SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Amendment No. 1
to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 2, 1997
GROVE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 1-13080 06-1391084
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification Number)
598 Asylum Avenue, Hartford, Connecticut 06105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (860) 246-1126
N/A
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Summit and Birch Hill Apartments
Statement of Revenue and Certain Expenses for the nine months ended September
30, 1997 and the year ended December 31, 1996 and for the period February 21,
1995 (date operations commenced) to December 31, 1995.
Glastonbury Center Apartments
Statement of Revenue and Certain Expenses for the nine months ended September
30, 1997 and years ended December 31, 1996 and 1995.
(b) Pro Forma Financial Statements
Pro Forma Condensed Balance Sheet as of September 30, 1997. Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1996 and
the nine months ended September, 1997.
(c) Exhibits.
2.1 Offer to Exchange All Outstanding Units of Limited Partership Interest,
dated as of June 16, 1997 by Grove Operating L.P. to the limited partners
of and Farmington Summit Associates Limited Partnership
2.2 Offer to Exchange All Outstanding Units of Limited Partnership Interest,
dated as of June 17, 1997 by Grove Operating L.P. to the limited partners
of Heritage Court Associates Limited Partnership
<PAGE>
GROVE PROPERTY TRUST
Financial Statements of Properties Acquired and Pro Forma
Financial Information
Table of Contents
Item 7
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statements of Income for the Six Months
Ended June 30, 1997 and the Year Ended December 31, 1996
Notes to the Pro Forma Condensed Consolidated Statements of Income
SEPTEMBER 1997 PROPERTY ACQUISITIONS
Combined Financial Statements:
Report of Independent Auditors
Combined Statements of Revenues and Certain Expenses for the Years Ended
December 31, 1996 and 1995 and for the six months ended June 30, 1997
(Unaudited)
Notes to the Combined Statements of Revenues and Certain Expenses
<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 between July 1, 1997 and September 30, 1997, had
occurred on June 30, 1997, and (ii) the Company used borrowings under the new
Revolving Credit Facility, issued Operating Partnership Units and/or used
working capital to purchase such properties. The unaudited Pro Forma Condensed
Consolidated Balance Sheet should be read in conjunction with the Combined
Financial Statements of Grove Property Services Limited Partnership and Property
Partnerships, Grove Property Trust (F/K/A Grove Real Estate Asset Trust), the
September 1997 Property Acquisitions, the financial statements of other
properties acquired during 1997 and the related Notes thereto included herein or
as filed on the Company's Form 10-KSB, as amended, for the year ended December
31, 1996 and on Form 10-QSB, as amended, for the six months ended June 30, 1997
and Forms 8-K, as amended, during 1997. 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
-----------------------------------------------------------
Other Post September 1997
Historical June 1997 Property
Company Acquisitions As Acquisitions Pro Forma
(A) (B) Adjusted (B) Consolidated
------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Real estate, net ......... $ 92,413 $ 4,367 $ 96,780 $ 16,036 $112,816
Cash and cash equivalents 1,762 (667) 1,095 (517) 578
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 $ 3,700 $102,124 $ 15,519 $117,643
======== ======== ======== ======== ========
See accompanying notes.
<PAGE>
</TABLE>
<TABLE>
Grove Property Trust
Pro Forma Condensed Consolidated Balance Sheet (continued)
(Unaudited)
<CAPTION>
June 30, 1997
-------------------------------------------------------------------
September 1997
Other Post Property
Historical June 1997 Acquisitions
Company Acquisitions (B) Pro Forma
(A) (B) As Adjusted Consolidated
----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Mortgage notes payable ........................ $ 44,028 $ -- $ 44,028 $ 9,772 $ 53,800
Revolving credit facility ..................... 1,825 8,600 10,425 2,300 12,725
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 8,600 58,301 12,072 70,373
Minority interests in consolidated partnerships 6,395 (4,900) 1,495 -- 1,495
Minority interest in operating partnership .... 17,488 -- 17,488 3,447 20,935
Shareholders' equity:
Common shares .............................. 40 -- 40 -- 40
Additional paid-in capital ................. 25,466 -- 25,466 -- 25,466
Distributions in excess of earnings ........ (666) -- (666) -- (666)
---- ------ ---- ----
Total shareholders' equity .................... 24,840 -- 24,840 -- 24,840
------ ------- ------ ------- ------
Total liabilities and shareholders' equity .... $ 98,424 $ 3,700 $ 102,124 $ 15,519 $ 117,643
========= ========= ========= ========= =========
See accompanying notes.
</TABLE>
<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's consolidated financial
statements as of and for the six months ended June 30, 1997 (Unaudited) as
filed on its Form 10-QSB, as amended.
(B) Balance sheet data reflects the following acquisitions of properties and
an interest in a property which were consummated by the Company between
July 1, 1997 and September 30, 1997 as follows (in thousands):
<TABLE>
<CAPTION>
Method of Payment
--------------------------------------------
Revolving Assumption Value of
Number of Purchase Available Credit of OP
Properties Location Units Date Acquired Price(5) Cash Facility Mortgage Units
Debt (1)
- ----------------------- --------------- ------------ -------------------- --------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Post June 1997 Acquisitions
1. Greenfield Village Rocky Hill, CT 126 July 1, 1997(2) $ 4,367 $ 667 $ 3,700 $ - $ -
2. River's Bend Windsor, CT 349 September 30, 4,900 - 4,900 - -
1997(4)
--------- ---------- ---------- ------------ ---------
9,267 667 8,600 - -
---------- ---------- ------------ ---------
Less amounts consolidated in historical financial statements at June (4,900)
30, 1997 (4)
---------
4,367
---------
September 1997 Acquisitions
3. Glastonbury Center Glastonbury, 104 September 1, 5,404 150 397 4,423 434
CT 1997(3)
4. Summit and Birch
Hill Farmington, CT 184 September 1, 10,632 367 1,903 5,349 3,013
(2 properties) 1997(3)
--------- ---------- ---------- ------------ ---------
$16,036 517 2,300 9,772 3,447
========= ========== ========== ============ =========
$ 1,184 $ 10,900 $ 9,772 $ 3,447
========== ========== ============ =========
<FN>
(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 3
and 4 above was $10.50 per OP Unit, representing actual amounts.
(2) The Company previously filed Form 8-K, as amended, with respect to this
acquisition.
(3) Glastonbury Center and Summit and Birch Hill are collectively referred
to as the "September 1997 Property Acquisitions".
(4) 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.
(5) Includes closing costs.
</FN>
</TABLE>
<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) Grove Property Services Limited Partnership and Property
Partnerships and other properties and interests in properties which were
acquired between January 1, 1996 and September 30, 1997, were acquired by the
Company and (ii) the Consolidation Transactions, including the New Equity
Investment and Refinancings, all had occurred as of January 1, 1996. The
unaudited Pro Forma Condensed Consolidated Statements of Income should be read
in conjunction with the Consolidated Financial Statements of the Company, the
Combined Financial Statements of Grove Property Services Limited Partnership and
Property Partnerships, the September 1997 Property Acquisitions and financial
statements of other properties and interests in properties acquired between
January 1, 1996 and September 30, 1997 and related Notes thereto included herein
or as filed on the Company's Form 10-KSB, as amended, for the year ended
December 31, 1996 and on Form 10-QSB, as amended, for the six months ended June
30, 1997 and Forms 8-K, as amended, during 1997. 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.
<PAGE>
<TABLE>
<CAPTION>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income (continued)
(Unaudited)
Six Months Ended June 1997
--------------------------------------------------------------------------------
Other
Post September
January 1997
Historical 1996 Property
Acquis- Management Acquis-
Company itions Pro Forma Company As itions Pro Forma
(A) (B) Adjustments Adjustments Adjusted (B) Consolidated
-----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income ........ $ 5,438 $ 5,076 $ -- $ (9)(G) $10,505 $ 1,257 $ 11,762
Property management .. 218 330 -- (295)(H) 253 -- 253
Interest and other ... 128 251 -- (4)(G) 375 9 384
-------- -------- -------- -------- -------- -------- -------
Total revenues ....... 5,784 5,657 -- (308) 11,133 1,266 12,399
-------- -------- -------- -------- -------- -------- --------
Expenses:
Related party
management fees ... 22 273 -- (295)(H) -- -- --
Real estate taxes .... 542 580 -- -- 1,122 117 1,239
Other property
operating 1,964 2,360 (20)(G) (71)(G)
40 (G) 4,273 467 4,740
General and
administrative .... 30 (F)
347 36 (9)(G) 71 (G) 475 -- 475
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses .......... 2,875 3,249 1 (255) 5,870 584 6,454
-------- -------- -------- -------- -------- -------- --------
Net operating income . 2,909 2,408 (1) (53) 5,263 682 5,945
Interest expense ..... 777 857 628(C) -- 2,262 370(C) 2,632
Depreciation and ..... 1,155 617 (11)(D)
amortization ...... 480(E) -- 2,241 2,41(E) 2,482
-------- -------- -------- ------ -------- -------- --------
Income before minority
interests ......... 977 934 (1,098) (53) 760 71 831
Minority interests in
earnings of
consolidated
partnerships ...... 49 -- (23) -- 26 -- 26
Minority interest in
earnings of
Operating
Partnership ....... 314 -- (6)(J) -- 308 30(J) 338
--- ---- -- ----- --- -- --
Net income ........... $ 614 $ 934 $ (1,069) $ (53) $ 426 $ 41 $ 467
======== ======== ======== ======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income (continued)
(Unaudited)
Year Ended December 31, 1996
---------------------------------------------------------------------------------------------------
Other Post September
January 1996 1997
Historical Acquisitions Management Property
Company (A) (B) Pro Forma Company Acquisitions Pro Forma
Adjustments Adjustments As Adjusted (B) Consolidated
---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income $ 2,046 $ 18,018 $ - $ (30)(G) $ 20,034 $ 2,471 $ 22,505
Property management - 777 - (315)(H) 462 - 462
Interest and other 36 1,219 (138)(G) (204)(G) 506
(307)(G)
(100)(I) 29 535
---------------------------------------------------------------------------------------------------
Total revenue 2,082 20,014 (138) (956) 21,002 2,500 23,502
---------------------------------------------------------------------------------------------------
Expenses:
Related party
management fees 109 206 - (315)(H) - - -
Real estate taxes 208 2,070 - - 2,278 235 2,513
Other property
operating 656 7,759 (149)(G) (492)(G) 7,774 807 8,581
General and 67 344 120 (F)
administrative (74)(G) 492 (G) 949 - 949
---------------------------------------------------------------------------------------------------
Total operating
expenses 1,040 10,379 (103) (315) 11,001 1,042 12,043
---------------------------------------------------------------------------------------------------
Net operating income 1,042 9,635 (35) (641) 10,001 1,458 11,459
Interest expense 394 3,814 424 (C) - 4,632 744 (C) 5,376
Depreciation and 387 3,011 (6)(D)
amortization 1,115 (E) - 4,507 481 (E) 4,988
---------------------------------------------------------------------------------------------------
Income before minority
interest 261 2,810 (1,568) (641) 862 233 1,095
Minority interest in
earnings of
Operating - - 362 (J) - 362 98 (J) 460
Partnership
===================================================================================================
Net income $ 261 $ 2,810 $(1,930) $ (641) $ 500 $ 135 $ 635
===================================================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
<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 as filed on the Company's Form 10-KSB, as
amended, for the year ended December 31, 1996 and on Form 10-QSB, as
amended, for the six months ended June 30, 1997.
(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.
Property/Entity Date Acquired
--------------- -------------
Other Post January 1996 Property Acquisitions
1. Cambridge January 12, 1996
2. Grove Property Services Limited Partnership
and Property Partnerships (20 properties
and management company)(1) March 14, 1997
3. Four Winds June 1, 1997
4. Brooksyde June 1, 1997
5. River's Bend June 1, 1997
(28.9% controlling interest)
September 30, 1997
(71.1% non-controlling interest)
6. Greenfield Village July 1, 1997
September 1997 Property Acquisitions(2)
7.Glastonbury Center September 1, 1997
8. Summit and Birch Hill (2 properties) September 1, 1997
(1) The historical financial statements as filed on the Company's Form
10-KSB, as amended, for the year ended December 31, 1996 include a
property (Talcott Forest) which was not included in the Consolidation
Transactions and has been omitted herein.
(2) See separate financial statements elsewhere herein.
<PAGE>
(C) Represents the following:
Six Months Ended Year Ended
June 30, 1997 (1) December 31, 1996
----------------------------------------
September 1997 Acquisitions
Pro forma interest expense $ 370 $ 744
========================================
Other Post June 1997 Acquisitions
Pro forma interest expense on
refinanced debt and the new
Revolving Credit Facility $ 1,357 $ 3,588
Historical interest expense
on refinanced debt (729) (3,164)
========================================
$ 628 $ 424
========================================
(1) The New Equity Investment was effective 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) were
received by the Company in connection with the New Equity Investment on January
1, 1996, and that the remaining cash requirements were drawn down from the new
Revolving Credit Facility or working capital.
(D) Represents the following:
Six Months Ended Year Ended
June 30, 1997(1) December 31, 1996
-----------------------------------------
Pro forma deferred financing
amortization costs on new or
refinanced loans $ 26 $ 139
Historical deferred financing
amortization costs on refinanced
loans or loans retired early (37) (145)
=========================================
$ (11) $ (6)
=========================================
(1) The New Equity Investment was effective March 14, 1997. The historical
financial information for the period March 15, 1997 to June 30, 1997
already takes effect for this transaction.
<PAGE>
(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.
(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. The historical
Company Statement of Income reflects this non-cash compensation expense
from March 15, 1997 through June 30, 1997.
(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
(predominantly 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, 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 Transactions and that the Company will commence
providing, as follows:
Six Months Year Ended
Ended December 31,
June 30, 1997 1996
--------------------------
(i) Non-recurring property operating expenses $ 20 $ 149
(i) Non-recurring rental revenues 9 30
(i) Non-recurring other revenues - 204
(ii) Gain on sales of apartments - 138
(ii) Brokerage services - other revenues 4 307
(iii)Reclassification of other property operating
to general and administrative 71 492
(iv) Decrease in general and administrative 9 74
(v) Increase in property operating expenses 40 -
(H) Elimination of intercompany management fees.
(I) Elimination of non-recurring commission received from an affiliate.
(J) Based upon 2,860,458 OP Units to be owned by Limited Partners and
3,953,829 Common Shares (OP Units are exchangeable on a one-for-one basis
into Common Shares) assumed to be outstanding, as follows:
Common Shares
OP Units
------------------------------------
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 - 325,836
====================================
3,953,829 2,860,458
====================================
====================================
58.02% 41.98%
====================================
<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
September 1997 Property Acquisitions (the "Properties"), as described in Note 1,
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 Form 8-K, as amended, as
described in Note 2 of Grove Property Trust 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 of the September 1997 Property Acquisitions as
described in Note 1 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
<PAGE>
September 1997 Property Acquisitions
Combined Statements of Revenues and Certain Expenses
Six Months
Ended
June 30, Year Ended
1997 December 31,
(Unaudited) 1996 1995
----------- ---- ----
(In thousands)
Revenues:
Rental income $ 1,257 $ 2,471 $ 2,178
Miscellaneous income 9 29 14
----------- ----------- ------------
Total revenues 1,266 2,500 2,192
----------- ----------- ------------
Certain expenses:
Property operating and maintenance 467 807 598
Real estate taxes 117 235 208
Related party management fees 28 57 55
----------- ----------- ------------
612 1,099 861
=========== =========== ============
Revenues in excess of certain expenses $ 654 $ 1,401 $ 1,331
=========== =========== ============
See accompanying notes.
<PAGE>
September 1997 Property Acquisitions
Notes to the Combined Statements of Revenues and Certain Expenses
Years Ended December 31, 1995 and 1996
1. Business
The accompanying Combined Statements of Revenues and Certain Expenses relate to
the operations of certain "Properties" known as Glastonbury, Summit and Birch
Hill (three residential properties in Connecticut with 288 units, in the
aggregate). The Properties were acquired on September 1, 1997, by Grove Property
Trust (the "Company"). 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. The accompanying combined statement of
revenues and certain expenses for the year ended December 31, 1995, includes the
operations of these two properties from the date of acquisition by the
affiliate.
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 Form 8-K, as amended, 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.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Interim Unaudited Information
The accompanying 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 are not necessarily indicative of the results to be obtained for a full
fiscal year.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this amendment to its report to be signed on its
behalf by the undersigned hereunto duly authorized.
GROVE PROPERTY TRUST
Date: November 17, 1997 By:/s/ Joseph R. LaBrosse
---------------------------
Joseph R. LaBrosse
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
2.1 Offer to Exchange All Outstanding Units of Limited Partership Interest,
dated as of June 16, 1997 by Grove Operating L.P. to the limited partners
of and Farmington Summit Associates Limited Partnership
2.2 Offer to Exchange All Outstanding Units of Limited Partnership Interest,
dated as of June 17, 1997 by Grove Operating L.P. to the limited partners
of Heritage Court Associates Limited Partnership
<PAGE>
GROVE OPERATING, L.P.
Offer to Exchange
All Outstanding
Units of Limited Partnership Interest
in
FARMINGTON SUMMIT ASSOCIATES LIMITED PARTNERSHIP
for consideration of
5,587.7 Common Units of Grove Operating, L.P.
with an option to holders to instead receive cash consideration
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK TIME, ON FRIDAY, AUGUST 15,
1997, UNLESS EXTENDED.
Grove Operating, L.P., a recently formed Delaware limited partnership
(the "Operating Partnership"), is offering to exchange all outstanding units of
limited partnership interest ("Units") in Farmington Summit Associates Limited
Partnership (the "Property Partnership"), for consideration per Unit of 5,587.7
Common Units of the Operating Partnership or, at the option of the holder,
consideration per Unit of $54,446 (the "Cash Consideration") in cash, in each
case to be pro rated in respect of fractional Units, upon the terms and subject
to the conditions set forth in this Exchange Offer dated June 16, 1997
(including the annexes hereto, the "Offer to Exchange") and in the related
Letter of Transmittal, as each may be supplemented or amended from time to time
(all of which constitute the "Exchange Offer"). The Exchange Offer is made to
all limited partners of record of the Property Partnership (the "Limited
Partners") as of the date of this Exchange Offer.
A Limited Partner must tender all of the Units owned by it in the Property
Partnership if it wishes to tender any Units. A Limited Partner must also
complete and return an Accredited Investor Questionnaire in order to participate
in the Exchange Offer. See "THE EXCHANGE OFFER-Section 3. Procedures for
Tendering Property Partnership Units."
The General Partner of the Operating Partnership is Grove Property Trust, a
Maryland real estate investment trust. See "THE EXCHANGE OFFER-Section 8.
Certain Information Concerning the Purchaser" and "Section 9. Interests of
Certain Persons and Certain Transactions."
The Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time: (i) to extend the period of time
during which this Exchange Offer is open and thereby delay the acceptance for
payment of, and the payment for, any Units; (ii) to terminate this Exchange
Offer and not accept for payment any Units not theretofore accepted for payment
or paid for if any of the conditions referred to in Section 11 have not been
satisfied or upon the occurrence of the events specified in Section 12; (iii)
upon the occurrence of any of the
conditions specified in Section 11, to delay the acceptance for payment of, or
payment for, any Units not theretofore accepted for payment or paid for, and
(iv) to amend this Exchange Offer. See "THE EXCHANGE OFFER."
THE COMMON UNITS IN THE OPERATING PARTNERSHIP OFFERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER THE
SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THIS OFFER TO EXCHANGE HAS NOT BEEN FILED WITH OR REVIEWED BY THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION PRIOR TO ITS ISSUANCE AND USE. NEITHER
THE COMMISSION NOR ANY STATE'S SECURITIES LAW ADMINISTRATOR HAS REVIEWED THE
ACCURACY OR ADEQUACY OF THE INFORMATION PRESENTED HEREBY OR ENDORSED THE MERITS
OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE COMMON UNITS IN THE OPERATING PARTNERSHIP ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
EACH LIMITED PARTNER IS URGED TO READ CAREFULLY THIS ENTIRE OFFER TO EXCHANGE,
THE LETTER OF TRANSMITTAL AND RELATED DOCUMENTS.
<PAGE>
<TABLE>
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TABLE OF CONTENTS
Page
<C> <S>
INTRODUCTION 1
FORWARD LOOKING STATEMENTS 3
DISCLOSURE MATERIALS 4
THE CONSOLIDATION TRANSACTIONS 5
Background 5
The Consolidation 5
Reasons for the Consolidation 8
Opportunity for Growth 11
Increased Marketability/Liquidity 11
Alternatives to the Consolidation 11
Valuation of Properties and Other Assets; Allocation
of Common Units 12
SPECIAL FACTORS 14
Ownership of Common Units 14
Risk Factors-Common Units 16
RISK FACTORS 18
Generally 18
Potential Adverse Effects of the Exchange Offer; Risk Factors 20
BENEFITS TO RELATED PARTIES 27
CONFLICTS OF INTEREST 29
THE COMPANY 31
The Grove Companies 31
Grove Property 31
Trust Managers and Executive Officers 32
Common Units Issued to Executive Officers in Connection with Consolidatio 37
Security Ownership of Certain Beneficial Owners and Management 38
Compensation of the Trust Managers 43
Non-Competition Agreements 43
Property Management Services 44
Management Division Operations 45
Accounting Services 45
Property Marketing 45
Construction Services 46
Business Operations and Operating Strategies 46
Acquisition and Development Strategy 47
Redevelopment 48
Future Acquisitions 48
Markets 49
Multifamily 49
Rental Rates and Occupancy 50
Competition 50
PROPERTY INFORMATION 50
Description of the Properties 50
New Acquisitions 51
FINANCIAL INFORMATION 53
Selected Financial and Operating Data 53
VALUATION OF PARTNERSHIP UNITS 53
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES 55
Gain or Loss on the Exchange for Common Units 55
Gain or Loss on an Exchange for Cash Consideration 57
Federal Income Tax Consequences of Holding Common Units in the 58
Operating
Partnership
State and Other Tax Considerations 59
SUMMARY OF ERISA CONSIDERATIONS 59
Plan Assets---In General 60
Application of DOL Regulation to GROVE PROPERTY 60
Application of DOL Regulation to the Purchaser 61
THE OP PARTNERSHIP AGREEMENT 62
Management 62
Indemnification 62
Transferability of Interests 63
Issuance of Additional Common Units 64
Capital Contribution 64
Awards Under Stock Incentive Plan 64
Distributions 65
Limited Partner Redemption/Exchange Rights 65
Tax Matters 65
Operations 65
Certain Limited Partner Approval Rights 65
Term 66
ADDITIONAL INFORMATION 66
GLOSSARY 66
THE EXCHANGE OFFER 74
Section 1. Terms of this Exchange Offer 74
Section 2. Acceptance of and Payment for Property Partnership Units 74
Section 3. Procedures for Tendering Property Partnership Units 75
Section 4. Withdrawal Rights 77
Section 5. Extension of Tender Period; Termination; Amendments 78
Section 6. Certain Federal Income Tax Consequences 79
Section 7. Certain Information Concerning the Property Partnership 79
Section 8. Certain Information Concerning the Purchaser 79
Section 9. Interests of Certain Persons and Certain Transactions 80
Section 10. Sources of Funds 81
Section 11. Conditions of this Exchange Offer 81
Section 12. Certain Legal Matters 82
Section 13. Fees and Expenses 83
Section 14. Other Matters 83
</TABLE>
APPENDIX A. Text of amendments to the Amended and Restated Limited Partnership
Agreement of Farmington Summit Associates Limited Partnership, together with
legal opinion
APPENDIX I. Financial Information relating to Grove Property Trust, its Form
10-QSB for the quarter ended March 31, 1997, its Form 8-K dated May 30, 1997,
and other materials available upon request
<PAGE>
INTRODUCTION
The Purchaser hereby offers to purchase all outstanding units of
limited partnership interest (collectively, "Units") of Farmington Summit
Associates Limited Partnership (the "Property Partnership") for Equity
Consideration per Unit of 5,587.7 units of limited partnership interests
("Common Units") in Grove Operating, L.P., a Delaware limited partnership (the
"Operating Partnership" or the "Purchaser") (pro rated in respect of fractional
Units), upon the terms and subject to the conditions set forth in this Exchange
Offer and the related Letter of Transmittal, as each may be supplemented or
amended from time to time, with an option to holders to instead receive cash.
See "-- Cash Consideration." Limited Partners who tender Units in this Exchange
Offer will not be obligated to pay any partnership transfer fees, which fees, if
any, will be borne by the Purchaser.
Purpose of this Exchange Offer. This Exchange Offer is being made to
the Limited Partners of Farmington Summit Associates Limited Partnership (each,
a "Limited Partner" and, collectively, the "Limited Partners"). On March 14,
1997, the Operating Partnership completed the "Consolidation Transactions"
described below. As a result of the Consolidation Transactions, Grove Property
Trust, a Maryland real estate investment trust ("Grove Property"), became a
self-administered and self-managed real estate investment trust ("REIT") with
control over a portfolio of 26 multifamily residential projects and a
neighborhood shopping center in the Northeastern United States. Grove Property
is the sole general partner of the Operating Partnership. The properties owned
by the Property Partnership appear attractive to the Operating Partnership and
satisfy the Operating Partnership's growth strategy to acquire additional
multifamily housing in the Northeastern United States. This Exchange Offer
provides Limited Partners of the Property Partnership with an opportunity to
either currently liquidate their interest in the Property Partnership, or to
acquire an interest in the Operating Partnership on a tax-free basis, which may
provide greater risk diversification and enhance the opportunity for additional
growth, with an enhanced ability to liquidate their interest in the Operating
Partnership within one year following the completion of this Exchange Offer.
Conditions. The Exchange Offer is conditioned upon the tender of a
minimum of 66-2/3% of the outstanding Units of the Property Partnership and/or
the receipt of proxies representing 66-2/3% of the outstanding Units so that,
together with the Units the Purchaser is acquiring concurrently with the
expiration of the Exchange Offer, the Purchaser has obtained the requisite
consent of Limited Partners to liquidate the Property Partnership as described
in this Exchange Offer. See "--Liquidation of Property Partnership." A Limited
Partner must tender all of its Units in the Partnership if it wishes to tender
Units, and may not tender only a portion of its Units.
Equity Consideration. Each tendering Limited Partner other than a
Non-Accredited Participant will receive, upon consummation of the Exchange
Offer, 5,587.7 Common Units for each Unit so tendered in total consideration for
the exchange of such Unit, unless such holder elects to receive Cash
Consideration. Notwithstanding the foregoing, if a tendering Limited Partner is
a "benefit plan investor," as defined in 29 CFR Section 2510.3-101, and the
Purchaser determines, in its sole discretion, that the ownership of Common Units
by benefit plan investors should be restricted to avoid having its assets deemed
to be "plan assets" for purposes of the fiduciary requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the prohibited
transaction provisions of ERISA and/or Internal Revenue Code ("Code") Section
4975, (a) the number of Common Units received by such tendering Limited Partner
will be limited to the extent that the Purchaser, in its sole discretion, deems
necessary or appropriate, and (b) such Limited Partner will receive Cash
Consideration (described below) for any Units tendered pursuant to the Exchange
Offer for which it does not receive Common Units.
Cash Consideration. Each tendering Limited Partner which is not an
Accredited Investor, and each Accredited Investor which otherwise elects, will
receive, upon consummation of the Exchange Offer, $54,446 in Cash Consideration
for each Unit so tendered in total consideration for the exchange of such Unit.
The amount of Cash Consideration represents the value placed on the Equity
Consideration, assuming $10.50 per Common Unit, less 7.2%, which the Purchaser
estimates is its cost attributable to the New Equity Investment.
The Equity Consideration and the Cash Consideration assume that the
value of a Common Share in Grove Property will be $10.50, thereby placing a
value of $10.50 on a Common Unit. Please note that the value of a Common Unit is
fixed for purposes of this Exchange Offer, and the amount of Equity
Consideration and the Cash Consideration to be received by the Participants will
not decrease or increase if the actual market price of Grove Property Common
Shares is more or less than $10.50 per Common Share.
Liquidation of Property Partnership. The partnership agreement of the
Property Partnership (the "Property Partnership Agreement") contains provisions
which would restrict the Operating Partnership's ability to obtain advantages
similar to those secured under the Consolidation Transactions. Among other
things, the Property Partnership Agreement restricts the Operating Partnership
from being admitted as a general partner without the consent of all of the
Limited Partners. In connection with the Exchange Offer, Limited Partners of the
Property Partnership who tender their Units therein will also be consenting to
(i) an amendment to the Property Partnership Agreement to permit the "in-kind"
distribution of the Partnership Property to the Operating Partnership and its
affiliates in connection with the liquidation of the Property Partnership, and
(ii) authorize the liquidation and dissolution of the Property Partnership.
See Appendix A to this Exchange Offer for the complete text of the
proposed amendment to the Property Partnership Agreement.
Property Partnership's Position with Respect to this Exchange Offer.
The general partner of the Property Partnership, FLSP, Inc., is a Connecticut
corporation wholly owned by Grove Holding Company, Inc., which in turn is owned
fifty percent by Damon Navarro and fifty percent by Brian Navarro, Affiliates of
Grove Companies and the general partner of the Operating Partnership. Because of
affiliations between the Purchaser and the general partner of the Property
Partnership, the Property Partnership has advised the Purchaser that the
Property Partnership and the general partner of the Property Partnership make no
recommendation, and are remaining neutral, as to whether a Limited Partner of
the Property Partnership should tender its Units in this Exchange Offer. See
"THE EXCHANGE OFFER-Section 9. Interests of Certain Persons and Certain
Transactions" and "CONFLICTS OF INTEREST." However, the general partner of the
Property Partnership hereby recommends that each Limited Partner vote in favor
of the Property Partnership Amendments, regardless of whether such Limited
Partner participates in the Exchange Offer, so that Limited Partners which elect
to do so are able to participate in this Exchange Offer and receive the benefits
thereof.
Limited Partners who elect not to tender their Units should be aware that there
are certain potential detriments to this Exchange Offer. In addition to the risk
factors described elsewhere in this Exchange Offer Statement relating to an
investment in Common Units and Common Shares, Limited Partners who elect not to
tender their Units should consider the following: The Operating Partnership will
vote (i) to amend the Property Partnership Agreement to permit an "in-kind"
distribution to the Operating Partnership in connection with the liquidation of
the Property Partnership, and (ii) to liquidate the Property Partnership and
distribute its assets. The Operating Partnership will lend funds to the Property
Partnership to enable it to make cash distributions to the other Limited
Partners upon liquidation, and the Partnership Property will then be distributed
to the Operating Partnership and a cash distribution will be made to the other
Limited Partners.
Limited Partners who elect not to tender their Units should be aware
that the general partner of the Property Partnership and the Operating
Partnership, as a Limited Partner of the Property Partnership, intend to vote in
favor of the above-described amendment to the Property Partnership Agreement and
to liquidate the Property Partnership. Limited Partners other than the Operating
Partnership will receive a cash distribution of approximately $54,446 per Unit
when the Property Partnership is liquidated. The Operating Partnership expects
that this cash distribution and liquidation will occur promptly after
consummation of this Exchange Offer.
FORWARD LOOKING STATEMENTS
THIS EXCHANGE OFFER, INCLUDING MATERIALS ATTACHED, OR REFERENCED IN
APPENDIX I HERETO, CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
UNCERTAINTIES SET FORTH BELOW AND ELSEWHERE IN THIS EXCHANGE OFFER STATEMENT.
THE FORWARD LOOKING STATEMENTS INCLUDED IN THIS EXCHANGE OFFER,
INCLUDING MATERIALS ATTACHED, OR REFERENCED IN APPENDIX I HERETO, CONCERNING,
AMONG OTHER THINGS, FUTURE RESULTS OF OPERATIONS, CASH AVAILABLE FOR
DISTRIBUTION, SOURCES OF GROWTH, ECONOMIC CONDITIONS AND TRENDS AND PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS ARE NECESSARILY SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES. ACTUAL OUTCOMES ARE DEPENDENT UPON THE
COMPANY'S SUCCESSFUL PERFORMANCE OF INTERNAL PLANS, ECONOMIC CONDITIONS IN THE
SUBMARKETS IN WHICH THE COMPANY'S PROPERTIES ARE LOCATED SUCH AS OVERSUPPLY OF
RESIDENTIAL MULTIFAMILY HOUSING OR A REDUCTION IN THE DEMAND FOR SUCH HOUSING,
THE AVAILABILITY OF ACQUISITION FINANCING, COMPLIANCE WITH APPLICABLE LAWS AND
REGULATIONS AND THE SUCCESSFUL MANAGEMENT OF OTHER ECONOMIC, LEGAL, FINANCIAL
AND GOVERNMENTAL RISKS AND UNCERTAINTIES.
DISCLOSURE MATERIALS
Included with this Exchange Offer Statement are certain disclosure
materials attached, referenced or identified on Appendix I hereto (together with
the materials in this Exchange Offer Statement under the captions
"Introduction," "The Consolidation Transactions," "Special Factors," "The
Company," "Property Information," "Financial Information," "Summary of Federal
Income Tax Consequences" and "Summary of ERISA Considerations," the "Disclosure
Materials") which contain descriptions of the Operating Partnership, the Common
Units, Grove Property Trust, the Redemption/Exchange Rights (defined below) and
other matters. The information in this Exchange Offer Statement is qualified in
its entirety by the more detailed information in Grove Property's Proxy
Statement, dated February 13, 1997 (the "Proxy Statement"). A Limited Partner
should review the Disclosure Materials with regard to the Property Partnership,
and to the business, properties and financial condition of the Operating
Partnership which are subsumed generally in the descriptions of Grove Property,
including the sections entitled "Selected Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the pro forma and historical financial statements of Grove
Property, the Property Partnerships and the former management company and the
notes thereto included in the Proxy Statement. With respect to the Common Units,
a Limited Partner should review carefully the sections in the Proxy Statement
entitled "The Company-General," "The Company-Policies with Respect to Certain
Activities," "Approval of the Consolidation Transactions (Proposal 1)-Potential
Adverse Effects of the Consolidation Transactions; Risk Factors," "Federal
Income Tax Considerations-Tax Aspects of the Operating Partnership" and "ERISA
Considerations." The information regarding the Common Shares is important in
relation to the Redemption/Exchange Rights. This information is found
principally in the Proxy Statement, particularly in the sections thereof
entitled "Description of Capital Stock," "Certain Provisions of Maryland Law and
of the Company's Declaration of Trust and Bylaws," "Shares Available for Future
Sale," "Federal Income Tax Considerations" and "ERISA Considerations." The
Disclosure Materials set forth certain aspects of various agreements entered
into as of the closing of the Consolidation Transactions, including the
Operating Partnership's Partnership Agreement. Copies of these agreements are
available upon request. Limited Partners should refer to such documents for more
complete information and this Exchange Offer Statement is qualified in its
entirety by this reference. See "ADDITIONAL INFORMATION."
<PAGE>
THE CONSOLIDATION TRANSACTIONS
Background
Grove Property Trust (formerly Grove Real Estate Asset Trust, "GREAT")
is a self-administered real estate investment trust formed pursuant to the
Maryland Real Estate Investment Act, engaged principally in multifamily property
management, acquisition and redevelopment. Since the end of 1996, the Company
has undergone significant changes in its business and operations, as described
below under "The Consolidation," in order to seek to maximize future growth
potential.
GREAT owned and operated three multifamily properties (the "Original
Properties") since its inception and acquired a fourth property ("Cambridge") in
January of 1996 (collectively, the "GREAT Properties"). The GREAT Properties are
comprised of the Dogwood Hills Apartments comprising 46 multifamily apartment
homes on Evergreen Avenue in Hamden, Connecticut, the Hamden Center Apartments
comprising 65 multifamily apartment homes on School Street in Hamden,
Connecticut, the Baron Apartments comprising 54 multifamily apartment homes on
Queen Street in Southington, Connecticut, and Cambridge Estates, comprising 92
multifamily apartment homes located in Norwich, Connecticut. The GREAT
Properties had an aggregate weighted average occupancy rate of 97.6% during
1996.
Grove Property was formed in 1994 to continue the multifamily property
acquisition, management and marketing operations and related business objectives
and strategies of Grove Investment Group, Inc., a Southern New England real
estate company formed in 1980 by Damon and Brian Navarro, and the three limited
partnerships from which Grove Property acquired the Original Properties upon
completion of Grove Property's initial public offering in June 1994.
The Consolidation
On March 14, 1997, Grove Property completed the Consolidation
Transactions described below. As a result of the Consolidation Transactions,
Grove Property is now a self-administered and self-managed REIT which management
believes to be one of the largest public owners of multifamily residential
properties in Southern New England. Grove Property is the sole general partner
of the Operating Partnership. The Operating Partnership was formed to act as the
vehicle for the Consolidation Transactions and is the entity through which Grove
Property conducts substantially all of its business and owns (either directly or
indirectly through subsidiaries) all of its assets. Grove Property currently
holds approximately 61% of the Operating Partnership partnership units. This
structure is commonly referred to as an umbrella partnership REIT or UPREIT. The
Operating Partnership is governed by the Operating Partnership Agreement.
Grove Property owns, directly or indirectly, 100% of the interests in
the four GREAT Properties, in each of eight properties acquired from certain
limited partnerships through the Consolidation Transactions, and in each of two
properties acquired in June 1997. Further, Grove Property controls thirteen
additional properties as general partner or through ownership of 100% of the
general partner of the limited partnerships that own such properties, twelve of
which were acquired in the Consolidation Transactions, and one of which was
acquired in June 1997. All such properties are collectively referred to as the
"Properties," all such limited partnerships are collectively referred to as the
"Property Partnerships," and all the properties owned by such Property
Partnerships are collectively referred to as the "Partnership Properties." Grove
Property provides property management services to the Properties and other real
property controlled by certain companies and individuals which are affiliated
with Grove Property (the "Grove Companies") using certain acquired assets and
liabilities of Grove Property Services, L.P. ("GPS"). National Realty Services,
L.P., an affiliate of Grove Property, is the exclusive provider of real estate
brokerage services to Grove Property.
An exchange offer was made (the "Initial Exchange Offer") by the
Operating Partnership for the tender of any or all of the limited partnership
interests of eighteen of the Property Partnerships (the "Property Partnership
Units") in exchange for limited partnership units in the Operating Partnership.
A total of 1,091,521 Common Units were issued pursuant to the Initial Exchange
Offer. These Common Units are redeemable, at the option of the holders thereof,
commencing one year after their issuance for cash, based on the fair market
value of Grove Property's Common Shares, or, at Grove Property's option, it may
exchange Common Shares for Common Units on a one-for-one basis, subject to
certain antidilution adjustments and exceptions.
The Grove Companies, pursuant to a contribution agreement among Grove
Property, certain individuals including affiliates of Grove Property and the
Operating Partnership (the "Contribution Agreement"), then contributed to Grove
Property and/or the Operating Partnership certain assets and liabilities of GPS
arising from or used in connection with property management related services,
and their general and limited partnership interests in each Property Partnership
(or the assets thereof), in exchange for an aggregate of 904,867 Common Units
issued by the Operating Partnership and the payment of $177,669 by Grove
Property to the Grove Companies.
A private placement of equity securities (the "New Equity Investment")
took place, pursuant to which Grove Property sold to a group of investors (the
"New Equity Investors") Common Shares totaling, in the aggregate, 3,333,333
Common Shares, in exchange for total gross proceeds to Grove Property of $30.0
million.
Grove Property contributed to the Operating Partnership: (a) the GREAT
Properties and related assets in exchange for a partnership interest in the
Operating Partnership represented by 620,102 Common Units; and (b) the gross
proceeds of the New Equity Investment received by Grove Property, in exchange
for a number of Common Units equal to the number of Common Shares issued by
Grove Property in the New Equity Investment.
The Operating partnership issued a total of 6,067,875 Common Units in
the Consolidation Transactions. As a result of the Consolidation, Grove Property
acquired approximately 65% of the Common Units. In connection with the June 1997
acquisition of two additional properties and 100% of the general partnership
interest and certain limited partnership interests in a third property, the
Operating Partnership issued an additional 426,188 Common Units, and as a
result, Grove Property currently holds approximately 61% of the Common Units.
In conjunction with the Consolidation Transactions, Grove Property and
certain Property Partnerships have entered into two new credit facilities
(together, the "Credit Facility") consisting of (a) a three-year secured
revolving acquisition and working capital facility of approximately $25.0
million and (b) an approximately $15.1 million ten-year term mortgage loan. The
Operating Partnership used the net proceeds of the New Equity Investment and
borrowings under the Credit Facility to refinance the outstanding mortgage
indebtedness of certain of the Property Partnerships and to acquire certain
minority interests in certain of the Property Partnerships.
Persons receiving Common Units in the Initial Exchange Offer are
restricted from transferring such Common Units for a period of one year from the
completion of the Consolidation Transactions (March 14, 1997). Persons receiving
Common Units pursuant to the Contribution Agreement (including the Grove
Companies and the Executive Officers) are restricted from transferring such
Common Units for a period of two years from the completion of the Consolidation
Transactions. Each Common Unit is redeemable, at the option of the holder
thereof, commencing March 15, 1998 for cash (based on the fair market value of
the Common Shares at the time of such redemption) or, at Grove Property's
option, it may exchange Common Shares for Common Units on a one-for-one basis,
subject to certain antidilution adjustments and exceptions. Grove Property has
granted certain entities and individuals receiving Common Units in connection
with the Consolidation Transactions certain registration rights with respect to
the Common Shares which such holders of Common Units may receive upon the
exchange of their Common Units. Pursuant to a registration rights agreement with
certain holders of Common Units, Grove Property has agreed to file and generally
keep continuously effective, beginning one year after the completion of the
Consolidation Transactions, a registration statement covering the issuance of
Common Shares upon exchange of Common Units and the resale of such Common
Shares.
Grove Property declared a 5% stock dividend to shareholders of record
March 10, 1997, payable March 28, 1997 and declared a 1.125 to 1.0 stock split
with respect to all Common Shares outstanding on March 10, 1997, effective March
14, 1997 (together, the "Stock Split"). As a result of the Stock Split, Grove
Property issued, on a pro rata basis, a total of 95,102 Common Shares to the
holders of the issued and outstanding 525,000 Common Shares. Grove Property did
not issue fractional shares in connection with the Stock Split, but rather paid
cash in lieu of fractional shares.
In connection with the Consolidation Transactions, Grove Property
changed its distribution policy. The Board concluded that enhancement of
shareholder value could better be achieved through growth in Grove Property's
asset value, which management believes will be reflected in the market price of
the Common Shares, rather than by maintaining or increasing the distribution
yield on the Common Shares. Therefore, the Board voted to reduce the annual cash
distributions to shareholders, from $.78 per Common Share to $.63 per Common
Share ($.92 and $.74 respectively per Common Share prior to giving effect to the
Stock Split). Grove Property intends to continue to comply with the REIT
requirements under the Internal Revenue Code of 1986, as amended, that 95% of
the Company's REIT taxable income be distributed annually, while retaining for
reinvestment in Grove Property the maximum amount permitted under the Code.
Reasons for the Consolidation and the Exchange Offer
Grove Property's decision to pursue the Consolidation, and the Exchange
Offer to Farmington Summit Associates Limited Partnership is based, among other
things, upon their belief that the benefits of the Consolidation Transactions
and similar acquisitions outweigh the detriments to the Limited Partners.
The benefits of the Consolidation Transactions and this Exchange Offer,
including the benefits of Grove Property's REIT status and structure as opposed
to the status and structure of the Property Partnerships, include the following:
o Access to Capital. Grove Property's structure will, in the
judgment of Grove Property, provide Grove Property with
greater access to capital for refinancing and growth. Sources
of capital include the securities sold in the New Equity
Investment and possible future issuances of debt or equity
through public offerings or private placements. The financial
strength of Grove Property should enable it to obtain
financing at better rates and on better terms than would
otherwise be available to the Property Partnership which owns
two parcels.
o Growth of Grove Property. Grove Property's structure will allow
shareholders, including the Equity Participants through their
ownership of Common Units, an opportunity to participate in the growth
of the real estate market through an ongoing business enterprise. In
addition to the existing portfolio of Properties, Grove Property gives
shareholders an interest in all future acquisitions by Grove Property
and in the fee-producing service businesses being contributed by the
Grove Companies to Grove Property. The availability of Common Units
for future acquisitions will enable potential sellers of properties to
Grove Property to defer taxable gain, if any.
o Risk Diversification. The Company's structure provides holders
of Common Units of the Operating Partnership a diversification
of risk not available in single asset entities by providing
them with an equity interest in an Operating Partnership in
which there has been a pooling together of similar properties
and by consolidating the operating business and future
acquisitions.
o Deleveraging. The consummation of the Consolidation
Transactions has substantially reduced the debt encumbering
the Properties. This reduction, with a consequent reduction in
debt service, will increase the aggregate amount of cash
available for distribution to Unit holders and shareholders
and to fund the Company's future growth. Grove Property also
believes that the Consolidation Transactions will permit the
Company to refinance its existing indebtedness at more
favorable rates.
o Liquidity. The equity interests in the Property Partnerships
are typically not marketable. Grove Property's structure
allows shareholders, including the Equity Participants, the
opportunity to liquidate their capital investment through the
disposition of Common Shares or Common Units for cash (based
on the fair market value of an equivalent number of Common
Shares at the time of such redemption) or, at Grove Property's
option, it may exchange Common Units for Common Shares on a
one-for-one basis, subject to certain antidilution adjustments
and exceptions. See "The OP Partnership Agreement-Limited
Partner Redemption/Exchange Rights."
o Public Market Valuation of Real Estate Assets. Grove
Property's structure may allow investors to benefit
potentially from the current public market valuation of REITs,
which Grove Property believes is favorable in light of the
current private market valuation of comparable assets.
o Tax Deferral. The Consolidation Transactions and Exchange
Offers like this offer provide to the Equity Participants the
opportunity to defer the tax consequences that would arise
from a sale of their respective properties or contribution of
their interests in the Partnership Properties to the Company.
The detriments of the Consolidation Transactions and exchange offers
like this Exchange Offer, including the detriments of Grove Property's REIT
status and structure as opposed to the status and structure of the Property
Partnership, include the following (see also "SPECIAL FACTORS" and "RISK
FACTORS"):
o Conflicts of Interest. Management of the Company has been and will
continue to be subject to a number of conflicts of interest in the
operation of the Operating Partnership, as well as the formation of
Grove Property and the current Exchange Offer. Among other conflicts,
there was no independent valuation or appraisal of the Consolidated
Assets or of the property owned by the Property Partnership, and there
can be no assurance that the value given by the Operating Partnership
for such assets in connection with the Consolidation Transaction, the
current Exchange Offer or future acquisitions from related
partnerships, are or will be equal to their fair market value. Because
certain owners of the Grove Companies are trust managers or officers
of Grove Property, they will have a conflict of interest with respect
to enforcing the agreements transferring their interests in certain
assets to the Company. In addition, because the Grove Companies and
officers of the Company may suffer different tax consequences than
other limited partners of the Operating Partnership upon the sale or
refinancing of any of the Partnership Properties, their interests
regarding the timing and pricing of such sale or refinancing may
conflict with those of such other partners and the Operating
Partnership.
o Loss of Individual Asset Growth Opportunity. Any given asset
may over time outperform the Common Shares and Common Units.
Any investor who exchanges an interest in a single asset for a
smaller interest in a group of assets will receive a lower
return on investment if the asset from which the investor
traded outperforms the Common Shares and Common Units.
o No Anticipated Distributions from Asset Sales. Unlike the Property
Partnerships, in which the net proceeds from the sale of assets were
generally to be distributed to the partners, the Operating Partnership
is not expected to have significant asset sales. Moreover, the
Operating Partnership may decide to reinvest the proceeds from asset
sales rather than distribute them to holders of Common Units. Although
shareholders will have the ability to sell their Common Shares
(subject to certain restrictions discussed herein), they would not be
able to rely upon the mere passage of time to realize their share of
the gains, if any, that might be recognized at any point in time from
a liquidation of all or part of the assets of the Operating
Partnership.
o Public Market Valuation. Although the Company has been advised
that the public market currently values real estate assets on
a basis that is attractive in relation to private market real
estate values, there is no assurance that this will be a
permanent condition. In the 1980s, REIT shares generally
traded at a discount to the underlying private market values
of the REIT properties, rather than at a premium. This
condition could return. In addition, an increase in interest
rates could adversely affect the market value of the Common
Shares.
o Costs of the Transaction. Both the Operating Partnership and
the Property Partnership will incur transaction costs in
connection with the Exchange Offer, which will impact the
valuation of the Property Partnership's properties for
purposes of this Exchange Offer.
o Costs of Operating a Public Company. Grove Property expects to
incur increased expenses in connection with the requirements
of being a public company, including, without limitation,
preparation of financial statements and proxies, printing and
filing costs and fees paid to the Company's certified public
accountants. The Property Partnerships, including Farmington
Summit Associates Limited Partnership, have not had similar
expenses.
One or more of the Grove Companies is also a general partner of 6
limited partnerships which were not included in the Consolidation or subsequent
offers similar to this Exchange Offer. Although each of these partnerships owns
a multifamily project or a retail project in Connecticut, Massachusetts or Rhode
Island, the Grove Companies and the Company have concluded that these properties
are not attractive acquisitions for the Operating Partnership at this time
because of the property type, the condition of the project, the high degree of
leverage or the volatility of occupancy applicable to such properties. The
Operating Partnership may seek to acquire interests in one or more of these
partnerships in the future, and may offer cash, Common Units or other
consideration therefor. The Operating Partnership is currently seeking to
exchange Common Units in the Operating Partnership with three other related
partnerships, Grove Coastal Associates Limited Partnership, Heritage Court
Associates Limited partnership, and River Grove Associates Limited partnerships.
See "SPECIAL FACTORS-Conflicts of Interest."
Opportunity for Growth
As a result of the Consolidation Transactions and the June 1997
acquisitions, the Company has become a fully integrated, diversified real estate
company, with a controlling interest in a portfolio of 26 multifamily properties
containing a total of 2,347 apartments and a neighborhood shopping center, and
should be provided with access to new capital. In addition, the structure of the
Consolidation Transactions may facilitate additional property acquisitions
through the ability to acquire properties with Common Units and thereby defer
all or a portion of the seller's taxable gain.
Increased Marketability/Liquidity
A number of Limited Partners have expressed a desire to achieve greater
marketability and liquidity with respect to their investments in the Property
Partnership. Limited Partners who exchange their Units for Common Units will,
following the first anniversary of the consummation of the Consolidation
Transactions or their respective Exchange Offer, be able to redeem those Common
Units for cash (or, at the option of Grove Property, such Common Units will be
exchanged for Common Shares). Following this one-year period, Equity
Participants will have the flexibility of maintaining an interest in multifamily
projects and continuing to defer the federal income tax on the transfer of their
Units, or redeeming their Common Units for cash (or, at the option of the
Company, receiving Common Shares in exchange for Common Units). The Exchange
Offer provide immediate liquidity to Limited Partners who receive cash on the
exchange of their Units.
