Registration No. 333-_____
As Filed with the Securities and Exchange Commission
on September 30, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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GROVE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
06-1391084
(I.R.S. Employer Identification No.)
598 Asylum Avenue
Hartford, Connecticut 06105
(860) 246-1126
(Address including zip code, and telephone number,
including area code of registrant's principal executive offices)
Joseph R. LaBrosse
Chief Financial Officer
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
(860) 246-1126
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Paul G. Hughes, Esq.
Cummings & Lockwood
Four Stamford Plaza
107 Elm Street, P.O. Box 120
Stamford, Connecticut 06904-0120
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Approximate date of commencement of proposed sale to the public: from
time to time within two years after the effective date of this Registration
Statement, as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
<PAGE>
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered offering price per share* aggregate offering price* registration fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, par
value $0.01 per share 3,333,333 $11.875 $39,583,329 $13,649.43
shares
</TABLE>
* Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the amount of the registration fee, based upon the average of the high and low
sale prices of a Common Share of the Registrant on the American Stock Exchange
for September 25, 1997
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
GROVE PROPERTY TRUST
598 ASYLUM AVENUE
HARTFORD, CONNECTICUT 06105
3,333,333 COMMON SHARES
PAR VALUE $0.01 PER SHARE
This Prospectus relates to 3,333,333 Common Shares, par value $0.01 per
share (the "COMMON SHARES"), of Grove Property Trust, a Maryland real estate
investment trust ("GROVE PROPERTY TRUST" or the "COMPANY"), to be offered or
sold from time to time for the account of certain shareholders of the Company
(the "SELLING SHAREHOLDERS").
The Common Shares covered by this Prospectus were issued by the Company
in private placement transactions pursuant to Securities Purchase Agreements
("SECURITIES PURCHASE AGREEMENTS") with the Selling Shareholders. See
"Selling Shareholders" and "Plan of Distribution."
The Common Shares may be offered for sale and sold by the Selling
Shareholders from time to time on the American Stock Exchange (or other such
Exchange upon which the Company's Common Shares may be listed at the time of
sale) at prevailing market prices, in privately negotiated transactions at
negotiated prices, in a combination of such methods of sale, or otherwise as
determined by the Selling Shareholders. The Selling Shareholders may effect
such transactions by selling the Common Shares offered hereby to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of discounts or commissions from the Selling Shareholders the purchasers of
the Common Shares for whom such broker-dealers may act as agents or to whom
they sell as principals, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). See "Plan of
Distribution."
The Company will not receive any part of the proceeds from the sale of
the Common Shares offered hereby. The Selling Shareholders will pay all
applicable stock transfer taxes and brokerage commissions, but the Company
will bear all other expenses of the Company and the Selling Shareholders in
connection with the offering made hereunder, including the Company's legal and
accounting fees connected therewith.
The Common Shares are listed on the American Stock Exchange under the
symbol "GVE." The last reported sale price of the Common Shares on the
American Stock Exchange on September 25, 1997 was $11.875 per share.
The Selling Shareholders and any brokers, dealers or agents who
participate in the sale of the Common Shares may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and the commissions paid or discounts
allowed to any such brokers, dealers or agents, in addition to any profits
received on resale of the Common Shares offered hereby, if any such broker,
dealer, agent or underwriter should purchase any such Common Shares as a
principal, may be deemed to be underwriting discounts or commissions under the
Securities Act.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN
INVESTMENT IN THE COMMON SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is __________, 1997.
<PAGE>
TABLE OF CONTENTS
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Forward Looking Statements................................................ 4
The Company............................................................... 5
Risk Factors.............................................................. 5
Use of Proceeds...........................................................15
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................16
Description of Capital Stock..............................................17
Selling Shareholders......................................................22
Plan of Distribution......................................................25
Legal Opinion.............................................................26
Experts...................................................................26
Index to Financial Statements.............................................F-1
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, BY THE SELLING SHAREHOLDERS OR BY ANY OTHER PERSON DEEMED TO BE AN
UNDERWRITER. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON SHARES COVERED BY THIS PROSPECTUS
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "COMMISSION"). Such reports,
proxy statements and other information filed by the Company can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates, or accessed electronically on the
Commission's Web Site at http:\\www.sec.gov.
The Common Shares are listed on the American Stock Exchange under the
symbol "GVE." The Company's reports, proxy statements, and other information
concerning the Company may also be inspected at the offices of the American
Stock Exchange at 86 Trinity Place, New York, New York 10006.
The Company has filed a Registration Statement on Form S-3 (the
"REGISTRATION STATEMENT") with the Commission in accordance with the
provisions of the Securities Act with respect to the Common Shares subject to
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Shares covered
hereby, reference is made to the Registration Statement and the exhibits filed
as part thereof. Statements herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement. The
Registration Statement and the exhibits may be inspected without charge at the
offices of the Commission, or copies thereof may be obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, except for Items 6 and 7;
2. The Company's Quarterly Reports on Form 10-QSB for the quarter ended
March 31, 1997 and the quarter ended June 30, 1997, as amended;
3. The Company's Current Reports on Form 8-K dated February 21, 1997,
March 14, 1997, May 30, 1997, as amended, July 2, 1997, as amended, and
September 2, 1997;
4. The Company's definitive Proxy Statement distributed in connection with
its Special Meeting of Shareholders held on March 10, 1997, except for pages
F-15 through F-25, page F-40 and pages F-43 through F-47 insofar as they
contain information with respect to the year ended December 31, 1994; and
5. The Company's definitive Proxy Statement distributed in connection with
its Annual Meeting of Shareholders held on June 18, 1997.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold, or which
deregisters all securities then remaining unsold,
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<PAGE>
shall be incorporated by reference into this Registration Statement and to
be a part hereof from the date of filing of such documents. Any statement
contained in this Prospectus will be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded will not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
To the extent that independent accountants audit and report on financial
statements of the Company issued at future dates, and consent to the use of
their reports thereon, such financial statements shall also be incorporated by
reference in this Registration Statement in reliance upon their reports and
their authority as experts in accounting and auditing.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any and all information that has
been incorporated by reference in the Registration Statement (other than
exhibits to such information, unless such exhibits are specifically
incorporated by reference into any such information). Requests should be
directed to: Grove Property Trust, 598 Asylum Avenue, Hartford, Connecticut
06105, Attention: Joseph R. LaBrosse, Chief Financial Officer, Telephone
number: (860) 246-1126.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS OR INCORPORATED BY REFERENCE CERTAIN STATEMENTS
THAT ARE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THESE STATEMENT INCLUDE,
AMONG OTHER THINGS, STATEMENTS CONCERNING RESULTS OF OPERATIONS, CASH
AVAILABLE FOR DISTRIBUTIONS, REQUIRED CAPITAL EXPENDITURES, SOURCES OF GROWTH,
ECONOMIC CONDITIONS AND TRENDS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS. INVESTORS IN THE COMMON SHARES OFFERED HEREBY ARE
CAUTIONED THAT RELIANCE ON ANY FORWARD LOOKING STATEMENT INVOLVES RISKS AND
UNCERTAINTIES AND THAT, ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS ON
WHICH THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN OR INCORPORATED HEREIN
BY REFERENCE ARE OR WILL BE BASED ARE OR WILL BE REASONABLE, ANY OF THOSE
ASSUMPTIONS COULD PROVE TO BE INACCURATE, AND, AS A RESULT, THE FORWARD
LOOKING STATEMENTS BASED ON THOSE ASSUMPTIONS COULD ALSO BE INCORRECT. THE
UNCERTAINTIES IN THIS REGARD INCLUDE, BUT ARE NOT LIMITED TO, (I) THOSE
IDENTIFIED HEREIN UNDER "RISK FACTORS," (II) POPULATION SHIFTS WHICH MAY
INCREASE OR DECREASE THE DEMAND FOR RENTAL HOUSING, (III) THE VALUE OF
COMMERCIAL AND RESIDENTIAL RENTAL PROPERTIES IN THE NORTHEAST WHERE ALL OF THE
COMPANY'S PROPERTIES ARE LOCATED, IN RECENT YEARS, HAVE FLUCTUATED
CONSIDERABLY, (IV) THE EFFECT ON THE COMPANY'S PROPERTIES OF COMPETITION FROM
NEW APARTMENT COMPLEXES WHICH MAY BE COMPLETED IN PROXIMITY TO SUCH PROPERTIES
THEREBY INCREASING COMPETITION, (V) THE EFFECT OF WEATHER AND OTHER CONDITIONS
WHICH CAN SIGNIFICANTLY AFFECT PROPERTY OPERATING EXPENSES, (VI) THE
AVAILABILITY OF ACQUISITION FINANCING OR REFINANCING, (VII) COMPLIANCE WITH
APPLICABLE LAWS AND REGULATIONS AND (VIII) OTHER FACTORS WHICH MIGHT BE
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE COMMISSION. IN
ADDITION, THE COMPANY IS SUBJECT TO THE EFFECTS OF CHANGES IN GENERAL BUSINESS
AND ECONOMIC CONDITIONS. IN LIGHT OF THESE AND OTHER UNCERTAINTIES, THE
INCLUSION OR INCORPORATION OF A FORWARD LOOKING STATEMENT HEREIN SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY THAT THE COMPANY'S PLANS AND
OBJECTIVES WILL BE ACHIEVED.
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<PAGE>
THE COMPANY
The Company, which was formed in 1994, is a self-managed and self-
administered real estate investment trust ("REIT") organized under Maryland
law. It is engaged, through Grove Operating, L.P., a limited partnership of
which the Company is the sole General Partner, principally in the business of
acquiring, redeveloping, managing and operating multi-family residential
properties located in the Northeastern region of the United States. As of
September 15, 1997, the Company has a controlling interest in 29 properties
containing approximately 2,750 residential units and one retail shopping
center containing approximately 79,000 square feet. Reference is made to the
information incorporated herein for a more complete description of the
Company's business and of its properties.
The Company's executive offices are located at 598 Asylum Avenue,
Hartford, Connecticut 06105, and its telephone number is (860) 246-1126.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED HEREBY SHOULD
CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER
INFORMATION CONTAINED HEREIN OR INCORPORATED BY REFERENCE, BEFORE MAKING AN
INVESTMENT IN THE COMMON SHARES OFFERED HEREBY.
POTENTIAL CONFLICTS OF INTEREST
The executive officers of the Company (the "EXECUTIVE OFFICERS") or
entities affiliated with the Executive Officers have in the past been parties
to transactions with the Company or its affiliates. Of the Company's ___
Properties, __ Properties were acquired by the Company from entities affiliated
with Executive Officers. As a result, these persons may have interests that
conflict with those of the shareholders of the Company. While the Company has
entered into non-competition agreements with each of the Executive Officers
and certain of their affiliates designed to eliminate or minimize conflicts
of interest and the Third Amended and Restated Declaration of Trust (the
"CHARTER") includes a provision which requires the composition of the Board
of Trust Managers of the Company at all times to consist of a majority of
Independent Trust Managers (as defined in the Charter), there can be no
assurance that the provisions of the non-competition agreements or the Charter
will be successful in eliminating the impact of conflicts among the Executive
Officers and the Company. Accordingly, the interests of the Company's
shareholders may not have been, and in the future may not be, reflected fully
in all decisions made or actions taken or to be taken by certain officers and
of the Company. See "Certain Relationships and Transactions." The Company
may in the future explore the possibility of purchasing an 88-unit property
in Western Massachusetts currenly managed by the Company and in which certain
of the Executive Officers own a 50% interest.
In March 1997, certain affiliates of the Executive Officers entered into
a Contribution Agreement (the "CONTRIBUTION AGREEMENT") with the Company and
Grove Operating, L.P. Because of substantial economic interests of the
Executive Officers in entities which are parties to the Contribution
Agreement, there is a potential for a conflict of interest with respect to the
obligations of the Executive Officers as executive officers of the Company
in enforcing the terms of the Contribution Agreement. The Company's failure
to enforce the material terms of the Contribution Agreement, particularly
the indemnification provisions and the remedy provisions for breaches
of representations and warranties, could result in a monetary loss to the
Company.
In addition, the affiliates of the Executive Officers who entered into
the Contribution Agreement, as well as Executive Officers or affiliates
thereof who have contributed properties to the Company in the past, may have
unrealized gain or their interests in such properties contributed to the
Company. The sale of such properites by the Company may cause adverse tax
consequences to such Executive Officers or affiliates. Therefore, the
interests of the Company and such Executive Officers and affiliates could
be different in connection with the disposition of such properties.
However, decisions regarding such dispositions must be made by the Board
of Trust Managers, a majority of which is composed of Independent Trust
Managers.
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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, if any, and capital
expenditures, the Company's income and ability to make distributions to its
shareholders will be adversely affected. An apartment property's income and
value may be adversely affected by the national and regional economic
climates, local real estate conditions such as an oversupply of apartments
or a reduction in demand for apartments, availability of "for purchase"
housing, the attractiveness of the 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). The Company's income will also be adversely
affected if a significant number of tenants are unable to pay rent or if
the apartments cannot be rented on favorable terms. Certain significant
expenditures associated with each equity investment in real estate (such
as mortgage payments, if any, real estate taxes and maintenance costs)
are generally not reduced when circumstances cause a reduction in rental
income. In addition, the 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 Grove Operating,
L.P. were to be liquidated, the proceeds realized by the Company at such time
might be less than the Company's total investment in Grove Operating, L.P. In
addition, the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE
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. In the normal course of its business, and
in the pursuit of its growth strategy, the Company intends to evaluate a
number of potential acquisitions in the Northeast and Mid-Atlantic regions.
The Company intends to continue to acquire multi-family residential
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.
Acquisitions may have characteristics or deficiencies unknown to the Company
affecting their valuation or revenue potential, and it is possible that the
operating performance of such potential acquisitions may decline under the
Company's management. No assurance can be given that the Company will have
the opportunity to make suitable acquisitions on terms favorable to it or
will be able successfully to integrate more properties into the Company's
portfolio.
RISKS OF RENOVATION. 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 anticipated rate of return on its
investment. In case of an unsuccessful renovation project, the Company's loss
could exceed its investment in such project. Renovation projects may be more
highly leveraged than the Company's portfolio as a whole, which may result in
an increased risk of default and loss of equity investment if the project does
not have sufficient cash flow to cover its relatively high debt service
requirements. In cases where the Company owns less than the entire interest
in a property, the Company may nevertheless be required to bear the entire
cost of a renovation project at such property. Further-
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more, the fact that the Company must distribute 95% of its REIT taxable
income in order to maintain its qualification as a REIT under the Internal
Revenue Code will limit the ability of the Company to rely upon income from
operations or cash flow from operations to finance new acquisitions. The
Company may finance acquisitions with lines of credit. As a result, if
permanent debt or equity financing were not available on acceptable terms
to refinance new acquisitions undertaken without permanent financing, further
acquisitions might be curtailed or cash available for distribution might be
adversely affected.
RISKS RELATING TO DISTRIBUTIONS. The Company pays regular distributions
to its shareholders. No assurance can be given, however, that actual cash
available for distribution will not be substantially below the Company's
expectations. In addition, the Company's ability to make distributions will
depend, in large part, on the performance of its properties including any
properties it may acquire in the future, including occupancy levels,
expenditures with respect to existing and newly acquired properties,
the amount of the Company's debt and the interest rates thereon and other
costs relating to the properties, as well as the absence of significant
expenditures relating to environmental or other regulatory matters. Most of
these matters are beyond the control of the Company and any significant
difference between the Company's expectations with respect to these matters
and actual results could have a material adverse effect on the Company and its
ability to make or sustain distributions.
