This unaudited Pro Forma Condensed Consolidated Balance Sheet is presented
as if: (i) acquisitions completed or expected to be completed after June 30,
1997, had occurred on June 30, 1997, (ii) the Operating Partnership issued
Common Units, used working capital and/or drew down on the Credit Facility to
purchase such properties and (iii) the Company completed the Offerings on June
30, 1997, and used the net proceeds therefrom to repay indebtedness
outstanding under the Credit Facility and certain mortgage notes payable and
for working capital. The unaudited Pro Forma Condensed Consolidated Balance
Sheet should be read in conjunction with the financial statements and notes
thereto of the Company, GPS and the Property Partnerships, Post March 1997
Property Acquisitions, Pending 1997 Property Acquisitions--Affiliates and
Pending 1997 Property Acquisitions--Non-Affiliates, included elsewhere herein.
In management's opinion, all adjustments necessary to present fairly the
effects of the above mentioned transactions have been made.
The pro forma information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it indicative of the Company's future results.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------------------
POST JUNE
HISTORICAL 30, 1997
COMPANY ACQUISITIONS AS ADJUSTED PRO FORMA
(A) (B) CONSOLIDATED THE OFFERING CONSOLIDATED
---------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net...... $92,413 $29,127 $ 121,540 $ -- $121,540
Cash and cash
equivalents.......... 1,762 (478) 1,284 3,270 (C) 4,554
Resident security
deposits............. 1,170 -- 1,170 -- 1,170
Deferred costs, net... 1,877 -- 1,877 -- 1,877
Due from affiliates... 675 -- 675 -- 675
Other assets.......... 527 -- 527 -- 527
------- ------- --------- -------- --------
Total assets........ $98,424 $28,649 $ 127,073 $ 3,270 $130,343
======= ======= ========= ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Mortgage notes
payable.............. $44,028 $ 9,772 $ 53,800 $(24,250)(C) $ 29,550
Revolving Credit
Facility............. 1,825 18,850 20,675 (20,675)(C) --
Accounts payable and
other liabilities.... 1,421 -- 1,421 -- 1,421
Due to affiliates..... 88 -- 88 -- 88
Resident security
deposits............. 1,170 -- 1,170 -- 1,170
Dividends payable..... 1,169 -- 1,169 -- 1,169
------- ------- --------- -------- --------
Total liabilities... 49,701 28,622 78,323 (44,925) 33,398
------- ------- --------- -------- --------
Minority interests in
consolidated
partnerships........... 6,395 (4,900) 1,495 -- 1,495
Minority interest in
Operating Partnership.. 17,488 4,927 22,415 2,612 (D) 25,027
Shareholders' equity:
Common shares......... 40 -- 40 45 (C) 85
Additional paid-in
capital.............. 25,466 -- 25,466 48,150 (C)
(2,612)(D) 71,004
Distributions in
excess of earnings... (666) -- (666) -- (666)
------- ------- --------- -------- --------
Total shareholders'
equity............. 24,840 -- 24,840 45,583 70,423
------- ------- --------- -------- --------
Total liabilities
and shareholders'
equity............. $98,424 $28,649 $ 127,073 $ 3,270 $130,343
======= ======= ========= ======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE>
GROVE PROPERTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(A) Balance sheet data was derived from the Company consolidated financial
statements as of June 30, 1997 (Unaudited), which is included elsewhere in
this Registration Statement.
(B) Balance sheet data reflects the following property acquisitions which
were consummated by the Company after June 30, 1997 or are under contract to
be acquired as follows (in thousands):
<TABLE>
<CAPTION>
METHOD OF PAYMENT
----------------------------------------
NUMBER OF DATE ACQUIRED OR REVOLVING ASSUMPTION VALUE OF
UNITS OR EXPECTED TO BE PURCHASE AVAILABLE CREDIT OF MORTGAGE OP
PROPERTIES LOCATION SQUARE FEET ACQUIRED PRICE(3) CASH FACILITY DEBT UNITS(1)
---------- --------------- ------------ --------------------- -------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Greenfield
Village Rocky Hill, CT 127 July 1, 1997 $ 4,282 $ 582 $ 3,700 $ -- $ --
2. Glastonbury
Center Glastonbury, CT 104 September 1, 1997 5,254 -- 397 4,423 434
3. Summit and Birch
Hill (2
properties) Farmington, CT 184 September 1, 1997 10,313 48 1,903 5,349 3,013
4. River's Bend Windsor, CT 349 September 30, 1997(5) 4,900 -- 4,900 -- --
5. Corner Block and
Wharf Building
(2 properties)(4) Edgartown, MA 16,427 sq ft November 1997(2) 4,421 (809) 3,750 -- 1,480
6. High Meadow
Apartments Ellington, CT 100 November 1997(2) 4,050 -- 4,050 -- --
------- ----- ------- ------ ------
33,220 (179) 18,700 9,772 4,927
Acquisition costs 807 657 150 -- --
------- ----- ------- ------ ------
34,027 $ 478 $18,850 $9,772 $4,927
===== ======= ====== ======
Less amounts consolidated in
historical financial statement at
June 30, 1997(5) 4,900
-------
$29,127
=======
</TABLE>
- --------
(1) Operating Partnership ("OP") Unit Holders are represented on the
accompanying pro forma condensed consolidated balance sheet as "minority
interest in Operating Partnership." The value ascribed to the OP Units
for 2., 3. and 5. above was $10.50 per OP Unit, representing actual or
contracted amounts.
(2) Pending acquisitions under contract.
(3) Based on actual amounts for Properties 1 through 4 and contracted amounts
for 5 and 6.
(4) These Properties are retail centers.
(5) This represents the acquisition of a remaining 71.1% interest in a
property in which the Company previously owned a 28.9% interest. The
owner of the 71.1%, pursuant to a certain put and call option, put the
remaining interest in the property to the Company on September 30, 1997.
(C) Balance sheet data reflects the Offering and the application of the net
proceeds therefrom as contemplated by this Registration Statement, as follows:
<TABLE>
<CAPTION>
REVOLVING
MORTGAGES CREDIT COMMON PAID IN
CASH PAYABLE FACILITY STOCK CAPITAL
-------- --------- --------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1. Gross proceeds from the
Offering(1).................. $ 51,750 $ -- $ -- $ 45 $51,705
2. Costs of the Offering(2)... (3,555) -- -- -- (3,555)
3. Paydown of debt............ (44,925) (24,250) (20,675) -- --
-------- -------- -------- ---- -------
$ 3,270 $(24,250) $(20,675) $ 45 $48,150
======== ======== ======== ==== =======
</TABLE>
- --------
(1) 4,500,000 shares at $11.50 per share.
(2) Includes underwriters' discount and an estimated $1,200,000 of other
costs and expenses.
(D) Represents a reallocation between shareholders' equity and minority
interest in the Operating Partnership upon consummation of the Offering
contemplated in this Registration Statement based upon pro forma: (i) shares
of common stock (8,453,829) and (ii) OP Units not owned by the Company
(3,003,906). See Note (K) in the Notes to Pro Forma Condensed Consolidated
Statements of Income included herein.
F-3
<PAGE>
GROVE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
These unaudited Pro Forma Condensed Consolidated Statements of Income are
presented as if (i) the Company had acquired GPS and Property Partnerships,
Post March 1997 Property Acquisitions, Pending 1997 Property Acquisition--
Affiliates and Pending 1997 Property Acquisition-- Non-Affiliates as of
January 1, 1996, (ii) the Consolidation Transactions, including the New Equity
Investment and Refinancings and (iii) the Offering and the application of the
net proceeds therefrom, all as defined and described elsewhere in this
Registration Statement had all occurred as of January 1, 1996. The unaudited
Pro Forma Condensed Consolidated Statements of Income should be read in
conjunction with the financial statements of the Company, GPS and Property
Partnerships, Post March 1997 Property Acquisitions, Pending 1997 Property
Acquisitions--Affiliates and Pending 1997 Property Acquisitions-- Non-
Affiliates, included elsewhere in this Registration Statement. In management's
opinion, all adjustments necessary to present fairly the effects of the above
mentioned transactions have been made.
The pro forma information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it indicative of the Company's future results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------
HISTORICAL MANAGEMENT
COMPANY ACQUISITIONS PRO FORMA COMPANY PRO FORMA
(A) (B) ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
---------- ------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $5,438 $6,920 $ -- $ (9)(G) $12,349
Property management... 218 330 -- (338)(H) 210
Interest and other.... 128 267 -- (4)(G) 391
------ ------ ----- ----- -------
Total revenues...... 5,784 7,517 -- (351) 12,950
------ ------ ----- ----- -------
Expenses:
Related party
management fees...... 22 316 -- (338)(H) --
Real estate taxes..... 542 736 -- -- 1,278
Other property
operating............ 1,964 3,018 (20)(G) (71)(G) 4,931
40 (G)
General and
administrative....... 347 36 30 (F)
(9)(G) 71 (G) 475
------ ------ ----- ----- -------
Total operating
expenses........... 2,875 4,106 1 (298) 6,684
------ ------ ----- ----- -------
Net operating income.... 2,909 3,411 (1) (53) 6,266
Interest expense........ 777 857 (553)(C) -- 1,081
Depreciation and
amortization........... 1,155 617 (11)(D)
879 (E) -- 2,640
------ ------ ----- ----- -------
Income before minority
interests............ 977 1,937 (316) (53) 2,545
Minority interests in
earnings of
consolidated
partnerships........... 49 -- (23)(J) -- 26
Minority interests in
earnings of Operating
Partnership............ 314 -- 346 (K) -- 660
------ ------ ----- ----- -------
Net income.......... $ 614 $1,937 $(639) $ (53) $ 1,859
====== ====== ===== ===== =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
GROVE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------
HISTORICAL MANAGEMENT
COMPANY ACQUISITIONS PRO FORMA COMPANY PRO FORMA
(A) (B) ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
---------- ------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $1,001 $10,583 $ -- $ (21)(G) $11,563
Property management... -- 496 -- (306)(H) 190
Interest and other.... 20 693 (42)(G) (193)(G)
(100)(I)
(145)(G) 233
------ ------- ----- ----- -------
Total revenues...... 1,021 11,772 (42) (765) 11,986
------ ------- ----- ----- -------
Expenses:
Related party
management fees...... 53 253 -- (306)(H) --
Real estate taxes..... 102 1,153 -- -- 1,255
Other property
operating............ 346 4,621 (94)(G) (241)(G) 4,632
General and
administrative....... 40 248 60 (F)
(115)(G) 241 (G) 474
------ ------- ----- ----- -------
Total operating
expenses........... 541 6,275 (149) (306) 6,361
------ ------- ----- ----- -------
Net operating income.... 480 5,497 107 (459) 5,625
Interest expense........ 189 1,845 (924)(C) -- 1,110
Depreciation and
amortization........... 198 1,500 (5)(D)
879 (E) -- 2,572
------ ------- ----- ----- -------
Income before minority
interest............. 93 2,152 157 (459) 1,943
Minority interest in
earnings of Operating
Partnership............ -- -- 509 (K) -- 509
------ ------- ----- ----- -------
Net income.......... $ 93 $ 2,152 $(352) $(459) $ 1,434
====== ======= ===== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
GROVE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------
HISTORICAL MANAGEMENT
COMPANY ACQUISITIONS PRO FORMA COMPANY PRO FORMA
(A) (B) ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
---------- ------------ ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $2,046 $21,515 $ -- $ (30)(G) $23,531
Property management... -- 777 -- (396)(H) 381
Interest and other.... 36 1,266 (138)(G) (307)(G)
(204)(G)
(100)(I) 553
------ ------- ------- ------- -------
Total revenues...... 2,082 23,558 (138) (1,037) 24,465
------ ------- ------- ------- -------
Expenses:
Related party
management fees...... 109 287 -- (396)(H) --
Real estate taxes..... 208 2,382 -- -- 2,590
Other property
operating............ 656 8,914 (149)(G) (492)(G) 8,929
General and
administrative....... 67 344 120 (F) --
(74)(G) 492 (G) 949
------ ------- ------- ------- -------
Total operating
expenses........... 1,040 11,927 (103) (396) 12,468
------ ------- ------- ------- -------
Net operating income.... 1,042 11,631 (35) (641) 11,997
Interest expense........ 394 3,814 (1,934)(C) -- 2,274
Depreciation and
amortization........... 387 3,011 (5)(D)
1,912 (E) -- 5,305
------ ------- ------- ------- -------
Income before minority
interest............. 261 4,806 (8) (641) 4,418
Minority interest in
earnings of Operating
Partnership............ -- -- 1,158 (K) -- 1,158
------ ------- ------- ------- -------
Net income.......... $ 261 $ 4,806 $(1,166) $ (641) $ 3,260
====== ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
GROVE PROPERTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
(A) Historical results of operations data were derived from the financial
statements of the Company appearing elsewhere in this Registration Statement.
