UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file No. 1-13080
GROVE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 06-1391084
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
598 Asylum Avenue, Hartford, Connecticut 06105
(Address of Principal Executive Offices) (Zip Code)
(860) 246-1126
(Issuer's Telephone Number, including area code)
Securities registered pursuant to Section 12(b)of the Exchange Act:
Title of Each Class: Name of Each Exchange on Which Registered:
Common Shares of Beneficial Interest, American Stock Exchange, Inc.
$.01 par value
Securities registered pursuant to Section 12(g)of the Exchange Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of March 15, 1998 was $72,080,223.
The number of Common Shares of Beneficial Interest outstanding as of March 15,
1998 was 8,453,829.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement for 1998 Annual Meeting of
Shareholders - Part III of Form 10-K
<PAGE>
PART 1
Item 1. Business
The Company
Grove Property Trust, a Maryland real estate investment trust (the "Company" or
"Grove") is a self-managed and self-administered real estate investment trust
("REIT") that is engaged in the acquisition, repositioning, management and
operation of mid-priced multifamily and specialty retail properties in the
Northeastern United States. The Company is a fully integrated real estate
organization with in-house acquisition, repositioning and renovation, financing,
marketing, leasing and property management expertise.
As of March 15, 1998, Grove owned interests in and operated 36 Apartment
Communities containing a total of 3,580 units in Connecticut, Massachusetts and
Rhode Island and three community shopping centers in Massachusetts containing an
aggregate of approximately 100,000 rentable square feet. The Apartment
Communities are mid-priced apartment properties consisting primarily of two- and
three-story buildings in landscaped settings. The Apartment Communities are well
located within their markets and appeal to middle income residents who are
generally "renters by necessity."
Grove's predecessors commenced operations in 1980. The Company completed its
initial public offering in 1994 with the acquisition of three apartment
properties. At that time, affiliates of Grove owned additional apartment
properties and other real estate assets outside of the Company and conducted
management and acquisition activities through entities that were also owned
outside of the Company. In 1996, management began to undertake a number of
strategic initiatives intended to maximize shareholder value. In March 1997, the
Company completed the following: (i) the creation of an Umbrella Partnership
REIT (an "UPREIT") structure by forming Grove Operating, L.P. (the "Operating
Partnership") to facilitate the consolidating transactions described below and
to provide potential sellers with a mechanism to defer their tax liability; (ii)
the acquisition through the Operating Partnership of 20 properties owned by
affiliates of Grove; (iii) the acquisition of the property management assets and
related liabilities of Grove Property Services Limited Partnership ("GPS"), the
entity that managed the properties owned by Grove as well as the 20 properties
owned by affiliates of Grove; (iv) a $30 million private placement (3,333,333
shares at $9.00 per share) of equity securities to investors that included,
among others, four investment funds managed by Morgan Stanley Group, Inc. and
the Oregon Public Employees Retirement Fund and (v) the closing of a $25 million
Credit Facility and a $15 million term loan facility (collectively, the
"Consolidation Transactions").
In November 1997, the Company completed a public offering underwritten by
Salomon Smith Barney and co-managed by Lehman Brothers. Simultaneously, the
Company sold additional shares directly to certain investors. The Company sold
an aggregate of 4,500,000 shares at a public offering price per share of $10
7/8.
On November 24, 1997, the date of the closing of the offering, the yearly
dividend was increased to $0.68 per Common Share. It is the Company's business
philosophy to utilize retained earnings for additional real estate acquisitions.
The proceeds from this offering were primarily used to reduce the then
outstanding corporate debt.
As of December 31,1997, the Company's assets were approximately $148,150,000 and
its debt to total market capitalization ratio was approximately 28.3%.
The Company operates in a single industry segment.
The Operating Partnership
The Operating Partnership was formed to act as the vehicle for the acquisition
of properties. Grove is the sole general partner of the Operating Partnership
and thereby controls the Operating Partnership. Using the Operating Partnership,
the Company is able to acquire properties in exchange for Common Units of the
Operating Partnership ("Common Units" or "OP Units"), which represent limited
partnership interests in the Operating Partnership. The recipients of Common
Units are restricted from transferring such Common Units for a period of one
year from the acquisition date. The Common Units are redeemable after such time
for cash (based on the fair market value of an equivalent number of Common
Shares at the time of such redemption) or, at the Company's option, for Common
Shares of the Company on a one-for-one basis, subject to certain anti-dilution
adjustments and exceptions. While the holders of Common Units determine whether
they want to redeem Common Units, the Company decides if the redemption price
will be paid in cash or in Common Shares. With the Operating Partnership, the
Company believes it is able to offer attractive purchase terms to owners of
properties who have little or no tax basis remaining in such properties. In many
cases, the immediate tax liability incurred by such owners upon a transfer of
such properties would be significant if the purchase price were paid in cash. By
utilizing the Operating Partnership structure, the Company can make payment in
Common Units, thereby deferring all or a portion of an owner's federal income
tax liability. At December 31, 1997, Grove owned approximately 74% of the total
partnership interests, including the sole general partner interest, in the
Operating Partnership, consisting of Grove's ownership of 8,453,829 Common
Units.
Business Objectives and Growth Strategies
The Company's current long-term objectives are (i) actively acquiring and, where
appropriate, repositioning and renovating under-managed multifamily properties
at significant discounts to replacement costs and at returns that enhance
shareholder value; (ii) aggressively managing its portfolio to increase revenues
and reduce operating costs; (iii) maintaining a conservative ratio of debt to
total market capitalization and (iv) consistently providing quality service and
a desirable living environment to all of its residents. A variety of factors,
many of which are beyond the Company's control, may prevent the Company from
achieving these objectives. In addition, future developments and events may
cause the Company to redefine its objectives either by modifying current
objectives or by identifying additional ones.
Acquisitions. The Company's primary growth strategy has been to acquire
under-managed, mid-priced apartment properties in the Northeastern United
States. Grove believes that opportunities for acquisitions in the Northeastern
United States are particularly attractive at this time because the region is
generally characterized by: (i) limited new construction due to significant
barriers to entry resulting from high construction costs, limited land
availability, strict zoning laws and extended permitting processes; (ii) a
limited number of publicly traded companies focusing on the acquisition of
under-managed, mid-priced multifamily communities; (iii) highly fragmented
markets with many small-to-medium sized family owned companies that own older
apartment properties in which the owners are looking to sell with minimal tax
impact and (iv) many older apartment properties where maintenance and
improvements have been deferred and where the Company believes selective capital
improvements and professional management may create opportunities for increased
rents. Although the Company's principal focus is the acquisition of
under-managed apartment communities, it expects to examine additional mixed-use
and specialty retail properties that meet the Company's return requirements.
When evaluating potential acquisitions, the following factors are among those
the Company considers: (i) the demographic characteristics and resident profile
of the neighborhood; (ii) the age and quality of the property; (iii) the current
and projected cash flow of the property and the ability to increase cash flow
through return-oriented capital improvements; (iv) the potential for capital
appreciation of the property; (v) the terms of leases, including the potential
for rent increases; (vi) the potential for economic growth and the tax and
regulatory environment of the community in which the property is located; (vii)
the occupancy of and demand for properties of a similar type in the market and
(viii) competition from existing properties and the potential for the
construction of new properties in the area.
The Company's acquisitions of Apartment Communities have ranged from
approximately $4 million to $15 million and have ranged in size from 75 to 300
units.
Repositioning and Renovation. The Company evaluates repositioning and renovating
newly acquired properties. When pursuing an acquisition, members of the
Company's in-house acquisition, development and property management teams work
together in evaluating potential renovation and repositioning strategies and
budgets. Additionally, the Company reviews its portfolio to determine where
opportunities exist to make incremental capital improvements that meet its
targeted return on cost. Typical renovations include replacing carpets,
appliances, kitchen cabinets, counter tops, bathroom fixtures and vanities as
well as upgrading landscaping, adding fitness centers and community rooms,
adding additional apartment units, repaving existing parking spaces and adding
additional parking spaces.
Financing Strategies
The Company intends to maintain a debt-to-total market capitalization ratio of
60% or less. At December 31, 1997, the Company had debt totaling $49.1 million
and a ratio of debt-to-total market capitalization of approximately 28% based on
the closing price of the Company's Common Shares on the American Stock Exchange
of $10.875 and assuming conversion of all OP Units. The weighted average
interest rate on the Company's mortgage debt as of December 31, 1997 was
approximately 7.5% and the weighted average maturity was 8.5 years.
In December 1997, the Operating Partnership entered into a treasury lock
agreement with Salomon Smith Barney whereby the Operating Partnership
effectively locked the ten year U. S. Treasury Bond rate on $20 million of
future debt at a rate of 5.835%. The treasury lock is valid through July 1998.
Revolving Credit Facility
On December 31, 1997, the Company, through the Operating Partnership, had a $25
million secured line of credit with BankBoston. The line of credit matures in
March 2000 and bears interest at a per annum rate of one, two, three or six
month LIBOR, plus 1.2%. As of December 31, 1997, there was $15.6 million
outstanding on this line of credit. The outstanding credit line balance was used
for the purchase of four apartment communities on December 31, 1997. The Company
is currently in the process of increasing the size of its credit line to $50
million and converting the line of credit to an unsecured facility from a
secured facility.
Policies with respect to Certain Activities
General. The following is a discussion of certain current investments, financing
and other practices of the Company. These practices may be amended or revised
from time to time without a vote of the Company's shareholders, except that the
Company cannot change its policy of holding its assets and conducting its
business principally through the Operating Partnership without the consent of
the holders of Common Units as provided in the Agreement of the Operating
Partnership. No assurance can be given that the Company's objectives will be
attained or that the value of the Company will not decrease.
Investment Objectives and Practices. The Company's investment objective is to
provide quarterly distribution of a portion of cash available for distribution
and to achieve long-term capital appreciation through increases in cash flow
from operations, reinvestment of retained cash and growth of the Company's
property portfolio through acquisitions and repositioning. The Company's
practice is to acquire assets primarily for generation of current income and
appreciation in long-term value.
The Company may purchase or lease income-producing multifamily, mixed-use or
specialty retail properties for long-term investment, expand and improve the
properties acquired, or sell such properties, in whole or in part, when
circumstances warrant. Any financing or indebtedness secured by the Company's
properties will have a priority over the Common Shares in the event of a forced
sale or upon liquidation of any property in the Company's portfolio which serves
as such security.
While the Company has emphasized equity real estate investments in multifamily
properties, it may, at the discretion of the Board, invest in specialty retail
or mixed-use buildings, equity real estate investments in other types of
properties, mortgages (including participating or convertible mortgages), stock
of other REIT's and other real estate interests. The Company does not currently
intend to invest in mortgages or stock of other REIT's. The investment by the
Company in securities of other REIT's, other concerns engaged in real estate
activities or other issues is subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification.
Disposition. The Company periodically will review the assets in the Company's
portfolio. The Company has no current intention to dispose of any of its
properties, unless the Board, based in part upon management's periodic reviews,
determines that the disposition of such property is in the best interests of the
Company.
Financing Practices. The Company expects to continue to maintain a conservative
debt to total market capitalization ratio of 60% or less. Such ratio represents
total debt of the Company as a percentage of the market value of the Common
Shares (assuming the exchange of all Common Units for Common Shares) plus total
debt of the Company. The Company's Third Amended and Restated Declaration of
Trust, as supplemented (the "Charter") and Bylaws, however, does not limit the
amount of percentage of indebtedness that the Company may incur. In addition,
from time to time, the Company may modify its debt practice in light of changing
economic conditions, relative costs of debt and equity capital, market values of
its properties, general conditions in the market for debt and equity securities,
fluctuations in the fair market prices of the Common Shares, growth and
acquisition opportunities and other factors. Accordingly, the Company may
increase or decrease its debt to total market capitalization above or below 60%.
Other. The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
(i) to invest in the securities of other issuers for the purpose of exercising
control over such issuer; (ii) to underwrite securities of other issuers or
(iii) to trade actively in loans or other investments.
The Apartment Communities
The Company at March 15, 1998 owned interests in and operated 36 Apartment
Communities containing a total of 3,580 units. The Apartment Communities are
mid-priced apartment properties that consist primarily of two- and three-story
buildings in landscaped settings. The Apartment Communities are well located
within their markets and appeal to middle income residents who are generally
"renters by necessity." The Apartment Communities are located in the following
states:
State Number of Apartment Number of Apartment Percentage of Total
Communities Units Apartment Units
----------- ----- ---------------
Connecticut 28 2,759 77%
Massachusetts 5 521 15%
Rhode Island 3 300 8%
- --- --
Totals as of
February 1998 36 3,580 100%
== ===== ====
Of the current 36 Apartment Communities, 17 have 100 units or more, with the
largest having 355 units and the smallest having 28 units. The average size of
the Apartment Communities is approximately 100 units. Of the 3,580 units in the
Apartment Communities, 199 units or approximately 5.6% are studios, 1,408 units
or approximately 39.3% are one bedrooms, 1,961 units or approximately 54.8% are
two bedrooms and 12 units or approximately .3% are three bedrooms. The Apartment
Communities contain an aggregate of approximately 3.4 million rentable square
feet with an average unit size of approximately 934 square feet. For the twelve
months ended December 31, 1997, the Apartment Communities had an average
economic occupancy rate of approximately 96% and an average monthly rental rate
of approximately $702 per unit.
<PAGE>
<TABLE>
Property Table
<CAPTION>
Average Economic Average Monthly Rental
Occupancy Rate (1) Rate Per Unit (2)
------------------ -----------------
Average Year Year Year Year
Percentage Number Year Year Sq. Ft. Ended Ended Ended Ended
Property Town/City Ownership of Units Built Renovated Per Unit 12/31/96 12/31/97 12/31/96 12/31/97
- -------- --------- --------- -------- ----- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Connecticut:
208-210 Main St. (3) Manchester 100% 28 1969 1988 929 97.8% 95.8% $ $
761 780
Arbor Commons (3) Ellington 100% 28 1975 1988 780 97.6% 96.6% 686
695
Avonplace Avon 99% 147 1973 1995 1,542 99.1% 98.3% 845
867
Barons Apartments Southington 100% 54 1970 1994 900 95.8% 95.8% 684
710
Bradford Apartments Newington 91% 64 1964 1989 894 91.6% 96.6% 686
696
Briar Knoll(5) Vernon 100% 150 1986 867
- - - - -
Brooksyde (4) West Hartford 100% 80 1945 1997 800 94.0% 96.5% 643
684
Burgundy Studios (4) Middletown 100% 102 1973 1996 443 96.7% 97.2% 430
436
Cambridge Estates Norwich 100% 92 1977 1990 939 97.4% 97.7% 715
737
Colonial Village Plainville 100% 104 1968 1989 981 96.5% 97.1% 726
747
Dogwood Hills Hamden 100% 46 1971 1993 1,330 98.2% 97.5% 722
743
Summit & Birch Hill (4) Farmington 100% 184 1967 1996 937 96.5% 96.8% 745
785
Fox Hill Apartments Enfield 97% 168 1974 1991 796 96.5% 93.9% 642
667
Fox Hill Commons Vernon 100% 74 1965 1989 849 97.1% 94.5% 692
710
Greenfield Village Rocky Hill 100% 129 1965 1997 729
(4)(5) - - - -
Hamden Centre Hamden 100% 65 1968 1993 873 96.2% 95.1% 637
655
High Meadow(4)(6) Ellington 100% 100 1975 605 90.0% 93.4%
- 580 595
Hill Top(5) Norwich 100% 120 1988 986
- - - - -
Glastonbury Center Glastonbury 100% 104 1962 1989 961 95.6% 90.8% 773
801
Loomis Manor West Hartford 91% 43 1948 1990 1,138 100.0% 99.5% 826
848
Ocean Reef New London 97% 163 1962 1995 829 94.4% 94.4% 633
650
Park Place West West Hartford 100% 63 1961 1989 861 97.9% 96.5% 656
671
Pinney Brook(5) Ellington 100% 34 1969 882
- - - -
Ribbon Mill(5) Manchester 100% 104 1908 1985 1,221
- - - -
Sandalwood(4)(6) New London 97% 39 1977 1996 517 61.7% 97.6% 453
464
Westwynd Apartments West Hartford 91% 46 1969 1990 901 95.2% 97.2% 648
659
River's Bend Windsor 100% 355 1973 1996 1,000 95.3% 96.0% 714
752
Woodbridge Newington 100% 73 1968 1991 792 94.7% 99.2% 712
724
Massachusetts
Dean Estates Taunton 100% 58 1984 - 1,014 94.9% 97.5% 668
687
Four Winds(4) Fall River 100% 168 1987 1996 1,089 90.5% 95.2% 627
692
Security Manor Westfield 89% 63 1971 1988 1,150 99.1% 99.8% 576
584
Van Deene Manor (3) West 89% 109 1970 1990 664 98.5% 99.3% 609
Springfield 618
Village Arms(5) Acton 100% 123 1973 732
- - - -
Rhode Island
Dean Estates II Cranston 97% 48 1970 1994 1,170 93.5% 96.5% 687
701
Royale Cranston 97% 76 1976 1993 1,151 96.9% 91.7% 684
700
Tanglewood(5) W.Warwick 100% 176 1973 1,059
- - - -
========= ===================================================
Total/Weighted Average 3,580 934 95.5% 96.1% $ 676 $ 702
========= ===================================================
Same Community Weighted Average(4) 96.5% 96.4% $ 696 $ 718
==========================================
(NOTES ON FOLLOWING PAGE)
</TABLE>
<PAGE>
(1) Average economic occupancy rate is derived by dividing actual collected
rental income by gross potential rental income. Gross potential rental income
includes vacancy losses and bad debt, but does not include model expenses or
employee concessions or discounts. (2) Average monthly rental rate per unit is
derived by dividing gross potential rental income by total number of leasable
units. (3) The following Apartment Communities contain additional space which is
rented to commercial tenants:
Apartment Communities Commercial Sq. Ft.
- --------------------- ------------------
208-210 Main St. 9,597
Arbor Commons 4,016
Van Deene Manor 1,630
Total 15,243
(4) The same community weighted average amounts represent the average occupancy
and rental rates for the 23 Apartment Communities owned by Grove or its
affiliated predecessors for the years 1995, 1996 and 1997. Thirteen properties
were purchased by Grove or its affiliated predecessors during or subsequent to
such periods and have been excluded from the same community amounts. The
following sets forth the acquisition dates for such Apartment Communities:
Apartment Communities Acquisition Date
- --------------------- ----------------
Summit & Birch Hill Feb 95
Four Winds Oct-95
Burgundy Studios Oct-95
Sandalwood Dec-95
Brooksyde Oct-96
Greenfield Village Jul-97
High Meadow Oct-97
Pinney Brook Dec-97
Briar Knoll Dec-97
Hill Top Dec-97
Ribbon Mill Dec-97
Village Arms Dec-97
Tanglewood Jan-98
(5) These seven properties were purchased from non-affiliated parties in 1997 or
1998, as noted in note 4 above. Information on these Properties is not available
for the entirety of the periods covered in the above table.
(6) High Meadow was purchased in October 1997 from a non-affiliated party.
(7) Sandalwood was purchased in December 1995. The property was not leasable
until September 1996.
The Retail Properties
Although the Company's principal focus is the acquisition and ownership of
apartment communities, it owns and may in the future acquire mixed-use and
specialty retail properties. The Company currently owns three retail properties.
One of these properties is a community shopping center in Longmeadow,
Massachusetts that contains approximately 79,000 rentable square feet of retail
and office space. The shopping center, which was originally constructed by an
unaffiliated owner in 1962 and subsequently expanded in 1978, was purchased by
an affiliate of the Company in 1994 and renovated and retenanted by management
at various times from 1994 through 1997. For the year ended December 31, 1997,
the shopping center had an average annual base rental rate of approximately
$12.97 per square foot and was approximately 97% leased.
The other two retail properties are specialty retail properties, which were
acquired from an affiliate of the Company on October 31, 1997. These properties
are in the historic district of Edgartown, Massachusetts. The two properties
were originally constructed in the 1800's. The first building, known as the
Wharf Building, contains approximately 11,000 rentable square feet, and was
renovated by the previous affiliated owner in 1996. As of December 31, 1997, the
Wharf Building had an average annual rental rate of approximately $27.93 per
square foot and was 100% leased. The second building, the Cornerblock, contains
approximately 5,400 rentable square feet and was substantially renovated by an
unaffiliated predecessor owner in 1988. For the twelve months ended December 31,
1997, the Cornerblock had an average annual rental rate of approximately $32.78
per square foot and was 100% leased.
