Registration No. 333-36805
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 9, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
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. [ ]
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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. [ ]
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.
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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 or 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 December
8, 1997 was $10 3/16 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 December__, 1997.
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TABLE OF CONTENTS
Available Information ...................................................3
Incorporation of Certain Documents by Reference .........................3
The Company .............................................................5
Risk Factors ............................................................5
Use of Proceeds ........................................................16
Selling Shareholders ...................................................17
Plan of Distribution ...................................................20
Legal Opinion ..........................................................21
Experts ................................................................21
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, as amended;
2. The Company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1997, as amended, June 30, 1997, as amended, and September 30, 1997;
3. The Company's Current Reports on Form 8-K dated February 13, 1997,
February 21, 1997, March 14, 1997 (2 Reports), May 30, 1997, as amended, July
2, 1997, as amended, September 2, 1997 as amended, and October 31, 1997, as
amended;
4. The Company's definitive Proxy Statement distributed in connection with
its Annual Meeting of Shareholders held on June 18, 1997; and
5. The Company's Registration Statement on Form 8-A dated November 14, 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 the
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, shall be incorporated by
reference into this Prospectus and shall 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
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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 into this Prospectus 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 into this Prospectus (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.
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THE COMPANY
The Company, which was formed in 1994, is a self-managed and self-
administered equity real estate investment trust ("REIT") organized under
Maryland law. It is engaged, through Grove Operating, L.P., a Delaware
limited partnership (the "Operating Partnership") of which the Company is
the sole General Partner, principally in the business of acquiring,
repositioning, managing and operating mid-priced multifamily residential
properties located in the Northeastern region of the United States. As of
December 1, 1997, the Company has a controlling interest in 33 properties
(the "Properties") consisting of 30 apartment communities containing a
total of 2,863 residential units and three retail properties containing an
aggregate of approximately 95,400 rentable square feet. Reference is made
to the information incorporated herein for a more complete description of
the Company's business and of the 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. CERTAIN STATEMENTS CONTAINED
OR INCORPORATED BY REFERENCE HEREIN CONSTITUTE "FORWARD LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. THESE STATEMENTS INCLUDE, AMONG OTHER THINGS, STATEMENTS
CONCERNING RESULTS OF OPERATIONS, CASH AVAILABLE FOR DISTRIBUTIONS, REQUIRED
CAPITAL EXPENDITURES, SOURCES OF GROWTH, ECONOMIC CONDITIONS AND TRENDS AND
PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS. SUCH FORWARD
LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY, DEPENDING ON A VARIETY OF IMPORTANT FACTORS.
IMPORTANT FACTORS THAT CONTRIBUTE TO SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT
ARE NOT LIMITED TO: (I) THOSE IDENTIFIED UNDER THIS CAPTION; (II) CHANGES IN
GENERAL BUSINESS AND ECONOMIC CONDITIONS; AND (III) OTHER FACTORS WHICH MAY BE
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE COMMISSION.
ABSENCE OF APPRAISALS
In March 1997, 20 Properties owned by certain affiliates of the Company's
executive officers (the "Executive Officers") and Grove Property Services
Limited Partnership ("GPS"), the management company for such Properties were
contributed to the Operating Partnership in exchange for Common Units of the
Operating Partnership (the "Common Units") and cash (collectively, the "March
Acquisitions"), pursuant to a Contribution Agreement (the "Contribution
Agreement") between such affiliates, the Company and the Operating
Partnership. Such acquisitions were based primarily upon a capitalization of
pro forma net operating income, rather than an asset-by-asset valuation based
on historical cost or appraised current market value. A valuation of these
Properties and GPS based on appraisals or another method would likely have
resulted in a different valuation. There can be no assurance that the
percentage interests or the value thereof received by those participating in
the transactions, including the Executive Officers and their affiliates,
accurately reflected the value of the assets contributed to the Operating
Partnership. Since the March Acquisitions, the Company has acquired five
Properties from affiliated parties and two Properties from unaffiliated
parties. The Company did not obtain appraisals with respect to these
additional Properties, although approval was obtained from a majority of the
Independent Trust Managers (as defined below) for the transactions in which
the additional Properties were acquired from affiliates of the Company. If
the fair market values of GPS and the Properties acquired in and subsequent to
the March Acquisitions are materially different from the amounts paid by the
Company, the Company could have overpaid for GPS or such Properties which
could result in a material and adverse effect on the financial performance of
the Company and the value of the Common Shares. In addition, the sellers of
such Properties could in the future claim they were underpaid, which claim, if
successful, could result in a material and adverse effect on the financial
performance of the Company and the value of the Common Shares.
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Real Estate Investment Considerations
General. Real property investments are subject to varying degrees of
risk. The financial returns available from equity investments in apartment
properties depend on the amount of revenue generated and expenses incurred in
operating the properties. If the Properties do not generate revenue
sufficient to meet operating expenses, debt service, if any, and capital
expenditures, the Company's income and ability to make distributions to its
shareholders will be adversely affected. An apartment property's income and
value may be 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 residents, competition from other
apartment properties, the ability of the owner to provide adequate maintenance
and to obtain adequate insurance and increased operating costs (including real
estate taxes). The Company's income will be adversely affected if a
significant number of residents are unable to pay rent or if the apartments
cannot be rented on favorable terms. Further, certain significant
expenditures associated with equity investments in real estate (such as
mortgage payments, if any, real estate taxes and maintenance costs) are
generally not reduced when circumstances cause a reduction in rental income.
In addition, the net income to the Company from any of the Properties may be
adversely affected by such factors, among others, as changes in zoning,
building, environmental, rent control and other laws and regulations,
population shifts, which may affect the demand for rental housing in the
Company's markets, changes in real property taxes and interest rates, the
availability of financing, weather and acts of God (such as earthquakes,
hurricanes and floods) and other factors beyond the control of the Company
that may significantly affect the Company's revenue and operating expenses.
