UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file No. 1-13080
GROVE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 06-1391084
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
598 Asylum Avenue, Hartford, Connecticut 06105
(Address of Principal Executive Offices) (Zip Code)
(860) 246-1126
(Issuers Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class: Name of Each Exchange on Which Registered:
Common Shares of Beneficial Interest, American Stock Exchange
$.01 par value
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceeding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
The number of Common Shares of Beneficial Interest outstanding as of
May 14, 1998 was 8,453,829.
<PAGE>
GROVE PROPERTY TRUST
Form 10-Q
Index
- --------------------------------------------------------------------------------
Page
Part I: Financial Information 3
Item 1:
Consolidated Financial Statements (unaudited) 3
Consolidated Balance Sheets of as of March 31, 1998 and December 31, 1997 3
Consolidated Income Statements for the three months ended March 31, 1998
and 1997 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2:
Managements Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3:
Quantitative and Qualitative Disclosure About Market Risk 17
Part II:Other Information 17
Item 6:Exhibits and Reports on Form 8-K 17
Signatures 19
Exhibit Index 20
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited) (Audited)
(in thousands)
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 22,521 $ 21,403
Buildings and improvements 132,471 125,412
Furniture, fixtures and equipment 1,150 952
---------------------- ---------------------
156,142 147,767
Less accumulated depreciation (4,818) (3,674)
---------------------- ---------------------
Net real estate assets 151,324 144,093
Cash and cash equivalents 1,509 1,466
Due from affiliates 546 620
Deferred charges, net of accumulated amortization
of $162 and $127, respectively 825 849
Other assets 1,749 1,122
--------------------- ---------------------
Total assets $ 155,953 $ 148,150
====================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 33,405 $ 33,457
Revolving credit facility 23,000 15,601
Other liabilities 1,893 1,387
Distributions payable 1,948 1,436
Security deposits 1,963 2,026
Due to affiliates 94 49
---------------------- ---------------------
Total liabilities 62,303 53,956
Minority interests in consolidated partnerships 1,133 1,357
Minority interest in Operating Partnership 24,250 24,339
Shareholders' equity:
Preferred shares, $.01 par value per share,
1,000 shares authorized; no shares
issued or outstanding
Common shares, $.01 par value per share,
13,999,000 shares authorized; 8,453,829 shares
issued and outstanding 84 84
Additional paid-in capital 68,995 68,976
Distributions in excess of earnings (812) (562)
------------------ ----------------------
Total shareholders' equity 68,267 68,498
------------------ ----------------------
Total liabilities and shareholders' equity $ 155,953 $ 148,150
====================== =====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31,
------------------------------------
1998 1997
---- ----
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Rental income $ 7,441 $ 1,177
Property management affiliates 94 45
Other income 38 60
Interest income 15 24
------------------- ------------------
Total revenues 7,588 1,306
------------------- ------------------
Expenses:
Property operating and maintenance 2,647 556
Real estate taxes 779 116
Related party management fees 22
Interest expense 1,002 173
General and administrative 355 69
Depreciation and amortization 1,179 240
------------------- ------------------
Total expenses 5,962 1,176
------------------- ------------------
Income before minority interest 1,626 130
Minority interests in consolidated partnerships 17 3
Minority interest in operating partnership 422 30
------------------- ------------------
Net income $1,187 $ 97
=================== ==================
Net income per share - basic $0.14 $0.08
=================== ==================
Net income per share - assuming dilution $0.14 $0.08
=================== ==================
Weighted average number of common shares outstanding-basic 8,454 1,250
Effect of warrants and stock options 29
=================== ==================
Weighted average number of shares outstanding-assuming dilution 8,483 1,250
=================== ==================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
-------------------------------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Operating Activities:
Net income $ 1,187 $ 97
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 1,179 240
Minority interests 439 33
Non-cash compensation expense 30 30
Change in other assets (635) (216)
Change in accounts payable, accrued expenses and other
liabilities 442 765
------------------ --------------------
Net cash provided by operating activities 2,642 949
------------------ --------------------
Investing activities:
Purchase of partnership interests (214)
Cash acquired on purchase of partnership interests 2,214
Additions to real estate assets (8,375) (20)
------------------ --------------------
Net cash (used in) provided by investing activities (8,589) 2,194
------------------ --------------------
Financing activities:
Net proceeds from mortgage payable 7,399 15,084
Financing costs (648)
Proceeds from sale of common stock 30,000
Equity offering costs (11) (2,458)
Repayment of mortgage payable (52) (39,657)
Repayments from (loans to) affiliates 70 (762)
Borrowings from affiliates 45
Dividends and distributions paid (1,461) (217)
------------------ --------------------
Net cash provided by financing activities 5,990 1,342
------------------ --------------------
Net change in cash and cash equivalents 43 4,485
Cash and cash equivalents, beginning of period 1,466 381
------------------ --------------------
Cash and cash equivalents, end of period $ 1,509 $ 4,866
================== ====================
Supplemental Information:
Cash paid for interest $ 1,004 $ 134
Mortgage notes payable assumed through property acquisitions $ 48,048
Net rental properties contributed in exchange for OP Units $ 11,207
Excess of liabilities over assets assumed on acquisition of
partnership interests $ 912
See notes to consolidated financial statements.