CHANGES IN LAWS. Because increases in income and service taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make expected
distributions to shareholders. The Company's properties are also subject to
various federal, state, and local regulatory requirements, such as
requirements of the Americans with Disabilities Act (the "ADA") and state and
local fire and safety requirements. Failure to comply with these requirements
could result in the imposition of fines by governmental authorities or awards
of damages to private litigants. Although the Company believes that the
properties are in substantial compliance with all such requirements currently
in effect, the Company may incur additional costs to comply with such
requirements. Additionally, there can be no assurance that these requirements
will not change or that new requirements will not be imposed which would
require significant unanticipated expenditures by the Company and could have an
adverse effect on the Company's cash flow and ability to make distributions.
COMPLIANCE WITH ADA AND THE FAIR HOUSING AMENDMENTS ACT OF 1988. The ADA
may require modifications to existing buildings or restrict certain renovations
by requiring access to such buildings, and apartments in the buildings, by
disabled persons. In addition, the Fair Housing Amendments Act of 1988
("FHAA") requires apartment communities first occupied after March 13, 1990 to
be accessible to the handicapped. Failure to comply with these laws could
result in the imposition of fines or an award of damages to private litigants.
Additional legislation may impose further burdens or restrictions on owners
with respect to access by disabled persons. The costs of compliance with such
laws may be substantial, and limits or restrictions on completion of certain
renovations may reduce overall returns on its investments. Although the
Company believes that all of its properties are in substantial compliance with
such laws currently in effect, the Company may incur additional costs to
comply with such laws. Although the Company believes that such costs will not
have a material adverse effect on the Company, if required changes involved a
greater expenditure than the Company currently anticipates, the Company's
ability to make expected distributions could be adversely affected.
COMPETITION. There are numerous real estate companies, including those
which operate in the areas in which the Company's 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, certain of the Company's
properties compete with properties in which the Executive Officers or their
affiliates have a direct or indirect economic interest. Further, the
availability of single-family housing and other forms of multi-family
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 Company's
properties.
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PURCHASE PRICE OF PROPERTIES MAY EXCEED PROPERTIES' FAIR MARKET VALUE
The Company has in the past, and may in the future, acquire properties,
including properties in which Executive Officers or their affiliates have a
direct or indirect economic interest, without obtaining an independent
appraisal of such properties or their earnings and earnings potential. As a
result, there can be no assurance that the prices paid by the Company for such
projects accurately reflect their fair market values. If the fair market
values of such properties are materially different from the amounts paid by
the Company, there could be a material and adverse effect on the financial
performance of the Company and the value of the Common Shares offered hereby.
LIMITATION ON CONTROL OF PARTIALLY OWNED PROPERTIES
Certain of the Company's current properties are not entirely owned by the
Company, and the Company may hereafter acquire properties in which it will own
less than the entire interest. To the extent that other persons continue to
have a minority interest in such properties, the Company may have certain
fiduciary responsibilities to such persons which it will need to consider when
making decisions that affect those properties (including decisions regarding
sale, refinancing and the timing and amount of distributions from such
properties). Potential conflicts and other problems which could adversely
affect the Company and its shareholders could arise as a consequence of these
ownership arrangements.
DEPENDENCE ON LIMITED GEOGRAPHIC AREA
The Company's properties are located in Connecticut, Rhode Island and
Massachusetts and consist principally of multi-family residential projects.
The Company's performance is thus linked to economic conditions in the
Southern New England area and to the market for apartments therein.
Management believes these markets are experiencing improved stability in jobs
and population, since the severe local recession in the early 1990's. The
Company's cash flow, ability to make distributions to its shareholders and the
value of the Common Shares will be dependent upon economic conditions and the
demand for the rental of apartments in individual markets in which the
Company's properties are located.
EXPANSION OF THE COMPANY INTO NEW GEOGRAPHIC MARKETS
The Company currently intends to seek to acquire properties in geographic
markets other than those markets in which its current properties are located
including other states in the New England and Mid-Atlantic regions. Those may
include markets in which the Company has little or no prior experience in the
acquisition and management of multi-family residential or other properties.
Any such new geographic market may be substantially dissimilar to the markets
in which the Company currently owns and operates its properties, and
management of the Company may be unfamiliar with prevailing economic
conditions, trends in the real estate market, and other factors which may
adversely affect the Company's ability to acquire properties therein for
competitive purchase prices and to manage such properties effectively and
profitably thereafter. If purchase prices paid by the Company for such
properties exceed their fair market value or the Company is unable to manage
such properties so as to cause them to be profitable, it would have an adverse
effect on the financial performance of the Company and the value of the Common
Shares.
REAL ESTATE FINANCING RISKS
INABILITY TO PAY DEBT SERVICES. The Company will be subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest. If the Company or a partnership in which it invests is unable to
meet its debt service obligations under its mortgage loans, a loss could be
sustained as a result of foreclosure on the relevant property by the
mortgagee. Certain indebtedness of the Company is secured by mortgages on a
number of its properties. The cross-collateralization of the mortgages on
various properties reduces flexibility in selling individual properties.
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VARIABLE RATE DEBT. The Company's debt includes both fixed rate and
variable rate debt with interest rates that adjust based upon prevailing
market interest rates. A substantial portion of the Company's debt bears
interest at variable rates. Because of the significant amount of the
Company's debt, the Company's interest expense constitutes a material
component of its expenses. An increase in interest rates could have a
material adverse effect on the Company's results of operations and on the
ability of the Company to make distributions on the Common Shares.
REFINANCING RISKS. Because the Company anticipates that only a small
portion of its 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 its 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 persons who may hold minority interests in certain of its properties to
sell or refinance such properties, its flexibility will be limited. If
prevailing interest rates or other factors at the time of refinancing result
in higher interest rates on refinancing, the Company's interest expense would
increase, which would adversely affect the Company's cash available for
distributions and its ability to pay distributions on the Common Shares.
RECOURSE DEBT. While a portion of the Company's debt is non-recourse
which means that the lender has no remedy in the event of default other than
against the property or properties securing such debt, a substantial portion
of the Company's debt are general recourse obligations of the Company. To the
extent that the debt is recourse, it is a general obligation of the Company or
Grove Operating, L.P. payable out of any unencumbered assets, and the lender's
recourse will not be limited solely to the collateral securing the debt.
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 Grove Operating, L.P.
regarding indebtedness, without the vote of the holders of Common Shares or
Common Units. If these policies are changed, the Company and Grove Operating,
L.P. could become more highly leveraged, resulting in an increased risk of
default on the obligations of the Company and Grove Operating, L.P. and an
increase in debt service requirements which could adversely affect the
financial condition and results of operations of the Company and,
consequently, the Company's ability to pay distributions on the Common Shares.
DEPENDENCE ON KEY PERSONNEL; LIMITED EXPERIENCE OF MANAGEMENT
The Company is dependent on the efforts of all of the Executive Officers.
While the Company believes that it could find replacements for these key
personnel, the loss of their services could have a material adverse effect on
the operations of the Company. Currently, the Company has no intention to
secure key-man life insurance for the Executive Officers in the near future.
Management of the Company has limited experience in the operation of a REIT
and the operation of a public company, although they have had substantial
experience in the acquisition and management of multi-family residential and
mixed-use properties. 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.
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ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company currently intends to continue operating so as to qualify as a
REIT under the Internal Revenue Code. A REIT generally is not taxed at the
corporate level on income it currently distributes to shareholders so long as
it distributes at least 95% of its REIT taxable income. No assurance can be
given that the Company will be able to operate in a manner so as to remain so
qualified. Qualification as a REIT involves the application of highly
technical and complex provisions of the Internal Revenue Code for which there
are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect its ability to continue to qualify as a REIT.
The complexity of these provisions and of the applicable income tax
regulations that have been promulgated under the Internal Revenue Code is
greater in the case of a REIT that holds its assets through a partnership. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not change tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
If the Company fails to qualify as a REIT in any taxable year, the
Company will not be allowed a deduction for distributions to shareholders in
computing its taxable income and will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
the applicable corporate rate. In addition, unless it were entitled to relief
under certain statutory provisions, the Company also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification is lost. This disqualification would reduce the funds of
the Company available for investment or distribution to shareholders because
of the additional tax liability to the Company for the year or years involved.
If the Company were to fail to qualify as a REIT, it no longer would be
subject to the distribution requirements of the Internal Revenue Code, and to
the extent that distributions to shareholders would have been made in
anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its assets to pay the
applicable corporate tax.
Although the Company currently intends to 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.
INABILITY TO MAKE REQUIRED DISTRIBUTIONS TO SHAREHOLDERS COULD AFFECT REIT
STATUS; POTENTIAL REQUIREMENTS TO BORROW
To obtain the favorable tax treatment accorded to a REIT under the
Internal Revenue Code, the Company generally will be required each year to
distribute to its shareholders at least 95% of its REIT taxable income. The
Company will be subject to income tax on any undistributed REIT taxable income
and net capital gain, and to a 4% nondeductible excise tax on the amount, if
any, by which certain distributions paid by it with respect to any calendar
year are less than the sum of 85% of its ordinary income plus 95% of its
capital gain net income for the calendar year, plus 100% of its undistributed
income from prior years.
The Company intends to make distributions to its shareholders to comply
with the distribution provisions of the Internal Revenue Code and to avoid
income taxes and the nondeductible 4% excise tax. The Company's income will
consist primarily of the Company's share of the income of Grove Operating,
L.P. and the Company's cash flow will consist primarily of its share of
distributions from the Grove Operating, L.P. In turn, Grove Operating,
L.P.'s income and cash flow will consist primarily of Grove Operating, L.P.'s
share of the income and cash flow, respectively, of the properties it owns or
controls. Differences in timing between the receipt of income and the payment
of expenses in arriving at taxable income (of the Company or Grove Operating,
L.P.) and the effect of nondeductible capital expenditures, the creation of
reserves or required debt amortization payments could require the Company to
borrow funds through Grove Operating, L.P. on a short-term or long-term basis
to meet the distribution requirements that are necessary to continue to
qualify as a REIT. In such circumstances, the Company might need to borrow
funds to avoid adverse tax consequences even if management believes that the
then prevailing
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market conditions are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations. If
the Company is unable to obtain such borrowings, the Company could be
disqualified from REIT treatment.
Distributions by Grove Operating, L.P. will be determined by the Company,
as the sole general partner, through the Board, and will be dependent on a
number of factors, including the amount of cash available for distribution,
Grove Operating, L.P.'s financial condition and the financial condition of
each property in which the Company holds an interest, any decision by the
Board to reinvest funds rather than to distribute such funds, the capital
expenditure requirements relating to the properties in which the Company holds
an interest, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code and such other factors as the Board deems relevant.
There is no assurance that the Company will be able to continue to satisfy the
annual distribution requirement so as to qualify as a REIT.
For federal income tax purposes, distributions paid to holders of Common
Shares may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. The Company will provide the holders of
Common Shares with an annual statement indicating the tax character of the
distributions.
NECESSITY TO MAINTAIN OWNERSHIP LIMIT REQUIRED TO MAINTAIN REIT QUALIFICATION;
ANTI-TAKEOVER EFFECT
For the Company to maintain its qualification as a REIT, not more than
50% in value of the outstanding capital stock may be owned, actually or
constructively under the applicable attribution rules of the Internal Revenue
Code, by five or fewer individuals (including certain tax-exempt entities,
other than, in general, qualified domestic pension funds) at any time during
the last half of any taxable year of the Company (the "five or fewer"
requirement). The Charter contains certain restrictions on the ownership and
transfer of Common Shares or Preferred Shares (as defined) (together, "EQUITY
SHARES"), described below, which are intended to prevent concentration of
share ownership. These restrictions, however, may not ensure that the Company
will be able to satisfy the "five or fewer" requirement in all cases. If the
Company fails to satisfy such requirement, the Company's status as a REIT will
terminate, and the Company will not be able to prevent such termination.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its shareholders. Moreover, unless entitled to relief under
certain statutory provisions, the Company also would be ineligible for
qualification as a REIT for the four taxable years following the year during
which qualification was lost. Such disqualification would reduce the net
earnings of the Company available for investment or distribution to the
holders of Common Shares due to the additional tax liability of the Company
for the years involved.
The Charter does not permit any person to own more than 5.0% of the
number of outstanding Equity Shares (subject to adjustment by the Board) (the
"OWNERSHIP LIMIT") or to own constructively (within the meaning of the
Internal Revenue Code) in excess of 9.8% of the outstanding Equity Shares (the
"CONSTRUCTIVE OWNERSHIP LIMIT), subject to certain exceptions. Each
percentage is based on the value or the number of shares, whichever is more
restrictive. In addition, no shareholder of the Company may sell, transfer,
assign, devise or otherwise dispose of Equity Shares if such a disposition
would result in (i) Common Shares and/or Preferred Shares being owned by fewer
than 100 shareholders; (ii) the Company's being "closely held" within the
meaning of Section 856(h) of the Internal Revenue Code; or (iii) the Company's
failing to qualify as a REIT.
Under the Charter, any attempted transfer of shares by a person, or other
change in the capital structure of the Company, which would violate one of the
limitations described above will cause the shares in excess of such limits
(the "EXCESS SHARES") to be automatically transferred to a special trust for
the benefit of a charitable beneficiary (a "SPECIAL TRUST") or, under certain
circumstances, the transfer resulting in such violation will be deemed void AB
INITIO. Upon any transfer that results in Excess Shares pursuant to the
foregoing, such Excess
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Shares will be deemed to have been transferred to the trustee of a Special
Trust and will be considered issued and outstanding shares. The trustee of
the Special Trust will be entitled to voting, dividend and other distribution
rights on such Excess Shares, and any dividend or other distribution paid
prior to the discovery by the Company that the Common and/or Preferred Shares
have been transferred so as to be deemed Excess Shares must be repaid to the
trustee of the Special Trust upon demand. The Board may waive the Ownership
Limit or the Constructive Ownership Limit with respect to a particular
shareholder if it is satisfied, based on the receipt of certain
representations and undertakings from the Person seeking to own shares in
excess of the Ownership Limit or the Constructive Ownership Limit, that such
ownership in excess of the Ownership Limit will not jeopardize the Company's
status as a REIT. Subject to certain limitations, the Board may from time to
time increase or decrease the Ownership Limit or the Constructive Ownership
Limit.
Limiting the ownership of more than 5.0% of the outstanding Equity Shares
and constructive ownership of more than 9.8% of the outstanding Equity Shares
may (i) discourage a change of control of the Company; (ii) deter tender
offers for Common Shares, which offers may be attractive to the Company's
shareholders; or (iii) limit the opportunity for the Company's shareholders to
receive a premium for the Common Shares that might otherwise exist if an
investor attempted to assemble a block of Common Shares in excess of the
Ownership Limit or the Constructive Ownership Limit or to effect a change
of control of the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS MAY INHIBIT A CHANGE IN CONTROL OF THE
COMPANY
Certain provisions of the Charter and the Bylaws of the Company 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 the
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 of the Company.
Preferred Shares. The Charter permits the Board to issue up to 4.0
million preferred shares of beneficial interest, par value $0.01 per share
("PREFERRED SHARES"), and to establish the preferences and rights (including
the right to vote and the right to convert into Common Shares) of any such
Preferred Shares issued. Thus, the Board could authorize the issuance of
Preferred Shares with terms and conditions which could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the Common Shares might receive a premium for their Common Shares
over the then-prevailing market price of the Common Shares.
OWNERSHIP LIMIT AND CONSTRUCTIVE OWNERSHIP LIMIT. The Ownership Limit
and the Constructive Ownership Limit may also have the effect of precluding an
acquisition of control of the Company without the approval of the Board. The
Ownership Limit and the Constructive Ownership Limit might deter tender offers
for Common Shares, which offers may be advantageous to the Company's
shareholders, and might limit the opportunity for the Company's 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 the
Ownership Limit or the Constructive Ownership Limit or otherwise effect a
change of control of the Company.
STAGGERED BOARD. The Board has three classes of trust managers, with the
terms of one-third of the trust managers expiring each year. The affirmative
vote of the holders of two-thirds of the Common Shares then outstanding and
entitled to vote is required for the removal of trust managers, and such
removal can be only for cause (as defined in the Charter).