The Company is also exposed to the various types of litigation that may be
brought against a property owner or manager.
Illiquidity Of Real Estate. Investments in real estate are relatively
illiquid and, therefore, will tend to restrict the Company's ability to vary
its portfolio of properties promptly in response to changes in economic or
other conditions. Consequently, if the Operating Partnership were to be
liquidated, the proceeds realized by the Company might be less than the
Company's total investment in the Operating Partnership. In addition, the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
places limits on the amount of gross income the Company may realize from sales
of real property assets held for fewer than four years, which may affect the
Company's ability to sell the Properties without adversely affecting returns
to holders of Common Shares.
Future Property Acquisitions. In the normal course of its business,
and in the pursuit of its business and growth strategies, the Company
continually evaluates potential acquisitions in the Northeast. The Company
intends to continue to acquire multifamily properties and, in certain
circumstances, select retail properties if attractive opportunities arise. In
addition to general investment risks associated with any new real estate
investment, acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the costs of
improvements to bring an acquired property up to standards established for the
market position intended for that property will prove inaccurate. Properties
acquired may have characteristics or deficiencies unknown to the Company
affecting their valuation or revenue potential, and it is possible that their
operating performance may decline under the Company's management. No
assurance can be given that the Company will identify suitable acquisitions,
complete acquisitions on terms favorable to it or successfully integrate
acquired properties into the Company's portfolio. If financing is not
available on acceptable terms for new acquisitions or renovations, further
acquisitions might be curtailed. Furthermore, the fact that the Company must
distribute 95% of its REIT taxable income in order to maintain its
qualification as a REIT under the Internal Revenue Code will limit the ability
of the Company to rely upon income from operations or cash flow from
operations to finance new acquisitions.
Risks Of Repositioning And Renovation. The Company intends to
reposition or renovate certain of the Properties and other properties it may
acquire in the future. In connection with any such project, the Company will
bear certain risks, including delays or cost overruns, that may increase
project costs and could make such projects uneconomical, and the risk that
occupancy or rental rates at a property once such a project has been completed
will not be sufficient to enable the Company to pay operating expenses or earn
its anticipated rate of return on its
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investment. In case of an unsuccessful repositioning or renovation project,
the Company's loss could exceed its investment in such project. In cases
where the Company owns less than the entire interest in a property, the
Company may nevertheless be required to bear the entire cost of a
repositioning or renovation project at such property.
Risks Relating To Distributions. The Company pays regular
distributions to its shareholders and has announced its intention to increase
its annual distribution rate to $0.68 per Common Share. The Company's
determination to increase distributions was based on expectations with respect
to pro forma REIT taxable income and is intended to ensure the Company's
continuing ability to qualify for REIT status. In particular, the Company is
seeking to ensure its continuing compliance with the requirement that it
distribute annually at least 95% of its REIT taxable income. No assurance can
be given, however, that actual 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 the Properties and any properties it may acquire in the future, including
occupancy levels, expenditures with respect to the Properties and newly
acquired properties, the amount of the Company's debt and the interest rates
thereon and other costs relating to the Properties and the newly acquired
properties, as well as the absence of significant expenditures relating to
environmental or other regulatory matters. Most of these matters are beyond
the control of the Company and any significant difference between the
Company's expectations with respect to these matters and actual results could
have a material adverse effect on the Company and its ability to make or
sustain distributions.
Compliance With Applicable Laws. The Properties are subject to various
federal, state and local regulatory requirements, such as requirements of the
Americans with Disabilities Act (the "ADA") and state and local fire and
safety requirements. The ADA may require modifications to existing buildings
or restrict certain renovations by requiring access to such buildings, and
apartments in the buildings, by disabled persons. In addition, the Fair
Housing Amendments Act of 1988 ("FHAA") requires apartment communities first
occupied after March 13, 1990 to be accessible to the handicapped. Failure to
comply with these laws could result in the imposition of fines or an award of
damages to private litigants. Additional legislation may impose further
burdens or restrictions on owners with respect to access by disabled persons.
The costs of compliance with such laws may be substantial, and limits or
restrictions on completion of certain renovations may reduce overall returns
on the Company's investments. Although the Company believes that the
Properties 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 involve a greater expenditure than the
Company currently anticipates or if the changes must be made on a more
accelerated basis than it anticipates, the Company's cash flow and ability to
make expected distributions could be adversely affected.
Competition. There are numerous real estate companies, including those
which operate in the markets in which the Properties are located, which
compete with the Company in seeking properties for acquisition, and for
tenants to occupy such properties. The Company may compete with companies
that have greater resources and whose officers and directors or trustees have
more experience than the Company's officers and Trust Managers. Further,
the availability of single-family housing and other forms of multifamily
residential properties, such as manufactured housing communities, provide
alternatives to residents and potential residents of apartment communities.
The availability of such alternatives and competition generated thereby could
increase in the future. These competitive factors could adversely affect the
Company's financial performance and results of operations.
EXPANSION INTO NEW GEOGRAPHIC MARKETS
The Company currently intends to seek to acquire properties in geographic
markets other than those markets in which the Properties are located,
including other states in the Northeast and Mid-Atlantic regions. Such
regions may include markets in which the Company has little or no experience
in the acquisition and management of multifamily or other properties. Any
such new geographic market may be substantially dissimilar to the markets
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in which the Company currently owns and operates the Properties, and
management of the Company may be unfamiliar with prevailing economic
conditions, trends in real estate and other factors in such markets, which may
adversely affect the Company's ability to acquire properties in such new
geographic markets for competitive purchase prices and to manage such
properties effectively and profitably thereafter. Payment of purchase prices
for such properties in excess of their fair market value or the Company's
inability to manage such properties so as to cause them to be profitable would
have an adverse effect on the results of operations of the Company.
