Filed pursaunt to Rule 424(b)(3) of the Securities Act of 1933, as amended.
Relates to the Registration Statement on Form S-3 (Registration No. 333-36805)
GROVE PROPERTY TRUST
598 Asylum Avenue
Hartford, Connecticut 06105
3,333,333 COMMON SHARES
Par Value $0.01 Per Share
This Prospectus relates to 3,333,333 Common Shares, par value $0.01 per
share (the "Common Shares"), of Grove Property Trust, a Maryland real estate
investment trust ("Grove Property Trust" or the "Company"), to be offered or
sold from time to time for the account of those shareholders of the Company
named herein or named in an amendment or supplement to this Prospectus (the
"Selling Shareholders").
The Common Shares covered by this Prospectus were issued by the Company
in private placement transactions pursuant to Securities Purchase Agreements
("Securities Purchase Agreements") with the Selling Shareholders or predecessors
in interest to the Selling Shareholders. See "Selling Shareholders" and "Plan of
Distribution."
The Common Shares may be offered for sale and sold by the Selling
Shareholders from time to time on the American Stock Exchange (or other such
Exchange upon which the Company's Common Shares may be listed at the time of
sale) at prevailing market prices, in privately negotiated transactions at
negotiated prices, in a combination of such methods of sale, or otherwise as
determined by the Selling Shareholders. The Selling Shareholders may effect such
transactions by selling the Common Shares offered hereby to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts or commissions from the Selling Shareholders or the purchasers of the
Common Shares for whom such broker-dealers may act as agents or to whom they
sell as principals, or both (which compensation as to a particular broker-dealer
may be in excess of customary commissions). See "Plan of Distribution."
The Company will not receive any part of the proceeds from the sale of
the Common Shares offered hereby. The Selling Shareholders will pay all
applicable stock transfer taxes and brokerage commissions, but the Company will
bear all other expenses of the Company and the Selling Shareholders in
connection with the offering made hereunder, including the Company's legal and
accounting fees connected therewith.
The Common Shares are listed on the American Stock Exchange under the
symbol "GVE." The last reported sale price of the Common Shares on January 23,
1998 was $10 3/4 per share.
The Selling Shareholders and any brokers, dealers or agents who
participate in the sale of the Common Shares may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as amended
(the "Securities Act"), and the commissions paid or discounts allowed to any
such brokers, dealers or agents, in addition to any profits received on resale
of the Common Shares offered hereby, if any such broker, dealer, agent or
underwriter should purchase any such Common Shares as a principal, may be deemed
to be underwriting discounts or commissions under the Securities Act.
See "Risk Factors" beginning on Page 5 for a discussion of certain
factors that should be considered by prospective purchasers in evaluating an
investment in the Common Shares offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 26 , 1998.
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TABLE OF CONTENTS
Available Information.....................................................3
Incorporation of Certain Documents by Reference...........................3
The Company...............................................................5
Risk Factors..............................................................5
Use of Proceeds...........................................................16
Selling Shareholders......................................................17
Plan of Distribution......................................................20
Legal Opinion.............................................................21
Experts...................................................................21
Index to Financial Statements.............................................F-1
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, BY THE SELLING SHAREHOLDERS OR BY ANY OTHER PERSON DEEMED TO BE AN
UNDERWRITER. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
COMMON SHARES COVERED BY THIS PROSPECTUS BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, or accessed electronically on the Commission's Web Site at
http:\\www.sec.gov.
The Common Shares are listed on the American Stock Exchange under the
symbol "GVE." The Company's reports, proxy statements, and other information
concerning the Company may also be inspected at the offices of the American
Stock Exchange at 86 Trinity Place, New York, New York 10006.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission in accordance with the provisions
of the Securities Act with respect to the Common Shares subject to this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Shares covered hereby,
reference is made to the Registration Statement and the exhibits filed as part
thereof. Statements herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. The
Registration Statement and the exhibits may be inspected without charge at the
offices of the Commission, or copies thereof may be obtained at prescribed rates
from the Public Reference Section of the Commission at the address set forth
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-KSB for the year ended December 31,
1996, as amended;
2. The Company's Quarterly Reports on Form 10-QSB for the quarters ended March
31, 1997, as amended, June 30, 1997, as amended, and September 30, 1997;
3. The Company's Current Reports on Form 8-K dated February 13, 1997, February
21, 1997, March 14, 1997 (2 Reports), May 30, 1997, as amended, July 2,
1997, as amended, September 2, 1997 as amended, and October 31, 1997, as
amended, and December 31, 1997;
4. The Company's definitive Proxy Statement distributed in connection with its
Annual Meeting of Shareholders held on June 18, 1997; and
5. The Company's Registration Statement on Form 8-A dated November 14, 1997.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold, or which deregisters
all securities then remaining unsold, shall be incorporated by reference into
this Prospectus and shall be a part hereof from the date of filing of such
documents. Any statement contained in this Prospectus will be deemed to be
modified or superseded for purposes
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of this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
To the extent that independent accountants audit and report on
financial statements of the Company issued at future dates, and consent to the
use of their reports thereon, such financial statements shall also be
incorporated by reference into this Prospectus in reliance upon their reports
and their authority as experts in accounting and auditing.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any and all information that has been
incorporated by reference into this Prospectus (other than exhibits to such
information, unless such exhibits are specifically incorporated by reference
into any such information). Requests should be directed to: Grove Property
Trust, 598 Asylum Avenue, Hartford, Connecticut 06105, Attention: Joseph R.
LaBrosse, Chief Financial Officer, Telephone number: (860) 246-1126.
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THE COMPANY
The Company, which was formed in 1994, is a self-managed and
self-administered equity real estate investment trust ("REIT") organized under
Maryland law. It is engaged, through Grove Operating, L.P., a Delaware limited
partnership (the "Operating Partnership") of which the Company is the sole
General Partner, principally in the business of acquiring, repositioning,
managing and operating mid-priced multifamily residential properties located in
the Northeastern region of the United States. As of January 1, 1998, the Company
has a controlling interest in 39 properties (the "Properties") consisting of 36
apartment communities containing a total of 3,570 residential units and three
retail properties containing an aggregate of approximately 95,400 rentable
square feet. Reference is made to the information incorporated herein for a more
complete description of the Company's business and of the Properties.
The Company's executive offices are located at 598 Asylum Avenue,
Hartford, Connecticut 06105, and its telephone number is (860) 246-1126.
RISK FACTORS
Prospective purchasers of the Common Shares offered hereby should
consider carefully the risk factors set forth below, as well as the other
information contained herein or incorporated by reference, before making an
investment in the Common Shares offered hereby. Certain statements contained or
incorporated by reference herein constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These statements include, among other things, statements concerning results
of operations, cash available for distributions, required capital expenditures,
sources of growth, economic conditions and trends and plans and objectives of
management for future operations. Such forward looking statements involve risks
and uncertainties that may cause actual results to differ materially, depending
on a variety of important factors. Important factors that contribute to such
risks and uncertainties include, but are not limited to: (i) those identified
under this caption; (ii) changes in general business and economic conditions;
and (iii) other factors which may be described from time to time in the
Company's filings with the Commission.
Absence of Appraisals
In March 1997, 20 Properties owned by certain affiliates of the
Company's executive officers (the "Executive Officers") and Grove Property
Services Limited Partnership ("GPS"), the management company for such Properties
were contributed to the Operating Partnership in exchange for Common Units of
the Operating Partnership (the "Common Units") and cash (collectively, the
"March Acquisitions"), pursuant to a Contribution Agreement (the "Contribution
Agreement") between such affiliates, the Company and the Operating Partnership.
Such acquisitions were based primarily upon a capitalization of pro forma net
operating income, rather than an asset-by-asset valuation based on historical
cost or appraised current market value. A valuation of these Properties and GPS
based on appraisals or another method would likely have resulted in a different
valuation. There can be no assurance that the percentage interests or the value
thereof received by those participating in the transactions, including the
Executive Officers and their affiliates, accurately reflected the value of the
assets contributed to the Operating Partnership. Since the March Acquisitions,
the Company has acquired five Properties from affiliated parties and two
Properties from unaffiliated parties. The Company did not obtain appraisals with
respect to these additional Properties, although approval was obtained from a
majority of the Independent Trust Managers (as defined below) for the
transactions in which the additional Properties were acquired from affiliates of
the Company. If the fair market values of GPS and the Properties acquired in and
subsequent to the March Acquisitions are materially different from the amounts
paid by the Company, the Company could have overpaid for GPS or such Properties
which could result in a material and adverse effect on the financial performance
of the Company and the value of the Common Shares. In addition, the sellers of
such Properties could in the future claim they were underpaid, which claim, if
successful, could result in a material and adverse effect on the financial
performance of the Company and the value of the Common Shares.