(B) The historical financial statements of the Company contain results of
operations data for the properties below from the date of acquisition to the
end of the respective period. The results of operations from the beginning of
the respective period to the acquisition date is included in this column.
<TABLE>
<CAPTION>
DATE ACQUIRED OR
PROPERTY/ENTITY EXPECTED TO BE ACQUIRED
--------------- -----------------------
<C> <S> <C>
1. Cambridge........................................ January 12, 1996
2. Grove Property Services Limited Partnership and
Property Partnerships (20 properties and
management company)(2)........................... March 14, 1997
3. Four Winds....................................... June 1, 1997
4. Brooksyde........................................ June 1, 1997
5. River's Bend..................................... June 1, 1997
6. Greenfield Village............................... July 1, 1997
7. Glastonbury Center............................... September 1, 1997
8. Summit and Birch Hill (2 properties)............. September 1, 1997
9. Corner Block and Wharf Building (2 properties)... November 1997(1)
10. High Meadow Apartments........................... November 1997(1)
</TABLE>
- --------
(1) Pending acquisitions under contract.
(2) The historical financial statements of Grove Property Services Limited
Partnership and Property Partnerships for the years ended December 31,
1996 and 1995, contained elsewhere in this Registration Statement, include
a property (Talcott Forest) which was not included in the Consolidation
Transactions and has been omitted herein.
(C) Represents the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED
--------------- DECEMBER 31,
1997(1) 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Pro forma interest expense on new or refinanced
mortgage debt and the Revolving Credit
Facility........................................ $ 413 $ 760 $ 1,530
Historical interest expense on refinanced or
retired mortgage debt........................... (966) (1,684) (3,464)
----- ------- -------
$(553) $ (924) $(1,934)
===== ======= =======
</TABLE>
- --------
(1) The New Equity Investment was effective on March 14, 1997. The historical
financial information for the period March 15, 1997 to June 30, 1997
already takes effect for this transaction.
Pro forma interest expense is based on rates ranging from 6.5% to 8.3% per
annum. Assumes proceeds of $30 million ($27.5 million after costs) from the
New Equity Investment and $54 million ($50.3 million after costs) from the
Offering were received by the Company on January 1, 1996.
F-7
<PAGE>
GROVE PROPERTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
(D) Represents the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, YEAR ENDED
------------ DECEMBER 31,
1997(1) 1996 1996
------- ---- ------------
<S> <C> <C> <C>
Pro forma deferred financing amortization expense on
new or refinanced mortgage debt and the Revolving
Credit Facility.................................... $ 26 $ 69 $ 138
Historical deferred financing amortization expense
on refinanced or retired mortgage debt............. (37) (74) (143)
---- ---- -----
$(11) $ (5) $ (5)
==== ==== =====
</TABLE>
- --------
(1) The New Equity Investment was effective on March 14, 1997. The historical
financial information for the period March 15, 1997 to June 30, 1997
already reflects this transaction.
(E) Represents adjustment to record depreciation on the excess of the
purchase price relating to the purchase of certain partnership interests from
partners, over the net book amount and for properties acquired during or after
the six months ended June 30, 1997, to the extent depreciation was not
reflected in the historical financial statements during the six months ended
June 30, 1997.
(F) Represents adjustment to record non-cash compensation expense in 1996
and the first quarter of 1997 associated with the Deferred Stock Grants
granted to Executive Officers in connection with the consummation of the
Consolidation Transactions, pursuant to the 1996 Plan. Such compensation
expense was recorded by the Company in the second quarter of 1997 in its
historical financial statements included elsewhere herein.
(G) Represents adjustments to: (i) provide for elimination adjustments as a
result of combining the operating properties with the management company,
which historically charged properties a management fee, (ii) exclude certain
non-recurring revenues and expenses including those of Grove Property Services
Limited Partnership attributable to brokerage and other services and sales of
apartment units, (iii) reclassify certain expenses historically classified by
Grove Property Services Limited Partnership as property operating expenses to
general and administrative expenses, (iv) decrease general and administrative
expenses to reflect the cost savings (predominately professional fees)
associated with operating all Properties on a combined, self-managed basis
offset by an increase in compensation expense to the Company's officers to
take effect after the Offering, and (v) increase property operating costs
subsequent to the Consolidation Transactions to reflect the recombining of
certain property leasing costs that GPS provided prior to the Consolidation
Transaction and that the Company will commence providing subsequent to the
Offering as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED
--------- DECEMBER 31,
1997 1996 1996
---- ---- ------------
<C> <S> <C> <C> <C>
(i) Non-recurring property operating expenses...... $ 20 $ 94 $149
(i) Non-recurring rental revenues.................. 9 21 30
(i) Non-recurring other revenues................... -- 145 204
(ii) Gain on sales of apartments.................... -- 42 138
(ii) Brokerage services--other revenues............. 4 193 307
(iii) Reclassification of other property operating to
general and administrative..................... 71 241 492
(iv) Decrease in general and administrative......... 9 115 74
(v) Increase in property operating expenses........ 40 -- --
</TABLE>
(H) Elimination of intercompany management fees.
F-8
<PAGE>
GROVE PROPERTY TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
(I) Elimination of non-recurring commission received in 1996 from an
affiliate.
(J) To eliminate minority interest in a consolidated partnership (acquired
in June 1997) where the Company acquired the remaining interest in such
property partnership on September 30, 1997.
(K) Based upon Operating Partnership ("OP") Units (OP Units are exchangeable
on a one-for-one basis into Common Shares) assumed to be owned by Limited
Partners and Common Shares assumed to be outstanding as follows:
<TABLE>
<CAPTION>
OPERATING
COMMON PARTNERSHIP
SHARES UNITS
--------- -----------
<S> <C> <C>
Grove Property Trust at December 31, 1996.............. 620,102 --
New Equity in March 1997............................... 3,333,333 --
Consolidation Transactions in March 1997:
--affiliates......................................... -- 909,115
--non-affiliates..................................... -- 1,205,324
June 1997 acquisitions................................. -- 420,183
Exercise of stock options in May 1997.................. 394 --
September 1997 acquisitions............................ -- 328,332
November 1997 pending acquisitions..................... -- 140,952(1)
The Offering........................................... 4,500,000 --
--------- ---------
8,453,829 3,003,906
========= =========
73.78% 26.22%
========= =========
</TABLE>
- --------
(1) Estimated using a value for each OP Unit of $10.50, which represents the
value of the OP Units stated in the contract with respect to the November
1997 pending acquisitions, where part of the purchase price will be paid
in OP Units.
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying consolidated balance sheet of Grove
Property Trust (formerly known as Grove Real Estate Asset Trust) as of
December 31, 1996, and the related statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Grove
Property Trust as of December 31, 1996 and the results of its operations and
its cash flows for the years ended December 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 2, 1997
F-10
<PAGE>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate assets:
Land................................................ $ 11,791 $ 920
Buildings and improvements.......................... 103,954 8,528
Furniture, fixtures and equipment................... 5,258 350
-------- -------
121,003 9,798
Less accumulated depreciation....................... (28,590) (1,050)
-------- -------
Net real estate assets................................ 92,413 8,748
Cash and cash equivalents............................. 1,762 381
Cash--resident security deposits...................... 1,170 158
Deferred charges, net of accumulated amortization of
$1,294 (1997) and $6 (1996).......................... 1,877 223
Due from affiliates................................... 675 --
Other assets.......................................... 527 11
-------- -------
Total assets...................................... $ 98,424 $ 9,521
======== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Mortgage notes payable.............................. $ 44,028 $ 5,669
Revolving Credit Facility........................... 1,825 --
Accounts payable, accrued expenses and other
liabilities........................................ 1,421 72
Due to affiliates................................... 88 19
Resident security deposits.......................... 1,170 157
Dividends payable................................... 1,169 121
-------- -------
Total liabilities................................. 49,701 6,038
-------- -------
Commitments and subsequent events..................... -- --
Minority interests in consolidated partnerships....... 6,395 --
Minority interest in Operating Partnership............ 17,488 --
Shareholders' equity:
Preferred shares, $.01 par value per share, 1,000
shares authorized; no shares issued or
outstanding........................................ -- --
Common shares, $.01 par value per share, 13,999,000
shares authorized; 3,953,829 (1997) and 620,102
(1996) shares issued and outstanding............... 40 6
Additional paid-in capital.......................... 25,466 3,912
Distributions in excess of earnings................. (666) (435)
-------- -------
Total shareholders' equity........................ 24,840 3,483
-------- -------
Total liabilities and shareholders' equity........ $ 98,424 $ 9,521
======== =======
</TABLE>
See accompanying notes.