</TABLE>
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. FORMATION AND DESCRIPTION OF THE COMPANY
Grove Property Trust (the "Company") was organized in the State of Maryland on
April 4, 1994 as a Real Estate Investment Trust ("REIT"). The Company currently
operates thirty-seven residential communities and four retail properties. The
residential communities are generally mid-priced multi-family communities that
are primarily located in the southern New England area.
2. ACQUISITIONS AND CONSOLIDATION TRANSACTIONS
On March 14, 1997, the Company completed a series of transactions (the
"Consolidation Transactions") that included the following:
The Company formed an operating partnership (the "Operating
Partnership" or the "OP") to serve as the vehicle for the consolidation of
ownership and control of the Company's operations and assets.
Pursuant to an exchange offer, the Operating Partnership purchased from
non-affiliated limited partners substantially all of the outstanding partnership
interests of twenty additional properties, including one retail property
("Property Partnerships") in exchange for 1,205,324 partnership units (the
"Common Units" or "OP Units") of the Operating Partnership, or, in certain
circumstances, cash. Common Units are generally exchangeable for the Company's
Common Shares on a one-for-one basis.
Immediately prior to the consummation of the Consolidation
Transactions, the Company declared a stock dividend aggregating 26,250
Common Shares and concurrently effected a stock split of 1.125 to 1
(collectively the "Stock Split"), thereby issuing on a pro rata basis a
total of 95,102 additional Common Shares to the holders of the issued and
outstanding Common Shares just prior to the Consolidation Transactions. All
amounts based onoutstanding Common Shares were retroactively adjusted to
reflect the Stock Split.
The Company issued 3,333,333 Common Shares to new equity investors
(the "New Equity Investment") in exchange for $30.0 million (approximately
$27.5 million after costs of issuance).
Pursuant to a contribution agreement among the Company, certain
companies and individuals affiliated with the Company (the "Grove
Companies") and the Operating Partnership, substantially all of the assets
and operations, the management services division of Grove Property Services
Limited Partnership and the Grove Companies' interests in the Property
Partnerships were also transferred to the Operating Partnership.
In exchange for the above, the Grove Companies received an aggregate
of 909,115 Common Units in the Operating Partnership and a cash payment of
$178,000 from the Company, and the Company received 620,102 Common Units in
the Operating Partnership. Additionally, the Company contributed to the
Operating Partnership the net proceeds received from the aforementioned new
equity investment in exchange for 3,333,333 additional Common Units.
In connection with the Consolidation Transactions, the Operating
Partnership entered into a three-year secured revolving acquisition and
working capital credit facility of up to $25.0 million (the "original
Revolving Credit Facility") and a $15.1 million ten-year term mortgage loan
(the "Mortgage Loan").
On June 1, 1997, the Company acquired two related party residential
apartment complexes (Four Winds and Brooksyde) In addition, the Company
acquired an interest in Windsor Arbor Limited Partnership, the owner of
River's Bend Apartments ("Windsor Arbor").
<PAGE>
Upon consummation of the June 1, 1997 transactions, the Operating
Partnership issued an aggregate of 420,183 Common Units valued at $10 per
unit. The Company also assumed mortgage debt on Four Winds and Brooksyde in
the aggregate remaining principal amount of $6.2 million. To complete these
transactions, the Company borrowed $1.8 million under its Revolving Credit
Facility.
On July 2, 1997, the Company acquired certain condominium units
representing a portion of the condominium units in the Greenfield Village
complex located in Rocky Hill, Connecticut from an unrelated party. The
Company paid approximately $4.3 million, with proceeds from the Revolving
Credit Facility, in the aggregate, for these units.
On September 1, 1997, the Company acquired two additional properties
from related parties. Heritage Court in Glastonbury, Connecticut and
Summit/Birch Hill in Farmington, Connecticut. The Operating Partnership
issued 325,836 Common Units, assumed $9.8 million in debt and drew down
$750,000 against its Revolving Credit Facility to acquire these properties.
On September 30, 1997, the Company acquired the remaining limited
partnership interests in Windsor Arbor for $4.9 million.