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Real Estate Investment Considerations
General. Real property investments are subject to varying degrees of
risk. The financial returns available from equity investments in apartment
properties depend on the amount of revenue generated and expenses incurred in
operating the properties. If the Properties do not generate revenue sufficient
to meet operating expenses, debt service, if any, and capital expenditures, the
Company's income and ability to make distributions to its shareholders will be
adversely affected. An apartment property's income and value may be adversely
affected by the national and regional economic climates, local real estate
conditions, such as an oversupply of apartments or a reduction in demand for
apartments, availability of "for purchase" housing, the attractiveness of the
Properties to residents, competition from other apartment properties, the
ability of the owner to provide adequate maintenance and to obtain adequate
insurance and increased operating costs (including real estate taxes). The
Company's income will be adversely affected if a significant number of residents
are unable to pay rent or if the apartments cannot be rented on favorable terms.
Further, certain significant expenditures associated with equity investments in
real estate (such as mortgage payments, if any, real estate taxes and
maintenance costs) are generally not reduced when circumstances cause a
reduction in rental income. In addition, the net income to the Company from any
of the Properties may be adversely affected by such factors, among others, as
changes in zoning, building, environmental, rent control and other laws and
regulations, population shifts, which may affect the demand for rental housing
in the Company's markets, changes in real property taxes and interest rates, the
availability of financing, weather and acts of God (such as earthquakes,
hurricanes and floods) and other factors beyond the control of the Company that
may significantly affect the Company's revenue and operating expenses. The
Company is also exposed to the various types of litigation that may be brought
against a property owner or manager.
Illiquidity of Real Estate. Investments in real estate are relatively
illiquid and, therefore, will tend to restrict the Company's ability to vary its
portfolio of properties promptly in response to changes in economic or other
conditions. Consequently, if the Operating Partnership were to be liquidated,
the proceeds realized by the Company might be less than the Company's total
investment in the Operating Partnership. In addition, the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), places limits on the amount
of gross income the Company may realize from sales of real property assets held
for fewer than four years, which may affect the Company's ability to sell the
Properties without adversely affecting returns to holders of Common Shares.
Future Property Acquisitions. In the normal course of its business, and
in the pursuit of its business and growth strategies, the Company continually
evaluates potential acquisitions in the Northeast. The Company intends to
continue to acquire multifamily properties and, in certain circumstances, select
retail properties if attractive opportunities arise. In addition to general
investment risks associated with any new real estate investment, acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that judgments with respect to the costs of improvements to
bring an acquired property up to standards established for the market position
intended for that property will prove inaccurate. Properties acquired may have
characteristics or deficiencies unknown to the Company affecting their valuation
or revenue potential, and it is possible that their operating performance may
decline under the Company's management. No assurance can be given that the
Company will identify suitable acquisitions, complete acquisitions on terms
favorable to it or successfully integrate acquired properties into the Company's
portfolio. If financing is not available on acceptable terms for new
acquisitions or renovations, further acquisitions might be curtailed.
Furthermore, the fact that the Company must distribute 95% of its REIT taxable
income in order to maintain its qualification as a REIT under the Internal
Revenue Code will limit the ability of the Company to rely upon income from
operations or cash flow from operations to finance new acquisitions.
Risks of Repositioning and Renovation. The Company intends to
reposition or renovate certain of the Properties and other properties it may
acquire in the future. In connection with any such project, the Company will
bear certain risks, including delays or cost overruns, that may increase project
costs and could make such projects uneconomical, and the risk that occupancy or
rental rates at a property once such a project has been completed will not be
sufficient to enable the Company to pay operating expenses or earn its
anticipated rate of return on its
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investment. In case of an unsuccessful repositioning or renovation project, the
Company's loss could exceed its investment in such project. In cases where the
Company owns less than the entire interest in a property, the Company may
nevertheless be required to bear the entire cost of a repositioning or
renovation project at such property.
Risks Relating to Distributions. The Company pays regular distributions
to its shareholders and has announced its intention to increase its annual
distribution rate to $0.68 per Common Share. The Company's determination to
increase distributions was based on expectations with respect to pro forma REIT
taxable income and is intended to ensure the Company's continuing ability to
qualify for REIT status. In particular, the Company is seeking to ensure its
continuing compliance with the requirement that it distribute annually at least
95% of its REIT taxable income. No assurance can be given, however, that actual
cash available for distribution will not be substantially below the Company's
expectations. In addition, the Company's ability to make distributions will
depend, in large part, on the performance of the Properties and any properties
it may acquire in the future, including occupancy levels, expenditures with
respect to the Properties and newly acquired properties, the amount of the
Company's debt and the interest rates thereon and other costs relating to the
Properties and the newly acquired properties, as well as the absence of
significant expenditures relating to environmental or other regulatory matters.
Most of these matters are beyond the control of the Company and any significant
difference between the Company's expectations with respect to these matters and
actual results could have a material adverse effect on the Company and its
ability to make or sustain distributions.
Compliance with Applicable Laws. The Properties are subject to various
federal, state and local regulatory requirements, such as requirements of the
Americans with Disabilities Act (the "ADA") and state and local fire and safety
requirements. The ADA may require modifications to existing buildings or
restrict certain renovations by requiring access to such buildings, and
apartments in the buildings, by disabled persons. In addition, the Fair Housing
Amendments Act of 1988 ("FHAA") requires apartment communities first occupied
after March 13, 1990 to be accessible to the handicapped. Failure to comply with
these laws could result in the imposition of fines or an award of damages to
private litigants. Additional legislation may impose further burdens or
restrictions on owners with respect to access by disabled persons. The costs of
compliance with such laws may be substantial, and limits or restrictions on
completion of certain renovations may reduce overall returns on the Company's
investments. Although the Company believes that the Properties are in
substantial compliance with such laws currently in effect, the Company may incur
additional costs to comply with such laws. Although the Company believes that
such costs will not have a material adverse effect on the Company, if required
changes involve a greater expenditure than the Company currently anticipates or
if the changes must be made on a more accelerated basis than it anticipates, the
Company's cash flow and ability to make expected distributions could be
adversely affected.
Competition. There are numerous real estate companies, including those
which operate in the markets in which the Properties are located, which compete
with the Company in seeking properties for acquisition, and for tenants to
occupy such properties. The Company may compete with companies that have greater
resources and whose officers and directors or trustees have more experience than
the Company's officers and Trust Managers. Further, the availability of
single-family housing and other forms of multifamily residential properties,
such as manufactured housing communities, provide alternatives to residents and
potential residents of apartment communities. The availability of such
alternatives and competition generated thereby could increase in the future.
These competitive factors could adversely affect the Company's financial
performance and results of operations.
Expansion into New Geographic Markets
The Company currently intends to seek to acquire properties in
geographic markets other than those markets in which the Properties are located,
including other states in the Northeast and Mid-Atlantic regions. Such regions
may include markets in which the Company has little or no experience in the
acquisition and management of multifamily or other properties. Any such new
geographic market may be substantially dissimilar to the markets in which the
Company currently owns and operates the Properties, and management of the
Company may be
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unfamiliar with prevailing economic conditions, trends in real estate and other
factors in such markets, which may adversely affect the Company's ability to
acquire properties in such new geographic markets for competitive purchase
prices and to manage such properties effectively and profitably thereafter.
Payment of purchase prices for such properties in excess of their fair market
value or the Company's inability to manage such properties so as to cause them
to be profitable would have an adverse effect on the results of operations of
the Company.