F-11
<PAGE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------- ---------------
1997 1996 1996 1995
--------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Rental income............................. $ 5,438 $ 1,001 $ 2,046 $ 1,287
Property management....................... 218 -- -- --
Interest and other income................. 128 20 36 30
--------- ------- ------- -------
Total revenues.......................... 5,784 1,021 2,082 1,317
--------- ------- ------- -------
Expenses:
Property operating and maintenance........ 1,964 346 656 406
Real estate taxes......................... 542 102 208 148
Related party management fees............. 22 53 109 67
General and administrative................ 347 40 67 56
--------- ------- ------- -------
Total expenses.......................... 2,875 541 1,040 677
--------- ------- ------- -------
Net operating income........................ 2,909 480 1,042 640
Interest expense............................ 777 189 394 85
Depreciation and amortization............... 1,155 198 387 217
--------- ------- ------- -------
Income before minority interests............ 977 93 261 338
Minority interest in consolidated
partnerships............................... 49 -- -- --
Minority interest in Operating Partnership.. 314 -- -- --
--------- ------- ------- -------
Net income.................................. $ 614 $ 93 $ 261 $ 338
========= ======= ======= =======
Net income per common share................. $ 0.24 $ 0.15 $ 0.42 $ 0.55
========= ======= ======= =======
Weighted average number of common shares
outstanding during the period.............. 2,627,601 620,102 620,102 620,102
========= ======= ======= =======
</TABLE>
See accompanying notes.
F-12
<PAGE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL DIVIDENDS IN
COMMON PAID-IN EXCESS OF NET
SHARES CAPITAL INCOME
------ ---------- -------------
<S> <C> <C> <C>
Shareholders' equity at January 1, 1995........ $ 6 $ 3,912 $ (78)
Net income..................................... -- -- 338
Declared dividends............................. -- -- (475)
--- ------- -------
Shareholders' equity at December 31, 1995...... 6 3,912 (215)
Net income..................................... -- -- 261
Declared dividends............................. -- -- (481)
--- ------- -------
Shareholders' equity at December 31, 1996...... 6 3,912 (435)
New Equity Investment, net of related costs
(unaudited)................................... 34 27,490 --
Allocation of shareholders' equity to minority
interest in Operating Partnership related to
the Company's Consolidation Transactions
(Unaudited)................................... -- (8,515) 324
Net income (unaudited)......................... -- -- 614
Declared dividends (unaudited)................. -- -- (1,169)
--- ------- -------
Shareholders' equity at June 30, 1997
(unaudited)................................... $40 $22,887 $ (666)
=== ======= =======
</TABLE>
See accompanying notes.
F-13
<PAGE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS DECEMBER
ENDED JUNE 30, 31,
--------------- ------------
1997 1996 1996 1995
-------- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 614 $ 92 $ 261 $ 338
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 1,155 198 387 217
Non-cash compensation expenses............... 30 -- -- --
Imputed interest--mortgage................... 18 18 37 35
(Increase) decrease in other assets............ 221 (34) (8) 4
Increase (decrease) in accounts payable,
accrued expenses and other liabilities........ (1,412) 35 41 (9)
-------- ----- ----- -----
Net cash provided by operating activities.... 626 309 718 585
-------- ----- ----- -----
INVESTING ACTIVITIES
Purchase of partnership interests.............. (3,383) -- -- --
Cash acquired on purchase of partnership
interests..................................... 3,213 -- -- --
Deferred charges............................... (522) -- (174) --
Other.......................................... -- -- (3) --
Additions to real estate assets................ (319) (49) (126) (99)
-------- ----- ----- -----
Net cash (used in) investing activities...... (1,011) (49) (303) (99)
-------- ----- ----- -----
FINANCING ACTIVITIES
Net proceeds from mortgages payable............ 16,909 220 220 --
Financing costs................................ (648) (23) (21) (23)
Repayment of mortgages payable................. (41,044) (27) (59) --
Net proceeds from New Equity investment........ 27,524 -- -- --
Payments to affiliates......................... (758) (96) (78) (23)
Dividends paid................................. (217) (239) (480) (472)
-------- ----- ----- -----
Net cash provided by (used in) financing activ-
ities......................................... 1,766 (165) (418) (518)
-------- ----- ----- -----
Net increase (decrease) in cash and cash equiv-
alents........................................ 1,381 95 (3) (32)
Cash and cash equivalents, beginning of peri-
od............................................ 381 384 384 416
-------- ----- ----- -----
Cash and cash equivalents, end of period....... $ 1,762 $ 479 $ 381 $ 384
======== ===== ===== =====
</TABLE>
See accompanying notes.
F-14
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. FORMATION AND BUSINESS OF THE COMPANY
Grove Property Trust (the "Company" or "GPT"), formerly Grove Real Estate
Asset Trust was organized in the State of Maryland on April 4, 1994, as a Real
Estate Investment Trust ("REIT"). As of December 31, 1996, the Company
operated four properties with a total of 257 residential apartments located in
the northeast. The Company purchased three properties, (the "Original
Properties") on June 23, 1994, and the fourth property was acquired in January
1996 (collectively, the "Properties").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with an
original maturity of three months or less at the time of the purchase to be
cash equivalents.
Real Estate Assets and Depreciation
The Original Properties were recorded at their historical cost due to the
controlling relationship between the principals of the entities previously
operating the Properties (the "Grove Affiliates"). The portion of the purchase
price attributable to the net assets acquired from Grove Affiliates exceeds
their amortized historical cost. Accordingly, the excess amount was reflected
as a decrease in equity for accounting purposes. All real estate assets
purchased subsequent to the initial acquisitions have been recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets (7 to 27.5 years).
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of " (FAS No. 121),
which requires long-lived assets to be reviewed for impairment when events or
circumstances indicate that an impairment might exist. When an impairment
indicator is present, assets must be grouped at the lowest level for which
there are identifiable cash flows. If the sum of the undisclosed cash flows is
less than the carrying amounts of the assets, an impairment loss must be
recorded. The impairment loss is measured by comparing the fair value of the
assets with their carrying amount. To date, no losses have been recognized.
Per Share Data
Net income per common share is based on the weighted average number of
shares outstanding during each year. Common stock equivalents (options and
warrants) did not have a dilutive effect on net income per share for any year
presented. On February 10, 1997, the Board of Trust Managers of the Company
declared a stock dividend aggregating 26,250 Common Shares and concurrently
declared a 1.125-for-one common stock split. All shares outstanding and per
share amounts have been restated to reflect these changes in capital
structure.
F-15
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In February 1997, the Financial Accounting Standard Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement 128
on the calculation of primary and fully diluted earnings per share for the
years ended December 31, 1996 and 1995, is not material.
Stock-Based Compensation
Effective in fiscal year 1996, the Company adopted Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans in accordance with Accounting Principle
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under
APB No. 25, compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date over the amount the employee must pay to
acquire the stock. The company has elected to continue to account for its
employee stock compensation plans under APB No. 25.
Unaudited Interim Financial Information
The accompanying financial information as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996 is unaudited, however, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly, the information set forth therein for these
interim periods have been included. The results of these interim periods are
not necessarily indicative of the results to be obtained for a full fiscal
year.
Income Taxes and Dividends
The Company has made the election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). A
REIT will generally not be subject to federal income tax to the extent it
distributes at least 95% of its taxable income to its shareholders and
complies with other requirements. Accordingly, no provision has been made for
federal income taxes for the Company in the accompanying financial statements.
Even though the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income, if any.
Shareholders are taxed on dividends declared and must report such dividends as
either ordinary income, short term gains, long term gains, or as a return of
capital. The federal income tax characteristics of dividends paid by the
Company consisted of:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Ordinary income................................................ 97.46% 83.22%
Return of principal............................................ 2.54% 16.78%
</TABLE>
Advertising
The Company expenses advertising costs as incurred. Advertising costs were
$24,000 and $17,000 in 1996 and 1995, respectively.
Deferred Charges
Deferred charges, consisting principally of loan costs, are amortized on a
straight line basis over the term of the related obligations.
F-16
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rental Income
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases, which are generally for one year. The Company
generally requires tenants to provide a cash security deposit equal to one
month's rent or pay the last month's rent in advance. Such amounts are
deposited into a restricted bank account and the Company records an offsetting
liability.
3. ACQUISITION
On January 12, 1996, the Company purchased the assets and operations of
Grove Cambridge Associates Limited Partnership ("Cambridge"), a ninety-two
unit multifamily apartment complex located in Norwich, Connecticut, for
$4,250,000, which was funded with a $4,500,000 mortgage note payable. The
results of Cambridge's operations have been combined with those of the Company
since the date of acquisition.
The unaudited pro forma information for the period set forth below gives
effect to the transaction as if it had occurred at the beginning of the
period. The pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of that time.
The pro forma results for 1996 are not materially different from the reported
amounts.
Pro Forma Year Ended December 31, 1995 (in thousands, except share data):
<TABLE>
<S> <C>
Revenues........................................................... $2,079
Net income......................................................... $ 278
Net income per common share........................................ $ 0.45
</TABLE>
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable as of December 31, 1996, consist of the following (in
thousands):
<TABLE>
<S> <C>
Southington Apartments note........................................ $1,228
Cambridge Estates note............................................. 4,441
------
Total............................................................ $5,669
======
</TABLE>
The mortgage note on the Southington Apartments property, which has a face
amount of $1,250,000, has an imputed interest rate of 7.25% due in monthly
interest payments of $4,167 through June 1997 and monthly principal and
interest payments of $8,527 through July 2013. The note is collateralized by
the property and 15% of the face amount is guaranteed by certain executive
officers and shareholders of the Company.
The Cambridge note payable had an original principal balance of $4,500,000
with interest payable at 7.04%. Monthly principal and interest payments of
$31,920 are due through January 2006. The note is collateralized by the
Cambridge property and by first mortgage liens on two additional properties.
F-17
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Aggregate annual maturities of mortgage notes payable as of December 31,
1996, are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 55
1998................................................................ 86
1999................................................................ 92
2000................................................................ 103
2001................................................................ 111
Thereafter.......................................................... 5,222
------
Total............................................................. $5,669
======
</TABLE>
Interest paid was approximately $380,000 and $85,000 in 1996 and 1995,
respectively and $732,000 and $176,000 for the six months ended June 30, 1997
and 1996, respectively.
Subsequent to year end, the Company entered into the Consolidation
Transactions, a New Equity Investment and acquired various properties. As part
of these transactions, the Company entered into and assumed various new debt
obligations (see Note 10) and repaid certain mortgage notes payable. After
taking effect for these transactions, the Company's mortgage and other debt as
of June 30, 1997 consists of:
<TABLE>
<CAPTION>
JUNE
30,
1997
-------
<S> <C>
Amortizing first mortgage notes................................... $10,043
Interest only first mortgage notes................................ 33,985
Revolving Credit Facility (See Notes 5 and 10).................... 1,825
-------
$45,853
=======
</TABLE>
The amortizing first mortgage notes have fixed interest rates between 7.04%
and 7.49%, have monthly principal and interest payments based on amortization
schedules between 25 and 30 years, and maturities between the year 2000 and
2013. The notes are collateralized by 6 properties and are partially
guaranteed by certain executive officers and shareholders of the Company.