Notwithstanding the possibility for improved marketability, the Common
Units should still be viewed as an illiquid investment, particularly for the
first year following the consummation of this Exchange Offer. The Common Units
have not been registered under the Securities Act or any state securities or
"blue sky" laws, nor is any registration rights agreement in effect with respect
to the Common Units. The Common Units are subject to significant restrictions on
transfer, including a one year holding period prior to exercising redemption
rights, and it is not expected that any market for the sale of Common Units will
develop. The Common Shares issued in exchange for Common Units will also be
subject to restrictions on resale under the Securities Act. See "SPECIAL
FACTORS-Ownership of Common Units."
Alternatives to the Consolidation
The Grove Companies examined several alternatives to the Consolidation
and this Exchange Offer, each of which they rejected. The first alternative,
maintaining the status quo, was not pursued because it would not provide any
additional liquidity or opportunity for diversification of the Grove Companies
or the Limited Partners. A second alternative, refinancing of the Partnership
Properties, would not create material distributable proceeds for Limited
Partners in the Property Partnership, and the balance of the invested capital in
the other Property Partnerships would continue to remain as a long-term,
illiquid and relatively less marketable investment. The Grove Companies believed
that none of the Property Partnerships would be able at such time to refinance
their Properties on the more favorable basis that is available to Grove Property
because of the New Equity Investment and the cross-collateralization of the
Properties, and therefore would not be able to increase cash available for
distribution to Limited Partners. The Grove Companies did not explore a complete
liquidation of the various Property Partnerships because of their belief that,
because of the continuing slow recovery of the real estate markets in which the
Partnership Properties are located, the valuations that would be placed on the
Partnership Properties in a liquidation would be less than the values that can
be achieved through the continued ownership of the Partnership Properties as
part of a fully integrated multifamily investment and management company.
Valuation of Properties and Other Assets; Allocation of Common Units
Allocation of Common Units. Set forth below is a description of the
methods used by the Company and the Grove Companies to determine the value of
the Properties and other assets (the "Consolidated Assets") contributed to the
Operating Partnership in connection with the Consolidation Transactions (the
"Consolidation Valuations"). The Consolidation Valuations were used to determine
the allocation of Common Units (or cash, in the case of Non-Accredited
Participants and Cash Election Participants) among the owners of the
Consolidated Assets, with the Common Units being allocated based upon the value
of each party's contribution as a percentage of the value of the total
contribution. A similar but not identical method was used by the Operating
Partnership to determine the value of the Properties to be distributed by
Farmington Summit Associates Limited Partnership to the Operating Partnership.
See "VALUATION OF PARTNERSHIP UNITS." Although the General Partner of the
Operating Partnership has the discretion and right to alter such valuation
method in connection with future acquisitions, it is anticipated that a similar
method will be used in connection with future acquisitions.
Property Partnerships. The Consolidation Valuations for the Property
Partnerships were determined by valuing their respective Properties using the
direct capitalization method. Under this approach, a single year's income is
converted into a market value for a property through the application of a
market-derived capitalization rate (the lower the capitalization rate applied to
a property's income, the higher its value). The Consolidation Valuation for each
Partnership Property was determined by (i) capitalizing pro forma net operating
income for that partnership, less a reserve for capital expenditures, as of
September 30, 1996, at a capitalization rate ranging from 9.0% to 11.0%, (ii)
deducting the amount of debt on the Partnership Property, (iii) adding other
assets of the Property Partnership, net of liabilities (such as cash, accounts
receivable, accounts payable and security deposits), and (iv) deducting any
transfer taxes due upon the restructuring of the Property Partnership. The
Company and the Grove Companies determined the appropriate capitalization rate
for each Partnership Property based upon their experience in real estate
matters. They sought local market sales information for comparable properties,
estimated actual capitalization rates (net operating income less capital
reserves divided by sales price) and then evaluated the Partnership Property in
light of its relative competitive position, taking into account property
location, occupancy rate, overall property condition and other relevant factors.
The Company and the Grove Companies believe that arm's-length purchasers would
base their purchase offers on capitalization rates substantially similar to
those used to calculate the above Consolidation Valuations. The Grove Companies
owned from less than 1.0% to 32.0% of the interests in the Property Partnerships
prior to the Consolidation Transactions.
The number of Common Units to be issued in exchange for a limited
partnership interest in each Property Partnership was determined on the basis of
the applicable Property Partnership Agreement, assuming (i) that the underlying
Partnership Property was sold on September 30, 1996 for an amount equal to the
Consolidation Valuation of that Property and (ii) a valuation of $9.00 per
Common Unit. The Cash Consideration (as defined in the Exchange Offer) payable
to Limited Partners who are not Accredited Investors (and certain other Limited
Partners) for each Property Partnership Unit is an amount equal to the number of
Common Units per Property Partnership Unit to which the Limited Partner would
otherwise be entitled times $9.00 per Unit, less 7.2%, which the Company
estimates to be its costs attributable to raising the requisite capital for the
cash purchase.
The number of Common Units to be issued in connection with the
Consolidation Transactions in exchange for a Property Partnership Unit, as well
as the Cash Consideration and the cash distribution to Limited Partners of the
Liquidating Partnerships upon the liquidation thereof, was subject to adjustment
if the purchase price per Common Share in the New Equity Investment was less
than or more than $9.00. In connection with this Exchange Offer, the number of
Common Units to be issued in exchange for a limited partnership unit in
Farmington Summit Associates Limited Partnership has been determined upon an
assumed value of $10.50 per Common Share, but will not be adjusted in the event
the market value of such Common Shares are greater or less than $10.50 at the
time this Exchange Offer is consummated. See "VALUATION OF PARTNERSHIP UNITS".
GREAT Properties Valuation. The Company established approximately
$5,581,000 as the Consolidation Valuation of the net GREAT Assets for the
purposes of the Consolidation Transactions. This Consolidation Valuation is
equivalent to the number of Common Shares which were outstanding immediately
prior to consummation of the Consolidation Transactions (giving effect to the
Stock Split) times the $9.00 purchase price per Common Share in the New Equity
Investment. The Company believed that this aggregate Consolidation Valuation for
the GREAT Assets at such time was consistent with what aggregate valuations for
the GREAT Properties would be, applying the direct capitalization method used
for valuing the Partnership Properties, together with a "going concern" value of
the Company itself.
Management Company Valuation. The Company established a Consolidation
Valuation of approximately $6,184,000 for the Management Company. The
Consolidation Valuation for the Management Company was also determined by the
direct capitalization method, determined by capitalizing pro forma net operating
income for the Management Company as of September 30, 1996, with pro forma
adjustments to give effect to the Consolidation Transactions, at a
capitalization rate of 13.0%. All of the Management Company's income was
generated by property management agreements with the Company, the Property
Partnerships and other limited partnerships controlled by the Grove Companies or
their affiliates (which own the properties not acquired in either the
Consolidation Transactions or the June 1997 acquisitions). Accordingly, the
Company believes that the proper capitalization rate to be applied to value the
Management Company was the rate applicable to the properties managed by it,
which would be a capitalization rate of 9.0% to 11.0%. However, the Company and
the Grove Companies agreed to apply a 13.0% capitalization rate, resulting in a
more favorable purchase price to the REIT.
No independent real estate appraisals or other third-party valuations
were obtained with respect to any of the Consolidated Assets. See "RISK FACTORS
- - Generally." The Company and the Grove Companies believe that the Consolidation
Valuations were fair and consistently applied among all of the Properties and
other assets contributed to the Operating Partnership pursuant to the
Consolidation Transactions (directly or through acquisition of Property
Partnership interests). The income approach to valuation involves converting the
anticipated economic benefits of a property or other asset into a value estimate
through capitalization; because this approach is based on investor expectations
for income producing properties, the Company and the Grove Companies believe
that it provides the best value indication for multifamily residential projects
and neighborhood retail centers, and the related property management services.
The value of the Common Units will depend on the value of the Common Shares
generally.
SPECIAL FACTORS
Ownership of Common Units
The business in which an Equity Participant will be investing by
participating in the Exchange Offer is the business of the Operating Partnership
described in the Disclosure Materials. The partnership agreement for the
Operating Partnership (the "OP Partnership Agreement") is available upon request
from the Purchaser. See "ADDITIONAL INFORMATION" and "The OP PARTNERSHIP
AGREEMENT." The OP Partnership Agreement will govern the rights and restrictions
relating to Common Units. Among the significant features of owning Common Units
are the following:
Transferability. The Common Units will be issued to Equity
Participants in a private placement transaction, without registration
or qualification under federal or state securities laws. Accordingly,
the Common Units may not be resold except in a transaction registered
with the Securities and Exchange Commission (the "SEC") or pursuant to
an exemption from such registration. The Operating Partnership has no
intention or obligation to effect such a registration. In addition,
there will be substantial restrictions on the transfer of the Common
Units. See "SUMMARY OF ERISA CONSIDERATIONS." It is extremely unlikely
that any market will develop for the Common Units. In the enclosed
Letter of Transmittal, each Equity Participant will represent, among
other things, its intention to acquire the Common Units for investment
purposes and acknowledge its awareness of these limitations on
transferability. An Equity Participant's principal source of liquidity
will be its exercise of the Redemption/Exchange Rights as described in
the Disclosure Materials and in the OP Partnership Agreement.
Distributions. Grove Property has made, and intends to continue to
make, regular quarterly distributions to its shareholders. In
connection with the Consolidation Transactions, Grove Property reduced
the amount of its quarterly distribution. The principal source of cash
for such distributions will be distributions to Grove Property as
general partner of the Operating Partnership. The principal source of
cash for distributions by the Operating Partnership will be
distributions to it from the Property Partnerships. Generally speaking,
each such distribution to Grove Property will be accompanied by a
concurrent pro rata distribution to the Equity Participants and the
other limited partners of the Operating Partnership. The distribution
rate per Common Unit is expected to be the same as the distribution
rate per Common Share. Although there can be no assurance that
operations will generate sufficient cash flow to permit periodic
distributions to its limited partners, the Operating Partnership
currently expects to make an annual distribution of $.63 per Common
Unit. Grove Property's long term goal is to distribute the minimum
amount of cash required to qualify as a REIT under the Code. See "The
Company - Business Objectives and Operating Strategies."
Management of the Operating Partnership. Grove Property is the sole
general partner of the Operating Partnership. As such, it exercises
virtually complete control over the Operating Partnership and has the
authority to enter into a wide range of transactions, as described in
the OP Partnership Agreement. Accordingly, the matters described in
"Risk Factors - Potential Adverse Effects of the Exchange Offer" will
generally apply to the Operating Partnership as well. Grove Property
has fiduciary duties to the holders of Common Units as a general
partner, but it will also have duties to Grove Property's shareholders.
While the consent of a majority of the limited partners is required
with respect to a limited number of types of actions by the Operating
Partnership, Grove Property will, for the foreseeable future, control a
majority of the Common Units and thereby effectively be able to control
the granting or withholding of such consent.
Redemption/Exchange Rights; Registration Rights. As noted above,
the principal source of liquidity for holders of Common Units will be
the exercise of the right to redeem Common Units pursuant to the OP
Partnership Agreement (the "Redemption/Exchange Rights") and the
registration rights to be granted to Equity Participants. Each limited
partner of the Operating Partnership will have the right to require the
Operating Partnership to redeem part or all of their Common Units for
cash (based on the fair market value of an equivalent number of Common
Shares at the time of such redemption) or, at the election of Grove
Property, to exchange such Common Units for Common Shares, at any time
beginning March 15, 1998 (one year after the consummation of this
Exchange Offer for Limited Partners of the Property Partnership)
subject, in the case of the Grove Companies, to the obligation of the
Grove Companies to indemnify the Company in connection with the
Consolidation Transactions. As described above, the Redemption/Exchange
Rights will not be immediately exercisable by the holder of Common
Units and will be subject to the restrictions on ownership referred to
in "Risk Factors - Potential Adverse Effects of the Exchange Offer."
The Redemption/Exchange Rights are subject to certain restrictions. See
"The OP Partnership Agreement - Limited Partner Redemption/Exchange
Rights." Pursuant to the Registration Rights Agreement, holders of
Common Units may have the right to receive the Common Shares issued in
exchange for Common Units pursuant to a registration with the SEC, and
may have the resale of such Common Shares registered if necessary. This
will result in such Common Shares being freely transferable on the open
market upon receipt. Such registration rights will be subject to
certain significant conditions and restrictions, including, but not
limited to, Grove Property'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 SEC. In addition,
there may be additional contractual limitations with respect to the
transfer of such Common Shares, as may be agreed to by Grove Property,
and an Equity Participant's agreement to tender in the Exchange Offer
will represent an agreement to any such restrictions.
Risk Factors-Common Units
The investment in the Common Units involves certain risks, including
those referred to elsewhere herein. In addition, a Limited Partner should
carefully consider the following:
Uncertain Portfolio at Time of Election. The exact portfolio of
Properties to be owned by the Company has not been finally determined,
and is dependent, in part, on the success of this Exchange Offer and
three other pending exchange offers, including the satisfaction of the
Minimum Percentage Condition as to each Property Partnership. The
Operating partnership also intends to acquire additional properties
which are either not yet identified or are undergoing due diligence
investigation. The portfolio of Properties of Grove Property will
therefore be uncertain at the time of a Limited Partner's commitment to
participate in this Exchange Offer.
Lower Distributions and Market Price After Tender. The
distributions by the Operating Partnership with respect to the Common
Units issued to a Limited Partner with respect to its Property
Partnership Units may be lower than the cash flow of the Property
Partnership would have been if the Property Partnership properties were
not distributed to the Operating Partnership. In addition, no assurance
can be given that the value upon disposition of the Common Units
acquired in exchange for a Limited Partner's Units will equal the
amount that would have been realized by the Limited Partner in a sale
of the underlying Partnership Property to a third party for cash.
Pursuant to the Redemption/Exchange Rights, Grove Property may redeem
Common Units for cash rather than exchange Common Units for Common
Shares. Both the redemption of Common Units for cash and the exchange
of Common Units for Common Shares are likely to be taxable
transactions. There can be no assurance that the market value of the
Common Shares will not be adversely affected by future acquisitions,
exchange offers similar to this Exchange Offer, or by general market
conditions. There is a possibility that the Common Shares will trade at
prices below amounts that would have been received in exchange for a
Limited Partner's Units if the Property Partnership had been liquidated
and its assets distributed, partly due to the fact that the fair market
value of Grove Property's equity securities may be based on, among
other things, anticipated net earnings or cash flow.
Fundamental Change in Nature and Term of Investment. Equity
Participants will have fundamentally changed the nature of their
investment. Each Equity Participant will exchange direct or indirect
Property Partnership interests that own two properties for an interest
in a consolidated company in the business of acquiring, marketing,
managing and operating multiple real properties. While diversification
of assets may reduce certain risks of investment attributable to a
single property or entity, there can be no assurance as to the value or
performance of the Company or its portfolio of properties as compared
to the value of the specific Partnership Property or Property
Partnership in which a Limited Partner holds an interest. In addition,
while the Property Partnerships, including Farmington Summit Associates
Limited Partnership, were formed as finite-life investments, with
partners to receive regular cash distributions out of the Property
Partnership's net cash flow and final distributions to be made upon
liquidation (generally of a single Partnership Property), Grove
Property intends to operate for an indefinite period of time and has no
specific intention to liquidate or to sell any substantial part of its
assets other than in the ordinary course of its business. Nor are any
special distributions of liquidation proceeds expected to be made,
although quarterly cash distributions from operations are expected to
be made. Instead of having their investments liquidated through the
liquidation of the Operating Partnership or its assets, Equity
Participants in this Exchange Offer should expect to be able to
liquidate their investment in the Operating Partnership only through
the Redemption/Exchange Rights. However, holders of Common Units and/or
Common Shares of Grove Property will be subject to the market risks of
all public companies, particularly in that the value of their equity
securities may fluctuate from time to time depending upon general
market conditions and the Company's future performance.
Tax Risks from the Exchange and Related Transactions. The Internal
Revenue Service may contest the tax-deferred nature to the Equity
Participants of this Exchange Offer. If any such contest were
successful, some or all of the Equity Participants would be subject to
tax with respect to this Exchange Offer. The amount of such tax could
be significant, and because the Common Units are subject to resale
restrictions, Equity Participants in this Exchange Offer cannot rely on
the resale of Common Units to generate funds to pay such taxes. See
"SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES."
<PAGE>
RISK FACTORS
Generally
Subject to certain conditions, following the first anniversary of the
completion of this Exchange Offer, each Common Unit issued to Limited Partners
will be redeemable for cash equal to the fair market value of a Common Share at
the time of the redemption or, at the option of Grove Property, exchangeable for
one Common Share (subject to adjustment). Limited Partners considering a tender
of Units in exchange for Common Units should carefully consider the risk factors
applicable to an investment in Common Units and Common Shares. Such risks, among
others, include:
o conflicts of interest, particularly with the Grove Companies'
affiliates who are executive officers of Grove Property, in connection
with (i) the Consolidation Transactions and this Exchange Offer, (ii)
operation of the Company's on-going businesses, including conflicts
associated with tax consequences to the Grove Companies of sales or
refinancings of any of the Partnership Properties, which may influence
the Company's decision to sell or refinance the Partnership Properties
or prepay debt secured by certain Properties, and the other business
activities of the executive officers, (iii) Grove Property's role as
property manager for the Excluded Properties, (iv) the Company's
agreement to use National Realty for all real estate brokerage
services, and (v) enforcement of agreements with affiliates of the
Company, any one of which could result in decisions that do not fully
represent the interests of all shareholders of Grove Property;
o the valuation of the Consolidated Assets and Property
Partnership assets was not based on third-party appraisals and
there have not been arm's-length negotiations with respect to
such valuations, resulting in the risk that the purchase price
of the Grove Companies' assets and of the limited partnership
interests of the Property Partnerships' Properties exceeds the
fair market value thereof, or the valuation of the
Partnership's Properties may be less than the fair market
value thereof;
o risks associated with borrowing, such as the possibility that
the Company will not have sufficient funds available to make
balloon or other payments of principal on debt on certain
Properties, including the Credit Facility, which could result
in the loss of one or more of the Properties in the event of a
foreclosure upon default and the possibility that such
indebtedness might be refinanced at higher interest rates, all
of which could adversely affect Grove Property's ability to
make expected distributions to shareholders and its ability to
qualify as a REIT;
o geographic concentration of a majority of the Properties in a
single state, Connecticut, and all of the Properties in the
Southern New England region, creating a dependence on demand
for housing in that market and increasing the risk that the
Company will be materially adversely affected by general
economic conditions in a limited market;
o possibility that the Operating Partnership may, in the future,
acquire properties in geographic markets in which the Company
has little or no prior experience, and the accompanying risk
that the Company's operations and financial statements may be
adversely affected;
o ability of the Board of Trust Managers of Grove Property to
change the investment, financing, borrowing and other policies
of the Operating Partnership and Grove Property at any time
without shareholder approval, including the ability to revoke
Grove Property's REIT election, thereby limiting shareholder
control over these decisions;
o absence of a limitation in the Company's organizational documents on
the amount of indebtedness that the Company may incur, which may
increase the risks associated with borrowing;
o potential anti-takeover effect of limiting ownership of Common
Shares to 5.0% of the outstanding Common Shares and certain
other provisions contained in the organizational documents of
Grove Property and the Operating Partnership, such as the
ability to issue preferred shares of beneficial interest,
staggered terms for the Board of Trust Managers and the
super-majority voting requirements to, among other things,
remove trust managers, any of which may discourage a change in
control and limit the opportunity for shareholders to receive
a premium for their Common Shares;
o taxation of Grove Property as a corporation if it fails to
qualify as a REIT for federal income tax purposes, taxation of
the Operating Partnership as a corporation if it fails to
qualify as a partnership for federal income tax purposes (and
the resulting failure of Grove Property to qualify as a REIT),
the Company's liability for certain federal, state and local
income taxes in any such event and the resulting decrease in
cash available for distribution;
o triggering of a taxable event to Equity Participants if a
restructuring or refinancing of the Operating Partnership
results in the repayment of outstanding debt or a reduction in
the amount of non-recourse indebtedness;
o the distribution requirements for REITs under federal income
tax laws may limit the Company's ability to finance future
acquisitions, developments and expansions without additional
debt or equity financing and may limit cash available for
distribution;
o risks associated with the redevelopment of multifamily
properties, including the risks that the selection of
particular capital improvements or new residents will not
further the Company's long-range plan for achieving its
profitability objectives;
o real estate investment considerations, such as the ability of
tenants to make rent payments, the ability of a property to
generate revenues sufficient to meet operating expenses and
the illiquidity of real estate investments, all of which may
affect the Company's ability to make expected distributions;
o potential liability of the Company for unknown or future
environmental liabilities;
o dependence of the Company on the services of its executive
officers which could adversely affect the operations of the
Company in the event of loss of services of any of such
officers;
o potential dilution in the market price and the intrinsic value
of the Common Shares upon issuance of preferred shares of
beneficial interest, which may have preferences over, and
superior voting rights to, the Common Shares;
o potential adverse effect that the availability of Common
Shares for future sale, including Common Shares issued in the
New Equity Investment and Common Shares issued upon exchange
of Common Units, may have on the market price of Common
Shares;
o increase in market interest rates, which may lead prospective
purchasers of the Common Shares to seek a higher anticipated
annual yield from future dividends, which in turn may
adversely affect the market price of the Common Shares;
o potential losses in the event of casualty or other liability
that is not insured, insurable or economically insurable; and
o costs of compliance with the Americans with Disabilities Act
of 1990 and similar legislation.
Potential Adverse Effects of the Exchange Offer; Risk Factors
The consummation of the Exchange Offer, as well as future
acquisitions made by similar exchange offers, involve various risks. Limited
Partners should consider, among other things, the following factors when making
a decision with respect to the acceptance of the Exchange Offer and approval of
the proposed Property Partnership Agreement amendment.
Risks of Equity Real Estate Investments; Adverse Impact on Ability
to Make Distributions; Effect on Value of Properties
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 Company's properties do not
generate revenue sufficient to meet operating expenses, debt service and capital
expenditures, the ability to make distributions to holders of Common Units and
Common Shares will be adversely affected. An apartment property's income and
value may be adversely affected by national and regional economic climates,
local real estate conditions such as the oversupply of apartments or a reduction
in demand for apartments, availability of "for purchase" housing, the
attractiveness of the properties to tenants, 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). In addition, the income and value of an apartment property are affected
by such factors, among others, as changes in zoning, building, environmental,
rent control and other laws and regulations, changes in real property taxes and
interest rates, the availability of financing and acts of God (such as
earthquakes and floods) and other factors beyond the control of the Company. The
Company is exposed to the various types of litigation that may be brought
against a property owner or manager in the ordinary course.
Illiquidity of Real Estate. Equity real estate investments are
relatively illiquid and, therefore, will tend to restrict the Company's ability
to vary its portfolio of apartment properties promptly in response to changes in
economic or other conditions; consequently, if the Operating Partnership were to
be liquidated, the proceeds realized at such time might be less than the total
investment in the Operating Partnership. In addition, the Code places limits on
the amount of 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 its properties without adversely affecting returns to holders of Common
Shares.
Future Property Acquisitions. The Operating Partnership has
not identified any specific properties for acquisition other than the Properties
described elsewhere herein. In the normal course of its business, and in the
pursuit of its growth strategy, the Operating Partnership intends to continually
evaluate a number of potential acquisitions in the Northeast and Mid-Atlantic
regions, including the Excluded Properties. No assurance can be given, however,
that the Operating Partnership will have the opportunity to make suitable
acquisitions on terms favorable to it, or will be able to integrate successfully
more properties into the Company's portfolio.
Risks of Renovation and Acquisitions. The Company intends to
renovate certain Properties and other properties it may acquire in the future.
In connection with any renovation project, the Company will bear certain risks,
including the risks of construction 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 completed project will not be sufficient to
enable the Company to pay operating expenses or earn its targeted rate of return
on its investment. In case of an unsuccessful renovation project, the Company's
loss could exceed its investment in such project. The Company intends to
actively continue to acquire multifamily residential properties and neighborhood
retail properties. 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, as
well as general investment risks associated with any new real estate investment.
See "THE COMPANY - Acquisition Strategy."
Regulation. A number of federal, state and local laws exist,
such as the Americans with Disabilities Act ("ADA"), which may require
modifications to existing buildings or restrict certain renovations by requiring
access to such buildings, and apartments in the buildings, by disabled persons.
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 limit application of the Company's investment strategy in
certain instances or reduce overall returns on its investments. The Company
believes that all of the Properties are in substantial compliance with laws
currently in effect, and will review periodically its apartment properties to
determine continuing compliance with existing laws and any additional laws that
are hereafter promulgated.
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 the FHAA could result in
the imposition of fines or an award of damages to private litigants. The Company
believes that those Properties that are subject to the FHAA are in substantial
compliance with such law.
Competition. There are numerous real estate companies,
including those which operate in the areas in which the Properties are located,
which compete with the Company in seeking apartment properties for acquisition
and development, and for tenants to occupy such properties. The Company may be
competing with companies that have greater resources than the Company and whose
officers and directors or trustees have more experience than the Company's
officers and trust managers. In addition, the availability of single-family
housing and other forms of multifamily residential properties, such as
manufactured housing communities, provide alternatives to potential tenants of
apartment properties. These competitive factors could adversely affect the
income generated by the Properties.
Real Estate Financing Risks
Refinancing Risks. Because the Company anticipates that only a
small portion of the Company's mortgage indebtedness will be repaid prior to
maturity and the Company may not have on hand funds sufficient to repay such
indebtedness at maturity, it may be necessary for the Company to refinance debt
through additional debt financing or equity offerings. 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. To the extent the Company needs consent of
limited partners in various Property Partnerships to sell or refinance certain
Partnership Properties, its flexibility will be limited. If prevailing interest
rates or other factors at the time of refinancing result in higher interest
rates on refinancings, the Company's interest expense would increase, which
would adversely affect the Company's cash available for distributions and its
ability to pay expected distributions to Shareholders.
No Limitation on Debt. The Company has adopted a policy to
limit 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 outstanding Common Shares assuming the full
exchange of Common Units for Common Shares) and the total debt of the Company,
to less than 60%. The organization documents of the Company, however, do not
limit the amount or percentage of indebtedness that it may incur. Therefore, the
Board may change this policy of the Company and the Operating Partnership
regarding indebtedness, without the vote of the holders of Common Shares or
Common Units. If these policies are changed, the Company and the Operating
Partnership could become more highly leveraged, resulting in an increased risk
of default on the obligations of the Company and the Operating Partnership and
an increase in debt service requirements which could affect adversely the
financial condition and results of operations of the Company and, consequently,
the Company's and Operating Partnership's ability to make expected distribution
to Shareholders and Unitholders.
Dependence on Key Personnel; Limited Experience of Management
The Company is dependent on the efforts of all of the
Executive Officers. The loss of their services could have a material adverse
effect on the operations of the Company. Currently, the Company has no intention
to secure key-man life insurance for the Executive Officers in the near future.
Grove Property Trust was formed in 1994. Management of Grove
Property has only three years experience in the operation of a REIT and the
operation of a public company, although management and the Grove Companies have
substantial experience in the acquisition and management of multifamily
residential and mixed-use properties. See "MANAGEMENT - Trust Managers and
Executive Officers." This relative lack of experience in REIT management and
operation of a public company could adversely affect the operation and financial
results of the Company.
Adverse Tax Consequences of Failure to Qualify as a REIT
Grove Property currently intends to continue operating so as
to qualify as a REIT under the 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. No assurance can be given
that Grove Property 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 Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within Grove Property'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
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 qualification. Grove Property, however, is not aware of any
pending tax legislation that would adversely affect its ability to operate as a
REIT.
If Grove Property fails to qualify as a REIT in any taxable
year, Grove Property 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, Grove Property 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 the
funds of Grove Property available for investment or distribution to Shareholders
because of the additional tax liability to Grove Property for the year or years
involved. If Grove Property were to fail to qualify as a REIT, it no longer
would be subject to the distribution requirements of the Code, and to the extent
that distributions to Shareholders would have been made in anticipation of Grove
Property's qualifying as a REIT, Grove Property might be required to borrow
funds or to liquidate certain of its assets to pay the applicable corporate tax.
Although Grove Property currently intends 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.
Certain Anti-Takeover Provisions May Inhibit a Change in Control
of the Company
Certain provisions of the Charter, the Bylaws and the OP
Partnership Agreement may have the effect of discouraging a third party from
making an acquisition proposal for the Company and may thereby inhibit a change
in control of the Company under circumstances that could give the holders of the
Common Shares the opportunity to realize a premium over the then-prevailing
market prices of such Common Shares. Such provisions include the requirements
regarding the staggered terms of the Board and removal of trust managers set
forth in the Charter and the advance notice requirements for certain Shareholder
proposals set forth in the Bylaws.
Preferred Shares. The Charter permits the Board to issue up to
4.0 million preferred shares of beneficial interest, par value $.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 Common Shares
might receive a premium for their Common Shares over the then-prevailing market
price of such Common Shares.
Ownership Limit. The Ownership Limit imposed by the Charter
for the purpose of preserving Grove Property's REIT qualification may also have
the effect of precluding an acquisition of control of Grove Property without the
approval of the Board. The Ownership Limit might deter tender offers for Common
Shares, which offers may be advantageous to Shareholders, and might limit the
opportunity for Shareholders to receive a premium for the Common Shares that
might otherwise exist if an investor were attempting to assemble a block of
Common Shares in excess of 5.0% of the outstanding Common Shares or otherwise
effect a change of control of Grove Property.
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 product releases 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.
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 impose treble
damages for failure to so notify. In addition, lead-based paint in any of the
properties may result in lead poisoning in children residing in the property if
chips or particles of such lead-based paint are ingested, and the Company may be
held liable under state laws for any such injuries caused by ingestion of
lead-base paint by children living at the properties. Lead paint tests have been
conducted at most of the Properties over the past five years and have
established compliance with all applicable federal and state regulations for
such Properties.
Possible Adverse Effects on Common Share Price Arising From Shares
Available for Current and Future Sale
No prediction can be made as to the effect, if any, that
future sales of Common Shares or the availability of such shares for future sale
will have on the market price of the Common Shares. Sales of substantial amounts
of Common Shares (including shares issued pursuant to the exchange of Common
Units for Common Shares), or the perception that such sales would occur, may
adversely affect prevailing market prices for 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. Except for Morgan Stanley Group Inc. and ABKB/LaSalle Securities
Limited, as agent for Oregon Public Employees' Retirement Fund, existing
Shareholders 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 Grove Property.
The Company has granted certain entities and individuals
receiving Common Units in connection with the Consolidation Transactions certain
registration rights with respect to the Common Shares which they may receive
upon the exchange of Common Units. Pursuant to a Registration Rights Agreement
with certain holders of Common Units, the Company has agreed to file and
generally keep continuously effective beginning one year after the completion of
the Consolidation Transactions a registration statement covering the issuance of
shares upon exchange of Common Units and the resale thereof. Pursuant to the
Registration Rights Agreement with New Equity Investors, the Company has agreed
to file and generally keep continuously effective beginning six months after the
completion of the Consolidation Transaction a registration statement covering
the sale of Common Shares issued in the New Equity Investment. The Company will
also grant individuals receiving Common Units in connection with this Exchange
Offer certain registration rights with respect to the Common Shares which they
may receive upon the exchange of Common Units. See "THE OP PARTNERSHIP AGREEMENT
- - Limited Partner Redemption/Exchange Rights."
Changes in Investment and Financing Policies Without
Shareholder Approval
The Board will determine the Company's investment and
financing policies, its growth strategy, and its debt, capitalization,
distribution and operating policies. Although the Board has no present intention
to revise or amend these strategies and policies, the Board may do so at any
time without a vote of the Shareholders. Accordingly, Shareholders will have no
control over changes in strategies and policies of the Company, and such changes
may not serve the interests of all Shareholders and could adversely affect the
Company's financial condition or results of operations.
Issuance of Additional Securities. Grove Property has
authority to offer its Common Shares or other equity or debt securities in
exchange for property or otherwise. Similarly, Grove Property may cause the
Operating Partnership to offer additional Common Units or preferred units of the
Operating Partnership, including offers in exchange for property to sellers who
seek to defer certain of the tax consequences relating to a property transfer.
Existing Shareholders and holders of Common Units will have no preemptive right
to acquire any such securities, and any such issuance of equity securities could
result in dilution in an existing Shareholder's investment in Grove Property.
Risks Involved in Acquisitions Through Partnerships or Joint
Ventures. In addition to its investments in the Property Partnerships, the
Company may invest in apartment properties through partnership or joint ventures
instead of purchasing apartment properties directly or through wholly-owned
subsidiaries. Partnership or joint venture investments may, under certain
circumstances, involve risks not otherwise present in a direct acquisition of
properties. These include the risk that the Company's co-venturer or partner
might become bankrupt; a co-venturer or partner might at any time have economic
or business interests or goals which are inconsistent with the business
interests or goals of the Company; and a co-venturer or partner might be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's policies or objectives. The consent of
Outside Partners who did not tender in the Consolidation Transactions and remain
in the Property Partnerships may be required to approve certain major decisions
of the Property Partnerships, thereby reducing the Company's flexibility in
dealing with the Partnership Properties. There is no limitation in the Charter
as to the amount of investment the Company may make in joint ventures or
partnerships.
Adverse Effect on Trading Market for Common Shares; Reduction
In Public Float
Reduction in Periodic Distributions. In response to the
investment interests of certain potential investors in Grove Property, and Grove
Property's evaluation of what it perceives to be a changing philosophy in REIT
investments generally, Grove Property decided, in connection with the
Consolidation, to reduce periodic cash distributions per Common Share and to
increase the reinvestment of its cash flow in the Company. The Company believes
that this will enable it to achieve greater long-term capital appreciation for
investors in the Company. However, there can be no assurance that the Company
will be able to identify favorable investments in the future or that any capital
appreciation will result from this strategy. Also, an adverse perception by the
investing public of the reason for such decision, and the continuing interest of
certain investors in owning relatively high-yield REIT common stock, may
adversely affect the market price of the Common Shares and may cause reduced
trading activity in the Common Shares on the AMEX. Such a reduction would reduce
the liquidity of an investment in the Common Shares. One of the factors that
currently may influence the price of the Common Shares in public markets is the
amount of Grove Property's annual dividend distributions and the yield such
distributions represent; accordingly, an increase in market interest rates may
lead purchasers of Common Shares to demand a higher annual yield, which could
affect adversely the market price of the Common Shares.
Adverse Consequences of Election to Revoke REIT Election
by the Company
The Board has the authority to revoke Grove Property's REIT
election at any time without Shareholder approval. Although Grove Property
currently intends to operate in a manner designed to continue to qualify as a
REIT, Grove Property is aware that certain institutional investors have
questioned whether it is preferable for a company to elect to be taxed as a
corporation that is not qualified as a REIT so that the entity is not required
to distribute to shareholders 95% of its REIT taxable income. These investor
preferences, as well as economic, market, legal, tax or other considerations,
may cause the Board at some time in the future to revoke Grove Property's REIT
election. Such an election may be made by the Board, without any Shareholder
vote.
BENEFITS TO RELATED PARTIES
In addition to the benefits received by the Grove Companies from the
Consolidation Transactions in connection with the exchange of their Property
Partnership interests pursuant to the Contribution Agreement, the Grove
Companies (including certain executive officers of the Company) have or will
realize certain other benefits from the Consolidation Transactions and this
Exchange Offer, including the following:
o In connection with the transfer of certain assets and
liabilities of the Management Company to the Operating
Partnership and the transfer of its interests in the Property
Partnerships to the Operating Partnership, the Grove Companies
received an aggregate of 904,867 Common Units and a cash
payment of $177,669.
o Guarantees of approximately $26.8 million of mortgage
indebtedness by Messrs. Damon Navarro and Brian Navarro were
released in connection with the repayment of indebtedness on
the Partnership Properties as part of the Refinancing. It is
likely that other loan guarantees given by the Navarros in
connection with three of the four pending Exchange Offers will
also be released in connection with the eventual payoff or
refinancing of mortgage indebtedness that encumbers such
properties.
o Each Executive Officer entered into a new employment agreement with
Grove Property, pursuant to which he will receive (i) a 10-year option
pursuant to the 1996 Plan, to purchase Common Shares at a price per
share equal to the market price of a Common Share on the date of
grant, (ii) 1997 base salaries of: $50,000-Damon Navarro;
$50,000-Brian Navarro; $50,000-Edmund Navarro; $50,000-Joseph
LaBrosse; and $25,000-Gerald McNamara and (iii) annual Deferred Stock
Grants (if earned) in accordance with the 1996 Plan. If an Executive
Officer's employment with the Company is terminated "without cause" by
the Company or by the Executive Officer following a "change in
control" or for "good reason" (as such terms are defined in the
employment agreements), such Executive Officer will be entitled to a
lump sum payment equal to 200 percent of his annual base salary plus
an amount equal to the aggregate value of all bonuses, whether cash,
stock, options or otherwise (but specifically excluding the Deferred
Stock Grants), paid to such Executive Officer for the previous year.
o The Grove Companies and certain of its Affiliates will no
longer be liable as a general partner of the Property
Partnerships, including Farmington Summit Associates Limited
Partnership if this Exchange Offer is successful, for future
operations of the Partnership Properties.
o Upon the successful completion of the Consolidation
Transactions, the Property Partnerships repaid their
outstanding indebtedness to NAVAB Associates (approximately
$1.19 million at September 30, 1996), and received payment
from NAVAB for outstanding receivables (approximately $0.7
million at September 30, 1996). NAVAB is a partnership owned
by Damon and Brian Navarro and George and Ronald Abdow. NAVAB
Associates, in turn, used the net proceeds of approximately
$0.5 million to repay its outstanding bank indebtedness of
approximately the same amount, which debt was guaranteed by
the Navarros and the Abdows.
o To the extent they received Common Units rather than cash
pursuant to the Contribution Agreement, the Grove Companies
experienced a partial deferral of the federal income tax
consequences associated with their contribution of assets to
the Operating Partnership.
o The Grove Companies obtained improved liquidity of their
investments as a result of the Consolidation Transactions. The
Grove Companies received Common Units, which may be redeemed
for cash or, at the option of the Company, exchanged for
Common Shares. Unlike interests in real estate or a property
management company, the Common Shares will be freely
transferable (subject to applicable securities laws and
certain agreements restricting transfer).
o In connection with the acquisition of three additional
properties in June 1997, as well as this Exchange Offer and
three similar exchange offers that are currently pending, the
Operating Partnership will reimburse Grove Companies for
certain overhead costs related to such transactions.
CONFLICTS OF INTEREST
The Executive Officers have interests that conflict with the interests
of the other Grove Property shareholders, the limited partners of the Operating
Partnership (including the Limited Partners who elect to participate in the
Exchange Offer) and the persons who acquired Common Shares in the New Equity
Investment. Grove Property and the Grove Companies have been represented by the
same legal counsel and, therefore, neither Grove Property nor the Property
Partnerships has been advised by separate legal counsel in connection with the
Consolidation Transactions or this Exchange Offer.
Following the consummation of the Consolidation, the Grove Companies
continued to hold limited and general partner interests in 15 limited
partnerships that owned, in the aggregate, 14 multifamily residential projects
with a total of approximately 1,600 apartments and seven retail and mixed-use
projects with a total of approximately 125,000 rentable square feet (such
properties comprise the "Excluded Properties"), and the five Executive Officers
remain officers or directors of the Grove Companies, including entities that
have interests in the limited partnerships that own the Excluded Properties, and
will therefore have conflicts of interest in allocating their time between the
Company and such entities. In June 1997, the Operating Partnership acquired two
of the Excluded Properties and acquired the general partnership interest and
certain limited partnership interests of a third Excluded Property. The Company
may seek to acquire one or more of the remaining Excluded Properties from time
to time when and if conditions are favorable to do so, such as this current
Exchange Offer to the Limited Partners. The Executive Officers will have
conflicts of interest in establishing the terms of such acquisitions, including
this Exchange Offer, which will not be based on independent third party
appraisals. In addition to this Exchange Offer, there are three additional
exchange offers currently pending for limited partnership interests in three
additional Excluded Properties partnerships. Moreover, certain of the Excluded
Properties are located near or adjacent to one or more of the Properties
acquired during the Consolidation Transactions, and therefore may compete with
one or more of such Properties for prospective tenants, resulting in potential
conflicts of interest for the Executive officers. In addition, Brian Navarro,
Vice President-Acquisition of Grove Property, will continue to serve as the
President of National Realty, which will be the exclusive provider of real
estate brokerage services to the Company (including the Property Partnerships)
and the limited partnerships that own the Excluded Properties. The Grove
Companies and each of the Executive Officers have entered into agreements with
the Company which, among other things, will require each of the Executive
Officers to allocate a substantial amount of his working time to the Company.
The Management Owners may have conflicts of interest as a result of
their ownership of National Realty, which continues to provide real estate
brokerage services to the Company (including the Property Partnerships), the
limited partnerships that own the Excluded Properties and third parties
following the Consolidation Transactions.
Following the consummation of the Consolidation Transactions, the
Operating Partnership, pursuant to management services contracts, has provided
certain real estate management services to the Property Partnerships and to the
Grove Companies (including to the limited partnerships that own the Excluded
Properties), which services were previously provided by the Management Company.
Certain Executive Officers may have conflicts of interest in the negotiation and
enforcement of such management services contracts as a result of their ownership
of the Grove Companies and interests in the Excluded Properties.
The Executive Officers had and will have conflicts of interest in
establishing the terms of the Consolidation Transactions, this Exchange Offer
and similar offers to related partnerships, and the provisions of the employment
agreements with the Executive Officers and the non-competition agreements. They
will also have a conflict of interest with respect to their obligations as Trust
Managers and Executive Officers to enforce the terms of various agreements, and
their objectives with respect to the sale of, or repayment of indebtedness on,
any of the Partnership Properties may differ from those of other Limited
Partners of those partnerships and/or the shareholders of Grove Property. Any
decision regarding the enforcement of contracts between the Company and the
Grove Companies or any Executive Officer, individually, and the sales or
refinancings of Partnership Properties, will be made by a majority of the
members of the Board that are not employed by or affiliated with the Grove
Companies (the "Independent Trust Managers"). The Executive Officers may,
however, use their positions as executive officers and trust managers to
influence the Independent Trust Managers in this regard.
Holders of Common Units may suffer different and more adverse tax
consequences than the Company or its shareholders upon the sale of, or repayment
of indebtedness on, any of the Partnership Properties and, therefore, Common
Unit holders, including the Executive Officers of the Company, and the Company
may have different objectives regarding the appropriate pricing and timing of
any such sale or repayment of indebtedness. Limited Partners who remain in
certain Property Partnerships following the Consolidation may also have
different objectives from those of the Company.
<PAGE>
THE COMPANY
The Grove Companies
Grove Investment Group was formed in 1980 as a Southern New England
real estate company based in Hartford, Connecticut. Damon and Brian Navarro,
co-founders of the Company, began business operations by buying and managing
small, multifamily properties with limited partners as equity investors. From
its formation, Grove Property's executive officers have been shared with the
Grove Companies.
As used herein, the "Grove Companies" means Grove Investment Group,
Inc. and its affiliates (including certain companies and individuals) that own
interests (directly or indirectly) in the Management Company, any Property
Partnership or any limited partnership which owns any Excluded Property. The
Grove Companies include, without limitation, the Management Owners and Gerald
McNamara, each an executive officer and, in the case of Damon Navarro and Joseph
LaBrosse, a Trust Manager of Grove Property, and Ronald and George Abdow.
At September 30, 1996, the Grove Companies owned general partnership
interests in 42 limited partnerships, including the Property Partnerships (which
owned the Partnership Properties prior to the Consolidation) and 15 other
limited partnerships which own the Excluded Properties. The remaining limited
partnerships (other than the Property Partnerships and the partnerships that own
the Excluded Properties) in which the Grove Companies own general and limited
partnership interests do not own properties, but rather are limited purpose
partnerships formed by the Grove Companies for various other purposes.
Grove Property
Grove Property is a self-administered REIT formed pursuant to the
Maryland REIT Act engaging in multifamily property acquisition and
redevelopment. Grove Property was formed in 1994 to continue the multifamily
property acquisition, management and marketing operations and related business
objectives and strategies of Grove Investment Group, formed in 1980 by Damon and
Brian Navarro. Upon completion of the IPO in June 1994 and the concurrent
completion of the various transactions that occurred simultaneously therewith,
Grove Property purchased its three initial properties from affiliates of Grove:
Dogwood Hills Apartments, Hamden Center Apartments and Baron Apartments. In
1996, Grove Property purchased its fourth property, Cambridge Estates, from an
affiliate of Grove.
Grove Property is operated under the direction of Damon Navarro,
Chairman of the Board of Trust Managers, President and Chief Executive Officer,
and a management team consisting of substantially all of the former personnel of
Grove, being Damon, Brian and Edmund Navarro, Joseph R. LaBrosse and Gerald A.
McNamara, each an Executive Officer, and the Trust Managers of Grove Property,
Messrs. Damon Navarro, Edmund Navarro, Joseph R. LaBrosse, James Twaddell,
Theodore R. Bigman, J. Joseph Garrahy and Harold Gorman. Grove Property's
executive officers are substantially shared with the Grove Companies and, as
described below, the Grove Companies have been providing property management and
other support services to Grove Property from its inception. See "-The Grove
Companies" and "- Property Management Services."
As a result of the Consolidation Transactions, Grove Property became a
self-administered and self-managed REIT. Grove Property will conduct
substantially all of its operations through the Operating Partnership. Grove
Property currently owns an interest in the Operating Partnership of
approximately 61% and will control the Operating Partnership as the sole general
partner. Grove Property owns, directly or indirectly, 100% of the interests in
the four GREAT Properties, each of the eight properties acquired from certain
liquidating limited partnerships through the Consolidation transactions and each
of the two properties acquired in June 1997, and controls the remaining thirteen
Properties through a general partnership interest in the Property Partnerships
that own such Properties.
Grove Property believes that it is of the largest public owners of
multifamily properties in Southern New England. The multifamily properties that
are owned or controlled by Grove Property include 2,347 residential apartments
located in Connecticut, Massachusetts and Rhode Island and a neighborhood retail
complex in Longmeadow, Massachusetts with net rentable square feet of
approximately 79,012. In addition, three of the residential properties include
leased office space with total leasable office space of approximately 15,200
square feet.
Grove Property believes that it is the only publicly traded multifamily
apartment REIT conducting operations exclusively in the Northeast. Management
believes that this concentration in a single geographic area and the Company's
reputation in the Northeast as a superior property management company with
approximately 170 employees, coupled with a sound performance as a public
company since June 1994, will be attractive to potential investors in Grove
Property, including owners of multifamily properties that might be acquired by
the Operating Partnership for Common Units, thereby deferring the owner's
federal income tax liability, if any, on a sale.
Grove Property's executive offices are located at 598 Asylum Avenue,
Hartford, Connecticut 06105, (860) 520-4789.
Trust Managers and Executive Officers
The Trust Managers and Executive Officers of Grove Property
Trust, and other key employees of Grove Property Trust, their ages (at May 31,
1997) and their positions and offices with Grove Property Trust are as follows:
<TABLE>
<CAPTION>
Name Age Positions and Offices Held
<S> <C> <C>
Trust Managers and Executive Officers
Damon D. Navarro 43 Chairman of the Board of Trust Managers,
President and Chief Executive Officer
Joseph R. LaBrosse 34 Chief Financial Officer, Secretary, Treasurer
and Trust Manager
Edmund F. Navarro 36 Vice President - Property Management and Trust
Manager
James F. Twaddell 56 Trust Manager
Harold Gorman 53 Trust Manager
Theodore R. Bigman 34 Trust Manager
J. Joseph Garrahy 66 Trust Manager
Brian A. Navarro 42 Vice President - Acquisitions
Gerald A. McNamara 56 Vice President - Marketing and Strategic Planning
Key Employees
Andy Mazur 46 Director of Site Operations - Regional
Property Manager
Karen McHugh 39 Director of Marketing - Regional Property Manager
Paul Bengtson 36 Director of Landscaping - Regional Property
Manager
Steven Splain 35 Controller
Leanne Bruder 28 Accounting Manager
</TABLE>
Pursuant to the terms of the Charter and Bylaws, 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 Grove Property). Trust Managers are divided into three classes
serving staggered three-year terms. Messrs. Damon Navarro's, Bigman's and
Gorman's terms of office will expire at the Annual Meeting of Shareholders to be
held on June 18, 1997; Messrs. Twaddell's and Edmund Navarro's term of office
will expire at the Annual Meeting of Shareholders to be held in 1998; and
Messrs. Garrahy's and LaBrosse's terms of office will expire at the Annual
Meeting of Shareholders to be held in 1999. Messrs. Damon Navarro, Bigman and
Gorman have been nominated for re-election as Trust Managers at the June 18,
1997 Annual Meeting. Trust Managers hold office until their successors are duly
elected and qualified.
The Charter requires majority approval by the Independent Trust Managers
of Grove Property Trust for all Board decisions relating to
transactions with Affiliates. Currently, the Independent Trust
Managers are Messrs. Twaddell, Gorman and Garrahy.
Damon Navarro is Chairman of the Board of Trust Managers,
President and Chief Executive Officer of Grove Property Trust. Mr. Navarro
previously served as President of all of the Grove Companies, except GPS.
Co-founder of Grove in 1980, he is responsible for investor relations,
marketing, new business development and organizational management for the
Company and its affiliates. Mr. Navarro is currently, or has previously served
as, a general partner or principal of the general partner for 42 of the limited
partnerships affiliated with the Grove Companies, including each of the Property
Partnerships, and is the Chief Executive Officer for 27 corporations affiliated
with those limited partnerships. Mr. Navarro is a graduate of the University of
Rhode Island with a degree in Finance.
Joseph LaBrosse is Chief Financial Officer, Secretary and
Treasurer, as well as a Trust Manager of Grove Property Trust. Mr. LaBrosse was
Chief Financial Officer for the Grove Companies and their affiliates. He is
responsible for financing, loan portfolio management, financial reporting, tax
planning, cash management, strategic budgeting and planning. Prior to joining
the Grove Companies in 1988, Mr. LaBrosse was a real estate tax consultant at
Arthur Andersen & Company in Hartford, Connecticut. He is a magna cum laude
graduate of the University of Connecticut with a degree in Accounting. He is 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.
James F. Twaddell is a Trust Manager of Grove Property Trust. 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. degree from Brown University in 1961.
Harold Gorman is a Trust Manager of Grove Property Trust. 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 Connecticut Arthritis
Society.
J. Joseph Garrahy is a Trust Manager of Grove Property Trust. Mr. Garrahy
began his career in public service in 1962 as a Rhode Island State Senator. In
1968, he was elected Lieutenant Governor of The State of Rhode Island, where he
served four two-year terms. In 1976, Mr. Garrahy was elected Governor of the
State, and was reelected to that office 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.
Mr. 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. Mr.
Garrahy has served as President of J. Joseph Garrahy & Associates, Inc., a
consulting firm, in Providence, Rhode Island, since its formation in 1990. Mr.
Garrahy attended the University of Buffalo and the University of Rhode Island.
Theodore R. Bigman has been a Trust Manager of Grove Property since April, 1997.
From 1987 to 1995, he was a Director at CS 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 REITs.
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 Group Inc., 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.
Brian Navarro is Vice President-Acquisitions of Grove Property Trust. Mr.