DEPENDENCE ON LIMITED GEOGRAPHIC AREA
The Properties are located in Connecticut, Rhode Island and Massachusetts
and consist principally of multifamily residential communities. A substantial
percentage of the units in the Company's portfolio are located in Connecticut.
The Company's cash flow, ability to make distributions to its shareholders and
the value of the Common Shares are therefore particularly dependent upon
general business and economic conditions, such as employment levels, average
salaries, population and industrial growth and the demand for rental
apartments, in Connecticut and in the individual markets in which the
Properties are located. In recent years the values of residential rental
properties in the Northeastern United States have fluctuated as a result of
these and other factors. Changes in such factors in the Company's markets
could have a material adverse effect on the Company's business, financial
condition and results of operations.
LIMITATION ON CONTROL OF PARTIALLY OWNED PROPERTIES
Twelve of the Properties are not entirely owned by the Company, and the
Company may hereafter acquire properties in which it will own less than the
entire interest. To the extent that other persons continue to have a minority
interest in such properties, the Company may have certain fiduciary
responsibilities to such persons which it will need to consider when making
decisions that affect those properties (including decisions regarding sale,
refinancing and the timing and amount of distributions from such properties).
Potential conflicts and other problems which could adversely affect the
Company and its results of operations could arise as a consequence of these
ownership arrangements.
REAL ESTATE FINANCING RISKS
Debt Service Obligations. The Company will be subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest. If the Company or an entity in which it invests were unable to meet
its debt service obligations under its mortgage loans, the lender could
foreclose on the relevant property, in which case the Company would lose the
property and its associated investment and revenue stream. All indebtedness
of the Company is secured by mortgages on certain of the Properties. The
cross-collateralization of the mortgages on various of the Properties reduces
flexibility in selling individual properties.
Variable Rate Debt and Maturities. The Company's debt includes both
fixed rate and variable rate debt with interest rates that adjust based upon
prevailing market interest rates. A substantial portion of the Company's debt
may bear interest at variable rates. The Company is negotiating to increase
its available revolving credit under its revolving credit facility (the
"Credit Facility") to $50 million. The Credit Facility bears interest at
variable rates. An increase in interest rates could have a material adverse
effect on the Company's results of operations and on its ability to make
distributions on the Common Shares. If principal payments due at maturity
cannot be refinanced, extended or repaid with the proceeds of other capital
raising transactions, the Company may not be able to pay distributions at
expected levels and repay all such maturing debt. If the Company were unable
to refinance its indebtedness on acceptable terms, or at all, the Company
might be forced to dispose of one or more of the Properties
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upon disadvantageous terms, which might result in losses to the Company and
might adversely affect the cash available for distribution.
No Limitation On Debt. The Company has followed a practice of limiting
its ratio of debt to total market capitalization (I.E., total debt of the
Company as a percentage of total market capitalization, defined as the sum of
the aggregate market value of the issued and outstanding Common Shares and
Common Units exchangeable for Common Shares and the total debt of the Company)
to less than 60%. The organizational documents of the Company, however, do
not limit the amount or percentage of indebtedness that it may incur.
Therefore, the Company may change this practice regarding indebtedness without
the vote of the holders of Common Shares . If this practice is changed, the
Company could become more highly leveraged, resulting in an increased risk of
default on the obligations of the Company and an increase in debt service
requirements which could adversely affect the Company's financial condition
and results of operations and, consequently, the Company's ability to pay
distributions on the Common Shares.
POTENTIAL CONFLICTS OF INTEREST
The Executive Officers or entities affiliated with the Executive Officers
have in the past been parties to transactions with the Company or its
affiliates. Of the Company's 33 Properties, 31 Properties were acquired by
the Company from entities affiliated with Executive Officers. The Company may
in the future explore the possibility of purchasing other properties from its
affiliates or affiliates of the Executive Officers. As a result, these
persons may have interests that conflict with those of the other shareholders
of the Company. In addition, there can be no assurance that the prices paid
by the Company in connection with such transactions accurately reflected or
will accurately reflect the fair market value of the subject properties.
While the Company has entered into non-competition agreements with each of the
Executive Officers and certain of their affiliates designed to minimize
conflicts of interest, and the Company's Third Amended and Restated
Declaration of Trust (the "Charter") includes a provision which requires the
composition of the Board of Trust Managers (the "Board") at all times to
consist of a majority of Independent Trust Managers (as defined in the
Charter), there can be no assurance that the provisions of the non-competition
agreements or the Charter will be successful in eliminating the impact of
conflicts of interest between the Executive Officers and the Company.
Accordingly, the interests of 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 of the Company.
Because of substantial economic interests of the Executive Officers in
entities which are parties to the Contribution Agreement, there is a potential
for a conflict of interest with respect to the obligations of the Executive
Officers as executive officers of the Company in enforcing the terms of the
Contribution Agreement. The failure to enforce the material terms of the
Contribution Agreement, particularly the indemnification provisions and the
remedy provisions for breaches of representations and warranties, could result
in losses to the Company and could adversely affect the cash available for
distribution.
In addition, affiliates of the Executive Officers that have contributed
properties to the Company in the past, may have unrealized gain in their
interests in such properties. The sale of such properties by the Company
could cause adverse tax consequences to such Executive Officers or affiliates.
Although decisions regarding such dispositions must be made by the Board, a
majority of which is composed of Independent Trust Managers, the interests of
the Company and such Executive Officers and affiliates could be different in
connection with the disposition of such properties.
-9-
<PAGE>
DEPENDENCE ON KEY PERSONNEL
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.
ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company currently intends to continue operating so as to qualify as a
REIT under the Internal Revenue Code. A REIT generally is not taxed at the
corporate level on income it currently distributes to shareholders so long as
it distributes at least 95% of its REIT taxable income annually. No assurance
can be given that the Company will be able to operate in a manner so as to
remain so qualified. Qualification as a REIT involves the application of
highly technical and complex provisions of the Internal Revenue Code for which
there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect its ability to continue to qualify as a REIT.
The complexity of these provisions and of the applicable income tax
regulations that have been promulgated under the Internal Revenue Code is
greater in the case of a REIT that holds its assets through a partnership. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not change tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such 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 Company's
cash 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.
REQUIRED DISTRIBUTIONS; POTENTIAL REQUIREMENTS TO BORROW
To obtain the favorable tax treatment accorded to a REIT under the
Internal Revenue Code, the Company generally is required each year to
distribute to its shareholders at least 95% of its REIT taxable income. The
Company will be subject to income tax on any undistributed REIT taxable income
and net capital gain, and to a 4% nondeductible excise tax on the amount, if
any, by which certain distributions paid by it with respect to any calendar
year are less than the sum of 85% of its ordinary income plus 95% of its
capital gain net income for the calendar year, plus 100% of its undistributed
income from prior years.
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
consists primarily of the Company's share of the income of the Operating
Partnership and the Company's
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<PAGE>
cash flow consists primarily of its share of distributions from the Operating
Partnership. In turn, the Operating Partnership's income and cash flow
consists primarily of its share of the income and cash flow, respectively, of
the properties it owns or controls. Differences in timing between the receipt
of income and the payment of expenses in arriving at taxable income (of the
Company or the Operating Partnership) and the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments
could require the Company to borrow funds through the Operating Partnership on
a short-term or long-term basis to meet its distribution requirements even if
management believes that the then-prevailing market conditions are not
favorable for such borrowings or that such borrowings are not advisable in the
absence of such tax considerations. If the Company is unable to obtain such
borrowings, the Company could be disqualified from REIT treatment.
Distributions by the Operating Partnership are determined by the Company,
as the sole general partner, through the Board, and are dependent on a number
of factors, including the amount of cash available for distribution, the
Operating Partnership's financial condition and the financial condition of
each property in which the Company holds an interest, any decision by the
Board to reinvest funds rather than to distribute funds, the capital
expenditure requirements relating to the properties in which the Company holds
an interest, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code and such other factors as the Board deems relevant.
There is no assurance that the Company will be able to continue to satisfy the
annual distribution requirement so as to qualify as a REIT.
For federal income tax purposes, distributions paid to holders of Common
Shares may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. The Company provides the holders of Common
Shares with an annual statement indicating the tax character of the
distributions.
LIMITS ON CHANGES IN CONTROL
Certain provisions of the Charter and the Bylaws of the Company and of
Maryland law (described below) may have the effect of (i) discouraging a
change of control of the Company; (ii) deterring tender offers for Common
Shares, which offers may be attractive to the Company's shareholders or (iii)
limiting the opportunity for the Company's shareholders to receive a premium
for the Common Shares that might otherwise exist if an investor attempted to
assemble a block of Common Shares in excess of the Ownership Limit (as defined
below) or the Constructive Ownership Limit (as defined below) or to effect a
change of control of the Company.
Ownership Limits. For the Company to maintain its qualification as a
REIT, not more than 50% in value of the outstanding capital shares may be
owned, actually or constructively under the applicable attribution rules of
the Internal Revenue Code, by five or fewer individuals (including certain
tax-exempt entities, other than, in general, qualified domestic pension funds)
at any time during the last half of any taxable year of the Company (the "five
or fewer" requirement). The Charter contains certain restrictions on the
ownership and transfer of Common Shares and Preferred Shares (as defined
below) (together, "Equity Shares"), described below, which are intended to
prevent concentration of share ownership. These restrictions, however, may
not ensure that the Company will be able to satisfy the "five or fewer"
requirement in all cases. If the Company fails to satisfy such requirement,
the Company's status as a REIT will terminate. See "-Adverse Tax Consequences
of Failure to Qualify as a REIT."
The Charter does not permit any person to own more than 5.0% of the
number of outstanding Equity Shares (subject to adjustment by the Board) (the
"Ownership Limit") or to own constructively (within the meaning of the
Internal Revenue Code) in excess of 9.8% of the number of outstanding Equity
Shares (the "Constructive Ownership Limit") and the executive officers in the
aggregate may not own more than 20% of the outstanding Equity Shares (by
number or value, whichever is the more restrictive) (the "Executive Officer
Ownership Limit"), subject to certain exceptions. Each percentage is based on
the value or the number of shares, whichever is more restrictive. In
addition, no shareholder of the Company may sell, transfer, assign, devise or
otherwise dispose of Equity Shares if such a disposition would result in (i)
Equity Shares being owned by fewer than 100 shareholders;
-11-
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(ii) the Company's being "closely held" within the meaning of Section 856(h)
of the Internal Revenue Code or (iii) the Company's failing to qualify as a
REIT.
Under the Charter, any attempted transfer of shares by a person, or other
change in the capital structure of the Company, which would violate one of the
limitations described above, unless compliance with such limitations has been
waived by the Board, will cause the shares in excess of such limits (the
"Excess Shares") to be transferred automatically to a special trust for the
benefit of a charitable beneficiary (a "Special Trust") or, if, for any
reason, the transfer to a Special Trust is not automatically effective, the
attempted transfer resulting in such violation will be deemed void AB INITIO.