Dependence on Limited Geographic Area
The Properties are located in Connecticut, Rhode Island and
Massachusetts and consist principally of multifamily residential communities. A
substantial percentage of the units in the Company's portfolio are located in
Connecticut. The Company's cash flow, ability to make distributions to its
shareholders and the value of the Common Shares are therefore particularly
dependent upon general business and economic conditions, such as employment
levels, average salaries, population and industrial growth and the demand for
rental apartments, in Connecticut and in the individual markets in which the
Properties are located. In recent years the values of residential rental
properties in the Northeastern United States have fluctuated as a result of
these and other factors. Changes in such factors in the Company's markets could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Limitation on Control of Partially Owned Properties
Twelve of the Properties are not entirely owned by the Company, and the
Company may hereafter acquire properties in which it will own less than the
entire interest. To the extent that other persons continue to have a minority
interest in such properties, the Company may have certain fiduciary
responsibilities to such persons which it will need to consider when making
decisions that affect those properties (including decisions regarding sale,
refinancing and the timing and amount of distributions from such properties).
Potential conflicts and other problems which could adversely affect the Company
and its results of operations could arise as a consequence of these ownership
arrangements.
Real Estate Financing Risks
Debt Service Obligations. The Company will be subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest. If the Company or an entity in which it invests were unable to meet
its debt service obligations under its mortgage loans, the lender could
foreclose on the relevant property, in which case the Company would lose the
property and its associated investment and revenue stream. All indebtedness of
the Company is secured by mortgages on certain of the Properties. The
cross-collateralization of the mortgages on various of the Properties reduces
flexibility in selling individual properties.
Variable Rate Debt and Maturities. The Company's debt includes both
fixed rate and variable rate debt with interest rates that adjust based upon
prevailing market interest rates. A substantial portion of the Company's debt
may bear interest at variable rates. The Company is negotiating to increase its
available revolving credit under its revolving credit facility (the "Credit
Facility") to $50 million. The Credit Facility bears interest at variable rates.
An increase in interest rates could have a material adverse effect on the
Company's results of operations and on its ability to make distributions on the
Common Shares. If principal payments due at maturity cannot be refinanced,
extended or repaid with the proceeds of other capital raising transactions, the
Company may not be able to pay distributions at expected levels and repay all
such maturing debt. If the Company were unable to refinance its indebtedness on
acceptable terms, or at all, the Company might be forced to dispose of one or
more of the Properties upon disadvantageous terms, which might result in losses
to the Company and might adversely affect the cash available for distribution.
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No Limitation on Debt. The Company has followed a practice of limiting
its ratio of debt to total market capitalization (i.e., total debt of the
Company as a percentage of total market capitalization, defined as the sum of
the aggregate market value of the issued and outstanding Common Shares and
Common Units exchangeable for Common Shares and the total debt of the Company)
to less than 60%. The organizational documents of the Company, however, do not
limit the amount or percentage of indebtedness that it may incur. Therefore, the
Company may change this practice regarding indebtedness without the vote of the
holders of Common Shares . If this practice is changed, the Company could become
more highly leveraged, resulting in an increased risk of default on the
obligations of the Company and an increase in debt service requirements which
could adversely affect the Company's financial condition and results of
operations and, consequently, the Company's ability to pay distributions on the
Common Shares.
Potential Conflicts of Interest
The Executive Officers or entities affiliated with the Executive
Officers have in the past been parties to transactions with the Company or its
affiliates. Of the Company's 39 Properties, 34 Properties were acquired by the
Company from entities affiliated with Executive Officers. The Company may in the
future explore the possibility of purchasing other properties from its
affiliates or affiliates of the Executive Officers. As a result, these persons
may have interests that conflict with those of the other shareholders of the
Company. In addition, there can be no assurance that the prices paid by the
Company in connection with such transactions accurately reflected or will
accurately reflect the fair market value of the subject properties. While the
Company has entered into non-competition agreements with each of the Executive
Officers and certain of their affiliates designed to minimize conflicts of
interest, and the Company's Third Amended and Restated Declaration of Trust (the
"Charter") includes a provision which requires the composition of the Board of
Trust Managers (the "Board") at all times to consist of a majority of
Independent Trust Managers (as defined in the Charter), there can be no
assurance that the provisions of the non-competition agreements or the Charter
will be successful in eliminating the impact of conflicts of interest between
the Executive Officers and the Company. Accordingly, the interests of the
Company's shareholders may not have been, and in the future may not be,
reflected fully in all decisions made or actions taken or to be taken by certain
officers of the Company.
Because of substantial economic interests of the Executive Officers in
entities which are parties to the Contribution Agreement, there is a potential
for a conflict of interest with respect to the obligations of the Executive
Officers as executive officers of the Company in enforcing the terms of the
Contribution Agreement. The failure to enforce the material terms of the
Contribution Agreement, particularly the indemnification provisions and the
remedy provisions for breaches of representations and warranties, could result
in losses to the Company and could adversely affect the cash available for
distribution.
In addition, affiliates of the Executive Officers that have contributed
properties to the Company in the past, may have unrealized gain in their
interests in such properties. The sale of such properties by the Company could
cause adverse tax consequences to such Executive Officers or affiliates.
Although decisions regarding such dispositions must be made by the Board, a
majority of which is composed of Independent Trust Managers, the interests of
the Company and such Executive Officers and affiliates could be different in
connection with the disposition of such properties.
Dependence on Key Personnel
The Company is dependent on the efforts of all of the Executive
Officers. While the Company believes that it could find replacements for these
key personnel, the loss of their services could have a material adverse effect
on the operations of the Company. Currently, the Company has no intention to
secure key-man life insurance for the Executive Officers.
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Adverse Tax Consequences of Failure to Qualify as a REIT
The Company currently intends to continue operating so as to qualify as
a REIT under the Internal Revenue Code. A REIT generally is not taxed at the
corporate level on income it currently distributes to shareholders so long as it
distributes at least 95% of its REIT taxable income annually. No assurance can
be given that the Company will be able to operate in a manner so as to remain so
qualified. Qualification as a REIT involves the application of highly technical
and complex provisions of the Internal Revenue Code for which there are only
limited judicial or administrative interpretations. The determination of various
factual matters and circumstances not entirely within the Company's control may
affect its ability to continue to qualify as a REIT. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Internal Revenue Code is greater in the case of a REIT
that holds its assets through a partnership. In addition, no assurance can be
given that legislation, new regulations, administrative interpretations or court
decisions will not change tax laws with respect to qualification as a REIT or
the federal income tax consequences of such qualification.
If the Company fails to qualify as a REIT in any taxable year, the
Company will not be allowed a deduction for distributions to shareholders in
computing its taxable income and will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at the
applicable corporate rate. In addition, unless it were entitled to relief under
certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This disqualification would reduce the Company's cash
available for investment or distribution to shareholders because of the
additional tax liability to the Company for the year or years involved. If the
Company were to fail to qualify as a REIT, it no longer would be subject to the
distribution requirements of the Internal Revenue Code, and, to the extent that
distributions to shareholders would have been made in anticipation of the
Company's qualifying as a REIT, the Company might be required to borrow funds or
to liquidate certain of its assets to pay the applicable corporate tax.
Although the Company currently intends to operate in a manner designed
to continue to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Board, without the approval of
the shareholders, to decide to revoke the REIT election.
Required Distributions; Potential Requirements to Borrow
To obtain the favorable tax treatment accorded to a REIT under the
Internal Revenue Code, the Company generally is required each year to distribute
to its shareholders at least 95% of its REIT taxable income. The Company will be
subject to income tax on any undistributed REIT taxable income and net capital
gain, and to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income plus 95% of its capital gain net income
for the calendar year, plus 100% of its undistributed income from prior years.
The Company intends to make distributions to its shareholders to comply
with the distribution provisions of the Internal Revenue Code and to avoid
income taxes and the nondeductible 4% excise tax. The Company's income consists
primarily of the Company's share of the income of the Operating Partnership and
the Company's cash flow consists primarily of its share of distributions from
the Operating Partnership. In turn, the Operating Partnership's income and cash
flow consists primarily of its share of the income and cash flow, respectively,
of the properties it owns or controls. Differences in timing between the receipt
of income and the payment of expenses in arriving at taxable income (of the
Company or the Operating Partnership) and the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments
could require the Company to borrow funds through the Operating Partnership on a
short-term or long-term basis to meet its distribution requirements even if
management believes that the then-prevailing market conditions are not favorable
for such borrowings or that such borrowings are not advisable in the absence of
such tax considerations. If the Company is unable to obtain such borrowings, the
Company could be disqualified from REIT treatment.