Property Management
Grove manages its portfolio through its staff of approximately 146 professional
and support personnel and approximately 17 part-time support personnel,
including the Chief Operating Officer and regional property managers at the
corporate level and property managers, service technicians, leasing agents,
porters and landscapers at the property level. The Chief Operating Officer,
regional property managers and on-site personnel are supported by seven
accounting and administrative employees.
During 1995, 1996 and 1997, the Company experienced average resident retention
rates of 60%, 61% and 62%, respectively. The management division implements
on-site management programs, accounting systems, marketing systems and resident
quality control and retention procedures. On-site property management teams
perform leasing and rent collection functions and coordinate resident services.
The Company uses newspaper advertisements, resident referrals, apartment guides
and the Internet to market and advertise the Apartment Communities. The Company
supplements its marketing and advertising effort with point-of-purchase
materials and well-maintained properties with strong curb appeal. The Company's
marketing personnel market the Apartment Communities on a continual basis rather
than waiting until vacancies occur.
On-site management is assisted by the regional managers and accounting
department personnel. Regional managers monitor performance criteria at each
Apartment Community, and the accounting division audits and monitors each
Apartment Community's financial records.
Prior to entering into leases, Grove conducts background investigations of
potential residents, including credit checks, prior landlord references and
employer verifications. Substantially all of the apartments in the Apartment
Communities are rented pursuant to standard twelve-month leases, which
facilitate uniform lease administration by helping to standardize rent
collections, security deposit dispositions, evictions, repairs and renewals. The
Company typically requires residents to provide security deposits equal to one
month's rent. In addition, the Company manages lease expirations to ensure that
vacancies occur on a staggered basis.
The Company's marketing and leasing procedures are designed to ensure compliance
with all federal, state and local laws and regulations. Underwriting guidelines
for prospective residents comply with FHAA and ADA regulations and are designed
to stabilize cash flows. None of the Apartment Communities is currently subject
to rent control or rent stabilization regulation.
Insurance
Grove carries comprehensive liability, fire, flood (where required) and extended
coverage and rental loss insurance on all of its properties with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses which may be either
uninsurable or not economically insurable, such as those resulting from
earthquakes, floods, tidal waves, explosion of water pipes, nuclear hazards,
wars, civil disturbances and environmental matters.
Competition
All of the Apartment Communities are located in developed areas that include
other apartment communities. The number of competitive apartment properties in a
particular area could have a material effect on the Company's ability to lease
apartment units or at any newly acquired properties and on the rental rates
charged. There are numerous real estate companies, including those operating in
the markets in which the Company's properties are located, which compete with
the Company in seeking properties for acquisition and for tenants to occupy such
properties. The Company may compete with companies that have greater resources
than the Company. Further, the availability of single-family housing and other
forms of multifamily residential properties, such as manufactured housing
communities, provide alternatives to existing and potential residents of
apartment communities.
Regulation
General. Multifamily apartment properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas.
Americans With Disabilities Act. The Company's properties must comply with Title
III of the Americans with Disabilities Act (the "ADA") to the extent that such
properties are "public accommodations" and/or "commercial facilities" (each as
defined by the ADA). Compliance with the ADA could require removal of structural
barriers to handicapped access in certain public areas of properties where such
removal is readily achievable. The ADA does not, however, consider residential
properties, such as multifamily properties, to be public accommodations or
commercial facilities, except to the extent portions of such facilities, such as
a leasing office, are open to the public. Noncompliance with ADA requirements
and applicable state laws could result in imposition of fines or an award of
damages to private litigants. The Company may incur additional costs to comply
with such laws.
Fair Housing Amendments Act of 1988. The Fair Housing Amendments Act of 1988
(the "FHAA") requires multifamily properties first occupied after March 13, 1990
to be accessible to the handicapped. Noncompliance with the FHAA could result in
the imposition of fines or an award of damages to private litigants.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to recover
increases in operating expenses and costs of capital improvements from
residents. Enactment of such laws has been considered from time to time in other
jurisdictions, although such laws have not been adopted in the jurisdictions in
which the Company currently operates.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations relating
to the protection of the environment, a current or previous owner or operator of
real estate may be held liable for the costs of investigations or performing
removal or remediation of certain hazardous or toxic substances or petroleum
products released on, under, in, emitting from, or located on, under or in the
property and may be held liable to a governmental entity or third parties for
damages, investigation, remediation, or other costs associated with such
contamination. These laws often impose liability without regard to whether the
owner was responsible for, or even knew of, the presence of such hazardous or
toxic substances or petroleum products. The costs of investigation, removal or
remediation of such substances may be substantial, and the presence of such
substances may adversely affect the owner's ability to rent or sell the property
or to borrow using such property as collateral and may expose it to liability
resulting from any release or exposure of such substances. Moreover, certain
loan documents provide for recourse liability in connection with hazardous or
toxic substances. Persons who arrange for the disposal or treatment of hazardous
or toxic substances at another location may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is owned or operated by such person. Certain
environmental laws impose liability for release of asbestos containing materials
into the air, and third parties may also seek recovery from owners or operators
of real properties for personal injury associated with asbestos containing
materials and other hazardous or toxic substances or petroleum products. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties regulated by such laws, ordinances, and regulations
relating to the protection of the environment or as having arranged for the
off-site disposal or treatment of hazardous or toxic substances and, therefore,
if environmental contamination were to be found at such real properties or
off-site locations, the Company could be potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental penalties and injuries to persons and property.
Federal legislation requires owners and landlords of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers of
the properties any known lead-paint hazards and will impose treble damages for
failure to give the required notice. The existence of lead-based paint in a
property may result in lead poisoning in children residing therein if chips or
particles of lead-based paint are ingested, and the Company may be held liable
under state laws for any injuries caused by ingestion of lead-based paint by
children living at the Apartment Communities or any apartment properties
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior Phase I)
or similar environmental assessments by independent environmental consultants.
Phase I assessments are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed property and surrounding
properties. Phase I assessments generally include a historical review, a public
records review, a preliminary investigation of the surveyed site and surrounding
properties, and preparation and issuance of a written report, but do not include
soil sampling or subsurface investigations. The environmental assessments
disclosed that certain underground storage tanks, which have been removed from
the Sandalwood, Fox Hill Commons and Ocean Reef, need to be registered with the
Connecticut Department of Environmental Protection ("DEP"). The environmental
assessments also disclosed that four properties include floor drains which need
to be sealed or for which permits must be obtained from DEP.
Various environmental laws and regulations also control how certain activities
can or must be conducted at the Company's 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 Company's properties.
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.
Grove's environmental assessments of its properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on its business, assets or results of operations taken as a whole, nor is
the Company aware of any such material environmental liability. Nonetheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that material environmental liabilities exist of which the
Company is unaware. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations or new interpretations of existing laws or regulations
will not impose any material environmental liability or (ii) the current
environmental condition of the Company's properties will not be affected by
tenants, by the condition of land or operations in the vicinity of the Company's
properties (such as the presence of leaking underground storage tanks), or by
third parties unrelated to the Company so as to impose any material
environmental liability.
Employees
As of February 15, 1998 the Company employed approximately 160 persons including
part time employees and its executive officers, none of whom is represented by a
labor union. The Company considers its relations with its employees to be good.
Item 2. Properties
The information concerning the Company's properties contained in Item 1 hereof
under the captions "The Apartment Communities" and "The Retail Properties" is
incorporated herein by reference.
Certain of the Company's properties secure mortgage indebtedness on such
property or the Company's borrowings under its revolving credit facility.
<PAGE>
Principal Amount Interest Maturity
Name of Property Outstanding Rate Date
---------------- ----------- ---- ----
(amounts in thousands)
208-210 Main St (1) $15,600 (2) March 2000
Arbor Commons (1) (2) March 2000
Avonplace (1) (2) March 2000
Colonial Village (1) (2) March 2000
Park Place West (1) (2) March 2000
Sandalwood (1) (2) March 2000
Fox Hill Apartments (1) (2) March 2000
Greenfield Village (1) (2) March 2000
High Meadow (1) (2) March 2000
Cornerblock (1) (2) March 2000
The Wharf (1) (2) March 2000
Dean Estates II (1) (2) March 2000
Royale (1) (2) March 2000
Barons Apartments 7.25% June 2013
1,242
Bradford Apartments (4) March 2007
1,860
Burgundy Studios (4) March 2007
1,650
Cambridge Estates (3) 4,373 7.04% January 2006
Dogwood Hills (3) 7.04% January 2006
Hamden Centre (3) 7.04% January 2006
Fox Hill Commons (4) March 2007
2,100
Glastonbury Center 8.33% December 2003
4,408
Loomis Manor (4) March 2007
1,650
Ocean Reef 7.49% September 2005
2,329
Westwynd Apartments (4) March 2007
1,215
Woodbridge (4) March 2007
2,220
Dean Estates 7.09% December 2000
2,022
Longmeadow Shops 7.00% December 2007
4,000
Security Manor (4) March 2007
1,389
Van Deene Manor (4) March 2007
3,000
================
Total $ 49,058
================
(1) These thirteen properties secure the Company's $25 million Revolving Credit
Facility. (2) The interest rate on the Revolving Credit Facility floats at the
thirty, sixty, or ninety day LIBOR rate plus 1.2%. (3) This loan is secured by
three properties, Cambridge Estates, Dogwood Hills, and Hamden Center. (4) The
interest rate on these loans floats at an interest rate equal to the thirty day
LIBOR rate plus 1.14%. The interest rate on theses loans has been effectively
fixed with two interest rate swap contracts at an effective average rate of
7.67%.
Reference is also made to Notes 5 and 6 to the Company's Consolidated
Financial Statements for the year ended December 31, 1997included elsewhere
herein.
Item 3. Legal Proceedings
The Company is not presently involved in any legal proceedings, other than
litigation arising in the ordinary course of business, some of which is expected
to be covered by liability insurance and all of which, collectively, is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1997.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's Common Shares of Beneficial Interest, $.01 par value (the "Common
Shares") are listed on the American Stock Exchange (the "AMEX") (Regular List)
under the symbol "GVE." Prior to November 1997, the Common Shares were listed on
the Emerging Company Marketplace of the AMEX. The following table sets forth for
the periods indicated the high and low sale prices as reported on the AMEX and
the dividends declared and paid by the Company on each Common Share for each
such period. All prices and dividends have been adjusted to reflect the share
split and share dividend paid by the Company in March 1997.
1996 Quarter Ending
Dividend per
High Low Common Share
---- --- ------------
March 31, 1996 $8.572 $7.090 $0.1926
June 30, 1996 8.466 7.619 0.1947
September 30, 1996 8.043 7.514 0.1947
December 31, 1996 8.148 6.773 0.1947
1997 Quarter Ending
Dividend per
High Low Common Share
---- --- ------------
March 31, 1997 $10.371 $ 7.719 $0.1558(1)
June 30, 1997 $11.250 $ 9.625 $0.1890(2)
September 30, 1997 $12.375 $10.625 $0.1575
December 31, 1997 $12.000 $10.0625 $0.1620
- ------------------------
(1) Represents the dividend declared and paid for the period beginning on
January 1, 1997 and ending on March 14, 1997, the date of the consummation of
the Consolidation Transactions.
(2) Represents the dividend declared and paid for the period beginning on
March 15, 1997 and ending June 30, 1997.
The Company made no sales of Common Shares during 1995, 1996 or 1997 that were
not registered under the Securities Act of 1933, except for sales for which
information has been previously included in a Quarterly Report on Form 10-QSB.
Equity Offerings and OP Unit Issuance
In March 1997, the Company completed a private offering of 3,333,333
of Common Shares at $9.00 per share and received net proceeds of
approximately $27 million in connection therewith.
In March 1997, the Company, through the Operating Partnership, issued 2,114,439
OP Units at $9.00 per OP Unit in exchange for partnership interests in 20
properties owned by affiliates of the Company and the assets and related
liabilities of GPS, the entity that manages the Company's properties. The total
value of the OP Units at the time of issuance for the above transactions was
approximately $19 million.
In June 1997, the Company, through the Operating Partnership, issued 420,183 OP
Units at $10.00 per OP Unit in exchange for partnership interests in 3
properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for above transactions was approximately $4.2 million.
In September 1997, the Company, through the Operating Partnership, issued
325,836 OP Units at $10.50 per OP Unit in exchange for partnership interests in
3 properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for above transactions was approximately $3.4 million.
In October 1997, the Company, through the Operating Partnership, issued 143,334
OP Units at $10.50 per OP Unit in exchange for partnership interests in 2
properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for above transactions was approximately $1.5 million.
All of the transactions referred to above were not registered under the
Securities Act of 1933 in reliance on the exemption contained in Rule 506
thereunder on the basis that each of the purchasers in such transaction was an
accredited investor.
In November 1997, the Company completed a registered public offering of
3,141,475 Common Shares and a concurrent offering to certain institutional
investors of 1,358,525 Common Shares both at $10.875 per share and received net
proceeds of approximately $45.2 million in connection therewith.
Dividends
During 1997, the Company declared dividends totaling $0.66 per Common Share, or
approximately 63% of its Funds From Operations during the year. For 1996, the
Company declared dividends totaling $0.78 per Common Share, or approximately 81%
of its funds from operations during the year. The payment of dividends by the
Company will be at the discretion of the Board of Trust Managers and will depend
on numerous factors, including the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Code and such other factors that the Board of
Trust Managers deems relevant.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for Federal income tax purposes generally will be taxable
to shareholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits (return of capital) will be treated as a
non-taxable reduction of a shareholder's basis in the Common Shares to the
extent thereof, and thereafter as taxable gain. Dividends that are treated as a
reduction of a shareholder's basis in its Common Shares will have the effect of
deferring taxation until the sale of such shareholder's Common Shares. None of
the $0.66 of dividends declared for 1997 represented a return of capital.
Approximately $0.02 (or 2.54%) of the $0.78 of dividends declared for 1996
represented a return of capital.
Holders
The approximate number of holders of record of the Common Shares on March 15,
1998 was 118.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Company Predecessor (2)
----------------------------------------- --------------------
Years Ended December 31, 6/24/94 to 1/1/94 Year Ended
to
1997 1996 1995 12/31/94 6/23/94 12/31/93
--------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income $ 17,111 $2,046 $1,287 $ 641 $ 574 $ 976
Property and management 518
- - - - -
Interest and other 309 36 30 13 9 6
--------------------------------------------------------------
Total revenues 17,938 2,082 1,317 654 583 982
--------------------------------------------------------------
Expenses:
Property operating and maintenance 6,078 656 406 208 235 313
Real estate taxes 1,770 208 149 76 134
71
Related party management fees 22 109 67 33 33 48
Interest expense 2,741 394 85 45 173 323
Depreciation and amortization 2,701 387 216 117 102 182
General and administrative 908 67 56 16
- -
--------------------------------------------------------------
Total expenses 14,220 1,821 979 495 614 1,000
--------------------------------------------------------------
Income (loss) before minority interests 3,718 261 338 159 (31) (18)
Minority interests in consolidated partnerships 155
- - - - -
Minority interest in Operating Partnership 1,267 - - - - -
==============================================================
Net income (loss) $ 2,296 $ 261 $ 338 $ 159 $ (31) $ (18)
==============================================================
Net income per common share - - basic and assuming dilution(1)$ 0.61 $ 0.42 $ 0.55 $ 0.26
=========================================
Weighted average number of common shares outstanding-basic 3,765 620 620 620
=========================================
Weighted average number of common shares 3,785 620 620 620
outstanding-assuming dilution
=========================================
Other Information:
Funds from operations $ 5,977 $ 596 $ 508 $ 502
=========================================
Cash flow from (used in):
Operating activities $ 5,821 $ 776 $ 685 $ 559
=========================================
Investment activities $(40,440) $ (303) $ (99) $ (5,137)
=========================================
Number of apartment communities (end of period) 35 4 3 3
=========================================
Number of apartment units (end of period) 3,403 257 165 165
=========================================
Average monthly rental rate per unit $ 702 $ 676 $ 660 $ 642
=========================================
Average economic occupancy rate 96.1% 95.5% 97.8% 95.6%
=========================================
Number of retail properties (end of period) 3 0 0 0
=========================================
Balance Sheet Information:
Real estate, before accumulated depreciation $ 147,767 $ 9,798 $ 5,393 $ 5,294
=========================================
Total assets $ 148,150 $ 9,521 $ 5,241 $ 5,377
=========================================
Total mortgage and revolving credit facility debt $ 49,058 $ 5,669 $ 1,190 $ 1,537
=========================================
Minority interests $ 1,357 $ - $ - $ -
=========================================
Shareholders' equity $ 24,339 $ 3,483 $ 3,703 $ 3,840
=========================================
</TABLE>
(1) The Company adopted Statement 128 in 1997. Statement 128 had no impact on
earnings per share in 1996 and 1995. SeeNote 3 in the accompanying notes to
the financial statements.
(2) The Company began operations on June 24, 1994, the date of its initial
public offering. The operations of the predecessor represents the the operations
the Original Properties prior to June 24, 1994.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Report. The
dollar amounts discussed are in thousands unless otherwise noted.
The results of operations for the year ended December 31, 1997 include the three
multifamily properties (the "Original Properties") that the Company has owned
since its inception, a fourth property ("Cambridge") that the Company acquired
on January 12, 1996, twenty properties acquired on March 14, 1997 in conjunction
with the Consolidation Transactions (the "Consolidation Properties"), and
fourteen properties subsequently acquired in 1997. The Consolidation Properties
and the fourteen subsequent 1997 acquisitions are collectively referred to as
the "1997 Acquisitions". In addition, all of the previously mentioned properties
of the Company are collectively referred to as the "Properties".
Results of Operations
Results of operations of the Company for the years ended December 31, 1997 and
1996.
Total revenues increased $15,856 from $2,082 to $17,938 during the year ended
December 31, 1997, as compared to the year ended December 31, 1996. The increase
is mainly due to the operations of the 1997 Acquisitions. Additionally, $518 of
the increase is related to property management revenues which represent fees
earned on management services provided to properties owned by affiliated
entities. Such revenue is derived from management contracts acquired in
conjunction with the Consolidation Transactions; therefore there was no
comparable revenue during 1996.
On a comparable basis, the Properties experienced increases in both rental rates
and occupancy. The weighted average monthly rental rates increased to $702 for
the year ended December 31, 1997 from $676 for the year ended December 31, 1996.
Furthermore, economic occupancy for the year increased to an aggregate weighted
average occupancy of 96.1% for the year ended December 31, 1997 from an
aggregate weighted average of 95.5% for the year ended December 31, 1996.
The 23 apartment communities owned by Grove or its predecessors since the
beginning of 1995, a "same community" comparison, experienced an increase in
average monthly rental rates, offset by a small decrease in average economic
occupancy and experienced an increase in net operating income. At these
apartment communities, average monthly rental rates increased to $718 from $696,
average economic occupancy decreased to 96.4% from 96.5% and net operating
income increased to $9,884 from $9,294 for the years ended December 31, 1997 and
1996, respectively.
Property operating and maintenance expenses increased $5,422 from $656 to $6,078
during the year ended December 31, 1997, as compared to the year ended December
31, 1996. The increase is primarily due to the operations of the 1997
Acquisitions.
Real estate taxes increased $1,562 from $ 208 to $ 1,770 during the year ended
December 31, 1997, as compared to the year ended December 31, 1996. The increase
is due primarily to the 1997 Acquisitions. Related party management fees
decreased $87 from $109 to $22. This decrease is due to the Company's
acquisition of the management company in conjunction with the Consolidation
Transactions, resulting in the elimination of all such expenses in
consolidation.
General and administrative expenses increased $841 from $67 to $908 during the
year ended December 31, 1997, as compared to the year ended December 31, 1996.
This increase is mainly due to the increased costs associated with the change in
size and structure of the Company.
Interest expense increased $2,347 from $394 to $2,741 during the year ended
December 31, 1997, as compared to the year ended December 31, 1996. The increase
is primarily due to the $38.3 million mortgage debt assumed and/or refinanced as
part of the 1997 Acquisitions.
Depreciation and amortization increased $2,314 from $387 to $2,701 during the
year ended December 31, 1997, as compared to the year ended December 31, 1996.
The increased expense is primarily due to depreciation related to the 1997
Acquisitions
The Company's net income increased $2,035 from $261 to $2,296 during the year
ended December 31, 1997, as compared to the year ended December 31, 1996. The
increase is mainly due to the operations of the 1997 Acquisitions.
Results of operations for the Company for the years ended December 31, 1996 and
1995.