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
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petroleum products released on, under, in or emitting from such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean up
responsibility and liability without regard to whether the owner knew of or
caused the presence of the contaminants, and the liability under such laws has
been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for an allocation of responsibility. The cost of
investigation, remediation or removal of such substances may be substantial,
and the presence of such substances or the failure to remediate the
contamination properly on such property may adversely affect the owner's
ability to sell or rent such property or to borrow using such property as
collateral. Moreover, certain loan documents provide for recourse liability
in connection with the presence of hazardous or toxic materials. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site. In
connection with its ownership and operation of its properties or any
properties it acquires in the future, the Company is potentially liable for
such costs.
Recently-enacted federal legislation requires owners and landlords of
residential housing constructed prior to 1978 to disclose to potential
residents or purchasers of the properties any known lead-paint hazards and
will impose treble damages for failure to give the required notice. 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
lead-based paint are ingested, and the Company may be held liable under state
laws for any injuries caused by ingestion of lead-based paint by children
living at the properties.
Certain environmental laws impose liability for release of asbestos-
containing materials ("ACM's") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
suffered by reason of ACM's. On account of its ownership and operation of its
properties, the Company, Grove Operating, L.P. and any partnership holding an
interest in any of the Company's properties are potentially liable for such
costs.
No assurance can be given: (i) that existing environmental studies for
the Company's properties reveal all environmental liabilities; (ii) that any
prior owner thereof or resident therein did not and will not in the future
create any environmental condition with material adverse consequences to the
Company; or (iii) that future laws or regulations will not require any
material expenditures by, or create any environmental liabilities for, the
Company in the future.
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, including the Common Shares offered hereby, or the availability
of such shares for future sale will have on the market price of the Common
Shares. Sales of substantial amounts of Common Shares (including shares which
might be issued upon a redemption of Common Units), 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 Grove
Operating, L.P. to issue additional Common Units or other classes of units of
interest in Grove Operating, L.P. in any manner it deems appropriate,
including in exchange for property. Shareholders of the Company will have no
preemptive right to purchase shares or units issued in any such offerings, and
any such offerings might cause a dilution of the shareholders' investment in
the Company.
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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 Company's shareholders. Accordingly, the Company's shareholders will
have no control over changes in strategies and policies of the Company, and
such changes may not serve the interests of all the Company's shareholders and
could adversely affect the Company's financial condition or results of
operations.
ISSUANCE OF ADDITIONAL SECURITIES. The Company has authority to offer its
Common Shares or other equity or debt securities in exchange for property or
otherwise. Similarly, the Company may cause Grove Operating, L.P. to offer
additional Common Units or preferred units of Grove Operating, L.P., including
offers in exchange for property to sellers who seek to defer certain of the
tax consequences relating to a property transfer. Holders of Common Shares
and Common Units have no preemptive right to acquire any such securities, and
any such issuance of equity securities could result in dilution in a
shareholder's investment in the Company.
EFFECT ON HOLDERS OF COMMON SHARES OF AN ISSUANCE OF PREFERRED SHARES.
The Board is empowered by the Company's Charter to designate and issue from
time to time one or more classes or series of preferred shares without
shareholder approval. The Board may determine the relative rights,
preferences, and privileges of each class or series of preferred shares so
issued. Because the Board has the power to establish the preferences and
rights of each class or series of preferred shares, it may afford the holders
in any series or class of preferred shares preferences, distributions, powers
and rights, voting or otherwise, senior to the rights of Common Shares.
RISKS INVOLVED IN ACQUISITIONS THROUGH PARTNERSHIPS OR JOINT VENTURES.
The Company has and may in the future invest in apartment properties through
partnerships 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, including the Company's policy with respect to
maintaining its qualification as a REIT. There is no limitation in the
Charter as to the amount of investment the Company may make in joint ventures
or partnerships.
RISKS INVOLVED IN INVESTMENTS IN SECURITIES RELATED TO REAL ESTATE. The
Company has and may in the future pursue its investment objectives through the
ownership of securities of entities engaged in the ownership of real estate.
Ownership of such securities may not entitle the Company to control the
ownership, operation and management of the underlying real estate. In
addition, the Company may have no ability to control the distributions with
respect to such securities, which may adversely affect the Company's ability
to make distributions on the Common Shares. Furthermore, if the Company
desires to control an issuer of securities, it may be prevented from doing so
by the limitations on percentage ownership and gross income tests which must
be satisfied by the Company in order for the Company to qualify as a REIT.
The Company intends to operate its business in a manner that will not require
the Company to register under the Investment Company Act of 1940 and
shareholders will therefore not have the protection of that Act.
The Company may also invest in mortgages and may do so as a strategy for
ultimately acquiring the underlying property. In general, investments in
mortgages include the risk that borrowers may not be able to make debt service
payments or pay principal when due, the risk that the value of the mortgaged
property may be less than the principal amount of the mortgage note securing
such property and the risk that interest rates payable on the mortgages may be
lower than the Company's cost of funds to acquire these mortgages. In any of
these events, cash
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available for distributions and the Company's ability to make distributions on
the Common Shares could be adversely affected.
UNINSURED LOSS
The Company carries comprehensive liability, fire, flood (where
appropriate and available) and extended coverage insurance (excluding rental
loss) with respect to its properties with policy specifications, limits and
deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses which may be either uninsurable or not
economically insurable, such as those resulting from earthquakes, volcanoes,
floods, tidal waves, explosion of water pipes, nuclear hazards, wars, civil
disturbances and environmental matters. Should an uninsured loss or a loss in
excess of insured limits occur, the Company could lose both its investment in
and anticipated profits and cash flow from a property while it would continue
to be obligated on any mortgage indebtedness or other financial obligations on
such property. Any such loss would adversely affect the Company. Moreover,
as the general partner of Grove Operating, L.P., the Company generally will be
liable for any of Grove Operating, L.P.'s unsatisfied obligations other than
non-recourse obligations. Similarly, as the general partner of other
partnerships which hold certain of the Company's properties, Grove Operating,
L.P. generally will be liable for any unsatisfied obligations of such
partnerships other than non-recourse obligations.
ADVERSE CONSEQUENCES OF ELECTION TO REVOKE REIT ELECTION
The Board has the authority to revoke the Company's REIT election at any
time without shareholder approval. Although the Company currently intends to
operate in a manner designed to continue to qualify as a REIT, the Company is
aware that certain investors may question 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 the Company's REIT election.
USE OF PROCEEDS
The Common Shares subject to this Prospectus are being offered for the
account of the Selling Shareholders. None of the proceeds from the sale of
Common Shares offered hereby will be received by the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
HISTORICAL RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND
PROPERTY PARTNERSHIPS FOR THE YEAR ENDED DECEMBER 31, 1996 , COMPARED TO THE
YEAR ENDED DECEMBER 31, 1995
Burgundy Associates Limited Partnership acquired the Burgundy Studio
Apartments ("BURGUNDY") in September 1995, increasing its portfolio by 102
apartment homes. In December 1995 the Nautilus Properties Limited Partnership
acquired the Sandalwood Apartments ("SANDALWOOD") which was rebuilt during
1996. Construction was completed in October 1996. The total apartment homes
included in the Partnership Properties were 1,495 at December 31, 1996
compared to 1,456 at December 31, 1995.
Income before extraordinary items for Grove Property Services Limited
Partnership and the Property Partnerships for the year ended December 31, 1996
increased $484,000 to $627,000 for the year ended December 31, 1996 from
$143,000 for the year ended December 31, 1995. Net income decreased
$1,702,000 to $627,000 for the year ended December 31, 1996 from $2,329,000
for the year ended December 31, 1995. The increase was due primarily to an
increase in rental income of $941,000, a decrease in depreciation and
amortization of $85,000, offset in part by an increase in other property
operating expenses of $294,000, an increase in payroll of $135,000, an
increase in general and administrative of $18,000, an increase in real estate
taxes of $65,000, an increase in interest expense of $27,000 and a decrease in
extraordinary item-gain on restructuring of debt of $2,186,000. The
extraordinary item represents gains on restructuring of debt on various
mortgages due to banks.
Rental income for the Property Partnerships increased $941,000 to
$12,906,000 in 1996 from $11,965,000 in 1995. The increase was due to the
increase in total apartment homes discussed above, together with increases in
rental rates. The weighted average rental rates for the multi-family
residential Partnership Properties increased to $693 for the year ended
December 31, 1996 from $677 for the year ended December 31, 1995. Economic
occupancy for the Partnership Properties decreased to an aggregate weighted
average of 96.7% for the year ended December 31, 1996 from an aggregate
weighted average of 97.4% for the year ended December 31, 1995. Economic
occupancy was 96.2% at December 31, 1996. The average physical occupancy of
the commercial Partnership Properties increased to 97.9% for the year ended
December 31, 1996 from 90.9% for the year ended December 31, 1995. The average
rent per square foot for the commercial Partnership Properties increased to
$1.00 for the year ended December 31, 1996 from $0.82 for the year ended
December 31, 1995.
Property management revenue for the Management Company decreased
$696,000 to $777,000 in 1996, from $1,473,000 in 1995. The decrease was due
primarily to a reclassification of $582,000 of brokerage fee income to other
income and a decrease in third party management contracts.
Interest and other income for Grove Property Services Limited Partnership
and the Property Partnerships increased $693,000 to $1,138,000 in 1996 from
$445,000 in 1995 primarily due to the reclassification of brokerage fees as
discussed above and an increase in sales of condominiums at the Avonplace
Condominiums.
Other property operating expenses for Grove Property Services Limited
Partnership and the Property Partnerships increased $294,000 to $3,212,000 in
1996 from $2,918,000 in 1995. The increase is due primarily to the additional
expenses of the Burgundy and Sandalwood properties. As a percentage of rental
revenue, allocated payroll and other property operating expenses were 44.2%
for 1996, compared to 44.1% for 1995.
Allocated payroll for Grove Property Services Limited Partnership and the
Property Partnerships increased $135,000 to $2,493,000 in 1996 from $2,358,000
in 1995. The increase is due to the additional payroll from the
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Burgundy and Sandalwood properties and the costs related to an increase in
personnel of Grove Property Services Limited Partnership.
Real estate taxes for the Property Partnerships increased $65,000 to
$1,299,000 in 1996 from $1,234,000 in 1995, due primarily to an increase in
the number of Partnership Properties owned by the Property Partnerships for
1996.
Interest expense for Grove Property Services Limited Partnership and the
Property Partnerships increased $27,000 to $3,856,000 in 1996 from $3,829,000
in 1995. The increase was primarily due to the increased debt levels relating
to acquisitions and refinancings made by the Property Partnerships during
1996, offset by lower interest rates during 1996.
DESCRIPTION OF CAPITAL STOCK
The following summary of the Company's capital stock does not purport to
be complete, and is qualified in its entirety by reference to the pertinent
sections of the Company's Third Amended and Restated Declaration of Trust
dated March 14, 1997 (the "CHARTER"), a copy of which is available upon
request from the Company.
The Company is a REIT. Rights of shareholders are governed by the
Maryland Real Estate Investment Trust Act and related statutes (collectively,
the "MARYLAND REIT ACT"), the Charter and the Company's Bylaws.
COMMON SHARES IN GENERAL. The Charter provides that the Company may
issue up to 14,000,000 shares of beneficial interest, consisting of 10,000,000
Common Shares and 4,000,000 Preferred Shares, par value $.01 (the "PREFERRED
SHARES"). The Transfer Agent and Registrar for the Common Shares is The First
National Bank of Boston.
INDEMNIFICATION FOR, AND LIMITATION ON, LIABILITY. Both the Maryland
REIT Act and the Charter provide that no shareholder will be personally liable
for any obligation of the Company solely as a result of his, her or its status
as a shareholder of the Company. The Bylaws further provide that the Company
shall indemnify each shareholder against any claim or liability for which the
shareholder may become subject by reason of being or having been a
shareholder, and that the Company shall pay or reimburse each shareholder for
all legal and other expenses reasonably incurred in connection with any such
claim or liability. In addition, it is the Company's policy that shareholders
assume no personal liability for obligations entered into on behalf of the
Company. However, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain
statutory liability, shareholders may, in some jurisdictions, be personally
liable to the extent that such claims are not satisfied by the Company.
Inasmuch as the Company carries public liability insurance which it believes
would be adequate, any risk of personal liability to shareholders is limited
to a situation in which the Company's assets plus its insurance coverage would
be insufficient to satisfy such claims against the shareholders.
Under the Charter and the Company's Bylaws, the Company has similar
indemnification obligations to the Company's trust managers and officers and
to persons who, at the request of the Company, serve or have served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, shareholder or trustee to the maximum
extent permitted by Maryland law as in effect from time to time unless
(a) such person's act or omission was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (b) such person actually receives an improper benefit
or profit in money, property or services actually received or (c) in the case
of a criminal proceeding, such person had reasonable cause to believe his or
her act or omission was unlawful. The Charter further provides that, to the
maximum extent permitted by Maryland law as in effect from time to time, no
trust manager or officer is liable to the Company or any shareholder of the
Company for money damages. Under the Maryland REIT Act, the provision of the
Charter limiting the liability of trust managers and officers is not
applicable (a) to the extent that it is proved that the trust manager or
officer actually received an improper benefit or profit in money, property or
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services, for the amount of the benefit or profit in money, property or
services actually received or (b) to the extent that a judgment or other final
adjudication adverse to the trust manager or officer is entered in a
proceeding based on a finding in the proceeding that such trust manager's or
officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. Indemnification of any such person by the Company may also be
made in accordance with any indemnification agreement which the Company may
enter into with such person.
RIGHTS WITH RESPECT TO DIVIDENDS AND IN THE EVENT OF LIQUIDATION,
DISSOLUTION OR WINDING-UP. All issued and outstanding Common Shares are duly
authorized, fully paid and nonassessable. Subject to the preferential rights
of any other shares or series of shares of beneficial interest (if any),
holders of Common Shares are entitled to receive dividends if, as and when
authorized and declared by the Board out of assets legally available therefor,
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
VOTING RIGHTS. Each outstanding Common Share entitles the holder thereof
to one vote on all matters submitted to a vote of shareholders, including the
election of trust managers, and, except as otherwise required by law or except
as provided with respect to any other class or series of shares of beneficial
interest, the holders of Common Shares will possess exclusive voting power.
Shareholders have the right to vote only on the following matters: (a) the
election or removal of trust managers, (b) the amendment of the Charter, (c)
the voluntary dissolution or termination of the Company, (d) the
reorganization of the Company and (e) the merger or consolidation of the
Company or the sale or other disposition of all or substantially all of its
assets. There is no cumulative voting in the election of trust managers,
which means that the holders of a majority of the outstanding Common Shares
can elect all of the trust managers then standing for election, and the
holders of the remaining shares of beneficial interest, if any, will not be
able to elect any trust managers. A declaration of trust may permit the trust
managers to amend the declaration of trust by a two-thirds vote of the trust
managers from time to time to qualify as a REIT under the Internal Revenue
Code or the Maryland REIT Act without the affirmative vote or written consent
of the shareholders. The Charter permits such action by the Board.
The Company's Bylaws contain provisions requiring shareholders to
provide advance notice to the Company before presenting a nomination or
bringing any other business before an annual meeting of the Company's
shareholders. Such notice must be received by the Company not less than 60
nor more than 90 days before the first anniversary of the preceding year's
annual meetings. Different timing requirements apply if the date of the
annual meeting is more than 30 days before or 60 days after such first
anniversary. The Company's Bylaws further specify information which must be
included in any such notice. If a shareholder fails to comply with these
procedures, any nomination or other business which the shareholder proposes to
bring before the annual meeting will be considered not properly brought before
the meeting.