Navarro also served as a vice president of all of the Grove Companies. Mr.
Navarro is responsible for the acquisition and disposition of property and
financing for the Company and its affiliates. Prior to co-founding Grove in
1980, Brian Navarro acquired, renovated and resold over 30 two-, three- and
six-family houses in the Hartford, Connecticut, Springfield, Massachusetts and
Westerly, Rhode Island areas. Mr. Navarro is a graduate of the University of
Connecticut with a degree in Finance and a special concentration in real estate.
Gerald A. McNamara is Vice President - Marketing and Strategic
Planning of Grove Property Trust. Mr. McNamara has been a principal and vice
president of the Grove Companies and their affiliates since 1985. He is
currently, or has previously served as, a general partner in many of the 42
limited partnerships sponsored by the Grove Companies. Mr. McNamara is involved
in all aspects of property acquisition and financing, and is responsible for the
long range planning and new product/concept development of Grove Property Trust.
Prior to his association with the Grove Companies, Mr. McNamara was Senior Vice
President of Heublein International where he was in charge of Food and Beverage
Operations overseas. Mr. McNamara is a graduate of Trinity College with a degree
in History and Economics.
Edmund Navarro is Vice President - Property Management of
Grove Property Trust and a Trust Manager. Prior to the Consolidation
Transactions, Edmund Navarro wholly-owned Grove Services Inc., the general
partner of GPS, and served as President of GPS. At GPS, he was responsible for
the management of approximately 45 properties and 180 employees and the
marketing and supervision of construction projects. Mr. Navarro became a
principal of Grove in 1983. Prior to his employment with the Grove Companies,
Mr. Navarro was a Media Marketing Planner with Vitt Median International in New
York City. Mr. Navarro is a graduate of the University of Rhode Island with a
degree in Marketing.
Andy Mazur is Director of Site Operations and a Regional Property Manager
for Grove Property Trust. He has been with Grove since 1988. Mr. Mazur is
responsible for the Service Technician Training Program and Continuing
Development of Grove Property Trust maintenance systems and supervising the
management of several properties. Mr. Mazur has a Masters Degree from
Springfield College and a Bachelors Degree from Central Connecticut State
College.
Karen McHugh is Director of Marketing and a Regional Property Manager for
Grove Property Trust. She has been with Grove since 1991. She develops and
oversees training programs for property leasing directors. Prior to joining GPS,
Ms. McHugh worked for a real estate developer in the property management area
for seven years. Ms. McHugh graduated from Mount Holyoke College with a B.A. in
English and a B.A. in Political Science.
Paul Bengtson is Director of Landscaping and a Regional Property Manager
for Grove Property Trust. He has been with Grove since 1993. Mr. Bengtson gained
his landscaping expertise while working for a landscaping contractor throughout
high school and college. Prior to joining Grove he worked for four years for a
property management company based in Boston. Mr. Bengtson is a graduate of
Worcester State College with a B.A. degree in Business Management.
Steven A. Splain is the Controller for Grove Property Trust and all the
Grove Companies. He has been with Grove since 1994 and is in charge of the
financial and tax reporting and day-to-day accounting functions. Between 1984
and 1994, Mr. Splain was Tax Manager at Blum, Shapiro, a regional accounting
firm in West Hartford, Connecticut. Mr. Splain is a graduate of Southern
Connecticut State University with a B.S. in Accounting. He is a licensed
Certified Public Accountant, and a member of the American Institute of Certified
Public Accountants and the Connecticut Society of Certified Public Accountants.
Leanne Bruder is the Accounting Manager for the corporate
division of the Accounting Division of Grove Property Trust. She began working
for Grove full-time in January 1996 and worked part time for Grove in 1991 and
1992. Prior to joining Grove full-time, Leanne was a senior accountant at the
Hartford, Connecticut office of KPMG Peat Marwick. While at KPMG, Ms. Bruder was
a member of the Real Estate Industry Focus Group and was responsible for the
audits of multi-billion dollar mortgage loan and real estate-owned portfolios of
several prominent insurance companies. She was also instrumental in the
securitization of a large portfolio of loans and in organizing the first REIT to
be offered by one of these companies. Ms. Bruder is a graduate of the University
of Connecticut with a B.S. in accounting, and is a Certified Public Accountant.
Damon Navarro, Brian Navarro and Edmund Navarro are brothers.
No family relationships exist among any of the other trust managers or executive
officers of Grove Property. 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. Twaddell was elected to the Board at the closing of the
IPO in 1994, for a term of one year, pursuant to the terms of the Underwriting
Agreement between Grove Property Trust and the underwriters in connection with
the IPO, Barclay Investments, Inc., and Mr. Bigman was elected to the Board at
the closing of the New Equity Investment pursuant to the terms of the Securities
Purchase Agreement entered into with Morgan Stanley. Subject to the provisions
of their respective employment agreements, if any, executive officers are
elected for and serve at the discretion of the Board.
<PAGE>
Common Units Issued to Executive Officers in Connection with Consolidation
In connection with the Consolidation Transactions, pursuant to
the Contribution Agreement, the Executive Officers received the number of Common
Units and the dollar amounts set forth opposite their names below in exchange
for their respective interests in the Property Partnerships and certain assets
and liabilities of GPS. The cash payments to the Navarros represent the purchase
price for their respective general partnership interests in certain Property
Partnerships. The balance of the Grove Companies' interests in the Property
Partnerships, including the economic interests in their general partnership
positions in certain of the Property Partnerships, were acquired by the
Operating Partnership in exchange for Common Units. No member of the Board of
Trust Managers who is not also an Executive Officer transferred any assets to
Grove Property in connection with the Consolidation Transactions. The Common
Units received by such Executive Officers carry redemption rights and
registration rights.
Executive Officer Common Units(1) Cash
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 --
Following the consummation of the Consolidation Transactions,
National Realty, which is 100% owned by Messrs. Damon, Brian and Edmund Navarro
and Joseph LaBrosse, has provided real estate brokerage and related services to
Grove Property and the Operating Partnership. The real estate brokerage services
performed by National Realty for Grove Property and the Operating Partnership
include the funding, 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
will receive a 4% commission on purchases or sales arranged by National Realty
which are valued at up to $5.0 million and a 3% commission on purchases or sales
arranged by National Realty which are valued in excess of $5.0 million. The
brokerage services contracts provide that the Operating Partnership will
indemnify National Realty and the Grove Companies for any liability incurred in
performing such services, except in certain circumstances. Such agreements have
terms of one to two years, subject to either party's right to cancel upon at
least 30 days' notice. The brokerage services contracts were not negotiated on
an arm's-length basis and the owners of National Realty may have 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.
The Operating Partnership owns certain of the assets and
liabilities of GPS used by GPS prior to the Consolidation in connection with the
provision of real estate management services to the Grove Companies and Grove
Real Estate Asset Trust. Following the consummation of the Consolidation
Transactions, pursuant to management services agreements, the Operating
Partnership provides such property management services to certain limited
partnerships whose General Partner is one of the Grove Companies. Such
management services agreements will provide that the Operating Partnership shall
receive in exchange for its provision of property management services, with
respect to each property, a fee equal to from 4% 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 give notice of termination within 90 days prior to the end of the
then current term.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of June 1, 1997
regarding the beneficial ownership of Common Units and Common Shares by each
person known by Grove Property to be the beneficial owner of more than five
percent of the Common Units and Common Shares, by each Trustee of Grove
Property, by each Executive Officer of Grove Property named in the table below,
and by all Trustees and Executive Officers of Grove Property as a group. Each
person named in the table has the sole voting and investment power with respect
to all units and shares shown as beneficially owned by such person, except as
otherwise set forth in the notes to the table.
<PAGE>
<TABLE>
<CAPTION>
Name and Business Address Common Units Common Shares Percent of Percent of Pro forma
Of Beneficial Benefically Owned Beneficially Owned Common Units Owned Class of Percent of Common
Owner Common Shares Units/Shares(14)
<S> <C> <C> <C> <C> <C>
Damon D. Navarro
Grove Property Trust 310,406 38,837(1)(2) 5.12 * 5.74
598 Asylum Avenue
Hartford, CT 06105
Brian A. Navarro
Grove Property Trust 302,853 36,001(1)(3) 4.99 * 5.57
598 Asylum Avenue
Hartford, CT 06105
Edmund F. Navarro
Grove Property Trust 267,705 36,001(1)(4) 4.41 * 4.99
598 Asylum Avenue
Hartford, CT 06105
Joseph R. LaBrosse
Grove Property Trust 72,676 9,164(1)(5) 1.20 * 1.35
598 Asylum Avenue
Hartford, CT 06105
Gerald A. McNamara
Grove Property Trust 33,795(13) 6,790(6) * * *
598 Asylum Avenue
Hartford, CT 06105
James F. Twaddell
Schneider Securities, Inc. 0 43,311(7)(8) 0 1.1 *
2 Charles Street
Providence, Rhode Island
02904
Harold V. Gorman
Heublein, Inc. 0 3,542(9) 0 * *
450 Columbus Boulevard
Hartford, CT 06103
J. Joseph Garrahy
220 South Main Street 0 3,542(10) 0 * *
Providence, Rhode Island
02903
Theodore R. Bigman
Morgan Stanley Group Inc. 0 777,778(11) 0 19.7 12.82
1221 Avenue of the Americas
22nd Floor
New York, NY 10020
All Trustees and Executive
Officers as a group (8 987,435 954,766 16.27 23.7 31.65
persons)
Morgan Stanley Group Inc.
1221 Avenue of the Americas 0 777,778(11) 0 19.7 12.82
22nd Floor
New York, NY 10020
Oregon Public Employees'
Retirement Fund, by 0 391,392(12) 0 9.9 6.45
ABKB/LaSalle Securities
Limited, as agent for
Oregon Public Employees'
Retirement Fund
100 East Pratt Street
20th Floor
Baltimore, MD 21202
* less than one percent
<PAGE>
<FN>
(1) Includes Common Shares owned by Grove Equity Partnership, a partnership
whose general partners are Messrs. Damon Navarro, Brian Navarro, Edmund
Navarro and Joseph LaBrosse, which beneficially owns 35,849 Common
Shares (less than 1% of the Common Shares). Each partner's pro rata
shares of the partnership's Common Shares has been included in the
Common Shares owned by such partner.
(2) Includes 18,231 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(3) Includes 16,830 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(4) Includes 16,830 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(5) Includes 4,210 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(6) Includes 2,951 Common Shares subject to options to purchase Common Shares
granted pursuant to the 1994 Plan, including 1,181 Common Shares beneficially
owned by Mr. McNamara's daughter, with respect to which he disclaims beneficial
ownership.
(7) Includes 3,542 Common Shares subject to options to purchase Common Shares
granted pursuant to the 1994 Plan, including 3,071 Common Shares beneficially
owned by Mr. Twaddell's spouse, with respect to which he disclaims beneficial
ownership.
(8) At the time of Grove Property's initial public offering in 1994 (the
"IPO"), Mr. Twaddell was a principal of Barclay Investments, Inc., the
managing underwriter of the IPO, which was issued warrants to purchase
Common Shares at a price of $11.31 per share (the "Underwriter
Warrants"). On February 21, 1996, Barclay Investments, Inc. transferred
11,221 of the Underwriter Warrants to Mr. Twaddell, which Underwriter
Warrants are included in the Common Shares owned by Mr. Twaddell. The
Underwriter Warrants became exercisable on the first anniversary date
of the IPO and terminate on the fourth anniversary date of the IPO.
(9) Includes 3,542 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(10) Includes 3,148 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(11) The Common Shares beneficially owned by Morgan Stanley include Common
Shares held in investor accounts or entities with respect to which
Morgan Stanley shares discretionary voting and dispositive authority.
Morgan Stanley Asset Management Inc. ("MSAM"), a wholly-owned subsidiary
of Morgan Stanley, shares discretionary voting and dispositive power
over 707,071 of such Common Shares (17.9% of the Common Shares) which
are held in investor accounts or entities, including the Morgan Stanley
Real Estate Special Situations Fund I, L.P. (214,264 Common Shares, 5.4%
of the Common Shares), and The Morgan Stanley Real Estate Special
Situations Fund II, L.P. (285,686 Common Shares, 7.2% of the Common
Shares), for which MSAM is an investment advisor. By reason of his
relationship with Morgan Stanley and MSAM, Mr. Bigman may be deemed to
have beneficial ownership of such shares pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934. Pursuant to the Securities Purchase
Agreement entered into with Morgan Stanley in connection with its
purchase of Common Shares in the New Equity Investment, Grove Property
has (i) agreed to permit Morgan Stanley to designate one person to be a
member of the Board of Grove Property and to nominate that person for
election by the Shareholders and (ii) granted to Morgan Stanley certain
preemptive rights in connection with future issuances (with certain
exceptions) by Grove Property of Common Shares and other securities
convertible into Common Shares ("Convertible Securities"); the
preemptive rights is to purchase (a) in the case of the issuance by
Grove Property of Convertible Securities, up to the Percentage Amount of
such Convertible Securities and (b) in the case of the issuance by Grove
Property of Common Shares, a number of Common Shares up to that number
of Common Shares such that Morgan Stanley's ownership, following such
issuance, would continue to be the Percentage Amount of the issued and
outstanding Common Shares plus the-exercisable "in-the-money" employee
stock options. For the purposes of Morgan Stanley's Securities Purchase
Agreement and the preemptive rights described in the preceding sentence,
"Percentage Amount" means 20%, except in the case of any proposed
issuance of Common Shares for less than $9.00 per share or any
Convertible Securities where the initial conversion, exchange or
exercise price, as the case may be, is less than $9.00 per Common Share,
in which case the "Percentage Amount" means 25%. Morgan Stanley will
retain the right to nominate a director and the preemptive rights
described above until the earlier of (i) Morgan Stanley and its
affiliates ceasing to own at least 10% of the issued and outstanding
Common Shares and (ii) Grove Property consummating an underwritten
public offering of Common Shares yielding gross proceeds of at least
$40.0 million. Pursuant to a Registration Rights Agreement entered into
among Grove Property, Morgan Stanley and other purchasers in the New
Equity Investment, Grove Property is required to effect a shelf
registration under the Securities Act of 1933, subject to certain
conditions, of the Common Shares beneficially owned by Morgan Stanley
promptly after September 14, 1997. Moreover, subject to certain
conditions, the Common Shares beneficially owned by Morgan Stanley may
be included in the registration of Common Shares when Grove Property
registers its Common Shares or the Common Shares of other holders.
(12) Pursuant to the Securities Purchase Agreement entered into with the
Oregon Public Employees' Retirement Fund, by ABKB/LaSalle Securities
Limited, as agent for the Oregon Public Employees' Retirement Fund
("ABKB/LaSalle") in connection with its purchase of Common Shares in the
New Equity Investment, Grove Property has granted to ABKB/LaSalle
certain preemptive rights in connection with future issuances (with
certain exceptions) by Grove Property of Common Shares and Convertible
Securities; the preemptive right is to purchase (a) in the case of the
issuance by Grove Property of Convertible Securities, up to 9.9% of such
convertible Securities and (b) in the case of the issuance by Grove
Property of Common Shares, a number of Common Shares up to that number
of Common Shares such that ABKB/LaSalle's ownership would continue to be
9.9% of the issued and outstanding Common Shares following such
issuance. ABKB/LaSalle will retain the preemptive rights described above
until the earlier of (i) ABKB/LaSalle and its affiliates ceasing to own
at least 5.0% of the issued and outstanding Common Shares and (ii) Grove
Property consummating an underwritten public offering of Common Shares
yielding gross proceeds of at least $40.0 million. Pursuant to a
Registration Rights Agreement entered into among Grove Property,
ABKB/LaSalle and the other purchasers in the New Equity Investment,
Grove Property is required to effect a shelf registration under the
Securities Act of 1933, subject to certain conditions, of the Common
Shares beneficially owned by ABKB/LaSalle promptly after September 14,
1997. Moreover, subject to certain conditions, the Common Shares
beneficially owned by ABKB/LaSalle may be included in the registration
of Common Shares when Grove Property registers its Common Shares or the
Common Shares of other holders.
(13) Includes 8,886 Common Units beneficially owned by Mr. McNamara's spouse,
with respect to which he disclaims beneficial ownership.
(14) This column illustrates the proforma percent of Common Shares that would be
owned in the event all Common Units owned by holders of Common Units were
redeemed for Common Shares.
</FN>
</TABLE>
Compensation of the Trust Managers
Grove Property Trust pays its trust managers who are not
employees of Grove Property Trust ("Non-Employee Trust Managers") a fee of
$1,000 for attending each meeting of the Board. In addition, Grove Property may
continue to reimburse the Trust Managers for travel expenses incurred in
connection with their activities on behalf of Grove Property Trust. Each
Non-Employee Trust Manager in office at the time of the IPO received options to
purchase 2,000 Common Shares at the IPO price ($11X per Common Share) under
Grove Property Trust's 1994 Plan. Thereafter, beginning with the Annual Meeting
held in 1995, each Non-employee Trust Manager then in office has received an
annual grant of options to purchase 1,000 Common Shares, in each case at the
then-current market price.
Upon the consummation of the Consideration Transactions, each
Non-employee Trust Manager received a grant of a non-qualified stock option to
purchase 10,000 Common Shares under the 1996 Share Incentive Plan (the "1996
Plan"). The 1996 Plan provides that each Non-Employee Trust Manager who is first
elected or appointed after the Consolidation Transactions would receive 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 (including the 1997 Annual Meeting), 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
will be 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 options 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. Trust Managers who are employees of Grove Property are not
paid any trust manager fees.
Non-Competition Agreements
The Executive Officers have entered into non-competition
agreements with the Company (the "Non-Competition Agreements"). The
Non-Competition Agreement of each Executive Officer precludes him from directly
or indirectly developing, redeveloping, acquiring, managing or operating
multifamily or retail mixed-use properties, other than the Excluded Properties,
which compete with Grove Property Trust Properties or with properties acquired
by Grove Property Trust in the future (including the Partnership Properties) for
so long as he is an Executive Officer, Trust Manager, significant Shareholder
(5% or more of the outstanding Common Shares) or employee of, or consultant to,
Grove Property, and for a period of twenty-four months after termination thereof
other than in the event of termination of his employment by Grove Property
without cause or by the Executive Officer in the event of a "change in control"
or "for good reason" (as defined therein). Grove Property also has entered into
a Non-Competition Agreement with the Grove Companies which will remain in effect
until such time as no person who serves as a director, general partner or
executive officer of the Grove Companies also serves as a Trust Manager or
Executive Officer of Grove Property. Except for the Executive Officers, no other
Trust Manager has an interest in any of the Grove Companies and no direct or
indirect investor in the Grove Companies, other than the Executive Officers,
will be bound by the Non-Competition Agreements.
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 Agreement. Certain of the
Excluded Properties compete with Properties that are in close proximity thereto.
Property Management Services
Grove Property Services Limited Partnership was a Connecticut limited
partnership, wholly owned, directly or indirectly, by the Management Owners. In
connection with the Consolidation Transactions, Grove Property succeeded to the
property management activities of GPS, and the Operating Partnership has
acquired all of the assets and liabilities of GPS related to property management
activities. Following the consummation of the Consolidation Transactions, the
Operating Partnership and National Realty provide to the Company and to the
Grove Companies (including the limited partnerships that own Excluded
Properties) the real estate related services previously provided by the
Management Company. The assets utilized to carry out such property management
services constitute the "Management Division" of Grove Property Trust. Edmund F.
Navarro, Vice President/Property Management of Grove Property Trust, heads Grove
Property Trust's property management team, and substantially all of the
employees of GPS have become employees of the Operating Partnership in
connection with the Consolidation Transactions.
The Management Division generates all of its fee income from the
Properties and the Excluded Properties. In addition to managing the 2,347
multifamily apartment units and the commercial space in the Properties, the
Management Division manages the remaining Excluded Properties, pursuant to
management services contracts between Grove Property Trust and the affiliated
limited partnerships that own the Excluded Properties. These properties include
912 apartments in 12 multifamily residential projects, and 8 properties
consisting of 113,300 square feet of commercial space. The management services
agreements provide that the Operating Partnership receives in exchange for its
provision of property management services, with respect to each Property or
Excluded Property, a fee equal to from 4% to 6% of collected 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.
Management Division Operations
The Management Division manages properties utilizing its staff of
professional and support personnel, including certified regional property
managers, apartment managers, apartment maintenance technicians and leasing
agents, and the services of the Accounting Division of the Management Division.
As of December 31, 1996, the Management Division's property management personnel
consisted of approximately 170 employees. The depth of the Management Division's
organization is intended to enable it to deliver quality services on an
uninterrupted basis, thereby promoting resident satisfaction and improving
resident retention. The services of the Management Division are important to
Grove Property Trust's implementation of its objective to overhaul management
procedures of prior owners of the properties acquired pursuant to its growth
strategy. The Management Division has developed, and continues to improve,
on-site management programs, accounting systems, marketing systems and resident
quality control and retention procedures.
The Management Division's property management staff are employees of the
Operating Partnership. The property management team for each Property includes
on-site management and maintenance personnel as well as off-site support staff.
Property management teams perform leasing and rent collection functions and
coordinate resident services. Substantially all 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. The focus of the Management Division's on-site management program is
to provide prompt, courteous and responsive service to its residents. The
Management Division monitors the responsiveness of its on-site management
through various resident surveys. Service request response cards are left in
residents' apartments after any maintenance is performed, soliciting resident
feedback of the service provided.
Accounting Services
The Accounting Division of the Management Division is managed by Steven
Splain, Controller of the Company. The accounting staff audits and monitors each
property's financial records, including monthly income and expense reports, bank
statement reconciliations, rent rolls and economic occupancy reports and budget
compliance. Staff members visit each site on a regular basis to conduct on-site
audits and supervise on-site bookkeeping. The information generated during these
visits is used by the Management Division's on-site management staff at each
site to set personal and team goals which relate to budget and fiscal matters,
on a weekly and monthly basis, subject to the supervision of the Management
Division.
Property Marketing
The rental marketing personnel of the Management Division are trained to
assure that each property is marketable, priced realistically and promoted
aggressively. The Management Division uses a full range of promotional tools in
its marketing programs: point-of-purchase materials, high quality curb appeal,
targeted advertising and resident referrals. Instead of waiting until vacancies
occur, the Management Division markets the properties in its management
portfolio on a continuous basis. It takes steps necessary to avoid move-outs by
quality residents, which include quality customer service throughout the lease
term and renewal incentives.
The Management Division has established specific reporting requirements
and management guidelines to be applied at each of the Properties. Marketing
reports are prepared by on-site property management staff to track each
Property's occupancy, lease expiration, prospective resident traffic, unit
availability, renewal and rental rates and resident profile information. The
Management Division's on-site staff, which consists of property managers,
leasing agents, service technicians, porters and landscapers, participates in
weekly goal setting sessions to evaluate these marketing reports and examine
issues relating to resident underwriting, to evaluate progress, to set the next
week's goals and to review financial results. These sessions are supervised by
the Management Division's marketing director and regional managers. In this way,
the Management Division encourages customer service and team empowerment.
Marketing and leasing procedures established by the Management Division
are designed to ensure compliance with all federal, state and local laws and
regulations. Individual property marketing plans have been structured by the
Management Division to respond to local market conditions. Resident underwriting
guidelines for prospective residents comply with the FHA and ADA regulations and
are designed to stabilize service levels and cash flow through lower resident
turnover. None of the Properties is currently subject to rent control or rent
stabilization regulation or deed restrictions. Grove Property Trust's standard
12-month lease contracts facilitate uniform lease administration relating to
rent collections, security deposit dispositions, evictions, repairs and
renewals.
Construction Services
An employee of the Operating Partnership functions as a general
contractor, supervising the various sub-contractors who perform construction and
related services in connection with the redevelopment of the Properties and the
Excluded Properties.
Business Objectives and Operating Strategies
Grove Property's primary business objective is to pursue a growth
strategy which centers on acquisitions and property redevelopment in the
Northeastern United States. This growth strategy, in turn, is intended to
increase shareholder value through maximizing investment returns with the use of
retained cash in connection with acquisitions to be made by Grove Property.
Toward this end, Grove Property's distribution policy was changed as described
above. Grove Property plans to reinvest the retained balance of its cash flow in
its properties, including property redevelopment and additional property
acquisitions, the reduction of outstanding indebtedness and, when appropriate,
the repurchase of outstanding Common Shares. Grove Property's decision to reduce
its quarterly cash distribution to Shareholders is not in response to a
reduction in earnings (Grove Property has experienced no such reduction), nor is
such decision in response to any other adverse occurrence with respect to the
business or operations of Grove Property. Rather, Grove Property believes that
focusing its distribution and investment philosophy on total return to
shareholders, rather than focusing principally on the amount of periodic cash
distributions to shareholders, will enhance long-term shareholder value and
could reduce the volatility of the market price of the Common Shares.
Management intends to implement its growth strategy by acquiring
additional properties which offer solid and steady growth opportunities from
affiliates of the Grove Companies or from third party sellers. Management
intends to implement its growth strategy by acquiring properties at prices below
estimated replacement cost which can generate increased cash flow and long-term
investment value from pre-acquisition levels through strategic capital
improvements and aggressive property management. It will seek to acquire
properties that (i) meet an identified market demand; (ii) are well located and
under-performing in improving rental markets; and (iii) are capable of producing
a high component of current income through value added/return oriented capital
improvements to individual apartment units and property sites, such as adding
new amenities, including fitness centers and community rooms, upgrading
landscaping and signage and improving the overall curb appeal of the property.
Management believes that its operating strategy will result in growth
in Shareholder value through: (i) maximizing investment returns as quickly as
possible; (ii) maximizing investment returns through rigorous on-site management
which implements an individualized marketing plan for each property responsive
to the character of each site, on both a short and long term basis; and (iii)
increasing investment yields by making return-oriented capital improvements,
which upgrade individual apartment units and property sites and, in turn,
promote stable occupancy rates and justify increased rents. Management believes
that the use of retained cash in connection with acquisitions to be made by
Grove Property will enhance Shareholder value and return on equity.
Acquisition and Development Strategy
Management believes that Grove Property, through its common management
with the Grove Companies, has available to it an established network of
relationships with real estate owners, developers, brokers, lenders, and other
institutions, which may provide Grove Property with access to potential
acquisitions prior to them being widely marketed.
An acquisition target should furnish Grove Property with significant
opportunity for increasing property value through rental increases, reducing
expenses or a combination of such strategies. Local demographics and economics
in the target location should be stable and strong or showing continuing
improvement. When analyzing acquisition targets, Grove Property conducts market
surveys consisting of a study of the region, community and trading area. A
physical inspection, a review of the resident mix, an assessment of the current
vacancies, and a complete rental analysis is performed.
Properties held by affiliates of Grove Property may satisfy the
economic and other criteria which form the basis for Grove Property's
acquisition strategy. Grove Property expects from time to time to seek to
acquire one or more of such properties at such time as it is able to negotiate a
fair price. See "RISK FACTORS - Generally," and "CONFLICTS OF INTEREST."
Redevelopment
The Grove affiliates that previously owned the Original Properties
renovated and upgraded such Properties at the time of the purchase, and the
Operating Partnership has since completed additional renovations. At all of the
Properties, unit interiors are renovated and upgraded as apartments turn over,
including carpet and appliance replacement and new lighting fixtures as
necessary. Additionally, at some of the Partnership Properties amenities have
been added, including fitness centers, community rooms with large screen
televisions and kitchen facilities for entertaining residents and guests, and
billiard rooms. Grove Property intends to undertake and/or continue similar
renovations and upgrades in connection with the Partnership Properties.
Future Acquisitions
In the pursuit of its growth strategy, the Operating Partnership
intends and continues to engage in preliminary discussions with potential
sellers of multifamily properties, whether affiliates of the Company or
third-party sellers. Management believes that an important strategic target for
growth opportunities in Grove Property's primary market are portfolios of
multi-unit apartment communities owned and operated by individuals. The Company
believes that a significant portion of New England's multi-unit housing
properties is older, and that ownership is very fragmented. Owners of 75- to
150-unit complexes in the Company's market area have advised management of the
Company that they would be interested in selling their properties, but they have
little or no tax basis remaining in such properties, and such owners have
concluded that the potential tax liability which may be incurred by them upon
outright sale is prohibitive. By utilizing the Operating Partnership structure,
Grove Property can offer competitive purchase prices to such owners and make
payment of such purchase prices in Common Units, thereby deferring all or a
portion of an owner's federal income tax liability.
In the event the Company desires to purchase a property from an
affiliate, Grove Property's investment policies require majority approval of the
proposed purchase by the Trust Managers independent of the Company (i.e., those
who are neither executive officers of the Company nor affiliates of the Grove
Companies, the "Independent Trust Managers"). The Charter requires a majority of
Independent Trust Managers on the Board at all times.
There can be no assurance that the Company will be able to identify
acquisition opportunities, that definitive contracts will be entered into with
respect to any prospective acquisitions, or that the Operating Partnership will
acquire any property as to which it enters into a definitive contract.
<PAGE>
Markets
Grove Property Trust believes that the existing conditions in the
Northeast market present a substantial barrier to new development. The Northeast
is defined to include the New England and Mid-Atlantic states. The existing
density in the Northeast marketplace limits the amount of developable land. In
addition, zoning is administered at the local level, thereby allowing the
individual localities to impose their own often restrictive policies within the
existing zoning and environmental laws. The lack of developable land as well as
the current zoning environment contribute to the overall high cost of
construction of apartment communities and corresponding low level of multifamily
development.
Grove Property Trust's Properties are located in in-fill locations which
have experienced occupancy rates 200 basis points better than the regional
average and approximately 300 basis points better than the national average for
1994 and 1995. Grove Property Trust expects that the very low vacancy rate of
the Properties, combined with relatively low vacancy rates in its markets as a
whole, will enable the Company to raise rents at the rate of inflation or higher
over the next several years. The rental revenues of Grove Property Trust's
Properties increased 3.5% for the twelve months ended December 31, 1996 as
compared with the same period in 1995 and 4.4% for the year ended December 31,
1995 as compared to the year ended December 31, 1994. The following table shows
the 1994, 1995 and 1996 vacancy rates of the Company's Properties as compared
with the Northeast and the United States.
VACANCY RATES
Company
Properties Northeast * United States *
1994 3.8% 7.1% 7.2%
1995 3.6% 6.9% 7.5%
1996 3.0% 7.1% 7.7%
o Source: Hanley-Wood, U.S. Housing Markets
Grove Property Trust believes that occupancy levels at its Properties are
increasing principally because few new apartment communities are being built in
its markets. For the year ended December 31, 1995, the occupancy rate of the
Properties was 96.4%, and the rate increased to 97.0% for the year ended
December 31, 1996. Grove Property Trust believes that the lack of new multi-unit
housing properties, the low ratio of rental costs relative to income in two of
its primary markets and its high occupancy rates should result in higher rental
rates and increased appreciation in the value of Grove Property Trust's assets
over the next several years.
Multifamily
Management believes that the real estate capital shortage resulting from
the national and regional banking crisis and from residential property
over-building in the 1980's has severely limited the supply of new multifamily
properties entering the Northeast marketplace since 1991. Grove Property Trust
expects that the high land costs and high construction costs experienced by many
Northeast residential property developers and owners will continue to inhibit
new construction in the near term. Grove Property Trust's resident leases are
generally for a one-year term, so that Grove Property Trust is in a position to
increase rents annually if the market is favorable.
Rental Rates and Occupancy
The average physical occupancy rate of Grove Property Trust's multifamily
Properties for the twelve months ended December 31, 1996 was 97.0%. The average
monthly rental rate for the multifamily Properties has increased to $.73 per
square foot per month for the twelve months ended December 31, 1996 from an
average of $.72 per square foot per month for the twelve months ended December
31, 1995. The total commercial rentable space associated with the Properties is
94,255 square feet. The average physical occupancy of Grove Property Trust's
commercial Properties for the twelve months ended December 31, 1996 was 98.0%.
The average rent per square foot per month for Grove Property Trust's commercial
Properties has increased to $0.98 per square foot per month for the twelve
months ended December 31, 1996 from an average of $0.78 per square foot per
month for the twelve months ended December 31, 1995.
Competition
There are numerous housing alternatives that compete with the Properties
in attracting residents. The Properties compete directly with other multifamily
properties and single family homes that are available for rent in the markets in
which the Properties are located. The Properties also compete for residents with
the new and existing home market. In addition, Grove Property Trust competes
with other investors for acquisitions and redevelopment projects, and some of
these competitors have greater resources than Grove Property Trust.
PROPERTY INFORMATION
Description of the Properties
Set forth below is certain information concerning the GREAT Properties
and the Partnership Properties owned or, in the case of the Partnership
Properties, controlled, directly or indirectly, by Grove Property and the
Operating Partnership following the consummation of the Consolidation
Transactions, as reported in Form 10-KSB filed by Grove Property for the fiscal
year ended December 31, 1996. For additional financial information relating to
the Company's Properties and results of operations, please see Form 10-QSB and
Form 8-K appended as part of Appendix "I" to this Exchange Offer Statement.
The GREAT Properties consist of four multifamily apartment complexes
located in Hamden, Norwich and Southington, Connecticut, with a total of 257
residential apartments. Tenant leases are generally for one year or less, and
require security deposits. The GREAT Properties averaged a 97.6% occupancy rate
in 1996. No single tenant accounts for more than 10% of the GREAT Properties'
total revenues.
In connection with the purchase of the Southington Apartments, the
Company assumed a mortgage note which is secured by the Southington Apartments.
The acquisition of the Cambridge property was financed by a first mortgage from
a Bank which is secured by a blanket first mortgage lien on the Cambridge
property, the Dogwood Hills and Hamden Center properties.
Approx. Avg. 1996 Occupancy Rental
Number Rental Unit Avg. at Rates
Location and of Area Year Size Occup- 2/28/97 Per Unit
Property Name Units (Sq.Ft.) Built (Sf) ancy(%) ($) ($)
- -------------------------- ------- ---- ------- ---- ------ ------
Norwich, CT
Cambridge Estates
Apartments ...... 92 78,684 1977 855 98.3 100.0 682.27
Hamden, CT
Dogwood Hills ... 46 35,512 1978 772 98.2 97.8 724.16
Apartments
Hamden Center ... 65 49,140 1968 756 96.7 93.9 639.23
Apartments
Southington, CT
Baron Apartments 54 48,600 1970 900 96.8 98.2 686.25
-- ------ ---- --- ---- ---- ------
Total/Weighted Avg 257 211,936 825 97.6 97.8 680.22
=== ======= === ==== ==== ======
The following is a summary by apartment type for each of the GREAT
Properties:
1 Bedroom 2 Bedroom Total
Cambridge Estates Apartments 42 50 92
Dogwood Hills Apartments 23 23 46
Hamden Center Apartments 31 34 65
Baron Apartments 16 38 54
-- -- --
Total 112 145 257
New Acquisitions
The Consolidation Transactions resulted in the consolidation of the
holdings and/or control by the Company of 19 multifamily residential properties
and one neighborhood shopping center, and certain assets and liabilities of GPS.
Three acquisitions in June, 1997 added three multifamily properties.
The following table sets forth certain information with respect to the
Partnership Properties acquired, controlled, directly or indirectly, by the
Company, as a result of the Consolidation Transactions and the June, 1997
acquisitions:
No. of Apartments
and/or Commercial Occupancy
Name of Property Location Square Footage at 12/31/96
Avonplace Condominiums Avon, CT 145 95.8%
Burgundy Studios Apts . Middletown, CT 102 99.0%
Arbor Commons ......... Ellington, CT 28/4,016 sf 100.0%
Fox Hill Apartments ... Enfield, CT 168 95.2%
The Longmeadow Shops .. Longmeadow, MA 79,012 100.0%
208-210 Main Street ... Manchester, CT 28/9,597 sf 96.4%
Loomis Manor .......... West Hartford, CT 43 100.0%
Dean Estates II Apts .. Cranston, RI 48 95.8%
Woodbridge Apartments . Newington, CT 73 97.3%
Royale Apartments ..... Cranston, RI 76 94.7%
Colonial Village Apts . Plainville, CT 104 98.1%
Bradford Commons ...... Newington, CT 64 92.2%
Dean Estates Apartments Taunton, MA 58 96.6%
Fox Hill Commons ...... Vernon, CT 74 94.6%
Park Place West ....... West Hartford, CT 63 96.8%
Van Deene Manor ....... West Springfield, MA 109/1,630 sf 100.0%
Security Manor ........ Westfield, MA 63 100.0%
Westwynd Apartments ... West Hartford, CT 46 97.8%
Ocean Reef Apartments . New London, CT 163 93.9%
Sandalwood Apartments . New London, CT 39 89.7%
Brook-Syde Apartments . West Hartford, CT 80 98.0%
Four Winds Apartments . Fall River, MA 168 99.0%
River's Bend Apartments Windsor, CT 347 97.5%
Total ................. 2,090/113,320 sf
In addition to the Properties listed above, the Operating Partnership
is currently making an exchange offer similar to this Exchange Offer to
Farmington Summit Associates Limited Partnership, to three other affiliated
partnerships identified below which also own one or more of the Excluded
Properties. Farmington Summit Associates Limited Partnership owns a total of 64
apartment units at Birch Hill Apartments, Farmington, CT, and 121 apartment
units at Summit Apartments, Farmington, CT. Heritage Court Associates Limited
Partnership owns a total of 104 apartment units at Heritage Court Apartments,
Glastonbury, CT. River-Grove Associates Limited Partnership owns a total of 48
apartment units at River-Grove Apartments, Fall River, Massachusetts. Grove
Coastal Associates Limited Partnership owns a total of 31 apartment units at
Harbor View Apartments, Warwick, Rhode Island, as well as (i) a building known
as the Wharf Building with three retail leases totaling 10,565 square feet in
Edgartown, Massachusetts, and (ii) a building known as the Corner Block Building
containing approximately 4,000 square feet of retail space and 1,400 square feet
of office space, in Edgartown, Massachusetts. Grove Coastal Associates Limited
Partnership also owns four additional retail properties that would not be
contributed to the Operating Partnership. If all four of these exchange offers
are accepted, this will result in the addition of 368 apartment units, 14,565
square feet of neighborhood retail space and 4,000 square feet of neighborhood
office space. There can be no assurances that any of these four exchange offers
will be accepted by the respective limited partners of such partnerships. See
"SPECIAL FACTORS- Risk Factors-Common Units - Uncertain Portfolio at Time of
Election."
FINANCIAL INFORMATION
Selected Financial and Operating Data
For Condensed Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations, please
refer to Form 10-QSB, filed by Grove Property with the SEC for the quarterly
period ended March 31, 1997, which is appended as part of Appendix "I" attached
hereto.
VALUATION OF PARTNERSHIP UNITS
See "The Consolidation Transactions -- Valuation of the Properties and
Other Assets; Allocation of Common Units" for a description of the valuation of
the Properties acquired by the Operating Partnership in connection with the
Consolidation Transactions. The Property valuation for the Property Partnership
was determined using the direct capitalization method. Under this approach, a
single year's income is converted into a market value for a property through the
application of a market derived capitalization rate (the lower the
capitalization rate applied to a property's income, the higher its value). The
valuation of the Partnership's Property was determined by (i) capitalizing the
estimated net operating income for the Property for the period September 1, 1997
to August 31, 1998, less a reserve for capital expenditures, at a capitalization
rate of 9.25%, (ii) deducting the amount of debt on the Partnership Property,
(iii) adding the other assets of the Property Partnership, net of liabilities
(such as cash, accounts receivable, accounts payable and security deposits) and
(iv) deducting any transfer taxes due upon the restructuring of the Property
Partnership, as well as estimated closing costs. The Operating Partnership and
the Grove Companies determined the appropriate capitalization rate for the
Partnership Property based upon their experience in real estate matters. They
sought local market sales information for comparable properties, estimated
actual capitalization rates (net operating income less capital reserves divided
by sales price) and then evaluated the Partnership Property in light of its
relative competitive position, taking into account property location, occupancy
rate, overall property condition and other relevant factors. The Operating
Partnership and the Grove Companies believe that arm's-length purchasers would
base their purchase offers on capitalization rates substantially similar to
those used to calculate the below valuation. The following table summarizes the
amounts used to arrive at the net valuation of a Partnership Unit:
Estimated gross property valuation $ 9,807,974
Plus: other Partnership assets, net of security deposits 506,206
Less: Partnership liabilities (1) (6,152,184)
Partnership valuation before taxes 4,161,996
Less: municipal transfer taxes (59,829)
Less: Closing costs (197,999)
Net Partnership valuation $ 3,904,168
Allocation of net Partnership valuation among partners and number of
Common Units per Partnership Unit:
General Partners $ 39,042
Special Limited Partners 344,886
Limited Partners 3,520,240
Number of Partnership Units 60
Valuation per Partnership Unit 58,671
Valuation of one Common Unit 10.50
Number of Common Units per Partnership Unit 5,587.7
Cash Consideration per Partnership Unit:
Valuation per Partnership Unit $ 58,671
Less: estimated cost of New Equity Investment (7.2%) (4,224)
(cost of funds used to acquire Units)
Cash Consideration per Partnership Unit $ 54,446
(1) Partnership liabilities include the following:
Mortgage debt, including accrued interest $ 6,118,742
Accounts payable, accrued expenses 33,442
Total Partnership liabilities $ 6,152,184
<PAGE>
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the federal income tax
consequences of the Exchange Offer, and of the ownership and disposition of
Common Units, that may be relevant to a Limited Partner as a prospective
participant in the Exchange Offer. It is impractical, however, to set forth in
this Exchange Offer Statement all aspects of federal tax law or all tax
consequences resulting from the Exchange Offer that may be relevant to a
particular Participant. This summary is intended to address only some of the
federal income tax considerations that are generally applicable to all
Participants. In addition, this summary does not address aspects of federal
income taxation that may be relevant to certain types of Participants subject to
special treatment under the federal income tax laws (such as certain financial
institutions, tax-exempt organizations, life insurance companies, dealers in
securities or currencies, stockholders holding stock as part of a conversion
transaction, as part of a hedge or hedging transaction, or as a position in a
straddle for tax purposes or foreign corporations or partnerships or persons who
are not citizens or residents of the United States). Furthermore, the discussion
of various aspects of federal income taxation discussed herein is based on the
Internal Revenue Code of 1986, as amended, existing and proposed Treasury
Regulations thereunder, judicial decisions and administrative rulings and
practice, all of which are subject to change at any time. Additional changes in
the tax law may be enacted in the future which could affect the tax aspects of
the Exchange Offer or an investment in the Operating Partnership. Any such
changes may be retroactive. Consequently, no assurance can be given that the
federal income tax consequences to a Participant described herein will not be
altered in the future. This summary is not intended to be a complete discussion
of all tax consequences of the Exchange Offer or the operation of the Operating
Partnership or a substitute for careful tax planning, and does not address the
possible consequences to Participants under the tax laws of the countries (other
than the United States), states or localities where they reside or otherwise do
business or where the Property Partnership or the Operating Partnership may
operate. Further, the federal income tax consequences to Participants may be
affected by matters not discussed below. The discussion set forth below is based
upon the assumption that Property Partnership interests held by Participants and
Common Units to be received by Equity Participants in the Exchange Offer
constitute capital assets in the hands of such investors. In addition, this
discussion assumes that the Property Partnership is classified for federal
income tax purposes as a partnership rather than as an "association" taxable as
a corporation or a publicly traded partnership. EACH PARTICIPANT IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO IT OF PARTICIPATING IN THE EXCHANGE OFFER AND
BECOMING AN OWNER OF COMMON UNITS.
Gain or Loss on the Exchange for Common Units
As a general rule, the exchange of Common Units for a Participant's
Units in a Property Partnership (the "Exchange") should not result in the
recognition of taxable gain or loss to Equity Participants for Federal income
tax purposes. However, there are a number of exceptions to this general rule
and, depending on the facts associated with any particular Equity Participant or
Partnership Property, an Equity Participant may be required to recognize gain
under one or more of the rules described below. The basis to an Equity
Participant of the Common Units should be equal to such an Equity Participant's
adjusted basis in its Property Partnership Units, increased by any gain
recognized upon the Exchange, as described below.
(1) Deemed Cash Distributions. To the extent the transactions
constituting the Exchange result in a decrease in an Equity Participant's share
of liabilities (taking into account that a holder of Common Units may be
entitled to a share of Operating Partnership liabilities after the Exchange), by
reason of the assumption or repayment by the Operating Partnership of such
liabilities, such decrease will be treated as a deemed distribution of cash to
the Equity Participant. An Equity Participant will be required to recognize gain
to the extent that this deemed distribution of cash exceeds its tax basis in its
interest in the Operating Partnership. In general, a holder of Common Units
should initially have a tax basis in its interest in the Operating Partnership
equal to such holder's adjusted tax basis in the Property Partnership interest
contributed to the Operating Partnership.
(2) Disguised Sales. The Code and Treasury Regulations regarding
"disguised sales" generally provide that, unless one of the prescribed
exceptions apply, a partner's contribution of property to a partnership, and the
partnership's simultaneous or subsequent transfer of money (including deemed
cash distributions due to a reduction in liabilities and cash paid to a partner
pursuant to redemption rights) or other property to the partner, will be
presumed to be a taxable sale, in whole or in part, of such property to the
partnership. Exceptions to the "disguised sale" rules include distribution of
"operating cash flow" of the partnership as defined in Treasury Regulations and
deemed distributions of cash attributable to "qualified liabilities" as defined
in Treasury Regulations. Accordingly, an Equity Participant will be required to
recognize gain to the extent the deemed distribution of cash described above or
other cash distributions constitute a "disguised sale" of its interest in a
Property Partnership to the Operating Partnership.
(3) At-Risk Rules. An Equity Participant who is an individual will,
subject to certain limitations, be required to recognize income to the extent
the transactions constituting the Exchange cause such Participant to have a
negative amount "at-risk" in an activity at the close of the taxable year. While
not free from doubt, this provision should not apply to an Equity Participant
who acquired an interest in a Partnership Property (either directly or
indirectly through a Property Partnership) prior to 1987. In addition, these
rules apply at the individual partner level, on an activity-by-activity basis,
and not with respect to an investment in any particular partnership. As a
result, individual Equity Participants must consider their other investments in
reviewing the impact of the "at-risk" rules.
(4) Section 751 Assets. To the extent an Equity Participant's interest
in the Property Partnership is attributable to "substantially appreciated
inventory" or "unrealized receivables" (within the meaning of Section 751 of the
Code) (including the Property Partnership's previously allowed depreciation and
cost recovery deductions subject to recapture) of the Property Partnership, the
Equity Participant may be required to recognize ordinary income on the
contribution of such interest to the Operating Partnership to the extent the
decrease in his ownership interest in such assets is not offset by an increase
in his ownership interest in similar assets of the Operating Partnership. In
addition, a non-pro rata distribution of money (including the deemed
distributions described above) or property to an Equity Participant may result
in ordinary income to such Participant if such distribution reduces the
Participant's share of the Property Partnership's "unrealized receivables" or
"substantially appreciated inventory" items. To that extent, the Equity
Participant will be treated as having exchanged such assets with the Operating
Partnership in return for a portion of the distribution made to him equal to the
fair market value of his proportionate share of the "unrealized receivables" and
"substantially appreciated inventory." This latter deemed exchange will
generally result in the Equity Participant's recognition of ordinary income
under Section 751(b) of the Code.
The gain (if any) described in paragraphs (1) through (4) above will
(except as described in paragraph (4)) be taxable as long-term or short-term
capital gain depending on whether the Equity Participant has held its interest
in a Property Partnership for more than one year.
THE TAX CONSEQUENCES OF THE EXCHANGE TO AN EQUITY PARTICIPANT WILL
DEPEND UPON SUCH PARTICIPANT'S PARTICULAR TAX SITUATION. ACCORDINGLY,
PARTICIPANTS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE EXCHANGE.
Gain or Loss on an Exchange for Cash Consideration
The exchange by Non-Accredited Participants and Cash Election
Participants of their Property Partnership Units for Cash Consideration should
result in the recognition of taxable gain for federal income tax purposes, in
the amount of approximately $18,600 per Unit. Gain realized by a Non-Accredited
Participant or a Cash Election Participant will generally be a long-term capital
gain, except for the portion thereof which is taxable as ordinary income due to
the recapture of certain types of accelerated depreciation, if any. Any gain
attributable to a Non-Accredited Participant's or a Cash Election Participant's
share of depreciation recapture will be taxed at ordinary income rates. The
estimated amount of gain specified above is based on the assumption that the
Limited Partner became a partner upon formation of the Property Partnership.
Limited Partners should consult their tax advisers to determine the proper
treatment of this item.
Assuming that a Non-Accredited Participant or a Cash Election
Participant does not "materially participate" in the activities of the Property
Partnership, the taxable income realized by a Non-Accredited Participant or a
Cash Election Participant by reason of the Exchange Offer should be
characterized as income from a "passive activity" and may be offset by a
Non-Accredited Participant's or a Cash Election Participant's available "passive
activity losses" (including suspended losses). Losses from passive activities
may only be offset against income from passive activities or may be deducted in
full when the taxpayer disposes of the passive activity from which the loss
arose. The amount of each Non-Accredited Participant's and each Cash Election
Participant's available "passive activity losses" depends, in part, on the
amount of losses previously allocated to such Non-Accredited Participant or Cash
Election Participant from the Property Partnership and the amount of such losses
that were previously applied by such Non-Accredited Participant or Cash Election
Participant to offset its taxable income from other sources.
Federal Income Tax Consequences of Holding Common Units in the
Operating Partnership
Because all of the Equity Participants are already partners in the
Property Partnership, the tax consequences generally of being a partner in a
partnership (e.g., taxation of partnerships generally, allocations of
partnership income or loss, adjustments to, and calculation of tax basis in a
partnership interest, treatment of cash distributions from the partnership,
limitations on the deductibility of partnership losses or of a partner's share
of interest expense incurred by the partnership, and recognition of gain or loss
on the liquidation of a partnership) are not discussed in this Exchange Offer
Statement. Nevertheless, certain tax consequences of holding Common Units
relating directly to the Exchange Offer are discussed below.
Code Section 704(c) Allocations. Pursuant to Section 704(c) of the
Code, income, gain, loss and deductions attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as the contribution by the Equity Participants
of their interests in the Property Partnerships) 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. In addition, Treasury Regulations
under Section 704(c) provide a partnership with several methods for the
treatment of such tax items. As general partner of the Operating Partnership,
Grove Property will have the authority to select such method. The OP Partnership
Agreement will require that allocations be made in a manner consistent with
Section 704(c) of the Code. As a result, for federal income tax purposes, the
Equity Participants (as partners in the Operating Partnership) may be allocated
lower amounts of the depreciation deductions of the Operating Partnership (and
Grove Property may be allocated higher amounts of such depreciation deductions)
than such deductions would be if determined on a pro rata basis. Furthermore,
any gain recognized by the Operating Partnership on the disposition of such
contributed Properties generally will be allocated to the Equity Participants to
the extent attributable to the difference between the fair market value of the
contributed Property at the time of contribution, and the adjusted tax basis of
such Property at the time of contribution, and Grove Property will be allocated
only its share of gains attributable to appreciation in the Properties, if any,
occurring after the Exchange Offer.