The Original Properties experienced a small decrease in occupancy offset by
increases in rental rates which, overall, increased revenues. The weighted
average monthly rental rates increased to $678 for the year ended December 31,
1996 from $660 for the year ended December 31, 1995. Physical occupancy
decreased to an aggregate weighted average occupancy of 97.1% for the year ended
December 31, 1996 from an aggregate weighted average of 97.8% for the year ended
December 31, 1995. Physical occupancy at December 31, 1996 was 98.2%.
Rental and other income increased $765 from $1,317 to $2,082 for the years ended
December 31, 1995 and 1996, respectively. Approximately $733 of such increase
was due to the operations of Cambridge, and the remainder is attributable to
increases in rental rates as discussed above.
The 23 apartment communities owned by Grove or its predecessors since the
beginning of 1995, a "same community" comparison, experienced increases in
average monthly rental rates, average economic occupancy and net operating
income. At these apartment communities, average monthly rental rates increased
to $696 from $680, average economic occupancy increased to 96.5% from 95.7% and
net operating income increased to $9,294 from $9,125 for the years ended
December 31, 1996 and 1995, respectively.
Property operations and maintenance expenses increased $250 from $406 for the
year ended December 31, 1995 to $656 for the year ended December 31, 1996.
Approximately $233 of the increase is due to the operations of Cambridge.
Additionally, the Original Properties experienced an increase in operating and
maintenance expenses due primarily to the harsh winter experienced in the New
England area in 1996 compared to the more mild winter experienced in 1995.
General and administrative expenses increased $11 from $56 to $67 for the years
ended December 31, 1995 and 1996, respectively. The increase was primarily due
to additional expenses related to the acquisition of Cambridge and increased
overhead expenses.
Real estate taxes increased $59 from $149 to $208 for the years ended December
31, 1995 and 1996, respectively. Related party management fees increased $42
from $67 to $109 for the years ended December 31, 1995 and 1996, respectively.
These increases were due primarily to the acquisition of Cambridge.
Interest expense increased $309 from $85 to $394 for the years ended December
31, 1995 and 1996, respectively. This increase is due to the $4,500 mortgage
note payable used to finance the acquisition of Cambridge. Depreciation and
amortization increased $171, primarily as a result of the acquisition of
Cambridge.
The Company's net income decreased $77 from $338 to $261 for the years ended
December 31, 1995 and 1996, respectively. Approximately $54 of the decrease was
due to a loss experienced by Cambridge. The decrease in net income for the
Original Properties of approximately $23 was due to an increase in property
operating and maintenance expenses as discussed above.
Liquidity and Capital Resources
Cash and cash equivalents totaled $1,466 as of December 31, 1997. The Company's
ratio of long-term debt, including the Revolving Credit Facility, to market
capitalization on December 31, 1997 was 28.3% based on total market
capitalization of $173,659, based on 3,003,792 Common Units and 8,453,829 Common
Shares valued at $10.875 per share/unit (the closing price on December 31, 1997)
plus long-term debt $49,058, including the Revolving Credit Facility .
Cash provided by operating activities was $5,821 for the twelve months ended
December 31, 1997. Cash used in investing activities was $40,440 for the twelve
months ended December 31, 1997. Net cash provided by financing activities was
$35,546 for the twelve months ended December 31, 1997.
On December 11, 1997, the Company declared a "short" period dividend of $0.07
per share for the period from November 24, 1997 to December 31, 1997. The
dividend was paid on January 16, 1998 to shareholders of record on December 31,
1997. On November 18, 1997, the Company declared a "short" period dividend of
$0.092 per share for the period from October 1, 1997 to November 23, 1997. The
dividend was paid on January 16, 1998 to shareholders of record on November 21,
1997. On September 11, 1997, the Company declared a dividend of $0.1575 per
share for the three months ended September 30, 1997. The dividend was paid on
October 17, 1997 to shareholders of record on September 30, 1997. On June 18,
1997, the Company declared a "long" period dividend of $0.189 per share for the
period from March 14, 1997 to June 30, 1997. The dividend was paid on July 16,
1997 to shareholders of record on June 30, 1997. On March 10, 1997, the Company
declared a "short" period dividend of $0.1558 per share for the period from
January 1, 1997 to March 13, 1997, which was paid on March 28, 1997 to
shareholders of record on March 10, 1997. The dividends declared during the year
ended December 31, 1997 of $0.6643 per share resulted in a 63% payout of funds
from operations for the twelve months ended December 31, 1997.
On December 11, 1997, the Operating Partnership declared a "short" period
distribution of $0.07 per Common Unit for the period from November 24, 1997 to
December 31, 1997. The distribution was paid on January 16, 1998. On November
18, 1997, the Operating Partnership declared a "short" period distribution of
$0.092 per share for the period from October 1, 1997 to November 23, 1997. The
distribution amount was prorated for unit holders who were not unit holders for
the entire period of October 1, 1997 to November 24, 1997. The distribution was
paid on January 16, 1998. On September 11, 1997, the Operating Partnership
declared a distribution of $0.1575 per Common Unit for the three months ended
September 30, 1997. The distribution amount was prorated for unit holders who
were not unit holders for the entire period of July 1, 1997 to September 30,
1997. The distribution was paid on October 17, 1997. On June 18, 1997, the
Operating Partnership declared a "long" period distribution of $0.189 per share
for the period from March 14, 1997 to June 30, 1997. The distribution amount was
prorated for unit holders who were not unit holders for the entire period of
March 14, 1997 to June 30, 1997. The distribution was paid on July 16, 1997.
In March 1997, the Operating Partnership entered into the Revolving Credit
Facility, a three year revolving credit facility guaranteed by the Company, for
up to $25.0 million. Borrowings under the Revolving Credit Facility are
collateralized by thirteen of the Properties and bear interest payable monthly
at a floating rate of 1.2% above the 30, 60, or 90 day LIBOR rate. The Revolving
Credit Facility is available to fund future property acquisitions, up to $4.0
million is available to fund working capital needs, and up to $2.0 million is
available to fund the redemption of Common Units or the purchase of Common
Shares by the Operating Partnership.
The Company intends to meet its short term liquidity requirements through cash
on hand, cash flow provided by operations and funds from the Revolving Credit
Facility. The Company considers its ability to generate cash to be adequate, and
expects it to continue to be adequate to meet operating requirements and pay
shareholder dividends in accordance with REIT requirements. The Company may use
other sources of capital to finance additional acquisitions including, but not
limited to, the selling of additional equity interest in the Company, cash flow
in excess of distributions, the issuance of debt securities, funds from the
Revolving Credit Facility, and exchanging Common Shares or Common Units for
properties or interests in properties.
In the course of the Company's planned upgrade of its information systems, to
accommodate the growth of its business, the Company will assure that its
computer software and hardware will be year 2000 compliant. The Company
anticipates that the upgrade of its information systems will be completed during
1998 and believes that the cost thereof will not have a material impact on net
income, assets or liabilites. Because of the nature of the Company's business,
it does not depend to any material extent on electronic interchange of data or
information with its residents, suppliers or vendors.
The Company regularly evaluates properties for possible acquisition or
disposition. Individual properties may be acquired through direct purchase of
the property or through the purchase of the entity owning such property and may
be made for cash or securities of the Company or the Operating Partnership. In
connection with any acquisition, the Company may incur additional indebtedness.
The Company is currently negotiating to increase its borrowings capacity under
the Revolving Credit facility from $25 million to $50 million and to convert the
facility from a secured facility to an unsecured facility. If the Company
acquires or disposes of any property, such acquisition or disposition could have
a significant effect on the Company's financial condition, results of operations
or cash flows.
Funds from Operations
Industry analysts generally consider funds from operations ("FFO") to be an
appropriate measure of performance of an equity REIT. Funds from operations is
defined as income before gains (losses) on investments and extraordinary items
(computed in accordance with generally accepted accounting principles) plus real
estate depreciation, less preferred dividends and after adjustment for
significant non-recurring items, if any. This definition conforms to the
recommendations set forth in a White Paper adopted by the National Association
of Real Estate Investment Trusts ("NAREIT") in early 1995. FFO for years prior
to 1996 have been adjusted to conform to the NAREIT definition. The Company
believes that in order to facilitate a clear understanding of its operating
results, FFO should be examined in conjunction with the net income as presented
in the financial statements and information included elsewhere in this Report.
FFO does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs. FFO should not be considered as an
alternative to net income as an indication of the Company's performance or as an
alternative to cash flow as a measure of liquidity.
FFO increased $3,256 from $596 to $3,852 for the years ended December 31, 1996
and 1997, respectively. Dividends declared for the year ended December 31, 1997
were $2,423, representing 62.9% of FFO, while dividends declared for the year
ended December 31, 1996 were $481, representing 80.7% of FFO.
Funds From Operations increased $88 from $508 in 1995 to $596 in 1996. Dividends
declared for the year ended December 31, 1996 were $481, representing 80.7% of
funds from operations. Dividends declared for the year ended December 31, 1995
were $475, representing 93.5% of funds from operations.
FFO was calculated as follows:
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
Income before minority interests $3,718 $261 $338
Real estate depreciation and amortization 2,530 335 170
Non-recurring expenses 69 - -
----- ---- ----
Funds from operations before minority interests 6,317 596 508
Minority interests in consolidated partnerships (340) - -
------- ----- -----
FFO $5,977 $596 $508
============================
Seasonality
Historically, net income from the Properties has been lower in the first and
second quarters than in the remainder of the year due to higher utility charges,
snow removal and other weather related expenses. In addition, rental rates
increase ratably during the year which results in higher rental revenues in the
second half of the year.
<PAGE>
Inflation
Substantially all of the leases at the Apartment Communities are for a term of
one year or less, which may enable the Company to seek increased rents upon
renewal or rerenting. Such short-term leases generally lessen the risk to the
Company of the potential adverse effects of inflation.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1996
Certain statements contained in this report, and in particular in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," statements in other filings with the Securities and Exchange
Commission and statements in other public documents of the Company may be
forward looking and are subject to a variety of risks and uncertainties. Many
factors could cause actual results to differ materially from these statements.
These factors include, but are not limited to, (i) population shifts which may
increase or decrease the demand for rental housing, (ii) the value of commercial
and residential rental properties in the Northeast where all of the Company's
properties are located, in recent years, have fluctuated considerably, (iii) the
effect on the Company's properties of competition from new apartment complexes
which may be completed in proximity to such properties thereby increasing
competition, (iv) the effect of weather and other conditions which can
significantly affect property operating expenses, (v) the availability of
acquisition financing or refinancing, (vi) compliance with applicable laws and
regulations and (vii) other factors which might be described from time to time
in the Company's filings with the Securities and Exchange Commission. In
addition, the Company is subject to the effects of changes in the general
business economic conditions.
Although the Company believes that its properties will continue to be attractive
to tenants and that it will be able to control expenses, future revenue and
operating trends cannot be reliably predicted. These trends may cause the
Company to adjust its operation in the future. Factors external to the Company
can also affect the price of the Company's Common Shares. Because of the
foregoing and other factors, recent trends should not be considered reliable
indicators of future financial results or stock prices.
Item 8. Financial Statements and Supplementary Data
The financial statements are included on pages F-1 to F-16.
Item. 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
The information required by this Item 9 has been previously reported by the
Company (as "previously reported" is defined in Rule 12b-2 under the Securities
and Exchange Act of 1934).
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1997.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1997.
Item 13. Certain Relationships and Related Transactions
The information required by this Item 13 is incorporated by reference from the
Company's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1997.
Part IV
Item 14. Exhibits and Reports on Form 8-K
(a)(1) Financial Statements:
The financial statements listed in the accompanying Index to Financial
Statements and Supplementary Data at page F-1 are filed as part of this Report.
(a)(2) Financial Schedules:
Schedule III, Real Estate and Accumulated Depreciation, is inculuded on pages
F-17 to F-20 of this report.
<PAGE>
(a)(3) Exhibits:
Exhibit No. Description
2.1 Contribution Agreement, dated as of May 30, 1997, by and between Grove
Operating, L.P., Northeast Apartments I Limited Partnership, West Hartford
Center Associated Limited Partnership, Windsor Equity Partnership and
Windsor Commons Corporation (incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated May 30, 1997 (Commission
File No. 1-13080))
2.2 orm of First Amendment effective as of June 1, 1997 to Agreement of
Limited Partnership of Windsor Arbor Limited Partnership (incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated
May 30, 1997 (Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between Highland
Income Partners, L.P., as Seller, and Grove Corporation, a Purchaser
(incorporated by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated July 2, 1997 (Commission File No. 1-13080))
2.4 Purchase and Sale Agreement, dated September 5, 1997, by and
between Werner O. Kunzli, as Seller, and Grove Corporation, a
Purchaser (incorporated by reference to Exhibit 2.4 to the
Company's Registration Statement on Form S-2, No. 333-38183)
2.5 Grove Operating, L.P., Solicitation of Consent and Offer to Exchange
Certain Outstanding Units of Limited Partnership Interest in Grove-Coastal
Associates, L.P. for Consideration of 3,435.5 Common Units of Grove
Operating, L.P. with an option to holders to instead receive cash
consideration, dated June 19, 1997, as supplemented on June 19, 1997, and
Letter of Transmittal and Addendum to Letter of Transmittal in connection
therewith (incorporated by reference to Exhibit 2.5 to the Company's
Registration Statement on Form S-2, No. 333-38183)
3.1 Third Amended and Restated Declaration of Trust of the Company dated
March 14, 1997, as amended by Articles Supplementary dated October 23,
1997.
3.2 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)
4.1 Form of Agreement of Limited Partnership of Grove Operating, L.P.,
among the Company and the other partners named therein (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
February 13, 1997 (Commission File No. 1-13080))
4.2 Revolving Credit Agreement dated March 26, 1997, among Grove
Operating, L.P., the Company and Rhode Island Hospital Trust National
Bank (a Bank of Boston company) and Other Banks which may become
parties to the Agreement and Rhode Island Hospital Trust National
Bank, as Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1997)
4.3 Amendment to the Agreement of Limited Partnership of Grove
Operating, L.P. among the Company and the other partners named therein
(incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-2, No. 333-38183)
10.1 Securities Purchase Agreement, dated February 20, 1997, between
the Company and Morgan Stanley Group Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.2 Securities Purchase Agreement, dated February 21, 1997, between
the Company and ABKB/LaSalle Securities Limited (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other Investors
in the Private Placement (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.4 egistration Rights Agreement, dated March 14, 1997, between the
Company and the Investors (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.5 Multifamily Note, dated March 14, 1997, among Citicorp Real
Estate, Inc., GR-Properties III Limited Partnership, Foxwoodburg,
L.P., Grove-Westfield Associates Limited Partnership, Grove-West
Springfield Associates Limited Partnership and GR-Westwynd
Associates Limited Partnership (incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.6 Cash Management Agreement, dated as of March 14, 1997, among
Citicorp Real Estate, Inc., GR-Properties III Limited Partnership,
Foxwoodburg, L.P., Grove-Westfield Associates Limited Partnership,
Grove-West Springfield Associated Limited Partnership and GR-Westwynd
Associates Limited Partnership (incorporated by reference to Exhibit
10.6 to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.7 Form of Multifamily Open-End Mortgage Deed, Assignment of Rents
and Security Agreement, between Citicorp Real Estate, Inc. and
GR-Properties III Limited Partnership (incorporated by reference to
Exhibit 10.7 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.8 Pledge Agreement, dated as of March 14, 1997, between Grove
Operating, L.P. and Citicorp Real Estate, Inc.(incorporated by
reference to Exhibit 10.8 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.9 Registration Rights Agreement, dated March 14, 1997, between the
Company, Grove Operating, L.P. and certain partners of Grove
Operating, L.P. (incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.10 1994 Share Option Plan (incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form
SB-2 (File No. 33-76732))
10.11 1996 Share Incentive Plan (incorporated by reference to
Exhibit 10.10 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.12 Pledge Agreement, dated March 14, 1997, among Damon
Navarro, Brian Navarro, Edmund Navarro, Joseph LaBrosse, Gerald
McNamara, National Realty Services Limited Partnership, GIG,
Burgundy Associates Limited Partnership, Grove Equity
Partnership, Grove Holding Co. Inc. and the Company (incorporated
by reference to Exhibit 10.11 to the Company's Current Report on
Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
10.13 Noncompetition Agreement, dated March 14, 1997, among the
Company, Grove Operating, L.P., National Realty Services Limited
Partnership, GIG and Burgundy Associates Limited Partnership
(incorporated by reference to Exhibit 10.12 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission File
No. 1-13080))
10.14 Form of Noncompetition Agreement executed by each of
Damon Navarro, Brian Navarro, Joseph LaBrosse, Edmund
Navarro and Gerald McNamara (incorporated by reference to
Exhibit 10.13 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.15 Amendment, dated as of October 15, 1997, to
Noncompetition Agreement, dated March 14, 1997, between
the Company and Damon Navarro (incorporated by reference
to Exhibit 10.15 of the Company's Registration Statement
on Form S-2, No. 333-38183)
10.16 Amendment, dated as of October 15, 1997, to
Noncompetition Agreement, dated March 14, 1997, between
the Company and Brian Navarro (incorporated by reference
to Exhibit 10.16 of the Company's Registration Statement
on Form S-2, No. 333-38183)
10.17 Amendment, dated as of October 15, 1997, to
Noncompetition Agreement, dated March 14, 1997, between
the Company and Edmund Navarro (incorporated by reference
to Exhibit 10.17 of the Company's Registration Statement
on Form S-2, No. 333-38183)
10.18 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Joseph
LaBrosse (incorporated by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-2, No. 333-38183)
10.19 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Gerald
McNamara (incorporated by reference to Exhibit 10.19 of the
Company's Registration Statement on Form S-2, No. 333-38183)
10.20 Employment Agreement, dated March 14, 1997, between the
Company and Damon Navarro (incorporated by reference to Exhibit
10.14 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.21 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.21
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.22 Employment Agreement, dated March 14, 1997, between the
Company and Brian Navarro (incorporated by reference to Exhibit
10.15 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.23 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.23
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.24 Employment Agreement, dated March 14, 1997, between the
Company and Edmund Navarro (incorporated by reference to Exhibit
10.16 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.25 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit
10.25 of the Company's Registration Statement on Form
S-2, No.
333-38183)
10.26 Employment Agreement, dated March 14, 1997, between the
Company and Joseph LaBrosse (incorporated by reference to Exhibit
10.17 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.27 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit
10.27 of the Company's Registration Statement on Form
S-2, No.
333-38183)
10.28 Employment Agreement, dated March 14, 1997, between the
Company and Gerald McNamara (incorporated by reference to Exhibit
10.18 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.29 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit
10.29 of the Company's Registration Statement on Form
S-2, No.
333-38183)
10.30 Form of Contribution Agreement among the Company, Grove
Operating, L.P. and certain other parties (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K dated February 13, 1997 (Commission File No. 1-13080))
10.31 Form of Indemnification Agreement by and between the
Company, the Trust Managers and the Executive Officers
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form SB-2 (No. 33-76732))
10.32 Assumption of Mortgage Deed and Security Agreement made
June 23, 1994 by and among Southington Baron Limited Partnership,
Charles D. Gersten, Ada C Berin, the Company, Damon D. Navarro
and Brian A. Navarro (incorporated by reference to Exhibit 10.22
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994 (Commission File No. 1-13080))
10.33 Mortgage Note from Southington Baron Limited Partnership to
Charles D. Gersten and Ada C. Berin dated June 8, 1994
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994
(Commission File No. 1-13080))
10.34 Purchase and Sale Agreement between the Company and Grove
Cambridge Associates Limited Partnership (incorporated by
reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated October 30, 1995 (Commission File No.
1-13080))
10.35 Mortgage Note from the Company to First Union Bank of
Connecticut dated January 11, 1996 (incorporated by
reference to Exhibit 10.25 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995
(Commission File No. 1-13080))
11 List of Subsidiaries
23 Consent of Ernst & Young, LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
During the fourth quarter of the year ended December 31, 1997, the Company filed
a Current Report on Form 8-K dated November 17, 1997 (reporting under Items 2
and 7) regarding the Company's acquisition of two retail properties and one
residential property. The Company also filed a Current Report on Form 8-K/A no.
1 dated November 24, 1997, amending Item 7 as originally filed, and a Current
Report on Form 8-K/A no. 2 dated December 9, 1997, amending Item 7 as originally
filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 19, 1998.