-10-
<PAGE>
Distributions by the Operating Partnership are determined by the
Company, as the sole general partner, through the Board, and are dependent on a
number of factors, including the amount of cash available for distribution, the
Operating Partnership's financial condition and the financial condition of each
property in which the Company holds an interest, any decision by the Board to
reinvest funds rather than to distribute funds, the capital expenditure
requirements relating to the properties in which the Company holds an interest,
the annual distribution requirements under the REIT provisions of the Internal
Revenue Code and such other factors as the Board deems relevant. There is no
assurance that the Company will be able to continue to satisfy the annual
distribution requirement so as to qualify as a REIT.
For federal income tax purposes, distributions paid to holders of
Common Shares may consist of ordinary income, capital gains, nontaxable return
of capital or a combination thereof. The Company provides the holders of Common
Shares with an annual statement indicating the tax character of the
distributions.
Limits on Changes in Control
Certain provisions of the Charter and the Bylaws of the Company and of
Maryland law (described below) may have the effect of (i) discouraging a change
of control of the Company; (ii) deterring tender offers for Common Shares, which
offers may be attractive to the Company's shareholders or (iii) limiting the
opportunity for the Company's shareholders to receive a premium for the Common
Shares that might otherwise exist if an investor attempted to assemble a block
of Common Shares in excess of the Ownership Limit (as defined below) or the
Constructive Ownership Limit (as defined below) or to effect a change of control
of the Company.
Ownership Limits. For the Company to maintain its qualification as a
REIT, not more than 50% in value of the outstanding capital shares may be owned,
actually or constructively under the applicable attribution rules of the
Internal Revenue Code, by five or fewer individuals (including certain
tax-exempt entities, other than, in general, qualified domestic pension funds)
at any time during the last half of any taxable year of the Company (the "five
or fewer" requirement). The Charter contains certain restrictions on the
ownership and transfer of Common Shares and Preferred Shares (as defined below)
(together, "Equity Shares"), described below, which are intended to prevent
concentration of share ownership. These restrictions, however, may not ensure
that the Company will be able to satisfy the "five or fewer" requirement in all
cases. If the Company fails to satisfy such requirement, the Company's status as
a REIT will terminate. See "-Adverse Tax Consequences of Failure to Qualify as a
REIT."
The Charter does not permit any person to own more than 5.0% of the
number of outstanding Equity Shares (subject to adjustment by the Board) (the
"Ownership Limit") or to own constructively (within the meaning of the Internal
Revenue Code) in excess of 9.8% of the number of outstanding Equity Shares (the
"Constructive Ownership Limit") and the executive officers in the aggregate may
not own more than 20% of the outstanding Equity Shares (by number or value,
whichever is the more restrictive) (the "Executive Officer Ownership Limit"),
subject to certain exceptions. Each percentage is based on the value or the
number of shares, whichever is more restrictive. In addition, no shareholder of
the Company may sell, transfer, assign, devise or otherwise dispose of Equity
Shares if such a disposition would result in (i) Equity Shares being owned by
fewer than 100 shareholders; (ii) the Company's being "closely held" within the
meaning of Section 856(h) of the Internal Revenue Code or (iii) the Company's
failing to qualify as a REIT.
Under the Charter, any attempted transfer of shares by a person, or
other change in the capital structure of the Company, which would violate one of
the limitations described above, unless compliance with such limitations has
been waived by the Board, will cause the shares in excess of such limits (the
"Excess Shares") to be transferred automatically to a special trust for the
benefit of a charitable beneficiary (a "Special Trust") or, if, for any reason,
the transfer to a Special Trust is not automatically effective, the attempted
transfer resulting in such violation will be deemed void ab initio. Upon any
transfer that results in Excess Shares pursuant to the foregoing, such Excess
Shares will be deemed to have been transferred to the trustee of a Special Trust
and will be considered issued and
-11-
<PAGE>
outstanding shares. The trustee of the Special Trust will be entitled to voting,
dividend and other distribution rights on such Excess Shares, and any dividend
or other distribution paid prior to the discovery by the Company that the Common
and/or Preferred Shares have been transferred so as to be deemed Excess Shares
must be repaid to the trustee of the Special Trust upon demand. The Board may
waive the Ownership Limit, the Constructive Ownership Limit or the Executive
Officer Ownership Limit with respect to a particular shareholder if it is
satisfied, based on the receipt of certain representations and undertakings from
the person seeking to own shares in excess of the Ownership Limit, the
Constructive Ownership Limit or the Executive Officer Ownership Limit, that such
ownership in excess of the Ownership Limit, the Constructive Ownership Limit or
the Executive Officer Ownership Limit will not jeopardize the Company's status
as a REIT. Subject to certain limitations, the Board may from time to time
increase or decrease the Ownership Limit or the Constructive Ownership Limit.
Preferred Shares. The Charter permits the Board to issue up to 1,000
preferred shares of beneficial interest, par value $0.01 per share ("Preferred
Shares"), and to establish the preferences and rights (including the right to
vote and the right to convert into Common Shares) of any such Preferred Shares
issued. Thus, the Board could authorize the issuance of Preferred Shares with
terms and conditions which could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the Common Shares
might receive a premium for their Common Shares over the then-prevailing market
price of the Common Shares.
Staggered Board. The Board has three classes of Trust Managers who
serve for three-year terms, with the term of one class expiring in each year. A
Trust Manager may be removed only for cause (as defined in the Charter) and only
by the affirmative vote of the holders of at least two-thirds of the Common
Shares then outstanding and entitled to vote.
Maryland Business Combination Law. Under the Maryland General
Corporation law, as may be amended from time to time (the "MGCL"), certain
"business combinations" (including certain issuances of equity securities)
between a Maryland real estate investment trust such as the Company and any
person who owns 10.0% or more of the voting power of the trust's shares (an
"Interested Shareholder") or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Shareholder became an
Interested Shareholder. Thereafter, any such business combination must be
approved by a super-majority vote unless, among other conditions, the holders of
Common Shares receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Shareholder for its shares.
Possible Environmental Liabilities
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
required to investigate and clean up hazardous or toxic substances or petroleum
products released on, under, in or emitting from such property and may be held
liable to a governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean up responsibility and liability
without regard to whether the owner knew of or caused the presence of the
contaminants, and the liability under such laws has been interpreted to be joint
and several unless the harm is divisible and there is a reasonable basis for an
allocation of responsibility. The cost of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances or
the failure to remediate the contamination properly on such property may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Moreover, certain loan documents provide for
recourse liability in connection with the presence of hazardous or toxic
materials. Persons who arrange for the disposal or treatment of hazardous or
toxic substances at a disposal or treatment facility also may be liable for the
costs of removal or remediation of a release of hazardous or toxic substances at
such disposal or treatment facility, whether or not such facility is owned or
operated by such person. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a
-12-
<PAGE>
site. In connection with its ownership and operation of the Properties or any
properties it acquires in the future, the Company is potentially liable for such
costs.
Federal legislation requires owners and landlords of residential
housing constructed prior to 1978 to disclose to potential residents or
purchasers of the properties any known lead-paint hazards and will impose treble
damages for failure to give the required notice. The existence of lead-based
paint in a property may result in lead poisoning in children residing therein if
chips or particles of lead-based paint are ingested, and the Company may be held
liable under state laws for any injuries caused by ingestion of lead-based paint
by children living at the its apartment properties or any apartment properties
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior
Phase I) or similar environmental assessments by independent environmental
consultants. Phase I assessments are intended to discover information regarding,
and to evaluate the environmental condition of, the surveyed property and
surrounding properties. Phase I assessments generally include a historical
review, a public records review, a preliminary investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations.
Certain environmental laws impose liability for release of
asbestos-containing materials ("ACM's") into the air and third parties may seek
recovery from owners or operators of real properties for personal injury
suffered by reason of ACM's. Because of the ownership and operation of the
Properties, the Company, the Operating Partnership and any partnership holding
an interest in any of the Properties are potentially liable for such costs.
Various environmental laws and regulations also control how certain
activities can or must be conducted at the Properties. Such requirements govern
maintenance activities, renovation projects and other worker operations
involving asbestos or lead-based paint. They also may govern air emissions,
wastewater discharges, waste management or similar activities related to
operation of the Properties. No assurance can be given that the cost of
complying with such requirements in connection with any of the Properties will
not require any material expenditures by the Company in the future.