Sale or Exchange of Common Units. A holder of Common Units generally
will recognize gain or loss on the sale or exchange of a Common Unit (whether
pursuant to the Redemption/ Exchange Rights or otherwise) equal to the
difference between the amount realized on the disposition (generally the amount
of cash and the fair market value of Common Shares or other property received,
plus the holder's allocable share of the liabilities of the Operating
Partnership) and the holder's adjusted tax basis in the Common Unit. Such gain
or loss generally will be capital gain or loss and will be long-term or
short-term, depending upon whether the holder has held such Common Units for
more than one year. Nevertheless, to the extent that the consideration received
upon such sale or exchange is attributable to a holder's allocable share of the
value of the Operating Partnership's "substantially appreciated inventory" items
and "unrealized receivables" (including previously allowed depreciation and cost
recovery deductions subject to recapture) within the meaning of Code Section
751, such consideration would be treated as having been realized from the sale
or exchange of a non-capital asset, and the difference between such amount and
the portion of the holder's tax basis in its Common Units attributable to such
items would be treated as ordinary income (even if a loss otherwise would be
recognized upon the sale of Common Units).
State and Other Tax Considerations
The Operating Partnership and the holders of Common Units may be
subject to other taxes, such as state and local income taxes, transfer taxes,
unincorporated business taxes, gift taxes and state inheritance or intangible
taxes that may be imposed by various jurisdictions. Each person considering
participating in the Exchange Offer is urged to consult with their own tax
advisor for advice as to state, local or other taxes which may be payable in
connection with their participation in the Exchange Offer, or their investment
in Common Units.
The Operating Partnership may subsequently request Equity Participants
to provide certain certifications, including certifications signed under penalty
of perjury, as to their non-foreign status for federal income tax purposes or as
to their residency or status under similar provisions of applicable state law.
The Operating Partnership may be required to withhold a portion of the
consideration otherwise payable to any Participant who fails to provide such
certifications.
THE FOREGOING IS MERELY A SUMMARY OF CERTAIN ASPECTS OF THE FEDERAL
INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE EXCHANGE. IT DOES NOT PURPORT TO
BE EITHER A COMPLETE ANALYSIS OR A COMPLETE LISTING OF ALL POTENTIAL TAX
CONSIDERATIONS OR TAX RISKS INHERENT IN THE EXCHANGE OFFER OR IN THE OWNERSHIP
OR DISPOSITION OF COMMON UNITS IN THE OPERATING PARTNERSHIP, AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY, PERSONS CONSIDERING
PARTICIPATING IN THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
PARTICIPATING IN THE EXCHANGE OFFER AND AN INVESTMENT IN THE OPERATING
PARTNERSHIP.
SUMMARY OF ERISA CONSIDERATIONS
The following section sets forth a summary of certain material
considerations arising under ERISA and the provisions of Code Section 4975 that
a Participant that is a Plan Fiduciary (as defined in the Glossary) should
consider before deciding whether to invest in Common Units.
A DESCRIPTION OF ALL ASPECTS OF THE APPLICABLE RULES IN ERISA AND THE
CODE AND, TO THE EXTENT NOT PRE-EMPTED, STATE LAW THAT COULD AFFECT SUCH AN
INVESTMENT IS BEYOND THE SCOPE OF THIS EXCHANGE OFFER STATEMENT. THEREFORE, EACH
PARTICIPANT THAT IS A PLAN FIDUCIARY IS URGED TO SEEK ADVICE FROM HIS OR HER OWN
ADVISORS REGARDING ITS INVESTMENT IN COMMON UNITS.
ERISA generally requires that the assets of an Employee Benefit Plan
(as defined in the Glossary) be held in trust, and that the trustee or a duly
authorized investment manager (within the meaning of Section 3(38) of ERISA)
have the exclusive authority and discretion to manage and control the assets of
the Plan. As discussed below, the Purchaser believes that its assets will not be
deemed to be "plan assets" of any Employee Benefit Plan owning Common Units. In
the event that the assets of the Purchaser are nevertheless deemed to be plan
assets, the Trust Managers and Executive Officers of the Company could be deemed
to be fiduciaries with respect to certain of such Employee Benefit Plans. As
such, they would be held to the fiduciary standards of ERISA in all investments
and the Plan Fiduciary of each affected Employee Benefit Plan could be liable
for investments that do not conform to such standards. In addition, if the Trust
Managers and Executive Officers are considered fiduciaries under ERISA and the
Code, they would also be "parties in interest" under ERISA (and "disqualified
persons" under the Code) with respect to the affected Employee Benefit Plans,
and one or more of their affiliates also could be so characterized. ERISA and
the Code specifically prohibit an Employee Benefit Plan from engaging in certain
transactions ("prohibited transactions") involving plan assets with parties in
interest or disqualified persons unless an exemption applies. Under these rules,
certain of the contemplated transactions between Grove Property, the Trust
Managers and the Executive Officers (and certain of their affiliates) and the
Purchaser could constitute prohibited transactions. In such event, certain of
the parties involved in the transaction could be required to undo the
transaction, restore to the Plan any profit (or make up for any loss) realized,
and pay an excise tax. If an individual retirement account (an "IRA") engaged in
a prohibited transaction, it could lose its tax-exempt status but, in that case,
the other penalties for prohibited transactions would not apply.
Plan Assets-In General
The United States Department of Labor (the "DOL") has promulgated the
DOL Regulation defining the term "plan assets" for purposes of the fiduciary
requirements of ERISA and the prohibited transaction provisions of ERISA and the
Code. Under the DOL Regulation, when an Employee Benefit Plan makes an equity
investment in another entity, the underlying assets of the entity generally will
not be considered plan assets if (i) the equity interest is a "publicly offered
security" or a security issued by an investment company registered under the
Investment Company Act of 1940, (ii) the entity is an "operating company,"
including a "real estate operating company" (a "REOC"), or (iii) equity
participation in such entity by Benefit Plan Investors is not significant (the
"Insignificant Participation Test").
Application of DOL Regulation to Grove Property
Grove Property believes that its assets should not be considered to be
plan assets of any Employee Benefit Plan that owns Common Shares within the
meaning of the DOL Regulation at the time of the Exchange Offer, and intends to
use its best efforts to restrict the ownership by Benefit Plan Investors of
Common Shares that are not registered under the Securities Act at all times so
that it continues to meet the Insignificant Participation Test.
Application of DOL Regulation to the Purchaser
Even if the assets of Grove Property are not deemed to be plan assets,
the assets of the Purchaser could be if any Employee Benefit Plan owns Common
Units unless the Purchaser meets the Insignificant Participation Test or is a
REOC.
The DOL Regulation provides that a "publicly offered security" is a
security that is (i) freely transferable, (ii) part of a class of securities
that is owned by 100 or more investors who are independent of the issuer and one
another, and (iii) either part of a class of securities registered under Section
12(b) or (g) of the Securities Exchange Act of 1934 or is sold to the plan as
part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Securities Exchange Act of
1934 within 120 days (or such later time as may be allowed by the SEC) after the
end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. Since the Common Units are not publicly
offered securities within the meaning of the DOL Regulation, the Purchaser must
meet the Insignificant Participation Test or qualify as a REOC.
An entity will meet the Insignificant Participation Test if,
immediately after the most recent acquisition of any equity interest in the
entity, less than 25% of each class of its equity interests is held in the
aggregate by Benefit Plan Investors. For this purpose, Benefit Plan Investors
include Employee Benefit Plans (and any other employee benefit plans whether or
not subject to ERISA), and entities the underlying assets of which include plan
assets as a result of a Plan's investment therein. In computing the percentage
of a class of equity interests that is owned by Benefit Plan Investors, equity
interests owned by non-Benefit Plan Investors who have discretionary authority
over, or who provide investment advice for a fee (direct or indirect) with
respect to, the assets of the entity being tested, or any affiliate of such a
person ("Entity Managers"), are disregarded. The Insignificant Participation
Test must be met on the date a Benefit Plan Investor first owns an equity
interest and at all times thereafter.
The Purchaser will use its best efforts to ensure that less than 25% of
the Common Units owned by persons other than Entity Managers will be owned by
Benefit Plan Investors within the meaning of the DOL Regulation at the time of
the effectuation of the Exchange Offer, and will not admit any person as a
limited partner (or permit the exchange of any limited partnership interest)
unless the Insignificant Participation Test will be met immediately thereafter
or it has received an opinion of counsel that the Purchaser is a REOC or that
another exception in the DOL Regulation applies. Based on the foregoing, and
assuming that the assets of Grove Property are not deemed to be plan assets, the
Purchaser believes that its assets will not be considered plan assets under the
DOL Regulation.
An entity that does not meet the Insignificant Participation Test may
still be exempt from plan asset treatment if it is a REOC. In order to qualify
as a REOC, from the date of its first investment, and thereafter on any date in
each "annual valuation period" (as defined in the DOL Regulation), the entity
seeking REOC status must (i) invest at least 50% of its assets, valued at cost
and without regard to short-term investments pending long-term commitment or
distribution to investors, in "real estate" which is "managed" or "developed,"
and with respect to which the entity has the right to substantially participate
directly in the management or development activities and (ii) engage, in the
ordinary course of its business, directly in real estate management and
development activities with respect to such real estate investments. No
determination has been made whether the Purchaser can qualify as a REOC.
A plan established and maintained by a state, any political subdivision
of a state, or by any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees ("a governmental plan") that is
not subject to ERISA or Section 4975 of the Code is subject to state statutes
regulating its investments and the obligations of its fiduciaries. No attempt
has been made in this section to discuss any of the special consequences that
are relevant to a governmental plan under such state statutes. Any fiduciary of
a governmental plan that owns Units is urged to seek advice from his or her
advisors regarding the matters set forth in this Exchange Offer.
THE OP PARTNERSHIP AGREEMENT
The following summary of the OP Partnership Agreement and the
description of certain provisions set forth elsewhere in this Exchange Offer,
are qualified in their entirety by reference to the OP Partnership Agreement,
which has been filed with the SEC, and is available for review by Limited
Partners. See "AVAILABLE INFORMATION."
Management. The Operating Partnership is a Delaware limited partnership. Grove
Property is the sole general partner of, and currently owns approximately 61% of
the economic interests in, the Operating Partnership. Grove Property will
conduct substantially all of its business through the Operating Partnership.
Generally, pursuant to the OP Partnership Agreement, Grove Property, as the sole
general partner of the Operating Partnership will have 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 refinancings and to cause changes in the Operating Partnership's line of
business and distribution policies.
The limited partners of the Operating Partnership have no
authority to transact business for, or participate in the management activities
or decisions of, the Operating Partnership, except as provided in the OP
Partnership Agreement and as required by applicable law.
Indemnification. To the extent permitted by law, the OP Partnership Agreement
provides for indemnification of Grove Property, as general partner, its officers
and trust managers and such other persons as Grove Property may designate to the
same extent indemnification is provided to officers and trust managers of Grove
Property in its Charter, and limits the liability of Grove Property and its
officers and trust managers to the Operating Partnership to the same extent
liability of officers and trust managers of Grove Property is limited under the
Charter.
Transferability of Interests. Except for a transaction described in the
following two paragraphs, the OP Partnership Agreement provides that Grove
Property may not voluntarily withdraw from the Operating Partnership, or
transfer or assign its interest in the Operating Partnership, without the
consent of holders of 66B% of the limited partner interests. Pursuant to
the OP Partnership Agreement, the limited partners have agreed not to transfer,
assign, sell, encumber or otherwise dispose of, without the consent of Grove
Property, their interest in the Operating Partnership, other than to family
members or accredited investors who agree to assume the obligations of the
transferor under the Partnership Agreement subject to a right of first refusal
for the benefit of the Company.
The Operating Partnership may not engage in any merger,
consolidation or other combination with or into another person, 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 66B%
of the Common Units (including Common Units held by Grove Property, which
currently represents approximately 61% of all Common Units outstanding) 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% 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.
The Operating Partnership may also 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 are held directly or indirectly by the Operating Partnership or another
limited partnership 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 Property 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 Property 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. The
Operating Partnership will also use commercially reasonable efforts to cooperate
with the limited partners of the Operating Partnership to minimize any taxes
payable in connection with any repayment, refinancing, replacement or
restructuring of indebtedness, or any sale, exchange, or any other disposition
of assets, of the Operating Partnership, including, without limitation, amending
the OP Partnership Agreement to provide obligations on the part of any affected
partner to restore deficit balances in its capital accounts as of the time of
liquidation of the Operating Partnership and to maintain a corresponding level
of recourse debt to match such obligations or maintaining a level of
non-recourse debt that can be allocated to, and included in the tax basis of,
such partners, pursuant to the regulations under Section 752 of the Code.
Issuance of Additional Common Units. As sole general partner of the Operating
Partnership, Grove Property has the ability to cause the Operating Partnership
to issue additional Common Units representing general and limited partnership
interests in the Operating Partnership, including preferred common units
representing limited partnership interests.
Capital Contribution. The OP 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 Property may borrow such funds from a financial
institution or other lender or through public or private debt offerings and lend
such funds to the Operating Partnership on the same terms and conditions as are
applicable to Grove Property's borrowing of such funds. As an alternative to
borrowing funds required by the Operating Partnership, Grove Property may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If Grove Property so contributes
additional capital to the Operating Partnership, Grove Property'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 Property.
Awards Under Share Incentive Plan. If Common Shares are issued pursuant to an
award granted under the 1996 Plan, the OP Partnership Agreement and the 1996
Plan require Grove Property to contribute to the Operating Partnership, as an
additional contribution, any consideration received by Grove Property Trust upon
such issuance. Upon such contribution Grove Property will be issued a number of
Common Units in the Operating Partnership equal to the number of Common Shares
so issued.
Distributions. The OP Partnership Agreement sets forth the manner in which the
net cash flow of the Operating Partnership (which includes operating revenues
and proceeds from sales or refinancings less certain expenditures) will be
distributed with respect to the Common Units.
Limited Partner Redemption/Exchange Rights. Commencing one year following the
closing of this Exchange Offer, Limited Partners who acquire Common Units in the
Operating Partnership will have the right to require the Operating Partnership
to redeem part or all of their Common Units for cash (based on the fair market
value of an equivalent number of Common Shares at the time of such redemption)
or, at the election Grove Property Trust, to exchange such Common Units for
Common Shares. If Grove Property Trust elects to exchange Common Units for
Common Shares, each Common Unit will be exchangeable for one Common Share,
subject to adjustment in the event of stock splits, distribution of rights,
extraordinary dividends and similar events.
In order to protect Grove Property's status as a REIT, a
holder of Common Units is prohibited from exchanging such Common Units for
Common Shares to the extent that, as a result of such exchange, any person would
own or would be deemed to own, actually or constructively, Equity Shares in
excess of the Ownership Limit, or the Executive Officer Ownership Limit, as
applicable, except to the extent such holder has been granted an exception to
the Ownership Limit, or would otherwise cause Grove Property to fail to continue
to qualify as a REIT.
Tax Matters. Pursuant to the OP Partnership Agreement, Grove Property will be
the "tax matters partner" of the Operating Partnership and, as such, will have
authority to make tax elections under the Code on behalf of the Operating
Partnership.
The net income or net loss of the Operating Partnership
generally will be allocated to Grove Property and the limited partners in
accordance with their percentage interests, subject to compliance with the
provisions of Sections 704(b), respecting allocations generally, and 704(c),
respecting allocations with respect to contributed properties, of the Code and
the applicable Treasury Regulations.
Operations. The OP Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable Grove Property to satisfy the
requirements for qualification as a REIT and to avoid any federal income or
excise tax liability.
Certain Limited Partner Approval Rights. The OP Partnership Agreement provides
that if the limited partners own at least 5% of the outstanding Common Units
(including Common Units held by Grove Property Trust), Grove Property Trust
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 Property Trust) 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 the Company's assets; or
(ii) prior to the fifth anniversary of the consummation of the Consolidation
Transactions, sell in a taxable transaction the Fox Hill Commons, Colonial
Village Apartments or Woodbridge Apartments Properties, other than incident to a
merger or sale of substantially all of the Company's assets.
Term. The Operating Partnership will continue in full force and effect until
December 31, 2056 or until sooner dissolved and terminated pursuant to the terms
of the OP Partnership Agreement.
ADDITIONAL INFORMATION
The Purchaser will provide any other relevant information reasonably
requested which may provide assistance in making a decision whether to
participate in the Exchange Offer. For additional information or copies of any
of the transaction documents referred to in this Exchange Offer Statement, or to
arrange for a meeting to discuss in detail any of the Disclosure Materials or
any other matters relating to the Exchange Offer, please contact Damon Navarro,
Grove Investment Group, 598 Asylum Avenue, Hartford, Connecticut 06105
(telephone: (860) 246-1126).
If a Limited Partner has not completed and returned the Accredited
Investor Questionnaire sent to all Limited Partners with the Letter of
Transmittal, it must do so in order to participate in the Exchange Offer. A
completed and signed Questionnaire can be returned to the Purchaser together
with the enclosed Letter of Transmittal. An additional copy of the Questionnaire
can be obtained as described above.
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Exchange Offer:
"Accounting Division" means the accounting division of Grove Property.
"Accredited Investor" means an "Accredited Investor" as defined in
Regulation D, promulgated under the Securities Act, and any applicable state
securities laws.
"AMEX" means the American Stock Exchange, Inc.
"Benefit Plan Investor" means a "benefit plan investor" as defined in
the DOL Regulation.
"Board" means the Board of Trust Managers of Grove Property.
"Bylaws" means Grove Property's Bylaws.
"Cash Consideration" means the cash consideration for each Property
Partnership Unit tendered.
"Cash Election Participants" means Non-Accredited Participants and
Limited Partners which elect to receive cash for their Units.
"Charter" means, as amended from time to time, Grove Property's Second
Amended and Restated Declaration of Trust.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Shares" means Grove Property's common shares of beneficial
interest, $0.01 par value per share.
"Common Units" means units representing ownership interests in the
Operating Partnership.
"Company" means Grove Property and its subsidiaries (including the
Property Partnerships and the Operating Partnership) on a consolidated basis,
giving effect to the consummation of the Consolidation Transactions.
"Consolidated Assets" means, collectively, the GREAT Assets, certain
assets and liabilities of the Management Company acquired by the Operating
Partnership in connection with the Consolidation and the Partnership Properties.
"Consolidation" means the consolidation of (i) the GREAT Assets, (ii)
ownership and/or control of the Partnership Properties and (iii) certain assets
and liabilities of the Management Company used or arising in connection with the
provision of real estate management related services, in the Operating
Partnership, in connection with the Consolidation Transactions.
"Consolidation Transactions" means the consolidation transactions more
fully described in "The Consolidation Transactions - The Consolidation".
"Consolidation Valuations" means the value assigned to the Property
Partnerships, the other Consolidated Assets contributed to the Operating
Partnership and the Operating Partnership in connection with the Consolidation
Transactions.
"Contribution Agreement" means the contribution agreement among Grove
Property, the Grove Companies and the Operating Partnership.
"Credit Facility" means, together, the Long-Term Facility and the
Revolving Credit Facility.
"Deferred Stock Grants" means annual grants of restricted Common Shares
to be granted (if earned) to the Executive Officers pursuant to the 1996 Plan,
as incentive compensation upon the achievement by the Company of certain
enumerated goals.
"Disclosure Materials" has the meaning set forth in this Exchange Offer
under the caption "Disclosure Materials", and includes those materials
identified, attached or referenced in Appendix I hereto.
"DOL Regulation" means 29 CFR Section 2510.3-101.
"Employee Benefit Plan" or "Plan" means an "employee benefit plan," as
defined in and subject to ERISA Section 3(3), or a "plan," as defined in Code
Section 4975, including any plan that provides welfare benefits or retirement
benefits to an individual or to an employer's employees and their beneficiaries,
such as a corporate pension or profit-sharing plan, a "simplified employee
pension plan," a so-called "Keogh" plan for self-employed individuals (including
partners), a funded health insurance plan, an individual retirement account
described in Code Section 408 ("IRAs") and any entity, such as a group trust or
separate account of an insurance company, that is treated as holding the assets
of any such plan.
"Equity Consideration" means the number of Common Units for each
Property Partnership Unit tendered.
"Equity Participant" means a tendering Limited Partner which receives
Common Units in the Exchange Offer.
"Equity Shares" means Common Shares and/or Preferred Shares of Grove
Property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
"Excess Shares" means, pursuant to the Charter, any Equity Shares
purportedly transferred which would otherwise violate the Ownership Limit in the
hands of the purported transferee, or any Equity Shares sold, transferred,
assigned, devised or otherwise disposed of by a Grove Property shareholder which
result in (i) Common Shares and/or Preferred Shares being owned by less than 100
shareholders; (ii) the Company being "closely held" within the meaning of
Section 856(h) of the Code or (iii) the Company's failing to qualify as a REIT.
"Exchange" means the exchange of Property Partnership Units for Common
Units pursuant to this Exchange Offer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means this Offer to Exchange, dated June 16, 1997, by
the Operating Partnership to the Limited Partners, for any and all Property
Partnership Units in exchange for Common Units or, in the case of Limited
Partners who are not Accredited Investors and certain other Limited Partners,
cash, as set forth in this Offer to Exchange and the Letter of Transmittal, as
each may be amended or supplemented from time to time.
"Excluded Properties" means 14 multifamily residential projects with an
aggregate of approximately 1,600 apartments and approximately 125,000 square
feet of commercial and mixed use property owned by 15 limited partnerships in
which the Grove Companies own limited and general partnership interests, which
properties were not acquired by the Company in connection with the Consolidation
Transactions.
"Executive Officers" means the executive officers of Grove Property,
Damon, Brian and Edmund Navarro, Joseph R. LaBrosse and Gerald A. McNamara.
"Expiration Date" means 5:00 p.m., New York time, on Friday, August 15,
1997 unless the Purchaser shall have extended this Exchange Offer, in which
event it shall mean the latest time and date on which this Exchange Offer, as so
extended, shall expire.
"FFO" means Funds from Operations which is defined as follows: The
White Paper approved by the Board of Governors of NAREIT in March 1995 defines
FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO an appropriate measure
of performance of an equity REIT because it is predicated on cash flow analyses.
The Company computes FFO in accordance with standards established by the White
Paper which may differ from the methodology for calculating FFO utilized by
other equity REITs and, accordingly, may not be comparable to such other REITs.
FFO should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indicator of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make distributions.
"GAAP" means generally accepted accounting principles in the United States.
"GDC" means Grove Development Corporation (which is owned by Grove
Companies) and facilitates the provision of construction services to the
Property Partnerships, the GREAT Properties and the Excluded Properties in
connection with the redevelopment of such properties.
"GPS" means Grove Property Services Limited Partnership.
"GREAT" means Grove Real Estate Asset Trust, a Maryland real estate
investment trust.
"GREAT Assets" means the GREAT Properties, together with certain
related assets.
"GREAT Properties" means four multifamily residential projects in
Connecticut owned by Grove Property, with an aggregate of 257 units.
"Grove" means Grove Investment Group, Inc.
"Grove Companies" means certain companies and individuals which are
affiliated with Grove Property (including the Executive Officers) and which own
general and limited partnership interests in the Property Partnerships and the
limited partnerships that own the Excluded Properties.
"Grove Property" means Grove Property Trust, the name by which GREAT is
known following the consummation of the Consolidation Transactions.
"Identified Persons" means, collectively, the Trust Managers and the
Executive Officers of Grove Property.
"Independent Trust Managers" means Messrs. James Twaddell, J. Joseph
Garrahy and Harold Gorman, the members of the Board who are neither employed by,
nor affiliated with, the Grove Companies or Grove Property.
"Initial Exchange Offer" means the exchange offer made in December,
1996 by the Operating Partnership for the tender of any or all of the limited
partnership interests of the Property Partnerships in exchange for limited
partnership units in the Operating Partnership
"IPO" means the initial public offering of GREAT'S Common Shares, in
June 1994.
"Limited Partners" means the limited partners of the Property
Partnership.
"Liquidating Partnerships" means those Property Partnerships which
liquidated and made a distribution "in-kind" of the Partnership Property or
Properties owned by such Property Partnerships to the Operating Partnership or
its affiliates, in connection with the Consolidation Transactions.
"Long-Term Facility" means the approximately $15.1 million ten-year
term mortgage loan facility entered into by the Company in connection with the
Refinancing and the consummation of the Consolidation Transactions.
"Management Company" means Grove Property Services Limited Partnership,
which provided real estate management services to the Properties prior to the
Consolidation Transactions.
"Management Owners" means Brian, Damon and Edmund Navarro and Joseph
LaBrosse.
"Maryland REIT Act" means the Maryland Real Estate Investment Trust
Act, as amended from time to time.
"Minimum Percentage Condition" means the minimum number of Property
Partnership Units that must be tendered in the Exchange Offer or voted in favor
of the Property Partnership Amendments in order for the Property Partnership
Amendments to be adopted with respect to the Property Partnership and the
Exchange Offer to be effected with respect to such Property Partnership.
"NAREIT" means the National Association of Real Estate Investment
Trusts.
"National Realty" means National Realty Services, L.P., a Delaware
limited partnership formerly known as Grove Property Services Limited
Partnership, wholly owned by the Management Owners, which provides real estate
brokerage services.
"NAVAB" means NAVAB Associates, a company owned one-quarter each by
Brian and Damon Navarro and Ronald and George Abdow.
"New Equity Investment" means the issuance, in connection with the
consummation of the Consolidation Transactions, by Grove Property and the
Operating Partnership of 3,333,333 Common Shares to the New Equity Investors in
return for gross proceeds of $30.0 million.
"New Equity Investors" means one or more investors in the New Equity
Investment.
"1996 Plan" means the 1996 Share Incentive Plan of the Company adopted
in connection with the consummation of the Consolidation Transactions.
"Non-Accredited Participant" means a tendering Limited Partner which
is not an Accredited Investor.
"Non-Competition Agreements" means the non-competition agreements
entered into between each Executive Officer and the Company and between the
Grove Companies and the Company, in connection with the consummation of the
Consolidation Transactions.
"Operating Partnership" means Grove Operating, L.P., a Delaware limited
partnership formed on November 1, 1996, which is the operating partnership of
Grove Property.
"OP Partnership Agreement" means the Agreement of Limited Partnership
of the Operating Partnership, as amended from time to time, which governs the
Operating Partnership.
"Ownership Limit" means the maximum number of Equity Shares which any
holder of Grove Property's Equity Shares is permitted to own or be deemed to own
by virtue of the attribution provisions of the Code, which is equal to 5.0% (of
the number or value, whichever is more restrictive) of the issued and
outstanding Equity Shares, subject to certain exceptions.
"Partnership Property" means, with respect to each Property
Partnership, the Property or Properties owned by such Property Partnership.
"Participants" means tendering Limited Partners.
"Plan Fiduciary" means a fiduciary of an Employee Benefit Plan which
has investment discretion with respect to the assets of such Plan.
"Preferred Shares" means up to 4.0 million preferred shares of
beneficial interest of Grove Property, par value $.01 per share, which the Board
of Trust Managers of Grove Property is permitted to issue pursuant to the
Charter.
"Property Partnership" means Farmington Summit Associates Limited
Partnership, a Delaware Limited Partnership.
"Property Partnerships" means the following limited partnerships
involved in the Consolidation Transactions: (i) Avonplace Associates Limited
Partnership, (ii) Burgundy Associates Limited Partnership, (iii) Grove-Ellington
Associates Limited Partnership, (iv) Grove-Enfield Associates Limited
Partnership, (v) Grove Longmeadow Associates Limited Partnership, (vi)
Grove-Manchester Associates Limited Partnership, (vii) Grove-Newington
Associates Limited Partnership, (viii) Grove Opportunity Fund II Limited
Partnership, (ix) Grove-Plainville Associates Limited Partnership, (x) Grove
Properties III Limited Partnership, (xi) Grove Taunton Associates Limited
Partnership, (xii) Grove-Vernon Associates Limited Partnership, (xiii)
Grove-West Hartford Associates Limited Partnership, (xiv) Grove-West Springfield
Associates Limited Partnership, (xv) Grove-Westfield Associates Limited
Partnership, (xvi) Grove Westwynd Associates Limited Partnership, (xvii)
Nautilus Properties Limited Partnership and (xviii) Shoreline London Associates
Limited Partnership.
"Property Partnership Agreement" means, with respect to each of the
Property Partnerships, the agreement of limited partnership of such Property
Partnership.
"Property Partnership Amendment" means, with respect to the Property
Partnership, certain amendments to such Property Partnership's Property
Partnership Agreement which will authorize the Partnership to liquidate and
dissolve and to permit an "in-kind" distribution of the related Partnership
Property to the Company in connection with the liquidation of the Property
Partnership.
"Property Partnership Units" or "Units" means, with respect to any
Property Partnership, units representing limited partnership interests in that
Property Partnership.
"Properties" means the 27 properties owned and/or controlled by the
Company following the Consolidation Transactions, which include the 26
multifamily residential projects and one neighborhood shopping center previously
owned by the Property Partnerships and the four multifamily residential projects
which constituted the GREAT Properties.
"Proxy Statement" means the Proxy Statement of Grove Property, dated
February 13, 1997, filed with the Securities and Exchange Commission, a copy of
which is available upon request.
"Purchaser" means the Operating Partnership.
"Redemption/Exchange Rights" means the right of Common Unit holders,
under certain circumstances, to have Common Units redeemed for cash or, at the
Company's option, exchanged for Common Shares.
"Refinancing" means the refinancing of $39.8 million of mortgage
indebtedness of 17 Partnership Properties in connection with the consummation of
the Consolidation Transactions.
"Registrable Shares" means any Common Shares which are subject to
Registration Rights.
"Registration Rights" means, collectively, certain registration rights
that the Company has granted certain persons receiving Common Units in
connection with the Consolidation Transactions pursuant to the Registration
Rights Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
entered into among GREAT, the Operating Partnership, certain holders of the
Common Units and the New Equity Investors.
"REIT" means a real estate investment trust.
"Revolving Credit Facility" means a three-year secured revolving
acquisition and working capital facility of up to $25.0 million entered into by
the Company in connection with the Refinancing and the consummation of the
Consolidation Transactions.
"Rule 144" means Rule 144 promulgated under the Securities Exchange Act
of 1934, as amended.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Shareholders" means the holders of Grove Property's issued and
outstanding Common Shares.
"Stock Split" means the stock dividend declared and issued by Grove
Property immediately prior to the consummation of the Consolidation
Transactions, together with the concurrent effectuation by Grove Property of a
1.125 to 1.0 stock split with respect to Grove Property's 525,000 currently
issued and outstanding Common Shares, resulting in the issuance of a total of
95,102 Common Shares.
"Trust Managers" means the Trust Managers of Grove Property: Messrs.
Damon Navarro, Joseph R. LaBrosse, James Twaddell,
J. Joseph Garrahy and Harold Gorman.
THE EXCHANGE OFFER
Section 1. Terms of this Exchange Offer.
The Exchange Offer. Under the terms of this Exchange Offer, the
Purchaser will pay for Units validly tendered on or prior to the Expiration Date
and not withdrawn in accordance with Section 4. "Withdrawal Rights" of this
Offer to Exchange. The term "Expiration Date" shall mean 5:00 p.m., New York
time, on Friday, August 15, 1997, unless the Purchaser shall have extended this
Exchange Offer and, in such event, the term "Expiration Date" shall mean the
latest time and date on which this Exchange Offer, as so extended, shall expire.
If, prior to the Expiration Date, the Purchaser shall increase the
Equity Consideration (and Cash Consideration) offered to Limited Partners
pursuant to this Exchange Offer, such increased consideration will be delivered
in respect of all Units of the Property Partnership accepted pursuant to this
Exchange Offer, whether or not they were tendered prior to such increase.
This Exchange Offer is conditioned on satisfaction of certain
conditions. See Section 11. "Conditions of this Exchange Offer", which sets
forth in full the conditions of this Exchange Offer. The Purchaser reserves the
right (but shall not be obligated), in its sole discretion, to waive any or all
of such conditions.
This Offer to Exchange and the related Letter of Transmittal are being
mailed by the Purchaser to Limited Partners or beneficial owners (in the case of
Individual Retirement Accounts and qualified plans) of Property Partnership
Units of record as of the date of the Offer to Exchange.
Each tendering Limited Partner will receive, upon consummation of this
Exchange Offer, the consideration for each Property Partnership Unit (or a pro
rata portion thereof for each fractional Unit) so tendered set forth in the
Exchange Offer.
This Exchange Offer does not give rise to appraisal rights and such
rights will not be voluntarily afforded to the Limited Partners.
THE PURCHASER RESERVES THE RIGHT TO TERMINATE THIS EXCHANGE
OFFER OR TO AMEND THE TERMS AND CONDITIONS OF THIS EXCHANGE
OFFER.
Section 2. Acceptance of and Payment for Property Partnership Units.
The Purchaser will pay for Property Partnership Units validly tendered
and not withdrawn in accordance with Section 4. "Withdrawal Rights", as promptly
as practicable following the Expiration Date. Under no circumstances will
distributions be made with respect to any Common Units or interest be paid on
the Cash Consideration by reason of any delay in making such payment.
In all cases, exchange or payment for Property Partnership Units
exchanged or purchased pursuant to this Exchange Offer will be made
only after timely receipt by the Purchaser of a properly completed and
duly executed Accredited Investor Questionnaire, a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), and
any other documents required by the Letter of Transmittal. See Section
3. "Procedures for Tendering Property Partnership Units."
If for any reason acceptance of, or payment for, any Property
Partnership Units tendered is delayed or if the Purchaser is unable to accept,
purchase or pay for Property Partnership Units tendered, then the Purchaser may
retain tendered Property Partnership Units and such Property Partnership Units
may not be withdrawn except to the extent that the tendering Limited Partners
are entitled to withdrawal rights as described in Section 4. "Withdrawal
Rights"; provided, however, that the Purchaser will pay Limited Partners (by
exchange for Common Units or cash payment, as the case may be) the Equity or
Cash Consideration, as the case may be, in respect of Property Partnership Units
tendered, or return such Property Partnership Units promptly after termination
or withdrawal of this Exchange Offer.
Section 3. Procedures for Tendering Property Partnership Units.
Valid Tender. In order for a tendering Limited Partner to participate
in this Exchange Offer, Property Partnership Units must be validly tendered and
not withdrawn on or prior to the Expiration Date. A valid tender requires that a
properly completed and duly executed Letter of Transmittal and any other
documents required by the Letter of Transmittal be actually received by the
Purchaser on or prior to the Expiration Date. A Limited Partner must also
complete and return an Accredited Investor Questionnaire in order to participate
in the Exchange Offer.
A Limited Partner must tender all of its Property Partnership Units if
it wishes to tender any Property Partnership Units. A Limited Partner which is
an Accredited Investor must indicate its option to receive the Equity
Consideration or the Cash Consideration for Units tendered. Pursuant to the
Property Partnership Agreement, the general partner of the Property Partnership
has agreed in writing to permit the transfer of Property Partnership Units
pursuant to this Exchange Offer, and has approved the admission of the Purchaser
as a substitute Limited Partner.
THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
TIME, ON FRIDAY, AUGUST 15, 1997, UNLESS EXTENDED.
Signature Requirements. The Letter of Transmittal must be signed by the
registered holder of the Property Partnership Units, exactly as the name appears
on the register of the Property Partnership, and payment is to be made directly
to that holder at the address indicated on the register.
The method of delivery of the Letter of Transmittal and all other
required documents is solely at the option and risk of the tendering Limited
Partner, and delivery will be deemed made only when actually received by the
Purchaser. Thus, overnight courier service is recommended.
Backup Federal Income Tax Withholding. To prevent the possible application
of backup Federal income tax withholding with respect to payment of the Cash
Consideration, a tendering Non-Accredited Participant and a tendering Cash
Election Participant must provide its correct taxpayer identification number by
completing the Substitute Form W-9 included in the Letter of Transmittal. See
the Instructions to the Letter of Transmittal and Section 6. "Certain Federal
Income Tax Consequences and ERISA Consequences."
FIRPTA Withholding. To prevent the withholding of Federal income tax in
an amount equal to 10% of the amount of the Cash Consideration plus Property
Partnership liabilities allocable to the Property Partnership Units purchased,
each Non-Accredited Participant and each Cash Election Participant must complete
the FIRPTA Affidavit included in the Letter of Transmittal concerning its
taxpayer identification number and address and stating that it is not a foreign
person. See the Instructions to the Letter of Transmittal and Section 6.
"Certain Federal Income Tax Consequences and ERISA Consequences."
ERISA Certification. In order to avoid having the assets of the
Purchaser deemed to be "plan assets" for purposes of the fiduciary requirements
of ERISA or the prohibited transaction provisions of ERISA and/or Code Section
4975, the Purchaser has determined to qualify for the "insignificant
participation" exception contained in the DOL Regulation. Therefore, (a) the
number of Common Units received by Benefit Plan Investors will be limited to the
extent that the Purchaser, in its sole discretion, deems necessary or
appropriate to qualify for such exception, and (b) Benefit Plan Investors will
receive Cash Consideration for each Property Partnership Unit tendered pursuant
to this Exchange Offer for which they do not receive Common Units. In order to
permit the Purchaser to comply with this restriction, each tendering Limited
Partner that is not a natural person, and which is an Accredited Investor
tendering any Units for Equity Consideration, must complete the ERISA
Certification contained in the Letter of Transmittal. See the Instructions to
the Letter of Transmittal and Section 6. "Certain Federal Income Tax
Consequences and ERISA Consequences."
Other Requirements. By executing a Letter of Transmittal, a Limited
Partner irrevocably constitutes and appoints the Purchaser as the true and
lawful agent and attorney-in-fact of such Limited Partner with respect to
Property Partnership Units tendered by such Limited Partner, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to deliver such Property Partnership Units and
transfer ownership thereof on the Property Partnership books maintained by the
general partner of the Property Partnership, together with all accompanying
evidences of transfer and authenticity, to or upon the order of the Purchaser
and upon receipt by the Limited Partner of the purchase price in respect of such
Property Partnership Units, to receive all benefits and otherwise exercise all
rights of beneficial ownership of such Property Partnership Units, all in
accordance with the terms of this Exchange Offer. Upon the purchase of such
Property Partnership Units pursuant to this Exchange Offer, all prior proxies
and consents given by such Limited Partner with respect thereto will be revoked
and no subsequent proxies or consents may be given (and if given will not be
deemed effective).
Determination of Validity; Rejection of Property Partnership Units;
Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to
the validity, form, eligibility (including time of receipt) and acceptance for
payment of any tender of Property Partnership Units pursuant to the procedures
described above will be determined by the Purchaser, in its sole discretion,
which determination shall be final and binding. The Purchaser reserves the
absolute right to reject any or all tenders if not in proper form or if the
acceptance of, or payment for, the Property Partnership Units tendered may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the right to waive any defect or irregularity in any tender with respect to any
particular Property Partnership Unit of any particular Limited Partner, and the
Purchaser's interpretation of the terms and conditions of this Exchange Offer
(including the Letter of Transmittal and the Instructions thereto) will be final
and binding. No tender will be deemed validly made until all defects and
irregularities have been cured or waived. Neither the Purchaser nor any other
person will be under any duty to give notification of any defects or
irregularities in the tender of any Property Partnership Units or will incur any
liability for failure to give any such notification.
A tender of Property Partnership Units pursuant to any of the
procedures described above and the acceptance for payment of such Property
Partnership Units will constitute a binding agreement between the tendering
Limited Partner and the Purchaser on the terms and conditions of this Exchange
Offer.
Section 4. Withdrawal Rights.
Except as otherwise provided in this Section 4, all tenders of Property
Partnership Units pursuant to this Exchange Offer are irrevocable, provided that
Property Partnership Units tendered pursuant to this Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
For withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Purchaser at the address set
forth on the last page of this Offer to Exchange. Any such notice of withdrawal
must specify the name of the person(s) who tendered the Property Partnership
Units to be withdrawn and must be signed by the person(s) who signed the Letter
of Transmittal in the same manner as the Letter of Transmittal was signed.
If exchange or purchase of, or exchange or payment for, Property
Partnership Units is delayed for any reason or if the Purchaser is unable to
exchange or purchase or pay for Property Partnership Units for any reason, then,
without prejudice to the Purchaser's rights under this Exchange Offer, tendered
Property Partnership Units may be retained by the Purchaser and may not be
withdrawn except to the extent that tendering Limited Partners are entitled to
withdrawal rights as set forth in this Section 4. "Withdrawal Rights"; provided,
however, that the Purchaser will issue the Equity Consideration or pay
Participants the Cash Consideration, as the case may be, in respect of Property
Partnership Units tendered or return such Property Partnership Units promptly
after termination or withdrawal of this Exchange Offer.
Any Property Partnership Units properly withdrawn will be deemed not to
be validly tendered for purposes of this Exchange Offer. Withdrawn Property
Partnership Units may be tendered, however, by following any of the procedures
described in Section 3. "Procedures for Tendering Property Partnership Units" at
any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. Neither the Purchaser
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give such notification.
Section 5. Extension of Tender Period; Termination; Amendments.
The Purchaser expressly reserves the right, in its sole discretion, at
any time and from time to time, (i) to extend the period of time during which
this Exchange Offer is open and thereby delay acceptance for payment of, and the
payment for, any Property Partnership Units, (ii) to terminate this Exchange
Offer and not accept for payment any Property Partnership Units not already
accepted for payment or paid for if any conditions referred to in Section 11.
"Conditions of this Exchange Offer" have not been satisfied or upon the
occurrence of the events specified in Section 12. "Certain Legal Matters," (iii)
upon the occurrence of any of the conditions specified in Section 11.
"Conditions of this Exchange Offer", to delay the acceptance for exchange or
payment of, or payment for, any Property Partnership Units not already accepted
for payment or paid for and (iv) to amend this Exchange Offer.
If the Purchaser makes a material change in the terms of this Exchange
Offer or the information concerning this Exchange Offer or waives a material
condition of this Exchange Offer, the Purchaser will extend this Exchange Offer
and disseminate additional tender offer materials to the extent required by Rule
14(e)-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") as if this Exchange Offer were governed by the Exchange Act. The
requirement to extend the offer will not apply to the extent that the number of
business days remaining between the occurrence of the change and the
then-scheduled Expiration Date equals or exceeds the minimum extension period
that would be required because of such amendment. As used in this Offer to
Exchange, "business day" means any day other than a Saturday, Sunday or a
federal holiday, and consists of the time period from 12:01 a.m. through 12:00
midnight, New York time.
<PAGE>
Section 6. Certain Federal Income Tax Consequences and ERISA Consequences.
For a description of certain federal income tax consequences, see
"SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES." Plan Fiduciaries should also see
"SUMMARY OF ERISA CONSIDERATIONS."
Section 7. Certain Information Concerning the Property Partnership.
The address of the principal executive office of the Property
Partnership is c/o Grove Investment Group, 598 Asylum Avenue, Hartford,
Connecticut 06105. Limited Partners are referred to "The Consolidation
Transactions" and to the financial and other information included in the
Property Partnership's (i) financial statements for the fiscal years ended
December 31, 1994, 1995 and 1996 previously sent to Limited Partners and (ii)
the other financial statements which are included in Appendix "I" hereto.
Section 8. Certain Information Concerning the Purchaser.
The Purchaser is a Delaware limited partnership formed on November 1,
1996, the general partner of which is Grove Property.
For certain information concerning the trust managers and executive
officers of Grove Property (collectively, the
"Identified Persons"), see APPENDIX I. "Management."
Except as otherwise set forth in this Offer to Exchange or in the Proxy
Material and except for the provisions of the Contribution Agreement and the
Property Partnership Agreements, (i) neither the Purchaser, Grove Property nor,
to the best of the Purchaser's knowledge, any of the Identified Persons nor any
affiliate of the foregoing beneficially owns or has a right to acquire any
Property Partnership Units; (ii) neither the Purchaser, Grove Property, nor, to
the best of the Purchaser's knowledge, any of the Identified Persons nor any
affiliate thereof has effected any transaction in the Property Partnership
Units; (iii) neither the Purchaser, Grove Property nor, to the best of the
Purchaser's knowledge, any of the Identified Persons has any contract,
arrangement, understanding or relationship with any other person with respect to
any Property Partnership Units, including, but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or voting
thereof, joint venture, loan or option arrangements, puts or calls, guarantees
or loans, guarantees against loss or the giving or withholding of proxies; (iv)
there have been no transactions or business relationships which would be
required to be disclosed under the rules and regulations of the SEC between any
of the Purchaser, Grove Property nor, to the best of the Purchaser's knowledge,
the Identified Persons, on the one hand, and the Property Partnership or its
affiliates, on the other hand; and (v) there have been no contracts,
negotiations or transactions between the Purchaser, Grove Property nor, to the
best of the Purchaser's knowledge, the Identified Persons, on the one hand, and
the Property Partnership or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, an election of trust managers or a sale or other transfer of a
material amount of assets.
Section 9. Interests of Certain Persons and Certain Transactions.
Because of the affiliations between the Purchaser, the general partner
of the Property Partnership and the Grove Companies, the Property Partnership
has advised the Purchaser that the Property Partnership and its general partner
are making no recommendation, and are remaining neutral, as to whether a Limited
Partner should accept this Exchange Offer. See "BENEFITS TO RELATED PARTIES" and
"CONFLICTS OF INTEREST." The general partner of the Property Partnership may
also have a conflict of interest in evaluating certain alternatives available to
the Property Partnership, such as the sale or liquidation of the Property
Partnership assets, in that such transactions may result in a reduction or
termination of fees payable to the general partner's affiliates pursuant to the
Property Partnership Agreement or otherwise.
Voting by the Purchaser. By virtue of the Consolidation Transactions,
the Purchaser is in a position to significantly influence or control the result
of any vote by Limited Partners. See "SPECIAL FACTORS-Ownership of Common
Units-Management of the Operating Partnership."
Financing Arrangements. The Purchaser expects to fund its obligations
in respect of this Exchange Offer (including funds for the purchase of tendered
Property Partnership Units of Non-Accredited Participants and Cash Election
Participants, to fund cash distribution requirements of the Liquidating
Partnerships and the out-of-pocket costs of the Purchaser in connection with
this Exchange Offer) from the proceeds of the Credit Facility.
Transactions with Affiliates. Pursuant to the Property Partnership
Agreement, the general partner of the Property Partnerships and their affiliates
receive various fees from the Property Partnerships. Certain of the Property
Partnerships are required to pay Grove Property, as successor to the Management
Company an annual fee ranging from $5,000 to $7,500.
In addition, one or more of the Grove Companies, as general partners of
each Property Partnership or as special limited partners, receives a percentage
of net profits, losses and distributions of cash flow of such Property
Partnership of between 0.5% and 15% and increasing to 25% to 40% of residuals,
after payment of priority items. Each Property Partnership has retained Grove
Property, as successor to the Management Company, to manage its respective
Partnership Properties for a fee equal to 4% to 6% of gross collections (the
"Property Management Fee").
Except as described above concerning the Consolidation Transactions,
there were no material transactions between the general partner of any Property
Partnership or its affiliates, on the one hand, and any Property Partnership, on
the other hand, during 1994, 1995 or 1996 or the five-month period ended May 31,
1997.
<PAGE>
Section 10. Source of Funds.
The Purchaser expects that up to approximately $3,266,783 in Cash
Consideration will be required in connection with this Exchange Offer if all of
the outstanding Property Partnership Units are tendered by Limited Partners whom
the Purchaser believes are not Accredited Investors and all Accredited Limited
Partners elect to tender for Cash Consideration. None of the required funds will
be paid by the Property Partnership. The Purchaser will obtain such funds from
sources described in Section 9.
"Interests of Certain Persons and Certain Transactions."
Section 11. Conditions of this Exchange Offer.
Notwithstanding any other term of this Exchange Offer, the Purchaser
shall not be required to accept for exchange or payment or to exchange or pay
for any Property Partnership Units tendered if all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any court, administrative agency or commission or
other governmental authority or entity, domestic or foreign, necessary for the
consummation of the transactions contemplated by this Exchange Offer shall not
have occurred, been filed or obtained. Furthermore, notwithstanding any other
term of this Exchange Offer, the Purchaser shall not be required to accept for
exchange or payment or to exchange or pay for any Property Partnership Units not
theretofore accepted for payment or paid for, and may terminate or amend this
Exchange Offer as to such Property Partnership Units if, at any time on or after
the date of this Exchange Offer and before the acceptance of such Property
Partnership Units for exchange or payment or the exchange or payment therefor,
any of the following conditions exists: (a) a preliminary or permanent
injunction or other order of any federal or state court, government or
governmental authority or agency shall have been issued and shall remain in
effect which (i) makes illegal, delays or otherwise directly or indirectly
restrains or prohibits the making of this Exchange Offer or the acceptance for
payment of or payment for any Property Partnership Units by the Purchaser, (ii)
imposes or confirms limitations on the ability of the Purchaser effectively to
exercise full rights of ownership of any Property Partnership Units purchased;
including, without limitation, the right to vote any Property Partnership Units
acquired by the Purchaser pursuant to this Exchange Offer or otherwise on all
matters properly presented to each Property Partnership's Limited Partners,
(iii) requires divestiture by the Purchaser of any Property Partnership Units,
(iv) causes any material diminution of the benefits to be derived by the
Purchaser as a result of the transactions contemplated by this Exchange Offer or
(v) might materially adversely affect the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the Purchaser or any Property Partnership; (b) there shall be any action
taken, or any statute or rule, regulation or order proposed, enacted, enforced,
promulgated, issued or deemed applicable to this Exchange Offer by any federal
or state court, government or governmental authority or agency, which might,
directly or indirectly, result in any of the consequences referred to in clauses
(i) through (v) of paragraph (a) above; (c) any change or development shall have
occurred or been threatened since the date hereof, in the business, properties,
assets, liabilities, financial condition, operations, results of operations or
prospects of the Property Partnership which, in the sole judgment of the
Purchaser, is or may be materially adverse to the Property Partnership, or the
Purchaser shall have become aware of any fact that in the sole judgment of the
Purchaser, does or may have a material adverse effect on the value of the
Property Partnership Units; (d) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in the United
States, (ii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States, (iii) any limitation by any
governmental authority on, or other event which might affect, the extension of
credit by lending institutions or result in any imposition of currency controls
in the United States, (iv) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the United
States, (v) a material change in United States or other currency exchange rates
or a suspension of a limitation on the markets thereof or (vi) in the case of
any of the foregoing existing at the time of the commencement of this Exchange
Offer, a material acceleration or worsening thereof; or (e) it shall have been
publicly disclosed or the Purchaser shall have otherwise learned that more than
five percent of the outstanding Property Partnership Units of any Property
Partnership have been or are proposed to be acquired by another person
(including a "group" within the meaning of Section 13(d)(3) of the Exchange
Act).
The foregoing conditions are for the sole benefit of the Purchaser and
may be asserted by the Purchaser regardless of the circumstances giving rise to
such conditions, or may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion. Any determination by the
Purchaser concerning the events described above will be final and binding upon
all parties.
Section 12. Certain Legal Matters.