GROVE PROPERTY TRUST
By: /s/Joseph R. LaBrosse
---------------------
Joseph R. LaBrosse
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Damon D. Navarro Trustee and Chairman of the Board 3/19/98
Damon D. Navarro and Chief Executive Office (Principal
executive officer)
/s/ Joseph R. LaBrosse Trustee and Chief Financial Officer 3/19/98
Joseph R. LaBrosse (Principal financial and accounting
officer)
/s/ Edmund F. Navarro Trustee and Chief Operating Officer 3/19/98
Edmund F. Navarro
/s/ Theodore R. Bigman Trustee 3/19/98
Theodore R. Bigman
/s/ J. Joseph Garrahy
J. Joseph Garrahy Trustee 3/19/98
/s/ Harold V. Gorman Trustee 3/19/98
Harold V. Gorman
/s/ James F. Twaddell Trustee 3/19/98
James F. Twaddell
<PAGE>
F-21
GROVE PROPERTY TRUST
Consolidated Financial Statements and Schedule
Index
- --------------------------------------------------------------------------------
Page
Item 14(a) (1 and 2) Financial Statements filed as part of this report
Consolidated Financial Statements:
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Income Statements for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Schedule filed as part of this report:
Schedule III - Real Estate and Accumulated Depreciation F-17
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements and notes thereto.
<PAGE>
Report Of Independent Auditors
The Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying consolidated balance sheets of Grove Property
Trust as of December 31, 1997 and 1996 and the related consolidated statements
of income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. We have also audited the financial
statement schedule listed on the Index to Financial Statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
statement schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial statement schedule. An audit also
includes assessing the accounting principals used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Grove Property
Trust as of December 31, 1997 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
/s/Ernst & Young LLP
- ---------------------
New York, New York
February 27, 1998
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
As of December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Real estate assets:
Land $21,403 $920
Buildings and improvements 125,412 8,528
Furniture, fixtures and equipment 952 350
---------------------- ---------------------
147,767 9,798
Less accumulated depreciation (3,674) (1,050)
---------------------- --------------------
Net real estate assets 144,093 8,748
Cash and cash equivalents 1,466 539
Due from affiliates 620 -
Deferred charges, net of accumulated amortization
of $127 and $6, respectively 849 223
Other assets 1,122 11
---------------------- ---------------------
Total assets $148,150 $9,521
====================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $33,457 $5,669
Revolving credit facility 15,601 -
Other liabilities 1,387 72
Distributions payable 1,436 121
Security deposits 2,026 157
Due to affiliates 49 19
---------------------- ---------------------
Total liabilities 53,956 6,038
Minority interests in consolidated partnerships 1,357 -
Minority interest in Operating Partnership 24,339 -
Shareholders' equity:
Preferred shares, $.01 par value per share,
1,000 shares authorized; no shares
issued or outstanding
Common shares, $.01 par value per share,
13,999,000 shares authorized; 8,453,829
(1997)
and 620,102 (1996) shares issued and 84 6
outstanding
Additional paid-in capital 68,976 3,912
Distributions in excess of earnings (562) (435)
---------------------- ---------------------
Total shareholders' equity 68,498 3,483
---------------------- ---------------------
Total liabilities and shareholders' equity $148,150 $9,521
====================== =====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
<CAPTION>
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $17,111 $2,046 $1,287
Property management 518 - -
Other property related income 168 5
Interest income 141 31 30
---------------------------------------------------
Total revenues 17,938 2,082 1,317
---------------------------------------------------
Expenses:
Property operating and maintenance 6,078 656 406
Real estate taxes 1,770 208 149
Related party management fees 22 109 67
Interest expense 2,741 394 85
Depreciation expense 2,568 356 208
Amortization expense 133 31 8
General and administrative 908 67 56
---------------------------------------------------
Total expenses 14,220 1,821 979
---------------------------------------------------
Income before minority interests 3,718 261 338
Minority interests in consolidated partnerships 155 - -
Minority interest in Operating Partnership 1,267 - -
---------------------------------------------------
Net income $2,296 $261 $338
===================================================
Net income per common share - basic and assuming dilution $0.61 $0.42 $0.55
===================================================
Weighted average number of common shares outstanding-basic 3,765 620 620
Effect of warrants and stock options 20 - -
---------------------------------------------------
Weighted average number of shares outstanding-assuming dilution 3,785 620 620
===================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Additional Dividends
Number of Paid-In in Excess
Common Shares Common Shares Capital of Earnings
------------- ------------- ------- -----------
<S> <C> <C> <C> <C>
Shareholders' equity as of January 1, 1995 620,102 $6 $3,912 $(78)
Net income - - - 338
Declared dividends - - - (475)
---------------- --------------- ---------------- ---------------
Shareholders' equity as of December 31, 1995 620,102 6 3,912 (215)
Net income - - 261
Declared dividends - - (481)
---------------- --------------- ---------------- ---------------
Shareholders' equity as of December 31, 1996 620,102 6 3,912 (435)
Issuance of common shares on March 14, 1997,
net of offering costs 3,333,333 33 27,491 -
Exercise of stock options 394 - 4 -
Issuance of common shares on November 24, 1997, net
of offering costs 4,500,000 45 45,223 -
Net income - - - 2,296
Declared dividends - - - (2,423)
Allocation of shareholders' equity to minority
interest in Operating Partnership - - (7,654) -
================ =============== ================ ===============
Shareholders' equity as of December 31, 1997 8,453,829 $84 $68,976 $(562)
================ =============== ================ ===============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Operating Activities:
Net income $2,296 $261 $338
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 2,701 387 216
Minority interests 1,422 - -
Non-cash compensation expense 120 - -
Imputed interest - mortgage 22 38 35
Changes in other assets (347) (8) 5
Changes in accounts payable, accrued
expenses and other liabilities (393) 98 91
-----------------------------------------------------
Net cash provided by operating activities 5,821 776 685
-----------------------------------------------------
Investing activities:
Purchase of partnership interests (10,417) - -
Cash acquired on purchase of partnership interests 3,565 - -
Deferred charges (6) (174) -
Additions to real estate assets (33,582) (4,629) (99)
-----------------------------------------------------
Net cash used in investing activities (40,440) (4,803) (99)
-----------------------------------------------------
Financing activities:
Net proceeds from mortgage notes payable and Revolving
Credit Facility 51,109 4,720 -
Financing costs (668) (21) (23)
Repayment of mortgage notes payable (84,438) (59) -
Net proceeds from sale of common stock and exercise of stock
options 72,796 - -
Payments to affiliates (659) (78) (22)
Dividends and distributions paid (2,594) (480) (473)
-----------------------------------------------------
Net cash provided by (used in) financing activities 35,546 (4,082) (518)
-----------------------------------------------------
Net change in cash and cash equivalents 927 55 68
Cash and cash equivalents, beginning of year 539 484 416
-----------------------------------------------------
Cash and cash equivalents, end of year $1,466 $539 $484
=====================================================
Supplemental Information:
Cash paid for interest $2,600 $400 $100
Mortgage notes payable assumed through property
acquisitions $76,696 - -
Net rental properties contributed in exchange for OP Units $15,279 - -
Excess of liabilities over assets assumed on acquisition
and partnership interests $ 1,995 - -
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. FORMATION AND DESCRIPTION OF THE COMPANY
Grove Property Trust (formerly Grove Real Estate Asset Trust) (the
"Company") was organized in the State of Maryland on April 4, 1994 as a
Real Estate Investment Trust ("REIT"). The Company currently operates
thirty-six residential communities and three retail properties. The
residential properties are generally mid-priced multi-family communities
that are primarily located in the southern New England area.
2. ACQUISITIONS AND CONSOLIDATION TRANSACTIONS
The Company purchased three properties on June 23, 1994 and an additional
property in January of 1996.
On March 14, 1997, the Company completed a series of transactions (the
"Consolidation Transactions") that included the following:
The Company formed an operating partnership (the "Operating
Partnership") to serve as the vehicle for the consolidation of
ownership and control of the Company's operations and assets.
Pursuant to an exchange offer, the Operating Partnership purchased
from non-affiliated limited partners substantially all of the
outstanding partnership interests of twenty additional properties,
including one retail property ("Property Partnerships") in exchange for
1,205,324 partnership units (the "Common Units") of the Operating
Partnership, or, in certain circumstances, cash. Common Units are
generally exchangeable for the Company's Common Shares on a one-for-one
basis.
Immediately prior to the consummation of the Consolidation
Transactions, the Company declared a stock dividend aggregating 26,250
Common Shares and concurrently effected a stock split of 1.125 to 1
(collectively the "Stock Split"), thereby issuing on a pro rata basis a
total of 95,102 additional Common Shares to the holders of the issued
and outstanding Common Shares just prior to the Consolidation
Transactions. All outstanding Common Shares were retroactively adjusted
to reflect the Stock Split.
The Company issued 3,333,333 Common Shares to new equity investors
(the "New Equity Investment") in exchange for $30 million
(approximately $27.0 million after costs of issuance).
Pursuant to a contribution agreement among the Company, certain
companies and individuals affiliated with the Company (the "Grove
Companies") and the Operating Partnership, substantially all of the
assets and operations, the management services division of Grove
Property Services Limited Partnership and the Grove Companies'
interests in the Property Partnerships were also transferred to the
Operating Partnership.
In exchange for the above, the Grove Companies received an aggregate of
909,115 Common Units in the Operating Partnership and a cash payment of
$178,000 from the Company, and the Company received 620,102 Common
Units in the Operating Partnership. Additionally, the Company
contributed to the Operating Partnership the net proceeds received from
the aforementioned new equity investment in exchange for 3,333,333
additional Common Units.
In connection with the Consolidation Transactions, the Operating
Partnership entered into a three-year secured revolving acquisition and
working capital credit facility of up to $25 million (the "Revolving
Credit Facility") and a $15.1 million ten-year term mortgage loan (the
"Mortgage Loan").
The Company used a portion of the proceeds from the New Equity Investment,
together with borrowings under the Revolving Credit Facility and Mortgage Loan
to refinance approximately $39.6 million of mortgage indebtedness and to acquire
certain minority interests in certain of the Property Partnerships.
On June 1, 1997, the Company acquired two related party residential apartment
complexes ("Four Winds" and "Brooksyde") In addition, the Company acquired an
interest in Windsor Arbor Limited Partnership, the owner of River's Bend
Apartments ("Windsor Arbor").
Upon consummation of the June 1, 1997 transactions, the Operating Partnership
issued an aggregate of 420,183 Common Units valued at $10 per unit. The Company
also assumed mortgage debt on Four Winds and Brooksyde in the aggregate
remaining principal amount of $6.2 million. To complete these transactions, the
Company borrowed $1.8 million under its Revolving Credit Facility.
On July 2, 1997, the Company acquired certain condominium units representing a
portion of the condominium units in the Greenfield Village complex located in
Rocky Hill, Connecticut from an unrelated party. The Company paid approximately
$4.3 million, with proceeds from the Revolving Credit Facility, in the
aggregate, for these units.
On September 1, 1997, the Company acquired two additional properties from
related parties. Heritage Court in Glastonbury, Connecticut and Summit/Birch
Hill in Farmington, Connecticut. The Operating Partnership issued 325,836 Common
Units, assumed $9.8 million in debt and drew down $750,000 against it's
Revolving Credit Facility to acquire these properties.
On September 30, 1997, the Company acquired the remaining limited partnership
interests in Windsor Arbor for $4.9 million.
On October 31, 1997, the Company purchased an apartment complex from an
unrelated party in Ellington, Connecticut ("High Meadow"). The $4.2 million
purchase price was paid utilizing borrowings under the Revolving Credit
Facility.
In addition, on October 31, 1997, the Company acquired two retail properties
from related parties. These acquisitions, Cornerblock and the Wharf Building,
are specialty retail properties located in Edgartown, Massachusetts. Upon
consummation of the Cornerblock and Wharf Building transactions, the Operating
Partnership issued an aggregate of 143,334 Common Units valued at $10.50 each.
To complete these transactions, the Company borrowed approximately $7.0 million
under its Revolving Credit Facility.
In November 1997, the Company completed the sale of 4,500,000 Common Shares
("the November Offering"). The net proceeds from the sale after underwriting
discounts and other costs was approximately $45.2 million. The Company used the
proceeds to retire its Revolving Credit Facility and certain mortgage notes
payable (see notes 5 and 6)
and for working capital purposes.
On December 1, 1997, the Company acquired an apartment complex from an unrelated
party in Ellington, Connecticut ("Pinney Brook") for approximately $950,000. The
purchase price was paid from working capital.
On December 31, 1997, the Company acquired four communities from unrelated
parties for approximately $20.0 million. The individual communities are Briar
Knoll, Ribbon Mill, Hilltop and Village Arms and are located respectively in
Manchester, Vernon and Norwich, Connecticut and Acton, Massachusetts. The
purchase price was paid utilizing borrowings under the Revolving Credit Facility
and cash on hand.
The Company intends to continue to operate all of its multi-family communities
and retail commercial properties as rental properties.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The 1997 financial statements are presented on a consolidated basis.
Included in the Company's financial statements are the accounts of the
Operating Partnership, the management company and various property
partnerships. Most properties are owned directly by the Operating
Partnership, however, certain properties are owned by various limited
partnerships, which in turn are wholly owned or substantially (88% to 98%)
owned by the Operating Partnership. All significant intercompany
transactions were eliminated in consolidation.
Reclassification
Certain amounts in 1996 and 1995 were reclassified to conform to the 1997
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The combined account balances at each financial institution
periodically exceed the Federal Depository Insurance Corporation ("FDIC")
insurance coverages and, as a result, there is a concentration of credit
risk related to amounts on deposit in excess of FDIC insurance coverage.
The Company believes that the risk is not significant since its banking is
with major financial institutions.
Real Estate Asset Capitalization and Depreciation
Interests owned by certain principals of the Grove Affiliates and
contributed to the Operating Partnership as part of the Consolidation
Transactions were recorded at their historical cost due to the controlling
relationship between the Company and the principals of the entities
previously owning and operating the Properties. The value of interests
contributed by non-principals was recorded based upon the fair market value
of their interests. Subsequent acquisitions were recorded in accordance
with the purchase method of accounting.
Expenditures for long-lived replacement-type items in stabilized
properties' such as appliances and floor coverings, are capitalized.
Furthermore, expenditures for non-recurring items under $1,000 and for
normal tenant turnover expenses (such as cleaning and painting) and repairs
and maintenance are expensed as incurred. With respect to development
properties, the Company generally capitalizes all costs incurred throughout
the redevelopment stage.
Depreciation is provided for building and land improvements and buildings
using the straight-line method over the estimated useful lives of the
assets (10 to 30 years). Additionally, furniture, fixtures and equipment
are depreciated using an accelerated method over the estimated useful lives
of the assets (5 to 7 years).
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of " (FAS No. 121),
which requires long-lived assets to be reviewed for impairment when events
or circumstances indicate that an impairment might exist. When an
impairment indicator is present, assets must be grouped at the lowest level
for which there are identifiable cash flows. If the sum of the undiscounted
cash flows is less than the carrying amounts of the assets, an impairment
loss must be recorded. The impairment loss is measured by comparing the
fair value of the assets with their carrying amount. To date, no losses
have been recognized and management believes that no impairment conditions
exist.
Per Share Data
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes the dilutive effects of options and warrants
(see Note 8). Earnings per share - assuming dilution is very similar to
fully diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to
the Statement 128 requirements.
Income per common share information is based on the weighted average number
of Common Shares outstanding during each year. On February 10, 1997, the
Board of Trust Managers of the Company declared a stock dividend
aggregating 26,250 Common Shares and the concurrent effectuation of a
1.125-for-one common stock split. All shares outstanding and per share
amounts have been restated to reflect these changes in capital structure.
Stock-Based Compensation
Effective in fiscal year 1996, the Company adopted Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock
compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans in accordance with Accounting
Principle Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Under APB No. 25, compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock. The Company has elected to continue
to account for its employee stock compensation plans under APB No. 25. (See
Note 8).
Income Taxes and Dividends
The Company has made the election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. To qualify as
a REIT, the Company generally must distribute at least 95% of its taxable
income to its shareholders and comply with other requirements. Accordingly,
no provision has been made for federal income taxes for the Company in the
accompanying financial statements. Even though the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and to federal income and excise taxes on
its undistributed income, if any. Shareholders are taxed on dividends
declared and must report such dividends as either ordinary income, short
term gains, long term gains, or as a return of capital. The federal income
tax characteristics of dividends paid by the Company consisted of:
1997 1996 1995
---- ---- ----
Ordinary income 100% 97.46% 83.22%
Return of capital 0% 2.54% 16.78%
No income taxes were paid during 1997, 1996 and 1995.
Advertising
The Company expenses advertising costs as incurred. Advertising costs
were $214,000, $24,000 and $17,000 in 1997, 1996 and 1995, respectively.
Deferred Charges
Deferred charges, consisting principally of loan costs, are amortized on a
straight line basis over the term of the related obligation. When term
loans are retired prior to maturity, the unamortized deferred loan costs
are written-off and reported as extraordinary items.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
recognized monthly as it is earned, which is not materially different than
the straight-line basis. The Company generally requires tenants to provide
a cash security deposit equal to one month's rent or pay the last month's
rent in advance. Such payments are deferred and are included in security
deposits on the accompanying consolidated balance sheets.
4. PRO FORMA INFORMATION (UNAUDITED)
In 1997, the historical consolidated financial statements of the Company
contain results of operations data for the properties and management company
below from their respective dates of acquisition to December 31, 1997.
Acquisition Date
----------------
Grove Property Services Limited Partnership
and Property Partnerships (20 properties and the
management company as part of the Consolidation
Transactions) March 14, 1997
Four Winds June 1, 1997
Brooksyde June 1, 1997
River's Bend June 1, 1997
Greenfield Village July 1, 1997
Glastonbury Centre September 1, 1997
Summit & Birch Hill September 1, 1997
Corner Block and Wharf Building (2 properties) October 31, 1997
High Meadow October 31, 1997
Pinney Brook December 1, 1997
Briar Knoll December 31, 1997
Ribbon Mill December 31, 1997
Hilltop December 31, 1997
Village Arms December 31, 1997
The following unaudited pro forma information for the year ended December
31, 1997, is presented as if the Consolidation Transactions, the other 1997
acquisitions listed above and the November Offering had all occurred on
January 1, 1997. The unaudited information does not purport to represent
what the Company's results of operations would have actually been if such
transactions, in fact, had occurred on January 1, 1997, nor does it purport
to represent the results of operations for future periods.
(In thousands,
except share
data)
Revenues $ 29,188
================
Income before minority interests $ 6,545
================
================
Net income $ 4,715
================
================
Earnings per common share - basic and assuming dilution $ 0.56
================
5. MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31(in
thousands):
1997 1996
---- ----
Amortizing first mortgage notes $14,373 $ 5,669
Interest only first mortgage notes 19,084 0
------ ------
$33,457 $ 5,669
======== ========
The amortizing first mortgage notes have fixed interest rates between 7.04%
and 8.33%. These notes mature between the years 2000 and 2013 and are
collateralized by five of the properties with a carrying value of
approximately $16.7 million as of December 31, 1997. These notes are
partially guaranteed by certain executive officers and shareholders of the
Company.
There are two interest only first mortgage notes. One note has a principal
balance of $4.0 million requiring monthly payments of interest only at a
fixed rate of 7.00%, and matures in 2007. This note is collateralized by
one property with a carrying value of approximately $6.4 million as of
December 31, 1997. The other note has a principal balance of $15.1 million
requiring monthly payments of interest only at a variable rate of one month
LIBOR plus 1.14% (one month LIBOR was 5.72 % on December 31, 1997), and
matures in 2007. This note is collateralized by eight properties with an
aggregate carrying value of approximately $20.9 million as of December 31,
1997.
The interest rate on the $15.1 million variable rate note has been fixed
with two interest rate swap contracts (the "Interest Swaps") with a bank.
The Interest Swaps have in effect: (i) fixed $7.6 million of debt at 7.67%
for the period from October 1, 1997 through October 1, 2007 and (ii) fixed
an additional $7.6 million of debt at 7.68% for the period from October 1,
1997 through January 4, 2005. The Interest Swaps have been pledged as
collateral under the related variable note.
Annual principal payments due as of December 31, 1997, are as follows
(in thousands):
Year Ending December 31,
1998 $ 203
1999 218
2000 235
2001 253
2002 273
Thereafter 32,275
------
$ 33,457
In December 1997, the OP entered into an agreement whereby the OP
effectively locked the ten year U. S. treasury bond rate on $20.0 million
of future debt at a rate of 5.835%. The agreement is in effect through
July, 1998.
6. REVOLVING CREDIT FACILITY
In March 1997, the Operating Partnership entered into a three year
Revolving Credit Facility with a bank, guaranteed by the Company, for up to
$25.0 million. Borrowings under the Revolving Credit Facility are
collateralized by thirteen properties with a carrying value of
approximately $38.7 million as of December 31, 1997 and bears interest,
payable monthly, at a floating rate of 1.2% above the 30, 60, or 90 day
LIBOR rate. The Operating Partnership is required to maintain certain
financial covenants as defined in the Revolving Credit Facility agreement.