Under various laws and regulations, owners and operators of underground
and aboveground storage tanks containing petroleum are obligated to meet certain
construction and operating standards. In addition, such tank owners and
operators are responsible for remediating any contamination caused by petroleum
released from such tanks. While currently available information does not
indicate that the Company currently has any material liabilities related to such
tanks, no assurance can be given that the Company will not be required to make
such material expenditures in the future.
The Company's environmental assessments of the Properties have not
revealed any environmental liability that the Company believes would have a
material adverse effect on its business, assets or results of operations taken
as a whole, nor is the Company aware of any such material environmental
liability. Nonetheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. No assurance can be given (i) that
existing environmental studies for the Properties reveal all environmental
liabilities; (ii) that any prior owner thereof or tenant therein or unrelated
third party did not and will not in the future create any environmental
condition with material adverse consequences to the Company; (iii) that future
laws or regulations or changes or new interpretations of existing laws or
regulations will not require any material expenditures by, or create any
environmental liabilities for, the Company in the future or (iv) that past,
current or future operations or conditions associated with land or property in
the vicinity of the Properties, such as the presence of leaking underground
storage tanks, will not have a material adverse effect on the business,
financial condition and results of operations of the Company.
-13-
<PAGE>
Shares Available for Future Sale
Sales of substantial amounts of Common Shares, or the perception that
such sales could occur, could adversely affect the prevailing market price for
the Common Shares. As of the date of this Prospectus, the Company has 8,453,829
Common Shares outstanding. Of these shares, upon effectiveness of the
Registration Statement, 6,666,379 shares will be freely tradable without
restriction and 1,787,450 shares will be held by "affiliates" (as defined in
Rule 144 under the Securities Act) and may be sold subject to the volume, manner
of sale and other restrictions of Rule 144. In the event that any such holder
ceases to be an "affiliate" of the Company, shares held by such holder will
become freely tradable, subject to certain limitations.
The Operating Partnership, in connection with the March Acquisitions,
issued to persons other than the Company an aggregate of 2,114,439 Common Units.
The Company has subsequently issued an aggregate of 894,687 Common Units in
acquisitions of other Properties and will likely issue additional Common Units
in furtherance of the Company's objective of continuing to acquire additional
properties. Common Units may be redeemed for cash based on their fair market
value or, at the Company's option, for Common Shares on a one-for-one basis. In
certain circumstances, the Company may not be able to exercise its option to
satisfy such redemption rights with Common Shares because of tax or securities
law limitations. An exercise of redemption rights in such circumstances could
adversely affect the Operating Partnership's liquidity because it would then be
required to satisfy such rights with cash. Pursuant to contractual arrangements,
holders of the Common Units issued in the acquisitions may not redeem their
Common Units for a period of one year after the closing of the acquisition
transaction in which such holder received such Common Units. The Company has
granted and may in the future grant certain registration rights to the holders
of the Common Units. Thus, an aggregate of 2,114,439 shares may be sold in the
public market after March 14, 1998, assuming the immediate redemptions of all
Common Units for Common Shares at such time and concurrent exercise of such
registration rights. In addition, an aggregate of 1,115,368 Common Shares have
been reserved for issuance pursuant to the Company's 1994 Share Option Plan, the
1996 Share Incentive Plan and other outstanding options and warrants.
No prediction can be made as to the effect, if any, that future sales
of Common Shares, including the Common Shares covered by this Prospectus, or the
availability of such shares for future sale will have on the market price of the
Common Shares.
The Board has the authority, without shareholder approval, to issue
additional Common Shares and other Equity Shares, or to cause the Operating
Partnership to issue additional Common Units or other classes of units of
interest in the Operating Partnership in any manner it deems appropriate,
including in exchange for property. Shareholders of the Company will have no
preemptive right to purchase shares or units issued in any such offerings, and
any such offerings might cause a dilution of the shareholders' investment in the
Company.
Changes in Investment and Financing Policies Without Shareholder Approval
The Board will determine the Company's investment and financing
practices, its growth strategy, and its debt, capitalization, distribution and
operating practices. Although the Board has no present intention to revise or
amend these strategies and practices, the Board may do so at any time without a
vote of the Company's shareholders. Accordingly, the Company's shareholders will
have no control over changes in strategies and practices of the Company, and
such changes may not serve the interests of all the Company's shareholders and
could adversely affect the Company's financial condition or results of
operations.
Risks Involved in Acquisitions Through Partnerships. The Company has
and may in the future invest in apartment properties through partnerships
instead of purchasing apartment properties directly or through wholly-owned
subsidiaries. Partnerships may, under certain circumstances, involve risks not
otherwise present in a direct acquisition of properties. These include the risks
that the Company's partner: (i) might become bankrupt; (ii) might at any time
have economic or business interests or goals which are inconsistent with the
business interests or
-14-
<PAGE>
goals of the Company or (iii) might be in a position to take action contrary to
the instructions or the requests of the Company or contrary to the Company's
practices or objectives. There is no limitation in the Charter as to the amount
of investment the Company may make in partnerships.
Risks Involved in Investments in Securities Related to Real Estate. The
Company has and may in the future pursue its investment objectives through the
ownership of securities or partnership interests of entities engaged in the
ownership of real estate. Ownership of such securities or partnership interests
may not entitle the Company to control the ownership, operation or management of
the underlying real estate. In addition, the Company may have no ability to
control the distributions with respect to such securities, which may adversely
affect the Company's ability to make distributions on the Common Shares.
Furthermore, if the Company desires to control an issuer of securities or
partnership interests, it may be prevented from doing so by the limitations on
percentage ownership and gross income tests which must be satisfied by the
Company in order for the Company to qualify as a REIT. The Company intends to
operate its business in a manner that will not require the Company to register
under the Investment Company Act of 1940 and the Company's shareholders will
therefore not have the protection of that Act.
The Company may also invest in mortgages or mortgage-related securities
and may do so as a strategy for ultimately acquiring the underlying property. In
general, investments in mortgages include the risk that borrowers may not be
able to make debt service payments or pay principal when due, the risk that the
value of the mortgaged property may be less than the principal amount of the
mortgage note securing such property and the risk that interest rates payable on
the mortgages may be lower than the Company's cost of funds to acquire these
mortgages. In any of these events, cash available for distributions and the
Company's ability to make distributions on the Common Shares could be adversely
affected.
Share Price Volatility
The price of the Common Shares may be subject to wide fluctuations in
response to quarterly variations in operating results or announcement of
acquisitions. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which could adversely affect the market
price of the Common Shares. Further, the daily trading volumes of REIT's in
general and the Company's shares in particular may be lower than the trading
volumes of certain other industries. As a result, investors in the Company who
desire to liquidate substantial holdings at a particular time may find that they
are unable to dispose of their shares in the market without causing a
substantial decline in the market value of such shares. Furthermore, due to the
Company's limited trading volume in the past, investors in the Company may not
have an extensive trading history to consider in connection with making
investment decisions.
Uninsured Loss
The Company carries comprehensive liability, fire, flood (where
required) and extended coverage and rental loss insurance on all of the
Properties with policy specifications, limits and deductibles customarily
carried for similar properties. There are, however, certain types of losses
which may be either uninsurable or not economically insurable, such as those
resulting from earthquakes, floods, tidal waves, explosion of water pipes,
nuclear hazards, wars, civil disturbances and environmental matters. Should an
uninsured loss or a loss in excess of insured limits occur, the Company could
lose both its investment in and anticipated profits and cash flow from a
property while it would continue to be obligated on any mortgage indebtedness or
other financial obligations on such property. Any such loss would adversely
affect the Company and its financial condition and results of operations.
Moreover, as the general partner of the Operating Partnership, the Company
generally will be liable for any of the Operating Partnership's unsatisfied
obligations other than non-recourse obligations. Similarly, as the general
partner of other partnerships which hold certain of the Properties, the Company
generally will be liable for any unsatisfied obligations of such partnerships
other than non-recourse obligations.