The interest only first mortgage notes are comprised of variable rate and
fixed rate notes, are collateralized by 11 properties, and are partially
guaranteed by certain executive officers and shareholders of the Company. One
note has a principal balance of $4.0 million, monthly payments of interest
only at a fixed rate of 7.50%, and matures in 1999. One note has a principal
balance of $15.1 million, monthly payments of interest only at a variable rate
of one month LIBOR plus 1.14%, and matures in 2007. Three notes have an
aggregate principal balance of $14.8 million, monthly payments of interest
only at a variable rate of one month LIBOR plus 1.20%, and mature between 1999
and 2005.
The interest rate on the variable notes is partially fixed with three
interest rate swap contracts (the "Interest Swaps") with two banks. The
Interest Swaps have, in effect, (i) fixed $7.6 million of debt at 7.67% for
the period from October 1, 1997 through October 1, 2007, (ii) fixed $7.6
million of debt at 7.68% for the period from October 1, 1997 through January
4, 2005, and (iii) fixed $9.1 million of debt at 7.09% from December 15, 1995
through December 15, 2000. The Interest Swaps have been pledged as collateral
under the various related variable notes.
F-18
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INITIAL CREDIT FACILITY
The Company entered into an Initial Credit Facility concurrent with its
initial public offering ("IPO") in 1994. The Initial Credit Facility, which
provided for up to $3.0 million in borrowings, was expected to be used to
finance acquisitions of properties, re-development and renovation costs and
expenses, and for working capital purposes related to future acquisitions. The
Initial Credit Facility was not drawn upon, and was terminated in January
1996. In March 1997, the Company entered into a new credit facility (see Note
10).
6. STOCK OPTION PLAN
The Company adopted a stock option plan in 1994 (the "1994 Plan") for a
maximum of 118,120 common shares for key employees and non-employees of the
Company. Options are granted at the market price of the Company's common stock
on the date of grant, become exercisable in increments of 33 1/3% per year on
each of the first three anniversaries of the date of grant and have a maximum
term of ten years. At December 31, 1996, no options had been exercised. In May
1997, an employee exercised options on 394 Common Shares. Information
regarding the 1994 Plan is summarized below. In March 1997, the Company
instituted an additional stock option plan (see Note 10).
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.............. 69,689 $9.31 66,146 $9.42
Granted....................................... 48,428 $7.29 3,543 $7.20
------- ------
Outstanding at end of year.................... 118,117 $8.48 69,689 $9.31
======= ======
Options exercisable at end of year............ 45,272 $9.36 22,049 $9.42
======= ===== ====== =====
</TABLE>
The Company accounts for stock option grants under its 1994 Plan in
accordance with APB No. 25. Accordingly, no compensation cost has been
recognized for stock option grants since the options have exercise prices
equal to the market value of the Company's common stock at the date of grant.
The pro forma compensation cost for the Company's 1994 Plan determined in
accordance with FAS No. 123 was not material for 1996 and 1995.
7. UNDERWRITER WARRANTS
In conjunction with the IPO, the managing underwriter was granted
Underwriter Warrants to purchase 47,248 Common Shares. The Underwriter
Warrants are exercisable at $11.31 per Common Share and expire in June 1999.
No warrants have been exercised as of December 31, 1996.
8. RELATED PARTY TRANSACTIONS
Management Fee
On June 23, 1994, the Company entered into a Management Agreement (the
"Agreement") with Grove Property Services Limited Partnership ("GPS"), an
affiliated company which provides operating and support functions requisite to
the operation of the Properties. The Agreement provides for a management fee
equal to 5% of gross monthly revenues, as defined, and was terminated pursuant
to the Consolidated Transactions in March 1997. Management fees incurred in
1996 and 1995 were approximately $109,000 and $67,000, respectively, and
$22,000 and $53,000 for the six months ended June 30, 1997 and 1996,
respectively.
F-19
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Operating Expenses and Non-Operating Expenses
Certain operating and non-operating expenses include amounts allocated to
the Company by GPS. These charges reflect an allocation of the cost of
services required by the Company, which are outside the scope of services
customarily included in the property management fees. Total costs of
approximately $11,000 were allocated in 1996.
Rent to Related Party
The Company's executive offices are leased from an affiliated company for
$500 per month under a three year lease which expired in June 1997; rent
expense related thereto was $6,000 in 1996 and 1995. The lease was
subsequently extended on a month-to-month basis at a comparable rent.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents, accounts receivable, accounts payable and other accruals,
because of their short term nature, approximate fair value. Mortgage notes are
also carried at amounts that approximate their fair values. Fair values of
mortgage notes were estimated using discounted cash flow analyses, based on
interest rates currently available to the Company for issuance of debt with
similar terms and remaining maturities.
10. SUBSEQUENT EVENTS
Consolidation Transactions
On March 14, 1997, GPT completed a series of transactions pursuant to which
the Company was transformed into a self-administered and self-managed REIT
with control over a portfolio of 23 multi-family residential projects and a
neighborhood shopping center in the Northeastern United States. A summary of
the steps involved in these Consolidation Transactions is as follows:
. GPT formed an Operating Partnership to serve as the vehicle for the
consolidation of ownership and/or control of the operations, assets and
liabilities of the Company.
. Pursuant to an Exchange Offer, the Operating Partnership purchased from
the Limited Partners of certain Property Partnerships, the outstanding
partnership units of each of the Property Partnerships in exchange for
Common Units of the Operating Partnership, or, in certain circumstances,
cash. The number of Common Units received by a Limited Partner (1,205,324
in the aggregate, excluding Grove Companies) was calculated based upon
such partners' interest in the applicable partnership as applied to the
value of the Property Partnership associated therewith.
. Immediately prior to the consummation of the Consolidation Transactions,
GPT declared and issued a stock dividend aggregating 26,222 Common Shares
and concurrently declared a stock split of 1.125 to 1, thereby issuing on
a pro rata basis a total of 95,102 Common Shares to the holders of the
then issued and outstanding Common Shares. The Company retroactively
adjusted all share and per share amounts in the accompanying financial
statements to reflect these transactions.
. GPT issued 3,333,333 Common Shares to new equity investors in exchange
for $30 million.
F-20
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
. Pursuant to a Contribution Agreement among GPT, certain companies and
individuals affiliated with GPT (the "Grove Companies") and the Operating
Partnership, substantially all of the assets and operations of GPT, the
management services division of Grove Property Services Limited
Partnership and the Grove Companies' interests in the acquired Property
Partnerships were transferred to the Company.
In exchange for the above, the Grove Companies received an aggregate of
909,115 Common Units in the Operating Partnership and a cash payment of
$177,669 from GPT, and GPT received 620,102 Common Units in the Operating
Partnership. Additionally, GPT contributed to the Operating Partnership
the proceeds received from the new equity investment ($30 million less
related costs) in exchange for a number of additional Common Units equal
to the number of Common Shares issued by GPT to the new equity investors.
Revolving Credit Facility and Mortgage Loan Refinancings
In connection with the Consolidation Transactions, the Operating Partnership
entered into a three-year secured revolving acquisition and working capital
facility ("Revolving Credit Facility") of up to $25 million and an
approximately $15.1 million ten-year term mortgage loan. Borrowings under the
Revolving Credit Facility are collateralized by certain properties and bear
interest, payable monthly, at a floating rate of 1.2% above the 30, 60 or 90
day LIBOR. The Operating Partnership is required to maintain certain financial
covenants.
The Company used a portion of the proceeds from the new equity investment,
together with borrowings under the $15.1 million ten-year term mortgage loan
to paydown or refinance approximately $39.3 million of mortgage indebtedness
of the Property Partnerships and to acquire certain minority interests in
certain of the Property Partnerships.
Property Acquisitions
Effective on June 1, 1997, The Company acquired two residential apartment
complexes through the Operating Partnership. These acquisitions were completed
by the Operating Partnership through the acquisition of the assets (other than
certain amounts of cash) and the assumption of liabilities of Northeast
Apartments I Limited Partnership, the owner of Four Winds Apartments, and of
West Hartford Center Associates, Limited Partnership, the owner of Brooksyde
Apartments. In addition, simultaneously with the acquisition of Four Winds
Apartments and Brooksyde Apartments, the Company acquired an interest in
Windsor Arbor Limited Partnership ("Windsor"), the owner of River's Bend
Apartments, and anticipates that it will acquire, pursuant to certain put and
call options, the remaining limited partnership interest in Windsor on or
before December 31, 1997 for $4.9 million. Commencing June 1, 1997, the
Company will consolidate Windsor in its financial statements.
Upon consummation of the June 1, 1997 transactions referred to above, the
Operating Partnership issued an aggregate of 420,183 Common Units valued at
$10 per unit, which under certain circumstances, could be redeemed for an
equal number of Common Shares of the Company. The Company also assumed
mortgage debt on Four Winds Apartments and Brooksyde Apartments in the
aggregate remaining principal amount of $6.2 million. Additionally, the
Windsor investment is encumbered by $8.6 million mortgage debt. To complete
these transactions, the Company borrowed $1.825 million under its Revolving
Credit Facility and used $68,000 of its available cash.
Four Winds Apartments is a 168-unit community located in North Fall River,
Massachusetts. Brooksyde Apartments is an 80-unit apartment community located
in West Hartford, Connecticut. River's Bend Apartments is a 432-unit
condominium community located in Windsor, Connecticut, of which 349 units are
owned by Windsor.
F-21
<PAGE>
GROVE PROPERTY TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On July 1, 1997, the Company purchased 127 condominium units constituting a
part of Greenfield Village Condominium in Rocky Hill, Connecticut. The
purchase was made pursuant to a Purchase and Sale Agreement dated May 14,
1997, between Highland Income Partners, L.P. and Grove Corporation, an
affiliate of the Company. The $4,282,500 purchase price for Greenfield Village
was paid utilizing a portion of the Company's cash and borrowings under the
Revolving Credit Facility. In addition, Grove Rocky Hill assumed certain
obligations of the seller, principally related to security deposits held by
the seller. In connection with the purchase of Greenfield Village, the Company
paid $107,000 for expense and overhead reimbursement to National Realty
Services, L.P., a limited partnership owned by four of the executive officers
of the Company.
Pursuant to two Offers to Exchange All Outstanding Limited Partnership
Interests in two affiliated partnerships, effective September 1, 1997, the
Company acquired three residential apartment communities through the Operating
Partnership. These acquisitions were completed by the Operating Partnership
through the acquisition of the assets and the assumption of liabilities of
Heritage Court Associates Limited Partnership, the owner of the Glastonbury
Center Apartments, and of Farmington Summit Associates Limited Partnership,
the owner of Summit Apartments and Birch Hill Apartments.
Upon consummation of the transactions, the Operating Partnership issued an
aggregate of 328,332 Common Units valued at $10.50 per unit, which under
certain circumstances, could be redeemed for an equal number of Common Shares
of the Company. The Company also assumed mortgage debt on Summit Apartments,
Birch Hill Apartments and Glastonbury Apartments in the aggregate remaining
principal amount of $9.8 million. To complete these transactions, the Company
borrowed $750,000 under its Revolving Credit Facility, assumed a current
liability of $1.1 million (subsequently paid), including approximately
$200,000 due to an affiliate, and paid the balance from its available cash.