The Revolving Credit Facility is available to fund future property
acquisitions; $4.0 million is available to fund working capital needs,
while $2.0 million is available to fund the redemption of Common Units by
the Operating Partnership or the purchase of Common Shares. As of December
31, 1997, there was $15.6 million outstanding under the Revolving Credit
Facility.
<PAGE>
7. SHAREHOLDERS' EQUITY
The following table outlines the 1997 activity in the Operating Partnership
equity accounts:
<TABLE>
<CAPTION>
Number of:
----------------------------------
<S> <C> <C>
Limited
Company's Partners
Operating Operating
Partnership Partnership
Units Units
Outstanding at December 31, 1996 620,102 -
Consolidation Transactions in March 1997:
New Equity Investment 3,333,333 -
Transfer of property interests-Grove Companies - 909,115
Transfer of property interests-non-affiliates - 1,205,324
June 1997 acquisitions - 420,183
Proceeds from stock options in May 1997 394 -
September 1997 acquisitions - 325,836
October 1997 acquisitions - 143,334
The November Offering 4,500,000 -
----------------- ----------------
8,453,829 3,003,792
================= ================
Ownership Percentage 73.78% 26.22%
================= ================
</TABLE>
Income is allocated to the Minority Interest in the Operating Partnership
based on its weighted average ownership percentage of the Operating
Partnership ("OP"). The ownership percentage is computed by dividing the
weighted average number of OP Units held by the Minority Interest holders
by the total weighted average OP Units outstanding. Issuance of additional
Common Shares or OP Units changes the ownership of both the Minority
Interest and the Company. Such transactions and the proceeds therefrom are
treated as capital transactions and result in an allocation between
Shareholders' Equity and Minority Interest to account for the change in the
respective percentage ownership of the underlying equity of the OP.
An OP Unit and each Common Share have essentially the same economic
characteristics as they effectively share equally in the net income or loss
and distributions of the OP. OP Units generally may be redeemed for cash
or, at the election of the Company, for Common Shares on a one-for-one
basis, subject to certain lock-up provisions.
Common Shares have been reserved for future issuance as follows:
OP Units not owned by the Company (see above) 3,003,792
Underwriters warrants (Note 8) 47,248
Stock options issued (Note 8) 977,723
Additional stock options issuable (Note 8) 90,003
---------------
4,118,766
===============
8. WARRANTS AND STOCK OPTION PLANS
In conjunction with the Company's initial public offering of Common Shares
in 1994, the managing underwriter was granted Underwriter Warrants to
purchase 47,248 Common Shares. The Underwriter Warrants are exercisable at
$11.31 per Common Share and expire in June 1999. No warrants have been
exercised as of December 31, 1997.
The Company adopted a stock option plan in 1994 (the "1994 Plan") for a
maximum of 118,120 Common Shares for key employees and non-employee Trust
Managers of the Company. Options are granted at the market price of the
Company's Common Shares on the date of grant, become exercisable ratably on
each of the first three anniversaries of the date of the grant and have a
maximum term of ten years. At December 31, 1996, no options had been
exercised. In May 1997, a Trust Manager exercised options on 394 Common
Shares. In March 1997, the Company instituted an additional stock option
plan ("1996 Plan"). The Company reserved a total of 900,000 Common Shares,
subject to adjustment, pursuant to the 1996 Plan. The provisions of the
1996 Plan are similar to the 1994 Plan. Pursuant to the Consolidation
Transactions and the November Offering, the Company granted 810,000 options
to certain executive officers, employees and non-employee Trust Managers
and an additional 50,000 nonqualified options were granted to a Company
advisor. Each non-employee Trust Manager receives 5,000 options per year.
The exercise price of the options is between $7.20 and $10.91 per share.
<TABLE>
Stock option activity is summarized as follows:
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
Outstanding at beginning of year 118,117 $ 8.48 69,689 $ 9.31
Granted 860,000 $ 10.57 48,428 $ 7.29
Exercised (394) $ 7.73 -
================ ================
Outstanding at end of year 977,723 $ 10.30 118,117 $ 8.48
================ ================
Options exercisable at end of year 69,296 $ 9.33 45,272 $ 9.36
================ ================
</TABLE>
The Company accounts for stock option grants in accordance with APB No. 25.
Accordingly, no compensation cost has been recognized for stock option
grants since all of the options have exercise prices equal to the market
value of the Company's Common Shares at the date they were granted.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of FAS
No. 123. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
assumptions for 1997: risk-free interest rate of 5%; dividend yields of
6.48%; volatility factors of the expected market price of the Company's
Common Shares of .231 and a weighted-average expected life of the options
of ten years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. The Company's employee stock options have
characteristics significantly different from those of traded options;
furthermore, changes in the subjective input assumptions can materially
affect the fair value estimate. Therefore, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except for earnings
per share information):
Year Ended
December 31, 1997
-----------------
Pro forma net income $ 2,221
===========
Pro forma earnings per share - basic and assuming
dilution $ 0.59
===========
9. RELATED PARTY TRANSACTIONS
Management Fee
On June 23, 1994, the Company entered into a Management Agreement ( the
"Agreement" ) with Grove Property Services Limited Partnership ("GPS"), an
affiliated company which provided operating and support functions requisite
to the operation of the Company's properties. The Agreement provided for a
management fee equal to 5% of gross monthly revenues, as defined, and was
terminated pursuant to the Consolidation Transactions in March 1997.
Management fees incurred in 1997, 1996 and 1995 were approximately $22,000,
$109,000 and $67,000, respectively.
Subsequent to the Consolidation Transactions, the Company earned revenues,
through GPS, of approximately $518,000, by providing management services to
affiliated companies not owned by the Company or the OP.
Rent to Related Party
The Company's executive offices were leased from an affiliated company
under a three year lease which expired in 1997. The lease has been extended
on a month-to-month basis at a rate of $4,150 per month.
Related party rent expense was approximately $41,000 in 1997 and $6,000 in
each of 1996 and 1995.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair values.
Cash equivalents, accounts receivable and accounts payable, because of
their short term nature, approximate fair value. Mortgage notes payable are
also carried at amounts that approximate their fair values.
11. PENSION PLAN
The Company sponsors a defined contribution pension plan (the "Plan") that
is qualified under Section 401(k) of the Internal Revenue Code. Full-time
employees are eligible to join the Plan at specified dates after they have
been employed by the Company for over one year. Employee contributions are
in accordance with I.R.S. guidelines; the Company matches twenty-five
percent of employee contributions up to one percent of the individual's
total annual base salary.
12. COMMITMENTS AND CONTINGENCIES
The Company, as an owner of real estate, is subject to various
environmental and other laws of Federal and local governments. Compliance
by the Company with existing laws has not had a material adverse effect on
the Company's financial condition and results of operations. However, the
Company cannot predict the impact of new or changed laws or regulations on
its current Properties or on properties that it may acquire in the future.
The Company is party to various litigation from time-to-time in the normal
course of business. Management believes that substantially all matters are
covered by insurance or, in the event of an unfavorable outcome, would not
have a material adverse effect on its financial position, results of
operations or cash flows of the Company.
13. SUBSEQUENT EVENTS
On January 23, 1998, the Company purchased an apartment complex located in
West Warwick, Rhode Island from an unrelated party through the OP. The
purchase price of approximately $7.0 million was paid utilizing borrowings
under the Revolving Credit Facility. The Company intends to continue
operating the complex as rental apartments.
In January 1998, the Company entered into another agreement whereby the
Company effectively locked the ten year U. S. treasury bond rate on $20.0
million of future debt at a rate of 5.47%. The agreement is in effect
through April 1, 1998.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
The following is a summary of selected unaudited quarterly financial data
(in thousands, except per share data):
<CAPTION>
--------------------------------1997----------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
January-March April-June July-September October-December
------------------ ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 1,306 $ 4,478 $ 5,715 $ 6,402
================== ================== ================= ===================
Income before minority interests $ 130 $ 847 $ 932 $ 1,809
Minority interests (33) (337) (412) (640)
================== ================== ================= ===================
Net income $ 97 $ 510 $ 520 $ 1,169
================== ================== ================= ===================
Net income per weighted average
share-basic and assuming
dilution $ 0.08 $ 0.13 $ 0.13 $ 0.20
================== ================== ================= ===================
Weighted average common shares
outstanding 1,250 3,954 3,954 5,813
================== ================== ================= ===================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------1996--------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
January-March April-June July-September October-December
------------------ ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 495 $ 515 $ 529 $ 543
================== ================== ================= ===================
================== ================== ================= ===================
Net income $ 21 $ 71 $ 96 $ 73
================== ================== ================= ===================
Net income per weighted average
share-basic and assuming
dilution $ 0.03 $ 0.11 $ 0.15 $ 0.12
================== ================== ================= ===================
Weighted average common shares
outstanding 620 620 620 620
================== ================== ================= ===================
<FN>
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement 128. Statement 128 had no impact on 1996
earnings per share and an immaterial impact with respect to 1997.
</FN>
</TABLE>
<PAGE>
<TABLE>
Schedule III
Part 1
Real Estate and Accumulated Depreciation
<CAPTION>
Intial Cost
Apt Name Location Encumbrances Land Building
-------- -------- ------------ ---- --------
<S> <C> <C> <C> <C>
Connecticut
208-210 Main St Manchester $ 15,600,000 (A) 149,629 847,897
Arbor Commons Ellington (A) 164,946 934,695
Avonplace Avon (A) 1,095,513 6,207,906
Barons Apartments Southington 1,241,296 162,696 1,445,468
Bradford Apartments Newington 1,860,000 358,864 2,036,562
Briar Knoll Apts Vernon 956,711 5,421,363
Brooksyde Apts West Hartford 467,829 2,651,030
Burgundy Studios Middletown 1,650,000 313,856 1,778,520
Cambridge Estates Norwich 4,372,770 (B) 426,470 3,808,829
Colonial Village Plainville (A) 604,027 3,422,818
Dogwood Hills Hamden (B) 170,942 1,680,865
Summit & Birch Hill Farmington 1,432,693 8,118,593
Fox Hill Apartments Enfield (A) 1,034,266 5,877,842
Fox Hill Commons Vernon 2,100,000 395,047 2,238,597
Greenfield Village Rocky Hill (A) 783,698 3,498,803
Hamden Centre Hamden (B) 160,185 1,607,407
High Meadow Ellington (A) 626,395 3,549,569
Hilltop Norwich 777,880 4,407,984
Glastonbury Center Glastonbury 4,407,715 793,383 4,497,538
Loomis Manor West Hartford 1,650,000 305,045 1,728,588
Ocean Reef New London 2,329,330 579,134 3,281,760
Park Place West West Hartford (A) 256,440 1,453,161
Sandalwood New London (A) 112,314 636,444
Ribbon Mills Manchester 591,778 3,353,407
River's Bend Windsor 2,244,296 12,909,411
Westwynd Apartments West Hartfor 1,215,000 224,822 1,273,991
Woodbridge Newington 2,220,000 361,635 2,049,267
Massachusetts
Cornerblock Edgartown (A) 272,295 1,543,005
Dean Estates Taunton 2,022,147 376,705 2,134,664
Four Winds Fall River 1,051,300 5,957,369
Longmeadow Shops Longmeadow 4,000,000 976,373 5,532,783
Security Manor Westfield 1,389,000 348,661 1,999,499
Van Deene Manor West Springfield 3,000,000 585,049 3,360,177
Village Arms Acton 806,777 4,571,736
The Wharf Edgartown (A) 387,888 2,198,032
Rhode Island
Dean Estates II Cranston (A) 253,198 1,434,786
Royale Cranston (A) 342,607 1,941,439
------------------------------------------------------------
Totals: $ 49,057,258 $ 20,951,346 $121,409,633
============================================================
<FN>
(A) - - One of thirteen properties that secure the Company's $25 million
Revolving Credit Facility
(B) - - One of three properties that secure one of the
Company's amortizing first mortgage notes
(C) - - The aggregate cost of land and
buildings as of December 31, 1997 was $136,195,727 for Federal income tax
purposes
</FN>
<PAGE>
Schedule III (Continued)
Part I
Real Estate and Accumulated Depreciation
<CAPTION>
Costs Capitalized Gross Carrying Amount at
Subsequent to Acquisition Close of Period
----------------------------------------------------------------------------------
<S>
Apt Name Land Building Land Building Accum. Depr.
-------- ---- -------- ---- -------- ------------
Connecticut <C> <C> <C> <C> <C>
208-210 Main St $ - $ 9185 $ 149,629 $ 857,082 $ 23,718
Arbor Commons - 14,318 164,946 949,013 26,125
Avonplace 19,319 147,161 1,114,832 6,355,067 176,765
Barons Apartments - 18,370 162,696 1,463,838 237,983
Bradford Apartments 13,319 115,480 372,183 2,152,042 59,442
Briar Knoll Apts - - 956,711 5,421,363 -
Brooksyde Apts 4,503 309,363 472,332 2,960,393 56,985
Burgundy Studios 1,355 56,989 315,211 1,835,509 50,419
Cambridge Estates - 45,996 426,470 3,854,825 271,811
Colonial Village - 35,913 604,027 3,458,732 96,177
Dogwood Hills - 8,419 170,942 1,689,284 370,847
Summit & Birch Hill 31,220 249,434 1,463,913 8,368,027 92,706
Fox Hill Apartments 44,301 255,498 1,078,567 6,133,340 170,501
Fox Hill Commons - 40,026 395,047 2,278,623 63,238
Greenfield Village 38,908 375,559 822,605 3,874,362 62,551
Hamden Centre - 42,758 160,185 1,650,165 306,087
High Meadow 146,859 843,359 773,254 4,392,929 22,124
Hilltop - - 777,880 4,407,984 -
Glastonbury Center 23,744 162,496 817,127 4,660,034 51,645
Loomis Manor 12,840 85,682 317,885 1,814,271 50,212
Ocean Reef 16,640 262,288 595,774 3,544,048 97,043
Park Place West - 5,027 256,440 1,458,187 40,562
Sandalwood (61) 3,146 112,253 639,590 17,700
Ribbon Mills - - 591,778 3,353,407 -
River's Bend 33,683 214,401 2,277,980 13,123,812 108,651
Westwynd Apartments 7,985 48,392 232,807 1,322,383 36,728
Woodbridge - 71,060 361,635 2,120,326 58,774
Massachusetts
Cornerblock 288 1,630 272,583 1,544,635 8,581
Dean Estates - 16,161 376,705 2,150,824 59,660
Four Winds 7,918 171,786 1,059,219 6,129,155 119,123
Longmeadow Shops 4,178 52,388 980,551 5,585,171 153,062
Security Manor 11,471 74,833 360,132 2,074,333 57,615
Van Deene Manor 25,083 157,705 610,132 3,517,882 97,674
Village Arms - - 806,777 4,571,736 -
The Wharf 3,339 31,780 391,227 2,229,812 12,388
Rhode Island
Dean Estates II 1,627 19,824 254,825 1,454,609 40,613
Royale 3,049 55,520 345,656 1,996,959 55,450
-----------------------------------------------------------------------------------
Totals: $ 451,568 $ 4,001,947 $ 21,402,914 $ 125,411,580 $ 3,154,073
===================================================================================
<PAGE>
Schedule III (Continued)
Part I
Real Estate and Accumulated Depreciation
<CAPTION>
Date Estimated
-----------------------------------------
Apt Name Constructed Renovated Acquired Life (Years)
-------- ----------- --------- -------- ------------
<S> <C> <C> <C> <C>
Connecticut
208-210 Main St 1969 1988 1997 10 to 30
Arbor Commons 1975 1988 1997 10 to 30
Avonplace 1973 1995 1997 10 to 30
Barons Apartments 1970 1994 1994 10 to 30
Bradford Apartments 1964 1989 1997 10 to 30
Briar Knoll Apts 1986 1997 10 to 30
Brooksyde Apts 1945 1997 1997 10 to 30
Burgundy Studios 1973 1996 1997 10 to 30
Cambridge Estates 1977 1990 1996 10 to 30
Colonial Village 1968 1989 1997 10 to 30
Dogwood Hills 1971 1993 1994 10 to 30
Summit & Birch Hill 1967 1996 1997 10 to 30
Fox Hill Apartments 1974 1991 1997 10 to 30
Fox Hill Commons 1965 1989 1997 10 to 30
Greenfield Village 1965 1997 1997 10 to 30
Hamden Centre 1968 1993 1994 10 to 30
High Meadow 1975 1997 10 to 30
Hilltop 1988 1997 10 to 30
Glastonbury Center 1962 1989 1997 10 to 30
Loomis Manor 1948 1990 1997 10 to 30
Ocean Reef 1962 1995 1997 10 to 30
Park Place West 1961 1989 1997 10 to 30
Sandalwood 1977 1996 1997 10 to 30
Ribbon Mills 1908 1985 1997 10 to 30
River's Bend 1973 1996 1997 10 to 30
Westwynd Apartments 1969 1990 1997 10 to 30
Woodbridge 1968 1991 1997 10 to 30
Massachusetts
Cornerblock 1800's 1988 1997 10 to 30
Dean Estates 1984 1997 10 to 30
Four Winds 1987 1996 1997 10 to 30
Longmeadow Shops 1962 1978 1997 10 to 30
Security Manor 1971 1988 1997 10 to 30
Van Deene Manor 1970 1990 1997 10 to 30
Village Arms 1973 1997 10 to 30
The Wharf 1800's 1996 1997 10 to 30
Rhode Island
Dean Estates II 1970 1994 1997 10 to 30
Royale 1976 1993 1997 10 to 30
</TABLE>
<PAGE>
Schedule III
Part II
Rollforward of Assets and Accumulated Depreciation
Years
------------
Land, buildings and related improvements 10 to 30
Furniture, fixtures and equipment 5 to 7
The changes in total real estate assets for the years ended December 31 (in
thousands) are as follows:
1997 1996 1995
--------------------------------------
Balance, beginning of year $ 9,448 $ 5,153 $ 5,071
New property acquisitions 136,321 4,279
Additions 1,046 16 82
======================================
Balance, beginning of year $146,815 $9,448 $ 5,153
======================================
The changes in accumulated depreciation for the years ended December 31 (in
thousands) are as follows:
1997 1996 1995
--------------------------------------
Balance, beginning of year $ 867 $ 559 $ 389
Depreciation expense 2,287 308 170
======================================
Balance, beginning of year $ 3,154 $ 867 $ 559
======================================
<PAGE>
E-4
Exhibit Index
Exhibit No. Description
2.1 Contribution Agreement, dated as of May 30, 1997, by and between Grove
Operating, L.P., Northeast Apartments I Limited Partnership, West Hartford
Center Associated Limited Partnership, Windsor Equity Partnership and
Windsor Commons Corporation (incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated May 30, 1997 (Commission
File No. 1-13080))
2.2 orm of First Amendment effective as of June 1, 1997 to Agreement of
Limited Partnership of Windsor Arbor Limited Partnership (incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated
May 30, 1997 (Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between Highland
Income Partners, L.P., as Seller, and Grove Corporation, a Purchaser
(incorporated by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated July 2, 1997 (Commission File No. 1-13080))
2.4 Purchase and Sale Agreement, dated September 5, 1997, by and
between Werner O. Kunzli, as Seller, and Grove Corporation, a
Purchaser (incorporated by reference to Exhibit 2.4 to the
Company's Registration Statement on Form S-2, No. 333-38183)
2.5 Grove Operating, L.P., Solicitation of Consent and Offer to Exchange
Certain Outstanding Units of Limited Partnership Interest in Grove-Coastal
Associates, L.P. for Consideration of 3,435.5 Common Units of Grove
Operating, L.P. with an option to holders to instead receive cash
consideration, dated June 19, 1997, as supplemented on June 19, 1997, and
Letter of Transmittal and Addendum to Letter of Transmittal in connection
therewith (incorporated by reference to Exhibit 2.5 to the Company's
Registration Statement on Form S-2, No. 333-38183)
3.1 Third Amended and Restated Declaration of Trust of the Company dated
March 14, 1997, as amended by Articles Supplementary dated October 23,
1997.