-15-
<PAGE>
Offer and Sale of Unregistered Securities
In connection with the March 1997 Acquisitions and concurrent private
placement by the Company of Common Shares (together, the "Consolidation
Transactions") the Company offered and sold 3,333,333 Common Shares and the
Operating Partnership issued 2,114,439 Common Units. Upon consummation of
acquisition transactions which occurred after the Consolidation Transactions,
the Operating Partnership issued an additional 894,687 Common Units. The offer
and sale of such Common Shares and such Common Units were not registered under
the Securities Act in reliance upon the exemption from registration under
Section 4(2) of the Securities Act. If it were to be determined that the offer
and sale of the Common Shares and Common Units issued in the Consolidation
Transactions should have been registered under the Securities Act, the holders
of such Common Shares and Common Units could be given the right under federal
securities laws to rescind their investment, or to pursue other claims against
the Company which could adversely affect the financial condition of the Company
or its ability to make expected distributions to its shareholders. Although the
Company believes that the offer of Common Shares and Common Units was exempt
from registration under Section 4(2) of the Securities Act, there can be no
assurance in this regard.
USE OF PROCEEDS
The Common Shares subject to this Prospectus are being offered for the
account of the Selling Shareholders. None of the proceeds from the sale of
Common Shares offered hereby will be received by the Company.
-16-
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of January 23, 1998, (i) the names
of the Selling Shareholders and any position, office or other material
relationship with the Company, its predecessors or affiliates, within the past
three years; (ii) the number of Common Shares currently owned by the Selling
Shareholders; (iii) the maximum number of Common Shares to be offered and sold
by the Selling Shareholders; and (iv) the number of Common Shares to be owned
after the sale assuming the sale of all Common Shares offered hereby. This
information is based on data furnished to the Company by or on behalf of the
Selling Shareholders.
<TABLE>
<CAPTION>
Common Shares
to be Owned
Common Shares Common Shares to be After Sale
Name Currently Owned Offered
- ---------------------------------------------- --------------------- ------------------------- ---------------
<S> <C> <C> <C>
Dr. C.V. Alexander, Jr. 60,732 60,732 0
Bruce and Deborah Seltzer 3,813 3,813 0
Dr. Edward Benjamin 2,942 2,942 0
Robert D. Carl, III 20,809 20,809 0
Jody and Edith Chapnick 37,475 37,475 0
Mr. Keith Cich 7,626 7,626 0
Dr. Steven Cohen 16,288 16,288 0
Wasdale Trust FBO David S. Collins 11,242 11,242 0
Rosset Trust FBO Holiday Collins 11,242 11,242 0
Philip B. Crosby Revocable Trust 7,626 7,626 0
John Dale 3,813 3,813 0
The Gerald Entine 1988 Family Trust 15,253 15,253 0
Mark Epstein 2,235 2,235 0
Dr. Alan S. Friedman 7,626 7,626 0
Holiday Trust FBO Holiday Collins 7,495 7,495 0
David Collins Trustee
Dr. John S. Jaffe 22,222 22,222 0
Dr. Terry A. Johnston 3,490 3,490 0
Lion Castle Trust FBO Jennifer Collins, 7,495 7,495 0
David Collins Trustee
Andrew L. Nichols 7,626 7,626 0
Dr. Marc R. Peck 3,468 3,468 0
Donald E. Procknow 2,777 2,777 0
Larry and Nancy Roth 7,626 7,626 0
Judith K. Seltzer 10,404 10,404 0
Dr. Alan Simpson 3,468 3,468 0
Mr. Charles Smith 7,626 7,626 0
Robert and Mary Soleau 3,813 3,813 0
Dr. Charles S. Walkoff 15,253 15,253 0
Ronald Altman 16,666 16,666 0
Henry W. Berinstein 5,555 5,555 0
Ronney A. Berinstein 13,900 13,900 0
Bendor Management LTD 8,335 8,335 0
Ann N. Berinstein 5,000 5,000 0
Estate of Benjamin M. Berinstein - Trust 1,115 1,115 0
"A", William P. Berinstein, Trustee
ANB Enterprises Corporation 2,800 2,800 0
-17-
<PAGE>
Common Shares
to be Owned
Common Shares Common Shares to be After Sale
Name Currently Owned Offered
- ---------------------------------------------- --------------------- ------------------------- ---------------
Martin Bernstein 20,000 20,000 0
Rory A, Brown 188,888 188,888 0
William J. Connors 20,000 20,000 0
Dr. Karen Cooper 5,555 5,555 0
Arthur S. DeMoss Foundation 188,888 188,888 0
Millenium USA, L.P. 188,888 188,888 0
Englander Specialist Corp. 111,111 111,111 0
Terry Feeney 1,111 1,111 0
Norman M. Feinberg 22,222 22,222 0
N. Scott and Cathy M. Fine JT/WROS 27,777 (a) 27,777 (a) 0
William A. and Susan Stafford Jolly 27,777 27,777 0
JT/WROS
Richard S. Frary 11,111 11,111 0
GT Special Situations, L.P. 166,666 166,666 0
Brett Hildebrand 22,222 22,222 0
Richard B. Jennings 22,222 22,222 0
LKCM Investment Partnership 111,111 111,111 0
James D. Lackie 11,111 11,111 0
Taylor M. and Margaret C. Lackie Trust 11,111 11,111 0
William M. Vaughan, Jr. Trustee
Carol Lamberg 11,111 11,111 0
Arthur W. Langel 22,222 22,222 0
Jodie E. Langel 2,777 2,777 0
David M. McGrath 11,111 11,111 0
Benjamin W. and Kelly K. Navarro 35,555 35,555 0
Ralph B. Paterline 5,555 5,555 0
Dennis B. Poster 15,698 15,698 0
Joan Poster 11,111 11,111 0
Meredith Poster 5,555 5,555 0
Cynthia Poster 5,555 5,555 0
The Trust U/W/O Dora Aronson, FBO Audrey 5,555 5,555 0
Aronson, Dennis B. Poster, Trustee
Aronson Family Trust 11,111 11,111 0
D.J. Nordquist 5,555 5,555 0
Matthew W. Quigley 15,000 15,000 0
Victor P. Serodino 11,111 11,111 0
Elizabeth Shuldiner Revocable Trust 5,600 5,600 0
UA 3/20/90
Kenneth W. Slutsky 22,000 22,000 0
Mary Kim McMillan 16,000 16,000 0
National Fire and Casualty 22,000 22,000 0
Ashmont Insurance Co., LTD 44,000 44,000 0
Frank L. Flautt, Jr. Equity 22,000 22,000 0
Flautt Family Foundation, Inc. 11,000 11,000 0
Kyhler Investments L.P. 1994 11,000 11,000 0
Kyhler Investments 85-I 16,000 16,000 0
Cliffwood Equity Fund, L.P. 75,000 75,000 0
Cliffwood Real Estate Equity Fund LTD 91,800 91,800 0
-18-
<PAGE>
Common Shares
to be Owned
Common Shares Common Shares to be After Sale
Name Currently Owned Offered
- ---------------------------------------------- --------------------- ------------------------- ---------------
Frank Varallo 8,333 8,333 0
Babette B. Weksler 11,111 11,111 0
Stuzin Family Partnership, Ltd. 50,000 50,000 0
Charles B. Stuzin, Declaration of Trust 33,335 33,335 0
Stuzin Associates, Ltd. 16,665 16,665 0
L.A. & C. Limited Partnership 11,110 11,110 0
Oregon Investment Council Acting on 478,392 391,392 87,000
Behalf of Oregon Public Employees'
Retirement Fund Under Authority
Of Oregon Revised Statutes Section
293.741 By Its Agent ABKB/LaSalle
Securities Limited
Stichting Pensionenfonds ABP 230,986 197,121 33,865
Stichting Bedrijfspensionenfonds voor de 11,869 10,000 1,869
Metaalinjverheid
Morgan Stanley & Co. 83,082 70,707 12,375
Atwell 587,051 499,950 87,101
</TABLE>
- -----------------
(a) Such shares have been transferred to Prudential Securities Incorporated
("Prudential") to hold for the account of N. Scott and Cathy M. Fine, as
joint tenants with the right of survivorship pursuant to the terms of
Prudential's standard form of margin account. Accordingly such shares may
be sold pursuant to this Registration Statement by Prudential to satisfy a
margin requirement or to reduce the margin debt.
-19-
<PAGE>
PLAN OF DISTRIBUTION
The Common Shares offered hereby were issued by the Company to the
Selling Shareholders, or to predecessors in interest to the Selling
Shareholders, in transactions which were exempt from the registration
requirements of the Securities Act, and the Registration Statement has been
filed pursuant to a Registration Rights Agreement with the Selling Shareholders,
or such predecessors in interest, dated March 14, 1997.