OTHER RIGHTS. Under the Maryland REIT Act and the Charter holders of
Common Shares have no conversion, sinking fund, redemption or preemptive
rights to subscribe for any securities of the Company. Subject to the
provisions of the Charter regarding Excess Shares, and to any future
classification of Common Shares (see "--Classification or Reclassification of
Common Shares or Preferred Shares" and "--Preferred Shares in General"),
Common Shares have equal voting, dividend, distribution, liquidation and other
rights, and have no preference, exchange or, except as expressly required by
the Maryland REIT Act, appraisal rights.
PREFERRED SHARES IN GENERAL. Preferred Shares may by issued from time to
time, in one or more series, as authorized by the Board. Prior to issuance of
shares of each series, the Board is required by the Maryland REIT Act and the
Charter to designate for each such series, subject to the provisions of the
Charter regarding Excess Shares, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. The Board could authorize the issuance of
Preferred Shares with terms and conditions which could have the effect of
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<PAGE>
discouraging a takeover or other transaction which holders of some, or a
majority, of the Common Shares might believe to be in their best interests or
in connection with which holders of some, or a majority, of the Common Shares
might receive a premium for their Common Shares over the then market price of
such Common Shares. As of the date hereof, no Preferred Shares are
outstanding.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES.
Subject to the express terms of any series of Preferred Shares or any class of
Common Shares then outstanding and to the provisions of the Charter regarding
Excess Shares, the Charter authorizes the Board to increase or decrease the
number of, alter the designation of or classify or reclassify any unissued
shares by setting or changing, in any one or more respects, from time to time
before issuing the shares, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of any
series or class of shares.
RESTRICTIONS ON TRANSFER. In order for the Company to qualify as a REIT
under the Internal Revenue Code, Equity Shares (I.E., Common Shares or
Preferred Shares) must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year. Also, not more than 50% of the value of the issued
and outstanding Equity Shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities such as qualified private pension plans) during the last half of a
taxable year or during a proportionate part of a shorter taxable year.
Because the Company expects to continue to qualify as a REIT, the Charter
contains restrictions on the ownership and transfer of Equity Securities which
are intended to assist the Company in complying with these requirements. The
Charter provides that, subject to certain specified exceptions, (i) no person
or entity (except for executive officers of the Company) may own more than
5.0%, or be deemed to own by virtue of the applicable constructive ownership
provisions of the Internal Revenue Code, more than 9.8% (by number or value,
whichever is more restrictive) of the outstanding Equity Shares (I.E., the
Ownership Limit and the Constructive Ownership Limit, respectively) and no
executive officer of the Company may, nor may the executive officers in the
aggregate, own more than 20% of the outstanding Equity Shares (by number or
value, whichever is the more restrictive) (the "EXECUTIVE OFFICER OWNERSHIP
LIMIT"). The constructive ownership rules of the Internal Revenue Code are
complex and may cause Equity Shares owned actually or constructively by a
group of related individuals and/or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 5.0% or 20%
of the Equity Shares (or the acquisition of an interest in an entity that
owns, actually or constructively, Equity Shares) by an individual or entity
could nevertheless cause that individual, or another individual or entity, to
own constructively in excess of 5.0% or 20% of the outstanding Equity Shares
and thus subject such Equity Shares to the Ownership Limit, the Constructive
Ownership Limit or the Executive Officer Ownership Limit, as the case may be.
The Board may, but in no event is required to, waive the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit with
respect to a particular shareholder if it determines that such ownership will
not jeopardize the Company's status as a REIT. As a condition to such waiver,
the Board may require undertakings or representations from the applicant with
respect to preserving the REIT status of the Company.
The Charter further prohibits (a) a person from actually or
constructively owning Equity Shares that would result in the Company's being
"closely held" under Section 856(h) of the Internal Revenue Code or otherwise
cause the Company to fail to qualify as a REIT (including, but not limited to,
ownership that would result in the Company's owning (actually or
constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Internal Revenue Code if the income derived by the
Company (either directly or through one or more partnerships) from such tenant
would cause the Company to fail to satisfy any of the gross income
requirements of Section 856(c) of the Internal Revenue Code) and (b) any
person from transferring Equity Shares if such transfer would result in Equity
Shares being owned by fewer than 100 persons. Any person who acquires or
attempts or intends to acquire Equity Shares that will or may violate any of
the foregoing restrictions on transferability and ownership is required to
give notice immediately to the Company and to provide the Company with such
other information as the
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<PAGE>
Company may request in order to determine the effect of such transfer on the
Company's status as a REIT. The foregoing restrictions on transferability and
ownership will not apply if the Board determines that it is no longer in the
best interest of the Company to attempt to quality, or to continue to qualify,
as a REIT.
The Charter provides that, if any purported transfer of Equity Shares or
any other event would otherwise result in any person's violating the Ownership
Limit, the Constructive Ownership Limit, the Executive Officer Ownership Limit
or the Charter, then, unless the Board has waived compliance with the
Ownership Limit, the Constructive Ownership Limit or the Executive Officer
Ownership Limit, as the case may be, any such purported transfer will be void
AB INITIO and of no force or effect with respect to the purported transferee
(the "PROHIBITED TRANSFEREE") as to that number of Equity Shares in excess of
the Ownership Limit, the Constructive Ownership Limit or the Executive Officer
Ownership Limit, as the case may be, and the Prohibited Transferee shall
acquire no right or interest (or, in the case of any event other than a
purported transfer, the person or entity holding record title to any such
Equity Shares in excess of the Ownership Limit, the Constructive Ownership
Limit or the Executive Officer Ownership Limit, as the case may be (the
"PROHIBITED OWNER") shall cease to own any right or interest) in such Equity
Shares. Any such Equity Shares described above will be transferred
automatically, by operation of law, to a Special Trust (the "SPECIAL TRUST"),
the beneficiary of which will be a qualified charitable organization selected
by the Company (the "BENEFICIARY").
Any automatic transfer described in the preceding paragraph shall be
deemed to be effective as of the close of business on the business day prior
to the date of such violative transfer. Within 20 days of receiving notice
from the Company of the transfer of Equity Shares to the Special Trust, the
trustee of the Special Trust (who shall be designated by the Company and be
unaffiliated with the Company and any Prohibited Transferee or Prohibited
Owner (the "SPECIAL TRUSTEE") will be required to sell such shares to a person
or entity who could own such shares without violating the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, as the
case may be, and distribute to the Prohibited Transferee an amount equal to
the lesser of the price paid by the Prohibited Transferee for such Equity
Shares or the net sales proceeds received by the Special Trust for such Equity
Shares.
In the case of any Equity Shares in excess of the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, as the
case may be, resulting from an event other than a transfer, or from a transfer
for no consideration (such as a gift), the Special Trustee will be required to
sell such Equity Shares to a qualified person or entity and distribute to the
Prohibited Owner an amount equal to the lesser of the fair market value of
such Equity Shares as of the date of such event or the sale proceeds received
by the Special Trust for such Equity Shares. In either case, any proceeds in
excess of the amount distributable to the Prohibited Transferee or Prohibited
Owner, as applicable, will be distributed to the Beneficiary. Prior to a sale
by the Special Trust of any Equity Shares in excess of the Ownership Limit,
the Constructive Ownership Limit or the Executive Officer Ownership Limit, the
Special Trustee will be entitled to receive, in trust for the Beneficiary, all
dividends and other distributions paid by the Company with respect to such
Equity Shares. Subject to Maryland law, effective as of the date that such
Equity Shares have been transferred to the Special Trust, the Special Trustee
shall have the authority (at the Special Trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Transferee prior to the
discovery by the Company that such Equity Shares have been transferred to the
Special Trustee and (ii) to recast such vote in accordance with the desires of
the Special Trustee acting for the benefit of the Beneficiary. However, if
the Company has already taken irreversible action, then the Special Trustee
shall not have the authority to rescind and recast such vote. Any dividend or
other distribution paid to the Prohibited Transferee or Prohibited Owner
(prior to the discovery by the Company that such shares had been automatically
transferred to the Special Trust as described above) will be required to be
repaid to the Special Trustee upon demand for distribution to the Beneficiary.
In the event that the transfer to the Special Trust as described above is not
automatically effective (for any reason) to prevent violation of the Ownership
Limit, the Constructive Ownership Limit or the Executive Officer Ownership
Limit, as the case may be, then the Charter provides that the transfer of the
Equity Shares will be void.
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<PAGE>
In addition, Equity Shares held in the Special Trust shall be deemed to have
been offered for sale to the Company or its designee, at a price per Equity
Share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift,
the market price at the time of such devise or gift) and (ii) the market price
on the date the Company or its designee accepts such offer. The Company shall
have the right to accept such offer until the Special Trustee has sold the
Equity Shares held in the Special Trust. Upon such a sale to the Company, the
interest of the Beneficiary in the shares sold shall terminate, and the
Special Trustee shall distribute the net proceeds of the sale to the
Prohibited Transferee or Prohibited Owner, as the case may be and any
dividends or distributions held by the Special Trustee with respect to such
Equity Shares shall thereupon be paid to the Beneficiary.
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
Each shareholder will, upon demand, be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of Common Shares as the Board deems reasonably
necessary to comply with the provisions of the Internal Revenue Code
applicable to a REIT. These ownership limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares
over the then prevailing market price or which such holders might believe to
be otherwise in their best interest.
REPORTS. Shareholders will receive annual reports containing audited
financial statements with a report thereon by the Company's independent
certified public accountants and quarterly reports containing unaudited
financial information for each of the first three quarters of each fiscal
year.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of September 25, 1997, (i) the names
of the Selling Shareholders and any position, office or other material
relationship with the Company, its predecessors or affiliates, within the past
three years; (ii) the number of Common Shares currently owned by the Selling
Shareholders; (iii) the maximum number of Common Shares to be offered and sold
by the Selling Shareholders; and (iv) the number of Common Shares to be owned
after the sale assuming the sale of all Common Shares offered hereby. This
information is based on data furnished to the Company by or on behalf of the
Selling Shareholders.
<TABLE>
<CAPTION>
Common
Shares to be
Common Shares Common Shares to Owned After
Name Currently Owned be Offered Sale
- ------------------------------------- ------------------------- ------------------------- ----------------
<S> <C> <C> <C>
Dr. C.V. Alexander, Jr. 60,732 60,732 0
Bruce and Deborah Seltzer 3,813 3,813 0
Dr. Edward Benjamin 2,942 2,942 0
Robert D. Carl, III 20,809 20,809 0
Jody and Edith Chapnick 37,475 37,475 0
Mr. Keith Cich 7,626 7,626 0
Dr. Steven Cohen 16,288 16,288 0
Wasdale Trust FBO David S. Collins 11,242 11,242 0
Rosset Trust FBO Holiday Collins 11,242 11,242 0
Philip B. Crosby Revocable Trust 7,626 7,626 0
John Dale 3,813 3,813 0
The Gerald Entine 1988 Family Trust 15,253 15,253 0
Mark Epstein 2,235 2,235 0
Dr. Alan S. Friedman 7,626 7,626 0
Holiday Trust FBO Holiday Collins 7,495 7,495 0
David Collins Trustee
Dr. John S. Jaffe 22,222 22,222 0
Dr. Terry A. Johnston 3,490 3,490 0
Lion Castle Trust FBO Jennifer 7,495 7,495 0
Collins, David Collins Trustee
Andrew L. Nichols 7,626 7,626 0
Dr. Marc R. Peck 3,468 3,468 0
Donald E. Procknow 2,777 2,777 0
Larry and Nancy Roth 7,626 7,626 0
Judith K. Seltzer 10,404 10,404 0
Dr. Alan Simpson 3,468 3,468 0
Mr. Charles Smith 7,626 7,626 0
Robert and Mary Soleau 3,813 3,813 0
Dr. Charles S. Walkoff 15,253 15,253 0
Ronald Altman 16,666 16,666 0
Henry W. Berinstein 5,555 5,555 0
Ronney A. Berinstein 13,900 13,900 0
Bendor Management LTD 8,335 8,335 0
Ann N. Berinstein 5,000 5,000 0
Estate of Benjamin M. Berinstein - 1,115 1,115 0
Trust "A", William P. Berinstein,
Trustee
ANB Enterprises Corporation 2,800 2,800 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Common
Shares to be
Common Shares Common Shares to Owned After
Name Currently Owned be Offered Sale
- ------------------------------------- ------------------------- ------------------------- ----------------
<S> <C> <C> <C>
Martin Bernstein 20,000 20,000 0
Rory A, Brown 188,888 188,888 0
William J. Connors 20,000 20,000 0
Dr. Karen Cooper 5,555 5,555 0
Arthur S. DeMoss Foundation 188,888 188,888 0
Millenco, LP 188,888 188,888 0
Englander Specialist Corp. 111,111 111,111 0
Terry Feeney 1,111 1,111 0
Norman M. Feinberg 22,222 22,222 0
N. Scott and Cathy M. Fine JT/WROS 27,777 27,777 0
William A. and Susan Stafford Jolly 27,777 27,777 0
JT/WROS
Richard S. Frary 11,111 11,111 0
GT Special Situations, L.P. 166,666 166,666 0
Brett Hildebrand 22,222 22,222 0
Richard B. Jennings 22,222 22,222 0
LKCM Investment Partnership 111,111 111,111 0
James D. Lackie 11,111 11,111 0
Taylor M. and Margaret C. Lackie 11,111 11,111 0
Trust William M. Vaughan, Jr.
Trustee
Carol Lamberg 11,111 11,111 0
Arthur W. Langel 22,222 22,222 0
Jodie E. Langel 2,777 2,777 0
David M. McGrath 11,111 11,111 0
Benjamin W. and Kelly K. Navarro 35,555 35,555 0
Ralph B. Paterline 5,555 5,555 0
Dennis B. Poster 15,698 15,698 0
Joan Poster 11,111 11,111 0
Meredith Poster 5,555 5,555 0
Cynthia Poster 5,555 5,555 0
The Trust U/W/O Dora Aronson, FBO 5,555 5,555 0
Audrey Aronson, Dennis B. Poster,
Trustee
Aronson Family Trust 11,111 11,111 0
D.J. Nordquist 5,555 5,555 0
Matthew W. Quigley 15,000 15,000 0
Victor P. Serodino 11,111 11,111 0
Elizabeth Shuldiner Revocable Trust 5,600 5,600 0
UA 3/20/90
Kenneth W. Slutsky 22,000 22,000 0
Mary Kim McMillan 16,000 16,000 0
National Fire and Casualty 22,000 22,000 0
Ashmont Insurance Co., LTD 44,000 44,000 0
Frank L. Flautt, Jr. Equity 22,000 22,000 0
Flautt Family Foundation, Inc. 11,000 11,000 0
Kyhler Investments L.P. 1994 11,000 11,000 0
Kyhler Investments 85-I 16,000 16,000 0
Cliffwood Equity Fund, L.P. 75,000 75,000 0
Cliffwood Real Estate Equity Fund LTD 91,800 91,800 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Common
Shares to be
Common Shares Common Shares to Owned After
Name Currently Owned be Offered Sale
- ------------------------------------- ------------------------- ------------------------- ----------------
<S> <C> <C> <C>
Frank Varallo 8,333 8,333 0
Babette B. Weksler 11,111 11,111 0
Stuzin Family Partnership, Ltd. 50,000 50,000 0
Charles B. Stuzin, Declaration of Trust 33,335 33,335 0
Stuzin Associates, Ltd. 16,665 16,665 0
L.A. & C. Limited Partnership 11,110 11,110 0
Oregon Investment Council Acting on 391,392 391,392 0
Behalf of Oregon Public Employees'
Retirement Fund Under Authority
Of Oregon Revised Statutes Section
293.741 By Its Agent ABKB/LaSalle
Securities Limited
Stichting Pensionenfonds ABP 197,121 197,121 0
Stichting Bedrijfspensionenfonds 10,000 10,000 0
voor de Metaalinjverheid
Morgan Stanley & Co. 70,707 70,707 0
Atwell 499,950 499,950 0
</TABLE>
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<PAGE>
PLAN OF DISTRIBUTION
The Common Shares offered hereby were issued by the Company to the
Selling Shareholders in transactions which were exempt from the registration
requirements of the Securities Act, and the Registration Statement has been
filed pursuant to a Registration Rights Agreement with the Selling
Shareholders dated March 14, 1997.