3.2 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)
4.1 Form of Agreement of Limited Partnership of Grove Operating, L.P.,
among the Company and the other partners named therein (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
February 13, 1997 (Commission File No. 1-13080))
4.2 Revolving Credit Agreement dated March 26, 1997, among Grove
Operating, L.P., the Company and Rhode Island Hospital Trust National
Bank (a Bank of Boston company) and Other Banks which may become
parties to the Agreement and Rhode Island Hospital Trust National
Bank, as Agent (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1997)
4.3 Amendment to the Agreement of Limited Partnership of Grove
Operating, L.P. among the Company and the other partners named therein
(incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-2, No. 333-38183)
10.1 Securities Purchase Agreement, dated February 20, 1997, between
the Company and Morgan Stanley Group Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.2 Securities Purchase Agreement, dated February 21, 1997, between
the Company and ABKB/LaSalle Securities Limited (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other Investors
in the Private Placement (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.4 egistration Rights Agreement, dated March 14, 1997, between the
Company and the Investors (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.5 Multifamily Note, dated March 14, 1997, among Citicorp Real
Estate, Inc., GR-Properties III Limited Partnership, Foxwoodburg,
L.P., Grove-Westfield Associates Limited Partnership, Grove-West
Springfield Associates Limited Partnership and GR-Westwynd
Associates Limited Partnership (incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.6 Cash Management Agreement, dated as of March 14, 1997, among
Citicorp Real Estate, Inc., GR-Properties III Limited Partnership,
Foxwoodburg, L.P., Grove-Westfield Associates Limited Partnership,
Grove-West Springfield Associated Limited Partnership and GR-Westwynd
Associates Limited Partnership (incorporated by reference to Exhibit
10.6 to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.7 Form of Multifamily Open-End Mortgage Deed, Assignment of Rents
and Security Agreement, between Citicorp Real Estate, Inc. and
GR-Properties III Limited Partnership (incorporated by reference to
Exhibit 10.7 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.8 Pledge Agreement, dated as of March 14, 1997, between Grove
Operating, L.P. and Citicorp Real Estate, Inc.(incorporated by
reference to Exhibit 10.8 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.9 Registration Rights Agreement, dated March 14, 1997, between the
Company, Grove Operating, L.P. and certain partners of Grove
Operating, L.P. (incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.10 1994 Share Option Plan (incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form
SB-2 (File No. 33-76732))
10.11 1996 Share Incentive Plan (incorporated by reference to
Exhibit 10.10 to the Company's Current Report on Form 8-K dated
March 14, 1997 (Commission File No. 1-13080))
10.12 Pledge Agreement, dated March 14, 1997, among Damon
Navarro, Brian Navarro, Edmund Navarro, Joseph LaBrosse, Gerald
McNamara, National Realty Services Limited Partnership, GIG,
Burgundy Associates Limited Partnership, Grove Equity
Partnership, Grove Holding Co. Inc. and the Company (incorporated
by reference to Exhibit 10.11 to the Company's Current Report on
Form 8-K dated March 14, 1997 (Commission File No. 1-13080))
10.13 Noncompetition Agreement, dated March 14, 1997, among the
Company, Grove Operating, L.P., National Realty Services Limited
Partnership, GIG and Burgundy Associates Limited Partnership
(incorporated by reference to Exhibit 10.12 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission File
No. 1-13080))
10.14 Form of Noncompetition Agreement executed by each of
Damon Navarro, Brian Navarro, Joseph LaBrosse, Edmund
Navarro and Gerald McNamara (incorporated by reference to
Exhibit 10.13 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.15 Amendment, dated as of October 15, 1997, to
Noncompetition Agreement, dated March 14, 1997, between
the Company and Damon Navarro (incorporated by reference
to Exhibit 10.15 of the Company's Registration Statement
on Form S-2, No. 333-38183)
10.16 Amendment, dated as of October 15, 1997, to
Noncompetition Agreement, dated March 14, 1997, between
the Company and Brian Navarro (incorporated by reference
to Exhibit 10.16 of the Company's Registration Statement
on Form S-2, No. 333-38183)
10.17 Amendment, dated as of October 15, 1997, to
Noncompetition Agreement, dated March 14, 1997, between
the Company and Edmund Navarro (incorporated by reference
to Exhibit 10.17 of the Company's Registration Statement
on Form S-2, No. 333-38183)
10.18 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Joseph
LaBrosse (incorporated by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-2, No. 333-38183)
10.19 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Gerald
McNamara (incorporated by reference to Exhibit 10.19 of the
Company's Registration Statement on Form S-2, No. 333-38183)
10.20 Employment Agreement, dated March 14, 1997, between the
Company and Damon Navarro (incorporated by reference to Exhibit
10.14 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.21 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.21
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.22 Employment Agreement, dated March 14, 1997, between the
Company and Brian Navarro (incorporated by reference to Exhibit
10.15 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.23 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.23
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.24 Employment Agreement, dated March 14, 1997, between the
Company and Edmund Navarro (incorporated by reference to Exhibit
10.16 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.25 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit
10.25 of the Company's Registration Statement on Form
S-2, No.
333-38183)
10.26 Employment Agreement, dated March 14, 1997, between the
Company and Joseph LaBrosse (incorporated by reference to Exhibit
10.17 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.27 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit
10.27 of the Company's Registration Statement on Form
S-2, No.
333-38183)
10.28 Employment Agreement, dated March 14, 1997, between the
Company and Gerald McNamara (incorporated by reference to Exhibit
10.18 to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.29 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit
10.29 of the Company's Registration Statement on Form
S-2, No.
333-38183)
10.30 Form of Contribution Agreement among the Company, Grove
Operating, L.P. and certain other parties (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K dated February 13, 1997 (Commission File No. 1-13080))
10.31 Form of Indemnification Agreement by and between the
Company, the Trust Managers and the Executive Officers
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form SB-2 (No. 33-76732))
10.32 Assumption of Mortgage Deed and Security Agreement made
June 23, 1994 by and among Southington Baron Limited Partnership,
Charles D. Gersten, Ada C Berin, the Company, Damon D. Navarro
and Brian A. Navarro (incorporated by reference to Exhibit 10.22
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994 (Commission File No. 1-13080))
10.33 Mortgage Note from Southington Baron Limited Partnership to
Charles D. Gersten and Ada C. Berin dated June 8, 1994
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1994
(Commission File No. 1-13080))
10.34 Purchase and Sale Agreement between the Company and Grove
Cambridge Associates Limited Partnership (incorporated by
reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated October 30, 1995 (Commission File No.
1-13080))
10.35 Mortgage Note from the Company to First Union Bank of
Connecticut dated January 11, 1996 (incorporated by
reference to Exhibit 10.25 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995
(Commission File No. 1-13080))
11 List of Subsidiaries
23 Consent of Ernst & Young, LLP
27 Financial Data Schedule
GROVE PROPERTY TRUST
Articles Supplementary
GROVE PROPERTY TRUST, a Maryland real estate investment trust (the
"Trust"), hereby certifies to the Maryland State Department of Assessments and
Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Trustees
of the Trust by the Third Amended and Restated Declaration of Trust (the
"Declaration of Trust"), the Board of Trustees has duly reclassified 3,999,000
Preferred Shares (par value $0.01 per share) of the Trust as 3,999,000 Common
Shares (par value $0.01 per share) of the Trust and has provided for the
issuance of such shares.
SECOND: The reclassification increases the number of shares classified
as Common Shares from 10,000,000 shares immediately prior to the
reclassification to 13,999,000 shares immediately after the reclassification.
The reclassification decreases the number of shares classified as Preferred
Shares from 4,000,000 shares immediately prior to the reclassification to 1,000
shares immediately after the reclassification.
THIRD: The description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of the Common Shares and Preferred Shares contained in
the Declaration of Trust is not altered by these Articles Supplementary.
IN WITNESS WHEREOF, GROVE PROPERTY TRUST has caused these presents to
be signed in its name on its behalf by its President and witnessed by its
Secretary on October 23, 1997,
WITNESS: GROVE PROPERTY TRUST
/s/ Joseph R. LaBrosse By: /s/ Damon P. Navarro
- ----------------------------- ---------------------------------
Joseph R. LaBrosse Damon P. Navarro
Secretary President
<PAGE>
2
THE UNDERSIGNED, President of GROVE PROPERTY TRUST, who executed on
behalf of the Trust the Articles Supplementary of which this certificate is made
a part, hereby acknowledges in the name and on behalf of said Trust the
foregoing Articles Supplementary to be the corporate act of said Trust and
hereby certifies that the matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
/s/ Damon P. Navarro
----------------------------
Damon P. Navarro
GROVE REAL ESTATE ASSET TRUST
THIRD AMENDED AND RESTATED
DECLARATION OF TRUST
Dated March 14, 1997
THIS THIRD AMENDED AND RESTATED DECLARATION OF TRUST is made in
conformity with the provisions of Section 12.5 hereof, as of the date set forth
above by the undersigned Trust Managers.
ARTICLE I
THE TRUST; CERTAIN DEFINITIONS
SECTION 1.1 Name. The name of the trust (the "Trust") is:
GROVE PROPERTY TRUST
SECTION 1.2 Resident Agent. The name and address of the resident agent
of the Trust in the State of Maryland is the CT Corporation System, Maryland, 32
South Street, Baltimore, Maryland 21202. The Trust may have such offices or
places of business within or without the State of Maryland as the Trustees may
from time to time determine.
SECTION 1.3 Nature of Trust. The Trust is a real estate investment
trust within the meaning of "Title 8", defined below.
SECTION 1.4 Powers. The Trust shall have all of the powers granted to
real estate investment trusts generally by Title 8 and shall have any other and
further powers as are not inconsistent with Title 8 or other applicable law.
SECTION 1.5 Definitions. As used in this Declaration of Trust, the
following terms shall have the following meanings unless the context otherwise
requires:
"Affiliate" or "Affiliated" means, as to any corporation, partnership,
trust or other association (other than the Trust), any Person (i) that holds
beneficially, directly or indirectly, 5% or more of the outstanding stock or
equity interests thereof or (ii) who is an officer, director, partner or trustee
thereof or of any Person which controls, is controlled by, or is under common
control with, such corporation, partnership, trust or other association or (iii)
which controls, is controlled by, or is under common control with, such
corporation, partnership, trust or other association.
"Board of Trust Managers" means the Board of Trust Managers of the
Trust.
"Bylaws" means the Bylaws of the Trust, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Declaration" or "Declaration of Trust" means this Declaration Trust,
including any amendments or supplements hereto.
"Executive Officers" means Damon D. Navarro, Brian Navarro, Edmund
Navarro, Joseph LaBrosse and Gerald McNamara.
"Independent Trust Manager" means a member of the Board of Trust
Managers of the Trust which is not employed by or affiliated with the Trust or
an Affiliate of the Trust.
"Person" means an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within
-1-
<PAGE>
the meaning of Section 508(a) of the Code, joint stock company or other entity,
or any government and agency or political subdivision thereof.
"REIT Provisions of the Code" means Section 856 through 860 of the Code
and any other successor provisions of the Code relating to real estate
investment trust (including provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.
"Securities" means Shares (defined below), any stock, shares or other
evidences of equity, beneficial or other interests, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities" or any certificates of interest, shares or
participations in, temporary or interim certificates for, receipts for,
guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"Securities of the Trust" means any securities issued by the Trust.
"Shareholders" means holders of record of Shares.
"Shares" means transferable shares of beneficial interest of the Trust
of any class or series.
"Title 8" means Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland, or any successor statute.
"Trust Manager" means, individually, an individual, and " Trust
Managers" means, collectively, the individuals, in each case, as named in
Section 2.2 of this Declaration so long as they continue in office and any and
all other individuals who have been duly elected and qualify as Trust Managers
of the Trust hereunder.
"Trust Property" means any and all property, real, personal or
otherwise, tangible or intangible, which is transferred or conveyed to the Trust
or the Trust Managers (including all rents, income, profits and gains
therefrom), which is owned or held by, or for the account of, the Trust or the
Trust Managers.
ARTICLE II
TRUST MANAGERS
SECTION 2.1 Number, Composition. The number of Trust Managers initially
shall be five, which number may thereafter be increased or decreased by the
Trust Managers then in office from time to time; however, the total number of
Trust Managers shall be not less than two and not more than 15. No reduction in
the number of Trust Managers shall cause the removal of any Trust Managers from
office prior to the expiration of his term.
At all times after the date of closing of the Initial Public Offering
(as defined herein), the composition of the Board of Trust Managers shall
consist of a majority of Independent Trust Managers.
SECTION 2.2 Term. At each Annual Meeting of Shareholders, the
successors to the class of Trust Managers whose term expires at such Meeting
shall be elected to hold office for a term expiring at the annual Meeting of
Shareholders held in the third year following the year of their election and the
other Trust Managers shall continue in office.
SECTION 2.3 Resignation, Removal or Death. Any Trust Manager may resign
by written notice to the remaining Trust Managers, effective upon execution and
delivery to the Trust of such written notice or upon any future date specified
in the notice. A Trust Manager may be removed, only with Cause (as hereinafter
defined), at a Meeting of the Shareholders called for that purpose, by the
affirmative vote of the holders of not less than two-thirds of the Shares then
outstanding and entitled to vote in the election of Trustees. As used herein,
"Cause" shall mean (a) material theft, fraud or embezzlement or active and
deliberate dishonesty by a Trust Manager; (b) habitual neglect of duty by a
Trust Manager having a material and adverse significance to the Trust; or (c)
the conviction of a Trust Manager of a felony or of any crime involving moral
turpitude. Upon the incapacity, death, resignation or removal of any Trust
-2-
<PAGE>
Manager, or his otherwise ceasing to be a Trust Manager, he shall automatically
cease to have any right, title or interest in and to the Trust Property and
shall execute and deliver such documents as the remaining Trust Managers require
for the conveyance of any Trust Property held in his name, and shall account to
the remaining Trust Managers as they require for all property which he holds as
Trust Manager.
SECTION 2.4 Legal Title. Legal title to all Trust Property shall be
vested in the Trust, but the Trust may cause legal title to any Trust Property
to be held by or in the name of any or all of the Trust Managers or any other
Person as nominee. Any right, title or interest of the Trust Managers in and to
the Trust Property shall automatically vest in successor and additional Trust
Managers upon their qualification and acceptance of election or appointment as
Trust Managers, and they shall thereupon have all the right and obligations of
Trust Managers, whether or not conveyancing documents have been executed and
delivered pursuant to Section 2.3 or otherwise. Written evidence of the
qualification and acceptance of election or appointment of successor and
additional Trust Managers may be filed with the records of the Trust and in such
other offices, agencies or places as the Trust or Trust Managers may deem
necessary or desirable.
ARTICLE III
POWERS OF TRUST MANAGERS
Subject to the express limitations herein or in the Bylaws, (1) the
business and affairs of the Trust shall be managed under the direction of the
Board of Trust Managers and (2) the Trust Managers shall have full, exclusive
and absolute power, control and authority over the Trust Property and over the
business of the Trust as if they, in their own right, were the sole owners
thereof. The Trustees may take any actions as in their sole judgment and
discretion are necessary or desirable to conduct the business of the Trust. This
Declaration of Trust shall be construed with a presumption in favor of the grant
of power and authority to the Trust Managers. Any construction of this
Declaration or determination made in good faith by the Trust Managers concerning
their powers and authority hereunder shall be conclusive. The powers of the
Trust Managers shall in no way be limited or restricted by reference to or
inference from the terms of this or any other provision of this Declaration or
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Trust Managers under the general laws of the State
of Maryland as now or hereafter in force.
ARTICLE IV
INVESTMENT POLICY
The fundamental investment policy of the Trust is to make investments
in such a manner as to comply with the REIT Provisions of the Code and with the
requirements of Title 8 with respect to the composition of the Trust's
investments and the derivation of its income. Subject to Section 6.7, the Trust
Managers shall use their best efforts to carry out this fundamental investment
policy and to conduct the affairs of the Trust in such a manner as to continue
to qualify the Trust for the tax treatment provided in the REIT Provisions of
the Code; provided, however, that no Trust Manager, officer, employee or agent
of the Trust shall be liable for any action or omission resulting in the loss of
tax benefits under the Code, except to the extent provided in Section 11.2. The
Trust Managers may change from time to time, either by resolution or by
amendment to the Bylaws of the Trust, such investment policies as they determine
to be in the best interest of the Trust, including prohibitions or restrictions
upon certain types of investments.
ARTICLE V
SHARES
SECTION 5.1 Authorized Shares. The total number of Shares which the
Trust has authority to issue is 14,000,000 shares, of which 10,000,000 are
Common Shares, $.01 par value per share (each, a "Common Share " or
collectively, "Common Shares"), and 4,000,000 are Preferred Shares, $.01 par
value per share (each a "Preferred Share" or collectively, "Preferred Shares").
-3-
<PAGE>
SECTION 5.2 Common Shares. Subject to the provisions of Article VII
regarding Excess Shares (as such term is defined therein), each Common Share
shall entitle the holder thereof to one vote. Holders of Common Shares shall not
be entitled to cumulative voting.
SECTION 5.3 Preferred Shares. Preferred Shares may be issued, from time
to time, in one or more series, as authorized by the Board of Trust Managers.
Prior to issuance of Preferred Shares of each series, the Board of Trust
Managers, by resolution, shall designate that series of Preferred Shares to
distinguish it from all other series and classes of Preferred Shares, shall
specify the number of Preferred Shares to be included in the series and, subject
to the provisions of Article VII regarding Excess Shares, shall set the terms,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption.
SECTION 5.4 Classification or Reclassification of Unissued Shares.
Subject to the express terms of any series of Preferred Shares or any class of
Common Shares outstanding at the time and notwithstanding any other provision of
the Declaration of Trust, the Board of Trust Managers may increase or decrease
the number of, alter the designation of or classify or reclassify any unissued
Shares by setting or changing, in any one or more respects, from time to time
before issuing the Shares, and subject to the provisions of Article VII
regarding Excess Shares, the terms, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of any series or class of
Shares.
SECTION 5.5 Declaration of Trust and Bylaws. All persons who acquire
Shares shall acquire the same subject to the provisions of this Declaration of
Trust and the Bylaws.
SECTION 5.6 Exchange of OP Units. So long as the Trust remains the
general partner of Grove Operating, L.P., the board of trust managers is hereby
expressly vested with authority (subject to the restrictions on ownership,
transfer and redemption of Equity Shares set forth in Article VII hereof) to
issue, and shall issue to the extent provided in the Partnership Agreement,
Common Shares in exchange for the units into which partnership interests in
Grove Operating, L.P. ("OP Units") are divided, as the same may be adjusted, as
provided in the Partnership Agreement.
SECTION 5.7 Reservation of Shares. Pursuant to the obligations of the
Trust under the Partnership Agreement to issue Common Shares in exchange for OP
Units, the board of trust managers is hereby required to reserve and authorize
for issuance a sufficient number of authorized but unissued Common Shares to
permit the Trust to issue Common Shares in exchange for OP Units that may be
exchanged for or converted into Common Shares as provided in the Partnership
Agreement.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
TRUST AND OF THE SHAREHOLDERS AND TRUST MANAGERS
SECTION 6.1 Authorization by Board of Share Issuance. The Board of
Trust Managers may authorize the issuance from time to time of Shares of any
class, whether now or hereafter authorized, or securities convertible into
Shares of any class, whether now or hereafter authorized, for such consideration
as the Board of Trust Managers may deem advisable, subject to such restrictions
or limitations, if any, as may be set forth in this Declaration of Trust or in
the Bylaws or in the general corporation laws or other laws of the State of
Maryland affecting or having application to real estate investment trusts.
SECTION 6.2 Preemptive and Appraisal Rights. Except as may be provided
by the Board of Trust Managers in authorizing the issuance of Preferred Shares
pursuant to Section 5.3, no holder of Shares shall, as such holder, (a) have any
preemptive right to purchase or subscribe for any additional Shares or any other
security of the Trust which the Trust may issue or sell or (b), except as
expressly required by Title 8, have any right to require the Trust to pay him
the fair value of his Shares in an appraisal or similar proceeding.
-4-
<PAGE>
SECTION 6.3 Advisor or Property Management Agreements. Subject to such
approval of the Shareholders and other conditions, if any, as may be required by
any applicable statute, rule or regulation, the Board of Trust Managers may
authorize the execution and performance by the Trust of one or more agreements
with any person, corporation, association, company, trust, partnership (limited
or general) or other organization, whether or not an Affiliate of the Trust
(each, an "Advisor"), whereby, subject to the supervision and control of the
Board of Trust Managers, any such Advisor shall render or make available to the
Trust managerial, investment, advisory and/or related services, office space,
and property management services, and other services and facilities (including,
if deemed advisable by the Board of Trust Managers, the management or
supervision of the investments of the Trust) upon such terms and conditions as
may be provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Trust Managers, the compensation payable thereunder by
the Trust), subject to the provisions of Section 11.6.
SECTION 6.4 Related Party Transactions.