General. Except as set forth in this Section 12, the Purchaser is not
aware of any filings, approvals or other actions by any domestic or foreign
governmental or administrative agency that would be required prior to the
acquisition of Property Partnership Units by the Purchaser pursuant to this
Exchange Offer. Should any such approval or other action be required, it is the
Purchaser's present intention that such additional approval or action would be
sought. While there is no present intent to delay the purchase of Property
Partnership Units tendered pursuant to this Exchange Offer pending receipt of
any such additional approval or the taking of any such action, there can be no
assurance that any such additional approval or action, if needed, would be
obtained without substantial conditions or that adverse consequences might not
result to any Property Partnership's business, any of which could cause the
Purchaser to elect to terminate this Exchange Offer without purchasing Property
Partnership Units thereunder. The Purchaser's obligation to purchase and pay for
Property Partnership Units is subject to certain conditions, including
conditions related to the legal matters discussed in this Section 12.
Antitrust. The Purchaser does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition
of Property Partnership Units contemplated by this Exchange Offer.
Margin Requirements. The Property Partnership Units are not "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve System and, accordingly, such regulations are not applicable to this
Exchange Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations or other entities which are incorporated in such
states or which have substantial assets, security holders, principal executive
offices or principal places of business therein. If any state anti-takeover
statute is applicable to this Exchange Offer, the Purchaser might be unable to
accept for payment or purchase Property Partnership Units tendered pursuant to
this Exchange Offer or be delayed in continuing or consummating this Exchange
Offer. In such case, the Purchaser may not be obligated to accept for purchase
or pay for any Property Partnership Units tendered.
Section 13. Fees and Expenses.
The Purchaser will pay all costs and expenses of printing and mailing
this Exchange Offer and its legal and accounting fees and expenses, including
reimbursement to Grove Companies for the overhead cost of personnel directly
involved in this Exchange Offer. The Property Partnership will not pay for any
of these costs. The Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to this
Exchange Offer. However, certain trust managers, officers and employees of the
Purchaser and its affiliates will answer questions regarding this Exchange Offer
and assist Limited Partners in completing the Letter of Transmittal if they
request such help. Such trust managers, officers and employees will not be
additionally compensated by the Purchaser or its affiliates for answering such
questions.
Section 14. Other Matters.
This Exchange Offer is not being made to (nor will tenders be accepted
from or on behalf of) Limited Partners residing in any jurisdiction in which the
making of this Exchange Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such jurisdiction.
However, the Purchaser may, in its discretion, take such action as it may deem
necessary to make this Exchange Offer in any jurisdiction and extend this
Exchange Offer to Limited Partners in such jurisdiction.
The Property Partnership and its General Partner have advised the
Purchaser that they are not making any recommendation to any Limited Partners as
to whether to tender Property Partnership Units pursuant to this Exchange Offer.
No person has been authorized to make any recommendation or representation on
behalf of the Purchaser, any general partner of the Property Partnership, the
Property Partnership or any of their respective affiliates or to provide any
information other than as contained herein or in the Letter of Transmittal and,
if given or made, such information or representation must not be relied upon as
having been authorized.
Facsimile copies of the Letter of Transmittal, properly completed and
duly executed, will be accepted. The Letter of Transmittal and any other
required documents should be sent or delivered to the Purchaser at its address
set forth below.
Any questions or requests for assistance or for additional copies of
this Offer to Exchange, the Letter of Transmittal and other tender offer
materials may be directed to the Purchaser at the telephone number and address
below.
GROVE OPERATING, L.P.
<PAGE>
GROVE OPERATING, L.P.
By Hand or Overnight Delivery Facsimile Transmission:
c/o Grove Property Trust (860) 527-0401
598 Asylum Avenue To Confirm Receipt of
Hartford, Connecticut 06105 Facsimile Transmissions:
(800) 246-1126 ext. 143 or 128
Questions or requests for assistance or additional copies of this Offer
to Exchange and the Letter of Transmittal may be directed to the addresses and
telephone numbers set forth below. Limited Partners may also contact their
brokers, dealers, commercial banks or trust companies for assistance.
GROVE OPERATING, L.P.
c/o Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Telephone:
(860) 246-1126
ext. 143 or 128
Att'n: Sheila Daley or Michele Hull
<PAGE>
APPENDIX "A"
to
EXCHANGE OFFER
TEXT OF AMENDMENTS TO
FARMINGTON SUMMIT ASSOCIATES LIMITED PARTNERSHIP
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
The following shall be inserted as a new Section 5.15 of the
Property Partnership's partnership agreement and shall read in its entirety as
follows:
5.15
(A) Notwithstanding any provision contained herein to the contrary, in
connection with a liquidation of the Partnership, the General Partner is
expressly authorized to effect a distribution of the Partnership's property or
of other property other than cash to the General Partner and its affiliates in
respect of their partnership interests; provided, that if such a distribution of
property is made, the General Partner or its affiliates shall make cash
available to the Partnership in an amount sufficient to enable the Partnership
to make a simultaneous cash distribution to the Limited Partners in respect of
their partnership interests.
(B) Notwithstanding any provision contained herein to the contrary, if the
Partnership effects a distribution of its property or other property other than
cash in connection with a liquidation of the Partnership pursuant to the
exchange contemplated by the Exchange Offer Statement, dated June 16, 1997, from
Grove Operating, L.P., a Delaware limited partnership, to the Limited Partners
(the "Exchange Offer Statement"), and the Minimum Percentage Condition (as
defined in the Exchange Offer Statement) is satisfied as to the Partnership, the
value of the Partnership shall be deemed to be $3,623,068.
<PAGE>
Legal Opinion of Counsel
<PAGE>
APPENDIX "I"
Copies of materials filed by Grove Property Trust with the Securities and
Exchange Commission, including Grove Property Trust's Proxy Statement dated
February 13, 1997, as well as copies of any of the documents discussed in the
Exchange Offer, are available for distribution to Limited Partners upon request.
Interested Limited partners should contact Grove at the address and phone
numbers specified in the Letter of Transmittal that accompanies this Exchange
Offer. Many limited partners of the Property Partnership were also partners in
Property Partnerships which participated in the Consolidation Transaction, and
received a preliminary copy of such Proxy Statement in the form of Appendix "I"
to the Initial Exchange Offer, dated December 2, 1996. The Purchaser encourages
Limited Partners who did not receive a copy of such preliminary proxy or who
have misplaced it to request a copy of the Proxy Statement, for more information
relating to the Consolidation Transactions and the business of Grove Property
Trust, and certain risks and conflicts associated with its business, including a
pro forma composite financial statement (unaudited) of Grove Property Trust
reflecting the consummation of the Consolidation Transactions.
Attached hereto is a copy of Form 10-QSB, for the quarter ended March 31, 1997,
filed by Grove Property Trust with the Securities and Exchange Commission, which
contains certain Condensed Consolidated balance sheets, income statements and
cash flows of Grove Property Trust for the period ended March 31, 1997. Please
refer to the notes that accompanying such statements. Attached hereto is also a
copy of Grove Property Trust's Current Report on Form 8-K dated May 30, 1997,
reflecting the three June, 1997 acquisitions.
Grove Property Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and files reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at certain of its regional offices, the current
addresses of which are: New York Regional Office, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Northwestern Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the SEC, Washington, D.C.
20549, at prescribed rates. In addition, the SEC maintains a Web site that
contains reports, proxy statements and other information regarding registrants
that file electronically with the SEC at the following address:
http://www.sec.gov. Since the Common Shares are also listed on the American
Stock Exchange, reports, proxy statements and other information relating to
Grove Property Trust can also be inspected at the offices of the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York 10006.
The following documents have been filed by Grove Property Trust with the SEC,
are available for review by interested Limited Partners, and are incorporated in
this Exchange Offer by reference:
1. Grove Property Trust's Annual Report on Form 10-KSB for the year ended
December 31, 1996;
2. Grove Property Trust's Current Report on Form 8-K dated February 21,
1997;
3. Grove Property Trust's two Current Reports on Form 8-K dated
March 14, 1997;
4. Grove Property Trust's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1997;
5. Grove Property Trust's definitive Proxy Statement dated February 13,
1997, distributed in connection with its Special
Meeting of Shareholders held on March 10, 1997; and
6. Grove Property Trust's definitive Proxy Statement dated May 16, 1997,
distributed in connection with its Annual Meeting of Shareholders to be held on
June 18, 1997.
(1) Includes Common Units an Executive Officer may be deemed to own
beneficially as a result of his ownership of entities included in the
Grove Companies, based solely on his pro rata ownership of the equity of
that entity. One or more of the Executive Officers may have acquired
additional Common Units as a result of the Operating Partnership's
acquisition of interests in three of the Excluded Properties in June,
1997. One or more of the Executive Officers may be deemed to own
beneficially additional Common Units held by the Grove Companies pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as a
result of such Executive Officer's ability to exercise control over voting
and/or investment decisions with respect to one or more of the entities
included in the Grove Companies.
GROVE OPERATING, L.P.
Offer to Exchange
All Outstanding
Units of Limited Partnership Interest
in
HERITAGE COURT ASSOCIATES LIMITED PARTNERSHIP
for consideration of
1,013 Common Units of Grove Operating, L.P.
with an option to holders to instead receive cash consideration
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK TIME, ON FRIDAY, AUGUST 15,
1997, UNLESS EXTENDED.
Grove Operating, L.P., a recently formed Delaware limited partnership
(the "Operating Partnership"), is offering to exchange all outstanding units of
limited partnership interest ("Units") in Heritage Court Associates Limited
Partnership (the "Property Partnership"), for consideration per Unit of 1,013
Common Units of the Operating Partnership or, at the option of the holder,
consideration per Unit of $9,871 (the "Cash Consideration") in cash, in each
case to be pro rated in respect of fractional Units, upon the terms and subject
to the conditions set forth in this Exchange Offer dated June 17, 1997
(including the annexes hereto, the "Offer to Exchange") and in the related
Letter of Transmittal, as each may be supplemented or amended from time to time
(all of which constitute the "Exchange Offer"). The Exchange Offer is made to
all limited partners of record of the Property Partnership (the "Limited
Partners") as of the date of this Exchange Offer.
A Limited Partner must tender all of the Units owned by it in the Property
Partnership if it wishes to tender any Units. A Limited Partner must also
complete and return an Accredited Investor Questionnaire in order to participate
in the Exchange Offer. See "THE EXCHANGE OFFER-Section 3. Procedures for
Tendering Property Partnership Units."
The General Partner of the Operating Partnership is Grove Property Trust, a
Maryland real estate investment trust. See "THE EXCHANGE OFFER-Section 8.
Certain Information Concerning the Purchaser" and "Section 9. Interests of
Certain Persons and Certain Transactions."
The Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time: (i) to extend the period of time
during which this Exchange Offer is open and thereby delay the acceptance for
payment of, and the payment for, any Units; (ii) to terminate this Exchange
Offer and not accept for payment any Units not theretofore accepted for payment
or paid for if any of the conditions referred to in Section 11 have not been
satisfied or upon the occurrence of the events specified in Section 12; (iii)
upon the occurrence of any of the
June 17, 1997
conditions specified in Section 11, to delay the acceptance for payment of, or
payment for, any Units not theretofore accepted for payment or paid for, and
(iv) to amend this Exchange Offer. See "THE EXCHANGE OFFER."
THE COMMON UNITS IN THE OPERATING PARTNERSHIP OFFERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER THE
SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THIS OFFER TO EXCHANGE HAS NOT BEEN FILED WITH OR REVIEWED BY THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION PRIOR TO ITS ISSUANCE AND USE. NEITHER
THE COMMISSION NOR ANY STATE'S SECURITIES LAW ADMINISTRATOR HAS REVIEWED THE
ACCURACY OR ADEQUACY OF THE INFORMATION PRESENTED HEREBY OR ENDORSED THE MERITS
OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE COMMON UNITS IN THE OPERATING PARTNERSHIP ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
EACH LIMITED PARTNER IS URGED TO READ CAREFULLY THIS ENTIRE OFFER TO EXCHANGE,
THE LETTER OF TRANSMITTAL AND RELATED DOCUMENTS.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
INTRODUCTION 1
FORWARD LOOKING STATEMENTS 3
DISCLOSURE MATERIALS 4
THE CONSOLIDATION TRANSACTIONS 5
Background 5
The Consolidation 5
Reasons for the Consolidation 8
Opportunity for Growth 11
Increased Marketability/Liquidity 11
Alternatives to the Consolidation 11
Valuation of Properties and Other Assets; Allocation of Common Units 12
SPECIAL FACTORS 14
Ownership of Common Units 14
Risk Factors-Common Units 16
RISK FACTORS 18
Generally 18
Potential Adverse Effects of the Exchange Offer; Risk Factors 20
BENEFITS TO RELATED PARTIES 27
CONFLICTS OF INTEREST 29
THE COMPANY 31
The Grove Companies 31
Grove Property 31
Trust Managers and Executive Officers 32
Common Units Issued to Executive Officers in Connection with Consolidation 37
Security Ownership of Certain Beneficial Owners and Management 38
Compensation of the Trust Managers 43
Non-Competition Agreements 44
Property Management Services 44
Management Division Operations 45
Accounting Services 46
Property Marketing 46
Construction Services 47
Business Operations and Operating Strategies 47
Acquisition and Development Strategy 48
Redevelopment 48
Future Acquisitions 48
Markets 49
Multifamily 50
Rental Rates and Occupancy 50
Competition 50
PROPERTY INFORMATION 51
Description of the Properties 51
New Acquisitions 52
FINANCIAL INFORMATION 53
Selected Financial and Operating Data 53
VALUATION OF PARTNERSHIP UNITS 53
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES 55
Gain or Loss on the Exchange for Common Units 55
Gain or Loss on an Exchange for Cash Consideration 57
Federal Income Tax Consequences of Holding Common Units in the 58
Operating
Partnership
State and Other Tax Considerations 59
SUMMARY OF ERISA CONSIDERATIONS 59
Plan Assets---In General 60
Application of DOL Regulation to GROVE PROPERTY 60
Application of DOL Regulation to the Purchaser 61
THE OP PARTNERSHIP AGREEMENT 62
Management 62
Indemnification 62
Transferability of Interests 63
Issuance of Additional Common Units 64
Capital Contribution 64
Awards Under Stock Incentive Plan 64
Distributions 65
Limited Partner Redemption/Exchange Rights 65
Tax Matters 65
Operations 65
Certain Limited Partner Approval Rights 65
Term 66
ADDITIONAL INFORMATION 66
GLOSSARY 66
THE EXCHANGE OFFER 74
Section 1. Terms of this Exchange Offer 74
Section 2. Acceptance of and Payment for Property Partnership Units 74
Section 3. Procedures for Tendering Property Partnership Units 75
Section 4. Withdrawal Rights 77
Section 5. Extension of Tender Period; Termination; Amendments 78
Section 6. Certain Federal Income Tax Consequences 79
Section 7. Certain Information Concerning the Property Partnership 79
Section 8. Certain Information Concerning the Purchaser 79
Section 9. Interests of Certain Persons and Certain Transactions 80
Section 10. Sources of Funds 81
Section 11. Conditions of this Exchange Offer 81
Section 12. Certain Legal Matters 82
Section 13. Fees and Expenses 83
Section 14. Other Matters 83
APPENDIX A. Text of amendments to the Limited Partnership Agreement of
Heritage Court Associates Limited Partnership, together with legal opinion
APPENDIX I. Financial Information relating to Grove Property Trust, its
Form 10-QSB for the quarter ended March 31, 1997, its Form 8-K dated May 30,
1997, and other materials available upon request
</TABLE>
<PAGE>
INTRODUCTION
The Purchaser hereby offers to purchase all outstanding units of
limited partnership interest (collectively, "Units") of Heritage Court
Associates Limited Partnership (the "Property Partnership") for Equity
Consideration per Unit of 1,013 units of limited partnership interests ("Common
Units") in Grove Operating, L.P., a Delaware limited partnership (the "Operating
Partnership" or the "Purchaser") (pro rated in respect of fractional Units),
upon the terms and subject to the conditions set forth in this Exchange Offer
and the related Letter of Transmittal, as each may be supplemented or amended
from time to time, with an option to holders to instead receive cash. See "--
Cash Consideration." Limited Partners who tender Units in this Exchange Offer
will not be obligated to pay any partnership transfer fees, which fees, if any,
will be borne by the Purchaser.
Purpose of this Exchange Offer. This Exchange Offer is being made to
the Limited Partners of Heritage Court Associates Limited Partnership (each, a
"Limited Partner" and, collectively, the "Limited Partners"). On March 14, 1997,
the Operating Partnership completed the "Consolidation Transactions" described
below. As a result of the Consolidation Transactions, Grove Property Trust, a
Maryland real estate investment trust ("Grove Property"), became a
self-administered and self-managed real estate investment trust ("REIT") with
control over a portfolio of 26 multifamily residential projects and a
neighborhood shopping center in the Northeastern United States. Grove Property
is the sole general partner of the Operating Partnership. The properties owned
by the Property Partnership appear attractive to the Operating Partnership and
satisfy the Operating Partnership's growth strategy to acquire additional
multifamily housing in the Northeastern United States. This Exchange Offer
provides Limited Partners of the Property Partnership with an opportunity to
either currently liquidate their interest in the Property Partnership, or to
acquire an interest in the Operating Partnership on a tax-free basis, which may
provide greater risk diversification and enhance the opportunity for additional
growth, with an enhanced ability to liquidate their interest in the Operating
Partnership within one year following the completion of this Exchange Offer.
Conditions. The Exchange Offer is conditioned upon the tender of a
minimum of 66-2/3% of the outstanding Units of the Property Partnership and/or
the receipt of proxies representing 66-2/3% of the outstanding Units so that,
together with the Units the Purchaser is acquiring concurrently with the
expiration of the Exchange Offer, the Purchaser has obtained the requisite
consent of Limited Partners to liquidate the Property Partnership as described
in this Exchange Offer. See "--Liquidation of Property Partnership." A Limited
Partner must tender all of its Units in the Partnership if it wishes to tender
Units, and may not tender only a portion of its Units.
Equity Consideration. Each tendering Limited Partner other than a
Non-Accredited Participant will receive, upon consummation of the Exchange
Offer, 1,013 Common Units for each Unit so tendered in total consideration for
the exchange of such Unit, unless such holder elects to receive Cash
Consideration. Notwithstanding the foregoing, if a tendering Limited Partner is
a "benefit plan investor," as defined in 29 CFR Section 2510.3-101, and the
Purchaser determines, in its sole discretion, that the ownership of Common Units
by benefit plan investors should be restricted to avoid having its assets deemed
to be "plan assets" for purposes of the fiduciary requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the prohibited
transaction provisions of ERISA and/or Internal Revenue Code ("Code") Section
4975, (a) the number of Common Units received by such tendering Limited Partner
will be limited to the extent that the Purchaser, in its sole discretion, deems
necessary or appropriate, and (b) such Limited Partner will receive Cash
Consideration (described below) for any Units tendered pursuant to the Exchange
Offer for which it does not receive Common Units.
Cash Consideration. Each tendering Limited Partner which is not an
Accredited Investor, and each Accredited Investor which otherwise elects, will
receive, upon consummation of the Exchange Offer, $9,871 in Cash Consideration
for each Unit so tendered in total consideration for the exchange of such Unit.
The amount of Cash Consideration represents the value placed on the Equity
Consideration, assuming $10.50 per Common Unit, less 7.2%, which the Purchaser
estimates is its cost attributable to the New Equity Investment.
The Equity Consideration and the Cash Consideration assume that the
value of a Common Share in Grove Property will be $10.50, thereby placing a
value of $10.50 on a Common Unit. Please note that the value of a Common Unit is
fixed for purposes of this Exchange Offer, and the amount of Equity
Consideration and the Cash Consideration to be received by the Participants will
not decrease or increase if the actual market price of Grove Property Common
Shares is more or less than $10.50 per Common Share.
Liquidation of Property Partnership. The partnership agreement of the
Property Partnership (the "Property Partnership Agreement") contains provisions
which would restrict the Operating Partnership's ability to obtain advantages
similar to those secured under the Consolidation Transactions. Among other
things, the Property Partnership Agreement restricts the Operating Partnership
from being admitted as a general partner without the consent of all of the
Limited Partners. In connection with the Exchange Offer, Limited Partners of the
Property Partnership who tender their Units therein will also be consenting to
(i) an amendment to the Property Partnership Agreement to permit the "in-kind"
distribution of the Partnership Property to the Operating Partnership and its
affiliates in connection with the liquidation of the Property Partnership, and
(ii) authorize the liquidation and dissolution of the Property Partnership.
See Appendix A to this Exchange Offer for the complete text of the
proposed amendment to the Property Partnership Agreement.
Property Partnership's Position with Respect to this Exchange Offer.
The general partner of the Property Partnership, Glastonbury Realty Limited
Partnership, is a Connecticut limited partnership wholly owned by Damon Navarro
(16.67%), Brian Navarro (16.67%), George Abdow (16.67%), Ronald Abdow (16.67%)
Timothy Jones (19.166%), and Ivan Frederickson (14.166%), Affiliates of Grove
Companies and the general partner of the Operating Partnership. Because of
affiliations between the Purchaser and the general partner of the Property
Partnership, the Property Partnership has advised the Purchaser that the
Property Partnership and the general partner of the Property Partnership make no
recommendation, and are remaining neutral, as to whether a Limited Partner of
the Property Partnership should tender its Units in this Exchange Offer. See
"THE EXCHANGE OFFER-Section 9. Interests of Certain Persons and Certain
Transactions" and "CONFLICTS OF INTEREST." However, the general partner of the
Property Partnership hereby recommends that each Limited Partner vote in favor
of the Property Partnership Amendments, regardless of whether such Limited
Partner participates in the Exchange Offer, so that Limited Partners which elect
to do so are able to participate in this Exchange Offer and receive the benefits
thereof.
Limited Partners who elect not to tender their Units should be aware that
there are certain potential detriments to this Exchange Offer. In addition to
the risk factors described elsewhere in this Exchange Offer Statement relating
to an investment in Common Units and Common Shares, Limited Partners who elect
not to tender their Units should consider the following: The Operating
Partnership will vote (i) to amend the Property Partnership Agreement to permit
an "in-kind" distribution to the Operating Partnership in connection with the
liquidation of the Property Partnership, and (ii) to liquidate the Property
Partnership and distribute its assets. The Operating Partnership will lend funds
to the Property Partnership to enable it to make cash distributions to the other
Limited Partners upon liquidation, and the Partnership Property will then be
distributed to the Operating Partnership and a cash distribution will be made to
the other Limited Partners.
Limited Partners who elect not to tender their Units should be aware
that the general partner of the Property Partnership and the Operating
Partnership, as a Limited Partner of the Property Partnership, intend to vote in
favor of the above-described amendment to the Property Partnership Agreement and
to liquidate the Property Partnership. Limited Partners other than the Operating
Partnership will receive a cash distribution of approximately $9,871 per Unit
when the Property Partnership is liquidated. The Operating Partnership expects
that this cash distribution and liquidation will occur promptly after
consummation of this Exchange Offer.
FORWARD LOOKING STATEMENTS
THIS EXCHANGE OFFER, INCLUDING MATERIALS ATTACHED, OR REFERENCED IN
APPENDIX I HERETO, CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
UNCERTAINTIES SET FORTH BELOW AND ELSEWHERE IN THIS EXCHANGE OFFER STATEMENT.
THE FORWARD LOOKING STATEMENTS INCLUDED IN THIS EXCHANGE OFFER,
INCLUDING MATERIALS ATTACHED, OR REFERENCED IN APPENDIX I HERETO, CONCERNING,
AMONG OTHER THINGS, FUTURE RESULTS OF OPERATIONS, CASH AVAILABLE FOR
DISTRIBUTION, SOURCES OF GROWTH, ECONOMIC CONDITIONS AND TRENDS AND PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS ARE NECESSARILY SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES. ACTUAL OUTCOMES ARE DEPENDENT UPON THE
COMPANY'S SUCCESSFUL PERFORMANCE OF INTERNAL PLANS, ECONOMIC CONDITIONS IN THE
SUBMARKETS IN WHICH THE COMPANY'S PROPERTIES ARE LOCATED SUCH AS OVERSUPPLY OF
RESIDENTIAL MULTIFAMILY HOUSING OR A REDUCTION IN THE DEMAND FOR SUCH HOUSING,
THE AVAILABILITY OF ACQUISITION FINANCING, COMPLIANCE WITH APPLICABLE LAWS AND
REGULATIONS AND THE SUCCESSFUL MANAGEMENT OF OTHER ECONOMIC, LEGAL, FINANCIAL
AND GOVERNMENTAL RISKS AND UNCERTAINTIES.
DISCLOSURE MATERIALS
Included with this Exchange Offer Statement are certain disclosure
materials attached, referenced or identified on Appendix I hereto (together with
the materials in this Exchange Offer Statement under the captions
"Introduction," "The Consolidation Transactions," "Special Factors," "The
Company," "Property Information," "Financial Information," "Summary of Federal
Income Tax Consequences" and "Summary of ERISA Considerations," the "Disclosure
Materials") which contain descriptions of the Operating Partnership, the Common
Units, Grove Property Trust, the Redemption/Exchange Rights (defined below) and
other matters. The information in this Exchange Offer Statement is qualified in
its entirety by the more detailed information in Grove Property's Proxy
Statement, dated February 13, 1997 (the "Proxy Statement"). A Limited Partner
should review the Disclosure Materials with regard to the Property Partnership,
and to the business, properties and financial condition of the Operating
Partnership which are subsumed generally in the descriptions of Grove Property,
including the sections entitled "Selected Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the pro forma and historical financial statements of Grove
Property, the Property Partnerships and the former management company and the
notes thereto included in the Proxy Statement. With respect to the Common Units,
a Limited Partner should review carefully the sections in the Proxy Statement
entitled "The Company-General," "The Company-Policies with Respect to Certain
Activities," "Approval of the Consolidation Transactions (Proposal 1)-Potential
Adverse Effects of the Consolidation Transactions; Risk Factors," "Federal
Income Tax Considerations-Tax Aspects of the Operating Partnership" and "ERISA
Considerations." The information regarding the Common Shares is important in
relation to the Redemption/Exchange Rights. This information is found
principally in the Proxy Statement, particularly in the sections thereof
entitled "Description of Capital Stock," "Certain Provisions of Maryland Law and
of the Company's Declaration of Trust and Bylaws," "Shares Available for Future
Sale," "Federal Income Tax Considerations" and "ERISA Considerations." The
Disclosure Materials set forth certain aspects of various agreements entered
into as of the closing of the Consolidation Transactions, including the
Operating Partnership's Partnership Agreement. Copies of these agreements are
available upon request. Limited Partners should refer to such documents for more
complete information and this Exchange Offer Statement is qualified in its
entirety by this reference. See "ADDITIONAL INFORMATION."
<PAGE>
THE CONSOLIDATION TRANSACTIONS
Background
Grove Property Trust (formerly Grove Real Estate Asset Trust, "GREAT")
is a self-administered real estate investment trust formed pursuant to the
Maryland Real Estate Investment Act, engaged principally in multifamily property
management, acquisition and redevelopment. Since the end of 1996, the Company
has undergone significant changes in its business and operations, as described
below under "The Consolidation," in order to seek to maximize future growth
potential.
GREAT owned and operated three multifamily properties (the "Original
Properties") since its inception and acquired a fourth property ("Cambridge") in
January 1996 (collectively, the "GREAT Properties"). The GREAT Properties are
comprised of the Dogwood Hills Apartments comprising 46 multifamily apartment
homes on Evergreen Avenue in Hamden, Connecticut, the Hamden Center Apartments
comprising 65 multifamily apartment homes on School Street in Hamden,
Connecticut, the Baron Apartments comprising 54 multifamily apartment homes on
Queen Street in Southington, Connecticut, and Cambridge Estates, comprising 92
multifamily apartment homes located in Norwich, Connecticut. The GREAT
Properties had an aggregate weighted average occupancy rate of 97.6% during
1996.
Grove Property was formed in 1994 to continue the multifamily property
acquisition, management and marketing operations and related business objectives
and strategies of Grove Investment Group, Inc., a Southern New England real
estate company formed in 1980 by Damon and Brian Navarro, and the three limited
partnerships from which Grove Property acquired the Original Properties upon
completion of Grove Property's initial public offering in June 1994.
The Consolidation
On March 14, 1997, Grove Property completed the Consolidation
Transactions described below. As a result of the Consolidation Transactions,
Grove Property is now a self-administered and self-managed REIT which management
believes to be one of the largest public owners of multifamily residential
properties in Southern New England. Grove Property is the sole general partner
of the Operating Partnership. The Operating Partnership was formed to act as the
vehicle for the Consolidation Transactions and is the entity through which Grove
Property conducts substantially all of its business and owns (either directly or
indirectly through subsidiaries) all of its assets. Grove Property currently
holds approximately 61% of the Operating Partnership partnership units. This
structure is commonly referred to as an umbrella partnership REIT or UPREIT. The
Operating Partnership is governed by the Operating Partnership Agreement.
Grove Property owns, directly or indirectly, 100% of the interests in
the four GREAT Properties, in each of eight properties acquired from certain
limited partnerships through the Consolidation Transactions, and in each of two
properties acquired in June 1997. Further, Grove Property controls thirteen
additional properties as general partner or through ownership of 100% of the
general partner of the limited partnerships that own such properties, twelve of
which were acquired in the Consolidation Transactions, and one of which was
acquired in June 1997. All such properties are collectively referred to as the
"Properties," all such limited partnerships are collectively referred to as the
"Property Partnerships," and all the properties owned by such Property
Partnerships are collectively referred to as the "Partnership Properties." Grove
Property provides property management services to the Properties and other real
property controlled by certain companies and individuals which are affiliated
with Grove Property (the "Grove Companies") using certain acquired assets and
liabilities of Grove Property Services, L.P. ("GPS"). National Realty Services,
L.P., an affiliate of Grove Property, is the exclusive provider of real estate
brokerage services to Grove Property.
An exchange offer was made (the "Initial Exchange Offer") by the
Operating Partnership for the tender of any or all of the limited partnership
interests of eighteen of the Property Partnerships (the "Property Partnership
Units") in exchange for limited partnership units in the Operating Partnership.
A total of 1,091,521 Common Units were issued pursuant to the Initial Exchange
Offer. These Common Units are redeemable, at the option of the holders thereof,
commencing one year after their issuance for cash, based on the fair market
value of Grove Property's Common Shares, or, at Grove Property's option, it may
exchange Common Shares for Common Units on a one-for-one basis, subject to
certain antidilution adjustments and exceptions.
The Grove Companies, pursuant to a contribution agreement among Grove
Property, certain individuals including affiliates of Grove Property and the
Operating Partnership (the "Contribution Agreement"), then contributed to Grove
Property and/or the Operating Partnership certain assets and liabilities of GPS
arising from or used in connection with property management related services,
and their general and limited partnership interests in each Property Partnership
(or the assets thereof), in exchange for an aggregate of 904,867 Common Units
issued by the Operating Partnership and the payment of $177,669 by Grove
Property to the Grove Companies.
A private placement of equity securities (the "New Equity Investment")
took place, pursuant to which Grove Property sold to a group of investors (the
"New Equity Investors") Common Shares totaling, in the aggregate, 3,333,333
Common Shares, in exchange for total gross proceeds to Grove Property of $30.0
million.
Grove Property contributed to the Operating Partnership: (a) the GREAT
Properties and related assets in exchange for a partnership interest in the
Operating Partnership represented by 620,102 Common Units; and (b) the gross
proceeds of the New Equity Investment received by Grove Property, in exchange
for a number of Common Units equal to the number of Common Shares issued by
Grove Property in the New Equity Investment.
The Operating partnership issued a total of 6,067,875 Common Units in
the Consolidation Transactions. As a result of the Consolidation, Grove Property
acquired approximately 65% of the Common Units. In connection with the June 1997
acquisition of two additional properties and 100% of the general partnership
interest and certain limited partnership interests in a third property, the
Operating Partnership issued an additional 426,188 Common Units, and as a
result, Grove Property currently holds approximately 61% of the Common Units.
In conjunction with the Consolidation Transactions, Grove Property and
certain Property Partnerships have entered into two new credit facilities
(together, the "Credit Facility") consisting of (a) a three-year secured
revolving acquisition and working capital facility of approximately $25.0
million and (b) an approximately $15.1 million ten-year term mortgage loan. The
Operating Partnership used the net proceeds of the New Equity Investment and
borrowings under the Credit Facility to refinance the outstanding mortgage
indebtedness of certain of the Property Partnerships and to acquire certain
minority interests in certain of the Property Partnerships.
Persons receiving Common Units in the Initial Exchange Offer are
restricted from transferring such Common Units for a period of one year from the
completion of the Consolidation Transactions (March 14, 1997). Persons receiving
Common Units pursuant to the Contribution Agreement (including the Grove
Companies and the Executive Officers) are restricted from transferring such
Common Units for a period of two years from the completion of the Consolidation
Transactions. Each Common Unit is redeemable, at the option of the holder
thereof, commencing March 15, 1998 for cash (based on the fair market value of
the Common Shares at the time of such redemption) or, at Grove Property's
option, it may exchange Common Shares for Common Units on a one-for-one basis,
subject to certain antidilution adjustments and exceptions. Grove Property has
granted certain entities and individuals receiving Common Units in connection
with the Consolidation Transactions certain registration rights with respect to
the Common Shares which such holders of Common Units may receive upon the
exchange of their Common Units. Pursuant to a registration rights agreement with
certain holders of Common Units, Grove Property has agreed to file and generally
keep continuously effective, beginning one year after the completion of the
Consolidation Transactions, a registration statement covering the issuance of
Common Shares upon exchange of Common Units and the resale of such Common
Shares.
Grove Property declared a 5% stock dividend to shareholders of record
March 10, 1997, payable March 28, 1997 and declared a 1.125 to 1.0 stock split
with respect to all Common Shares outstanding on March 10, 1997, effective March
14, 1997 (together, the "Stock Split"). As a result of the Stock Split, Grove
Property issued, on a pro rata basis, a total of 95,102 Common Shares to the
holders of the issued and outstanding 525,000 Common Shares. Grove Property did
not issue fractional shares in connection with the Stock Split, but rather paid
cash in lieu of fractional shares.
In connection with the Consolidation Transactions, Grove Property
changed its distribution policy. The Board concluded that enhancement of
shareholder value could better be achieved through growth in Grove Property's
asset value, which management believes will be reflected in the market price of
the Common Shares, rather than by maintaining or increasing the distribution
yield on the Common Shares. Therefore, the Board voted to reduce the annual cash
distributions to shareholders, from $.78 per Common Share to $.63 per Common
Share ($.92 and $.74 respectively per Common Share prior to giving effect to the
Stock Split). Grove Property intends to continue to comply with the REIT
requirements under the Internal Revenue Code of 1986, as amended, that 95% of
the Company's REIT taxable income be distributed annually, while retaining for
reinvestment in Grove Property the maximum amount permitted under the Code.
Reasons for the Consolidation and the Exchange Offer
Grove Property's decision to pursue the Consolidation, and the Exchange
Offer to Heritage Court Associates Limited Partnership is based, among other
things, upon their belief that the benefits of the Consolidation Transactions
and similar acquisitions outweigh the detriments to the Limited Partners.
The benefits of the Consolidation Transactions and this Exchange Offer,
including the benefits of Grove Property's REIT status and structure as opposed
to the status and structure of the Property Partnerships, include the following:
o Access to Capital. Grove Property's structure will, in the
judgment of Grove Property, provide Grove Property with
greater access to capital for refinancing and growth. Sources
of capital include the securities sold in the New Equity
Investment and possible future issuances of debt or equity
through public offerings or private placements. The financial
strength of Grove Property should enable it to obtain
financing at better rates and on better terms than would
otherwise be available to the Property Partnership which owns
one property.
o Growth of Grove Property. Grove Property's structure will allow
shareholders, including the Equity Participants through their ownership of
Common Units, an opportunity to participate in the growth of the real estate
market through an ongoing business enterprise. In addition to the existing
portfolio of Properties, Grove Property gives shareholders an interest in all
future acquisitions by Grove Property and in the fee-producing service
businesses being contributed by the Grove Companies to Grove Property. The
availability of Common Units for future acquisitions will enable potential
sellers of properties to Grove Property to defer taxable gain, if any.
o Risk Diversification. The Company's structure provides holders
of Common Units of the Operating Partnership a diversification
of risk not available in single asset entities by providing
them with an equity interest in an Operating Partnership in
which there has been a pooling together of similar properties
and by consolidating the operating business and future
acquisitions.
o Deleveraging. The consummation of the Consolidation
Transactions has substantially reduced the debt encumbering
the Properties. This reduction, with a consequent reduction in
debt service, will increase the aggregate amount of cash
available for distribution to Unit holders and shareholders
and to fund the Company's future growth. Grove Property also
believes that the Consolidation Transactions will permit the
Company to refinance its existing indebtedness at more
favorable rates.
o Liquidity. The equity interests in the Property Partnerships
are typically not marketable. Grove Property's structure
allows shareholders, including the Equity Participants, the
opportunity to liquidate their capital investment through the
disposition of Common Shares or Common Units for cash (based
on the fair market value of an equivalent number of Common
Shares at the time of such redemption) or, at Grove Property's
option, it may exchange Common Units for Common Shares on a
one-for-one basis, subject to certain antidilution adjustments
and exceptions. See "The OP Partnership Agreement-Limited
Partner Redemption/Exchange Rights."
o Public Market Valuation of Real Estate Assets. Grove
Property's structure may allow investors to benefit
potentially from the current public market valuation of REITs,
which Grove Property believes is favorable in light of the
current private market valuation of comparable assets.
o Tax Deferral. The Consolidation Transactions and Exchange
Offers like this offer provide to the Equity Participants the
opportunity to defer the tax consequences that would arise
from a sale of their respective properties or contribution of
their interests in the Partnership Properties to the Company.
The detriments of the Consolidation Transactions and exchange offers
like this Exchange Offer, including the detriments of Grove Property's REIT
status and structure as opposed to the status and structure of the Property
Partnership, include the following (see also "SPECIAL FACTORS" and "RISK
FACTORS"):
o Conflicts of Interest. Management of the Company has been and will
continue to be subject to a number of conflicts of interest in the operation of
the Operating Partnership, as well as the formation of Grove Property and the
current Exchange Offer. Among other conflicts, there was no independent
valuation or appraisal of the Consolidated Assets or of the property owned by
the Property Partnership, and there can be no assurance that the value given by
the Operating Partnership for such assets in connection with the Consolidation
Transaction, the current Exchange Offer or future acquisitions from related
partnerships, are or will be equal to their fair market value. Because certain
owners of the Grove Companies are trust managers or officers of Grove Property,
they will have a conflict of interest with respect to enforcing the agreements
transferring their interests in certain assets to the Company. In addition,
because the Grove Companies and officers of the Company may suffer different tax
consequences than other limited partners of the Operating Partnership upon the
sale or refinancing of any of the Partnership Properties, their interests
regarding the timing and pricing of such sale or refinancing may conflict with
those of such other partners and the Operating Partnership.
o Loss of Individual Asset Growth Opportunity. Any given asset
may over time outperform the Common Shares and Common Units.
Any investor who exchanges an interest in a single asset for a
smaller interest in a group of assets will receive a lower
return on investment if the asset from which the investor
traded outperforms the Common Shares and Common Units.
o No Anticipated Distributions from Asset Sales. Unlike the Property
Partnerships, in which the net proceeds from the sale of assets were generally
to be distributed to the partners, the Operating Partnership is not expected to
have significant asset sales. Moreover, the Operating Partnership may decide to
reinvest the proceeds from asset sales rather than distribute them to holders of
Common Units. Although shareholders will have the ability to sell their Common
Shares (subject to certain restrictions discussed herein), they would not be
able to rely upon the mere passage of time to realize their share of the gains,
if any, that might be recognized at any point in time from a liquidation of all
or part of the assets of the Operating Partnership.
o Public Market Valuation. Although the Company has been advised
that the public market currently values real estate assets on
a basis that is attractive in relation to private market real
estate values, there is no assurance that this will be a
permanent condition. In the 1980s, REIT shares generally
traded at a discount to the underlying private market values
of the REIT properties, rather than at a premium. This
condition could return. In addition, an increase in interest
rates could adversely affect the market value of the Common
Shares.
o Costs of the Transaction. Both the Operating Partnership and
the Property Partnership will incur transaction costs in
connection with the Exchange Offer, which will impact the
valuation of the Property Partnership's properties for
purposes of this Exchange Offer.
o Costs of Operating a Public Company. Grove Property expects to
incur increased expenses in connection with the requirements
of being a public company, including, without limitation,
preparation of financial statements and proxies, printing and
filing costs and fees paid to the Company's certified public
accountants. The Property Partnerships, including Heritage
Court Associates Limited Partnership, have not had similar
expenses.
One or more of the Grove Companies is also a general partner of 6
limited partnerships which were not included in the Consolidation or subsequent
offers similar to this Exchange Offer. Although each of these partnerships owns
a multifamily project or a retail project in Connecticut, Massachusetts or Rhode
Island, the Grove Companies and the Company have concluded that these properties
are not attractive acquisitions for the Operating Partnership at this time
because of the property type, the condition of the project, the high degree of
leverage or the volatility of occupancy applicable to such properties. The
Operating Partnership may seek to acquire interests in one or more of these
partnerships in the future, and may offer cash, Common Units or other
consideration therefor. The Operating Partnership is currently seeking to
exchange Common Units in the Operating Partnership with three other related
partnerships, Grove Coastal Associates Limited Partnership, Farmington Summit
Associates Limited partnership, and River Grove Associates Limited partnerships.
See "SPECIAL FACTORS-Conflicts of Interest."
Opportunity for Growth
As a result of the Consolidation Transactions and the June 1997
acquisitions, the Company has become a fully integrated, diversified real estate
company, with a controlling interest in a portfolio of 26 multifamily properties
containing a total of 2,347 apartments and a neighborhood shopping center, and
should be provided with access to new capital. In addition, the structure of the
Consolidation Transactions may facilitate additional property acquisitions
through the ability to acquire properties with Common Units and thereby defer
all or a portion of the seller's taxable gain.
Increased Marketability/Liquidity
A number of Limited Partners have expressed a desire to achieve greater
marketability and liquidity with respect to their investments in the Property
Partnership. Limited Partners who exchange their Units for Common Units will,
following the first anniversary of the consummation of the Consolidation
Transactions or their respective Exchange Offer, be able to redeem those Common
Units for cash (or, at the option of Grove Property, such Common Units will be
exchanged for Common Shares). Following this one-year period, Equity
Participants will have the flexibility of maintaining an interest in multifamily
projects and continuing to defer the federal income tax on the transfer of their
Units, or redeeming their Common Units for cash (or, at the option of the
Company, receiving Common Shares in exchange for Common Units). The Exchange
Offer provide immediate liquidity to Limited Partners who receive cash on the
exchange of their Units.
Notwithstanding the possibility for improved marketability, the Common
Units should still be viewed as an illiquid investment, particularly for the
first year following the consummation of this Exchange Offer. The Common Units
have not been registered under the Securities Act or any state securities or
"blue sky" laws, nor is any registration rights agreement in effect with respect
to the Common Units. The Common Units are subject to significant restrictions on
transfer, including a one year holding period prior to exercising redemption
rights, and it is not expected that any market for the sale of Common Units will
develop. The Common Shares issued in exchange for Common Units will also be
subject to restrictions on resale under the Securities Act. See "SPECIAL
FACTORS-Ownership of Common Units."
Alternatives to the Consolidation
The Grove Companies examined several alternatives to the Consolidation
and this Exchange Offer, each of which they rejected. The first alternative,
maintaining the status quo, was not pursued because it would not provide any
additional liquidity or opportunity for diversification of the Grove Companies
or the Limited Partners. A second alternative, refinancing of the Partnership
Properties, would not create material distributable proceeds for Limited
Partners in the Property Partnership, and the balance of the invested capital in
the other Property Partnerships would continue to remain as a long-term,
illiquid and relatively less marketable investment. The Grove Companies believed
that none of the Property Partnerships would be able at such time to refinance
their Properties on the more favorable basis that is available to Grove Property
because of the New Equity Investment and the cross-collateralization of the
Properties, and therefore would not be able to increase cash available for
distribution to Limited Partners. The Grove Companies did not explore a complete
liquidation of the various Property Partnerships because of their belief that,
because of the continuing slow recovery of the real estate markets in which the
Partnership Properties are located, the valuations that would be placed on the
Partnership Properties in a liquidation would be less than the values that can
be achieved through the continued ownership of the Partnership Properties as
part of a fully integrated multifamily investment and management company.
Valuation of Properties and Other Assets; Allocation of Common Units
Allocation of Common Units. Set forth below is a description of the
methods used by the Company and the Grove Companies to determine the value of
the Properties and other assets (the "Consolidated Assets") contributed to the
Operating Partnership in connection with the Consolidation Transactions (the
"Consolidation Valuations"). The Consolidation Valuations were used to determine
the allocation of Common Units (or cash, in the case of Non-Accredited
Participants and Cash Election Participants) among the owners of the
Consolidated Assets, with the Common Units being allocated based upon the value
of each party's contribution as a percentage of the value of the total
contribution. A similar but not identical method was used by the Operating
Partnership to determine the value of the Properties to be distributed by
Heritage Court Associates Limited Partnership to the Operating Partnership. See
"VALUATION OF PARTNERSHIP UNITS." Although the General Partner of the Operating
Partnership has the discretion and right to alter such valuation method in
connection with future acquisitions, it is anticipated that a similar method
will be used in connection with future acquisitions.
Property Partnerships. The Consolidation Valuations for the Property
Partnerships were determined by valuing their respective Properties using the
direct capitalization method. Under this approach, a single year's income is
converted into a market value for a property through the application of a
market-derived capitalization rate (the lower the capitalization rate applied to
a property's income, the higher its value). The Consolidation Valuation for each
Partnership Property was determined by (i) capitalizing pro forma net operating
income for that partnership, less a reserve for capital expenditures, as of
September 30, 1996, at a capitalization rate ranging from 9.0% to 11.0%, (ii)
deducting the amount of debt on the Partnership Property, (iii) adding other
assets of the Property Partnership, net of liabilities (such as cash, accounts
receivable, accounts payable and security deposits), and (iv) deducting any
transfer taxes due upon the restructuring of the Property Partnership. The
Company and the Grove Companies determined the appropriate capitalization rate
for each Partnership Property based upon their experience in real estate
matters. They sought local market sales information for comparable properties,
estimated actual capitalization rates (net operating income less capital
reserves divided by sales price) and then evaluated the Partnership Property in
light of its relative competitive position, taking into account property
location, occupancy rate, overall property condition and other relevant factors.
The Company and the Grove Companies believe that arm's-length purchasers would
base their purchase offers on capitalization rates substantially similar to
those used to calculate the above Consolidation Valuations. The Grove Companies
owned from less than 1.0% to 32.0% of the interests in the Property Partnerships
prior to the Consolidation Transactions.
The number of Common Units to be issued in exchange for a limited
partnership interest in each Property Partnership was determined on the basis of
the applicable Property Partnership Agreement, assuming (i) that the underlying
Partnership Property was sold on September 30, 1996 for an amount equal to the
Consolidation Valuation of that Property and (ii) a valuation of $9.00 per
Common Unit. The Cash Consideration (as defined in the Exchange Offer) payable
to Limited Partners who are not Accredited Investors (and certain other Limited
Partners) for each Property Partnership Unit is an amount equal to the number of
Common Units per Property Partnership Unit to which the Limited Partner would
otherwise be entitled times $9.00 per Unit, less 7.2%, which the Company
estimates to be its costs attributable to raising the requisite capital for the
cash purchase.
The number of Common Units to be issued in connection with the
Consolidation Transactions in exchange for a Property Partnership Unit, as well
as the Cash Consideration and the cash distribution to Limited Partners of the
Liquidating Partnerships upon the liquidation thereof, was subject to adjustment
if the purchase price per Common Share in the New Equity Investment was less
than or more than $9.00. In connection with this Exchange Offer, the number of
Common Units to be issued in exchange for a limited partnership unit in Heritage
Court Associates Limited Partnership has been determined upon an assumed value
of $10.50 per Common Share, but will not be adjusted in the event the market
value of such Common Shares are greater or less than $10.50 at the time this
Exchange Offer is consummated. See "VALUATION OF PARTNERSHIP UNITS".
GREAT Properties Valuation. The Company established approximately
$5,581,000 as the Consolidation Valuation of the net GREAT Assets for the
purposes of the Consolidation Transactions. This Consolidation Valuation is
equivalent to the number of Common Shares which were outstanding immediately
prior to consummation of the Consolidation Transactions (giving effect to the
Stock Split) times the $9.00 purchase price per Common Share in the New Equity
Investment. The Company believed that this aggregate Consolidation Valuation for
the GREAT Assets at such time was consistent with what aggregate valuations for
the GREAT Properties would be, applying the direct capitalization method used
for valuing the Partnership Properties, together with a "going concern" value of
the Company itself.
Management Company Valuation. The Company established a Consolidation
Valuation of approximately $6,184,000 for the Management Company. The
Consolidation Valuation for the Management Company was also determined by the
direct capitalization method, determined by capitalizing pro forma net operating
income for the Management Company as of September 30, 1996, with pro forma
adjustments to give effect to the Consolidation Transactions, at a
capitalization rate of 13.0%. All of the Management Company's income was
generated by property management agreements with the Company, the Property
Partnerships and other limited partnerships controlled by the Grove Companies or
their affiliates (which own the properties not acquired in either the
Consolidation Transactions or the June 1997 acquisitions). Accordingly, the
Company believes that the proper capitalization rate to be applied to value the
Management Company was the rate applicable to the properties managed by it,
which would be a capitalization rate of 9.0% to 11.0%. However, the Company and
the Grove Companies agreed to apply a 13.0% capitalization rate, resulting in a
more favorable purchase price to the REIT.
No independent real estate appraisals or other third-party valuations
were obtained with respect to any of the Consolidated Assets. See "RISK FACTORS
- - Generally." The Company and the Grove Companies believe that the Consolidation
Valuations were fair and consistently applied among all of the Properties and
other assets contributed to the Operating Partnership pursuant to the
Consolidation Transactions (directly or through acquisition of Property
Partnership interests). The income approach to valuation involves converting the
anticipated economic benefits of a property or other asset into a value estimate
through capitalization; because this approach is based on investor expectations
for income producing properties, the Company and the Grove Companies believe
that it provides the best value indication for multifamily residential projects
and neighborhood retail centers, and the related property management services.
The value of the Common Units will depend on the value of the Common Shares
generally.
SPECIAL FACTORS
Ownership of Common Units
The business in which an Equity Participant will be investing by
participating in the Exchange Offer is the business of the Operating Partnership
described in the Disclosure Materials. The partnership agreement for the
Operating Partnership (the "OP Partnership Agreement") is available upon request
from the Purchaser. See "ADDITIONAL INFORMATION" and "The OP PARTNERSHIP
AGREEMENT." The OP Partnership Agreement will govern the rights and restrictions
relating to Common Units. Among the significant features of owning Common Units
are the following:
Transferability. The Common Units will be issued to Equity
Participants in a private placement transaction, without registration
or qualification under federal or state securities laws. Accordingly,
the Common Units may not be resold except in a transaction registered
with the Securities and Exchange Commission (the "SEC") or pursuant to
an exemption from such registration. The Operating Partnership has no
intention or obligation to effect such a registration. In addition,
there will be substantial restrictions on the transfer of the Common
Units. See "SUMMARY OF ERISA CONSIDERATIONS." It is extremely unlikely
that any market will develop for the Common Units. In the enclosed
Letter of Transmittal, each Equity Participant will represent, among
other things, its intention to acquire the Common Units for investment
purposes and acknowledge its awareness of these limitations on
transferability. An Equity Participant's principal source of liquidity
will be its exercise of the Redemption/Exchange Rights as described in
the Disclosure Materials and in the OP Partnership Agreement.