Summit Apartments and Birch Hill Apartments have a total of 184 apartments
and are located in Farmington Connecticut. Glastonbury Apartments is a 104-
unit apartment community located in Glastonbury, Connecticut.
1996 Stock Option Plan
In March 1997, the Company instituted an additional stock option plan ("1996
Plan"). The Company reserved a total of 900,000 common shares, subject to
adjustment, pursuant to the 1996 Plan. The provisions of the 1996 Plan are
similar to the 1994 Plan (see Note 6). Pursuant to the Consolidation
Transactions, the Company granted 300,000 options to certain executive
officers and non-employee Board of Trust Managers. Each non-employee Board of
Trust Manager receives 5,000 options per year.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying combined balance sheet of Grove Property
Services Limited Partnership and Property Partnerships as of December 31,
1996, and the related combined statements of income, owners' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Grove Property
Services Limited Partnership and Property Partnerships at December 31, 1996,
and the combined results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 2, 1997
F-23
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Real estate assets, at cost:
Land................................................................. $ 7,718
Buildings and improvements........................................... 66,933
Furniture, fixtures and equipment.................................... 4,182
-------
77,833
Less accumulated depreciation.......................................... 24,209
-------
Net real estate assets............................................... 54,624
Cash and cash equivalents.............................................. 1,702
Restricted cash--resident security deposits............................ 679
Due from related parties............................................... 931
Due from partners...................................................... 922
Deferred costs, net of accumulated amortization of $1,585.............. 807
Other assets........................................................... 201
-------
Total assets......................................................... $59,866
=======
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable................................................. $48,643
Accounts payable and other liabilities................................. 853
Due to related parties................................................. 1,896
Resident security deposits............................................. 679
-------
Total liabilities.................................................... 52,071
Commitments and contingencies.......................................... --
Owners' equity......................................................... 7,795
-------
Total liabilities and owners' equity................................. $59,866
=======
</TABLE>
See accompanying notes.
F-24
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1996 1995*
------- -------
<S> <C> <C>
Revenues:
Rental income................................................ $12,906 $11,965
Property management.......................................... 777 815
Interest and other........................................... 1,138 1,103
------- -------
Total revenues............................................. 14,821 13,883
------- -------
Expenses:
Allocated payroll............................................ 2,493 2,358
Real estate taxes............................................ 1,299 1,234
Other property operating..................................... 3,212 2,918
General and administrative................................... 279 261
------- -------
Total expenses............................................. 7,283 6,771
------- -------
Net operating income........................................... 7,538 7,112
Interest expense............................................... 3,856 3,829
Depreciation and amortization.................................. 3,055 3,140
------- -------
Income before extraordinary item............................... 627 143
Extraordinary item--gain on debt restructuring................. -- 2,186
------- -------
Net income................................................. $ 627 $ 2,329
======= =======
</TABLE>
- --------
* Certain amounts have been reclassified for comparative purposes.
See accompanying notes.
F-25
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Owners' equity, January 1, 1995........................................ $10,946
Capital contributions.................................................. 2
Distributions.......................................................... (1,018)
Net income............................................................. 2,329
-------
Owners' equity, December 31, 1995...................................... 12,259
Capital contributions.................................................. 925
Distributions.......................................................... (6,016)
Net income............................................................. 627
-------
Owners' equity, December 31, 1996...................................... $ 7,795
=======
</TABLE>
See accompanying notes.
F-26
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995*
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 627 $ 2,329
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 3,055 3,140
Gain on debt restructuring................................ -- (2,186)
Gain on sales of condominiums............................. (210) --
(Increase) in assets:
Other assets.............................................. (16) (25)
(Decrease) increase in liabilities:
Accounts payable and other liabilities.................... (224) 59
------- -------
Net cash provided by operating activities................. 3,232 3,317
------- -------
INVESTING ACTIVITIES
Purchase of real estate assets.............................. (1,544) (3,004)
Proceeds from sale of condominiums.......................... 443 --
Payment for deferred costs.................................. (43) (415)
------- -------
Net cash (used in) investing activities................... (1,144) (3,419)
------- -------
FINANCING ACTIVITIES
Repayment of mortgage notes................................. (784) (7,655)
Proceeds from mortgage notes................................ 2,641 7,800
Due from related parties, net............................... 1,210 (502)
Payment for financing costs................................. (184) (256)
Due from partners........................................... (598) 750
Due to NAVAB................................................ 252 1,171
Distributions to owners..................................... (6,016) (1,018)
Capital contributions....................................... 925 2
------- -------
Net cash (used in) provided by financing activities....... (2,554) 292
------- -------
Net (decrease) increase in cash and cash equivalents........ (466) 190
Cash and cash equivalents, beginning of year................ 2,168 1,978
------- -------
Cash and cash equivalents, end of year.................... $ 1,702 $ 2,168
======= =======
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest...................... $ 3,816 $ 3,883
======= =======
</TABLE>
- --------
* Certain amounts have been reclassified for comparative purposes.
See accompanying notes.
F-27
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Grove Property Services Limited Partnership and Property Partnerships (the
"Group") combined financial statements include the accounts of various
partnerships and is not a separate legal entity. "Property Partnerships" are a
combination of affiliated entities that have ownership interests principally
in multifamily communities in the Connecticut, Massachusetts and Rhode Island
areas. The accounts are presented on a combined basis because all of the
communities are managed by Grove Property Services Limited Partnership ("GPS")
whose general partners have a controlling interest in each of the communities
and because these communities were subject of a business combination in
connection with the formation of an umbrella REIT (the "Company") effective on
March 14, 1997. Each of the communities is owned by Grove Operating, L.P. (the
"Operating Partnership"), which is owned, in part, by the Company. The Company
qualifies as a real estate investment trust under the Internal Revenue Code of
1986, as amended.
The business combination was structured so that the former partners received
cash, units in the Operating Partnership, or a combination thereof. The
Company is the sole general partner of the Operating Partnership.
In addition to GPS and Grove Longmeadow Associates (a neighborhood shopping
center) the following residential communities have been included in the
combined financial statements:
<TABLE>
<CAPTION>
NUMBER OF
LIMITED PARTNERSHIP NAME EXISTING COMMUNITY NAME APARTMENTS
------------------------ ----------------------- ----------
<C> <S> <C>
Avonplace Associates Avonplace 146
Burgundy Associates Burgundy Studios 102
Grove-Ellington Associates Arbor Commons 28
Grove-Enfield Associates Fox Hill Apartments 168
Grove-Manchester Associates 208-210 Main Street 28
Apartments
Grove-Newington Associates Woodbridge Apartments 73
Grove Opportunity Fund II Dean Estates II 58
Royale Apartments 76
Talcott Forest* 19
Grove-Plainville Associates Colonial Village Apartments 104
Grove Properties III Bradford Commons 64
Loomis Manor 43
Grove Taunton Associates Dean Estates 48
Grove-Vernon Associates Fox Hill Commons 74
Grove-West Hartford Associates Park Place West 63
Grove-West Springfield Associates Van Deene Manor 109
Grove-Westfield Associates Security Manor 63
Grove-Westwynd Associates Westwynd Apartments 46
Shoreline London Associates Ocean Reef 163
Nautilus Properties Sandalwood** 39
</TABLE>
- --------
* Talcott Forest is included in the accompanying combined financial
statements as it is part of a legal entity combined herewith. However, this
property was not included in the Consolidation Transactions and, as such,
the operations were not included in the pro forma statements of income
contained elsewhere in this Registration Statement.
** Available for lease August 1996.
All significant intercompany accounts and transactions have been eliminated
in combination
F-28
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Depreciation of Real Estate Assets
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized and depreciated over their
estimated useful lives. Depreciation of real estate is computed principally on
a straight-line basis over the expected useful lives of depreciable property,
which ranges from 15 to 39 years for buildings, improvements and land
improvements and 5 to 7 years for furnishings and equipment.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 had no effect on the accompanying financial statements.
Revenue Recognition
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases. Residential leases are generally for periods of
one year. Commercial leases are generally for periods of 5 to 10 years. The
Company generally requires tenants to provide a cash security deposit equal to
one month's rent. Such amounts are deposited into a restricted bank account
and the Company records an offsetting liability.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid financial instruments
with maturities of three months or less from the date of purchase.
Deferred Costs
Deferred costs consist of organization costs and costs incurred in obtaining
long-term financing. Deferred financing costs are amortized over the term of
the related mortgage loan obligation. Organization costs are amortized over 5
years.
Income Taxes
The Group is owned by various partnerships whose partners are required to
include their respective share of profits and losses in their individual
income tax returns. Accordingly, no federal or state income taxes have been
provided in the accompanying combined financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-29
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. DUE TO AND FROM RELATED PARTIES
Certain properties managed by GPS are not included in the Group. Due to/from
related parties represent costs paid by the Group on behalf of these
properties, property expense and other advances from the Group to those
properties, and management fees owed to the Group by those properties. An
affiliate of the Group, NAVAB, periodically loans funds to the partnerships
under its line of credit. These loans generally bear interest at 2.5% above
the prime rate. Interest due NAVAB was approximately $145,000 and $116,000 for
the years ended December 31, 1996 and 1995, respectively.
4. MORTGAGE NOTES PAYABLE
The Group's mortgage notes at December 31, 1996 consisted of the following
(in thousands):
<TABLE>
<S> <C>
Mortgage notes payable at fixed interest rates ranging from 7.09%
to 8.00%, payable in varying amounts through December 2003....... $12,362
Mortgage notes payable with floating interest rates (7.0% to 9.27%
at December 31, 1996), payable in varying amounts through
November 2005.................................................... 36,281
-------
$48,643
=======
</TABLE>
Each of the mortgage notes is collateralized by a first mortgage on separate
communities. Certain loans are guaranteed in whole or part by individuals
affiliated with the Group. Such guarantees aggregate approximately $31 million
at December 31, 1996.
Annual principal maturities as of December 31, 1996, are as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................................... $ 890
1998............................................................... 970
1999............................................................... 9,478
2000............................................................... 21,746
2001............................................................... 4,589
Thereafter......................................................... 10,970
-------
Total............................................................ $48,643
=======
</TABLE>
As part of the Consolidation Transactions, certain of these mortgage notes
payable were retired early or refinanced.
5. RELATED PARTY TRANSACTIONS
GPS performs management services for certain communities not included in the
Group. Management fees received from these communities were approximately
$777,000 and $891,000 for the years ended December 31, 1996 and 1995,
respectively.
The Group leases office space from an affiliate at a rate of $4,150 per
month.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
F-30
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Group could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents, accounts receivable, accounts payable and other accruals
because of their short-term nature approximate fair value. Mortgage notes are
carried at amounts that approximate their fair values. Fair values of mortgage
notes were estimated using discounted cash flow analyses, based on interest
rates currently available to the Group for issuance of debt with similar terms
and remaining maturities.