The Common Shares offered hereby may be offered for sale and sold from
time to time by the Selling Shareholders, or by pledgees, donees, transferees
or other successors in interest, within three years after the effective date
of the Registration Statement of which this Prospectus is a part or, if
shorter, the holding period under Rule 144(k) promulgated under the Securities
Act for persons who are not affiliates of the Company. The Selling
Shareholders, or such pledgees, donees, transferees or other successors in
interest, will act independently of the Company in making decisions with
respect to the timing, manner and size of each sale. Such sales may be made
on the American Stock Exchange or otherwise, at prevailing prices and on terms
then prevailing or at prices related to the then market price, or in
negotiated transactions.
The manner in which the Common Shares may be sold include, without
limitation, the following: (a) block trades in which the broker-dealer(s)
engaged by any of the Selling Shareholders will attempt to sell Common Shares
as agent but may position or resell a portion of the block as principal to
facilitate the transaction; (b) purchases by the broker-dealer(s) as
principals and resale by such broker-dealer(s) for their account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (d) in negotiated transactions; and (e) as
otherwise determined by any of the Selling Shareholders. In effecting sales,
broker-dealers engaged by any of the Selling Shareholders may arrange for
other broker-dealers to participate.
In order to comply with the securities laws of certain states, if
applicable, the Common Shares offered hereby may be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in
certain states the Common Shares offered hereby may not be sold unless they
have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and
is complied with by the Company and the Selling Shareholders.
The Selling Shareholders and any brokers, dealers, agents or underwriters
who participate in the sale of the Common Shares offered hereby may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securities Act
and the commissions paid or discounts allowed to any such brokers, dealers,
agents or underwriters, in addition to any profits received on resale of the
Common Shares offered hereby, if any such broker, dealer or agent should
purchase any Common Shares offered hereby as a principal, may be deemed to be
underwriting discounts or commissions under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Common Shares may not simultaneously engage
in market making activities with respect to the Common Shares of the Company
for a period of one business day prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Shareholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation,
Regulation M, which provisions may limit the timing of purchases and sales of
Common Shares by the Selling Shareholders.
The Company will not receive any part of the proceeds from the sale of
the Common Shares offered hereby. The Selling Shareholders will pay all
applicable brokerage commissions, stock transfer taxes and the fees of Selling
Shareholders' counsel in connection with the offer and sale of the Common
Shares offered hereby by the Selling Shareholders. The Company will bear all
other expenses in connection with the offering and sale of the Common Shares
offered hereby, including, without limitation, all registration and filing
fees, printing, messenger and delivery fees, and legal and accounting fees and
expenses. The Company is not obligated to bear and will not
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<PAGE>
bear any underwriting discounts or commissions relating to the use by the
Selling Shareholders of an underwriter in connection with the disposition of
Common Shares offered hereby.
There can be no assurances that the Selling Shareholders will sell any or
all of the Common Shares offered hereby. The Common Shares offered hereby
also may be sold pursuant to an available exemption from the registration
requirements of the Securities Act, including, without limitation, Rule 144
promulgated thereunder. The sale of Common Shares by "affiliates" (as defined
in Rule 144(a) under the Securities Act) are subject to the volume and manner
of sale restrictions set forth in Rule 144.
LEGAL OPINION
Certain legal matters with respect to the Registration Statement have
been passed upon for the Company by Cummings & Lockwood, Stamford, Connecticut
06904-0120. The validity of the Common Shares offered hereby has been passed
upon for the Company by Piper & Marbury L.L.P., Baltimore, Maryland 21201-
0489.
EXPERTS
The audited financial statements of the Grove Property Trust at December
31, 1996, and for each of the two years in the period ended December 31, 1996,
the combined balance sheet of Grove Property Services Limited Partnership and
Property Partnerships at December 31, 1996, and the related combined
statements of income, owners' equity and cash flows for the year ended
December 31, 1996 and the combined statements of revenues and certain expenses
of the, (i) September 1997 Property Acquisitions and (ii) Pending 1997
Property Acquisitions, for each of the two years in the period ended December
31, 1996, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements of Grove Property Services Limited
Partnership and Property Partnerships at December 31, 1995 and for each of the
two years in the period ended December 31, 1995, the balance sheet of Grove
Operating, L.P. at November 4, 1996 and the financial statements of Grove
Cambridge Associates Limited Partnership at December 31, 1995 and for the year
ended December 31, 1995, appearing in the Company's definitive Proxy Statement
dated February 13, 1997, and the statements of revenues and certain expenses of
the: (i) Four Winds Apartments for the period September 28, 1995 to December
31, 1995 and for the year ended December 31, 1996, (ii) Brooksyde Apartments
for the periods January 1, 1995 to September 30, 1995, October 1, 1995 to
December 31, 1995 and the year ended December 31, 1996, (iii) Rivers Bend
Apartments for the years ended December 31, 1995 and 1996 and (iv) Greenfield
Village Apartments for the years ended December 31, 1995 and 1996, appearing
in the Grove Property Trust's Current Reports on Form 8-K dated May 30, 1997
and July 2, 1997, both as amended, and all as incorporated by reference herein,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon included therein, and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGES
-----
GROVE PROPERTY TRUST (formerly known as Grove Real Estate Asset Trust)
Pro Forma Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997........F-2
Notes to Pro Forma Condensed Consolidated Balance Sheet...................F-4
Pro Forma Condensed Consolidated Statements of Income for
the Six Months Ended June 30, 1997 and the Year Ended
December 31, 1996.......................................................F-5
Notes to the Pro Forma Condensed Consolidated Statements of Income........F-8
Historical Financial Statements:
Report of Independent Auditors............................................F-11
Consolidated Balance Sheet as of December 31, 1996........................F-12
Statements of Income for the Years Ended December 31, 1996 and 1995.......F-13
Statements of Change in Shareholders' Equity for the Years
Ended December 31, 1996 and 1995........................................F-14
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995...F-15
Notes to the Financial Statements.........................................F-16
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
Combined Financial Statements:
Report of Independent Auditors............................................F-27
Combined Balance Sheet as of December 31, 1996............................F-28
Combined Statement of Income for the Year Ended December 31, 1996.........F-29
Combined Statement of Changes in Owners' Equity for the Year Ended
December 31, 1996.......................................................F-30
Combined Statement of Cash Flows for the Year Ended December 31, 1996.....F-31
Notes to the Combined Financial Statements................................F-32
SEPTEMBER 1997 PROPERTY ACQUISITIONS
Combined Financial Statements:
Report of Independent Auditors............................................F-38
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)..................................F-39
Notes to the Combined Statements of Revenues and Certain Expenses.........F-40
PENDING 1997 PROPERTY ACQUISITIONS
Combined Financial Statements:
Report of Independent Auditors............................................F-42
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)..................................F-43
Notes to the Combined Statements of Revenues and Certain Expenses........F-44
F-1
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
(Unaudited)
This unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if: (i) acquisitions completed or expected to be completed after June 30,
1997, had occurred on June 30, 1997, 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), September 1997 Property Acquisitions, Pending 1997
Property Acquisitions and financial statements of other properties acquired
during 1997 and Notes thereto included elsewhere or incorporated by reference
into this Registration Statement. In management's opinion, all adjustments
necessary to present fairly the effects of the above mentioned transactions
have been made.
The pro forma information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it indicative of the Company's future results.
June 30, 1997
-----------------------------------------------
Historical Post June 30,
Grove 1997
Property Trust Acquisitions Pro Forma
(A) (B) Consolidated
-----------------------------------------------
(In thousands)
ASSETS
Real estate, net $ 86,951 $ 24,927 $ 111,878
Cash and cash equivalents 1,762 (857) 905
Resident security deposits 1,170 - 1,170
Deferred costs, net 1,877 - 1,877
Due from affiliates 675 - 675
Other assets 527 - 527
-----------------------------------------------
Total assets $ 92,962 $ 24,070 $ 117,032
===============================================
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Balance Sheet (continued)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------
Historical Post June 30,
Grove 1997
Property Trust Acquisitions Pro Forma
(A) (B) Consolidated
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 44,028 $ 9,772 $ 53,800
Revolving credit facility 1,825 8,271 10,096
Accounts payable and other liabilities 1,421 900 2,321
Due to affiliates 88 200 288
Resident security deposits 1,170 - 1,170
Dividends payable 1,169 - 1,169
----------------------------------------------
Total liabilities 49,701 19,143 68,844
Minority interest in consolidated partnerships 4,891 - 4,891
Minority interest in operating partnership 16,109 4,927 21,036
Shareholders' equity:
Common shares 40 - 40
Additional paid-in capital 22,887 - 22,887
Distributions in excess of earnings (666) - (666)
----------------------------------------------
Total shareholders' equity 22,261 - 22,261
----------------------------------------------
Total liabilities and shareholders' equity $ 92,962 $ 24,070 $ 117,032
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
(Unaudited)
(A) Balance sheet data was derived from the Grove Property Trust financial
statements incorporated by reference into this Registration Statement.
(B) Balance sheet data reflects the following property acquisitions which
were consummated by the Company after June 30, 1997 or are under contract
to be acquired as follows (in thousands):
<TABLE>
<CAPTION>
Method Of Payment
-------------------------------------------------
Available
Cash or
Number of Date Acquired or Assumption Revolving
Units or Expected to be Purchase of Current Credit Assumption Value of
Properties Location Square Feet Acquired Price(3) Liabilities Facility Of Debt OP Units(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Greenfield Rocky Hill, CT 126 July 1, 1997 $ 4,282 $ - $ 4,282 $ - $ -
2. Glastonbury Glastonbury, CT 104 September 1, 5,254 200 197 4,423 434
1997
3. Summit and
Birch Hill Farmington, CT 184 September 1, 10,313 1,100 851 5,349 3,013
(2 properties) 1997
4. Corner Block
and The Wharf
(2 properties)(4) Edgartown, MA 16,427 sq November 1997(2) 4,421 - 2,941 - 1,480
ft
---------------------------------------------------------
24,270 1,300 8,271 9,772 4,927
Acquisition costs 657 657 - - -
---------------------------------------------------------
$ 24,927 $ 1,957 $ 8,271 $ 9,772 $ 4,927
=========================================================
</TABLE>
(1) 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 the September transactions was actual
amounts ($10.50 per unit) and it was assumed that the value of each OP Unit
was $10.50 with respect to the pending acquisitions.
(2) Pending acquisitions under contract.
(3) Based on actual amounts for Properties 1 through 3 and expected amount
for pending acquisitions. The Company assumed all acquisition costs were
paid with cash available at June 30, 1997.
(4) These Properties are retail centers.
F-4
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
These unaudited Pro Forma Condensed Consolidated Statements of Income are
presented as if (i) the Company had acquired Grove Property Services Limited
Partnership and Property Partnerships and other properties which were acquired
or are contracted to be acquired in November 1997 as of January 1, 1996 and
(ii) the Consolidation Transactions, including the New Equity Investment and
Refinancings, all as defined and described elsewhere in this Registration
Statement or incorporated by reference herein 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, Combined Financial Statements of Grove Property Services Limited
Partnership and Property Partnerships, September 1997 Property Acquisitions,
Pending 1997 Property Acquisitions and financial statements of other
properties acquired during 1997 and Notes thereto included elsewhere in, or
incorporated by reference into, this Registration Statement. In management's
opinion, all adjustments necessary to present fairly the effects of the above
mentioned transactions have been made.
The pro forma information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it indicative of the Company's future results.
F-5
<PAGE>
<TABLE>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income (continued)
(Unaudited)
<CAPTION>
Six Months Ended June 30, 1997
--------------------------------------------------------------------------------
Historical Management
Company Acquisitions Pro Forma Company Pro Forma
(A) (B) Adjustments Adjustments Consolidated
--------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income $ 5,438 $ 6,516 $ - $ (4) (G) $11,950
Property management 218 340 - (338) (H) 220
Interest and other 128 273 - (9) (G) 392
--------------------------------------------------------------------------------
Total revenue 5,784 7,129 - (351) 12,562
--------------------------------------------------------------------------------
Expenses:
Related party management fees 22 316 - (338) (H) -
Real estate taxes 542 708 - - 1,250
Other property operating 1,964 2,853 - (115) (G)
(109) (G) 4,593
General and administrative 347 36 30 (F) 109 (G)
144 (G) 666
--------------------------------------------------------------------------------
Total expenses 2,875 3,913 30 (309) 6,509
--------------------------------------------------------------------------------
Net operating income 2,909 3,216 (30) (42) 6,053
Interest 777 857 398 (C) - 2,032
Depreciation and 1,155 617 (9)(D)
amortization 789 (E) - 2,552
--------------------------------------------------------------------------------
Income before minority
interests 977 1,742 (1,208) (42) 1,469
Minority interest in
earnings of consolidated 49 90 - - 139
partnerships
Minority interest in
earnings of Operating 314 - 260 (J) - 574
Partnership
--------------------------------------------------------------------------------
Net income $ 614 $ 1,652 $(1,468) $ (42) $ 756
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income (continued)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------------
Historical Management
Company Acquisitions Pro Forma Company Pro Forma
(A) (B) Adjustments Adjustments Consolidated
--------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income $ 2,046 $20,888 $ - $ (18)(G) $22,916
Property management - 777 - (396)(H) 381
Interest and other 36 1,249 (138) (G) (398)(G)
(100)(I) 649
--------------------------------------------------------------------------------
Total revenue 2,082 22,914 (138) (912) 23,946
--------------------------------------------------------------------------------
Expenses:
Related party management fees 109 287 - (396) (H) -
Real estate taxes 208 2,328 - - 2,536
Other property operating 656 8,601 - (528)(G)
(488)(G) 8,241
General and administrative 67 344 120 (F) 528 (G)
239 (G) 1,298
--------------------------------------------------------------------------------
Total expenses 1,040 11,560 120 (645) 12,075
--------------------------------------------------------------------------------
Net operating income 1,042 11,354 (258) (267) 11,871
Interest 394 3,813 165 (C) - 4,372
Depreciation and 387 3,011 (45)(D)
amortization 1,736 (E) - 5,089
--------------------------------------------------------------------------------
Income before minority 261 4,530 (2,114) (267) 2,410
interests
Minority interest in
earnings of consolidated - 157 - - 157
partnerships
Minority interest in
earnings of Operating - - 973 (J) - 973
Partnership
--------------------------------------------------------------------------------
Net income $ 261 $ 4,373 $ (3,087) $ (267) $ 1,280
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<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 appearing elsewhere in or incorporated by reference into this
Registration Statement.
(B) The historical financial statements of the Company contain results of
operations data for the properties below from the date of acquisition to
the end of the respective period. The results of operations from the
beginning of the respective period to the acquisition date is included in
this column.
DATE ACQUIRED OR EXPECTED TO
PROPERTY/ENTITY BE ACQUIRED
- ---------------------------------------------- ----------------------------
1. Cambridge January 12, 1996
2. Grove Property Services Limited
Partnership and Property Partnerships (20
properties and management company)(2) March 14, 1997
3. Four Winds June 1, 1997
4. Brooksyde June 1, 1997
5. River's Bend June 1, 1997
6. Greenfield July 1, 1997
7. Glastonbury September 1, 1997
8. Summit and Birch Hill (2 properties) September 1, 1997
9. Corner Block and The Wharf (2 properties) November 1997(1)
- -------------------------
(1) Pending acquisitions under contract.