Distributions. Grove Property has made, and intends to continue to
make, regular quarterly distributions to its shareholders. In
connection with the Consolidation Transactions, Grove Property reduced
the amount of its quarterly distribution. The principal source of cash
for such distributions will be distributions to Grove Property as
general partner of the Operating Partnership. The principal source of
cash for distributions by the Operating Partnership will be
distributions to it from the Property Partnerships. Generally speaking,
each such distribution to Grove Property will be accompanied by a
concurrent pro rata distribution to the Equity Participants and the
other limited partners of the Operating Partnership. The distribution
rate per Common Unit is expected to be the same as the distribution
rate per Common Share. Although there can be no assurance that
operations will generate sufficient cash flow to permit periodic
distributions to its limited partners, the Operating Partnership
currently expects to make an annual distribution of $.63 per Common
Unit. Grove Property's long term goal is to distribute the minimum
amount of cash required to qualify as a REIT under the Code. See "The
Company - Business Objectives and Operating Strategies."
Management of the Operating Partnership. Grove Property is the sole
general partner of the Operating Partnership. As such, it exercises
virtually complete control over the Operating Partnership and has the
authority to enter into a wide range of transactions, as described in
the OP Partnership Agreement. Accordingly, the matters described in
"Risk Factors - Potential Adverse Effects of the Exchange Offer" will
generally apply to the Operating Partnership as well. Grove Property
has fiduciary duties to the holders of Common Units as a general
partner, but it will also have duties to Grove Property's shareholders.
While the consent of a majority of the limited partners is required
with respect to a limited number of types of actions by the Operating
Partnership, Grove Property will, for the foreseeable future, control a
majority of the Common Units and thereby effectively be able to control
the granting or withholding of such consent.
Redemption/Exchange Rights; Registration Rights. As noted above,
the principal source of liquidity for holders of Common Units will be
the exercise of the right to redeem Common Units pursuant to the OP
Partnership Agreement (the "Redemption/Exchange Rights") and the
registration rights to be granted to Equity Participants. Each limited
partner of the Operating Partnership will have the right to require the
Operating Partnership to redeem part or all of their Common Units for
cash (based on the fair market value of an equivalent number of Common
Shares at the time of such redemption) or, at the election of Grove
Property, to exchange such Common Units for Common Shares, at any time
beginning March 15, 1998 (one year after the consummation of this
Exchange Offer for Limited Partners of the Property Partnership)
subject, in the case of the Grove Companies, to the obligation of the
Grove Companies to indemnify the Company in connection with the
Consolidation Transactions. As described above, the Redemption/Exchange
Rights will not be immediately exercisable by the holder of Common
Units and will be subject to the restrictions on ownership referred to
in "Risk Factors - Potential Adverse Effects of the Exchange Offer."
The Redemption/Exchange Rights are subject to certain restrictions. See
"The OP Partnership Agreement - Limited Partner Redemption/Exchange
Rights." Pursuant to the Registration Rights Agreement, holders of
Common Units may have the right to receive the Common Shares issued in
exchange for Common Units pursuant to a registration with the SEC, and
may have the resale of such Common Shares registered if necessary. This
will result in such Common Shares being freely transferable on the open
market upon receipt. Such registration rights will be subject to
certain significant conditions and restrictions, including, but not
limited to, Grove Property'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 SEC. In addition,
there may be additional contractual limitations with respect to the
transfer of such Common Shares, as may be agreed to by Grove Property,
and an Equity Participant's agreement to tender in the Exchange Offer
will represent an agreement to any such restrictions.
Risk Factors-Common Units
The investment in the Common Units involves certain risks, including
those referred to elsewhere herein. In addition, a Limited Partner should
carefully consider the following:
Uncertain Portfolio at Time of Election. The exact portfolio of
Properties to be owned by the Company has not been finally determined,
and is dependent, in part, on the success of this Exchange Offer and
three other pending exchange offers, including the satisfaction of the
Minimum Percentage Condition as to each Property Partnership. The
Operating partnership also intends to acquire additional properties
which are either not yet identified or are undergoing due diligence
investigation. The portfolio of Properties of Grove Property will
therefore be uncertain at the time of a Limited Partner's commitment to
participate in this Exchange Offer.
Lower Distributions and Market Price After Tender. The
distributions by the Operating Partnership with respect to the Common
Units issued to a Limited Partner with respect to its Property
Partnership Units may be lower than the cash flow of the Property
Partnership would have been if the Property Partnership properties were
not distributed to the Operating Partnership. In addition, no assurance
can be given that the value upon disposition of the Common Units
acquired in exchange for a Limited Partner's Units will equal the
amount that would have been realized by the Limited Partner in a sale
of the underlying Partnership Property to a third party for cash.
Pursuant to the Redemption/Exchange Rights, Grove Property may redeem
Common Units for cash rather than exchange Common Units for Common
Shares. Both the redemption of Common Units for cash and the exchange
of Common Units for Common Shares are likely to be taxable
transactions. There can be no assurance that the market value of the
Common Shares will not be adversely affected by future acquisitions,
exchange offers similar to this Exchange Offer, or by general market
conditions. There is a possibility that the Common Shares will trade at
prices below amounts that would have been received in exchange for a
Limited Partner's Units if the Property Partnership had been liquidated
and its assets distributed, partly due to the fact that the fair market
value of Grove Property's equity securities may be based on, among
other things, anticipated net earnings or cash flow.
Fundamental Change in Nature and Term of Investment. Equity
Participants will have fundamentally changed the nature of their
investment. Each Equity Participant will exchange direct or indirect
Property Partnership interests that own two properties for an interest
in a consolidated company in the business of acquiring, marketing,
managing and operating multiple real properties. While diversification
of assets may reduce certain risks of investment attributable to a
single property or entity, there can be no assurance as to the value or
performance of the Company or its portfolio of properties as compared
to the value of the specific Partnership Property or Property
Partnership in which a Limited Partner holds an interest. In addition,
while the Property Partnerships, including Heritage Court Associates
Limited Partnership, were formed as finite-life investments, with
partners to receive regular cash distributions out of the Property
Partnership's net cash flow and final distributions to be made upon
liquidation (generally of a single Partnership Property), Grove
Property intends to operate for an indefinite period of time and has no
specific intention to liquidate or to sell any substantial part of its
assets other than in the ordinary course of its business. Nor are any
special distributions of liquidation proceeds expected to be made,
although quarterly cash distributions from operations are expected to
be made. Instead of having their investments liquidated through the
liquidation of the Operating Partnership or its assets, Equity
Participants in this Exchange Offer should expect to be able to
liquidate their investment in the Operating Partnership only through
the Redemption/Exchange Rights. However, holders of Common Units and/or
Common Shares of Grove Property will be subject to the market risks of
all public companies, particularly in that the value of their equity
securities may fluctuate from time to time depending upon general
market conditions and the Company's future performance.
Tax Risks from the Exchange and Related Transactions. The Internal
Revenue Service may contest the tax-deferred nature to the Equity
Participants of this Exchange Offer. If any such contest were
successful, some or all of the Equity Participants would be subject to
tax with respect to this Exchange Offer. The amount of such tax could
be significant, and because the Common Units are subject to resale
restrictions, Equity Participants in this Exchange Offer cannot rely on
the resale of Common Units to generate funds to pay such taxes. See
"SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES."
<PAGE>
RISK FACTORS
Generally
Subject to certain conditions, following the first anniversary of the
completion of this Exchange Offer, each Common Unit issued to Limited Partners
will be redeemable for cash equal to the fair market value of a Common Share at
the time of the redemption or, at the option of Grove Property, exchangeable for
one Common Share (subject to adjustment). Limited Partners considering a tender
of Units in exchange for Common Units should carefully consider the risk factors
applicable to an investment in Common Units and Common Shares. Such risks, among
others, include:
o conflicts of interest, particularly with the Grove Companies' affiliates
who are executive officers of Grove Property, in connection with (i) the
Consolidation Transactions and this Exchange Offer, (ii) operation of the
Company's on-going businesses, including conflicts associated with tax
consequences to the Grove Companies of sales or refinancings of any of the
Partnership Properties, which may influence the Company's decision to sell or
refinance the Partnership Properties or prepay debt secured by certain
Properties, and the other business activities of the executive officers, (iii)
Grove Property's role as property manager for the Excluded Properties, (iv) the
Company's agreement to use National Realty for all real estate brokerage
services, and (v) enforcement of agreements with affiliates of the Company, any
one of which could result in decisions that do not fully represent the interests
of all shareholders of Grove Property;
o the valuation of the Consolidated Assets and Property
Partnership assets was not based on third-party appraisals and
there have not been arm's-length negotiations with respect to
such valuations, resulting in the risk that the purchase price
of the Grove Companies' assets and of the limited partnership
interests of the Property Partnerships' Properties exceeds the
fair market value thereof, or the valuation of the
Partnership's property may be less than the fair market value
thereof;
o risks associated with borrowing, such as the possibility that
the Company will not have sufficient funds available to make
balloon or other payments of principal on debt on certain
Properties, including the Credit Facility, which could result
in the loss of one or more of the Properties in the event of a
foreclosure upon default and the possibility that such
indebtedness might be refinanced at higher interest rates, all
of which could adversely affect Grove Property's ability to
make expected distributions to shareholders and its ability to
qualify as a REIT;
o geographic concentration of a majority of the Properties in a
single state, Connecticut, and all of the Properties in the
Southern New England region, creating a dependence on demand
for housing in that market and increasing the risk that the
Company will be materially adversely affected by general
economic conditions in a limited market;
o possibility that the Operating Partnership may, in the future,
acquire properties in geographic markets in which the Company
has little or no prior experience, and the accompanying risk
that the Company's operations and financial statements may be
adversely affected;
o ability of the Board of Trust Managers of Grove Property to
change the investment, financing, borrowing and other policies
of the Operating Partnership and Grove Property at any time
without shareholder approval, including the ability to revoke
Grove Property's REIT election, thereby limiting shareholder
control over these decisions;
o absence of a limitation in the Company's organizational documents on the
amount of indebtedness that the Company may incur, which may increase the risks
associated with borrowing;
o potential anti-takeover effect of limiting ownership of Common
Shares to 5.0% of the outstanding Common Shares and certain
other provisions contained in the organizational documents of
Grove Property and the Operating Partnership, such as the
ability to issue preferred shares of beneficial interest,
staggered terms for the Board of Trust Managers and the
super-majority voting requirements to, among other things,
remove trust managers, any of which may discourage a change in
control and limit the opportunity for shareholders to receive
a premium for their Common Shares;
o taxation of Grove Property as a corporation if it fails to
qualify as a REIT for federal income tax purposes, taxation of
the Operating Partnership as a corporation if it fails to
qualify as a partnership for federal income tax purposes (and
the resulting failure of Grove Property to qualify as a REIT),
the Company's liability for certain federal, state and local
income taxes in any such event and the resulting decrease in
cash available for distribution;
o triggering of a taxable event to Equity Participants if a
restructuring or refinancing of the Operating Partnership
results in the repayment of outstanding debt or a reduction in
the amount of non-recourse indebtedness;
o the distribution requirements for REITs under federal income
tax laws may limit the Company's ability to finance future
acquisitions, developments and expansions without additional
debt or equity financing and may limit cash available for
distribution;
o risks associated with the redevelopment of multifamily
properties, including the risks that the selection of
particular capital improvements or new residents will not
further the Company's long-range plan for achieving its
profitability objectives;
o real estate investment considerations, such as the ability of
tenants to make rent payments, the ability of a property to
generate revenues sufficient to meet operating expenses and
the illiquidity of real estate investments, all of which may
affect the Company's ability to make expected distributions;
o potential liability of the Company for unknown or future
environmental liabilities;
o dependence of the Company on the services of its executive officers which
could adversely affect the operations of the Company in the event of loss of
services of any of such officers;
o potential dilution in the market price and the intrinsic value
of the Common Shares upon issuance of preferred shares of
beneficial interest, which may have preferences over, and
superior voting rights to, the Common Shares;
o potential adverse effect that the availability of Common
Shares for future sale, including Common Shares issued in the
New Equity Investment and Common Shares issued upon exchange
of Common Units, may have on the market price of Common
Shares;
o increase in market interest rates, which may lead prospective
purchasers of the Common Shares to seek a higher anticipated
annual yield from future dividends, which in turn may
adversely affect the market price of the Common Shares;
o potential losses in the event of casualty or other liability that is not
insured, insurable or economically insurable; and
o costs of compliance with the Americans with Disabilities Act of 1990 and
similar legislation.
Potential Adverse Effects of the Exchange Offer; Risk Factors
The consummation of the Exchange Offer, as well as future
acquisitions made by similar exchange offers, involve various risks. Limited
Partners should consider, among other things, the following factors when making
a decision with respect to the acceptance of the Exchange Offer and approval of
the proposed Property Partnership Agreement amendment.
Risks of Equity Real Estate Investments; Adverse Impact on Ability
to Make Distributions; Effect on Value of Properties
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 Company's properties do not
generate revenue sufficient to meet operating expenses, debt service and capital
expenditures, the ability to make distributions to holders of Common Units and
Common Shares will be adversely affected. An apartment property's income and
value may be adversely affected by national and regional economic climates,
local real estate conditions such as the oversupply of apartments or a reduction
in demand for apartments, availability of "for purchase" housing, the
attractiveness of the properties to tenants, 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). In addition, the income and value of an apartment property are affected
by such factors, among others, as changes in zoning, building, environmental,
rent control and other laws and regulations, changes in real property taxes and
interest rates, the availability of financing and acts of God (such as
earthquakes and floods) and other factors beyond the control of the Company. The
Company is exposed to the various types of litigation that may be brought
against a property owner or manager in the ordinary course.
Illiquidity of Real Estate. Equity real estate investments are
relatively illiquid and, therefore, will tend to restrict the Company's ability
to vary its portfolio of apartment properties promptly in response to changes in
economic or other conditions; consequently, if the Operating Partnership were to
be liquidated, the proceeds realized at such time might be less than the total
investment in the Operating Partnership. In addition, the Code places limits on
the amount of 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 its properties without adversely affecting returns to holders of Common
Shares.
Future Property Acquisitions. The Operating Partnership has
not identified any specific properties for acquisition other than the Properties
described elsewhere herein. In the normal course of its business, and in the
pursuit of its growth strategy, the Operating Partnership intends to continually
evaluate a number of potential acquisitions in the Northeast and Mid-Atlantic
regions, including the Excluded Properties. No assurance can be given, however,
that the Operating Partnership will have the opportunity to make suitable
acquisitions on terms favorable to it, or will be able to integrate successfully
more properties into the Company's portfolio.
Risks of Renovation and Acquisitions. The Company intends to
renovate certain Properties and other properties it may acquire in the future.
In connection with any renovation project, the Company will bear certain risks,
including the risks of construction 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 completed project will not be sufficient to
enable the Company to pay operating expenses or earn its targeted rate of return
on its investment. In case of an unsuccessful renovation project, the Company's
loss could exceed its investment in such project. The Company intends to
actively continue to acquire multifamily residential properties and neighborhood
retail properties. 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, as
well as general investment risks associated with any new real estate investment.
See "THE COMPANY - Acquisition Strategy."
Regulation. A number of federal, state and local laws exist,
such as the Americans with Disabilities Act ("ADA"), which may require
modifications to existing buildings or restrict certain renovations by requiring
access to such buildings, and apartments in the buildings, by disabled persons.
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 limit application of the Company's investment strategy in
certain instances or reduce overall returns on its investments. The Company
believes that all of the Properties are in substantial compliance with laws
currently in effect, and will review periodically its apartment properties to
determine continuing compliance with existing laws and any additional laws that
are hereafter promulgated.
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 the FHAA could result in
the imposition of fines or an award of damages to private litigants. The Company
believes that those Properties that are subject to the FHAA are in substantial
compliance with such law.
Competition. There are numerous real estate companies,
including those which operate in the areas in which the Properties are located,
which compete with the Company in seeking apartment properties for acquisition
and development, and for tenants to occupy such properties. The Company may be
competing with companies that have greater resources than the Company and whose
officers and directors or trustees have more experience than the Company's
officers and trust managers. In addition, the availability of single-family
housing and other forms of multifamily residential properties, such as
manufactured housing communities, provide alternatives to potential tenants of
apartment properties. These competitive factors could adversely affect the
income generated by the Properties.
Real Estate Financing Risks
Refinancing Risks. Because the Company anticipates that only a
small portion of the Company's mortgage indebtedness will be repaid prior to
maturity and the Company may not have on hand funds sufficient to repay such
indebtedness at maturity, it may be necessary for the Company to refinance debt
through additional debt financing or equity offerings. 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. To the extent the Company needs consent of
limited partners in various Property Partnerships to sell or refinance certain
Partnership Properties, its flexibility will be limited. If prevailing interest
rates or other factors at the time of refinancing result in higher interest
rates on refinancings, the Company's interest expense would increase, which
would adversely affect the Company's cash available for distributions and its
ability to pay expected distributions to Shareholders.
No Limitation on Debt. The Company has adopted a policy to
limit 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 outstanding Common Shares assuming the full
exchange of Common Units for Common Shares) and the total debt of the Company,
to less than 60%. The organization documents of the Company, however, do not
limit the amount or percentage of indebtedness that it may incur. Therefore, the
Board may change this policy of the Company and the Operating Partnership
regarding indebtedness, without the vote of the holders of Common Shares or
Common Units. If these policies are changed, the Company and the Operating
Partnership could become more highly leveraged, resulting in an increased risk
of default on the obligations of the Company and the Operating Partnership and
an increase in debt service requirements which could affect adversely the
financial condition and results of operations of the Company and, consequently,
the Company's and Operating Partnership's ability to make expected distribution
to Shareholders and Unitholders.
Dependence on Key Personnel; Limited Experience of Management
The Company is dependent on the efforts of all of the
Executive Officers. The loss of their services could have a material adverse
effect on the operations of the Company. Currently, the Company has no intention
to secure key-man life insurance for the Executive Officers in the near future.
Grove Property Trust was formed in 1994. Management of Grove
Property has only three years experience in the operation of a REIT and the
operation of a public company, although management and the Grove Companies have
substantial experience in the acquisition and management of multifamily
residential and mixed-use properties. See "MANAGEMENT - Trust Managers and
Executive Officers." This relative lack of experience in REIT management and
operation of a public company could adversely affect the operation and financial
results of the Company.
Adverse Tax Consequences of Failure to Qualify as a REIT
Grove Property currently intends to continue operating so as
to qualify as a REIT under the 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. No assurance can be given
that Grove Property 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 Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within Grove Property'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
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 qualification. Grove Property, however, is not aware of any
pending tax legislation that would adversely affect its ability to operate as a
REIT.
If Grove Property fails to qualify as a REIT in any taxable
year, Grove Property 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, Grove Property 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 the
funds of Grove Property available for investment or distribution to Shareholders
because of the additional tax liability to Grove Property for the year or years
involved. If Grove Property were to fail to qualify as a REIT, it no longer
would be subject to the distribution requirements of the Code, and to the extent
that distributions to Shareholders would have been made in anticipation of Grove
Property's qualifying as a REIT, Grove Property might be required to borrow
funds or to liquidate certain of its assets to pay the applicable corporate tax.
Although Grove Property currently intends 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.
Certain Anti-Takeover Provisions May Inhibit a Change in Control
of the Company
Certain provisions of the Charter, the Bylaws and the OP
Partnership Agreement may have the effect of discouraging a third party from
making an acquisition proposal for the Company and may thereby inhibit a change
in control of the Company under circumstances that could give the holders of the
Common Shares the opportunity to realize a premium over the then-prevailing
market prices of such Common Shares. Such provisions include the requirements
regarding the staggered terms of the Board and removal of trust managers set
forth in the Charter and the advance notice requirements for certain Shareholder
proposals set forth in the Bylaws.
Preferred Shares. The Charter permits the Board to issue up to
4.0 million preferred shares of beneficial interest, par value $.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 Common Shares
might receive a premium for their Common Shares over the then-prevailing market
price of such Common Shares.
Ownership Limit. The Ownership Limit imposed by the Charter
for the purpose of preserving Grove Property's REIT qualification may also have
the effect of precluding an acquisition of control of Grove Property without the
approval of the Board. The Ownership Limit might deter tender offers for Common
Shares, which offers may be advantageous to Shareholders, and might limit the
opportunity for Shareholders to receive a premium for the Common Shares that
might otherwise exist if an investor were attempting to assemble a block of
Common Shares in excess of 5.0% of the outstanding Common Shares or otherwise
effect a change of control of Grove Property.
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 product releases 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.
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 impose treble
damages for failure to so notify. In addition, lead-based paint in any of the
properties may result in lead poisoning in children residing in the property if
chips or particles of such lead-based paint are ingested, and the Company may be
held liable under state laws for any such injuries caused by ingestion of
lead-base paint by children living at the properties. Lead paint tests have been
conducted at most of the Properties over the past five years and have
established compliance with all applicable federal and state regulations for
such Properties.
Possible Adverse Effects on Common Share Price Arising From Shares
Available for Current and Future Sale
No prediction can be made as to the effect, if any, that
future sales of Common Shares or the availability of such shares for future sale
will have on the market price of the Common Shares. Sales of substantial amounts
of Common Shares (including shares issued pursuant to the exchange of Common
Units for Common Shares), or the perception that such sales would occur, may
adversely affect prevailing market prices for 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. Except for Morgan Stanley Group Inc. and ABKB/LaSalle Securities
Limited, as agent for Oregon Public Employees' Retirement Fund, existing
Shareholders 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 Grove Property.
The Company has granted certain entities and individuals
receiving Common Units in connection with the Consolidation Transactions certain
registration rights with respect to the Common Shares which they may receive
upon the exchange of Common Units. Pursuant to a Registration Rights Agreement
with certain holders of Common Units, the Company has agreed to file and
generally keep continuously effective beginning one year after the completion of
the Consolidation Transactions a registration statement covering the issuance of
shares upon exchange of Common Units and the resale thereof. Pursuant to the
Registration Rights Agreement with New Equity Investors, the Company has agreed
to file and generally keep continuously effective beginning six months after the
completion of the Consolidation Transaction a registration statement covering
the sale of Common Shares issued in the New Equity Investment. The Company will
also grant individuals receiving Common Units in connection with this Exchange
Offer certain registration rights with respect to the Common Shares which they
may receive upon the exchange of Common Units. See "THE OP PARTNERSHIP AGREEMENT
- - Limited Partner Redemption/Exchange Rights."
Changes in Investment and Financing Policies Without
Shareholder Approval
The Board will determine the Company's investment and
financing policies, its growth strategy, and its debt, capitalization,
distribution and operating policies. Although the Board has no present intention
to revise or amend these strategies and policies, the Board may do so at any
time without a vote of the Shareholders. Accordingly, Shareholders will have no
control over changes in strategies and policies of the Company, and such changes
may not serve the interests of all Shareholders and could adversely affect the
Company's financial condition or results of operations.
Issuance of Additional Securities. Grove Property has
authority to offer its Common Shares or other equity or debt securities in
exchange for property or otherwise. Similarly, Grove Property may cause the
Operating Partnership to offer additional Common Units or preferred units of the
Operating Partnership, including offers in exchange for property to sellers who
seek to defer certain of the tax consequences relating to a property transfer.
Existing Shareholders and holders of Common Units will have no preemptive right
to acquire any such securities, and any such issuance of equity securities could
result in dilution in an existing Shareholder's investment in Grove Property.
Risks Involved in Acquisitions Through Partnerships or Joint
Ventures. In addition to its investments in the Property Partnerships, the
Company may invest in apartment properties through partnership or joint ventures
instead of purchasing apartment properties directly or through wholly-owned
subsidiaries. Partnership or joint venture investments may, under certain
circumstances, involve risks not otherwise present in a direct acquisition of
properties. These include the risk that the Company's co-venturer or partner
might become bankrupt; a co-venturer or partner might at any time have economic
or business interests or goals which are inconsistent with the business
interests or goals of the Company; and a co-venturer or partner might be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's policies or objectives. The consent of
Outside Partners who did not tender in the Consolidation Transactions and remain
in the Property Partnerships may be required to approve certain major decisions
of the Property Partnerships, thereby reducing the Company's flexibility in
dealing with the Partnership Properties. There is no limitation in the Charter
as to the amount of investment the Company may make in joint ventures or
partnerships.
Adverse Effect on Trading Market for Common Shares; Reduction
In Public Float
Reduction in Periodic Distributions. In response to the
investment interests of certain potential investors in Grove Property, and Grove
Property's evaluation of what it perceives to be a changing philosophy in REIT
investments generally, Grove Property decided, in connection with the
Consolidation, to reduce periodic cash distributions per Common Share and to
increase the reinvestment of its cash flow in the Company. The Company believes
that this will enable it to achieve greater long-term capital appreciation for
investors in the Company. However, there can be no assurance that the Company
will be able to identify favorable investments in the future or that any capital
appreciation will result from this strategy. Also, an adverse perception by the
investing public of the reason for such decision, and the continuing interest of
certain investors in owning relatively high-yield REIT common stock, may
adversely affect the market price of the Common Shares and may cause reduced
trading activity in the Common Shares on the AMEX. Such a reduction would reduce
the liquidity of an investment in the Common Shares. One of the factors that
currently may influence the price of the Common Shares in public markets is the
amount of Grove Property's annual dividend distributions and the yield such
distributions represent; accordingly, an increase in market interest rates may
lead purchasers of Common Shares to demand a higher annual yield, which could
affect adversely the market price of the Common Shares.
Adverse Consequences of Election to Revoke REIT Election by
the Company
The Board has the authority to revoke Grove Property's REIT
election at any time without Shareholder approval. Although Grove Property
currently intends to operate in a manner designed to continue to qualify as a
REIT, Grove Property is aware that certain institutional investors have
questioned whether it is preferable for a company to elect to be taxed as a
corporation that is not qualified as a REIT so that the entity is not required
to distribute to shareholders 95% of its REIT taxable income. These investor
preferences, as well as economic, market, legal, tax or other considerations,
may cause the Board at some time in the future to revoke Grove Property's REIT
election. Such an election may be made by the Board, without any Shareholder
vote.
BENEFITS TO RELATED PARTIES
In addition to the benefits received by the Grove Companies from the
Consolidation Transactions in connection with the exchange of their Property
Partnership interests pursuant to the Contribution Agreement, the Grove
Companies (including certain executive officers of the Company) have or will
realize certain other benefits from the Consolidation Transactions and this
Exchange Offer, including the following:
o In connection with the transfer of certain assets and
liabilities of the Management Company to the Operating
Partnership and the transfer of its interests in the Property
Partnerships to the Operating Partnership, the Grove Companies
received an aggregate of 904,867 Common Units and a cash
payment of $177,669.
o Guarantees of approximately $26.8 million of mortgage
indebtedness by Messrs. Damon Navarro and Brian Navarro were
released in connection with the repayment of indebtedness on
the Partnership Properties as part of the Refinancing. It is
likely that other loan guarantees given by the Navarros in
connection with three of the four pending Exchange Offers will
also be released in connection with the eventual payoff or
refinancing of mortgage indebtedness that encumbers such
properties.
o Each Executive Officer entered into a new employment agreement with Grove
Property, pursuant to which he will receive (i) a 10-year option pursuant to the
1996 Plan, to purchase Common Shares at a price per share equal to the market
price of a Common Share on the date of grant, (ii) 1997 base salaries of:
$50,000-Damon Navarro; $50,000-Brian Navarro; $50,000-Edmund Navarro;
$50,000-Joseph LaBrosse; and $25,000-Gerald McNamara and (iii) annual Deferred
Stock Grants (if earned) in accordance with the 1996 Plan. If an Executive
Officer's employment with the Company is terminated "without cause" by the
Company or by the Executive Officer following a "change in control" or for "good
reason" (as such terms are defined in the employment agreements), such Executive
Officer will be entitled to a lump sum payment equal to 200 percent of his
annual base salary plus an amount equal to the aggregate value of all bonuses,
whether cash, stock, options or otherwise (but specifically excluding the
Deferred Stock Grants), paid to such Executive Officer for the previous year.
o The Grove Companies and certain of its Affiliates will no
longer be liable as a general partner of the Property
Partnerships, including Heritage Court Associates Limited
Partnership if this Exchange Offer is successful, for future
operations of the Partnership Properties.
o Upon the successful completion of the Consolidation
Transactions, the Property Partnerships repaid their
outstanding indebtedness to NAVAB Associates (approximately
$1.19 million at September 30, 1996), and received payment
from NAVAB for outstanding receivables (approximately $0.7
million at September 30, 1996). NAVAB is a partnership owned
by Damon and Brian Navarro and George and Ronald Abdow. NAVAB
Associates, in turn, used the net proceeds of approximately
$0.5 million to repay its outstanding bank indebtedness of
approximately the same amount, which debt was guaranteed by
the Navarros and the Abdows.
o To the extent they received Common Units rather than cash
pursuant to the Contribution Agreement, the Grove Companies
experienced a partial deferral of the federal income tax
consequences associated with their contribution of assets to
the Operating Partnership.
o The Grove Companies obtained improved liquidity of their
investments as a result of the Consolidation Transactions. The
Grove Companies received Common Units, which may be redeemed
for cash or, at the option of the Company, exchanged for
Common Shares. Unlike interests in real estate or a property
management company, the Common Shares will be freely
transferable (subject to applicable securities laws and
certain agreements restricting transfer).
o In connection with the acquisition of three additional
properties in June 1997, as well as this Exchange Offer and
three similar exchange offers that are currently pending, the
Operating Partnership will reimburse Grove Companies for
certain overhead costs related to such transactions.
CONFLICTS OF INTEREST
The Executive Officers have interests that conflict with the interests
of the other Grove Property shareholders, the limited partners of the Operating
Partnership (including the Limited Partners who elect to participate in the
Exchange Offer) and the persons who acquired Common Shares in the New Equity
Investment. Grove Property and the Grove Companies have been represented by the
same legal counsel and, therefore, neither Grove Property nor the Property
Partnerships has been advised by separate legal counsel in connection with the
Consolidation Transactions or this Exchange Offer.
Following the consummation of the Consolidation, the Grove Companies
continued to hold limited and general partner interests in 15 limited
partnerships that owned, in the aggregate, 14 multifamily residential projects
with a total of approximately 1,600 apartments and seven retail and mixed-use
projects with a total of approximately 125,000 rentable square feet (such
properties comprise the "Excluded Properties"), and the five Executive Officers
remain officers or directors of the Grove Companies, including entities that
have interests in the limited partnerships that own the Excluded Properties, and
will therefore have conflicts of interest in allocating their time between the
Company and such entities. In June 1997, the Operating Partnership acquired two
of the Excluded Properties and acquired the general partnership interest and
certain limited partnership interests of a third Excluded Property. The Company
may seek to acquire one or more of the remaining Excluded Properties from time
to time when and if conditions are favorable to do so, such as this current
Exchange Offer to the Limited Partners. The Executive Officers will have
conflicts of interest in establishing the terms of such acquisitions, including
this Exchange Offer, which will not be based on independent third party
appraisals. In addition to this Exchange Offer, there are three additional
exchange offers currently pending for limited partnership interests in three
additional Excluded Properties partnerships. Moreover, certain of the Excluded
Properties are located near or adjacent to one or more of the Properties
acquired during the Consolidation Transactions, and therefore may compete with
one or more of such Properties for prospective tenants, resulting in potential
conflicts of interest for the Executive officers. In addition, Brian Navarro,
Vice President-Acquisition of Grove Property, will continue to serve as the
President of National Realty, which will be the exclusive provider of real
estate brokerage services to the Company (including the Property Partnerships)
and the limited partnerships that own the Excluded Properties. The Grove
Companies and each of the Executive Officers have entered into agreements with
the Company which, among other things, will require each of the Executive
Officers to allocate a substantial amount of his working time to the Company.
The Management Owners may have conflicts of interest as a result of
their ownership of National Realty, which continues to provide real estate
brokerage services to the Company (including the Property Partnerships), the
limited partnerships that own the Excluded Properties and third parties
following the Consolidation Transactions.
Following the consummation of the Consolidation Transactions, the
Operating Partnership, pursuant to management services contracts, has provided
certain real estate management services to the Property Partnerships and to the
Grove Companies (including to the limited partnerships that own the Excluded
Properties), which services were previously provided by the Management Company.
Certain Executive Officers may have conflicts of interest in the negotiation and
enforcement of such management services contracts as a result of their ownership
of the Grove Companies and interests in the Excluded Properties.
The Executive Officers had and will have conflicts of interest in
establishing the terms of the Consolidation Transactions, this Exchange Offer
and similar offers to related partnerships, and the provisions of the employment
agreements with the Executive Officers and the non-competition agreements. They
will also have a conflict of interest with respect to their obligations as Trust
Managers and Executive Officers to enforce the terms of various agreements, and
their objectives with respect to the sale of, or repayment of indebtedness on,
any of the Partnership Properties may differ from those of other Limited
Partners of those partnerships and/or the shareholders of Grove Property. Any
decision regarding the enforcement of contracts between the Company and the
Grove Companies or any Executive Officer, individually, and the sales or
refinancings of Partnership Properties, will be made by a majority of the
members of the Board that are not employed by or affiliated with the Grove
Companies (the "Independent Trust Managers"). The Executive Officers may,
however, use their positions as executive officers and trust managers to
influence the Independent Trust Managers in this regard.
Holders of Common Units may suffer different and more adverse tax
consequences than the Company or its shareholders upon the sale of, or repayment
of indebtedness on, any of the Partnership Properties and, therefore, Common
Unit holders, including the Executive Officers of the Company, and the Company
may have different objectives regarding the appropriate pricing and timing of
any such sale or repayment of indebtedness. Limited Partners who remain in
certain Property Partnerships following the Consolidation may also have
different objectives from those of the Company.
<PAGE>
THE COMPANY
The Grove Companies
Grove Investment Group was formed in 1980 as a Southern New England
real estate company based in Hartford, Connecticut. Damon and Brian Navarro,
co-founders of the Company, began business operations by buying and managing
small, multifamily properties with limited partners as equity investors. From
its formation, Grove Property's executive officers have been shared with the
Grove Companies.
As used herein, the "Grove Companies" means Grove Investment Group,
Inc. and its affiliates (including certain companies and individuals) that own
interests (directly or indirectly) in the Management Company, any Property
Partnership or any limited partnership which owns any Excluded Property. The
Grove Companies include, without limitation, the Management Owners and Gerald
McNamara, each an executive officer and, in the case of Damon Navarro and Joseph
LaBrosse, a Trust Manager of Grove Property, and Ronald and George Abdow.
At September 30, 1996, the Grove Companies owned general partnership
interests in 42 limited partnerships, including the Property Partnerships (which
owned the Partnership Properties prior to the Consolidation) and 15 other
limited partnerships which own the Excluded Properties. The remaining limited
partnerships (other than the Property Partnerships and the partnerships that own
the Excluded Properties) in which the Grove Companies own general and limited
partnership interests do not own properties, but rather are limited purpose
partnerships formed by the Grove Companies for various other purposes.
Grove Property
Grove Property is a self-administered REIT formed pursuant to the
Maryland REIT Act engaging in multifamily property acquisition and
redevelopment. Grove Property was formed in 1994 to continue the multifamily
property acquisition, management and marketing operations and related business
objectives and strategies of Grove Investment Group, formed in 1980 by Damon and
Brian Navarro. Upon completion of the IPO in June 1994 and the concurrent
completion of the various transactions that occurred simultaneously therewith,
Grove Property purchased its three initial properties from affiliates of Grove:
Dogwood Hills Apartments, Hamden Center Apartments and Baron Apartments. In
1996, Grove Property purchased its fourth property, Cambridge Estates, from an
affiliate of Grove.
Grove Property is operated under the direction of Damon Navarro,
Chairman of the Board of Trust Managers, President and Chief Executive Officer,
and a management team consisting of substantially all of the former personnel of
Grove, being Damon, Brian and Edmund Navarro, Joseph R. LaBrosse and Gerald A.
McNamara, each an Executive Officer, and the Trust Managers of Grove Property,
Messrs. Damon Navarro, Edmund Navarro, Joseph R. LaBrosse, James Twaddell,
Theodore R. Bigman, J. Joseph Garrahy and Harold Gorman. Grove Property's
executive officers are substantially shared with the Grove Companies and, as
described below, the Grove Companies have been providing property management and
other support services to Grove Property from its inception. See "-The Grove
Companies" and "- Property Management Services."
As a result of the Consolidation Transactions, Grove Property became a
self-administered and self-managed REIT. Grove Property will conduct
substantially all of its operations through the Operating Partnership. Grove
Property currently owns an interest in the Operating Partnership of
approximately 61% and will control the Operating Partnership as the sole general
partner. Grove Property owns, directly or indirectly, 100% of the interests in
the four GREAT Properties, each of the eight properties acquired from certain
liquidating limited partnerships through the Consolidation transactions and each
of the two properties acquired in June 1997, and controls the remaining thirteen
Properties through a general partnership interest in the Property Partnerships
that own such Properties.
Grove Property believes that it is of the largest public owners of
multifamily properties in Southern New England. The multifamily properties that
are owned or controlled by Grove Property include 2,347 residential apartments
located in Connecticut, Massachusetts and Rhode Island and a neighborhood retail
complex in Longmeadow, Massachusetts with net rentable square feet of
approximately 79,012. In addition, three of the residential properties include
leased office space with total leasable office space of approximately 15,200
square feet.
Grove Property believes that it is the only publicly traded multifamily
apartment REIT conducting operations exclusively in the Northeast. Management
believes that this concentration in a single geographic area and the Company's
reputation in the Northeast as a superior property management company with
approximately 170 employees, coupled with a sound performance as a public
company since June 1994, will be attractive to potential investors in Grove
Property, including owners of multifamily properties that might be acquired by
the Operating Partnership for Common Units, thereby deferring the owner's
federal income tax liability, if any, on a sale.
Grove Property's executive offices are located at 598 Asylum Avenue,
Hartford, Connecticut 06105, (860) 520-4789.
Trust Managers and Executive Officers
The Trust Managers and Executive Officers of Grove Property
Trust, and other key employees of Grove Property Trust, their ages (at May 31,
1997) and their positions and offices with Grove Property Trust are as follows:
<PAGE>
<TABLE>
<CAPTION>
Name Age Positions and Offices Held
<S> <C> <C>
Trust Managers and Executive Officers
Damon D. Navarro 43 Chairman of the Board of Trust Managers, President
and Chief Executive Officer
Joseph R. LaBrosse 34 Chief Financial Officer, Secretary, Treasurer and
Trust Manager
Edmund F. Navarro 36 Vice President - Property Management and Trust
Manager
James F. Twaddell 56 Trust Manager
Harold Gorman 53 Trust Manager
Theodore R. Bigman 34 Trust Manager
J. Joseph Garrahy 66 Trust Manager
Brian A. Navarro 42 Vice President - Acquisitions
Gerald A. McNamara 56 Vice President - Marketing and Strategic Planning
Key Employees
Andy Mazur 46 Director of Site Operations - Regional Property
Manager
Karen McHugh 39 Director of Marketing - Regional Property Manager
Paul Bengtson 36 Director of Landscaping - Regional Property
Manager
Steven Splain 35 Controller
Leanne Bruder 28 Accounting Manager
</TABLE>
Pursuant to the terms of the Charter and Bylaws, 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 Grove Property). Trust Managers are divided into three classes
serving staggered three-year terms. Messrs. Damon Navarro's, Bigman's and
Gorman's terms of office will expire at the Annual Meeting of Shareholders to be
held on June 18, 1997; Messrs. Twaddell's and Edmund Navarro's term of office
will expire at the Annual Meeting of Shareholders to be held in 1998; and
Messrs. Garrahy's and LaBrosse's terms of office will expire at the Annual
Meeting of Shareholders to be held in 1999. Messrs. Damon Navarro, Bigman and
Gorman have been nominated for re-election as Trust Managers at the June 18,
1997 Annual Meeting. Trust Managers hold office until their successors are duly
elected and qualified.
The Charter requires majority approval by the Independent Trust Managers of
Grove Property Trust for all Board decisions relating to transactions with
Affiliates. Currently, the Independent Trust Managers are Messrs. Twaddell,
Gorman and Garrahy.
Damon Navarro is Chairman of the Board of Trust Managers,
President and Chief Executive Officer of Grove Property Trust. Mr. Navarro
previously served as President of all of the Grove Companies, except GPS.
Co-founder of Grove in 1980, he is responsible for investor relations,
marketing, new business development and organizational management for the
Company and its affiliates. Mr. Navarro is currently, or has previously served
as, a general partner or principal of the general partner for 42 of the limited
partnerships affiliated with the Grove Companies, including each of the Property
Partnerships, and is the Chief Executive Officer for 27 corporations affiliated
with those limited partnerships. Mr. Navarro is a graduate of the University of
Rhode Island with a degree in Finance.
Joseph LaBrosse is Chief Financial Officer, Secretary and
Treasurer, as well as a Trust Manager of Grove Property Trust. Mr. LaBrosse was
Chief Financial Officer for the Grove Companies and their affiliates. He is
responsible for financing, loan portfolio management, financial reporting, tax
planning, cash management, strategic budgeting and planning. Prior to joining
the Grove Companies in 1988, Mr. LaBrosse was a real estate tax consultant at
Arthur Andersen & Company in Hartford, Connecticut. He is a magna cum laude
graduate of the University of Connecticut with a degree in Accounting. He is 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.
James F. Twaddell is a Trust Manager of Grove Property Trust. 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. degree from Brown University in 1961.
Harold Gorman is a Trust Manager of Grove Property Trust. 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 Connecticut Arthritis
Society.
J. Joseph Garrahy is a Trust Manager of Grove Property Trust. Mr. Garrahy
began his career in public service in 1962 as a Rhode Island State Senator. In
1968, he was elected Lieutenant Governor of The State of Rhode Island, where he
served four two-year terms. In 1976, Mr. Garrahy was elected Governor of the
State, and was reelected to that office 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.
Mr. 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. Mr.
Garrahy has served as President of J. Joseph Garrahy & Associates, Inc., a
consulting firm, in Providence, Rhode Island, since its formation in 1990. Mr.
Garrahy attended the University of Buffalo and the University of Rhode Island.
Theodore R. Bigman has been a Trust Manager of Grove Property since April
1997. From 1987 to 1995, he was a Director at CS 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 REITs.
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 Group Inc., 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.
Brian Navarro is Vice President-Acquisitions of Grove Property Trust. Mr.
Navarro also served as a vice president of all of the Grove Companies. Mr.
Navarro is responsible for the acquisition and disposition of property and
financing for the Company and its affiliates. Prior to co-founding Grove in
1980, Brian Navarro acquired, renovated and resold over 30 two-, three- and
six-family houses in the Hartford, Connecticut, Springfield, Massachusetts and
Westerly, Rhode Island areas. Mr. Navarro is a graduate of the University of
Connecticut with a degree in Finance and a special concentration in real estate.
Gerald A. McNamara is Vice President - Marketing and Strategic Planning of
Grove Property Trust. Mr. McNamara has been a principal and vice president of
the Grove Companies and their affiliates since 1985. He is currently, or has
previously served as, a general partner in many of the 42 limited partnerships
sponsored by the Grove Companies. Mr. McNamara is involved in all aspects of
property acquisition and financing, and is responsible for the long range
planning and new product/concept development of Grove Property Trust. Prior to
his association with the Grove Companies, Mr. McNamara was Senior Vice President
of Heublein International where he was in charge of Food and Beverage Operations
overseas. Mr. McNamara is a graduate of Trinity College with a degree in History
and Economics.
Edmund Navarro is Vice President - Property Management of
Grove Property Trust and a Trust Manager. Prior to the Consolidation
Transactions, Edmund Navarro wholly-owned Grove Services Inc., the general
partner of GPS, and served as President of GPS. At GPS, he was responsible for
the management of approximately 45 properties and 180 employees and the
marketing and supervision of construction projects. Mr. Navarro became a
principal of Grove in 1983. Prior to his employment with the Grove Companies,
Mr. Navarro was a Media Marketing Planner with Vitt Median International in New
York City. Mr. Navarro is a graduate of the University of Rhode Island with a
degree in Marketing.
Andy Mazur is Director of Site Operations and a Regional Property Manager
for Grove Property Trust. He has been with Grove since 1988. Mr. Mazur is
responsible for the Service Technician Training Program and Continuing
Development of Grove Property Trust maintenance systems and supervising the
management of several properties. Mr. Mazur has a Masters Degree from
Springfield College and a Bachelors Degree from Central Connecticut State
College.
Karen McHugh is Director of Marketing and a Regional Property Manager for
Grove Property Trust. She has been with Grove since 1991. She develops and
oversees training programs for property leasing directors. Prior to joining GPS,
Ms. McHugh worked for a real estate developer in the property management area
for seven years. Ms. McHugh graduated from Mount Holyoke College with a B.A. in
English and a B.A. in Political Science.
Paul Bengtson is Director of Landscaping and a Regional Property Manager
for Grove Property Trust. He has been with Grove since 1993. Mr. Bengtson gained
his landscaping expertise while working for a landscaping contractor throughout
high school and college. Prior to joining Grove he worked for four years for a
property management company based in Boston. Mr. Bengtson is a graduate of
Worcester State College with a B.A. degree in Business Management.
Steven A. Splain is the Controller for Grove Property Trust and all the
Grove Companies. He has been with Grove since 1994 and is in charge of the
financial and tax reporting and day-to-day accounting functions. Between 1984
and 1994, Mr. Splain was Tax Manager at Blum, Shapiro, a regional accounting
firm in West Hartford, Connecticut. Mr. Splain is a graduate of Southern
Connecticut State University with a B.S. in Accounting. He is a licensed
Certified Public Accountant, and a member of the American Institute of Certified
Public Accountants and the Connecticut Society of Certified Public Accountants.
Leanne Bruder is the Accounting Manager for the corporate
division of the Accounting Division of Grove Property Trust. She began working
for Grove full-time in January 1996 and worked part time for Grove in 1991 and
1992. Prior to joining Grove full-time, Leanne was a senior accountant at the
Hartford, Connecticut office of KPMG Peat Marwick. While at KPMG, Ms. Bruder was
a member of the Real Estate Industry Focus Group and was responsible for the
audits of multi-billion dollar mortgage loan and real estate-owned portfolios of
several prominent insurance companies. She was also instrumental in the
securitization of a large portfolio of loans and in organizing the first REIT to
be offered by one of these companies. Ms. Bruder is a graduate of the University
of Connecticut with a B.S. in accounting, and is a Certified Public Accountant.
Damon Navarro, Brian Navarro and Edmund Navarro are brothers.
No family relationships exist among any of the other trust managers or executive
officers of Grove Property. 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. Twaddell was elected to the Board at the closing of the
IPO in 1994, for a term of one year, pursuant to the terms of the Underwriting
Agreement between Grove Property Trust and the underwriters in connection with
the IPO, Barclay Investments, Inc., and Mr. Bigman was elected to the Board at
the closing of the New Equity Investment pursuant to the terms of the Securities
Purchase Agreement entered into with Morgan Stanley. Subject to the provisions
of their respective employment agreements, if any, executive officers are
elected for and serve at the discretion of the Board.
Common Units Issued to Executive Officers in Connection with Consolidation
In connection with the Consolidation Transactions, pursuant to
the Contribution Agreement, the Executive Officers received the number of Common
Units and the dollar amounts set forth opposite their names below in exchange
for their respective interests in the Property Partnerships and certain assets
and liabilities of GPS. The cash payments to the Navarros represent the purchase
price for their respective general partnership interests in certain Property
Partnerships. The balance of the Grove Companies' interests in the Property
Partnerships, including the economic interests in their general partnership
positions in certain of the Property Partnerships, were acquired by the
Operating Partnership in exchange for Common Units. No member of the Board of
Trust Managers who is not also an Executive Officer transferred any assets to
Grove Property in connection with the Consolidation Transactions. The Common
Units received by such Executive Officers carry redemption rights and
registration rights.
Executive Officer Common Units(1) Cash
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 --
Following the consummation of the Consolidation Transactions,
National Realty, which is 100% owned by Messrs. Damon, Brian and Edmund Navarro
and Joseph LaBrosse, has provided real estate brokerage and related services to
Grove Property and the Operating Partnership. The real estate brokerage services
performed by National Realty for Grove Property and the Operating Partnership
include the funding, 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
will receive a 4% commission on purchases or sales arranged by National Realty
which are valued at up to $5.0 million and a 3% commission on purchases or sales
arranged by National Realty which are valued in excess of $5.0 million. The
brokerage services contracts provide that the Operating Partnership will
indemnify National Realty and the Grove Companies for any liability incurred in
performing such services, except in certain circumstances. Such agreements have
terms of one to two years, subject to either party's right to cancel upon at
least 30 days' notice. The brokerage services contracts were not negotiated on
an arm's-length basis and the owners of National Realty may have 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.
The Operating Partnership owns certain of the assets and
liabilities of GPS used by GPS prior to the Consolidation in connection with the
provision of real estate management services to the Grove Companies and Grove
Real Estate Asset Trust. Following the consummation of the Consolidation
Transactions, pursuant to management services agreements, the Operating
Partnership provides such property management services to certain limited
partnerships whose General Partner is one of the Grove Companies. Such
management services agreements will provide that the Operating Partnership shall
receive in exchange for its provision of property management services, with
respect to each property, a fee equal to from 4% 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 give notice of termination within 90 days prior to the end of the
then current term.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of June 1, 1997
regarding the beneficial ownership of Common Shares by each person known by
Grove Property to be the beneficial owner of more than five percent of the
Common Shares, by each Trustee of Grove Property, by each Executive Officer of
Grove Property named in the table below, and by all Trustees and Executive
Officers of Grove Property as a group. Each person named in the table has the
sole voting and investment power with respect to all shares shown as
beneficially owned by such person, except as otherwise set forth in the notes to
the table.
<PAGE>
<TABLE>
<CAPTION>
Percent of
Name and Business Address Common Units Common Shares Percent of Class of Pro forma
Of Beneficial Benefically Owned Beneficially Owned Common Units Owned Common Percent of Common
Owner Shares Owned Units/Shares(14)
<S> <C> <C> <C> <C> <C>
Damon D. Navarro
Grove Property Trust 310,406 38,837(1)(2) 5.12 * 5.74
598 Asylum Avenue
Hartford, CT 06105
Brian A. Navarro
Grove Property Trust 302,853 36,001(1)(3) 4.99 * 5.57
598 Asylum Avenue
Hartford, CT 06105
Edmund F. Navarro
Grove Property Trust 267,705 36,001(1)(4) 4.41 * 4.99
598 Asylum Avenue
Hartford, CT 06105
Joseph R. LaBrosse
Grove Property Trust 72,676 9,164(1)(5) 1.20 * 1.35
598 Asylum Avenue
Hartford, CT 06105
Gerald A. McNamara
Grove Property Trust 33,795(13) 6,790(6) * * *
598 Asylum Avenue
Hartford, CT 06105
James F. Twaddell
Schneider Securities, Inc. 0 43,311(7)(8) 0 1.1 *
2 Charles Street
Providence, Rhode Island
02904
Harold V. Gorman
Heublein, Inc. 0 3,542(9) 0 * *
450 Columbus Boulevard
Hartford, CT 06103
J. Joseph Garrahy
220 South Main Street 0 3,542(10) 0 * *
Providence, Rhode Island
02903
Theodore R. Bigman
Morgan Stanley Group Inc. 0 777,778(11) 0 19.7 12.82
1221 Avenue of the Americas
22nd Floor
New York, NY 10020
All Trustees and Executive
Officers as a group (8 987,435 954,766 16.27 23.7 31.65
persons)
Morgan Stanley Group Inc.