7. COMMERCIAL LEASES
Future minimum annual lease payments to be received on noncancelable
commercial operating leases with terms greater than one year consist of the
following at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 989
1998................................................................ 882
1999................................................................ 830
2000................................................................ 697
2001................................................................ 591
Thereafter.......................................................... 1,983
------
Total............................................................. $5,972
======
</TABLE>
Residential leases are generally for a term of one year and are not included
above. The commercial leases generally contain provisions for increases in
rent tied to various indices, increases in operating costs and/or a percentage
of the tenants' sales in excess of a specified base amount. Such additional
rents are included in rental income on the accompanying combined statements of
income and are not material.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the combined statements of revenues and certain expenses of
the Post March 1997 Property Acquisitions (the "Properties") for the years
ended December 31, 1996 and 1995. The combined statements of revenues and
certain expenses are the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined statements of revenues
and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenues
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined statements of revenues and certain expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
combined statements of revenues and certain expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statements of revenues and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-2 of Grove Property Trust described in Note 2 and is not intended to
be a complete presentation of the Properties' revenues and expenses.
In our opinion, the combined statements of revenues and certain expenses
referred to above present fairly, in all material respects, the combined
revenues and certain expenses as described in Note 2 of the Post March 1997
Property Acquisitions for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 2, 1997
F-32
<PAGE>
POST MARCH 1997 PROPERTY ACQUISITIONS
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31,
JUNE 30, -------------
1997 1996 1995
----------- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Rental income...................................... $3,718 $7,824 $6,648
Miscellaneous income............................... 68 187 138
------ ------ ------
Total revenues................................... 3,786 8,011 6,786
------ ------ ------
Certain expenses:
Property operating and maintenance................. 1,544 2,948 2,255
Real estate taxes.................................. 442 1,032 921
Related party management fees...................... 151 331 297
------ ------ ------
2,137 4,311 3,473
------ ------ ------
Revenues in excess of certain expenses............... $1,649 $3,700 $3,313
====== ====== ======
</TABLE>
See accompanying notes.
F-33
<PAGE>
POST MARCH 1997 PROPERTY ACQUISITIONS
NOTES TO THE COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. BUSINESS
The accompanying Combined Statements of Revenues and Certain Expenses relate
to the operations of certain residential "Properties" as identified below. The
Properties were acquired by Grove Property Trust (the "Company") between June
1, 1997 and September 1, 1997. The Properties were previously owned by
affiliates of the Company. Summit and Birch Hill were acquired by the
Company's affiliate in February 1995 from an unrelated party. Four Winds was
acquired by the Company's affiliate in September 1995. The accompanying
combined statement of revenues and certain expenses for the year ended
December 31, 1995, includes the operations of these three properties from the
date of acquisition by the affiliate.
<TABLE>
<CAPTION>
PROPERTY NAME DATE ACQUIRED
------------- -------------
<S> <C>
Four Winds(1)............................................ June 1, 1997
Brooksyde(1)............................................. June 1, 1997
River's Bend(1).......................................... June 1, 1997
Greenfield............................................... July 1, 1997
Glastonbury.............................................. September 1, 1997
Summit................................................... September 1, 1997
Birch Hill............................................... September 1, 1997
</TABLE>
- --------
(1) See Note 2, "Interim Unaudited Information"
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statements of Revenues and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-2 of the Company. Accordingly, the financial statements exclude
certain expenses that may not be comparable to those expected to be incurred
by the Company in the proposed future operations of the Properties. Items
excluded consist of depreciation, amortization, interest and certain non-
operating expenses.
Use of Estimates
The preparation of the Combined Statements of Revenues and Certain Expenses
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the Combined Statements of Revenues and Certain Expenses and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases, which are generally for one year.
Interim Unaudited Information
The accompanying interim Combined Statement of Revenues and Certain Expenses
for the six months ended June 30, 1997 is unaudited, however, in the opinion
of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Combined Statement of
Revenues and Certain Expenses for this interim period have been included. The
results of this interim period is not necessarily indicative of the results to
be obtained for a full fiscal year.
Four Winds, Brooksyde and River's Bend were acquired by the Company on June
1, 1997. The accompanying unaudited Combined Statement of Revenues and Certain
Expenses for the six months ended June 30, 1997, includes operations for these
properties only through the date of acquisition by the Company.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the combined statements of revenue and certain expenses of
the Pending 1997 Property Acquisitions-Affiliates (the "Properties") for the
years ended December 31, 1996 and 1995. The combined statements of revenue and
certain expenses are the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined statements of revenues
and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenue
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined statements of revenue and certain expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
combined statements of revenue and certain expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying combined statements of revenue and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-2 of Grove Property Trust described in Note 2 and is not intended to
be a complete presentation of the Properties' revenues and expenses.
In our opinion, the combined statements of revenue and certain expenses
referred to above present fairly, in all material respects, the combined
revenue and certain expenses as described in Note 2 of the Pending 1997
Property Acquisitions-Affiliates for the years ended December 31, 1996 and
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 2, 1997
F-35
<PAGE>
PENDING 1997 PROPERTY ACQUISITIONS--AFFILIATES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
YEARS
ENDED
SIX MONTHS DECEMBER
ENDED 31,
JUNE 30, ---------
1997 1996 1995
----------- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Rental income.......................................... $243 $400 $392
---- ---- ----
Certain expenses:
Property operating and maintenance..................... 33 35 37
Real estate taxes...................................... 11 23 18
Related party management fees.......................... 15 24 24
---- ---- ----
59 82 79
---- ---- ----
Revenues in excess of certain expenses............... $184 $318 $313
==== ==== ====
</TABLE>
See accompanying notes.
F-36
<PAGE>
PENDING 1997 PROPERTY ACQUISITIONS--AFFILIATES
NOTES TO THE COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
YEARS ENDED DECEMBER 31, 1995 AND 1996
1. BUSINESS
The accompanying Combined Statements of Revenue and Certain Expenses relate
to the operations of certain properties known as Corner Block and The Wharf
(two retail properties with approximately 16,400 square feet, in the
aggregate, of space located in Massachusetts) (the "Properties"). The
Properties are contracted to be acquired by Grove Property Trust (the
"Company") and are expected to close in November 1997. The Properties are
owned by affiliates of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-2 of the Company. Accordingly, the financial statements exclude
certain expenses that may not be comparable to those expected to be incurred
by the Company in the proposed future operations of the Properties. Items
excluded consist of depreciation, amortization, interest and certain
non-operating expenses.
Use of Estimates
The preparation of the Combined Statements of Revenue and Certain Expenses
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the Combined Statements of Revenue and Certain Expenses and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases, which have varying terms.
Concentration of Revenues
Approximately 86% of rental revenues in each period presented was derived
from two tenants.
Interim Unaudited Information
The accompanying Combined Statement of Revenue and Certain Expenses for the
six months ended June 30, 1997 is unaudited, however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Combined Statement of
Revenue and Certain Expenses for this interim period have been included. The
results of this interim period are not necessarily indicative of the results
to be obtained for a full fiscal year.
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the statement of revenues and certain expenses of the
Pending 1997 Property Acquisitions--Non-Affiliates (the "Property") for the
year ended December 31, 1996. The statement of revenues and certain expenses
is the responsibility of the Property's management. Our responsibility is to
express an opinion on the statement of revenues and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and
certain expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues and certain expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statement of
revenues and certain expenses. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-2 of
Grove Property Trust described in Note 2 and is not intended to be a complete
presentation of the Property's revenues and expenses.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses as described in Note 2 of the Pending 1997 Property Acquisition--Non-
Affiliates for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
October 3, 1997
F-38
<PAGE>
PENDING 1997 PROPERTY ACQUISITIONS--NON-AFFILIATES
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Rental income........................................ $344 $626
Other................................................ 7 18
---- ----
351 644
---- ----
Certain expenses:
Property operating and maintenance................... 157 313
Real estate taxes.................................... 28 54
---- ----
185 367
---- ----
Revenues in excess of certain expenses................. $166 $277
==== ====
</TABLE>
See accompanying notes.
F-39
<PAGE>
PENDING 1997 PROPERTY ACQUISITIONS--NON-AFFILIATES
NOTES TO THE STATEMENTS OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BUSINESS
The accompanying Statements of Revenues and Certain Expenses relate to the
operations of a certain property known as Ellington (a residential apartment
building located in Connecticut) (the "Property"). Grove Property Trust (the
"Company") contracted to acquire the Property from an unrelated party. The
Company expects to close on this acquisition in November 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Statements of Revenues and Certain Expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-
2 of the Company. Accordingly, the financial statements exclude certain
expenses that may not be comparable to those expected to be incurred by the
Company in the proposed future operations of the Property. Items excluded
consist of depreciation, amortization, interest and certain non-operating
expenses.
Use of Estimates
The preparation of the Statements of Revenues and Certain Expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
Statements of Revenues and Certain Expenses and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases, which are generally one year.
Interim Unaudited Information
The accompanying Statement of Revenues and Certain Expenses for the six
months ended June 30, 1997 is unaudited, however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Statement of Revenues
and Certain Expenses for this interim period have been included. The results
of this interim period are not necessarily indicative of the results to be
obtained for a full fiscal year.
F-40
<PAGE>
Left Photo:
Front view of Company's Apartment Community, Four Winds in Fall River, Ma.
Top Right Photo:
Front view of Company's Apartment Community, Fox Hill Commons in Vernon, Ct.
Bottom Right Photo:
View of outdoor pool located at Company's Apartment Community, Avon Place in
Avon, Ct.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 10
The Company.............................................................. 22
The Concurrent Offering.................................................. 26
Use of Proceeds.......................................................... 27
Distribution Policy...................................................... 28
Price Range of Common Shares and Dividends............................... 29
Capitalization........................................................... 30
Selected Financial Information........................................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 34
Business and Properties.................................................. 40
Management............................................................... 56
Certain Relationships and Transactions................................... 61
Principal Shareholders................................................... 65
Description of Shares of Beneficial Interest............................. 66
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws.................................................................. 70
Practices and Objectives with Respect to Certain Activities.............. 73
Shares Available for Future Sale......................................... 75
The Operating Partnership Agreement...................................... 77
Certain Federal Income Tax Considerations................................ 80
Underwriting............................................................. 92
Experts.................................................................. 93
Legal Matters............................................................ 94
Available Information.................................................... 94
Incorporation of Certain Documents by Reference.......................... 95
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,500,000 SHARES
GROVE PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
LOGO
-------
PROSPECTUS
, 1997
-------
SMITH BARNEY INC.
LEHMAN BROTHERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder, all of
which are being paid by the Company. Except for the SEC registration fees, the
NASD filing fee and the American Stock Exchange listing fee, all amounts are
estimates.