Upon any transfer that results in Excess Shares pursuant to the foregoing,
such Excess Shares will be deemed to have been transferred to the trustee of a
Special Trust and will be considered issued and outstanding shares. The
trustee of the Special Trust will be entitled to voting, dividend and other
distribution rights on such Excess Shares, and any dividend or other
distribution paid prior to the discovery by the Company that the Common and/or
Preferred Shares have been transferred so as to be deemed Excess Shares must
be repaid to the trustee of the Special Trust upon demand. The Board may
waive the Ownership Limit, the Constructive Ownership Limit or the Executive
Officer Ownership Limit with respect to a particular shareholder if it is
satisfied, based on the receipt of certain representations and undertakings
from the person seeking to own shares in excess of the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, that
such ownership in excess of the Ownership Limit, the Constructive Ownership
Limit or the Executive Officer Ownership Limit will not jeopardize the
Company's status as a REIT. Subject to certain limitations, the Board may
from time to time increase or decrease the Ownership Limit or the Constructive
Ownership Limit.
Preferred Shares. The Charter permits the Board to issue up to 1,000
preferred shares of beneficial interest, par value $0.01 per share ("Preferred
Shares"), and to establish the preferences and rights (including the right to
vote and the right to convert into Common Shares) of any such Preferred Shares
issued. Thus, the Board could authorize the issuance of Preferred Shares with
terms and conditions which could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the Common
Shares might receive a premium for their Common Shares over the then-
prevailing market price of the Common Shares.
Staggered Board. The Board has three classes of Trust Managers who serve
for three-year terms, with the term of one class expiring in each year. A
Trust Manager may be removed only for cause (as defined in the Charter) and
only by the affirmative vote of the holders of at least two-thirds of the
Common Shares then outstanding and entitled to vote.
Maryland Business Combination Law. Under the Maryland General
Corporation law, as may be amended from time to time (the "MGCL"), certain
"business combinations" (including certain issuances of equity securities)
between a Maryland real estate investment trust such as the Company and any
person who owns 10.0% or more of the voting power of the trust's shares (an
"Interested Shareholder") or an affiliate thereof are prohibited for five
years after the most recent date on which the Interested Shareholder became an
Interested Shareholder. Thereafter, any such business combination must be
approved by a super-majority vote unless, among other conditions, the holders
of Common Shares receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
required to investigate and clean up hazardous or toxic substances or
petroleum products released on, under, in or emitting from such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean up
responsibility and liability without regard to whether the owner knew of or
caused the presence of the contaminants, and the liability under such laws has
been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for an allocation of
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<PAGE>
responsibility. The cost of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances or the
failure to remediate the contamination properly on such property may adversely
affect the owner's ability to sell or rent such property or to borrow using
such property as collateral. Moreover, certain loan documents provide for
recourse liability in connection with the presence of hazardous or toxic
materials. Persons who arrange for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility also may be liable for
the costs of removal or remediation of a release of hazardous or toxic
substances at such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. Finally,
the owner of a site may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from
a site. In connection with its ownership and operation of the Properties or
any properties it acquires in the future, the Company is potentially liable
for such costs.
Federal legislation requires owners and landlords of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers of
the properties any known lead-paint hazards and will impose treble damages for
failure to give the required notice. The existence of lead-based paint in a
property may result in lead poisoning in children residing therein if chips or
particles of lead-based paint are ingested, and the Company may be held liable
under state laws for any injuries caused by ingestion of lead-based paint by
children living at the its apartment properties or any apartment properties
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior
Phase I) or similar environmental assessments by independent environmental
consultants. Phase I assessments are intended to discover information
regarding, and to evaluate the environmental condition of, the surveyed
property and surrounding properties. Phase I assessments generally include a
historical review, a public records review, a preliminary investigation of the
surveyed site and surrounding properties, and preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
Certain environmental laws impose liability for release of asbestos-
containing materials ("ACM's") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
suffered by reason of ACM's. Because of the ownership and operation of the
Properties, the Company, the Operating Partnership and any partnership holding
an interest in any of the Properties are potentially liable for such costs.
Various environmental laws and regulations also control how certain
activities can or must be conducted at the Properties. Such requirements
govern maintenance activities, renovation projects and other worker operations
involving asbestos or lead-based paint. They also may govern air emissions,
wastewater discharges, waste management or similar activities related to
operation of the Properties. No assurance can be given that the cost of
complying with such requirements in connection with any of the Properties will
not require any material expenditures by the Company in the future.
Under various laws and regulations, owners and operators of underground
and aboveground storage tanks containing petroleum are obligated to meet
certain construction and operating standards. In addition, such tank owners
and operators are responsible for remediating any contamination caused by
petroleum released from such tanks. While currently available information
does not indicate that the Company currently has any material liabilities
related to such tanks, no assurance can be given that the Company will not be
required to make such material expenditures in the future.
The Company's environmental assessments of the Properties have not
revealed any environmental liability that the Company believes would have a
material adverse effect on its business, assets or results of operations taken
as a whole, nor is the Company aware of any such material environmental
liability. Nonetheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. No assurance can be given (i)
that existing environmental studies for
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<PAGE>
the Properties reveal all environmental liabilities; (ii) that any prior owner
thereof or tenant therein or unrelated third party did not and will not in the
future create any environmental condition with material adverse consequences
to the Company; (iii) that future laws or regulations or changes or new
interpretations of existing laws or regulations will not require any material
expenditures by, or create any environmental liabilities for, the Company in
the future or (iv) that past, current or future operations or conditions
associated with land or property in the vicinity of the Properties, such as
the presence of leaking underground storage tanks, will not have a material
adverse effect on the business, financial condition and results of operations
of the Company.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of Common Shares, or the perception that
such sales could occur, could adversely affect the prevailing market price for
the Common Shares. As of the date of this Prospectus, the Company has
8,453,829 Common Shares outstanding. Of these shares, upon effectiveness of
the Registration Statement, 6,666,379 shares will be freely tradable without
restriction and 1,787,450 shares will be held by "affiliates" (as defined in
Rule 144 under the Securities Act) and may be sold subject to the volume,
manner of sale and other restrictions of Rule 144. In the event that any such
holder ceases to be an "affiliate" of the Company, shares held by such holder
will become freely tradable, subject to certain limitations.