1221 Avenue of the Americas 0 777,778(11) 0 19.7 12.82
22nd Floor
New York, NY 10020
Oregon Public Employees'
Retirement Fund, by 0 391,392(12) 0 9.9 6.45
ABKB/LaSalle Securities
Limited, as agent for
Oregon Public Employees'
Retirement Fund
100 East Pratt Street
20th Floor
Baltimore, MD 21202
* less than one percent
<PAGE>
<FN>
(1) Includes Common Shares owned by Grove Equity Partnership, a partnership
whose general partners are Messrs. Damon Navarro, Brian Navarro, Edmund
Navarro and Joseph LaBrosse, which beneficially owns 35,849 Common
Shares (less than 1% of the Common Shares). Each partner's pro rata
shares of the partnership's Common Shares has been included in the
Common Shares owned by such partner.
(2) Includes 18,231 Common Shares subject to options to purchase
Common Shares granted pursuant to the 1994 Plan.
(3) Includes 16,830 Common Shares subject to options to purchase
Common Shares granted pursuant to the 1994 Plan.
(4) Includes 16,830 Common Shares subject to options to purchase
Common Shares granted pursuant to the 1994 Plan.
(5) Includes 4,210 Common Shares subject to options to purchase
Common Shares granted pursuant to the 1994 Plan.
(6) Includes 2,951 Common Shares subject to options to purchase Common Shares
granted pursuant to the 1994 Plan, including 1,181 Common Shares beneficially
owned by Mr. McNamara's daughter, with respect to which he disclaims beneficial
ownership.
(7) Includes 3,542 Common Shares subject to options to purchase Common Shares
granted pursuant to the 1994 Plan, including 3,071 Common Shares beneficially
owned by Mr. Twaddell's spouse, with respect to which he disclaims beneficial
ownership.
(8) At the time of Grove Property's initial public offering in 1994 (the
"IPO"), Mr. Twaddell was a principal of Barclay Investments, Inc., the
managing underwriter of the IPO, which was issued warrants to purchase
Common Shares at a price of $11.31 per share (the "Underwriter
Warrants"). On February 21, 1996, Barclay Investments, Inc. transferred
11,221 of the Underwriter Warrants to Mr. Twaddell, which Underwriter
Warrants are included in the Common Shares owned by Mr. Twaddell. The
Underwriter Warrants became exercisable on the first anniversary date
of the IPO and terminate on the fourth anniversary date of the IPO.
(9) Includes 3,542 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(10) Includes 3,148 Common Shares subject to options to purchase Common
Shares granted pursuant to the 1994 Plan.
(11) The Common Shares beneficially owned by Morgan Stanley include Common
Shares held in investor accounts or entities with respect to which
Morgan Stanley shares discretionary voting and dispositive authority.
Morgan Stanley Asset Management Inc. ("MSAM"), a wholly-owned subsidiary
of Morgan Stanley, shares discretionary voting and dispositive power
over 707,071 of such Common Shares (17.9% of the Common Shares) which
are held in investor accounts or entities, including the Morgan Stanley
Real Estate Special Situations Fund I, L.P. (214,264 Common Shares, 5.4%
of the Common Shares), and The Morgan Stanley Real Estate Special
Situations Fund II, L.P. (285,686 Common Shares, 7.2% of the Common
Shares), for which MSAM is an investment advisor. By reason of his
relationship with Morgan Stanley and MSAM, Mr. Bigman may be deemed to
have beneficial ownership of such shares pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934. Pursuant to the Securities Purchase
Agreement entered into with Morgan Stanley in connection with its
purchase of Common Shares in the New Equity Investment, Grove Property
has (i) agreed to permit Morgan Stanley to designate one person to be a
member of the Board of Grove Property and to nominate that person for
election by the Shareholders and (ii) granted to Morgan Stanley certain
preemptive rights in connection with future issuances (with certain
exceptions) by Grove Property of Common Shares and other securities
convertible into Common Shares ("Convertible Securities"); the
preemptive rights is to purchase (a) in the case of the issuance by
Grove Property of Convertible Securities, up to the Percentage Amount of
such Convertible Securities and (b) in the case of the issuance by Grove
Property of Common Shares, a number of Common Shares up to that number
of Common Shares such that Morgan Stanley's ownership, following such
issuance, would continue to be the Percentage Amount of the issued and
outstanding Common Shares plus the-exercisable "in-the-money" employee
stock options. For the purposes of Morgan Stanley's Securities Purchase
Agreement and the preemptive rights described in the preceding sentence,
"Percentage Amount" means 20%, except in the case of any proposed
issuance of Common Shares for less than $9.00 per share or any
Convertible Securities where the initial conversion, exchange or
exercise price, as the case may be, is less than $9.00 per Common Share,
in which case the "Percentage Amount" means 25%. Morgan Stanley will
retain the right to nominate a director and the preemptive rights
described above until the earlier of (i) Morgan Stanley and its
affiliates ceasing to own at least 10% of the issued and outstanding
Common Shares and (ii) Grove Property consummating an underwritten
public offering of Common Shares yielding gross proceeds of at least
$40.0 million. Pursuant to a Registration Rights Agreement entered into
among Grove Property, Morgan Stanley and other purchasers in the New
Equity Investment, Grove Property is required to effect a shelf
registration under the Securities Act of 1933, subject to certain
conditions, of the Common Shares beneficially owned by Morgan Stanley
promptly after September 14, 1997. Moreover, subject to certain
conditions, the Common Shares beneficially owned by Morgan Stanley may
be included in the registration of Common Shares when Grove Property
registers its Common Shares or the Common Shares of other holders.
(12) Pursuant to the Securities Purchase Agreement entered into with the
Oregon Public Employees' Retirement Fund, by ABKB/LaSalle Securities
Limited, as agent for the Oregon Public Employees' Retirement Fund
("ABKB/LaSalle") in connection with its purchase of Common Shares in the
New Equity Investment, Grove Property has granted to ABKB/LaSalle
certain preemptive rights in connection with future issuances (with
certain exceptions) by Grove Property of Common Shares and Convertible
Securities; the preemptive right is to purchase (a) in the case of the
issuance by Grove Property of Convertible Securities, up to 9.9% of such
convertible Securities and (b) in the case of the issuance by Grove
Property of Common Shares, a number of Common Shares up to that number
of Common Shares such that ABKB/LaSalle's ownership would continue to be
9.9% of the issued and outstanding Common Shares following such
issuance. ABKB/LaSalle will retain the preemptive rights described above
until the earlier of (i) ABKB/LaSalle and its affiliates ceasing to own
at least 5.0% of the issued and outstanding Common Shares and (ii) Grove
Property consummating an underwritten public offering of Common Shares
yielding gross proceeds of at least $40.0 million. Pursuant to a
Registration Rights Agreement entered into among Grove Property,
ABKB/LaSalle and the other purchasers in the New Equity Investment,
Grove Property is required to effect a shelf registration under the
Securities Act of 1933, subject to certain conditions, of the Common
Shares beneficially owned by ABKB/LaSalle promptly after September 14,
1997. Moreover, subject to certain conditions, the Common Shares
beneficially owned by ABKB/LaSalle may be included in the registration
of Common Shares when Grove Property registers its Common Shares or the
Common Shares of other holders.
(13) Includes 8,886 Common Units beneficially owned by Mr. McNamara's spouse,
with respect to which he disclaims beneficial ownership.
(14) This column illustrates the proforma percent of Common Shares that would be
owned in the event all Common Units owned by holders of Common Units were
redeemed for Common Shares.
</FN>
</TABLE>
Compensation of the Trust Managers
Grove Property Trust pays its trust managers who are not
employees of Grove Property Trust ("Non-Employee Trust Managers") a fee of
$1,000 for attending each meeting of the Board. In addition, Grove Property may
continue to reimburse the Trust Managers for travel expenses incurred in
connection with their activities on behalf of Grove Property Trust. Each
Non-Employee Trust Manager in office at the time of the IPO received options to
purchase 2,000 Common Shares at the IPO price ($11X per Common Share) under
Grove Property Trust's 1994 Plan. Thereafter, beginning with the Annual Meeting
held in 1995, each Non-employee Trust Manager then in office has received an
annual grant of options to purchase 1,000 Common Shares, in each case at the
then-current market price.
Upon the consummation of the Consideration Transactions, each
Non-employee Trust Manager received a grant of a non-qualified stock option to
purchase 10,000 Common Shares under the 1996 Share Incentive Plan (the "1996
Plan"). The 1996 Plan provides that each Non-Employee Trust Manager who is first
elected or appointed after the Consolidation Transactions would receive 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 (including the 1997 Annual Meeting), 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
will be 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 options 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. Trust Managers who are employees of Grove Property are not
paid any trust manager fees.
Non-Competition Agreements
The Executive Officers have entered into non-competition
agreements with the Company (the "Non-Competition Agreements"). The
Non-Competition Agreement of each Executive Officer precludes him from directly
or indirectly developing, redeveloping, acquiring, managing or operating
multifamily or retail mixed-use properties, other than the Excluded Properties,
which compete with Grove Property Trust Properties or with properties acquired
by Grove Property Trust in the future (including the Partnership Properties) for
so long as he is an Executive Officer, Trust Manager, significant Shareholder
(5% or more of the outstanding Common Shares) or employee of, or consultant to,
Grove Property, and for a period of twenty-four months after termination thereof
other than in the event of termination of his employment by Grove Property
without cause or by the Executive Officer in the event of a "change in control"
or "for good reason" (as defined therein). Grove Property also has entered into
a Non-Competition Agreement with the Grove Companies which will remain in effect
until such time as no person who serves as a director, general partner or
executive officer of the Grove Companies also serves as a Trust Manager or
Executive Officer of Grove Property. Except for the Executive Officers, no other
Trust Manager has an interest in any of the Grove Companies and no direct or
indirect investor in the Grove Companies, other than the Executive Officers,
will be bound by the Non-Competition Agreements.
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 Agreement. Certain of the
Excluded Properties compete with Properties that are in close proximity thereto.
Property Management Services
Grove Property Services Limited Partnership was a Connecticut limited
partnership, wholly owned, directly or indirectly, by the Management Owners. In
connection with the Consolidation Transactions, Grove Property succeeded to the
property management activities of GPS, and the Operating Partnership has
acquired all of the assets and liabilities of GPS related to property management
activities. Following the consummation of the Consolidation Transactions, the
Operating Partnership and National Realty provide to the Company and to the
Grove Companies (including the limited partnerships that own Excluded
Properties) the real estate related services previously provided by the
Management Company. The assets utilized to carry out such property management
services constitute the "Management Division" of Grove Property Trust. Edmund F.
Navarro, Vice President/Property Management of Grove Property Trust, heads Grove
Property Trust's property management team, and substantially all of the
employees of GPS have become employees of the Operating Partnership in
connection with the Consolidation Transactions.
The Management Division generates all of its fee income from the
Properties and the Excluded Properties. In addition to managing the 2,347
multifamily apartment units and the commercial space in the Properties, the
Management Division manages the remaining Excluded Properties, pursuant to
management services contracts between Grove Property Trust and the affiliated
limited partnerships that own the Excluded Properties. These properties include
912 apartments in 12 multifamily residential projects, and 8 properties
consisting of 113,300 square feet of commercial space. The management services
agreements provide that the Operating Partnership receives in exchange for its
provision of property management services, with respect to each Property or
Excluded Property, a fee equal to from 4% to 6% of collected 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.
Management Division Operations
The Management Division manages properties utilizing its staff of
professional and support personnel, including certified regional property
managers, apartment managers, apartment maintenance technicians and leasing
agents, and the services of the Accounting Division of the Management Division.
As of December 31, 1996, the Management Division's property management personnel
consisted of approximately 170 employees. The depth of the Management Division's
organization is intended to enable it to deliver quality services on an
uninterrupted basis, thereby promoting resident satisfaction and improving
resident retention. The services of the Management Division are important to
Grove Property Trust's implementation of its objective to overhaul management
procedures of prior owners of the properties acquired pursuant to its growth
strategy. The Management Division has developed, and continues to improve,
on-site management programs, accounting systems, marketing systems and resident
quality control and retention procedures.
The Management Division's property management staff are employees of the
Operating Partnership. The property management team for each Property includes
on-site management and maintenance personnel as well as off-site support staff.
Property management teams perform leasing and rent collection functions and
coordinate resident services. Substantially all 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. The focus of the Management Division's on-site management program is
to provide prompt, courteous and responsive service to its residents. The
Management Division monitors the responsiveness of its on-site management
through various resident surveys. Service request response cards are left in
residents' apartments after any maintenance is performed, soliciting resident
feedback of the service provided.
Accounting Services
The Accounting Division of the Management Division is managed by Steven
Splain, Controller of the Company. The accounting staff audits and monitors each
property's financial records, including monthly income and expense reports, bank
statement reconciliations, rent rolls and economic occupancy reports and budget
compliance. Staff members visit each site on a regular basis to conduct on-site
audits and supervise on-site bookkeeping. The information generated during these
visits is used by the Management Division's on-site management staff at each
site to set personal and team goals which relate to budget and fiscal matters,
on a weekly and monthly basis, subject to the supervision of the Management
Division.
Property Marketing
The rental marketing personnel of the Management Division are trained to
assure that each property is marketable, priced realistically and promoted
aggressively. The Management Division uses a full range of promotional tools in
its marketing programs: point-of-purchase materials, high quality curb appeal,
targeted advertising and resident referrals. Instead of waiting until vacancies
occur, the Management Division markets the properties in its management
portfolio on a continuous basis. It takes steps necessary to avoid move-outs by
quality residents, which include quality customer service throughout the lease
term and renewal incentives.
The Management Division has established specific reporting requirements
and management guidelines to be applied at each of the Properties. Marketing
reports are prepared by on-site property management staff to track each
Property's occupancy, lease expiration, prospective resident traffic, unit
availability, renewal and rental rates and resident profile information. The
Management Division's on-site staff, which consists of property managers,
leasing agents, service technicians, porters and landscapers, participates in
weekly goal setting sessions to evaluate these marketing reports and examine
issues relating to resident underwriting, to evaluate progress, to set the next
week's goals and to review financial results. These sessions are supervised by
the Management Division's marketing director and regional managers. In this way,
the Management Division encourages customer service and team empowerment.
Marketing and leasing procedures established by the Management Division
are designed to ensure compliance with all federal, state and local laws and
regulations. Individual property marketing plans have been structured by the
Management Division to respond to local market conditions. Resident underwriting
guidelines for prospective residents comply with the FHA and ADA regulations and
are designed to stabilize service levels and cash flow through lower resident
turnover. None of the Properties is currently subject to rent control or rent
stabilization regulation or deed restrictions. Grove Property Trust's standard
12-month lease contracts facilitate uniform lease administration relating to
rent collections, security deposit dispositions, evictions, repairs and
renewals.
<PAGE>
Construction Services
An employee of the Operating Partnership functions as a general
contractor, supervising the various sub-contractors who perform construction and
related services in connection with the redevelopment of the Properties and the
Excluded Properties.
Business Objectives and Operating Strategies
Grove Property's primary business objective is to pursue a growth
strategy which centers on acquisitions and property redevelopment in the
Northeastern United States. This growth strategy, in turn, is intended to
increase shareholder value through maximizing investment returns with the use of
retained cash in connection with acquisitions to be made by Grove Property.
Toward this end, Grove Property's distribution policy was changed as described
above. Grove Property plans to reinvest the retained balance of its cash flow in
its properties, including property redevelopment and additional property
acquisitions, the reduction of outstanding indebtedness and, when appropriate,
the repurchase of outstanding Common Shares. Grove Property's decision to reduce
its quarterly cash distribution to Shareholders is not in response to a
reduction in earnings (Grove Property has experienced no such reduction), nor is
such decision in response to any other adverse occurrence with respect to the
business or operations of Grove Property. Rather, Grove Property believes that
focusing its distribution and investment philosophy on total return to
shareholders, rather than focusing principally on the amount of periodic cash
distributions to shareholders, will enhance long-term shareholder value and
could reduce the volatility of the market price of the Common Shares.
Management intends to implement its growth strategy by acquiring
additional properties which offer solid and steady growth opportunities from
affiliates of the Grove Companies or from third party sellers. Management
intends to implement its growth strategy by acquiring properties at prices below
estimated replacement cost which can generate increased cash flow and long-term
investment value from pre-acquisition levels through strategic capital
improvements and aggressive property management. It will seek to acquire
properties that (i) meet an identified market demand; (ii) are well located and
under-performing in improving rental markets; and (iii) are capable of producing
a high component of current income through value added/return oriented capital
improvements to individual apartment units and property sites, such as adding
new amenities, including fitness centers and community rooms, upgrading
landscaping and signage and improving the overall curb appeal of the property.
Management believes that its operating strategy will result in growth
in Shareholder value through: (i) maximizing investment returns as quickly as
possible; (ii) maximizing investment returns through rigorous on-site management
which implements an individualized marketing plan for each property responsive
to the character of each site, on both a short and long term basis; and (iii)
increasing investment yields by making return-oriented capital improvements,
which upgrade individual apartment units and property sites and, in turn,
promote stable occupancy rates and justify increased rents. Management believes
that the use of retained cash in connection with acquisitions to be made by
Grove Property will enhance Shareholder value and return on equity.
Acquisition and Development Strategy
Management believes that Grove Property, through its common management
with the Grove Companies, has available to it an established network of
relationships with real estate owners, developers, brokers, lenders, and other
institutions, which may provide Grove Property with access to potential
acquisitions prior to them being widely marketed.
An acquisition target should furnish Grove Property with significant
opportunity for increasing property value through rental increases, reducing
expenses or a combination of such strategies. Local demographics and economics
in the target location should be stable and strong or showing continuing
improvement. When analyzing acquisition targets, Grove Property conducts market
surveys consisting of a study of the region, community and trading area. A
physical inspection, a review of the resident mix, an assessment of the current
vacancies, and a complete rental analysis is performed.
Properties held by affiliates of Grove Property may satisfy the
economic and other criteria which form the basis for Grove Property's
acquisition strategy. Grove Property expects from time to time to seek to
acquire one or more of such properties at such time as it is able to negotiate a
fair price. See "RISK FACTORS - Generally," and "CONFLICTS OF INTEREST."
Redevelopment
The Grove affiliates that previously owned the Original Properties
renovated and upgraded such Properties at the time of the purchase, and the
Operating Partnership has since completed additional renovations. At all of the
Properties, unit interiors are renovated and upgraded as apartments turn over,
including carpet and appliance replacement and new lighting fixtures as
necessary. Additionally, at some of the Partnership Properties amenities have
been added, including fitness centers, community rooms with large screen
televisions and kitchen facilities for entertaining residents and guests, and
billiard rooms. Grove Property intends to undertake and/or continue similar
renovations and upgrades in connection with the Partnership Properties.
Future Acquisitions
In the pursuit of its growth strategy, the Operating Partnership
intends and continues to engage in preliminary discussions with potential
sellers of multifamily properties, whether affiliates of the Company or
third-party sellers. Management believes that an important strategic target for
growth opportunities in Grove Property's primary market are portfolios of
multi-unit apartment communities owned and operated by individuals. The Company
believes that a significant portion of New England's multi-unit housing
properties is older, and that ownership is very fragmented. Owners of 75- to
150-unit complexes in the Company's market area have advised management of the
Company that they would be interested in selling their properties, but they have
little or no tax basis remaining in such properties, and such owners have
concluded that the potential tax liability which may be incurred by them upon
outright sale is prohibitive. By utilizing the Operating Partnership structure,
Grove Property can offer competitive purchase prices to such owners and make
payment of such purchase prices in Common Units, thereby deferring all or a
portion of an owner's federal income tax liability.
In the event the Company desires to purchase a property from an
affiliate, Grove Property's investment policies require majority approval of the
proposed purchase by the Trust Managers independent of the Company (i.e., those
who are neither executive officers of the Company nor affiliates of the Grove
Companies, the "Independent Trust Managers"). The Charter requires a majority of
Independent Trust Managers on the Board at all times.
There can be no assurance that the Company will be able to identify
acquisition opportunities, that definitive contracts will be entered into with
respect to any prospective acquisitions, or that the Operating Partnership will
acquire any property as to which it enters into a definitive contract.
Markets
Grove Property Trust believes that the existing conditions in the
Northeast market present a substantial barrier to new development. The Northeast
is defined to include the New England and Mid-Atlantic states. The existing
density in the Northeast marketplace limits the amount of developable land. In
addition, zoning is administered at the local level, thereby allowing the
individual localities to impose their own often restrictive policies within the
existing zoning and environmental laws. The lack of developable land as well as
the current zoning environment contribute to the overall high cost of
construction of apartment communities and corresponding low level of multifamily
development.
Grove Property Trust's Properties are located in in-fill locations which
have experienced occupancy rates 200 basis points better than the regional
average and approximately 300 basis points better than the national average for
1994 and 1995. Grove Property Trust expects that the very low vacancy rate of
the Properties, combined with relatively low vacancy rates in its markets as a
whole, will enable the Company to raise rents at the rate of inflation or higher
over the next several years. The rental revenues of Grove Property Trust's
Properties increased 3.5% for the twelve months ended December 31, 1996 as
compared with the same period in 1995 and 4.4% for the year ended December 31,
1995 as compared to the year ended December 31, 1994. The following table shows
the 1994, 1995 and 1996 vacancy rates of the Company's Properties as compared
with the Northeast and the United States.
VACANCY RATES
Company
Properties Northeast * United States *
1994 3.8% 7.1% 7.2%
1995 3.6% 6.9% 7.5%
1996 3.0% 7.1% 7.7%
o Source: Hanley-Wood, U.S. Housing Markets
Grove Property Trust believes that occupancy levels at its Properties are
increasing principally because few new apartment communities are being built in
its markets. For the year ended December 31, 1995, the occupancy rate of the
Properties was 96.4%, and the rate increased to 97.0% for the year ended
December 31, 1996. Grove Property Trust believes that the lack of new multi-unit
housing properties, the low ratio of rental costs relative to income in two of
its primary markets and its high occupancy rates should result in higher rental
rates and increased appreciation in the value of Grove Property Trust's assets
over the next several years.
Multifamily
Management believes that the real estate capital shortage resulting from
the national and regional banking crisis and from residential property
over-building in the 1980's has severely limited the supply of new multifamily
properties entering the Northeast marketplace since 1991. Grove Property Trust
expects that the high land costs and high construction costs experienced by many
Northeast residential property developers and owners will continue to inhibit
new construction in the near term. Grove Property Trust's resident leases are
generally for a one-year term, so that Grove Property Trust is in a position to
increase rents annually if the market is favorable.
Rental Rates and Occupancy
The average physical occupancy rate of Grove Property Trust's multifamily
Properties for the twelve months ended December 31, 1996 was 97.0%. The average
monthly rental rate for the multifamily Properties has increased to $.73 per
square foot per month for the twelve months ended December 31, 1996 from an
average of $.72 per square foot per month for the twelve months ended December
31, 1995. The total commercial rentable space associated with the Properties is
94,255 square feet. The average physical occupancy of Grove Property Trust's
commercial Properties for the twelve months ended December 31, 1996 was 98.0%.
The average rent per square foot per month for Grove Property Trust's commercial
Properties has increased to $0.98 per square foot per month for the twelve
months ended December 31, 1996 from an average of $0.78 per square foot per
month for the twelve months ended December 31, 1995.
Competition
There are numerous housing alternatives that compete with the Properties
in attracting residents. The Properties compete directly with other multifamily
properties and single family homes that are available for rent in the markets in
which the Properties are located. The Properties also compete for residents with
the new and existing home market. In addition, Grove Property Trust competes
with other investors for acquisitions and redevelopment projects, and some of
these competitors have greater resources than Grove Property Trust.
<PAGE>
PROPERTY INFORMATION
Description of the Properties
Set forth below is certain information concerning the GREAT Properties
and the Partnership Properties owned or, in the case of the Partnership
Properties, controlled, directly or indirectly, by Grove Property and the
Operating Partnership following the consummation of the Consolidation
Transactions, as reported in Form 10-KSB filed by Grove Property for the fiscal
year ended December 31, 1996. For additional financial information relating to
the Company's Properties and results of operations, please see Form 10-QSB and
Form 8-K appended as part of Appendix "I" to this Exchange Offer Statement.
The GREAT Properties consist of four multifamily apartment complexes
located in Hamden, Norwich and Southington, Connecticut, with a total of 257
residential apartments. Tenant leases are generally for one year or less, and
require security deposits. The GREAT Properties averaged a 97.6% occupancy rate
in 1996. No single tenant accounts for more than 10% of the GREAT Properties'
total revenues.
In connection with the purchase of the Southington Apartments, the
Company assumed a mortgage note which is secured by the Southington Apartments.
The acquisition of the Cambridge property was financed by a first mortgage from
a Bank which is secured by a blanket first mortgage lien on the Cambridge
property, the Dogwood Hills and Hamden Center properties.
Approx. Avg. 1996 Occupancy Rental
Number Rental Unit Avg. at Rates
Location and of Area Year Size Occup- 2/28/97 Per Unit
Property Name Units (Sq.Ft.) Built (Sf) ancy(%) ($) ($)
- ------------- ----- -------- ----- ---- ------- --- ---
Norwich, CT
Cambridge Estates
Apartments ...... 92 78,684 1977 855 98.3 100.0 682.27
Hamden, CT
Dogwood Hills ... 46 35,512 1978 772 98.2 97.8 724.16
Apartments
Hamden Center ... 65 49,140 1968 756 96.7 93.9 639.23
Apartments
Southington, CT
Baron Apartments 54 48,600 1970 900 96.8 98.2 686.25
-- ------ ---- --- ---- ---- ------
Total/Weighted Avg 257 211,936 825 97.6 97.8 680.22
=== ======= === ==== ==== ======
<PAGE>
The following is a summary by apartment type for each of the GREAT
Properties:
1 Bedroom 2 Bedroom Total
Cambridge Estates Apartments 42 50 92
Dogwood Hills Apartments 23 23 46
Hamden Center Apartments 31 34 65
Baron Apartments 16 38 54
Total 112 145 257
New Acquisitions
The Consolidation Transactions resulted in the consolidation of the
holdings and/or control by the Company of 19 multifamily residential properties
and one neighborhood shopping center, and certain assets and liabilities of GPS.
Three acquisitions in June 1997 added three multifamily properties.
The following table sets forth certain information with respect to the
Partnership Properties acquired, controlled, directly or indirectly, by the
Company, as a result of the Consolidation Transactions and the June 1997
acquisitions:
No. of Apartments
and/or Commercial Occupancy
Name of Property Location Square Footage at 12/31/96
Avonplace Condominiums Avon, CT 145 95.8%
Burgundy Studios Apts Middletown, CT 102 99.0%
Arbor Commons Ellington, CT 28/4,016 sf. 100.0%
Fox Hill Apartments Enfield, CT 168 95.2%
The Longmeadow Shops Longmeadow, MA 79,012 sf. 100.0%
208-210 Main Street Manchester, CT 28/9,597 sf 96.4%
Loomis Manor West Hartford, CT 43 100.0%
Dean Estates II Apts Cranston, RI 48 95.8%
Woodbridge Apartments Newington, CT 73 97.3%
Royale Apartments Cranston, RI 76 94.7%
Colonial Village Apts Plainville, CT 104 98.1%
Bradford Commons Newington, CT 64 92.2%
Dean Estates Apartments Taunton, MA 58 96.6%
Fox Hill Commons Vernon, CT 74 94.6%
Park Place West West Hartford, CT 63 96.8%
Van Deene Manor West Springfield, MA 109/1,630 sf 100.0%
Security Manor Westfield, MA 63 100.0%
Westwynd Apartments West Hartford, CT 46 97.8%
Ocean Reef Apartments New London, CT 163 93.9%
Sandalwood Apartments New London, CT 39 89.7%
Brook-Syde Apartments West Hartford, CT 80 98.0%
Four Winds Apartments Fall River, MA 168 99.0%
River's Bend Apartments Windsor, CT 347 97.5%
---
Total 2,090/113,320 sf
In addition to the Properties listed above, the Operating Partnership
is currently making an exchange offer similar to this Exchange Offer to Heritage
Court Associates Limited Partnership, to three other affiliated partnerships
identified below which also own one or more of the Excluded Properties. Heritage
Court Associates Limited Partnership owns a total of 104 apartment units at
Heritage Court Apartments, Glastonbury, CT. Farmington Summit Associates Limited
Partnership owns a total of 64 apartment units at Birch Hill Apartments,
Farmington, CT, and 121 apartment units at Summit Apartments, Farmington, CT.
River-Grove Associates Limited Partnership owns a total of 48 apartment units at
River-Grove Apartments, Fall River, Massachusetts. Grove Coastal Associates
Limited Partnership owns a total of 31 apartment units at Harbor View
Apartments, Warwick, Rhode Island, as well as (i) a building known as the Wharf
Building with three retail leases totaling 10,565 square feet in Edgartown,
Massachusetts, and (ii) a building known as the Corner Block Building containing
approximately 4,000 square feet of retail space and 1,400 square feet of office
space, in Edgartown, Massachusetts. Grove Coastal Associates Limited Partnership
also owns four additional retail properties that would not be contributed to the
Operating Partnership. If all four of these exchange offers are accepted, this
will result in the addition of 368 apartment units, 14,565 square feet of
neighborhood retail space and 4,000 square feet of neighborhood office space.
There can be no assurances that any of these four exchange offers will be
accepted by the respective limited partners of such partnerships. See "SPECIAL
FACTORS- Risk Factors-Common Units - Uncertain Portfolio at Time of Election."
FINANCIAL INFORMATION
Selected Financial and Operating Data
For Condensed Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations, please
refer to Form 10-QSB, filed by Grove Property with the SEC for the quarterly
period ended March 31, 1997, which is appended as part of Appendix "I" attached
hereto.
VALUATION OF PARTNERSHIP UNITS
See "The Consolidation Transactions -- Valuation of the Properties and
Other Assets; Allocation of Common Units" for a description of the valuation of
the Properties acquired by the Operating Partnership in connection with the
Consolidation Transactions. The Property valuation for the Property Partnership
was determined using the direct capitalization method. Under this approach, a
single year's income is converted into a market value for a property through the
application of a market derived capitalization rate (the lower the
capitalization rate applied to a property's income, the higher its value). The
valuation of the Partnership's Property was determined by (i) capitalizing the
estimated net operating income for the Property for the period September 1, 1997
to August 31, 1998, less a reserve for capital expenditures, at a capitalization
rate of 9.25%, (ii) deducting the amount of debt on the Partnership Property,
(iii) adding the other assets of the Property Partnership, net of liabilities
(such as cash, accounts receivable, accounts payable and security deposits) and
(iv) deducting any transfer taxes due upon the restructuring of the Property
Partnership. The Operating Partnership and the Grove Companies determined the
appropriate capitalization rate for the Partnership Property based upon their
experience in real estate matters. They sought local market sales information
for comparable properties, estimated actual capitalization rates (net operating
income less capital reserves divided by sales price) and then evaluated the
Partnership Property in light of its relative competitive position, taking into
account property location, occupancy rate, overall property condition and other
relevant factors. The Operating Partnership and the Grove Companies believe that
arm's-length purchasers would base their purchase offers on capitalization rates
substantially similar to those used to calculate the below valuation. The
following table summarizes the amounts used to arrive at the net valuation of a
Partnership Unit:
Estimated gross property valuation $ 5,507,527
Plus: other partnership assets, net of security deposits 15,788
Less: Partnership liabilities (1) (4,488,489)
Partnership valuation before taxes 1,034,826
Less: municipal transfer taxes and loan assumption fee (88,671)
Less: Closing costs (111,651)
Net Partnership valuation $ 834,504
Allocation of net Partnership valuation among partners and number of
Common Units per Partnership Unit:
General Partners .................................... $ 8,345
Limited Partners .................................... 829,660
Number of Limited Partnership Units ................. 78
Valuation per Limited Partnership Unit ......... 10,637
Valuation of one Operating Partnership ("OP") Unit .. 10.50
Number of Common Units per Partnership Unit .... 1,013
Cash Consideration per partnership Unit:
Valuation per Limited Partnership Unit .............. 10,637
Less: estimated cost of New Equity Investment (7.2%) (766)
Cash Consideration per Unit .................... $ 9,871
(1) Partnership liabilities include the following:
Mortgage debt, including accrued interest ...... $ 4,438,507
Accounts payable, accrued expenses, ............ 46,492
Affiliate loans payable ........................ 3,490
Total Partnership liabilities ............ $ 4,488,489
<PAGE>
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the federal income tax
consequences of the Exchange Offer, and of the ownership and disposition of
Common Units, that may be relevant to a Limited Partner as a prospective
participant in the Exchange Offer. It is impractical, however, to set forth in
this Exchange Offer Statement all aspects of federal tax law or all tax
consequences resulting from the Exchange Offer that may be relevant to a
particular Participant. This summary is intended to address only some of the
federal income tax considerations that are generally applicable to all
Participants. In addition, this summary does not address aspects of federal
income taxation that may be relevant to certain types of Participants subject to
special treatment under the federal income tax laws (such as certain financial
institutions, tax-exempt organizations, life insurance companies, dealers in
securities or currencies, stockholders holding stock as part of a conversion
transaction, as part of a hedge or hedging transaction, or as a position in a
straddle for tax purposes or foreign corporations or partnerships or persons who
are not citizens or residents of the United States). Further, the discussion of
various aspects of federal income taxation discussed herein is based on the
Internal Revenue Code of 1986, as amended, existing and proposed Treasury
Regulations thereunder, judicial decisions and administrative rulings and
practice, all of which are subject to change at any time. Additional changes in
the tax law may be enacted in the future which could affect the tax aspects of
the Exchange Offer or an investment in the Operating Partnership. Any such
changes may be retroactive. Consequently, no assurance can be given that the
federal income tax consequences to a Participant described herein will not be
altered in the future. This summary is not intended to be a complete discussion
of all tax consequences of the Exchange Offer or the operation of the Operating
Partnership or a substitute for careful tax planning, and does not address the
possible consequences to Participants under the tax laws of the countries (other
than the United States), states or localities where they reside or otherwise do
business or where the Property Partnership or the Operating Partnership may
operate. Further, the federal income tax consequences to Participants may be
affected by matters not discussed below. The discussion set forth below is based
upon the assumption that Property Partnership interests held by Participants and
Common Units to be received by Equity Participants in the Exchange Offer
constitute capital assets in the hands of such investors. In addition, this
discussion assumes that the Property Partnership is classified for federal
income tax purposes as a partnership rather than as an "association" taxable as
a corporation or a publicly traded partnership. EACH PARTICIPANT IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO IT OF PARTICIPATING IN THE EXCHANGE OFFER AND
BECOMING AN OWNER OF COMMON UNITS.
Gain or Loss on the Exchange for Common Units
As a general rule, the exchange of Common Units for a Participant's
Units in a Property Partnership (the "Exchange") should not result in the
recognition of taxable gain or loss to Equity Participants for Federal income
tax purposes. However, there are a number of exceptions to this general rule
and, depending on the facts associated with any particular Equity Participant or
Partnership Property, an Equity Participant may be required to recognize gain
under one or more of the rules described below. The basis to an Equity
Participant of the Common Units should be equal to such an Equity Participant's
adjusted basis in its Property Partnership Units, increased by any gain
recognized upon the Exchange, as described below.
(1) Deemed Cash Distributions. To the extent the transactions
constituting the Exchange result in a decrease in an Equity Participant's share
of liabilities (taking into account that a holder of Common Units may be
entitled to a share of Operating Partnership liabilities after the Exchange), by
reason of the assumption or repayment by the Operating Partnership of such
liabilities, such decrease will be treated as a deemed distribution of cash to
the Equity Participant. An Equity Participant will be required to recognize gain
to the extent that this deemed distribution of cash exceeds its tax basis in its
interest in the Operating Partnership. In general, a holder of Common Units
should initially have a tax basis in its interest in the Operating Partnership
equal to such holder's adjusted tax basis in the Property Partnership interest
contributed to the Operating Partnership.
(2) Disguised Sales. The Code and Treasury Regulations regarding
"disguised sales" generally provide that, unless one of the prescribed
exceptions apply, a partner's contribution of property to a partnership, and the
partnership's simultaneous or subsequent transfer of money (including deemed
cash distributions due to a reduction in liabilities and cash paid to a partner
pursuant to redemption rights) or other property to the partner, will be
presumed to be a taxable sale, in whole or in part, of such property to the
partnership. Exceptions to the "disguised sale" rules include distribution of
"operating cash flow" of the partnership as defined in Treasury Regulations and
deemed distributions of cash attributable to "qualified liabilities" as defined
in Treasury Regulations. Accordingly, an Equity Participant will be required to
recognize gain to the extent the deemed distribution of cash described above or
other cash distributions constitute a "disguised sale" of its interest in a
Property Partnership to the Operating Partnership.
(3) At-Risk Rules. An Equity Participant who is an individual will,
subject to certain limitations, be required to recognize income to the extent
the transactions constituting the Exchange cause such Participant to have a
negative amount "at-risk" in an activity at the close of the taxable year. While
not free from doubt, this provision should not apply to an Equity Participant
who acquired an interest in a Partnership Property (either directly or
indirectly through a Property Partnership) prior to 1987. In addition, these
rules apply at the individual partner level, on an activity-by-activity basis,
and not with respect to an investment in any particular partnership. As a
result, individual Equity Participants must consider their other investments in
reviewing the impact of the "at-risk" rules.
(4) Section 751 Assets. To the extent an Equity Participant's interest
in the Property Partnership is attributable to "substantially appreciated
inventory" or "unrealized receivables" (within the meaning of Section 751 of the
Code) (including the Property Partnership's previously allowed depreciation and
cost recovery deductions subject to recapture) of the Property Partnership, the
Equity Participant may be required to recognize ordinary income on the
contribution of such interest to the Operating Partnership to the extent the
decrease in his ownership interest in such assets is not offset by an increase
in his ownership interest in similar assets of the Operating Partnership. In
addition, a non-pro rata distribution of money (including the deemed
distributions described above) or property to an Equity Participant may result
in ordinary income to such Participant if such distribution reduces the
Participant's share of the Property Partnership's "unrealized receivables" or
"substantially appreciated inventory" items. To that extent, the Equity
Participant will be treated as having exchanged such assets with the Operating
Partnership in return for a portion of the distribution made to him equal to the
fair market value of his proportionate share of the "unrealized receivables" and
"substantially appreciated inventory." This latter deemed exchange will
generally result in the Equity Participant's recognition of ordinary income
under Section 751(b) of the Code.
The gain (if any) described in paragraphs (1) through (4) above will
(except as described in paragraph (4)) be taxable as long-term or short-term
capital gain depending on whether the Equity Participant has held its interest
in a Property Partnership for more than one year.
THE TAX CONSEQUENCES OF THE EXCHANGE TO AN EQUITY PARTICIPANT WILL
DEPEND UPON SUCH PARTICIPANT'S PARTICULAR TAX SITUATION. ACCORDINGLY,
PARTICIPANTS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM OF THE EXCHANGE.
Gain or Loss on an Exchange for Cash Consideration
The exchange by Non-Accredited Participants and Cash Election
Participants of their Property Partnership Units for Cash Consideration should
result in the recognition of taxable loss for federal income tax purposes, in
the amount of approximately $2,400 per Unit. Gain realized by a Non-Accredited
Participant or a Cash Election Participant will generally be a long-term capital
gain, except for the portion thereof which is taxable as ordinary income due to
the recapture of certain types of accelerated depreciation, if any. Any gain
attributable to a Non-Accredited Participant's or a Cash Election Participant's
share of depreciation recapture will be taxed at ordinary income rates. The
estimated amount of gain specified above is based on the assumption that the
Limited Partner became a partner upon formation of the Property Partnership.
Limited Partners should consult their tax advisers to determine the proper
treatment of this item.
Assuming that a Non-Accredited Participant or a Cash Election
Participant does not "materially participate" in the activities of the Property
Partnership, the taxable income realized by a Non-Accredited Participant or a
Cash Election Participant by reason of the Exchange Offer should be
characterized as income from a "passive activity" and may be offset by a
Non-Accredited Participant's or a Cash Election Participant's available "passive
activity losses" (including suspended losses). Losses from passive activities
may only be offset against income from passive activities or may be deducted in
full when the taxpayer disposes of the passive activity from which the loss
arose. The amount of each Non-Accredited Participant's and each Cash Election
Participant's available "passive activity losses" depends, in part, on the
amount of losses previously allocated to such Non-Accredited Participant or Cash
Election Participant from the Property Partnership and the amount of such losses
that were previously applied by such Non-Accredited Participant or Cash Election
Participant to offset its taxable income from other sources.
Federal Income Tax Consequences of Holding Common Units in the Operating
Partnership
Because all of the Equity Participants are already partners in the
Property Partnership, the tax consequences generally of being a partner in a
partnership (e.g., taxation of partnerships generally, allocations of
partnership income or loss, adjustments to, and calculation of tax basis in a
partnership interest, treatment of cash distributions from the partnership,
limitations on the deductibility of partnership losses or of a partner's share
of interest expense incurred by the partnership, and recognition of gain or loss
on the liquidation of a partnership) are not discussed in this Exchange Offer
Statement. Nevertheless, certain tax consequences of holding Common Units
relating directly to the Exchange Offer are discussed below.
Code Section 704(c) Allocations. Pursuant to Section 704(c) of the
Code, income, gain, loss and deductions attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as the contribution by the Equity Participants
of their interests in the Property Partnerships) 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. In addition, Treasury Regulations
under Section 704(c) provide a partnership with several methods for the
treatment of such tax items. As general partner of the Operating Partnership,
Grove Property will have the authority to select such method. The OP Partnership
Agreement will require that allocations be made in a manner consistent with
Section 704(c) of the Code. As a result, for federal income tax purposes, the
Equity Participants (as partners in the Operating Partnership) may be allocated
lower amounts of the depreciation deductions of the Operating Partnership (and
Grove Property may be allocated higher amounts of such depreciation deductions)
than such deductions would be if determined on a pro rata basis. Further, any
gain recognized by the Operating Partnership on the disposition of such
contributed Properties generally will be allocated to the Equity Participants to
the extent attributable to the difference between the fair market value of the
contributed Property at the time of contribution, and the adjusted tax basis of
such Property at the time of contribution, and Grove Property will be allocated
only its share of gains attributable to appreciation in the Properties, if any,
occurring after the Exchange Offer.
Sale or Exchange of Common Units. A holder of Common Units generally
will recognize gain or loss on the sale or exchange of a Common Unit (whether
pursuant to the Redemption/ Exchange Rights or otherwise) equal to the
difference between the amount realized on the disposition (generally the amount
of cash and the fair market value of Common Shares or other property received,
plus the holder's allocable share of the liabilities of the Operating
Partnership) and the holder's adjusted tax basis in the Common Unit. Such gain
or loss generally will be capital gain or loss and will be long-term or
short-term, depending upon whether the holder has held such Common Units for
more than one year. Nevertheless, to the extent that the consideration received
upon such sale or exchange is attributable to a holder's allocable share of the
value of the Operating Partnership's "substantially appreciated inventory" items
and "unrealized receivables" (including previously allowed depreciation and cost
recovery deductions subject to recapture) within the meaning of Code Section
751, such consideration would be treated as having been realized from the sale
or exchange of a non-capital asset, and the difference between such amount and
the portion of the holder's tax basis in its Common Units attributable to such
items would be treated as ordinary income (even if a loss otherwise would be
recognized upon the sale of Common Units).
State and Other Tax Considerations
The Operating Partnership and the holders of Common Units may be
subject to other taxes, such as state and local income taxes, transfer taxes,
unincorporated business taxes, gift taxes and state inheritance or intangible
taxes that may be imposed by various jurisdictions. Each person considering
participating in the Exchange Offer is urged to consult with their own tax
advisor for advice as to state, local or other taxes which may be payable in
connection with their participation in the Exchange Offer, or their investment
in Common Units.
The Operating Partnership may subsequently request Equity Participants
to provide certain certifications, including certifications signed under penalty
of perjury, as to their non-foreign status for federal income tax purposes or as
to their residency or status under similar provisions of applicable state law.
The Operating Partnership may be required to withhold a portion of the
consideration otherwise payable to any Participant who fails to provide such
certifications.
THE FOREGOING IS MERELY A SUMMARY OF CERTAIN ASPECTS OF THE FEDERAL
INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE EXCHANGE. IT DOES NOT PURPORT TO
BE EITHER A COMPLETE ANALYSIS OR A COMPLETE LISTING OF ALL POTENTIAL TAX
CONSIDERATIONS OR TAX RISKS INHERENT IN THE EXCHANGE OFFER OR IN THE OWNERSHIP
OR DISPOSITION OF COMMON UNITS IN THE OPERATING PARTNERSHIP, AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY, PERSONS CONSIDERING
PARTICIPATING IN THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
PARTICIPATING IN THE EXCHANGE OFFER AND AN INVESTMENT IN THE OPERATING
PARTNERSHIP.
SUMMARY OF ERISA CONSIDERATIONS
The following section sets forth a summary of certain material
considerations arising under ERISA and the provisions of Code Section 4975 that
a Participant that is a Plan Fiduciary (as defined in the Glossary) should
consider before deciding whether to invest in Common Units.
A DESCRIPTION OF ALL ASPECTS OF THE APPLICABLE RULES IN ERISA AND THE
CODE AND, TO THE EXTENT NOT PRE-EMPTED, STATE LAW THAT COULD AFFECT SUCH AN
INVESTMENT IS BEYOND THE SCOPE OF THIS EXCHANGE OFFER STATEMENT. THEREFORE, EACH
PARTICIPANT THAT IS A PLAN FIDUCIARY IS URGED TO SEEK ADVICE FROM HIS OR HER OWN
ADVISORS REGARDING ITS INVESTMENT IN COMMON UNITS.
ERISA generally requires that the assets of an Employee Benefit Plan
(as defined in the Glossary) be held in trust, and that the trustee or a duly
authorized investment manager (within the meaning of Section 3(38) of ERISA)
have the exclusive authority and discretion to manage and control the assets of
the Plan. As discussed below, the Purchaser believes that its assets will not be
deemed to be "plan assets" of any Employee Benefit Plan owning Common Units. In
the event that the assets of the Purchaser are nevertheless deemed to be plan
assets, the Trust Managers and Executive Officers of the Company could be deemed
to be fiduciaries with respect to certain of such Employee Benefit Plans. As
such, they would be held to the fiduciary standards of ERISA in all investments
and the Plan Fiduciary of each affected Employee Benefit Plan could be liable
for investments that do not conform to such standards. In addition, if the Trust
Managers and Executive Officers are considered fiduciaries under ERISA and the
Code, they would also be "parties in interest" under ERISA (and "disqualified
persons" under the Code) with respect to the affected Employee Benefit Plans,
and one or more of their affiliates also could be so characterized. ERISA and
the Code specifically prohibit an Employee Benefit Plan from engaging in certain
transactions ("prohibited transactions") involving plan assets with parties in
interest or disqualified persons unless an exemption applies. Under these rules,
certain of the contemplated transactions between Grove Property, the Trust
Managers and the Executive Officers (and certain of their affiliates) and the
Purchaser could constitute prohibited transactions. In such event, certain of
the parties involved in the transaction could be required to undo the
transaction, restore to the Plan any profit (or make up for any loss) realized,
and pay an excise tax. If an individual retirement account (an "IRA") engaged in
a prohibited transaction, it could lose its tax-exempt status but, in that case,
the other penalties for prohibited transactions would not apply.
Plan Assets-In General
The United States Department of Labor (the "DOL") has promulgated the
DOL Regulation defining the term "plan assets" for purposes of the fiduciary
requirements of ERISA and the prohibited transaction provisions of ERISA and the
Code. Under the DOL Regulation, when an Employee Benefit Plan makes an equity
investment in another entity, the underlying assets of the entity generally will
not be considered plan assets if (i) the equity interest is a "publicly offered
security" or a security issued by an investment company registered under the
Investment Company Act of 1940, (ii) the entity is an "operating company,"
including a "real estate operating company" (a "REOC"), or (iii) equity
participation in such entity by Benefit Plan Investors is not significant (the
"Insignificant Participation Test").
Application of DOL Regulation to Grove Property
Grove Property believes that its assets should not be considered to be
plan assets of any Employee Benefit Plan that owns Common Shares within the
meaning of the DOL Regulation at the time of the Exchange Offer, and intends to
use its best efforts to restrict the ownership by Benefit Plan Investors of
Common Shares that are not registered under the Securities Act at all times so
that it continues to meet the Insignificant Participation Test.
Application of DOL Regulation to the Purchaser
Even if the assets of Grove Property are not deemed to be plan assets,
the assets of the Purchaser could be if any Employee Benefit Plan owns Common
Units unless the Purchaser meets the Insignificant Participation Test or is a
REOC.
The DOL Regulation provides that a "publicly offered security" is a
security that is (i) freely transferable, (ii) part of a class of securities
that is owned by 100 or more investors who are independent of the issuer and one
another, and (iii) either part of a class of securities registered under Section
12(b) or (g) of the Securities Exchange Act of 1934 or is sold to the plan as
part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Securities Exchange Act of
1934 within 120 days (or such later time as may be allowed by the SEC) after the
end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. Since the Common Units are not publicly
offered securities within the meaning of the DOL Regulation, the Purchaser must
meet the Insignificant Participation Test or qualify as a REOC.
An entity will meet the Insignificant Participation Test if,
immediately after the most recent acquisition of any equity interest in the
entity, less than 25% of each class of its equity interests is held in the
aggregate by Benefit Plan Investors. For this purpose, Benefit Plan Investors
include Employee Benefit Plans (and any other employee benefit plans whether or
not subject to ERISA), and entities the underlying assets of which include plan
assets as a result of a Plan's investment therein. In computing the percentage
of a class of equity interests that is owned by Benefit Plan Investors, equity
interests owned by non-Benefit Plan Investors who have discretionary authority
over, or who provide investment advice for a fee (direct or indirect) with
respect to, the assets of the entity being tested, or any affiliate of such a
person ("Entity Managers"), are disregarded. The Insignificant Participation
Test must be met on the date a Benefit Plan Investor first owns an equity
interest and at all times thereafter.
The Purchaser will use its best efforts to ensure that less than 25% of
the Common Units owned by persons other than Entity Managers will be owned by
Benefit Plan Investors within the meaning of the DOL Regulation at the time of
the effectuation of the Exchange Offer, and will not admit any person as a
limited partner (or permit the exchange of any limited partnership interest)
unless the Insignificant Participation Test will be met immediately thereafter
or it has received an opinion of counsel that the Purchaser is a REOC or that
another exception in the DOL Regulation applies. Based on the foregoing, and
assuming that the assets of Grove Property are not deemed to be plan assets, the
Purchaser believes that its assets will not be considered plan assets under the
DOL Regulation.