(2) The historical financial statements for the year ended December 31,
1996, contained elsewhere in this Registration Statement include a
property (Talcott Forest) which was not included in the Consolidation
Transactions and has been omitted herein.
(C) Represents the following:
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
------------------------------
Pro forma interest expense on
refinanced debt and the new
Revolving Credit Facility $ 1,135 $ 3,340
Historical interest expense on
refinanced debt (737) (3,175)
------------------------------
$ 398 $ 165
==============================
F-8
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income (continued)
(Unaudited)
(In thousands)
Pro forma interest expense is based on rates ranging from 6.5% per annum to
8.3% per annum. Assumes proceeds of $30 million were received by the Company
in connection with the New Equity Investment at the beginning of the
respective periods and that the remaining cash requirements were drawn down
from the new Revolving Credit Facility or working capital.
(D) Represents the following:
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
------------------------------
Pro forma deferred financing
amortization costs on new or
refinanced loans $ 28 $ 132
Historical deferred financing
amortization costs on refinanced
loans or loans retired early (37) (177)
------------------------------
$ (9) $ (45)
==============================
(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 compensation expense in 1996 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 the
compensation expense.
(G) Represents adjustments to: (i) exclude certain non-recurring revenues and
expenses of Grove Property Services Limited Partnership attributable to
brokerage and other services and sales of apartment units, (ii) reclassify
certain expenses historically classified by Grove Property Services
Limited Partnership as property management expenses to general and
administrative expenses and (iii) increase general and administrative
expenses to reflect the higher cost of operating the Company after the
Consolidation Transactions, as follows:
F-9
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income (continued)
(Unaudited)
(In thousands, except share data)
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
------------------------------
Brokerage services - revenue $ 9 $ 398
- expenses 115 488
Non-recurring revenues 4 18
Reclassification of other property
operating to general and administrative 109 528
Increase in general and administrative 144 239
Gain on sale of apartments - 138
(H) Elimination of intercompany management fees.
(I) Elimination of non-recurring commission received from an affiliate.
(J) Based upon 3,035,302 Operating Partnership Units to be owned by Limited
Partners and 3,953,829 Common Shares (Operating Partnership Units are
exchangeable on a one-for-one basis into Common Shares) assumed to be
outstanding as follows:
OPERATING
PARTNERSHIP
COMMON SHARES 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 - 328,332
November 1997 pending acquisitions - 140,952(1)
----------------------------
3,953,829 3,003,906
============================
56.83% 43.17%
============================
(1) Estimated assuming the value of each Operating Partnership Unit
is $10.50, which represents the value of the OP Units stated in the
contract.
F-10
<PAGE>
Report of Independent Auditors
The Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying consolidated balance sheet of Grove Property
Trust (formerly known as Grove Real Estate Asset Trust) as of December 31,
1996, and the related statements of income, changes in shareholders' equity
and cash flows for the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Grove Real
Estate Asset Trust as of December 31, 1996 and the results of its operations
and its cash flows for the years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 2, 1997
F-11
<PAGE>
Grove Property Trust
Consolidated Balance Sheet
(In thousands, except share data)
DECEMBER 31,
1996
------------
ASSETS
Real estate assets
Land $ 920
Buildings and improvements 8,528
Furniture, fixtures and equipment 350
------------
9,798
Less accumulated depreciation (1,050)
------------
Net real estate assets 8,748
Cash and cash equivalents 381
Cash - resident security deposits 158
Deferred charges, net of accumulated amortization
of $6 223
Other assets 11
------------
Total assets $ 9,521
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Mortgage notes payable $ 5,669
Accounts payable, accrued expenses and other liabilities 72
Due to affiliates 19
Resident security deposits 157
Dividends payable 121
------------
Total liabilities $ 6,038
------------
Commitments and subsequent events -
Shareholder's equity:
Preferred shares, $.01 par value per share,
4,000,000 shares authorized; no shares issued or outstanding -
Common shares, $.01 par value per share, 10,000,000 shares
authorized; 620,102 shares issued and outstanding 6
Additional paid-in capital 3,912
Distribution in excess of earnings (435)
------------
Total shareholder's equity 3,483
------------
Total liabilities and shareholders' equity $ 9,521
============
SEE ACCOMPANYING NOTES.
F-12
<PAGE>
Grove Property Trust
Statements of Income
(In thousands, except share data)
YEAR ENDED DECEMBER 31,
1996 1995
-----------------------
Revenue:
Rental income $ 2,046 $ 1,287
Interest and other income 36 30
-----------------------
Total revenues 2,082 1,317
-----------------------
Expenses:
Property operating and maintenance 656 406
Real estate taxes 208 148
Related party management fees 109 67
General and administrative 67 56
-----------------------
Total expenses 1,040 677
-----------------------
1,042 640
Interest expense 394 85
Depreciation and amortization 387 217
-----------------------
Net income $ 261 $ 338
=======================
Net income per common share $ 0.42 $ 0.55
=======================
Weight average number of common shares
outstanding during the year 620,102 620,102
=======================
SEE ACCOMPANYING NOTES.
F-13
<PAGE>
Grove Property Trust
Statements of Changes in Shareholders' Equity
(In thousands)
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
ADDITIONAL DISTRIBUTIONS IN
PAID-IN EXCESS OF NET
COMMON SHARES CAPITAL INCOME
----------------------------------------------
<S> <C> <C> <C>
Shareholders' equity at January 1, 1995 $ 6 $ 3,912 $ (78)
Net income 338
Declared dividends (475)
----------------------------------------------
Shareholders' equity at December 31, 1995 6 3,912 (215)
Net income 261
Declared dividends (481)
----------------------------------------------
Shareholders' equity at December 31, 1996 $ 6 $ 3,912 $ (435)
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-14
<PAGE>
Grove Property Trust
Statements of Cash Flows
(In thousands)
Year Ended December 31,
1996 1995
--------------------------
OPERATING ACTIVITIES
Net Income $ 261 $ 338
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 387 217
Imputed interest - mortgage 37 35
(Increase) decrease in other assets (8) 4
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 41 (9)
--------------------------
Net cash provided by operating activities 781 585
--------------------------
INVESTING ACTIVITIES
Deferred charges (174) -
Other (3) -
Additions to real estate assets (126) (99)
--------------------------
Net cash used in investing activities (303) (99)
--------------------------
FINANCING ACTIVITIES
Net proceeds from mortgage payable on acquisition 220 -
Financing costs (21) (23)
Repayment of mortgage payable (59) -
Payments to affiliates (78) (23)
Dividends paid (480) (472)
--------------------------
Net cash used in financing activities (418) (518)
--------------------------
Net decrease in cash and cash equivalents (3) (32)
Cash and cash equivalents, beginning of year 384 416
--------------------------
Cash and cash equivalents, end of year $ 381 $ 384
==========================
SEE ACCOMPANYING NOTES.
F-15
<PAGE>
Grove Property Trust
Notes To Financial Statements
December 31, 1996
1. FORMATION AND BUSINESS OF THE COMPANY
Grove Property Trust (the "Company" or "GPT"), formerly Grove Real Estate
Asset Trust was organized in the State of Maryland on April 4, 1994, as a Real
Estate Investment Trust ("REIT"). As of December 31, 1996, the Company
operated four properties with a total of 257 residential apartments located in
the northeast. The Company purchased three properties, (the "Original
Properties") on June 23, 1994, and the fourth property was acquired in January
1996 (collectively, the "Properties").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments with an original
maturity of three months or less at the time of the purchase to be cash
equivalents.
REAL ESTATE ASSETS AND DEPRECIATION
The Original Properties were recorded at their historical cost due to the
controlling relationship between the principals of the entities previously
operating the Properties (the "Grove Affiliates"). The portion of the
purchase price attributable to the net assets acquired from Grove Affiliates
exceeds their amortized historical cost. Accordingly, the excess amount was
reflected as a decrease in equity for accounting purposes. All real estate
assets purchased subsequent to the initial acquisitions have been recorded at
cost. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets (7 to 27.5 years).
F-16
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of " (FAS No. 121),
which requires long-lived assets to be reviewed for impairment when events or
circumstances indicate that an impairment might exist. When an impairment
indicator is present, assets must be grouped at the lowest level for which
there are identifiable cash flows. If the sum of the undisclosed cash flows
is less than the carrying amounts of the assets, an impairment loss must be
recorded. The impairment loss is measured by comparing the fair value of the
assets with their carrying amount. To date, no losses have been recognized.
PER SHARE DATA
Net income per common share is based on the weighted average number of shares
outstanding during each year. Common stock equivalents (options and warrants)
did not have a dilutive effect on net income per share for any year presented.
On February 10, 1997, the Board of Trust Managers of the Company declared a
stock dividend aggregating 26,250 Common Shares and concurrently declared a
1.125-for-one common stock split. All shares outstanding and per share
amounts have been restated to reflect these changes in capital structure.
In February 1997, the Financial Accounting Standard Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary and fully diluted earnings per share for the years
ended December 31, 1996 and 1995, is not material.
STOCK-BASED COMPENSATION
Effective in fiscal year 1996, the Company adopted Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans in accordance with Accounting Principle
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under
APB No. 25, compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date over the amount the employee must pay to
acquire the stock. The company has elected to continue to account for its
employee stock compensation plans under APB No. 25.
F-17
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES AND DIVIDENDS
The Company has made the election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). A
REIT will generally not be subject to federal income tax to the extent it
distributes at least 95% of its taxable income to its shareholders and
complies with other requirements. Accordingly, no provision has been made for
federal income taxes for the Company in the accompanying financial statements.
Even though the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income, if any.
Shareholders are taxed on dividends declared and must report such dividends as
either ordinary income, short term gains, long term gains, or as a return of
capital. The federal income tax characteristics of dividends paid by the
Company consisted of:
1996 1995
-----------------------
Ordinary income 97.46% 83.22%
Return of principal 2.54% 16.78%
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs were
$24,000 and $17,000 in 1996 and 1995, respectively.
DEFERRED CHARGES
Deferred charges, consisting principally of loan costs, are amortized on a
straight line basis over the term of the related obligations.
RENTAL INCOME
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases, which are generally for one year. The Company
generally requires tenants to provide a cash security deposit equal to one
month's rent or pay the last month's rent in advance. Such amounts are
deposited into a restricted bank account and the Company records an offsetting
liability.
F-18
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
3. ACQUISITION
On January 12, 1996, the Company purchased the assets and operations of Grove
Cambridge Associates Limited Partnership ("Cambridge"), a ninety-two unit
multifamily apartment complex located in Norwich, Connecticut, for $4,250,000,
which was funded with a $4,500,000 mortgage note payable. The results of
Cambridge's operations have been combined with those of the Company since the
date of acquisition.
The unaudited pro forma information for the period set forth below gives
effect to the transaction as if it had occurred at the beginning of the
period. The pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisition been consummated as of
that time. The pro forma results for 1996 are not materially different from
the reported amounts.
Pro Forma Year Ended December 31, 1995 (in thousands, except share data):
Revenues $ 2,079
Net income $ 278
Net income per common share $ 0.45
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable as of December 31, 1996 consist of the following (in
thousands):
Southington Apartments note $ 1,228
Cambridge Estates note 4,441
------------
Total $ 5,669
============
The mortgage note on the Southington Apartments property, which has a face
amount of $1,250,000, has an imputed interest rate of 7.25% due in monthly
interest payments of $4,167 through June 1997 and monthly principal and
interest payments of $8,527 through July 2013. The note is collateralized by
the property and 15% of the face amount is guaranteed by certain executive
officers and shareholders of the Company.
The Cambridge note payable had an original principal balance of $4,500,000
with interest payable at 7.04%. Monthly principal and interest payments of
$31,920 are due through January 2006. The note is collateralized by the
Cambridge property and by first mortgage liens on two additional properties.
F-19
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
4. MORTGAGE NOTES PAYABLE (continued)
Aggregate annual maturities of mortgage notes payable as of December 31, 1996
are as follows (in thousands):
1997 $ 55
1998 86
1999 92
2000 103
2001 111
Thereafter 5,222
----------
Total $ 5,669
==========
Interest paid was approximately $380,000 and $85,000 in 1996 and 1995,
respectively.
Subsequent to year end and through September 2, 1997, the Company entered into
the Consolidation Transactions, a New Equity Investment and acquired various
properties. As part of these transactions, the Company entered into and
assumed various new debt obligations (see Note 10) and repaid certain mortgage
notes payable. After taking effect for these transactions, the Company's
mortgage and other debt consists of:
Amortizing first mortgage notes $ 14,462
Interest only first mortgage notes 39,338
Revolving Credit Facility (SEE NOTES 5 AND 10) 6,275
------------
$ 60,075
============
The amortizing first mortgage notes have fixed interest rates between 7.04%
and 7.49%, have monthly principal and interest payments based on amortization
schedules between 25 and 30 years, and maturities between the year 2000 and
2013. The notes are collateralized by 6 properties and are partially
guaranteed by certain executive officers and shareholders of the Company.
The interest only first mortgage notes are comprised of variable rate and
fixed rate notes, are collateralized by 11 properties, and are partially
guaranteed by certain executive officers and shareholders of the Company. One
note has a principal balance of $4.0 million, monthly payments of interest
only at a fixed rate of 7.50%, and matures in 1999. One note has a principal
balance of $15.1 million, monthly payments of interest only at a variable rate
of one month LIBOR plus 1.14%, and matures in 2007. Three notes have an
aggregate principal balance of $14.8 million, monthly payments of interest
only at a variable rate of one month LIBOR plus 1.20%, and mature between 1999
and 2005.
F-20
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
4. MORTGAGE NOTES PAYABLE (continued)
The interest rate on the variable notes is partially fixed with three interest
rate swap contracts (the "Interest Swaps") with two banks. The Interest Swaps
have, in effect, (i) fixed $7.6 million of debt at 7.67% for the period from
October 1, 1997 through October 1, 2007, (ii) fixed $7.6 million of debt at
7.68% for the period from October 1, 1997 through January 4, 2005, and (iii)
fixed $9.1 million of debt at 7.09% from December 15, 1995 through December
15, 2000. The Interest Swaps have been pledged as collateral under the
various related variable notes.
5. INITIAL CREDIT FACILITY
The Company entered into an Initial Credit Facility concurrent with its
initial public offering ("IPO") in 1994. The Initial Credit Facility, which
provided for up to $3.0 million in borrowings, was expected to be used to
finance acquisitions of properties, re-development and renovation costs and
expenses, and for working capital purposes related to future acquisitions. The
Initial Credit Facility was not drawn upon, and was terminated in January
1996. In March 1997, the Company entered into a new credit facility (see Note
10).
6. STOCK OPTION PLAN
The Company adopted a stock option plan (the "Plan") for key employees and
non-employees of the Company. Options are granted at the market price of the
Company's common stock on the date of grant, become exercisable in increments
of 33 1/3% per year on each of the first three anniversaries of the date of
grant and have a maximum term of ten years. At December 31, 1996, no options
had been exercised. In May 1997, an employee exercised options on 394 Common
Shares. Information regarding the Company's stock option plan is summarized
below.
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 69,689 $ 9.31 66,146 $ 9.42
Granted 48,428 $ 7.29 3,543 $ 7.20
-------- --------
Outstanding at end of year 118,117 $ 8.48 69,689 $ 9.31
======== ========
Options exercisable at end of year 45,272 $ 9.36 22,049 $ 9.42
======== ======== ======== ========
</TABLE>
F-21
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
6. STOCK OPTION PLAN (continued)
The Company accounts for stock option grants under its Plan in accordance with
APB No. 25. Accordingly, no compensation cost has been recognized for stock
option grants since the options have exercise prices equal to the market value
of the Company's common stock at the date of grant. The pro forma
compensation cost for the Company's Plan determined in accordance with FAS No.
123 was not material for 1996 and 1995.