(a) Without limiting any other procedures available by law or otherwise
to the Trust, the Board of Trust Managers may authorize any agreement of the
character described in Section 6.3 or any other transaction with any Advisor,
although one or more of the Trust Managers or officers of the Trust may be a
party to such agreement or may be an officer, director, stockholder or member of
such Advisor, and no such agreement or transaction shall be invalidated or
rendered void or voidable solely by reason of the existence of any such
relationship if the existence is disclosed or known to the Board of Trust
Managers, and the contract or transaction is approved by the Board of Trust
Managers (including the affirmative vote of a majority of the Independent Trust
Managers, even if they constitute less than a quorum of the Board). Any Trust
Manager who is also a director, officer, stockholder or member of an Advisor or
other entity with whom the Trust proposes to engage in business may be counted
in determining the existence of a quorum at any meeting of the Board of Trust
Managers considering such matter.
(b) Subsequent to the Closing Date (as defined herein), the affirmative
vote of a majority of the Independent Trust Managers (even if they constitute
less than a quorum of the Board) shall be required to approve the purchase by
the Trust or its subsidiaries of any multifamily residential or mixed-use
properties, the ownership of which is under the control, whether directly or
indirectly, of Messrs. Damon D. Navarro and Joseph R. LaBrosse or any of the
Executive Officers of the Trust, or their respective Affiliates.
SECTION 6.5 Determinations by Board. The determination as to any of the
following matters, made in good faith by, or pursuant to the direction of, the
Board of Trust Managers consistent with this Declaration of Trust and in the
absence of actual receipt of an improper benefit in money, property or services
or active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Trust and every holder of Shares: (a)
the amount of the net income of the Trust for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
Shares or the payment of other distributions with respect to Shares; (b) the
amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of profits
over losses on sales of assets; (c) the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
(d) the fair value, or any sale, bid or asked price to be applied in determining
the fair value, of any asset owned or held by the Trust; and (e) any matters
relating to the acquisition, holding and disposition of any assets by the Trust.
The affirmative vote of a majority of the Independent Trust Managers,
even if they constitute less than a quorum, shall be required to approve any and
all matters for which approval by the Board of Trust Managers is required by
this Declaration of Trust.
SECTION 6.6 Reserved Powers of Board. The enumeration and definition of
powers of the Board of Trust Managers included in this Article VI shall in no
way be limited or restricted by reference to or inference from the terms of any
other clause of this or any other provision of the Declaration of Trust, or
-5-
<PAGE>
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Board of Trust Managers under the general laws of
the State of Maryland as now or hereafter in force.
SECTION 6.7 REIT Qualification. The Board of Trust Managers shall use
its reasonable best efforts to cause the Trust and the Shareholders to qualify
for federal income tax treatment in accordance with the REIT Provisions of the
Code. In furtherance of the foregoing, the Board of Trust Managers shall use its
reasonable best efforts to take such actions as are necessary, and may take such
actions as in its sole judgment and discretion are desirable, to preserve the
status of the Trust as a REIT, including amending the provisions of this
Declaration of Trust as provided in Article IX; provided, however, that if the
Board of Trust Managers determines that it is no longer in the best interests of
the Trust for it to continue to qualify as a REIT, the Board of Trust Managers
may revoke or otherwise terminate the Trust's REIT election.
ARTICLE VII
RESTRICTIONS ON OWNERSHIP AND TRANSFER
TO PRESERVE TAX BENEFIT
SECTION 7.1 Definitions. For the purposes of this Article VII, the
following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Equity Shares by a
Person who is or would be treated as an owner of such Equity Shares either
actually or constructively through the application of Section 544 of the Code,
as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Own," "Beneficially Owns" and "Beneficially Owned" shall have the
correlative meanings.
"Charitable Beneficiary" shall mean one or more beneficiaries of a
Special Trust as determined pursuant to Section 7.3(f) of this Article VII.
"Closing Date" shall mean the time and date of the payment for and
delivery of Common Shares issued pursuant to the Initial Public Offering.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
"Constructive Ownership" shall mean ownership of Equity Shares by a
Person who is or would be treated as an owner of such Equity Shares either
actually or constructively through the application of Section 318 of the Code,
as modified by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Own," "Constructively Owns" and "Constructively Owned" shall
have the correlative meanings.
"Deferred Stock Grant" means a grant, pursuant to the Trust's 1996
Share Incentive Plan of Common Shares.
"Equity Shares" shall mean Common Shares and/or Preferred Shares.
"Executive Officers" shall mean Damon Navarro, Brian Navarro, Edmund
Navarro, Joseph LaBrosse and Gerald McNamara.
"Executive Officer Ownership Limit" means 20% (by value or by number of
Shares, whichever is more restrictive) of the outstanding Equity Shares of the
Trust.
"Initial Public Offering" shall mean the sale of Common Shares pursuant
to the Trust's first effective registration statement for such Common Shares
filed under the Securities Act of 1933, as amended, on Form SB-2 in June 1994.
"IRS" means the United States Internal Revenue Service.
-6-
<PAGE>
"Market Price" shall mean the last reported sales price reported on the
Emerging Company Marketplace of the American Stock Exchange, Inc. (the "AMEX"),
or otherwise on the AMEX, of the Common Shares, or Preferred Shares, as the case
may be, on the trading day immediately preceding the relevant date, or if not
then traded on the AMEX, the last reported sales price of the Common Shares, or
Preferred Shares, as the case may be, on the trading day immediately preceding
the relevant date as reported on any exchange or quotation system over which the
Common Shares, or Preferred Shares, as the case may be, may be traded, or if not
then traded over any exchange or quotation system, then the market price of the
Common Shares, or Preferred Shares, as the case may be, on the relevant date as
determined in good faith by the Board of Trust Managers.
"Option" means an option, granted pursuant to the Trust's 1994 Share
Option Plan or 1996 Share Incentive Plan, to acquire Common Shares.
"Ownership Limit" shall mean 5.0% (by value or by number of shares,
whichever is more restrictive) of the outstanding Equity Shares of the Trust.
"Partnership Agreement" shall mean the Agreement of Limited Partnership
of Grove Operating, L.P., of which the Trust is the sole general partner, dated
as of March 14, 1997, as such agreement may be amended from time to time.
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside
for or to be used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity; but does not include an
underwriter acting in a capacity as such in a public offering of the Common
Shares, or Preferred Shares, as the case may be, provided that the ownership of
Common Shares, or Preferred Shares, as the case may be, by such underwriter
would not result in the Trust being "closely held" within the meaning of Section
856(h) of the Code, or otherwise result in the Trust failing to qualify as a
REIT.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in a transfer to a Special Trust, as provided
in Section 7.2(b) of this Article VII, the purported beneficial transferee or
owner for whom the Purported Record Transferee would have acquired or owned
Equity Shares, if such Transfer had been valid under Section 7.2(a) of this
Article VII.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in a transfer to a Special Trust, as provided in Section
7.2(b) of this Article VII, the record holder of the Equity Shares if such
Transfer had been valid under Section 7.2(a) of this Article VII.
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.
"Restriction Termination Date" shall mean the first day after the
Closing Date on which the Board of Trust Managers determines that it is no
longer in the best interests of the Trust to attempt to, or continue to, qualify
as a REIT.
"Special Trust" shall mean each of the trusts provided for in Section
7.3 of this Article VII.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Equity Shares, including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares or (ii) the sale, transfer, assignment or other disposition of any
securities (or rights convertible into or exchangeable for Equity Shares),
whether voluntary or involuntary, whether of record or beneficially or
Beneficially or Constructively (including but not limited to transfers of
interests in other entities which result in changes in Beneficial or
Constructive Ownership of Equity Shares), and whether by operation of law or
otherwise.
"Trustee" shall mean any Person unaffiliated with the Trust, the
Purported Beneficial Transferee, and the Purported Record Transferee, that is
appointed by the Trust to serve as trustee of a Special Trust.
-7-
<PAGE>
Section 7.2 Restrictions on Ownership and Transfers.
(a) From the Closing Date and prior to the Restriction Termination
Date:
(i) except as provided in Section 7.9 of this Article VII, (i)
no Person (other than an Executive Officer) shall Beneficially Own
Equity Shares in excess of the Ownership Limit and (ii) no Executive
Officer shall, nor shall all of the Executive Officers, in the
aggregate, Beneficially Own Equity Shares in excess of the Executive
Officer Ownership Limit;
(ii) except as provided in Section 7.9 of this Article VII, no
Person shall Constructively Own in excess of 9.8% (by value or by
number of shares, whichever is more restrictive) of the outstanding
Equity Shares of the Trust; and
(iii) no Person shall Beneficially or Constructively Own
Equity Shares to the extent that such Beneficial or Constructive
Ownership would result in the Trust being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise failing to qualify
as a REIT (including, but not limited to, ownership that would result
in the Trust owning (actually or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if the
income derived by the Trust (either directly or indirectly through one
or more partnerships) from such tenant would cause the Trust to fail to
satisfy any of the gross income requirements of Section 856(c) of the
Code).
(b) If, during the period commencing on the Closing Date and prior to
the Restriction Termination Date, any Transfer (whether or not such Transfer is
the result of a transaction entered into through the facilities of the AMEX) or
other event occurs that, if effective, would result in any Person Beneficially
or Constructively Owning Equity Shares in violation of Section 7.2(a) of this
Article VII, (i) then that number of Equity Shares that otherwise would cause
such Person to violate Section 7.2(a) of this Article VII (rounded up to the
nearest whole share) shall be automatically transferred to a Special Trust for
the benefit of a Charitable Beneficiary, as described in Section 7.3, effective
as of the close of business on the business day prior to the date of such
Transfer or other event, and such Purported Beneficial Transferee shall
thereafter have no rights in such Equity Shares or (ii) if, for any reason, the
transfer to a Special Trust described in clause (i) of this sentence is not
automatically effective as provided therein to prevent any Person from
Beneficially or Constructively Owning Equity Shares in violation of Section
7.2(a) of this Article VII, then the Transfer of that number of Equity Shares
that otherwise would cause any Person to violate Section 7.2(a) shall be void AB
INITIO, and the Purported Beneficial Transferee shall have no rights in such
Equity Shares.
(c) Subject to Section 7.12 of this Article and notwithstanding any
other provisions contained herein, during the period commencing on the Closing
Date and prior to the Restriction Termination Date, any Transfer of Equity
Shares (whether or not such Transfer is the result of a transaction entered into
through the facilities of the AMEX) that, if effective, would result in the
capital stock of the Trust being beneficially owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void AB
INITIO, and the intended transferee shall acquire no rights in such Equity
Shares.
(d) It is expressly intended that the restrictions on ownership and
Transfer described in this Section 7.2 of Article VII shall apply to the
redemption/exchange rights provided in Section of the Partnership Agreement.
Notwithstanding any of the provisions of the Partnership Agreement or any other
agreement between Grove Operating, L.P. and any of its partners to the contrary,
a partner of Grove Operating, L.P. shall not be entitled to effect an exchange
of an interest in Grove Operating, L.P. for Equity Shares to the extent the
actual or beneficial or Beneficial or Constructive ownership of such Equity
Shares would be prohibited under the provisions of this Article VII.
-8-
<PAGE>
SECTION 7.3 Transfers of Equity Shares in Trust
(a) Upon any purported Transfer or other event described in Section
7.2(b) of this Article VII, such Equity Shares shall be deemed to have been
transferred to the Trustee in his capacity as trustee of a Special Trust for the
exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the
Trustee shall be deemed to be effective as of the close of business on the
business day prior to the purported Transfer or other event that results in a
transfer to a Special Trust pursuant to Section 7.2(b). The Trustee shall be
appointed by the Trust and shall be a Person unaffiliated with the Trust, any
Purported Beneficial Transferee, and any Purported Record Transferee. Each
Charitable Beneficiary shall be designated by the Trust as provided in Section
7.3(f) of this Article VII.
(b) Equity Shares held by the Trustee shall be issued and outstanding
Common Shares or Preferred Shares of the Trust, as the case may be. The
Purported Beneficial Transferee or Purported Record Transferee shall have no
rights in the Equity Shares held by the Trustee. The Purported Beneficial
Transferee or Purported Record Transferee shall not benefit economically from
ownership of any Equity Shares held in trust by the Trustee, shall have no
rights to dividends and shall not possess any rights to vote or other rights
attributable to the Equity Shares held in a Special Trust.
(c) The Trustee shall have all voting rights and rights to dividends
with respect to Equity Shares held in a Special Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or distribution paid prior to the discovery by the Trust that the Equity Shares
have been transferred to the Trustee shall be paid to the Trustee upon demand,
and any dividend or distribution declared but unpaid shall be paid when due to
the Trustee with respect to such Equity Shares. Any dividends or distributions
so paid over to the Trustee shall be held in trust for the Charitable
Beneficiary. The Purported Record Transferee and Purported Beneficial Transferee
shall have no voting rights with respect to the Equity Shares held in a Special
Trust and, subject to Maryland law, effective as of the date the Equity Shares
have been transferred to the Trustee, the Trustee shall have the authority (at
the Trustee's sole discretion) (i) to rescind as void any vote cast by a
Purported Record Transferee with respect to such Equity Shares prior to the
discovery by the Trust that the Equity Shares have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; provided, however,
that if the Trust has already taken irreversible action, then the Trustees shall
not have the authority to rescind and recast such vote. Notwithstanding the
provisions of this Article VII, until the Trust has received notification that
the Equity Shares have been transferred into a Special Trust, the Trust shall be
entitled to rely on its share transfer and other stockholder records for
purposes of preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting votes
of stockholders.
(d) Within 20 days of receiving notice from the Trust that Equity
Shares have been transferred to a Special Trust, the Trustee of a Special Trust
shall sell the Equity Shares held in a Special Trust to a person, designated by
the Trustee, whose ownership of the Equity Shares will not violate the ownership
limitations set forth in Section 7.2(a). Upon such sale, the interest of the
Charitable Beneficiary in the Equity Shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and to the Charitable Beneficiary as provided in this Section 7.3(d). The
Purported Record Transferee shall receive the lesser of (i) the price paid by
the Purported Record Transferee for the Equity Shares in the transaction that
resulted in such transfer to the Special Trust (or, if the event which resulted
in the transfer to the Special Trust did not involve a purchase of such Equity
Shares at Market Price, the Market Price of such Equity Shares on the day of the
event which resulted in the transfer of the Equity Shares to the Special Trust)
and (ii) the price per share received by the Trustee (net of any commissions and
other expenses of sale) from the sale or other disposition of the Equity Shares
held in the Special Trust. Any net sales proceeds in excess of the amount
payable to the Purported Record Transferee shall be immediately paid to the
Charitable Beneficiary together with any dividends or other distributions
thereon. If, prior to the discovery by the Trust that such Equity Shares have
been transferred to the Trustee, such Equity Shares are sold by a Purported
Record Transferee then (i) such Equity Shares shall be deemed to
-9-
<PAGE>
have been sold on behalf of the Special Trust and (ii) to the extent that the
Purported Record Transferee received an amount for such Equity Shares that
exceeds the amount that such Purported Record Transferee was entitled to receive
pursuant to this subparagraph (3)(d), such excess shall be paid to the Trustee
upon demand.
(e) Equity Shares transferred to the Trustee shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per share equal
to the lesser of (i) the price paid by the Purported Record Transferee for the
Equity Shares in the transaction that resulted in such transfer to a Special
Trust (or, if the event which resulted in the transfer to a Special Trust did
not involve a purchase of such Equity Shares at Market Price, the Market Price
of such Equity Shares on the day of the event which resulted in the transfer of
the Equity Shares to a Special Trust) and (ii) the Market Price on the date the
Trust, or its designee, accepts such offer. The Trust shall have the right to
accept such offer until the Trustee has sold the Equity Shares held in a Special
Trust pursuant to Section 7.3(d). Upon such a sale to the Trust, the interest of
the Charitable Beneficiary in the Equity Shares sold shall terminate and the
Trustee shall distribute the net proceeds of the sale to the Purported Record
Transferee and any dividends or other distributions held by the Trustee with
respect to such Equity Shares shall thereupon be paid to the Charitable
Beneficiary.
(f) By written notice to the Trustee, the Trust shall designate one or
more nonprofit organizations to be the Charitable Beneficiary of the interest in
a Special Trust such that (i) the Equity Shares held in a Special Trust would
not violate the restrictions set forth in Section 7.2(a) in the hands of such
Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization
described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
SECTION 7.4 Remedies for Breach. If the Board of Trust Managers, or a
committee thereof (or other designees if permitted by Maryland law) shall at any
time determine in good faith that a Transfer or other event has taken place in
violation of Section 7.2 of this Article VII or that a Person intends to
acquire, has attempted to acquire or may acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership
or Constructive Ownership of any Equity Shares of the Trust in violation of
Section 7.2 of this Article VII, the Board of Trust Managers, or a committee
thereof (or other designees if permitted by Maryland law) shall take such action
as it deems advisable to refuse to give effect to or to prevent such Transfer,
including, but not limited to, causing the Trust to redeem Equity Shares,
refusing to give effect to such Transfer on the books of the Trust or
instituting proceedings to enjoin such Transfer; provided, however, that any
Transfers (or, in the case of events other than a Transfer, ownership or
Constructive Ownership or Beneficial Ownership) in violation of Section 7.2(a)
of this Article VII, shall automatically result in the transfer to a Special
Trust as described in Section 7.2(b) and any Transfer in violation of Section
7.2(c) shall automatically be void AB INITIO, irrespective of any action (or
non-action) by the Board of Trust Managers.
SECTION 7.5 Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire Equity Shares in violation of Section 7.2 of this Article
VII or any Person who is a Purported Transferee such that an automatic transfer
to a Special Trust results under Section 7.2(b) of this Article VII, shall
immediately give written notice to the Trust of such event and shall provide to
the Trust such other information as the Trust may request in order to determine
the effect, if any, of such Transfer or attempted Transfer on the Trust's status
as a REIT.
SECTION 7.6 Owners Required to Provide Information. From the Closing
Date and prior to the Restriction Termination Date:
(a) Each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the shareholder
of record) who is holding Equity Shares for a beneficial owner or Beneficial
Owner or Constructive Owner shall, on demand, be required to disclose to the
Trust in writing such information as the Trust may request in order to determine
the effect, if any, of such shareholder's actual and constructive ownership of
Equity Shares on the the Trust's status as a REIT and
-10-
<PAGE>
to ensure compliance with the Ownership Limit, the Executive Officer Ownership
Limit, or such other limit as provided from time to time in this Third Amended
and Restated Declaration of Trust or as otherwise permitted by the Board of
Trust Managers.
(b) Each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the Shareholder
of record) who is holding Equity Shares for a beneficial owner or Beneficial
Owner or Constructive Owner shall, on demand, provide to the Trust a completed
questionnaire containing the information regarding their ownership of such
Equity Shares, as set forth in the regulations (as in effect from time to time)
of the U.S. Department of Treasury under the Code.
SECTION 7.7 Remedies Not Limited. Nothing contained in this Article VII
(but subject to Sections 6.7 and 7.12 of the Charter) shall limit the authority
of the Board of Trust Managers to take such other action as it deems necessary
or advisable to protect the Trust and the interests of its shareholders by
preservation of the Trust's status as a REIT.
SECTION 7.8 Ambiguity. In the case of an ambiguity in the application
of any of the provisions of Sections 7.2 through 7.9, 7.13 and 7.14 of this
Article VII, including any definition contained in Section 7.1, the Board of
Trust Managers shall have the power to determine the application of the
provisions of Sections 7.2 through 7.9, 7.13 and 7.14 with respect to any
situation based on the facts known to it (subject, however, to the provisions of
Section 7.12 of this Article). In the event any of Sections 7.2 through 7.9,
7.13 or 7.14 requires an action by the Board of Trust Managers and this Third
Amended and Restated Declaration of Trust fails to provide specific guidance
with respect to such action, the Board of Trust Managers shall have the power to
determine the action to be taken so long as such action is not contrary to the
provisions of such Sections 7.2 through 7.9 of this Article VII. Absent a
decision to the contrary by the Board of Trust Managers (which the Board of
Trust Managers may make in its sole and absolute discretion), if a Person would
have (but for the remedies set forth in Section 7.2(b)) acquired Beneficial or
Constructive Ownership of Equity Shares in violation of Section 7.2(a), such
remedies (as applicable) shall apply first to the Equity Shares which but for
such remedies, would have been actually owned by such Person, and second to
Equity Shares which, but for such remedies, would have been Beneficially Owned
or Constructively Owned (but not actually owned) by such Person, pro rata among
the Persons who actually own such Equity Shares based upon the relative number
of the Equity Shares held by each such Person.
SECTION 7.9 Exceptions.