An entity that does not meet the Insignificant Participation Test may
still be exempt from plan asset treatment if it is a REOC. In order to qualify
as a REOC, from the date of its first investment, and thereafter on any date in
each "annual valuation period" (as defined in the DOL Regulation), the entity
seeking REOC status must (i) invest at least 50% of its assets, valued at cost
and without regard to short-term investments pending long-term commitment or
distribution to investors, in "real estate" which is "managed" or "developed,"
and with respect to which the entity has the right to substantially participate
directly in the management or development activities and (ii) engage, in the
ordinary course of its business, directly in real estate management and
development activities with respect to such real estate investments. No
determination has been made whether the Purchaser can qualify as a REOC.
A plan established and maintained by a state, any political subdivision
of a state, or by any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees ("a governmental plan") that is
not subject to ERISA or Section 4975 of the Code is subject to state statutes
regulating its investments and the obligations of its fiduciaries. No attempt
has been made in this section to discuss any of the special consequences that
are relevant to a governmental plan under such state statutes. Any fiduciary of
a governmental plan that owns Units is urged to seek advice from his or her
advisors regarding the matters set forth in this Exchange Offer.
THE OP PARTNERSHIP AGREEMENT
The following summary of the OP Partnership Agreement and the
description of certain provisions set forth elsewhere in this Exchange Offer,
are qualified in their entirety by reference to the OP Partnership Agreement,
which has been filed with the SEC, and is available for review by Limited
Partners. See "AVAILABLE INFORMATION."
Management. The Operating Partnership is a Delaware limited partnership. Grove
Property is the sole general partner of, and currently owns approximately 61% of
the economic interests in, the Operating Partnership. Grove Property will
conduct substantially all of its business through the Operating Partnership.
Generally, pursuant to the OP Partnership Agreement, Grove Property, as the sole
general partner of the Operating Partnership will have 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 refinancings and to cause changes in the Operating Partnership's line of
business and distribution policies.
The limited partners of the Operating Partnership have no
authority to transact business for, or participate in the management activities
or decisions of, the Operating Partnership, except as provided in the OP
Partnership Agreement and as required by applicable law.
Indemnification. To the extent permitted by law, the OP Partnership Agreement
provides for indemnification of Grove Property, as general partner, its officers
and trust managers and such other persons as Grove Property may designate to the
same extent indemnification is provided to officers and trust managers of Grove
Property in its Charter, and limits the liability of Grove Property and its
officers and trust managers to the Operating Partnership to the same extent
liability of officers and trust managers of Grove Property is limited under the
Charter.
Transferability of Interests. Except for a transaction described in the
following two paragraphs, the OP Partnership Agreement provides that Grove
Property may not voluntarily withdraw from the Operating Partnership, or
transfer or assign its interest in the Operating Partnership, without the
consent of holders of 66B% of the limited partner interests. Pursuant to
the OP Partnership Agreement, the limited partners have agreed not to transfer,
assign, sell, encumber or otherwise dispose of, without the consent of Grove
Property, their interest in the Operating Partnership, other than to family
members or accredited investors who agree to assume the obligations of the
transferor under the Partnership Agreement subject to a right of first refusal
for the benefit of the Company.
The Operating Partnership may not engage in any merger,
consolidation or other combination with or into another person, 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 66B%
of the Common Units (including Common Units held by Grove Property, which
currently represents approximately 61% of all Common Units outstanding) 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% 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.
The Operating Partnership may also 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 are held directly or indirectly by the Operating Partnership or another
limited partnership 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 Property 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 Property 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. The
Operating Partnership will also use commercially reasonable efforts to cooperate
with the limited partners of the Operating Partnership to minimize any taxes
payable in connection with any repayment, refinancing, replacement or
restructuring of indebtedness, or any sale, exchange, or any other disposition
of assets, of the Operating Partnership, including, without limitation, amending
the OP Partnership Agreement to provide obligations on the part of any affected
partner to restore deficit balances in its capital accounts as of the time of
liquidation of the Operating Partnership and to maintain a corresponding level
of recourse debt to match such obligations or maintaining a level of
non-recourse debt that can be allocated to, and included in the tax basis of,
such partners, pursuant to the regulations under Section 752 of the Code.
Issuance of Additional Common Units. As sole general partner of the Operating
Partnership, Grove Property has the ability to cause the Operating Partnership
to issue additional Common Units representing general and limited partnership
interests in the Operating Partnership, including preferred common units
representing limited partnership interests.
Capital Contribution. The OP 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 Property may borrow such funds from a financial
institution or other lender or through public or private debt offerings and lend
such funds to the Operating Partnership on the same terms and conditions as are
applicable to Grove Property's borrowing of such funds. As an alternative to
borrowing funds required by the Operating Partnership, Grove Property may
contribute the amount of such required funds as an additional capital
contribution to the Operating Partnership. If Grove Property so contributes
additional capital to the Operating Partnership, Grove Property'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 Property.
Awards Under Share Incentive Plan. If Common Shares are issued pursuant to an
award granted under the 1996 Plan, the OP Partnership Agreement and the 1996
Plan require Grove Property to contribute to the Operating Partnership, as an
additional contribution, any consideration received by Grove Property Trust upon
such issuance. Upon such contribution Grove Property will be issued a number of
Common Units in the Operating Partnership equal to the number of Common Shares
so issued.
Distributions. The OP Partnership Agreement sets forth the manner in which the
net cash flow of the Operating Partnership (which includes operating revenues
and proceeds from sales or refinancings less certain expenditures) will be
distributed with respect to the Common Units.
Limited Partner Redemption/Exchange Rights. Commencing one year following the
closing of this Exchange Offer, Limited Partners who acquire Common Units in the
Operating Partnership will have the right to require the Operating Partnership
to redeem part or all of their Common Units for cash (based on the fair market
value of an equivalent number of Common Shares at the time of such redemption)
or, at the election Grove Property Trust, to exchange such Common Units for
Common Shares. If Grove Property Trust elects to exchange Common Units for
Common Shares, each Common Unit will be exchangeable for one Common Share,
subject to adjustment in the event of stock splits, distribution of rights,
extraordinary dividends and similar events.
In order to protect Grove Property's status as a REIT, a
holder of Common Units is prohibited from exchanging such Common Units for
Common Shares to the extent that, as a result of such exchange, any person would
own or would be deemed to own, actually or constructively, Equity Shares in
excess of the Ownership Limit, or the Executive Officer Ownership Limit, as
applicable, except to the extent such holder has been granted an exception to
the Ownership Limit, or would otherwise cause Grove Property to fail to continue
to qualify as a REIT.
Tax Matters. Pursuant to the OP Partnership Agreement, Grove Property will be
the "tax matters partner" of the Operating Partnership and, as such, will have
authority to make tax elections under the Code on behalf of the Operating
Partnership.
The net income or net loss of the Operating Partnership
generally will be allocated to Grove Property and the limited partners in
accordance with their percentage interests, subject to compliance with the
provisions of Sections 704(b), respecting allocations generally, and 704(c),
respecting allocations with respect to contributed properties, of the Code and
the applicable Treasury Regulations.
Operations. The OP Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable Grove Property to satisfy the
requirements for qualification as a REIT and to avoid any federal income or
excise tax liability.
Certain Limited Partner Approval Rights. The OP Partnership Agreement provides
that if the limited partners own at least 5% of the outstanding Common Units
(including Common Units held by Grove Property Trust), Grove Property Trust
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 Property Trust) 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 the Company's assets; or
(ii) prior to the fifth anniversary of the consummation of the Consolidation
Transactions, sell in a taxable transaction the Fox Hill Commons, Colonial
Village Apartments or Woodbridge Apartments Properties, other than incident to a
merger or sale of substantially all of the Company's assets.
Term. The Operating Partnership will continue in full force and effect until
December 31, 2056 or until sooner dissolved and terminated pursuant to the terms
of the OP Partnership Agreement.
ADDITIONAL INFORMATION
The Purchaser will provide any other relevant information reasonably
requested which may provide assistance in making a decision whether to
participate in the Exchange Offer. For additional information or copies of any
of the transaction documents referred to in this Exchange Offer Statement, or to
arrange for a meeting to discuss in detail any of the Disclosure Materials or
any other matters relating to the Exchange Offer, please contact Damon Navarro,
Grove Investment Group, 598 Asylum Avenue, Hartford, Connecticut 06105
(telephone: (860) 246-1126).
If a Limited Partner has not completed and returned the Accredited
Investor Questionnaire sent to all Limited Partners with the Letter of
Transmittal, it must do so in order to participate in the Exchange Offer. A
completed and signed Questionnaire can be returned to the Purchaser together
with the enclosed Letter of Transmittal. An additional copy of the Questionnaire
can be obtained as described above.
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Exchange Offer:
"Accounting Division" means the accounting division of Grove Property.
"Accredited Investor" means an "Accredited Investor" as defined in
Regulation D, promulgated under the Securities Act, and any applicable state
securities laws.
"AMEX" means the American Stock Exchange, Inc.
"Benefit Plan Investor" means a "benefit plan investor" as defined in
the DOL Regulation.
"Board" means the Board of Trust Managers of Grove Property.
"Bylaws" means Grove Property's Bylaws.
"Cash Consideration" means the cash consideration for each Property
Partnership Unit tendered.
"Cash Election Participants" means Non-Accredited Participants and
Limited Partners which elect to receive cash for their Units.
"Charter" means, as amended from time to time, Grove Property's Second
Amended and Restated Declaration of Trust.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Shares" means Grove Property's common shares of beneficial
interest, $0.01 par value per share.
"Common Units" means units representing ownership interests in the
Operating Partnership.
"Company" means Grove Property and its subsidiaries (including the
Property Partnerships and the Operating Partnership) on a consolidated basis,
giving effect to the consummation of the Consolidation Transactions.
"Consolidated Assets" means, collectively, the GREAT Assets, certain
assets and liabilities of the Management Company acquired by the Operating
Partnership in connection with the Consolidation and the Partnership Properties.
"Consolidation" means the consolidation of (i) the GREAT Assets, (ii)
ownership and/or control of the Partnership Properties and (iii) certain assets
and liabilities of the Management Company used or arising in connection with the
provision of real estate management related services, in the Operating
Partnership, in connection with the Consolidation Transactions.
"Consolidation Transactions" means the consolidation transactions more
fully described in "The Consolidation Transactions - The Consolidation".
"Consolidation Valuations" means the value assigned to the Property
Partnerships, the other Consolidated Assets contributed to the Operating
Partnership and the Operating Partnership in connection with the Consolidation
Transactions.
"Contribution Agreement" means the contribution agreement among Grove
Property, the Grove Companies and the Operating Partnership.
"Credit Facility" means, together, the Long-Term Facility and the
Revolving Credit Facility.
"Deferred Stock Grants" means annual grants of restricted Common Shares
to be granted (if earned) to the Executive Officers pursuant to the 1996 Plan,
as incentive compensation upon the achievement by the Company of certain
enumerated goals.
"Disclosure Materials" has the meaning set forth in this Exchange Offer
under the caption "Disclosure Materials", and includes those materials
identified, attached or referenced in Appendix I hereto.
"DOL Regulation" means 29 CFR Section 2510.3-101.
"Employee Benefit Plan" or "Plan" means an "employee benefit plan," as
defined in and subject to ERISA Section 3(3), or a "plan," as defined in Code
Section 4975, including any plan that provides welfare benefits or retirement
benefits to an individual or to an employer's employees and their beneficiaries,
such as a corporate pension or profit-sharing plan, a "simplified employee
pension plan," a so-called "Keogh" plan for self-employed individuals (including
partners), a funded health insurance plan, an individual retirement account
described in Code Section 408 ("IRAs") and any entity, such as a group trust or
separate account of an insurance company, that is treated as holding the assets
of any such plan.
"Equity Consideration" means the number of Common Units for each
Property Partnership Unit tendered.
"Equity Participant" means a tendering Limited Partner which receives
Common Units in the Exchange Offer.
"Equity Shares" means Common Shares and/or Preferred Shares of Grove
Property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
"Excess Shares" means, pursuant to the Charter, any Equity Shares
purportedly transferred which would otherwise violate the Ownership Limit in the
hands of the purported transferee, or any Equity Shares sold, transferred,
assigned, devised or otherwise disposed of by a Grove Property shareholder which
result in (i) Common Shares and/or Preferred Shares being owned by less than 100
shareholders; (ii) the Company being "closely held" within the meaning of
Section 856(h) of the Code or (iii) the Company's failing to qualify as a REIT.
"Exchange" means the exchange of Property Partnership Units for Common
Units pursuant to this Exchange Offer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means this Offer to Exchange, dated June 17, 1997, by
the Operating Partnership to the Limited Partners, for any and all Property
Partnership Units in exchange for Common Units or, in the case of Limited
Partners who are not Accredited Investors and certain other Limited Partners,
cash, as set forth in this Offer to Exchange and the Letter of Transmittal, as
each may be amended or supplemented from time to time.
"Excluded Properties" means 14 multifamily residential projects with an
aggregate of approximately 1,600 apartments and approximately 125,000 square
feet of commercial and mixed use property owned by 15 limited partnerships in
which the Grove Companies own limited and general partnership interests, which
properties were not acquired by the Company in connection with the Consolidation
Transactions.
"Executive Officers" means the executive officers of Grove Property,
Damon, Brian and Edmund Navarro, Joseph R. LaBrosse
and Gerald A. McNamara.
"Expiration Date" means 5:00 p.m., New York time, on Friday, August 15,
1997 unless the Purchaser shall have extended this Exchange Offer, in which
event it shall mean the latest time and date on which this Exchange Offer, as so
extended, shall expire.
"FFO" means Funds from Operations which is defined as follows: The
White Paper approved by the Board of Governors of NAREIT in March 1995 defines
FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO an appropriate measure
of performance of an equity REIT because it is predicated on cash flow analyses.
The Company computes FFO in accordance with standards established by the White
Paper which may differ from the methodology for calculating FFO utilized by
other equity REITs and, accordingly, may not be comparable to such other REITs.
FFO should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indicator of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make distributions.
"GAAP" means generally accepted accounting principles in the United
States.
"GDC" means Grove Development Corporation (which is owned by Grove
Companies) and facilitates the provision of construction services to the
Property Partnerships, the GREAT Properties and the Excluded Properties in
connection with the redevelopment of such properties.
"GPS" means Grove Property Services Limited Partnership.
"GREAT" means Grove Real Estate Asset Trust, a Maryland real estate
investment trust.
"GREAT Assets" means the GREAT Properties, together with certain
related assets.
"GREAT Properties" means four multifamily residential projects in
Connecticut owned by Grove Property, with an aggregate of 257 units.
"Grove" means Grove Investment Group, Inc.
"Grove Companies" means certain companies and individuals which are
affiliated with Grove Property (including the Executive Officers) and which own
general and limited partnership interests in the Property Partnerships and the
limited partnerships that own the Excluded Properties.
"Grove Property" means Grove Property Trust, the name by which GREAT is
known following the consummation of the Consolidation Transactions.
"Identified Persons" means, collectively, the Trust Managers and the
Executive Officers of Grove Property.
"Independent Trust Managers" means Messrs. James Twaddell, J. Joseph
Garrahy and Harold Gorman, the members of the Board who are neither employed by,
nor affiliated with, the Grove Companies or Grove Property.
"Initial Exchange Offer" means the exchange offer made in December 1996
by the Operating Partnership for the tender of any or all of the limited
partnership interests of the Property Partnerships in exchange for limited
partnership units in the Operating Partnership
"IPO" means the initial public offering of GREAT'S Common Shares, in
June 1994.
"Limited Partners" means the limited partners of the Property
Partnership.
"Liquidating Partnerships" means those Property Partnerships which
liquidated and made a distribution "in-kind" of the Partnership Property or
Properties owned by such Property Partnerships to the Operating Partnership or
its affiliates, in connection with the Consolidation Transactions.
"Long-Term Facility" means the approximately $15.1 million ten-year
term mortgage loan facility entered into by the Company in connection with the
Refinancing and the consummation of the Consolidation Transactions.
"Management Company" means Grove Property Services Limited Partnership,
which provided real estate management services to the Properties prior to the
Consolidation Transactions.
"Management Owners" means Brian, Damon and Edmund Navarro and Joseph
LaBrosse.
"Maryland REIT Act" means the Maryland Real Estate Investment Trust
Act, as amended from time to time.
"Minimum Percentage Condition" means the minimum number of Property
Partnership Units that must be tendered in the Exchange Offer or voted in favor
of the Property Partnership Amendments in order for the Property Partnership
Amendments to be adopted with respect to the Property Partnership and the
Exchange Offer to be effected with respect to such Property Partnership.
"NAREIT" means the National Association of Real Estate Investment
Trusts.
"National Realty" means National Realty Services, L.P., a Delaware
limited partnership formerly known as Grove Property Services Limited
Partnership, wholly owned by the Management Owners, which provides real estate
brokerage services.
"NAVAB" means NAVAB Associates, a company owned one-quarter each by
Brian and Damon Navarro and Ronald and George Abdow.
"New Equity Investment" means the issuance, in connection with the
consummation of the Consolidation Transactions, by Grove Property and the
Operating Partnership of 3,333,333 Common Shares to the New Equity Investors in
return for gross proceeds of $30.0 million.
"New Equity Investors" means one or more investors in the New Equity
Investment.
"1996 Plan" means the 1996 Share Incentive Plan of the Company adopted
in connection with the consummation of the Consolidation Transactions.
"Non-Accredited Participant" means a tendering Limited Partner which
is not an Accredited Investor.
"Non-Competition Agreements" means the non-competition agreements
entered into between each Executive Officer and the Company and between the
Grove Companies and the Company, in connection with the consummation of the
Consolidation Transactions.
"Operating Partnership" means Grove Operating, L.P., a Delaware limited
partnership formed on November 1, 1996, which is the operating partnership of
Grove Property.
"OP Partnership Agreement" means the Agreement of Limited Partnership
of the Operating Partnership, as amended from time to time, which governs the
Operating Partnership.
"Ownership Limit" means the maximum number of Equity Shares which any
holder of Grove Property's Equity Shares is permitted to own or be deemed to own
by virtue of the attribution provisions of the Code, which is equal to 5.0% (of
the number or value, whichever is more restrictive) of the issued and
outstanding Equity Shares, subject to certain exceptions.
"Partnership Property" means, with respect to each Property
Partnership, the Property or Properties owned by such Property Partnership.
"Participants" means tendering Limited Partners.
"Plan Fiduciary" means a fiduciary of an Employee Benefit Plan which
has investment discretion with respect to the assets of such Plan.
"Preferred Shares" means up to 4.0 million preferred shares of
beneficial interest of Grove Property, par value $.01 per share, which the Board
of Trust Managers of Grove Property is permitted to issue pursuant to the
Charter.
"Property Partnership" means Heritage Court Associates Limited
Partnership, a Connecticut Limited Partnership.
"Property Partnerships" means the following limited partnerships
involved in the Consolidation Transactions: (i) Avonplace Associates Limited
Partnership, (ii) Burgundy Associates Limited Partnership, (iii) Grove-Ellington
Associates Limited Partnership, (iv) Grove-Enfield Associates Limited
Partnership, (v) Grove Longmeadow Associates Limited Partnership, (vi)
Grove-Manchester Associates Limited Partnership, (vii) Grove-Newington
Associates Limited Partnership, (viii) Grove Opportunity Fund II Limited
Partnership, (ix) Grove-Plainville Associates Limited Partnership, (x) Grove
Properties III Limited Partnership, (xi) Grove Taunton Associates Limited
Partnership, (xii) Grove-Vernon Associates Limited Partnership, (xiii)
Grove-West Hartford Associates Limited Partnership, (xiv) Grove-West Springfield
Associates Limited Partnership, (xv) Grove-Westfield Associates Limited
Partnership, (xvi) Grove Westwynd Associates Limited Partnership, (xvii)
Nautilus Properties Limited Partnership and (xviii) Shoreline London Associates
Limited Partnership.
"Property Partnership Agreement" means, with respect to each of the
Property Partnerships, the agreement of limited partnership of such Property
Partnership.
"Property Partnership Amendment" means, with respect to the Property
Partnership, certain amendments to such Property Partnership's Property
Partnership Agreement which will authorize the Partnership to liquidate and
dissolve and to permit an "in-kind" distribution of the related Partnership
Property to the Company in connection with the liquidation of the Property
Partnership.
"Property Partnership Units" or "Units" means, with respect to any
Property Partnership, units representing limited partnership interests in that
Property Partnership.
"Properties" means the 27 properties owned and/or controlled by the
Company following the Consolidation Transactions, which include the 26
multifamily residential projects and one neighborhood shopping center previously
owned by the Property Partnerships and the four multifamily residential projects
which constituted the GREAT Properties.
"Proxy Statement" means the Proxy Statement of Grove Property, dated
February 13, 1997, filed with the Securities and Exchange Commission, a copy of
which is available upon request.
"Purchaser" means the Operating Partnership.
"Redemption/Exchange Rights" means the right of Common Unit holders,
under certain circumstances, to have Common Units redeemed for cash or, at the
Company's option, exchanged for Common Shares.
"Refinancing" means the refinancing of $39.8 million of mortgage
indebtedness of 17 Partnership Properties in connection with the consummation of
the Consolidation Transactions.
"Registrable Shares" means any Common Shares which are subject to
Registration Rights.
"Registration Rights" means, collectively, certain registration rights
that the Company has granted certain persons receiving Common Units in
connection with the Consolidation Transactions pursuant to the Registration
Rights Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement
entered into among GREAT, the Operating Partnership, certain holders of the
Common Units and the New Equity Investors.
"REIT" means a real estate investment trust.
"Revolving Credit Facility" means a three-year secured revolving
acquisition and working capital facility of up to $25.0 million entered into by
the Company in connection with the Refinancing and the consummation of the
Consolidation Transactions.
"Rule 144" means Rule 144 promulgated under the Securities Exchange Act
of 1934, as amended.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Shareholders" means the holders of Grove Property's issued and
outstanding Common Shares.
"Stock Split" means the stock dividend declared and issued by Grove
Property immediately prior to the consummation of the Consolidation
Transactions, together with the concurrent effectuation by Grove Property of a
1.125 to 1.0 stock split with respect to Grove Property's 525,000 currently
issued and outstanding Common Shares, resulting in the issuance of a total of
95,102 Common Shares.
"Trust Managers" means the Trust Managers of Grove Property: Messrs.
Damon Navarro, Joseph R. LaBrosse, James Twaddell,
J. Joseph Garrahy and Harold Gorman.
THE EXCHANGE OFFER
Section 1. Terms of this Exchange Offer.
The Exchange Offer. Under the terms of this Exchange Offer, the
Purchaser will pay for Units validly tendered on or prior to the Expiration Date
and not withdrawn in accordance with Section 4. "Withdrawal Rights" of this
Offer to Exchange. The term "Expiration Date" shall mean 5:00 p.m., New York
time, on Friday, August 15, 1997, unless the Purchaser shall have extended this
Exchange Offer and, in such event, the term "Expiration Date" shall mean the
latest time and date on which this Exchange Offer, as so extended, shall expire.
If, prior to the Expiration Date, the Purchaser shall increase the
Equity Consideration (and Cash Consideration) offered to Limited Partners
pursuant to this Exchange Offer, such increased consideration will be delivered
in respect of all Units of the Property Partnership accepted pursuant to this
Exchange Offer, whether or not they were tendered prior to such increase.
This Exchange Offer is conditioned on satisfaction of certain
conditions. See Section 11. "Conditions of this Exchange Offer", which sets
forth in full the conditions of this Exchange Offer. The Purchaser reserves the
right (but shall not be obligated), in its sole discretion, to waive any or all
of such conditions.
This Offer to Exchange and the related Letter of Transmittal are being
mailed by the Purchaser to Limited Partners or beneficial owners (in the case of
Individual Retirement Accounts and qualified plans) of Property Partnership
Units of record as of the date of the Offer to Exchange.
Each tendering Limited Partner will receive, upon consummation of this
Exchange Offer, the consideration for each Property Partnership Unit (or a pro
rata portion thereof for each fractional Unit) so tendered set forth in the
Exchange Offer.
This Exchange Offer does not give rise to appraisal rights and such
rights will not be voluntarily afforded to the Limited Partners.
THE PURCHASER RESERVES THE RIGHT TO TERMINATE THIS EXCHANGE
OFFER OR TO AMEND THE TERMS AND CONDITIONS OF THIS EXCHANGE
OFFER.
Section 2. Acceptance of and Payment for Property Partnership Units.
The Purchaser will pay for Property Partnership Units validly tendered
and not withdrawn in accordance with Section 4. "Withdrawal Rights", as promptly
as practicable following the Expiration Date. Under no circumstances will
distributions be made with respect to any Common Units or interest be paid on
the Cash Consideration by reason of any delay in making such payment.
In all cases, exchange or payment for Property Partnership Units exchanged
or purchased pursuant to this Exchange Offer will be made only after timely
receipt by the Purchaser of a properly completed and duly executed Accredited
Investor Questionnaire, a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), and any other documents required by the
Letter of Transmittal. See Section 3. "Procedures for Tendering Property
Partnership Units."
If for any reason acceptance of, or payment for, any Property
Partnership Units tendered is delayed or if the Purchaser is unable to accept,
purchase or pay for Property Partnership Units tendered, then the Purchaser may
retain tendered Property Partnership Units and such Property Partnership Units
may not be withdrawn except to the extent that the tendering Limited Partners
are entitled to withdrawal rights as described in Section 4. "Withdrawal
Rights"; provided, however, that the Purchaser will pay Limited Partners (by
exchange for Common Units or cash payment, as the case may be) the Equity or
Cash Consideration, as the case may be, in respect of Property Partnership Units
tendered, or return such Property Partnership Units promptly after termination
or withdrawal of this Exchange Offer.
Section 3. Procedures for Tendering Property Partnership Units.
Valid Tender. In order for a tendering Limited Partner to participate
in this Exchange Offer, Property Partnership Units must be validly tendered and
not withdrawn on or prior to the Expiration Date. A valid tender requires that a
properly completed and duly executed Letter of Transmittal and any other
documents required by the Letter of Transmittal be actually received by the
Purchaser on or prior to the Expiration Date. A Limited Partner must also
complete and return an Accredited Investor Questionnaire in order to participate
in the Exchange Offer.
A Limited Partner must tender all of its Property Partnership Units if
it wishes to tender any Property Partnership Units. A Limited Partner which is
an Accredited Investor must indicate its option to receive the Equity
Consideration or the Cash Consideration for Units tendered. Pursuant to the
Property Partnership Agreement, the general partner of the Property Partnership
has agreed in writing to permit the transfer of Property Partnership Units
pursuant to this Exchange Offer, and has approved the admission of the Purchaser
as a substitute Limited Partner.
THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
TIME, ON FRIDAY, AUGUST 15, 1997, UNLESS EXTENDED.
Signature Requirements. The Letter of Transmittal must be signed by the
registered holder of the Property Partnership Units, exactly as the name appears
on the register of the Property Partnership, and payment is to be made directly
to that holder at the address indicated on the register.
The method of delivery of the Letter of Transmittal and all other
required documents is solely at the option and risk of the tendering Limited
Partner, and delivery will be deemed made only when actually received by the
Purchaser. Thus, overnight courier service is recommended.
Backup Federal Income Tax Withholding. To prevent the possible application
of backup Federal income tax withholding with respect to payment of the Cash
Consideration, a tendering Non-Accredited Participant and a tendering Cash
Election Participant must provide its correct taxpayer identification number by
completing the Substitute Form W-9 included in the Letter of Transmittal. See
the Instructions to the Letter of Transmittal and Section 6. "Certain Federal
Income Tax Consequences and ERISA Consequences."
FIRPTA Withholding. To prevent the withholding of Federal income tax in
an amount equal to 10% of the amount of the Cash Consideration plus Property
Partnership liabilities allocable to the Property Partnership Units purchased,
each Non-Accredited Participant and each Cash Election Participant must complete
the FIRPTA Affidavit included in the Letter of Transmittal concerning its
taxpayer identification number and address and stating that it is not a foreign
person. See the Instructions to the Letter of Transmittal and Section 6.
"Certain Federal Income Tax Consequences and ERISA Consequences."
ERISA Certification. In order to avoid having the assets of the
Purchaser deemed to be "plan assets" for purposes of the fiduciary requirements
of ERISA or the prohibited transaction provisions of ERISA and/or Code Section
4975, the Purchaser has determined to qualify for the "insignificant
participation" exception contained in the DOL Regulation. Therefore, (a) the
number of Common Units received by Benefit Plan Investors will be limited to the
extent that the Purchaser, in its sole discretion, deems necessary or
appropriate to qualify for such exception, and (b) Benefit Plan Investors will
receive Cash Consideration for each Property Partnership Unit tendered pursuant
to this Exchange Offer for which they do not receive Common Units. In order to
permit the Purchaser to comply with this restriction, each tendering Limited
Partner that is not a natural person, and which is an Accredited Investor
tendering any Units for Equity Consideration, must complete the ERISA
Certification contained in the Letter of Transmittal. See the Instructions to
the Letter of Transmittal and Section 6. "Certain Federal Income Tax
Consequences and ERISA Consequences."
Other Requirements. By executing a Letter of Transmittal, a Limited
Partner irrevocably constitutes and appoints the Purchaser as the true and
lawful agent and attorney-in-fact of such Limited Partner with respect to
Property Partnership Units tendered by such Limited Partner, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to deliver such Property Partnership Units and
transfer ownership thereof on the Property Partnership books maintained by the
general partner of the Property Partnership, together with all accompanying
evidences of transfer and authenticity, to or upon the order of the Purchaser
and upon receipt by the Limited Partner of the purchase price in respect of such
Property Partnership Units, to receive all benefits and otherwise exercise all
rights of beneficial ownership of such Property Partnership Units, all in
accordance with the terms of this Exchange Offer. Upon the purchase of such
Property Partnership Units pursuant to this Exchange Offer, all prior proxies
and consents given by such Limited Partner with respect thereto will be revoked
and no subsequent proxies or consents may be given (and if given will not be
deemed effective).
Determination of Validity; Rejection of Property Partnership Units;
Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to
the validity, form, eligibility (including time of receipt) and acceptance for
payment of any tender of Property Partnership Units pursuant to the procedures
described above will be determined by the Purchaser, in its sole discretion,
which determination shall be final and binding. The Purchaser reserves the
absolute right to reject any or all tenders if not in proper form or if the
acceptance of, or payment for, the Property Partnership Units tendered may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the right to waive any defect or irregularity in any tender with respect to any
particular Property Partnership Unit of any particular Limited Partner, and the
Purchaser's interpretation of the terms and conditions of this Exchange Offer
(including the Letter of Transmittal and the Instructions thereto) will be final
and binding. No tender will be deemed validly made until all defects and
irregularities have been cured or waived. Neither the Purchaser nor any other
person will be under any duty to give notification of any defects or
irregularities in the tender of any Property Partnership Units or will incur any
liability for failure to give any such notification.
A tender of Property Partnership Units pursuant to any of the
procedures described above and the acceptance for payment of such Property
Partnership Units will constitute a binding agreement between the tendering
Limited Partner and the Purchaser on the terms and conditions of this Exchange
Offer.
Section 4. Withdrawal Rights.
Except as otherwise provided in this Section 4, all tenders of Property
Partnership Units pursuant to this Exchange Offer are irrevocable, provided that
Property Partnership Units tendered pursuant to this Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
For withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Purchaser at the address set
forth on the last page of this Offer to Exchange. Any such notice of withdrawal
must specify the name of the person(s) who tendered the Property Partnership
Units to be withdrawn and must be signed by the person(s) who signed the Letter
of Transmittal in the same manner as the Letter of Transmittal was signed.
If exchange or purchase of, or exchange or payment for, Property
Partnership Units is delayed for any reason or if the Purchaser is unable to
exchange or purchase or pay for Property Partnership Units for any reason, then,
without prejudice to the Purchaser's rights under this Exchange Offer, tendered
Property Partnership Units may be retained by the Purchaser and may not be
withdrawn except to the extent that tendering Limited Partners are entitled to
withdrawal rights as set forth in this Section 4. "Withdrawal Rights"; provided,
however, that the Purchaser will issue the Equity Consideration or pay
Participants the Cash Consideration, as the case may be, in respect of Property
Partnership Units tendered or return such Property Partnership Units promptly
after termination or withdrawal of this Exchange Offer.
Any Property Partnership Units properly withdrawn will be deemed not to
be validly tendered for purposes of this Exchange Offer. Withdrawn Property
Partnership Units may be tendered, however, by following any of the procedures
described in Section 3. "Procedures for Tendering Property Partnership Units" at
any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. Neither the Purchaser
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give such notification.
Section 5. Extension of Tender Period; Termination; Amendments.
The Purchaser expressly reserves the right, in its sole discretion, at
any time and from time to time, (i) to extend the period of time during which
this Exchange Offer is open and thereby delay acceptance for payment of, and the
payment for, any Property Partnership Units, (ii) to terminate this Exchange
Offer and not accept for payment any Property Partnership Units not already
accepted for payment or paid for if any conditions referred to in Section 11.
"Conditions of this Exchange Offer" have not been satisfied or upon the
occurrence of the events specified in Section 12. "Certain Legal Matters," (iii)
upon the occurrence of any of the conditions specified in Section 11.
"Conditions of this Exchange Offer," to delay the acceptance for exchange or
payment of, or payment for, any Property Partnership Units not already accepted
for payment or paid for and (iv) to amend this Exchange Offer.
If the Purchaser makes a material change in the terms of this Exchange
Offer or the information concerning this Exchange Offer or waives a material
condition of this Exchange Offer, the Purchaser will extend this Exchange Offer
and disseminate additional tender offer materials to the extent required by Rule
14(e)-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") as if this Exchange Offer were governed by the Exchange Act. The
requirement to extend the offer will not apply to the extent that the number of
business days remaining between the occurrence of the change and the
then-scheduled Expiration Date equals or exceeds the minimum extension period
that would be required because of such amendment. As used in this Offer to
Exchange, "business day" means any day other than a Saturday, Sunday or a
federal holiday, and consists of the time period from 12:01 a.m. through 12:00
midnight, New York time.
<PAGE>
Section 6. Certain Federal Income Tax Consequences and ERISA Consequences.
For a description of certain federal income tax consequences, see
"SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES." Plan Fiduciaries should also see
"SUMMARY OF ERISA CONSIDERATIONS."
Section 7. Certain Information Concerning the Property Partnership.
The address of the principal executive office of the Property
Partnership is c/o Grove Investment Group, 598 Asylum Avenue, Hartford,
Connecticut 06105. Limited Partners are referred to "The Consolidation
Transactions" and to the financial and other information included in the
Property Partnership's (i) financial statements for the fiscal years ended
December 31, 1994, 1995 and 1996 previously sent to Limited Partners and (ii)
the other financial statements which are included in Appendix "I" hereto.
Section 8. Certain Information Concerning the Purchaser.
The Purchaser is a Delaware limited partnership formed on November 1,
1996, the general partner of which is Grove Property.
For certain information concerning the trust managers and executive
officers of Grove Property (collectively, the "Identified Persons"), see
APPENDIX I. "Management."
Except as otherwise set forth in this Offer to Exchange or in the Proxy
Material and except for the provisions of the Contribution Agreement and the
Property Partnership Agreements, (i) neither the Purchaser, Grove Property nor,
to the best of the Purchaser's knowledge, any of the Identified Persons nor any
affiliate of the foregoing beneficially owns or has a right to acquire any
Property Partnership Units; (ii) neither the Purchaser, Grove Property, nor, to
the best of the Purchaser's knowledge, any of the Identified Persons nor any
affiliate thereof has effected any transaction in the Property Partnership
Units; (iii) neither the Purchaser, Grove Property nor, to the best of the
Purchaser's knowledge, any of the Identified Persons has any contract,
arrangement, understanding or relationship with any other person with respect to
any Property Partnership Units, including, but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or voting
thereof, joint venture, loan or option arrangements, puts or calls, guarantees
or loans, guarantees against loss or the giving or withholding of proxies; (iv)
there have been no transactions or business relationships which would be
required to be disclosed under the rules and regulations of the SEC between any
of the Purchaser, Grove Property nor, to the best of the Purchaser's knowledge,
the Identified Persons, on the one hand, and the Property Partnership or its
affiliates, on the other hand; and (v) there have been no contracts,
negotiations or transactions between the Purchaser, Grove Property nor, to the
best of the Purchaser's knowledge, the Identified Persons, on the one hand, and
the Property Partnership or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, an election of trust managers or a sale or other transfer of a
material amount of assets.
Section 9. Interests of Certain Persons and Certain Transactions.
Because of the affiliations between the Purchaser, the general partner
of the Property Partnership and the Grove Companies, the Property Partnership
has advised the Purchaser that the Property Partnership and its general partner
are making no recommendation, and are remaining neutral, as to whether a Limited
Partner should accept this Exchange Offer. See "BENEFITS TO RELATED PARTIES" and
"CONFLICTS OF INTEREST." The general partner of the Property Partnership may
also have a conflict of interest in evaluating certain alternatives available to
the Property Partnership, such as the sale or liquidation of the Property
Partnership assets, in that such transactions may result in a reduction or
termination of fees payable to the general partner's affiliates pursuant to the
Property Partnership Agreement or otherwise.
Voting by the Purchaser. By virtue of the Consolidation Transactions,
the Purchaser is in a position to significantly influence or control the result
of any vote by Limited Partners. See "SPECIAL FACTORS-Ownership of Common
Units-Management of the Operating Partnership."
Financing Arrangements. The Purchaser expects to fund its obligations
in respect of this Exchange Offer (including funds for the purchase of tendered
Property Partnership Units of Non-Accredited Participants and Cash Election
Participants, to fund cash distribution requirements of the Liquidating
Partnerships and the out-of-pocket costs of the Purchaser in connection with
this Exchange Offer) from the proceeds of the Credit Facility.
Transactions with Affiliates. Pursuant to the Property Partnership
Agreement, the general partner of the Property Partnerships and their affiliates
receive various fees from the Property Partnerships. Certain of the Property
Partnerships are required to pay Grove Property, as successor to the Management
Company an annual fee ranging from $5,000 to $7,500.
In addition, one or more of the Grove Companies, as general partners of
each Property Partnership or as special limited partners, receives a percentage
of net profits, losses and distributions of cash flow of such Property
Partnership of between 0.5% and 15% and increasing to 25% to 40% of residuals,
after payment of priority items. Each Property Partnership has retained Grove
Property, as successor to the Management Company, to manage its respective
Partnership Properties for a fee equal to 4% to 6% of gross collections (the
"Property Management Fee").
Except as described above concerning the Consolidation Transactions,
there were no material transactions between the general partner of any Property
Partnership or its affiliates, on the one hand, and any Property Partnership, on
the other hand, during 1994, 1995 or 1996 or the five-month period ended May 31,
1997.
<PAGE>
Section 10. Source of Funds.
The Purchaser expects that up to approximately $769,925 in Cash
Consideration will be required in connection with this Exchange Offer if all of
the outstanding Property Partnership Units are tendered by Limited Partners whom
the Purchaser believes are not Accredited Investors and all Accredited Limited
Partners elect to tender for Cash Consideration. None of the required funds will
be paid by the Property Partnership. The Purchaser will obtain such funds from
sources described in Section 9.
"Interests of Certain Persons and Certain Transactions."
Section 11. Conditions of this Exchange Offer.
Notwithstanding any other term of this Exchange Offer, the Purchaser
shall not be required to accept for exchange or payment or to exchange or pay
for any Property Partnership Units tendered if all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any court, administrative agency or commission or
other governmental authority or entity, domestic or foreign, necessary for the
consummation of the transactions contemplated by this Exchange Offer shall not
have occurred, been filed or obtained. Further, notwithstanding any other term
of this Exchange Offer, the Purchaser shall not be required to accept for
exchange or payment or to exchange or pay for any Property Partnership Units not
theretofore accepted for payment or paid for, and may terminate or amend this
Exchange Offer as to such Property Partnership Units if, at any time on or after
the date of this Exchange Offer and before the acceptance of such Property
Partnership Units for exchange or payment or the exchange or payment therefor,
any of the following conditions exists: (a) a preliminary or permanent
injunction or other order of any federal or state court, government or
governmental authority or agency shall have been issued and shall remain in
effect which (i) makes illegal, delays or otherwise directly or indirectly
restrains or prohibits the making of this Exchange Offer or the acceptance for
payment of or payment for any Property Partnership Units by the Purchaser, (ii)
imposes or confirms limitations on the ability of the Purchaser effectively to
exercise full rights of ownership of any Property Partnership Units purchased;
including, without limitation, the right to vote any Property Partnership Units
acquired by the Purchaser pursuant to this Exchange Offer or otherwise on all
matters properly presented to each Property Partnership's Limited Partners,
(iii) requires divestiture by the Purchaser of any Property Partnership Units,
(iv) causes any material diminution of the benefits to be derived by the
Purchaser as a result of the transactions contemplated by this Exchange Offer or
(v) might materially adversely affect the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the Purchaser or any Property Partnership; (b) there shall be any action
taken, or any statute or rule, regulation or order proposed, enacted, enforced,
promulgated, issued or deemed applicable to this Exchange Offer by any federal
or state court, government or governmental authority or agency, which might,
directly or indirectly, result in any of the consequences referred to in clauses
(i) through (v) of paragraph (a) above; (c) any change or development shall have
occurred or been threatened since the date hereof, in the business, properties,
assets, liabilities, financial condition, operations, results of operations or
prospects of the Property Partnership which, in the sole judgment of the
Purchaser, is or may be materially adverse to the Property Partnership, or the
Purchaser shall have become aware of any fact that in the sole judgment of the
Purchaser, does or may have a material adverse effect on the value of the
Property Partnership Units; (d) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in the United
States, (ii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States, (iii) any limitation by any
governmental authority on, or other event which might affect, the extension of
credit by lending institutions or result in any imposition of currency controls
in the United States, (iv) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the United
States, (v) a material change in United States or other currency exchange rates
or a suspension of a limitation on the markets thereof or (vi) in the case of
any of the foregoing existing at the time of the commencement of this Exchange
Offer, a material acceleration or worsening thereof; or (e) it shall have been
publicly disclosed or the Purchaser shall have otherwise learned that more than
five percent of the outstanding Property Partnership Units of any Property
Partnership have been or are proposed to be acquired by another person
(including a "group" within the meaning of Section 13(d)(3) of the Exchange
Act).
The foregoing conditions are for the sole benefit of the Purchaser and
may be asserted by the Purchaser regardless of the circumstances giving rise to
such conditions, or may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion. Any determination by the
Purchaser concerning the events described above will be final and binding upon
all parties.
Section 12. Certain Legal Matters.
General. Except as set forth in this Section 12, the Purchaser is not
aware of any filings, approvals or other actions by any domestic or foreign
governmental or administrative agency that would be required prior to the
acquisition of Property Partnership Units by the Purchaser pursuant to this
Exchange Offer. Should any such approval or other action be required, it is the
Purchaser's present intention that such additional approval or action would be
sought. While there is no present intent to delay the purchase of Property
Partnership Units tendered pursuant to this Exchange Offer pending receipt of
any such additional approval or the taking of any such action, there can be no
assurance that any such additional approval or action, if needed, would be
obtained without substantial conditions or that adverse consequences might not
result to any Property Partnership's business, any of which could cause the
Purchaser to elect to terminate this Exchange Offer without purchasing Property
Partnership Units thereunder. The Purchaser's obligation to purchase and pay for
Property Partnership Units is subject to certain conditions, including
conditions related to the legal matters discussed in this Section 12.
Antitrust. The Purchaser does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition
of Property Partnership Units contemplated by this Exchange Offer.
Margin Requirements. The Property Partnership Units are not "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve System and, accordingly, such regulations are not applicable to this
Exchange Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations or other entities which are incorporated in such
states or which have substantial assets, security holders, principal executive
offices or principal places of business therein. If any state anti-takeover
statute is applicable to this Exchange Offer, the Purchaser might be unable to
accept for payment or purchase Property Partnership Units tendered pursuant to
this Exchange Offer or be delayed in continuing or consummating this Exchange
Offer. In such case, the Purchaser may not be obligated to accept for purchase
or pay for any Property Partnership Units tendered.
Section 13. Fees and Expenses.
The Purchaser will pay all costs and expenses of printing and mailing
this Exchange Offer and its legal and accounting fees and expenses, including
reimbursement to Grove Companies for the overhead cost of personnel directly
involved in this Exchange Offer. The Property Partnership will not pay for any
of these costs. The Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to this
Exchange Offer. However, certain trust managers, officers and employees of the
Purchaser and its affiliates will answer questions regarding this Exchange Offer
and assist Limited Partners in completing the Letter of Transmittal if they
request such help. Such trust managers, officers and employees will not be
additionally compensated by the Purchaser or its affiliates for answering such
questions.
Section 14. Other Matters.
This Exchange Offer is not being made to (nor will tenders be accepted
from or on behalf of) Limited Partners residing in any jurisdiction in which the
making of this Exchange Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such jurisdiction.
However, the Purchaser may, in its discretion, take such action as it may deem
necessary to make this Exchange Offer in any jurisdiction and extend this
Exchange Offer to Limited Partners in such jurisdiction.
The Property Partnership and its General Partner have advised the
Purchaser that they are not making any recommendation to any Limited Partners as
to whether to tender Property Partnership Units pursuant to this Exchange Offer.
No person has been authorized to make any recommendation or representation on
behalf of the Purchaser, any general partner of the Property Partnership, the
Property Partnership or any of their respective affiliates or to provide any
information other than as contained herein or in the Letter of Transmittal and,
if given or made, such information or representation must not be relied upon as
having been authorized.
Facsimile copies of the Letter of Transmittal, properly completed and
duly executed, will be accepted. The Letter of Transmittal and any other
required documents should be sent or delivered to the Purchaser at its address
set forth below.
Any questions or requests for assistance or for additional copies of
this Offer to Exchange, the Letter of Transmittal and other tender offer
materials may be directed to the Purchaser at the telephone number and address
below.
GROVE OPERATING, L.P.
<PAGE>
GROVE OPERATING, L.P.
By Hand or Overnight Delivery Facsimile Transmission:
c/o Grove Property Trust (860) 527-0401
598 Asylum Avenue To Confirm Receipt of
Hartford, Connecticut 06105 Facsimile Transmissions:
(800) 246-1126 ext. 143 or 128
Questions or requests for assistance or additional copies of this Offer
to Exchange and the Letter of Transmittal may be directed to the addresses and
telephone numbers set forth below. Limited Partners may also contact their
brokers, dealers, commercial banks or trust companies for assistance.
GROVE OPERATING, L.P.
c/o Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Telephone:
(860) 246-1126
ext. 143 or 128
Att'n: Sheila Daley or Michele Hull
<PAGE>
APPENDIX "A"
to
EXCHANGE OFFER
TEXT OF AMENDMENTS TO
HERITAGE COURT ASSOCIATES LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
The following shall be inserted as a new Section 4.10 of the
Partnership's Partnership Agreement and shall read in its entirety as follows:
4.10
(A) Notwithstanding any provision contained herein to the contrary, in
connection with a liquidation of the Partnership, the General Partner is
expressly authorized to effect a distribution of the Partnership's property or
of other property other than cash to the General Partner and its affiliates in
respect of their partnership interests; provided, that if such a distribution of
property is made, the General Partner or its affiliates shall make cash
available to the Partnership in an amount sufficient to enable the Partnership
to make a simultaneous cash distribution to the Limited Partners in respect of
their partnership interests.
(B) Notwithstanding any provision contained herein to the contrary, if the
Partnership effects a distribution of its property or other property other than
cash in connection with a liquidation of the Partnership pursuant to the
consolidation transactions contemplated by the Exchange Offer Statement, dated
June 17, 1997, from Grove Operating, L.P., a Delaware limited partnership, to
the Limited Partners (the "Exchange Offer Statement"), and the Minimum
Percentage Condition (as defined in the Exchange Offer Statement) is satisfied
as to the Partnership, the value of the Partnership shall be deemed to be
$774,420.
<PAGE>
Legal Opinion of Counsel
<PAGE>
APPENDIX "I"
Copies of materials filed by Grove Property Trust with the Securities and
Exchange Commission, including Grove Property Trust's Proxy Statement dated
February 13, 1997, as well as copies of any of the documents discussed in the
Exchange Offer, are available for distribution to Limited Partners upon request.
Interested Limited partners should contact Grove at the address and phone
numbers specified in the Letter of Transmittal that accompanies this Exchange
Offer. Many limited partners of the Property Partnership were also partners in
Property Partnerships which participated in the Consolidation Transaction, and
received a preliminary copy of such Proxy Statement in the form of Appendix "I"
to the Initial Exchange Offer, dated December 2, 1996. The Purchaser encourages
Limited Partners who did not receive a copy of such preliminary proxy or who
have misplaced it to request a copy of the Proxy Statement, for more information
relating to the Consolidation Transactions and the business of Grove Property
Trust, and certain risks and conflicts associated with its business, including a
pro forma composite financial statement (unaudited) of Grove Property Trust
reflecting the consummation of the Consolidation Transactions.
Attached hereto is a copy of Form 10-QSB, for the quarter ended March 31, 1997,
filed by Grove Property Trust with the Securities and Exchange Commission, which
contains certain Condensed Consolidated balance sheets, income statements and
cash flows of Grove Property Trust for the period ended March 31, 1997. Please
refer to the notes that accompanying such statements.
Grove Property Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and files reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at certain of its regional offices, the current
addresses of which are: New York Regional Office, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Northwestern Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the SEC, Washington, D.C.
20549, at prescribed rates. In addition, the SEC maintains a Web site that
contains reports, proxy statements and other information regarding registrants
that file electronically with the SEC at the following address:
http://www.sec.gov. Since the Common Shares are also listed on the American
Stock Exchange, reports, proxy statements and other information relating to
Grove Property Trust can also be inspected at the offices of the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York 10006.
The following documents have been filed by Grove Property Trust with the SEC,
are available for review by interested Limited Partners, and are incorporated in
this Exchange Offer by reference:
1. Grove Property Trust's Annual Report on Form 10-KSB for the year
ended December 31, 1996;
2. Grove Property Trust's Current Report on Form 8-K dated
February 21, 1997;
3. Grove Property Trust's two Current Reports on Form 8-K
dated March 14, 1997;
4. Grove Property Trust's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1997;
5. Grove Property Trust's definitive Proxy Statement dated
February 13, 1997, distributed in connection with its Special
Meeting of Shareholders held on March 10, 1997; and
6. Grove Property Trust's definitive Proxy Statement dated May 16, 1997,
distributed in connection with its Annual Meeting of Shareholders to be held on
June 18, 1997.
- --------
(1) Includes Common Units an Executive Officer may be deemed to own
beneficially as a result of his ownership of entities included in the
Grove Companies, based solely on his pro rata ownership of the equity of
that entity. One or more of the Executive Officers may have acquired
additional Common Units as a result of the Operating Partnership's
acquisition of interests in three of the Excluded Properties in June,
1997. One or more of the Executive Officers may be deemed to own
beneficially additional Common Units held by the Grove Companies pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as a
result of such Executive Officer's ability to exercise control over voting
and/or investment decisions with respect to one or more of the entities
included in the Grove Companies.