<TABLE>
<S> <C>
Registration fees............................................. $ 17,938
NASD fee...................................................... 6,581
Transfer agent fee............................................ 25,000
American Stock Exchange Listing Fee........................... 40,000
Printing costs................................................ *
Legal fees and expenses....................................... *
Accounting fees and expenses.................................. *
Advisory fee.................................................. *
Miscellaneous................................................. *
----------
Total....................................................... $1,200,000
==========
</TABLE>
- --------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified against
certain liabilities under Maryland law, the Charter and Bylaws of the Company
and the Partnership Agreement of the Operating Partnership. The Charter of the
Company contains a provision which eliminates such liabilities to the maximum
extent permitted by Maryland law.
As permitted under the MGCL, the Company's Bylaws require it to indemnify
(a) any present or former Trust Manager, officer or shareholder (including
among the foregoing, any individual who, while a Trust Manager, officer or
shareholder at the express request of the Company, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise as a director, officer, shareholder, partner or trust
manager) who has been successful, on the merits or otherwise, in the defense
of a proceeding to which such person was made a party by reason of such
status, against reasonable expenses incurred by such person in connection with
the proceeding, (b) any present or former Trust Manager against any claim or
liability to which he may become subject by reason of his status as such
unless it is established that (i) his act or omission was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case
of a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful; and (c) each shareholder or former shareholder against
any claim or liability to which such person may become subject by reason of
such person's status as a shareholder or former shareholder.
In addition, the MGCL permits and the Company, under its Bylaws, is required
to pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a present or former Trust Manager, officer or
shareholder made party to a proceeding by reason of such person's status as a
Trust Manager, officer or shareholder provided that in the case of a Trust
Manager or officer, the Company shall have received in accordance with the
MGCL, (i) a written affirmation by the Trust Manager or officer of such
person's good faith belief that such person has met the applicable standard of
conduct necessary for indemnification by the Company as authorized by the
Bylaws and (ii) a written undertaking by or on such person's behalf to repay
the amount paid or reimbursed by the Company if it shall ultimately be
determined that he applicable standard of conduct was not met. The Company's
Bylaws also (i) permit the Company to provide indemnification and payment or
II-1
<PAGE>
reimbursement of expenses to a present or former Trust Manager, officer or
shareholder who served a predecessor of the Company, (ii) provide that any
indemnification or payment or reimbursement of expenses permitted by the Bylaws
shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Section 2-418 of
the MGCL for directors of Maryland corporations and (iii) permit the Company to
provide such other and further indemnification or payment or reimbursement of
expenses as may be permitted by the MGCL for directors of Maryland corporation.
For the undertaking with respect to the indemnification, see Item 17.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1* Form of Underwriting Agreement
2.1 Contribution Agreement, dated as of May 30, 1997, by and between Grove
Operating, L.P., Northeast Apartments I Limited Partnership, West
Hartford Center Associated Limited Partnership, Windsor Equity
Partnership and Windsor Commons Corporation (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K dated May
30, 1997 (Commission File No. 1-13080))
2.2 Form of First Amendment effective as of June 1, 1997 to Agreement of
Limited Partnership of Windsor Arbor Limited Partnership (incorporated
by reference to Exhibit 2.2 to the Company's Current Report on Form 8-
K dated May 30, 1997 (Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between Highland
Income Partners, L.P, as Seller, and Grove Corporation, a Purchaser
(incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated July 2, 1997 (Commission File No. 1-13080))
2.4* Purchase and Sale Agreement, dated September 5, 1997, by and between
Werner O. Kunzli, as Seller, and Grove Corporation, a Purchaser.
2.5* Grove Operating, L.P., Solicitation of Consent and Offer to Exchange
Certain Outstanding Units of Limited Partnership Interest in Grove-
Coastal Associates L.P. for Consideration of 3,435.5 Common Units of
Grove Operating, L.P. with an option to holders to instead receive
cash consideration, dated June 19, 1997, as supplemented on June 19,
1997, and Letter of Transmittal and Addendum to Letter of Transmittal
in connection therewith.
4.1 Form of Agreement of Limited Partnership of Grove Operating, L.P.,
among the Company and the other partners named therein (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated February 13, 1997 (Commission File No. 1-13080))
4.2 Revolving Credit Agreement dated March 26, 1997, among Grove
Operating, L.P., the Company and Rhode Island Hospital Trust National
Bank (a Bank of Boston company) and Other Banks which may become
parties to the Agreement and Rhode Island Hospital Trust National
Bank, as Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1997)
5 Opinion of Piper & Marbury L.L.P.
8* Opinion of Cummings & Lockwood re: Tax Matters.
10.1 Securities Purchase Agreement, dated March 14, 1997, between the
Company and Morgan Stanley Group Inc. (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.2 Securities Purchase Agreement, dated March 14, 1997, between the
Company and ABKB/LaSalle Securities Limited (incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.3 Form of Securities Purchase Agreement executed by other Investors in
the Private Placement (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K dated
March 14, 1997)
10.4 Registration Rights Agreement between the Company and the Investors
(incorporated by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
10.5 Multifamily Note, dated March 14, 1997, among Citicorp Real Estate,
Inc., GR-Properties III Limited Partnership, Foxwoodburg, L.P., Grove-
Westfield Associates Limited Partnership, Grove-West Springfield
Associates Limited Partnership and GR-Westwynd Associates Limited
Partnership (incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.6 Cash Management Agreement, dated as of March 14, 1997, among Citicorp
Real Estate, Inc., GR-Properties III Limited Partnership, Foxwoodburg,
L.P., Grove-Westfield Associates Limited Partnership, Grove-West
Springfield Associated Limited Partnership and GR-Westwynd Associates
Limited Partnership (incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.7 Form of Multifamily Open-End Mortgage Deed, Assignment of Rents and
Security Agreement, among Citicorp Real Estate, Inc. and each of GR-
Properties III Limited Partnership, Foxwoodburg, L.P., Grove-Westfield
Associates Limited Partnership, Grove-West Springfield Associates
Limited Partnership and GR-Westwynd Associates Limited Partnership
(incorporated by reference to Exhibit 10.7 to the Company's Current
Report on Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
10.8 Pledge Agreement, dated as of March 14, 1997, between Grove Operating,
L.P. and Citicorp Real Estate, Inc. (incorporated by reference to
Exhibit 10.8 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.9 Registration Rights Agreement, dated March 14, 1997, between the
Company and certain partners of Grove Operating, L.P. (incorporated by
reference to Exhibit 10.9 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.10 1994 Share Option Plan (incorporated by reference to Exhibit 10.16 to
the Company's Registration Statement on Form SB 2 (Commission File No.
33-76732))
10.11 1996 Share Incentive Plan (incorporated by reference to Exhibit 10.10
to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.12 Pledge Agreement, dated March 14, 1997, among Damon Navarro, Brian
Navarro, Edmund Navarro, Joseph LaBrosse, Gerald McNamara, National
Realty Services Limited Partnership, GIG, Burgundy Associates Limited
Partnership, Grove Equity Partnership, Grove Holding Co. Inc. and the
Company (incorporated by reference to Exhibit 10.11 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission File No.
1-13080))
10.13 Noncompetition Agreement among the Company, Grove Operating, L.P.,
National Realty Services Limited Partnership, GIG and Burgundy
Associates Limited Partnership (incorporated by reference to Exhibit
10.12 to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.14 Form of Noncompetition Agreement executed by each of Damon Navarro,
Brian Navarro, Joseph LaBrosse, Edmund Navarro and Gerald McNamara
(incorporated by reference to Exhibit 10.13 to the Company's Current
Report on Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
10.15* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Damon Navarro
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.16* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Brian Navarro
10.17* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Edmund Navarro
10.18* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Joseph LaBrosse
10.19* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Gerald McNamara
10.20 Employment Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.14 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.21* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Damon Navarro
10.22 Employment Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.15 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.23* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Brian Navarro
10.24 Employment Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.16 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.25* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Edmund Navarro
10.26 Employment Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.17 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.27* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Joseph LaBrosse
10.28 Employment Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit 10.18 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.29* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Gerald McNamara
10.30 Form of Contribution Agreement among the Company, Grove Operating,
L.P. and certain other parties (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated February 13,
1997 (Commission File No. 1-13080))
10.31 Form of Indemnification Agreement by and between the Company, the
Trust Managers and the Executive Officers (incorporated by reference
to Exhibit 10.18 to the Company's Registration Statement on Form SB 2
(Commission File No. 33-76732))
10.32 Assumption of Mortgage Deed and Security Agreement made June 23, 1994
by and among Southington Baron Limited Partnership, Charles D.
Gersten, Ada C. Berin, the Company, Damon D. Navarro and Brian A.
Navarro (incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10 KSB for the year ended December 31, 1994
(Commission File No. 1-13080))
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.33 Mortgage Note from Southington Baron Limited Partnership to Charles D.
Gersten and Ada C. Berin dated June 8, 1994 (incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10 KSB for the
year ended December 31, 1994 (Commission File No. 1-13080))
10.34 Purchase and Sale Agreement between the Company and Grove Cambridge
Associates Limited Partnership (incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated October 30, 1995
(Commission File No. 1-13080))
10.35 Mortgage Note from the Company to First Union Bank of Connecticut
dated January 11, 1996 (incorporated by reference to Exhibit 10.25 to
the Company's Annual Report on Form 10 KSB for the year ended December
31, 1995 (Commission File No. 1-13080))
23.1 Consent of Ernst & Young LLP
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5)
23.3 Consent of Cummings & Lockwood (included in Exhibit 8)
24** Power of Attorney
</TABLE>
- --------
* To be filed by amendment
**Previously filed
ITEM 17. UNDERTAKINGS
(b) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of any employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HARTFORD, STATE OF CONNECTICUT, ON
OCTOBER 30, 1997.
GROVE PROPERTY TRUST
/s/ Joseph R. LaBrosse
By __________________________________
Joseph R. LaBrosse
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES SHOWN ON THE 30TH DAY OF OCTOBER, 1997.
* Trust Manager and
_____________________________ Chairman of the Board
Damon D. Navarro and Chief Executive
Officer (Principal
executive officer)
* Trust Manager and Chief
_____________________________ Financial Officer
Joseph R. LaBrosse (Principal financial and
accounting officer)
* Trust Manager
_____________________________
Theodore R. Bigman
* Trust Manager
_____________________________
J. Joseph Garrahy
* Trust Manager
_____________________________
Harold V. Gorman
* Trust Manager
_____________________________
Edmund F. Navarro
* Trust Manager
_____________________________
James F. Twaddell
/s/ Joseph R. LaBrosse
*By _________________________
Joseph R. LaBrosse
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1 * Form of Underwriting Agreement
2.1 Contribution Agreement, dated as of May 30, 1997, by and between Grove
Operating, L.P., Northeast Apartments I Limited Partnership, West
Hartford Center Associated Limited Partnership, Windsor Equity
Partnership and Windsor Commons Corporation (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K dated May
30, 1997 (Commission File No. 1-13080))
2.2 Form of First Amendment effective as of June 1, 1997 to Agreement of
Limited Partnership of Windsor Arbor Limited Partnership (incorporated
by reference to Exhibit 2.2 to the Company's Current Report on Form 8-
K dated May 30, 1997 (Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between Highland
Income Partners, L.P, as Seller, and Grove Corporation, a Purchaser
(incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated July 2, 1997 (Commission File No. 1-13080))
2.4* Purchase and Sale Agreement, dated September 5, 1997, by and between
Werner O. Kunzli, as Seller, and Grove Corporation, a Purchaser.