(a) Subject to Section 7.2(a)(iii), the Board of Trust Managers, in its
sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning Equity Shares in excess of the Ownership Limit or the
Executive Officers Beneficially Owning Equity Shares, in the aggregate, in
excess of the Executive Officer Ownership Limit, as the case may be, if the
Board of Trust Managers obtains such representations and undertakings from such
Person or from such Executive Officer or Executive Officers as are reasonably
necessary to ascertain that no individual's Beneficial Ownership or the
Executive Officers' Beneficial Ownership, in the aggregate, as the case may be,
of such Equity Shares will violate the Ownership Limit or the Executive Officer
Ownership, as the case may be, or that any such violation will not cause the
Trust to fail to qualify as a REIT under the Code, and agrees that any violation
of such representations or undertaking (or other action which is contrary to the
restrictions contained in Section 7.2 of this Article VII) or attempted
violation will result in such Equity Shares being transferred to a Special Trust
in accordance with Section 7.2(b) of this Article VII.
(b) Subject to Section 7.2(a)(iii), the Board of Trust Managers, in its
sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Equity Shares in excess of 9.8% (by value or by number of
Equity Shares, whichever is more restrictive) of the outstanding Equity Shares
of the Trust, if such Person does not, and represents that it will not own,
actually or Constructively, an interest in a tenant of the Trust (or a tenant of
any entity owned in whole or in part by the Trust) that would cause the Trust to
own, actually or Constructively, more than a 9.8% interest (as set forth in
Section 856(d)(2)(B) of the Code) in such tenant and the Trust obtains such
representations and undertakings from such Person as are
-11-
<PAGE>
reasonably necessary to ascertain this fact and agrees that any violation or
attempted violation will result in such Equity Shares being transferred to the
Trust in accordance with Section 7.2(b) of this Article VII. Notwithstanding the
foregoing, the inability of a Person to make the certification described in this
Section 7.9(b) shall not prevent the Board of Trust Managers, in its sole
discretion, from exempting such Person from the limitation on a Person
Constructively Owning Equity Shares in excess of 9.8% of the outstanding Equity
Shares if the Board of Trust Managers determines that the resulting application
of Section 856(d)(2)(B) of the Code would affect the characterization of less
than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the
Code) of the Trust in any taxable year, after taking into account the effect of
this sentence with respect to all other Equity Shares to which this sentence
applies.
(c) Prior to granting any exception pursuant to Section 7.9(a) or (b)
of this Article VII, the Board of Trust Managers may require a ruling from the
Internal Revenue Service, or an opinion of counsel, in either case in form and
substance satisfactory to the Board of Trust Managers in its sole discretion, as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
SECTION 7.10 Legends. Each certificate for Equity Shares shall bear
substantially the following legends:
Class of Stock
--------------
"THE TRUST IS AUTHORIZED TO ISSUE CAPITAL STOCK OF
MORE THAN ONE CLASS, CONSISTING OF COMMON STOCK AND ONE OR
MORE CLASSES OF PREFERRED STOCK. THE BOARD OF TRUST MANAGERS
IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK BEFORE
THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE
TRUST WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER
MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE TRUST'S
CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS,
RELATIVE RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND
OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS
OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE
CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL
CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS
AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE
EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF DIRECTORS
TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE
SECRETARY OF THE TRUST AT ITS PRINCIPAL OFFICE."
Restriction on Ownership and Transfer
-------------------------------------
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE
OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE TRUST'S
MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT
AS EXPRESSLY PROVIDED IN THE TRUST'S CHARTER, (I)(A) NO
PERSON (EXCEPT FOR AN EXECUTIVE OFFICER) MAY BENEFICIALLY
OWN IN EXCESS OF 5.0% OF THE
-12-
<PAGE>
OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY
NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) AND (B) NO
EXECUTIVE OFFICER MAY, NOR MAY THE EXECUTIVE OFFICERS, IN
THE AGGREGATE, BENEFICIALLY OWN IN EXCESS OF 20% OF THE
OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY
NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE); (II) NO
PERSON MAY CONSTRUCTIVELY OWN IN EXCESS OF 9.8% OF THE
OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY
NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE); (III) NO
PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES
THAT WOULD RESULT IN THE TRUST BEING "CLOSELY HELD" UNDER SECTION
856(h) OF THE CODE OR OTHERWISE CAUSE THE TRUST TO FAIL TO QUALIFY AS
A REIT; AND (IV) NO PERSON MAY TRANSFER EQUITY SHARES IF SUCH
TRANSFER WOULD RESULT IN THE CAPITAL
STOCK OF THE TRUST BEING OWNED BY FEWER THAN 100 PERSONS.
ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR
ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES
WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR
CONSTRUCTIVELY OWN EQUITY SHARES IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE TRUST. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE
EQUITY SHARES REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO A TRUSTEE OF A SPECIAL TRUST FOR THE BENEFIT
OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE
TRUST MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF TRUST MANAGERS IN ITS SOLE
DISCRETION IF THE BOARD OF TRUST MANAGERS DETERMINES THAT
OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE
RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE
OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN
VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB
INITIO. ALL TERMS IN THIS LEGEND THAT ARE DEFINED IN THE
DECLARATION OF TRUST HAVE THE MEANINGS ASCRIBED TO THEM IN THE
DECLARATION OF TRUST OF THE TRUST, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH
HOLDER OF EQUITY SHARES ON REQUEST AND WITHOUT CHARGE.
REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF
THE TRUST, AT THE TRUST'S PRINCIPAL OFFICE."
SECTION 7.11 Severability. If any provision of this Article VII or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
SECTION 7.12 AMEX. Nothing in this Article VII shall preclude the
settlement of any transaction entered into through the facilities of the AMEX or
any other national securities exchange. The fact that the settlement of any
transaction is so permitted shall not negate the effect of any other provision
of this Article VII and any transferee in such a transaction shall be subject to
all the provisions and limitations of this Article VII.
SECTION 7.13 Changes In Ownership Limit and Executive Officer Ownership
Limit. Subject to the limitations provided in Section 7.14, the Board of Trust
Managers may from time to time increase (or
-13-
<PAGE>
decrease) the Ownership Limit and/or the Executive Officer Ownership Limit
(including, but not limited to, in connection with the grant of Options and/or
Deferred Stock Grants to the Executive Officers).
SECTION 7.14 Limitations on Changes In the Ownership Limit and the
Executive Officer Ownership Limit.
(a) Neither the Ownership Limit nor the Executive Officer Ownership
Limit may be increased if, as a result of such increase, five Beneficial Owners
of Equity Shares (including all of the Executive Officers) could Beneficially
Own, in the aggregate, more than 50.0% (in number or value, whichever is more
restrictive) of the then outstanding Equity Shares.
(b) Prior to the modification of the Ownership Limit or the Executive
Officer Ownership Limit pursuant to Section 7.13, the Board of Trust Managers
may require such opinions of counsel, affidavits, undertakings or agreements as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
(c) The Executive Officer Ownership Limit shall not be reduced to a
percentage which is less than the Ownership Limit.
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders. There shall be an Annual Meeting
of the Shareholders, to be held at such time and place as shall be determined by
or in the manner prescribed in Article II of the Bylaws, at which Trust Managers
shall be elected and any other proper business may be conducted. Except as
otherwise provided in this Declaration of Trust, special meetings of
Shareholders may be called in the manner provided in Article II of the Bylaws.
If there are no Trust Managers, the President or any other officer of the Trust
shall promptly call a special meeting of the Shareholders entitled to vote for
the election of successor Trust Managers. Any meeting may be adjourned and
reconvened as the Trust Managers determine or as provided in Article II of the
Bylaws.
SECTION 8.2 Voting Rights of Shareholders. Subject to the provisions of
any class or series of Shares then outstanding, the Shareholders shall be
entitled to vote only on the following matters: (a) the election or removal of
Trust Managers; (b) the amendment of this Declaration of Trust; (c) the
voluntary dissolution or termination of the Trust; (d) the reorganization of the
Trust; and (e) the merger or consolidation of the Trust or the sale or other
disposition of all or substantially all of the Trust Property. Except with
respect to the foregoing matters, no action taken by the Shareholders at any
meeting shall in any way bind the Trust Managers.
ARTICLE IX
AMENDMENT
SECTION 9.1 By Shareholders. Except as provided in Section 9.2 hereof,
this Declaration of Trust may be amended only by the affirmative vote of the
holders of not less than two-thirds of all the Shares then outstanding and
entitled to vote on the matter.
SECTION 9.2 By Trust Managers. The Trust Managers, by a two-thirds
vote, may amend provisions of this Declaration of Trust from time to time to
enable the Trust to qualify as a real estate investment trust under the Code or
under Title 8.
SECTION 9.3 No Other Amendment. This Declaration of Trust may not be
amended except as provided in this Article IX.
-14-
<PAGE>
ARTICLE X
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8. The Trust may be voluntarily dissolved or
reorganized or its existence terminated only by the affirmative vote of the
holders of not less than two-thirds of all the Shares then outstanding and
entitled to vote on the matter. The Trust may sell or otherwise dispose of all
or substantially all of the Trust Property only by the affirmative vote of the
holders entitled to vote on the matter.
ARTICLE XI
LIABILITY OF SHAREHOLDERS, TRUST MANAGERS, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
SECTION 11.1 Limitation of Shareholder Liability. No Shareholder shall
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Trust Property or
the affairs of the Trust.
SECTION 11.2 Limitation of Trust Manager and Executive Officer
Liability. To the maximum extent that Maryland law in effect from time to time
permits limitations of the liability of trustees and officers of a real estate
investment trust, no Trust Manager or officer of the Trust shall be liable to
the Trust or to any Shareholder for money damages. Neither the amendment nor
repeal of this Section, nor the adoption or amendment of any other provision of
this Declaration of Trust inconsistent with this section, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption. In the absence of any Maryland statute limiting the liability of
trustees and officers of a Maryland real estate investment trust for money
damages in a suit by or on behalf of the Trust or by any Shareholder, no Trust
Manager or Executive Officer of the Trust shall be liable to the Trust or to any
Shareholder unless (a) that Trust Manager or Executive Officer actually received
an improper benefit or profit in money, property or services, and then, for the
amount of the benefit of profit in money or services actually received or (b) a
judgment or other final adjudication adverse to the Trust Manager or Executive
Officer is entered in a proceeding based on a finding in the proceeding that the
Trust Manager's or Executive Officer's action or failure to act was the result
of active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding or (c) otherwise, in accordance with the
provisions of an indemnification agreement between any of them and the Trust.
SECTION 11.3 Express Exculpatory Clauses in Instruments. Neither the
Shareholders nor the Trust Managers, Executive Officers, employees or agents of
the Trust shall be liable under any written instrument creating an obligation of
the Trust, and all Persons shall look solely to the Trust Property for the
payment of any claim under or for the performance of the instrument. The
omission of the foregoing exculpatory clause in such instrument shall not render
any Shareholder, Trust Manager, Executive Officer, employee or agent liable
thereunder to any third party, nor shall the Trust Manager or any officers,
employees or agents of the Trust be liable to anyone for such omission. In the
event of a conflict between the terms of this Declaration and any
indemnification agreement, the terms of the indemnification agreement shall
control.
SECTION 11.4 Indemnification and Advance for Expenses. The Trust shall
have the power, to the maximum extent permitted by Maryland law in effect from
time to time, to obligate itself to indemnify, and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to, (a) any
individual who is a present or former Shareholder, Trust Manager or officer of
the Trust or (b) any individual who, while a Shareholder, Trust Manager or
officer of the Trust and at the express request of the Trust, serves or has
served another corporation, partnership, joint venture, trust, employee benefit
plan or
-15-
<PAGE>
any other enterprise as a director, officer, Shareholder, partner or trustee of
such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, from and against all claims and liabilities to which such
person may become subject and against all claims and liabilities to which such
person may become subject by reason of his being or having been a Shareholder,
Trust Manager or Executive Officer. The Trust shall have the power, with the
approval of its Board of Trust Managers, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Trust in any
of the capacities described in (a) or (b) above and to any employee or agent of
the Trust or a predecessor of the Trust.
SECTION 11.5 Transactions Between the Trust and its Trust Managers,
Executive Officers, Employees and Agents. Subject to any express restriction in
this Declaration of Trust, including, but not limited to, Section 6.4, any
restriction adopted by the Trust Managers in the Bylaws or by resolution, and in
accordance with the terms and provisions of any employment agreement and/or
non-competition agreement with any Trust Manager or Executive Officer and the
Trust, as applicable, the Trust may enter into any contract or transaction of
any kind (including, without limitation, for the purchase or sale of property or
for any type of services, including those in connection with the underwriting or
the offer or sale of Securities of the Trust) with any Person, including any
Trust Manager, Executive Officer, employee or agent of the Trust, whether or not
any of them has a financial interest in such transaction.
SECTION 11.6 Limitation on Total Operating Expenses. The Total
Operating Expenses of the Trust shall not exceed the greater of 2% of its
average invested assets or 25% of its net income in any fiscal year as defined
below. The Trust Managers will limit operating expenses to these levels unless a
majority of the Independent Trust Managers make a finding that, based on unusual
or non-recurring factors, a higher level of expenses is justified for that year.
Written records and supporting data shall be maintained by the Trust Managers in
this regard.
Within 60 days after the end of any fiscal quarter in which Total
Operating Expenses for the preceding twelve (12) months exceeded this
limitation, the Trust will disclose this fact to the Shareholders, together with
an explanation of the factors upon which the Independent Trust Managers relied
in approving higher operating expenses.
For purposes of this Section 11.6, "Total Operating Expenses" shall
include all cash operating expenses, including additional expenses paid directly
or indirectly by the Trust to its Affiliates or third parties based upon their
relationship with the Trust, including loan administration, servicing,
engineering, inspection and all other expenses paid by the Trust, except the
expenses related to raising capital, for interest, taxes and direct property
acquisition, operation, maintenance and management costs.
"Average invested assets", for purposes of this Section 11.6, for any
period, shall mean the average of the aggregate book value of the assets of the
Trust, invested, directly or indirectly, in equity interests and in loans
secured by real estate, before reserves for depreciation or bad debts or other
similar non-cash reserves computed by taking the average of such values at the
end of each month during such period.
"Net income", for purposes of the calculation contained in this Section
11.6, shall mean total revenues applicable to such period, other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Governing Law. This Third Amended and Restated Declaration
of Trust is executed by the Trust Managers and delivered in the State of
Maryland with reference to the laws thereof, and the rights of all parties and
the validity, construction and effect of every provision hereof shall be subject
to and construed according to the laws of the State of Maryland without regard
to conflict of law provisions thereof.
-16-
<PAGE>
SECTION 12.2 Reliance by Third Parties. Any certificate shall be final
and conclusive as to any Person dealing with the Trust if executed by an
individual who, according to the records of the Trust or of any recording office
in which this Third Amended and Restated Declaration of Trust may be recorded,
appears to be the Secretary or an Assistant Secretary of the Trust or a Trust
Manager, and if certifying to: (a) the number or identity of Trust Managers,
officers of the Trust or Shareholders; (b) the due authorization of the
execution of any document; (c) any action or vote taken, and the existence of a
quorum at a meeting of Trust Managers or Shareholders; (d) a copy of this
Declaration or of the Bylaws as a true and complete copy as then in force; (e)
an amendment to this Declaration; (f) the termination of the Trust; or (g) the
existence of any fact or facts which relate to the affairs of the Trust. No
purchaser, lender, transfer agent or other Person shall be bound to make any
inquiry concerning the validity of any transaction purported to be made on
behalf of the Trust by the Trust Managers or by any officer, employee or agent
of the Trust.
SECTION 12.3 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Third Amended and Restated Declaration of
Trust are severable, and if the Trust Managers shall determine, with the advice
of counsel, that any one or more of such provisions are in conflict with the
REIT Provisions of the Code, Title 8 or any other applicable federal or state
law, the conflicting provisions shall be deemed never to have constituted a part
of this Declaration of Trust, even without any amendment of this Declaration of
Trust pursuant to Article IX; provided, however, that such determination by the
Trust Managers shall not affect or impair any of the remaining provisions of
this Declaration of Trust or render invalid or improper any action taken or
omitted prior to such determination. No Trust Manager shall be liable for making
or failing to make such a determination.
(b) If any provision of this Third Amended and Restated Declaration of
Trust shall be held invalid or unenforceable in any jurisdiction, such holding
shall not in any manner affect or render invalid or unenforceable such provision
in any other jurisdiction or any other provision of this Declaration of Trust in
any jurisdiction.
Section 12.4 Construction. In this Third Amended and Restated
Declaration of Trust, unless the context requires otherwise, words used in the
singular or in the plural include both the plural and singular and words
denoting any gender include all genders. Title and headings of different parts
of this Declaration are inserted for convenience and shall not affect the
meaning, construction or effect hereof. In defining or interpreting the powers
and duties of the Trust and its Trust Managers and officers, reference may be
made, to the extent appropriate and not inconsistent with the Code or Title 8,
to Titles 1 through 3 of the Corporations and Associations Article of the
Annotated Code of Maryland (the "Maryland Code"). In furtherance and not in
limitation of the foregoing, in accordance with the provisions of Title 3,
Subtitles 6 and 7, of the Maryland Code, the Trust shall be included within the
definition of "corporation" for purposes of such provisions.
SECTION 12.5 Recordation. This Third Amended and Restated Declaration
of Trust and any amendment or supplement hereto shall be filed for record with
the State Department of Assessments and Taxation of Maryland and may also be
filed or recorded in such other places as the Trust Managers deem appropriate,
but failure to file for record this Third Amended and Restated Declaration or
any amendment or supplement hereto in any office other than in the State of
Maryland shall not affect or impair the validity or effectiveness of this Third
Amended and Restated Declaration or any amendment hereto. This Third Amended and
Restated Declaration, and any subsequently amended and restated Declaration,
shall, upon filing, be conclusive evidence of all amendments or supplements
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments or supplements thereto.
-17-
<PAGE>
IN WITNESS WHEREOF, this Third Amended and Restated Declaration of
Trust has been signed on this 14 day of March, 1997, by the undersigned Trust
Managers, each of whom acknowledge that this document is his free act and deed,
that, to the best of his knowledge, information and belief, the matters and
facts set forth herein are true in all material respects and that this statement
is made under the penalties for perjury.
/s/ HAROLD GORMAN /s/ DAMON D. NAVARRO /s/ JAMES F. TWADELL
- ---------------------- -------------------------- -----------------------
Harold Gorman Damon D. Navarro James F. Twaddell
/s/ J. JOSEPH GARRAHY /s/ JOSEPH R. LaBROSSE
- ---------------------- --------------------------
J. Joseph Garrahy Joseph R. LaBrosse
-18-
<PAGE>
GROVE PROPERTY TRUST
LIST OF SUBSIDIARIES
Grove Operating L.P.
Grove Avon Associates Limited Partnership
Avonplace Associates Limited Partnership
Foxwoodburg Limited Partnership
Grove Opportunity Fund II Limited Partnership
Shoreline London Associates Limited Partnership
Nautilus Properties Associates Limited Partnership
Grove-Longmeadow Associates Limited Partnership
GR-Farmington Summit Associates Limited Partnership
GR-Enfield Associates Limited Partnership
Grove Properties III Limited Partnership
GR-Properties III Limited Partnership
Grove Westwynd Associates Limited Partnership
GR-Westwynd Associates Limited Partnership
Grove-Westfield Associates Limited Partnership
Grove -West-Springfield Associates Limited Partnership
GR-Norttheast Associates Limited Partnership
GR-West Hartford Associates Limited Partnership
GR-Heritage Court Associates Limited Partnership
Grove Rocky Hill Associates Limited Partnership
GPT-Windsor, LLC
GPT Highmeadow, LLC
Wharf Holding Company, LLC
GPT-Acton, LLC
GPT-Ribbon Mill, LLC
GPT-Hilltop, LLC
GPT-Briar Knoll, LLC
Exhibit No. 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-36805) and related Prospectus of Grove Property Trust of our
report dated February 27, 1998, with respect to the consolidated financial
statements and financial statement schedule of Grove Property Trust included in
this Form 10-K for the year ended December 31, 1997.
Ernst & Young LLP
New York, New York
March 20 , 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,466
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,057
<PP&E> 147,767
<DEPRECIATION> 3,674
<TOTAL-ASSETS> 148,150
<CURRENT-LIABILITIES> 4,898
<BONDS> 49,058
0
0
<COMMON> 84
<OTHER-SE> 68,414
<TOTAL-LIABILITY-AND-EQUITY> 148,150
<SALES> 0
<TOTAL-REVENUES> 17,938
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,741
<INCOME-PRETAX> 2,296
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,296
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