The Common Shares offered hereby may be offered for sale and sold from
time to time by the Selling Shareholders, or by pledgees, donees or other
successors in interest to the extent such sales are permitted by use of this
Prospectus, within three years after the effective date of the Registration
Statement of which this Prospectus is a part or, if shorter, the holding period
under Rule 144(k) promulgated under the Securities Act for persons who are not
"affiliates" (as defined in Rule 144(a) under the Securities Act) of the
Company. The Selling Shareholders, or such pledgees, donees or other successors
in interest, will act independently of the Company in making decisions with
respect to the timing, manner and size of each sale. Such sales may be made on
the American Stock Exchange or otherwise, at prevailing prices and on terms then
prevailing or at prices related to the then market price, or in negotiated
transactions. As used hereafter in "Plan of Distribution," Selling Shareholders"
refers collectively to the Selling Shareholders and such pledgees, donees and
other successors in interest.
The manner in which the Common Shares may be sold include, without
limitation, the following: (a) block trades in which the broker-dealer(s)
engaged by any of the Selling Shareholders will attempt to sell Common Shares as
agent but may position or resell a portion of the block as principal to
facilitate the transaction; (b) purchases by the broker-dealer(s) as principals
and resale by such broker-dealer(s) for their account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (d) in negotiated transactions; and (e) as otherwise
determined by any of the Selling Shareholders. In effecting sales,
broker-dealers engaged by any of the Selling Shareholders may arrange for other
broker-dealers to participate.
In order to comply with the securities laws of certain states, if
applicable, the Common Shares offered hereby may be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states the Common Shares offered hereby may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with
by the Company and the Selling Shareholders.
The Selling Shareholders and any brokers, dealers, agents or
underwriters who participate in the sale of the Common Shares offered hereby may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and the commissions paid or discounts allowed to any such
brokers, dealers, agents or underwriters, in addition to any profits received on
resale of the Common Shares offered hereby, if any such broker, dealer or agent
should purchase any Common Shares offered hereby as a principal, may be deemed
to be underwriting discounts or commissions under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Common Shares may not simultaneously
engage in market making activities with respect to the Common Shares of the
Company for a period of one business day prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Shareholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of purchases and sales of Common Shares
by the Selling Shareholders.
The Company will not receive any part of the proceeds from the sale of
the Common Shares offered hereby. The Selling Shareholders will pay all
applicable brokerage commissions, stock transfer taxes and the fees of Selling
Shareholders' counsel in connection with the offer and sale of the Common Shares
offered hereby by the Selling Shareholders. The Company will bear all other
expenses in connection with the offering and sale of the Common Shares offered
hereby, including, without limitation, all registration and filing fees,
printing, messenger
-20-
<PAGE>
and delivery fees, and legal and accounting fees and expenses. The Company is
not obligated to bear and will not bear any underwriting discounts or
commissions relating to the use by the Selling Shareholders of an underwriter in
connection with the disposition of Common Shares offered hereby.
There can be no assurances that the Selling Shareholders will sell any
or all of the Common Shares offered hereby. The Common Shares offered hereby
also may be sold pursuant to an available exemption from the registration
requirements of the Securities Act, including, without limitation, Rule 144
promulgated thereunder. The sale of Common Shares by "affiliates" (as defined in
Rule 144(a) under the Securities Act) are subject to the volume and manner of
sale restrictions set forth in Rule 144.
LEGAL OPINION
Certain legal matters with respect to the Registration Statement have
been passed upon for the Company by Cummings & Lockwood, Stamford, Connecticut
06904-0120. The validity of the Common Shares offered hereby has been passed
upon for the Company by Piper & Marbury L.L.P., Baltimore, Maryland 21201-0489.
EXPERTS
The audited combined financial statements of Grove Property Services
Limited Partnership and Property Partnerships at December 31, 1996, and for each
of the two years in the period ended December 31, 1996, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The (i) audited financial statements of Grove Property Trust at
December 31, 1996 and for each of the two years in the period ended December 31,
1996, appearing in Grove Property Trust's Annual Report on Form 10-KSB for the
year ended December 31, 1996, as amended, and the report thereon dated September
2, 1997 included therein and (ii) the statements of revenues and certain
expenses of the: (a) Four Winds Apartments for the period September 28, 1995 to
December 31, 1995 and for the year ended December 31, 1996, (b) Brooksyde
Apartments for the periods January 1, 1995 to September 30, 1995, October 1,
1995 to December 31, 1995 and the year ended December 31, 1996, (c) Rivers Bend
Apartments for the years ended December 31, 1995 and 1996, (d) Greenfield
Village Apartments for the years ended December 31, 1995 and 1996, (e) September
1997 Property Acquisitions for the years ended December 31, 1995 and 1996, (f)
October 1997 Property/Acquisitions-Affiliates for the years ended December 31,
1995 and 1996 and (g) October 1997 Property Acquisition-Non-affiliate for the
year ended December 31, 1996, appearing in Grove Property Trust's Current
Reports on Form 8-K dated May 30, 1997, July 2, 1997, September 30, 1997 and
October 31, 1997, all as amended, and the reports thereon included therein, all
as incorporated by reference herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon dated May 22, 1997,
July 1, 1997, May 22, 1997, July 1, 1997, September 2, 1997, September 2, 1997
and October 3, 1997, respectively, included therein, and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
-21-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Pages
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
Combined Financial Statements:
Report of Independent Auditors.....................................F-2
Combined Balance Sheet as of December 31, 1996.....................F-3
Combined Statements of Income for the Years Ended
December 31, 1996 and 1995....................................F-4
Combined Statements of Changes in Owners' Equity
for the Years Ended December 31, 1996 and 1995................F-5
Combined Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995..............................F-6
Notes to the Combined Financial Statements.........................F-7
F-1
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying combined balance sheet of Grove Property
Services Limited Partnership and Property Partnerships as of December 31, 1996,
and the related combined statements of income, owners' equity and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Grove Property
Services Limited Partnership and Property Partnerships at December 31, 1996, and
the combined results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 2, 1997
F-2
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED BALANCE SHEET
December 31, 1996
(In thousands)
ASSETS
Real estate assets, at cost:
Land $ 7,718
Buildings and improvements 66,933
Furniture, fixtures and equipment 4,182
-----------------
77,833
Less accumulated depreciation 24,209
-----------------
Net real estate assets 54,624
Cash and cash equivalents 1,702
Restricted cash__resident security deposits 679
Due from related parties 931
Due from partners 922
Deferred costs, net of accumulated amortization of $1,585 807
Other assets 201
=================
Total Assets $ 59,866
=================
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable $ 48,643
Accounts payable and other liabilities 853
Due to related parties 1,896
Resident security deposits 679
-----------------
Total liabilities 52,071
Commitments and Contingencies --
Owners' equity 7,795
=================
Total liabilities and owners' equity $ 59,866
=================
See accompanying notes.
F-3
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENT OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------------
1996 1995*
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $ 12,906 $ 11,965
Property management 777 815
Interest and other 1,138 1,103
------------------ ------------------
Total revenues 14,821 13,883
------------------ ------------------
Expenses:
Allocated payroll 2,493 2,358
Real estate taxes 1,299 1,234
Other property operating 3,212 2,918
General and administrative 279 261
------------------ ------------------
Total expenses 7,283 6,771
------------------ ------------------
Net operating income 7,538 7,112
Interest expense 3,856 3,829
Depreciation and amortization 3,055 3,140
------------------ ------------------
Income before extraordinary item 627 143
Extraordinary item - gain on debt restructuring -- 2,186
------------------
==================
Net income $ 627 $ 2,329
================== ==================
</TABLE>
*Certain amounts have been reclassified for comparative purposes.
See accompanying notes.
F-4
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
Years Ended December 31, 1996 and 1995
(In thousands)
Owner's Equity, January 1, 1995 $ 10,946
Capital Contributions 2
Distributions (1,018)
Net Income 2,329
-----------------
Owners' equity, December 31, 1995 12,259
Capital contributions 925
Distributions (6,016)
Net income 627
-----------------
Owners' equity, December 31, 1996 $ 7,795
=================
See accompanying notes.