7. UNDERWRITER WARRANTS
In conjunction with the IPO, the managing underwriter was granted Underwriter
Warrants to purchase 47,248 Common Shares. The Underwriter Warrants are
exercisable at $11.31 per Common Share and expire in June 1999. No warrants
have been exercised as of December 31, 1996.
8. RELATED PARTY TRANSACTIONS
MANAGEMENT FEE
On June 23, 1994, the Company entered into a Management Agreement (the
"Agreement") with Grove Property Services Limited Partnership ("GPS"), an
affiliated company which provides operating and support functions requisite to
the operation of the Properties. The Agreement provides for a management fee
equal to 5% of gross monthly revenues, as defined, and was terminated pursuant
to the Consolidated Transactions in March 1997. Management fees incurred in
1996 and 1995 were approximately $109,000 and $67,000, respectively.
OPERATING EXPENSES AND NON-OPERATING EXPENSES
Certain operating and non-operating expenses include amounts allocated to the
Company by GPS. These charges reflect an allocation of the cost of services
required by the Company, which are outside the scope of services customarily
included in the property management fees. Total costs of approximately
$11,000 were allocated in 1996.
RENT TO RELATED PARTY
The Company's executive offices are leased from an affiliated company for
$500 per month under a three year lease which expired in June 1997; rent
expense related thereto was $6,000 in 1996 and 1995. The lease was
subsequently extended on a month-to-month basis at a comparable rent.
F-22
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents, accounts receivable, accounts payable and other accruals,
because of their short term nature, approximate fair value. Mortgage notes are
also carried at amounts that approximate their fair values. Fair values of
mortgage notes were estimated using discounted cash flow analyses, based on
interest rates currently available to the Company for issuance of debt with
similar terms and remaining maturities.
10. SUBSEQUENT EVENT
On March 14, 1997, GPT completed a series of transactions pursuant to which
the Company was transformed into a self-administered and self-managed REIT
with control over a portfolio of 23 multi-family residential projects and a
neighborhood shopping center in the Northeastern United States. A summary of
the steps involved in these Consolidation Transactions is as follows:
. GPT formed an Operating Partnership to serve as the vehicle for the
consolidation of ownership and/or control of the operations, assets
and liabilities of the Company.
. Pursuant to an Exchange Offer, the Operating Partnership purchased
from the Limited Partners of certain Property Partnerships, the
outstanding partnership units of each of the Property Partnerships in
exchange for Common Units of the Operating Partnership, or, in certain
circumstances, cash. The number of Common Units received by a Limited
Partner (1,205,324 in the aggregate, excluding Grove Companies) was
calculated based upon such partners' interest in the applicable
partnership as applied to the value of the Property Partnership
associated therewith.
. Immediately prior to the consummation of the Consolidation
Transactions, GPT declared and issued a stock dividend aggregating
26,222 Common Shares and concurrently declared a stock split of 1.125
to 1, thereby issuing on a pro rata basis a total of 95,102 Common
Shares to the holders of the then issued and outstanding Common
Shares.
F-23
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
10. SUBSEQUENT EVENT (continued)
. GPT issued 3,333,333 Common Shares to new equity investors in
exchange for $30 million.
. Pursuant to a Contribution Agreement among GPT, certain companies
and individuals affiliated with GPT (the "Grove Companies") and the
Operating Partnership, substantially all of the assets and operations
of GPT, the management services division of Grove Property Services
Limited Partnership and the Grove Companies' interests in the acquired
Property Partnerships were transferred to the Company.
In exchange for the above, the Grove Companies received an
aggregate of 909,115 Common Units in the Operating Partnership and a
cash payment of $177,669 from GPT, and GPT received 620,102 Common
Units in the Operating Partnership. Additionally, GPT contributed to
the Operating Partnership the gross proceeds received from the new
equity investment ($30 million) in exchange for a number of additional
Common Units equal to the number of Common Shares issued by GPT to the
new equity investors.
. In connection with the Consolidation Transactions, the Operating
Partnership entered into a three-year secured revolving acquisition
and working capital facility ("Revolving Credit Facility") of up to
$25 million and an approximately $15.1 million ten-year term mortgage
loan. Borrowings under the Revolving Credit Facility are
collateralized by certain properties and bear interest, payable
monthly, at a floating rate of 1.2% above the 30, 60 or 90 day LIBOR.
The Operating Partnership is required to maintain certain financial
covenants.
The Company used a portion of the proceeds from the new equity
investment, together with borrowings under the $15.1 million ten-year
term mortgage loan to paydown or refinance approximately $39.3 million
of mortgage indebtedness of the Property Partnerships and to acquire
certain minority interests in certain of the Property Partnerships.
Effective on June 1, 1997, The Company acquired two residential apartment
complexes through the Operating Partnership. These acquisitions were
completed by the Operating Partnership through the acquisition of the assets
(other than certain amounts of cash) and the assumption of liabilities of
Northeast Apartments I Limited Partnership, the owner of Four Winds
Apartments, and of West Hartford Center Associates, Limited Partnership, the
owner of
F-24
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
10. SUBSEQUENT EVENT (continued)
Brooksyde Apartments. In addition, simultaneously with the acquisition of
Four Winds Apartments and Brooksyde Apartments, the Company acquired an
interest in Windsor Arbor Limited Partnership ("Windsor"), the owner of
River's Bend Apartments, and anticipates that it will acquire, pursuant to
certain put and call options, the remaining limited partnership interest in
Windsor on or before December 31, 1997 for $4.9 million. Commencing June 1,
1997, the Company will consolidate Windsor in its financial statements.
Upon consummation of the June 1, 1997 transactions referred to above, the
Operating Partnership issued an aggregate of 420,183 Common Units valued at
$10 per unit, which under certain circumstances, could be redeemed for an
equal number of Common Shares of the Company. The Company also assumed
mortgage debt on Four Winds Apartments and Brooksyde Apartments in the
aggregate remaining principal amount of $6.2 million. Additionally, the
Windsor investment is encumbered by $8.6 million mortgage debt. To complete
these transactions, the Company borrowed $1.8 million under its Revolving
Credit Facility and used $68,000 of its available cash.
Four Winds Apartments is a 168-unit community located in North Fall River,
Massachusetts. Brooksyde Apartments is an 80-unit apartment community located
in West Hartford, Connecticut. River's Bend Apartments is a 432-unit
condominium community located in Windsor, Connecticut, of which 349 units are
owned by Windsor.
On July 1, 1997, the Company purchased 126 condominium units constituting a
part of Greenfield Village Condominium in Rocky Hill, Connecticut. The
purchase was made pursuant to a Purchase and Sale Agreement dated May 14,
1997, between Highland Income Partners, L.P. and Grove Corporation, an
affiliate of the Company. The $4,282,500 purchase price for Greenfield Village
was paid utilizing a portion of the Company's cash and borrowings under the
Revolving Credit Facility. In addition, Grove Rocky Hill assumed certain
obligations of the seller, principally related to security deposits held by
the seller. In connection with the purchase of Greenfield Village, the
Company paid $107,000 for expense and overhead reimbursement to National
Realty Services, L.P., a limited partnership owned by four of the executive
officers of the Company.
Pursuant to two Offers to Exchange All Outstanding Limited Partnership
Interests in two affiliated partnerships, effective September 1, 1997, the
Company acquired three residential apartment communities through the Operating
Partnership. These acquisitions were completed by the Operating Partnership
through the acquisition of the assets and the assumption of liabilities of
Heritage Court Associates Limited Partnership, the owner of the Glastonbury
Center Apartments, and of Farmington Summit Associates Limited Partnership,
the owner of Summit Apartments and Birch Hill Apartments.
F-25
<PAGE>
Grove Property Trust
Notes To Financial Statements (continued)
10. SUBSEQUENT EVENT (continued)
Upon consummation of the transactions, the Operating Partnership issued an
aggregate of 328,332 Common Units valued at $10.50 per unit, which under
certain circumstances, could be redeemed for an equal number of Common Shares
of the Company. The Company also assumed mortgage debt on Summit Apartments,
Birch Hill Apartments and Glastonbury Apartments in the aggregate remaining
principal amount of $9.8 million. To complete these transactions, the Company
borrowed $750,000 under its Revolving Credit Facility, assumed a current
liability of $1.1 million, including approximately $200,000 due to an
affiliate, and paid approximately $200,000 from its available cash.
Summit Apartments and Birch Hill Apartments have a total of 184 apartments and
are located in Farmington Connecticut. Glastonbury Apartments is a 104-unit
apartment community located in Glastonbury, Connecticut.
F-26
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying combined balance sheet of Grove Property
Services Limited Partnership and Property Partnerships as of December 31,
1996, and the related combined statements of income, owners' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Grove Property
Services Limited Partnership and Property Partnerships at December 31, 1996,
and the combined results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 2, 1997
F-27
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Combined Balance Sheet
December 31, 1996
(In thousands)
ASSETS
Real estate assets, at cost:
Land $ 7,718
Buildings and improvements 66,933
Furniture, fixtures and equipment 4,182
-----------
77,833
Less accumulated depreciation 24,209
-----------
Net real estate assets 54,624
Cash and cash equivalents 1,702
Restricted cash-resident security deposits 679
Due from related parties 931
Due from partners 922
Deferred costs, net of accumulated
amortization of $1,585 807
Other assets 201
-----------
Total assets $ 59,866
===========
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable $ 48,643
Accounts payable and other liabilities 853
Due to related parties 1,896
Resident security deposits 679
-----------
Total liabilities 52,071
Owners' equity 7,795
-----------
Total liabilities and owners' equity $ 59,866
===========
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Combined Statement of Income
Year Ended December 31, 1996
(In thousands)
Revenues:
Rental income $ 12,906
Property management 777
Interest and other 1,138
----------
Total revenues 14,821
----------
Expenses:
Allocated payroll 2,493
Real estate taxes 1,299
Other property operating 3,212
General and administrative 279
----------
Total expenses 7,283
----------
Net operating income 7,538
Interest expense 3,856
Depreciation and amortization 3,055
----------
Net income $ 627
==========
SEE ACCOMPANYING NOTES.
F-29
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Combined Statement of Changes in Owners' Equity
Year Ended December 31, 1996
(In thousands)
Owners' equity, December 31, 1995 $ 12,259
Capital contributions 925
Distributions (6,016)
Net income 627
------------
Owners' equity, December 31, 1996 $ 7,795
============
SEE ACCOMPANYING NOTES.
F-30
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Combined Statement of Cash Flows
Year Ended December 31, 1996
(In thousands)
OPERATING ACTIVITIES
Net income $ 627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,055
Gain on sales of condominiums (210)
Increase in assets:
Other assets (16)
Decrease in liabilities:
Accounts payable and other liabilities (224)
-----------
Net cash provided by operating activities 3,232
-----------
INVESTING ACTIVITIES
Purchase of real estate assets (1,544)
Proceeds from sale of condominiums 443
Payment for deferred costs (43)
-----------
Net cash used in investing activities (1,144)
-----------
FINANCING ACTIVITIES
Repayment of mortgage notes (784)
Proceeds from mortgage notes 2,641
Due from related parties, net 1,210
Payment for financing costs (184)
Due from partners (598)
Due to NAVAB 252
Distributions to owners (6,016)
Capital contributions 925
-----------
Net cash used in financing activities (2,554)
-----------
Net decrease in cash and cash equivalents (466)
Cash and cash equivalents, beginning of year 2,168
-----------
Cash and cash equivalents, end of year $ 1,702
===========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest $ 3,816
===========
SEE ACCOMPANYING NOTES.
F-31
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Notes to the Combined Financial Statements
December 31, 1996
1. BASIS OF PRESENTATION
Grove Property Services Limited Partnership and Property Partnerships (the
"Group") combined financial statements include the accounts of various
partnerships and is not a separate legal entity. "Property Partnerships" are a
combination of affiliated entities that have ownership interests principally
in multifamily communities in the Connecticut, Massachusetts and Rhode Island
areas. The accounts are presented on a combined basis because all of the
communities are managed by Grove Property Services Limited Partnership ("GPS")
whose general partners have a controlling interest in each of the communities
and because these communities were subject of a business combination in
connection with the formation of an umbrella REIT (the "Company") effective on
March 14, 1997. Each of the communities is owned by Grove Operating, L.P. (the
"Operating Partnership"), which is owned, in part, by the Company. The Company
qualifies as a real estate investment trust under the Internal Revenue Code of
1986, as amended.
The business combination was structured so that the former partners received
cash, units in the Operating Partnership, or a combination thereof. The
Company is the sole general partner of the Operating Partnership.
F-32
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Notes to the Combined Financial Statements (continued)
1. BASIS OF PRESENTATION (continued)
In addition to GPS and Grove Longmeadow Associates (a neighborhood shopping
center) the following residential communities have been included in the
combined financial statements:
NUMBER OF
LIMITED PARTNERSHIP NAME EXISTING COMMUNITY NAME APARTMENTS
- ------------------------ ----------------------- ----------
Avonplace Associates Avonplace 146
Burgundy Associates Burgundy Studios 102
Grove-Ellington Associates Arbor Commons 28
Grove-Enfield Associates Fox Hill Apartments 168
Grove-Manchester Associates 208-210 Main Street Apartments 28
Grove-Newington Associates Woodbridge Apartments 73
Grove Opportunity Fund II Dean Estates II 58
Royale Apartments 76
Talcott Forest* 19
Grove-Plainville Associates Colonial Village Apartments 104
Grove Properties III Bradford Commons 64
Loomis Manor 43
Grove Taunton Associates Dean Estates 48
Grove-Vernon Associates Fox Hill Commons 74
Grove-West Hartford Associates Park Place West 63
Grove-West Springfield Associates Van Deene Manor 109
Grove-Westfield Associates Security Manor 63
Grove-Westwynd Associates Westwynd Apartments 46
Shoreline London Associates Ocean Reef 163
Nautilus Properties Sandalwood** 39
* Talcott Forest is included in the accompanying combined financial statements
as it is part of a legal entity combined herewith. However, this property
was not included in the Consolidation Transactions and, as such, the
operations were not included in the pro forma statements of income contained
elsewhere in this Registration Statement.
** Available for lease August 1996.
All significant intercompany accounts and transactions have been eliminated in
combination
F-33
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Notes to the Combined Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEPRECIATION OF REAL ESTATE ASSETS
Ordinary repairs and maintenance are expensed as incurred; major replacements
and betterments are capitalized and depreciated over their estimated useful
lives. Depreciation of real estate is computed principally on a straight-line
basis over the expected useful lives of depreciable property, which ranges
from 15 to 39 years for buildings, improvements and land improvements and 5 to
7 years for furnishings and equipment.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 had no effect on the accompanying financial statements.
REVENUE RECOGNITION
Rental income attributable to leases is recognized on a straight-line basis
over the term of the leases. Residential leases are generally for periods of
one year. Commercial leases are generally for periods of 5 to 10 years. The
Company generally requires tenants to provide a cash security deposit equal to
one month's rent. Such amounts are deposited into a restricted bank account
and the Company records an offsetting liability.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid financial instruments with
maturities of three months or less from the date of purchase.
DEFERRED COSTS
Deferred costs consist of organization costs and costs incurred in obtaining
long-term financing. Deferred financing costs are amortized over the term of
the related mortgage loan obligation. Organization costs are amortized over 5
years.
F-34
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Notes to the Combined Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Group is owned by various partnerships whose partners are required to
include their respective share of profits and losses in their individual
income tax returns. Accordingly, no federal or state income taxes have been
provided in the accompanying combined financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. DUE TO AND FROM RELATED PARTIES
Certain properties managed by GPS are not included in the Group. Due to/from
related parties represent costs paid by the Group on behalf of these
properties, property expense and other advances from the Group to those
properties, and management fees owed to the Group by those properties. An
affiliate of the Group, NAVAB, periodically loans funds to the partnerships
under its line of credit. These loans generally bear interest at 2.5% above
the prime rate. Interest due NAVAB was approximately $145,000 for the year
ended December 31, 1996.