The Operating Partnership, in connection with the March Acquisitions,
issued to persons other than the Company an aggregate of 2,114,439 Common
Units. The Company has subsequently issued an aggregate of 894,687 Common
Units in acquisitions of other Properties and will likely issue additional
Common Units in furtherance of the Company's objective of continuing to
acquire additional properties. Common Units may be redeemed for cash based on
their fair market value or, at the Company's option, for Common Shares on a
one-for-one basis. In certain circumstances, the Company may not be able to
exercise its option to satisfy such redemption rights with Common Shares
because of tax or securities law limitations. An exercise of redemption
rights in such circumstances could adversely affect the Operating
Partnership's liquidity because it would then be required to satisfy such
rights with cash. Pursuant to contractual arrangements, holders of the Common
Units issued in the acquisitions may not redeem their Common Units for a
period of one year after the closing of the acquisition transaction in which
such holder received such Common Units. The Company has granted and may in
the future grant certain registration rights to the holders of the Common
Units. Thus, an aggregate of 2,114,439 shares may be sold in the public
market after March 14, 1998, assuming the immediate redemptions of all Common
Units for Common Shares at such time and concurrent exercise of such
registration rights. In addition, an aggregate of 1,115,368 Common Shares
have been reserved for issuance pursuant to the Company's 1994 Share Option
Plan, the 1996 Share Incentive Plan and other outstanding options and
warrants.
No prediction can be made as to the effect, if any, that future sales of
Common Shares, including the Common Shares covered by this Prospectus, or the
availability of such shares for future sale will have on the market price of
the Common Shares.
The Board has the authority, without shareholder approval, to issue
additional Common Shares and other Equity Shares, or to cause the Operating
Partnership to issue additional Common Units or other classes of units of
interest in the Operating Partnership in any manner it deems appropriate,
including in exchange for property. Shareholders of the Company will have no
preemptive right to purchase shares or units issued in any such offerings, and
any such offerings might cause a dilution of the shareholders' investment in
the Company.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT SHAREHOLDER APPROVAL
The Board will determine the Company's investment and financing
practices, its growth strategy, and its debt, capitalization, distribution and
operating practices. Although the Board has no present intention to revise or
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<PAGE>
amend these strategies and practices, the Board may do so at any time without
a vote of the Company's shareholders. Accordingly, the Company's shareholders
will have no control over changes in strategies and practices of the Company,
and such changes may not serve the interests of all the Company's shareholders
and could adversely affect the Company's financial condition or results of
operations.
Risks Involved in Acquisitions through Partnerships. The Company has and
may in the future invest in apartment properties through partnerships instead
of purchasing apartment properties directly or through wholly-owned
subsidiaries. Partnerships may, under certain circumstances, involve risks
not otherwise present in a direct acquisition of properties. These include
the risks that the Company's partner: (i) might become bankrupt; (ii) might at
any time have economic or business interests or goals which are inconsistent
with the business interests or goals of the Company or (iii) might be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's practices or objectives. There is no
limitation in the Charter as to the amount of investment the Company may make
in partnerships.
Risks Involved in Investments in Securities Related to Real Estate. The
Company has and may in the future pursue its investment objectives through the
ownership of securities or partnership interests of entities engaged in the
ownership of real estate. Ownership of such securities or partnership
interests may not entitle the Company to control the ownership, operation or
management of the underlying real estate. In addition, the Company may have
no ability to control the distributions with respect to such securities, which
may adversely affect the Company's ability to make distributions on the Common
Shares. Furthermore, if the Company desires to control an issuer of
securities or partnership interests, it may be prevented from doing so by the
limitations on percentage ownership and gross income tests which must be
satisfied by the Company in order for the Company to qualify as a REIT. The
Company intends to operate its business in a manner that will not require the
Company to register under the Investment Company Act of 1940 and the Company's
shareholders will therefore not have the protection of that Act.
The Company may also invest in mortgages or mortgage-related securities
and may do so as a strategy for ultimately acquiring the underlying property.
In general, investments in mortgages include the risk that borrowers may not
be able to make debt service payments or pay principal when due, the risk that
the value of the mortgaged property may be less than the principal amount of
the mortgage note securing such property and the risk that interest rates
payable on the mortgages may be lower than the Company's cost of funds to
acquire these mortgages. In any of these events, cash available for
distributions and the Company's ability to make distributions on the Common
Shares could be adversely affected.
SHARE PRICE VOLATILITY
The price of the Common Shares may be subject to wide fluctuations in
response to quarterly variations in operating results or announcement of
acquisitions. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which could adversely affect the market
price of the Common Shares. Further, the daily trading volumes of REIT's in
general and the Company's shares in particular may be lower than the trading
volumes of certain other industries. As a result, investors in the Company
who desire to liquidate substantial holdings at a particular time may find
that they are unable to dispose of their shares in the market without causing
a substantial decline in the market value of such shares. Furthermore, due to
the Company's limited trading volume in the past, investors in the Company may
not have an extensive trading history to consider in connection with making
investment decisions.