2.5* Grove Operating, L.P., Solicitation of Consent and Offer to Exchange
Certain Outstanding Units of Limited Partnership Interest in Grove-
Coastal Associates L.P. for Consideration of 3,435.5 Common Units of
Grove Operating, L.P. with an option to holders to instead receive
cash consideration, dated June 19, 1997, as supplemented on June 19,
1997, and Letter of Transmittal and Addendum to Letter of Transmittal
in connection therewith.
4.1 Form of Agreement of Limited Partnership of Grove Operating, L.P.,
among the Company and the other partners named therein (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated February 13, 1997 (Commission File No. 1-13080))
4.2 Revolving Credit Agreement dated March 26, 1997, among Grove
Operating, L.P., the Company and Rhode Island Hospital Trust National
Bank (a Bank of Boston company) and Other Banks which may become
parties to the Agreement and Rhode Island Hospital Trust National
Bank, as Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1997)
5 Opinion of Piper & Marbury L.L.P.
8 * Opinion of Cummings & Lockwood re: Tax Matters.
10.1 Securities Purchase Agreement, dated March 14, 1997, between the
Company and Morgan Stanley Group Inc. (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.2 Securities Purchase Agreement, dated March 14, 1997, between the
Company and ABKB/LaSalle Securities Limited (incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other Investors in
the Private Placement (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.4 Registration Rights Agreement between the Company and the Investors
(incorporated by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.5 Multifamily Note, dated March 14, 1997, among Citicorp Real Estate,
Inc., GR-Properties III Limited Partnership, Foxwoodburg, L.P., Grove-
Westfield Associates Limited Partnership, Grove-West Springfield
Associates Limited Partnership and GR-Westwynd Associates Limited
Partnership (incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.6 Cash Management Agreement, dated as of March 14, 1997, among Citicorp
Real Estate, Inc., GR-Properties III Limited Partnership, Foxwoodburg,
L.P., Grove-Westfield Associates Limited Partnership, Grove-West
Springfield Associated Limited Partnership and GR-Westwynd Associates
Limited Partnership (incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.7 Form of Multifamily Open-End Mortgage Deed, Assignment of Rents and
Security Agreement, between Citicorp Real Estate, Inc. and GR-
Properties III Limited Partnership (incorporated by reference to
Exhibit 10.7 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.8 Pledge Agreement, dated as of March 14, 1997, between Grove Operating,
L.P. and Citicorp Real Estate, Inc. (incorporated by reference to
Exhibit 10.8 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.9 Registration Rights Agreement, dated March 14, 1997, between the
Company, Grove Operating, L.P. and certain partners of Grove
Operating, L.P. (incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.10 1994 Share Option Plan (incorporated by reference to Exhibit 10.16 to
the Company's Registration Statement on Form SB-2 (Commission File No.
33-76732))
10.11 1996 Share Incentive Plan (incorporated by reference to Exhibit 10.10
to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.12 Pledge Agreement, dated March 14, 1997, among Damon Navarro, Brian
Navarro, Edmund Navarro, Joseph LaBrosse, Gerald McNamara, National
Realty Services Limited Partnership, GIG, Burgundy Associates Limited
Partnership, Grove Equity Partnership, Grove Holding Co. Inc. and the
Company (incorporated by reference to Exhibit 10.11 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission File No.
1-13080))
10.13 Noncompetition Agreement, dated March 14, 1997, among the Company,
Grove Operating, L.P., National Realty Services Limited Partnership,
GIG and Burgundy Associates Limited Partnership (incorporated by
reference to Exhibit 10.12 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.14 Form of Noncompetition Agreement executed by each of Damon Navarro,
Brian Navarro, Joseph LaBrosse, Edmund Navarro and Gerald McNamara
(incorporated by reference to Exhibit 10.13 to the Company's Current
Report on Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
10.15* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Damon Navarro
10.16* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Brian Navarro
10.17* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Edmund Navarro
10.18* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Joseph LaBrosse
10.19* Amendment, dated as of October 15, 1997, to Noncompetition Agreement,
dated March 14, 1997, between the Company and Gerald McNamara
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.20 Employment Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.14 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.21* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Damon Navarro
10.22 Employment Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.15 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.23* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Brian Navarro
10.24 Employment Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.16 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.25* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Edmund Navarro
10.26 Employment Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.17 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.27* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Joseph LaBrosse
10.28 Employment Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit 10.18 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.29* Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Gerald McNamara
10.30 Form of Contribution Agreement among the Company, Grove Operating,
L.P. and certain other parties (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated February 13,
1997 (Commission File No. 1-13080))
10.31 Form of Indemnification Agreement by and between the Company, the
Trust Managers and the Executive Officers (incorporated by reference
to Exhibit 10.18 to the Company's Registration Statement on Form SB-2
(Commission File No. 33-76732))
10.32 Assumption of Mortgage Deed and Security Agreement made June 23, 1994
by and among Southington Baron Limited Partnership, Charles D.
Gersten, Ada C Berin, the Company, Damon D. Navarro and Brian A.
Navarro (incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994
(Commission File No. 1-13080))
10.33 Mortgage Note from Southington Baron Limited Partnership to Charles D.
Gersten and Ada C. Berin dated June 8, 1994 (incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994 (Commission File No. 1-13080))
10.34 Purchase and Sale Agreement between the Company and Grove Cambridge
Associates Limited Partnership (incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated October 30, 1995
(Commission File No. 1-13080))
10.35 Mortgage Note from the Company to First Union Bank of Connecticut
dated January 11, 1996 (incorporated by reference to Exhibit 10.25 to
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1995 (Commission File No. 1-13080))
23.1 Consent of Ernst & Young LLP
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5)
23.3 Consent of Cummings & Lockwood (included in Exhibit 8)
24** Power of Attorney
</TABLE>
- --------
* To be filed by amendment.
** Previously filed
<PAGE>
EXHIBIT 5
PIPER & MARBURY
LLP
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-3018
410-539-2530
FAX 410-539-0489
October 28, 1997
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Ladies and Gentlemen:
We have acted as special Maryland counsel to Grove Property Trust, a
Maryland real estate investment trust (the "Company"), in connection with the
preparation of a Registration Statement on Form S-2 (No. 333-38183) (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the registration of up to 5,175,000 common shares of
beneficial interest, $.01 par value, of the Company (the "Shares").
In our capacity as Maryland counsel, we have reviewed the Third Amended
and Restated Declarations of Trust of the Company (the "Declaration of Trust"),
Articles Supplementary effective October 24, 1997, a copy of the By-laws of the
Company certified by an officer of the Company as currently in effect and as in
effect prior to March 10, 1997 (the "By-laws"), the Registration Statement,
resolutions of the Board of Trust Managers of the Company authorizing the
issuance of the Shares and the Registration Statement; good standing certificate
for the Company, dated as of a recent date, issued by the Maryland State
Department of Assessments and Taxation, an Officer's Certificate of the Company
dated as of the date hereof as to certain factual matters (the "Officer's
Certificate"), and such other documents as we have considered necessary to the
rendering of the opinions expressed below.
In such examination, we have assumed, without independent investigation,
the genuineness of all signatures, the legal capacity of all individuals who
have executed any of the aforesaid documents, the authenticity of all documents
submitted to us as originals, the conformity with originals of all documents
submitted to us as copies and that all public records received are accurate and
complete. As to any facts material to this
<PAGE>
PIPER & MARBURY
L.L.P.
Grove Property Trust
October 28, 1997
Page 2
opinion which we did not independently establish or verify, we have relied
solely upon the Officer's Certificate.
On the basis of the foregoing we are of the opinion that:
1. The Company has been duly formed and is validly existing in good
standing as a real estate investment trust under the laws of the State of
Maryland.
2. The Shares have been duly authorized and when issued and delivered
in the manner described under "Underwriting" in the Registration Statement in
return for the consideration, in an amount not less than the par value thereof,
described in the resolutions approving the issuance of said shares, the Shares
will be duly issued, fully paid and non assessable.
The foregoing opinions are limited to the laws of the State of Maryland,
exclusive of securities or "blue sky" laws. We assume no obligation to
supplement this opinion if any applicable laws change after the date hereof or
if we become aware of any facts that might change the opinions expressed herein
after the date hereof. We hereby consent to the filing of this opinion as
Exhibit 5 to the Registration Statement and to the reference to our firm in the
Registration Statement.
Very truly yours
Piper & Marbury L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts,"
"Summary Selected Financial Information" and "Selected Financial Information"
and to the use of our reports dated September 2, 1997 for: (i) the financial
statements of Grove Property Trust at December 31, 1996 and for each of the
two years in the period ended December 31, 1996, (ii) the combined financial
statements of Grove Property Services Limited Partnership and Property
Partnerships at December 31, 1996 and for each of the two years in the period
ended December 31, 1996, (iii) the combined statements of revenues and certain
expenses of the Post March 1997 Property Acquisitions for each of the two
years in the period ended December 31, 1996 and (iv) the combined statements
of revenue and certain expenses of the Pending 1997 Property Acquisitions--
Affiliates for each of the two years in the period ended December 31, 1996 and
our report dated October 3, 1997 for the statement of revenues and certain
expenses of the Pending 1997 Property Acquisitions--Non-Affiliates for the
year ended December 31, 1996, in the Registration Statement (Amendment No. 1)
(Form S-2 No. 333-38183) and related Prospectus of Grove Property Trust for
the registration of 4,500,000 shares of its common stock.
We also consent to the incorporation by reference therein of our report
dated September 2, 1997 with respect to the audited financial statements of
Grove Property Trust at December 31, 1996, and for each of the two years in
the period ended December 31, 1996, appearing in Grove Property Trust's Annual
Report on Form 10-K for the year ended December 31, 1996, as amended and our
reports with respect to the statements of revenues and certain expenses for:
(i) Four Winds Apartments for the period September 28, 1995 to December 31,
1995 and for the year ended December 31, 1996 (dated May 22, 1997), (ii)
Brooksyde for the periods January 1, 1995 to September 30, 1995, October 1,
1995 to December, 31, 1995 and the year ended December 31, 1996 (dated July 1,
1997), (iii) River's Bend for the years ended December 31, 1995 and 1996
(dated May 22, 1997) and (iv) Greenfield Village for the years ended December
31, 1995 and 1996 (dated July 1, 1997), included in Grove Property Trust's
Current Reports on Forms 8-K, dated May 30, 1997 and July 2, 1997, both as
amended, and all as filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
October 28, 1997