4. MORTGAGE NOTES PAYABLE
The Group's mortgage notes at December 31, 1996 consisted of the following (IN
THOUSANDS):
Mortgage notes payable at fixed interest rates ranging from
7.09% to 8.00%, payable in varying amounts through December
2003 $12,362
Mortgage notes payable with floating interest rates (7.0%
to 9.27% at December 31, 1996), payable in varying amounts
through November 2005 36,281
-----------
$48,643
===========
Each of the mortgage notes is collateralized by a first mortgage on separate
communities. Certain loans are guaranteed in whole or part by individuals
affiliated with the Group. Such guarantees aggregate approximately $31 million
at December 31, 1996.
F-35
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Notes to the Combined Financial Statements (continued)
4. MORTGAGE NOTES PAYABLE (continued)
Annual principal maturities as of December 31, 1996 are as follows
(IN THOUSANDS):
1997 $ 890
1998 970
1999 9,478
2000 21,746
2001 4,589
Thereafter 10,970
-------------
Total $ 48,643
=============
5. RELATED PARTY TRANSACTIONS
GPS performs management services for certain communities not included in the
Group. Management fees received from these communities were approximately
$777,000 for the year ended December 31, 1996.
The Group leases office space from an affiliate at $4,150 per month.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Group could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents, accounts receivable, accounts payable and other accruals
because of their short-term nature approximate fair value. Mortgage notes are
carried at amounts that approximate their fair values. Fair values of mortgage
notes were estimated using discounted cash flow analyses, based on interest
rates currently available to the Group for issuance of debt with similar terms
and remaining maturities.
F-36
<PAGE>
Grove Property Services Limited Partnership and Property Partnerships
Notes to the Combined Financial Statements (continued)
7. COMMERCIAL LEASES
Future minimum annual lease payments to be received on noncancelable commercial
operating leases with terms greater than one year consist of the following at
December 31, 1996 (IN THOUSANDS):
1997 $ 989
1998 882
1999 830
2000 697
2001 591
Thereafter 1,983
-------------
Total $ 5,972
=============
Residential leases are generally for a term of one year and are not included
above. The commercial leases generally contain provisions for increases in
rent tied to various indices, increases in operating costs and/or a percentage
of the tenants' sales in excess of a specified base amount. Such additional
rents approximated $23,000 for the year ended December 31, 1996, and this
amount is included in rental income on the accompanying combined statement of
income.
F-37
<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") 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenues
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined statements of revenues and certain expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
combined statements of revenues and certain expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statements of revenues and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-3 of Grove Property Trust described in Note 2 and is not intended to
be a complete presentation of the Properties' revenues and expenses.
In our opinion, the combined statements of revenues and certain expenses
referred to above present fairly, in all material respects, the combined
revenues and certain expenses as described in Note 2 of the September 1997
Property Acquisitions for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 2, 1997
F-38
<PAGE>
September 1997 Property Acquisitions
Combined Statements of Revenues and Certain Expenses
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 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.
F-39
<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 290 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 the Registration Statement
on Form S-3 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.
F-40
<PAGE>
September 1997 Property Acquisitions
Notes to the Combined Statements of Revenues and Certain Expenses (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INTERIM UNAUDITED INFORMATION
The accompanying Combined Statement of Revenue and Certain Expenses for the
six months ended June 30, 1997 is unaudited, however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Combined Statement of
Revenues and Certain Expenses for this interim period have been included. The
results of this interim period are not necessarily indicative of the results
to be obtained for a full fiscal year.
F-41
<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 Pending 1997 Property Acquisitions (the "Properties") for the years ended
December 31, 1996 and 1995. The combined statements of revenues and certain
expenses are the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined statements of revenues
and certain expenses based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenues
and certain expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined statements of revenues and certain expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
combined statements of revenues and certain expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statements of revenues and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-3 of Grove Property Trust described in Note 2 and is not intended to
be a complete presentation of the Properties' revenues and expenses.
In our opinion, the combined statements of revenues and certain expenses
referred to above present fairly, in all material respects, the combined
revenues and certain expenses as described in Note 2 of the Pending 1997
Property Acquisitions for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 2, 1997
F-42
<PAGE>
Pending 1997 Property Acquisitions
Combined Statements of Revenues and Certain Expenses
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(Unaudited) 1996 1995
---------------------------------------
(In Thousands)
Revenues:
Rental income $ 243 $ 400 $ 392
---------------------------------------
Certain expenses:
Property operating and maintenance 33 35 37
Real estate taxes 11 23 18
Related party management fees 15 24 24
---------------------------------------
59 82 79
---------------------------------------
Revenues in excess of certain expenses $ 184 $ 318 $ 313
========================================
SEE ACCOMPANYING NOTES.
F-43
<PAGE>
Pending 1997 Property Acquisitions
Notes to the Combined Statements of Revenues and Certain Expenses
Year 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 Corner Block and The Wharf
(two retail properties with approximately 14,600 square feet, in the
aggregate, of space in Massachusetts) (the "Properties"). The Properties are
expected to be acquired in November 1997 by Grove Property Trust (the
"Company"). The Properties are owned by affiliates of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying Combined Statements of Revenues and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-3 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 have varying terms.
CONCENTRATION OF REVENUES
Approximately 86% of rental revenues was derived from two tenants.
F-44
<PAGE>
Pending 1997 Property Acquisitions
Notes to the Combined Statements of Revenues and Certain Expenses (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INTERIM UNAUDITED INFORMATION
The accompanying Combined Statement of Revenue and Certain Expenses for the
six months ended June 30, 1997 is unaudited, however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Combined Statement of
Revenues and Certain Expenses for this interim period have been included. The
results of this interim period are not necessarily indicative of the results
to be obtained for a full fiscal year.
F-45
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all estimated expenses
in connection with the issuance and distribution of the securities being
registered, none of which is payable by the Selling Shareholders:
Registration Statement Filing Fee $ 13,649
Legal Fees and Expenses $ 17,000
Accounting Fees and Expense $ 5,000
Printing Costs $ 500
Miscellaneous $ 1,351
--------
Total $ 37,500
========
Item 15. Indemnification of Directors and Officers
The Charter provides that no trustee or officer will be personally liable
for any obligation of the Company solely as a result of his or her status as a
trustee or officer of the Company. The Bylaws further provide that the
Company shall indemnify each trustee and officer against any claim or
liability for which the trustee or officer may become subject by reason of
being or having been a trustee or officer, and that the Company shall
reimburse each trustee and officer for all legal and other expenses reasonably
incurred in connection with any such claim or liability. See also,
"Description of Capital Stock - Indemnification for, and Limitation on,
Liability," included in the Prospectus constituting part of this Registration
Statement.
The Company has purchased a Directors, Officers and Corporate Liability
Insurance Policy for Real Estate Investment Trusts issued by American
International Specialty Lines Insurance Company. This policy provided
$5,000,000 of coverage and extends to February 27, 1998.
For the undertaking with respect to the indemnification, see Item 17.
Item 16. Exhibits
Exhibit 4(a) Third Amended and Restated Declaration of Trust of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1997 (Commission File No. 1-13080))
Exhibit 4(b) Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on
Form 8-K dated March 14, 1997 and filed March 31, 1997
(Commission File No. 1-13080))
Exhibit 5 Opinion of Piper & Marbury L.L.P.
Exhibit 23(a) Consent of Ernst & Young LLP
Exhibit 23(b) Consent of Cummings & Lockwood
Exhibit 23(c) Consent of Piper & Marbury L.L.P. (included in Exhibit 5)
Exhibit 24 Power of Attorney
II-1
<PAGE>
Item 17. Undertakings
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this Registration
Statement;
Provided, however, that the undertakings set forth in paragraphs (a)(1)(i) and
(a)(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of any employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut, on
September 30, 1997.
GROVE PROPERTY TRUST
By /s/JOSEPH R. LaBROSSE
--------------------------------------
Joseph R. LaBrosse
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities shown on the 30th day of September, 1997.
Damon D. Navarro Trustee and Chairman of )
the Board and Chief )
Executive Officer )
(Principal executive )
officer) )
Joseph R. LaBrosse Trustee and Chief )
Financial Officer )
(Principal financial )
and accounting officer) )
Theodore R. Bigman Trustee ) By /s/JOSEPH R. LaBROSSE
) ------------------------
J. Joseph Garrahy Trustee ) Name: Joseph R. LaBrosse
Harold V. Gorman Trustee ) Attorney-in-fact
Edmund F. Navarro Trustee )
James F. Twaddell Trustee )
II-3
<PAGE>
Exhibit Index
Exhibit 4(a) Third Amended and Restated Declaration of Trust of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31,
1997 (Commission File No. 1-13080))
Exhibit 4(b) Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on
Form 8-K dated March 14, 1997 and filed March 31, 1997
(Commission File No. 1-13080))
Exhibit 5 Opinion of Piper & Marbury L.L.P.
Exhibit 23(a) Consent of Ernst & Young LLP
Exhibit 23(b) Consent of Cummings & Lockwood
Exhibit 23(c) Consent of Piper & Marbury L.L.P. (included in Exhibit 5)
Exhibit 24 Power of Attorney
PIPER & MARBURY
L.L.P.
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-3018
410-539-2530 WASHINGTON
FAX: 410-539-0489 NEW YORK
PHILADELPHIA
September 29, 1997
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Ladies and Gentlemen:
We have acted as special Maryland counsel to Grove Property Trust, a
Maryland real estate investment trust (the "Company"), in connection
with the preparation of a Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of
3,333,333 common shares of beneficial interest, $.01 par value, of the
Company (the "Shares") to be offered and sold by certain selling
shareholders from time to time.
In our capacity as Maryland counsel, we have reviewed the Second and
Third Amended and Restated Declarations of Trust of the Company (the
"Declaration of Trust"), a copy of the By-laws of the Company certified
by an officer of the Company as currently in effect and as in effect
prior to March 10, 1997 (the "By-laws"), the Registration Statement,
resolutions of the Board of Trust Managers of the Company authorizing
the issuance of the Shares and the Registration Statement; good standing
certificate for the Company, dated as of a recent date, issued by the
Maryland State Department of Assessments and Taxation; an Officer's
Certificate of the Company dated as of the date hereof as to certain
factual matters (the "Officer's Certificate"); and such other documents
as we have considered necessary to the rendering of the opinions
expressed below.
In such examination, we have assumed, without independent
investigation, the genuineness of all signatures, the legal capacity of
all individuals who have executed any of the aforesaid documents, the
authenticity of all documents submitted to us as originals, the
conformity with originals of all documents submitted to us as copies and
that all public records received are accurate and complete. As to any
facts material to this
<PAGE>
Piper & Marbury, LLP
Grove Property Trust
September 29, 1997
Page 2
opinion which we did not independently establish or verify, we have
relied solely upon the Officer's Certificate.
On the basis of the foregoing we are of the opinion that:
1. The Company has been duly formed and is validly existing in
good standing as a real estate investment trust under the laws of the
State of Maryland.
2. The Shares have been duly authorized and are validly issued,
fully paid and nonassessable.
The foregoing opinions are limited to the laws of the State of Maryland,
exclusive of securities or "blue sky" laws. We assume no obligation to
supplement this opinion if any applicable laws change after the date
hereof or if we become aware of any facts that might change the opinions
expressed herein after the date hereof. We hereby consent to the filing
of this opinion as Exhibit 5 to the Registration Statement and to the
reference to our firm in the Registration Statement.
Very truly yours,
/s/ PIPER & MARBURY, L.L.P.
Exhibit 23(a)
Consent of Independent Accountants
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated September 2, 1997 for: (1) the financial
statements of Grove Property Trust as of December 31, 1996 and for each of the
two years in the period ended December 31, 1996, (2) the combined financial
statements of Grove Property Services Limited Partnership and Property
Partnerships at December 31, 1996 and for the year ended December 31, 1996,
(3) the combined statements of revenues and certain expenses of the September
1997 Property Acquisitions for each of the two years in the period ended
December 31, 1996 and (4) the combined statements of revenues and certain
expenses of the Pending 1997 Property Acquisitions for each of the two years
in the period ended December 31, 1996, in the Registration Statement (Form S-3
No. 333-_________) and related Prospectus of Grove Property Trust for the
registration of 3,333,333 shares of its common stock.
We also consent to the incorporation by reference therein of our reports
with respect to: (1) the balance sheet of Grove Operating, L.P. at November
4, 1996 (dated November 4, 1996), (2) the combined financial statements of
Grove Property Services Limited Partnership and Property Partnerships at
December 31, 1995 and for each of the two years in the period ended December
31, 1995 (dated October 12, 1996), (3) the financial statements of Grove
Cambridge Associates Limited Partnership at December 31, 1995 and for the year
ended December 31, 1995 (dated October 12, 1996), all as included in Grove
Property Trust's definitive Proxy Statement dated February 13, 1997, filed with
the Securities and Exchange Commission.
We also consent to the incorporation by reference therein of our reports
with respect to the statements of revenues and certain expenses for: (1) Four
Winds Apartments for the period September 28, 1995 to December 31, 1995 and
for the year ended December 31, 1996 (dated May 22, 1997), (2) Brooksyde
Apartments for the periods January 1, 1995 to September 30, 1995, October 1,
1995 to December 31, 1995 and the year ended December 31, 1996 (dated July 1,
1997), (3) Rivers Bend Apartments for the years ended December 31, 1995 and
1996 (dated May 22, 1997) and (4) Greenfield Village Apartments for the years
ended December 31, 1995 and 1996 (dated July 1, 1997), included in Grove
Property Trust's Current Reports on Form 8-K, dated May 30, 1997 and July 2,
1997, both as amended, and all as filed with the Securities and Exchange
Commission.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
September 30, 1997
Exhibit 23(c)
Consent of Cummings & Lockwood
We hereby consent to the reference to us under the caption "Legal
Opinion" in the Prospectus included in the Registration on Form S-3 of Grove
Property Trust (formerly Grove Real Estate Asset Trust) relating to the offer
of up to 3,333,333 Common Shares, par value $0.01 per share, of Grove Property
Trust.
/s/CUMMINGS & LOCKWOOD
Cummings & Lockwood
Stamford, Connecticut
September 30, 1997
Exhibit 24
Power of Attorney
We, the undersigned officers and trustees of Grove Property Trust
(formerly Grove Real Estate Asset Trust) (the "Company"), hereby severally
constitute Damon D. Navarro, Joseph R. LaBrosse and Edmund F. Navarro, and
each of them singly, as our attorneys-in-fact with full power to them, and
each of them singly, to sign for us and in our names and in our capacities as
trustees and/or officers of the Company, the Registration Statement on Form S-
3 relating to the registration of the Company's Common Shares, $0.01 par
value, pursuant to the Registration Rights Agreement dated March 14, 1997, and
any and all amendments thereto, which Registration Statement is being filed
pursuant to the Securities Act of 1933, as amended, and, in general, to do all
such things in our names and behalf and in our capacities as officers and
trustees to enable the Company to comply with the provisions of the Securities
Act of 1933, as amended, and all requirements of the Securities and Exchange
Commission, including the filing of such amendments, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorneys, and all that our said attorneys may do or cause
to be done by virtue hereof.
In witness whereof, each of the undersigned has hereunto set his hand and
seal this 30 day of September, 1997.
/s/ DAMON D. NAVARRO /s/ JOSEPH R. LaBROSSE
- ------------------------------- -------------------------------
Damon D. Navarro Joseph R. LaBrosse
/s/ THEODORE R. BIGMAN /s/ J. JOSEPH GARRAHY
- ------------------------------- -------------------------------
Theodore R. Bigman J. Joseph Garrahy
/s/ HAROLD V. GORMAN /s/ EDMUND F. NAVARRO
- ------------------------------- -------------------------------
Harold V. Gorman Edmund F. Navarro
/s/ JAMES F. TWADDEL
- -------------------------------
James F. Twaddell