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<PAGE>
UNINSURED LOSS
The Company carries comprehensive liability, fire, flood (where required)
and extended coverage and rental loss insurance on all of the Properties with
policy specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses which may be either
uninsurable or not economically insurable, such as those resulting from
earthquakes, floods, tidal waves, explosion of water pipes, nuclear hazards,
wars, civil disturbances and environmental matters. Should an uninsured loss
or a loss in excess of insured limits occur, the Company could lose both its
investment in and anticipated profits and cash flow from a property while it
would continue to be obligated on any mortgage indebtedness or other financial
obligations on such property. Any such loss would adversely affect the
Company and its financial condition and results of operations. Moreover, as
the general partner of the Operating Partnership, the Company generally will
be liable for any of the Operating Partnership's unsatisfied obligations other
than non-recourse obligations. Similarly, as the general partner of other
partnerships which hold certain of the Properties, the Company generally will
be liable for any unsatisfied obligations of such partnerships other than non-
recourse obligations.
OFFER AND SALE OF UNREGISTERED SECURITIES
In connection with the March 1997 Acquisitions and concurrent private
placement by the Company of Common Shares (together, the "Consolidation
Transactions") the Company offered and sold 3,333,333 Common Shares and the
Operating Partnership issued 2,114,439 Common Units. Upon consummation of
acquisition transactions which occurred after the Consolidation Transactions,
the Operating Partnership issued an additional 894,687 Common Units. The
offer and sale of such Common Shares and such Common Units were not registered
under the Securities Act in reliance upon the exemption from registration
under Section 4(2) of the Securities Act. If it were to be determined that
the offer and sale of the Common Shares and Common Units issued in the
Consolidation Transactions should have been registered under the Securities
Act, the holders of such Common Shares and Common Units could be given the
right under federal securities laws to rescind their investment, or to pursue
other claims against the Company which could adversely affect the financial
condition of the Company or its ability to make expected distributions to its
shareholders. Although the Company believes that the offer of Common Shares
and Common Units was exempt from registration under Section 4(2) of the
Securities Act, there can be no assurance in this regard.
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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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of December 1, 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
Common Shares Common Shares to be to be Owned
Name Currently Owned Offered After 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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Common Shares
Common Shares Common Shares to be to be Owned
Name Currently Owned Offered After Sale
- ---------------------------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
ANB Enterprises Corporation 2,800 2,800 0
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 Trust 11,111 11,111 0
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
</TABLE>
-18-
<PAGE>
[CAPTION]
<TABLE>
Common Shares
Common Shares Common Shares to be to be Owned
Name Currently Owned Offered After Sale
- ---------------------------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
Cliffwood Real Estate Equity Fund LTD 91,800 91,800 0
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 33,335 33,335 0
of Trust
Stuzin Associates, Ltd. 16,665 16,665 0
L.A. & C. Limited Partnership 11,110 11,110 0
Oregon Investment Council Acting on 478,392 391,392 87,000
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 230,986 197,121 33,865
Stichting Bedrijfspensionenfonds 11,869 10,000 1,869
voor de Metaalinjverheid
Morgan Stanley & Co. 83,082 70,707 12,375
Atwell 587,051 499,950 87,101
</TABLE>
-19-
<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" (as defined in Rule 144(a) under the
Securities Act) 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
-20-
<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 combined financial statements of Grove Property Services
Limited Partnership and Property Partnerships at December 31, 1996, and for
each of the two years in the period ended December 31, 1996, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The (i) audited financial statements of Grove Property Trust at
December 31, 1996 and for each of the two years in the period ended December
31, 1996, appearing in Grove Property Trust's Annual Report on Form 10-KSB for
the year ended December 31, 1996, as amended, and the report thereon dated
September 2, 1997 included therein and (ii) the statements of revenues and
certain expenses of the: (a) Four Winds Apartments for the period September
28, 1995 to December 31, 1995 and for the year ended December 31, 1996, (b)
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, (c)
Rivers Bend Apartments for the years ended December 31, 1995 and 1996, (d)
Greenfield Village Apartments for the years ended December 31, 1995 and 1996,
(e) September 1997 Property Acquisitions for the years ended December 31, 1995
and 1996, (f) October 1997 Property/Acquisitions-Affiliates for the years ended
December 31, 1995 and 1996 and (g) October 1997 Property Acquisition-Non-
affiliate for the year ended December 31, 1996, appearing in Grove Property
Trust's Current Reports on Form 8-K dated May 30, 1997, July 2, 1997,
September 30, 1997 and October 31, 1997, all as amended, and the reports
thereon included therein, all as incorporated by reference herein, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon dated May 22, 1997, July 1, 1997, May 22, 1997, July 1, 1997,
September 2, 1997, September 2, 1997 and October 3, 1997, respectively,
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.
-21-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGES
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
Combined Financial Statements:
Report of Independent Auditors........................................... F-2
Combined Balance Sheet as of December 31, 1996........................... F-3
Combined Statements of Income for the Years Ended
December 31, 1996 and 1995............................................. F-4
Combined Statements of Changes in Owners' Equity for the
Years Ended December 31, 1996 and 1995................................. F-5
Combined Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995............................................. F-6
Notes to the Combined Financial Statements............................... F-7
F-1
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying combined balance sheet of Grove Property
Services Limited Partnership and Property Partnerships as of December 31,
1996, and the related combined statements of income, owners' equity and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Grove Property
Services Limited Partnership and Property Partnerships at December 31, 1996,
and the combined results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 2, 1997
F-2
<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
Commitments and Contingencies --
Owners' equity 7,795
--------
Total liabilities and owners' equity $ 59,866
========
See Accompanying Notes.