F-5
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
COMBINED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------
1996 1995*
-------------- -------------
<S> <C> <C>
Operating activities
Net income $ 627 $ 2,329
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,055 3,140
Gain on debt restructuring -- (2,186)
Gain on sales of condominiums (210) --
(Increase) in assets:
Other assets (16) (25)
(Decrease) Increase in liabilities:
Accounts payable and other liabilities (224) 59
-------------- -------------
Net cash provided by operating activities 3,232 3,317
-------------- -------------
Investing activities
Purchase of real estate assets (1,544) (3,004)
Proceeds from sale of condominiums 443 --
Payment for deferred costs (43) (415)
-------------- -------------
Net cash (used in) investing activities (1,144) (3,419)
-------------- -------------
Financing activities
Repayment of mortgage notes (784) (7,655)
Proceeds from mortgage notes 2,641 7,800
Due from related parties, net 1,210 (502)
Payment for financing costs (184) (256)
Due from partners (598) 750
Due to NAVAB 252 1,171
Distributions to owners (6,016) (1,018)
Capital contributions 925 2
-------------- -------------
Net cash (used in) provided by financing activities (2,554) 292
-------------- -------------
Net (decrease) increase in cash and cash equivalents (466) 190
Cash and cash equivalents, beginning of year 2,168 1,978
-------------- -------------
Cash and cash equivalents, end of year $ 1,702 $ 2,168
============== =============
Supplemental information
Cash paid during the year for interest $ 3,816 $ 3,883
============== =============
</TABLE>
* Certain amounts have been reclassified for comparative purposes.
See accompanying notes.
F-6
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation
Grove Property Services Limited Partnership and Property Partnerships (the
"Group") combined financial statements include the accounts of various
partnerships and is not a separate legal entity. "Property Partnerships" are a
combination of affiliated entities that have ownership interests principally in
multifamily communities in the Connecticut, Massachusetts and Rhode Island
areas. The accounts are presented on a combined basis because all of the
communities are managed by Grove Property Services Limited Partnership ("GPS")
whose general partners have a controlling interest in each of the communities
and because these communities were the subject of a business combination in
connection with the formation of an umbrella REIT (the "Company") effective on
March 14, 1997. Each of the communities was subsequently acquired Grove
Operating, L.P. (the "Operating Partnership"), which is owned, in part, by the
Company. The Company qualifies as a real estate investment trust under the
Internal Revenue Code of 1986, as amended.
The business combination was structured so that the former partners received
cash, units in the Operating Partnership, or a combination thereof. The Company
is the sole general partner of the Operating Partnership.
F-7
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation (continued)
In addition to GPS and Grove Longmeadow Associates (a neighborhood shopping
center) the following residential communities have been included in the combined
financial statements:
Number of
Limited Partnership Name Existing Community Name Apartments
Avonplace Associates Avonplace 146
Burgundy Associates Burgundy Studios 102
Grove-Ellington Associates Arbor Commons 28
Grove-Enfield Associates Fox Hill Apartments 168
Grove-Manchester Associates 208-210 Main Street Apartments 28
Grove-Newington Associates Woodbridge Apartments 73
Grove Opportunity Fund II Dean Estates II 58
Royale Apartments 76
Talcott Forest* 19
Grove-Plainville Associates Colonial Village Apartments 104
Grove Properties III Bradford Commons 64
Loomis Manor 43
Grove Taunton Associates Dean Estates 48
Grove-Vernon Associates Fox Hill Commons 74
Grove-West Hartford Associates Park Place West 63
Grove-West Springfield Associates Van Deene Manor 109
Grove-Westfield Associates Security Manor 63
Grove-Westwynd Associates Westwynd Apartments 46
Shoreline London Associates Ocean Reef 163
Nautilus Properties Sandalwood** 39
* Talcott Forest is included in the accompanying combined financial
statements as it is part of a legal entity combined herewith. However, this
property was not included in the Consolidation Transactions.
** Available for lease August 1996.
All significant intercompany accounts and transactions have been eliminated in
combination
F-8
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
Depreciation of Real Estate Assets
Ordinary repairs and maintenance are expensed as incurred; major replacements
and betterments are capitalized and depreciated over their estimated useful
lives. Depreciation of real estate is computed principally on a straight-line
basis over the expected useful lives of depreciable property, which ranges from
15 to 39 years for buildings, improvements and land improvements and 5 to 7
years for furnishings and equipment.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 had no effect on the accompanying financial statements.
Revenue Recognition
Rental income attributable to leases is recognized on a straight-line basis over
the term of the leases. Residential leases are generally for periods of one
year. Commercial leases are generally for periods of 5 to 10 years. The Company
generally requires tenants to provide a cash security deposit equal to one
month's rent. Such amounts are deposited into a restricted bank account and the
Company records an offsetting liability.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid financial instruments with
maturities of three months or less from the date of purchase.
Deferred Costs
Deferred costs consist of organization costs and costs incurred in obtaining
long-term financing. Deferred financing costs are amortized over the term of the
related mortgage loan obligation. Organization costs are amortized over 5 years.
F-9
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Group is owned by various partnerships whose partners are required to
include their respective share of profits and losses in their individual income
tax returns. Accordingly, no federal or state income taxes have been provided in
the accompanying combined financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Due To and From Related Parties
Certain properties managed by GPS are not included in the Group. Due to/from
related parties represent costs paid by the Group on behalf of these properties,
property expense and other advances from the Group to those properties, and
management fees owed to the Group by those properties. An affiliate of the
Group, NAVAB, periodically loans funds to the partnerships under its line of
credit. These loans generally bear interest at 2.5% above the prime rate.
Interest due NAVAB was approximately $145,000 and $116,000 for the years ended
December 31, 1996 and 1995, respectively.
4. Mortgage Notes Payable
The Group's mortgage notes at December 31, 1996 consisted of the following (in
thousands):
Mortgage notes payable at fixed interest rates
ranging from 7.09% to 8.00%, payable in
varying amounts through December 2003 $ 12,362
Mortgage notes payable with floating interest
rates (7.0% to 9.27% at December 31, 1996),
payable in varying amounts through November 2005 36,281
==================
$ 48,643
==================
Each of the mortgage notes was collateralized by a first mortgage on separate
communities. Certain loans were guaranteed in whole or part by individuals
affiliated with the Group. Such guarantees aggregated approximately $31 million
at December 31, 1996.
F-10
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
4. Mortgage Notes Payable (continued)
Annual principal maturities as of December 31, 1996 were as follows (in
thousands):
1997 $ 890
1998 970
1999 9,478
2000 21,746
2001 4,589
Thereafter 10,970
----------------
Total $ 48,643
================
As part of the Consolidation Transactions, certain of these mortgage notes
payable were retired early or refinanced.
5. Related Party Transactions
GPS performs management services for certain communities not included in the
Group. Management fees received from these communities were approximately
$777,000 and $891,000 for the years ended December 31, 1996 and 1995,
respectively.
The Group leases office space from an affiliate at $4,150 per month.
6. Fair Value of Financial Instruments
The following disclosures of estimated fair value were determined by management
using available market information and appropriate valuation methodologies.
Judgment is necessary to interpret market data and develop estimated fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Group could realize on disposition of the financial instruments.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
Cash equivalents, accounts receivable, accounts payable and other accruals
because of their short-term nature approximate fair value. Mortgage notes are
carried at amounts that approximate their fair values. Fair values of mortgage
notes were estimated using discounted cash flow analyses, based on interest
rates currently available to the Group for issuance of debt with similar terms
and remaining maturities.
F-11
<PAGE>
GROVE PROPERTY SERVICES LIMITED PARTNERSHIP AND PROPERTY PARTNERSHIPS
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
7. Commercial Leases
Future minimum annual lease payments to be received on noncancelable commercial
operating leases with terms greater than one year consist of the following at
December 31, 1996 (in thousands):
1997 $ 989
1998 882
1999 830
2000 697
2001 591
Thereafter 1,983
----------------
Total $ 5,972
================
Residential leases are generally for a term of one year and are not included
above. The commercial leases generally contain provisions for increases in rent
tied to various indices, increases in operating costs and/or a percentage of the
tenants' sales in excess of a specified base amount. Such additional rents are
included in rental income on the accompanying combined statement of income and
are not material.
F-12
<PAGE>