F-3
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENT OF INCOME
(In thousands)
Years Ended
December 31,
-------------------------------
1996 1995*
----------- ----------
Revenues:
Rental income $ 12,906 $ 11,965
Property management 777 815
Interest and other 1,138 1,103
----------- ----------
Total revenues 14,821 13,883
----------- ----------
Expenses:
Allocated payroll 2,493 2,358
Real estate taxes 1,299 1,234
Other property operating 3,212 2,918
General and administrative 279 261
----------- ----------
Total expenses 7,283 6,771
----------- ----------
Net operating income 7,538 7,112
Interest expense 3,856 3,829
Depreciation and amortization 3,055 3,140
----------- ----------
Income before extraordinary item 627 143
Extraordinary item - gain on
debt restructuring -- 2,186
----------- ----------
Net income $ 627 $ 2,329
=========== ==========
* Certain amounts have been reclassified for comparative purposes.
See Accompanying Notes.
F-4
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
Years Ended December 31, 1996 and 1995
(In thousands)
Owner's Equity, January 1, 1995 $ 10,946
Capital Contributions 2
Distributions (1,018)
Net Income 2,329
----------
Owners' equity, December 31, 1995 12,259
Capital contributions 925
Distributions (6,016)
Net income 627
----------
Owners' equity, December 31, 1996 $ 7,795
==========
See Accompanying Notes.
F-5
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------
1996 1995*
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 627 $ 2,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,055 3,140
Gain on debt restructuring -- 2,186)
Gain on sales of condominiums (210) --
(Increase) in assets:
Other assets (16) (25)
(Decrease) Increase in liabilities:
Accounts payable and other liabilities (224) 59
----------- -----------
Net cash provided by operating activities 3,232 3,317
----------- -----------
INVESTING ACTIVITIES
Purchase of real estate assets (1,544) (3,004)
Proceeds from sale of condominiums 443 --
Payment for deferred costs (43) (415)
----------- -----------
Net cash (used in) investing activities (1,144) (3,419)
----------- -----------
FINANCING ACTIVITIES
Repayment of mortgage notes (784) (7,655)
Proceeds from mortgage notes 2,641 7,800
Due from related parties, net 1,210 (502)
Payment for financing costs (184) (256)
Due from partners (598) 750
Due to NAVAB 252 1,171
Distributions to owners (6,016) (1,018)
Capital contributions 925 2
----------- -----------
Net cash (used in) provided by
financing activities (2,554) 292
----------- -----------
Net (decrease) increase in cash and
cash equivalents (466) 190
Cash and cash equivalents, beginning of year 2,168 1,978
----------- -----------
Cash and cash equivalents, end of year $ 1,702 $ 2,168
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the year for interest $ 3,816 $ 3,883
=========== ===========
</TABLE>
* Certain amounts have been reclassified for comparative purposes.
See Accompanying Notes.
F-6
<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 the 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 was subsequently acquired 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-7
<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.
** Available for lease August 1996.
All significant intercompany accounts and transactions have been eliminated in
combination
F-8
<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-9
<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 and $116,000 for
the years ended December 31, 1996 and 1995, respectively.
4. MORTGAGE NOTES PAYABLE
The Group's mortgage notes at December 31, 1996 consisted of the following (in
thousands):
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 was collateralized by a first mortgage on separate
communities. Certain loans were guaranteed in whole or part by individuals
affiliated with the Group. Such guarantees aggregated approximately $31
million at December 31, 1996.
F-10
<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 were as follows (in
thousands):
1997 $ 890
1998 970
1999 9,478
2000 21,746
2001 4,589
Thereafter 10,970
-----------
Total $ 48,643
===========
As part of the Consolidation Transactions, certain of these mortgage notes
payable were retired early or refinanced.
5. RELATED PARTY TRANSACTIONS
GPS performs management services for certain communities not included in the
Group. Management fees received from these communities were approximately
$777,000 and $891,000 for the years ended December 31, 1996 and 1995,
respectively.
The Group leases office space from an affiliate at $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-11
<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 are included in rental income on the accompanying combined statement of
income and are not material.
F-12
<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 Expenses $ 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 September 30, 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
* Previously filed.
II-1
<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
amendment to its registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut, on December 9, 1997.
GROVE PROPERTY TRUST
/s/ Joseph R. LaBrosse
By----------------------------------
Joseph R. LaBrosse
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following
persons in the capacities shown on the 9th day of December, 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) ) By /s/ Joseph R. LaBrosse
Theodore R. Bigman Trustee ) ------------------------
J. Joseph Garrahy Trustee ) Name: Joseph R. LaBrosse
Harold V. Gorman Trustee ) Attorney-in-fact
Edmund F. Navarro Trustee )
James F. Twaddell Trustee )
II-2
<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 September 30, 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
* Previously filed.
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 report dated September 2, 1997 for the combined
financial statements of Grove Property Services Limited Partnership and
Property Partnerships at December 31, 1996 and for each of the two years
in the period ended December 31, 1996, in the Registration Statement
(Form S-3 No. 333-36805) 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 report
dated September 2, 1997 with respect to 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, included in Grove Property Trust's Annual
Report on Form 10-KSB for the year ended December 31, 1996, as amended, and
of our reports with respect to the statements of revenues and certain expenses
for: (a) 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), (b)
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), (c) Rivers Bend Apartments for the years ended December
31, 1995 and 1996 (dated May 22, 1997), (d) Greenfield Village Apartments for
the years ended December 31, 1995 and 1996 (dated July 1, 1997), (e) September
1997 Property Acquisitions for the years ended December 31, 1995 and 1996
(dated September 2, 1997), (f) October 1997 Property Acquisitions-Affiliates
for the years ended December 31, 1995 and 1996 (dated September 2, 1997) and
(g) October 1997 Property Acquisition-Non-affiliate for the year ended
December 31, 1996 (dated October 3, 1997), included in Grove Property Trust's
Current Reports on Form 8-K, dated May 30, 1997 and July 2, 1997, September
30, 1997, and October 31, 1997, all as amended, and all as filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
December 9, 1997