On October 31, 1997, the Company purchased an apartment complex from
an unrelated party in Ellington, Connecticut (High Meadow). The $4.2
million purchase price was paid utilizing borrowings under the Revolving
Credit Facility.
In addition, on October 31, 1997, the Company acquired two retail
properties from related parties. These acquisitions, Cornerblock and the
Wharf Building, are specialty retail properties located in Edgartown,
Massachusetts. Upon consummation of the Cornerblock and Wharf Building
transactions, the Operating Partnership issued an aggregate of 143,334
Common Units valued at $10.50 each. To complete these transactions, the
Company borrowed approximately $7.0 million under its Revolving Credit
Facility.
In November 1997, the Company completed the sale of 4,500,000 Common
Shares ("the November Offering"). The net proceeds from the sale after
underwriting discounts and other costs was approximately $45.2 million. The
Company used the proceeds to pay off its Revolving Credit Facility and
certain mortgage notes payable (see notes 5 and 6) and for working capital
purposes.
On December 1, 1997, the Company acquired an apartment complex from an
unrelated party in Ellington, Connecticut "Pinney Brook") for
approximately $950,000 million. The purchase price was paid from working
capital.
On December 31, 1997, the Company acquired four communities from
unrelated parties for approximately $20.0 million. The individual
communities are Briar Knoll, Ribbon Mill, Hilltop and Village Arms and are
located respectively in Manchester, Vernon and Norwich, Connecticut and
Acton, Massachusetts. The purchase price was paid utilizing borrowings
under the Revolving Credit Facility and cash on hand.
On January 23, 1998, the Company purchased an apartment complex,
Tanglewood Apartments, located in West Warwick, Rhode Island from an
unrelated party through the OP. The purchase price of approximately $7.0
million was paid utilizing borrowings under the Revolving Credit Facility.
On April 1, 1998 the Company purchased a specialty retail property in
Freeport, Maine and an apartment community in Agawam, Massachusetts. The
retail property includes a 25,000 square foot complex and was purchased for
approximately $7.2 million. The apartment community includes 88 units and
was purchased from an affiliate of the Company for approximately $3.3
million. These acquisitions were financed through the assumption of a $3.9
first mortgage on the retail property, issuance of 5,814 common units, and
utilizing borrowings under the original Revolving Credit Facility.
The Company intends to continue to operate all of its multi-family
communities and retail commercial properties as rental properties.
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are presented on a consolidated basis.
Included in the Company's financial statements are the accounts of the
Operating Partnership and various property partnerships. Properties are
owned either directly by the Operating Partnership, or are owned by various
limited partnerships or limited liability companies, that in turn are
substantially (89% to 100%) or wholly owned by the Operating Partnership.
All significant intercompany transactions are eliminated in consolidation.
The accompanying interim financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and in conjunction with the
rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the interim financial statements presented herein
reflect all adjustments of a normal and recurring nature which are
necessary to fairly state the interim financial statements. The results of
operations for the interim period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998. These financial statements should be read in conjunction with the
Company's audited financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1997. Certain amounts have been reclassified in the 1997 financial
statements in order to conform with the 1998 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 the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments from
financial institutions with an original maturity of three months or less at
the time of purchase to be cash equivalents. The combined account balances
at each financial institution periodically exceed the Federal Depository
Insurance Corporation ("FDIC") insurance coverages and, as a result, there
is a concentration of credit risk related to amounts on deposit in excess
of FDIC insurance coverage. The Company believes that the risk is not
significant since its banking is with major financial institutions.
Real Estate Asset Capitalization and Depreciation
Interests owned by certain principals of affiliated entities and
contributed to the Operating Partnership as part of the Consolidation
Transactions were recorded at their historical cost due to the controlling
relationship between the Company and the principals of the entities
previously owning and operating the Properties. The value of interests
contributed by non-principals was recorded based upon the fair market value
of their interests. Subsequent acquisitions were recorded in accordance
with the purchase method of accounting.
Expenditures for long-lived replacement-type items in stabilized
properties' such as appliances and floor coverings, are capitalized.
Furthermore, expenditures for non-recurring items under $1,000 and for
normal tenant turnover expenses (such as cleaning and painting) and repairs
and maintenance are expensed as incurred. With respect to re-development
properties, the Company generally capitalizes all re-development related
costs incurred throughout the redevelopment stage.
Depreciation is provided for building and land improvements and
buildings using the straight-line method over the estimated useful lives of
the assets (10 to 30 years). Additionally, furniture, fixtures and
equipment are depreciated using an accelerated method over the estimated
useful lives of the assets (5 to 7 years).
<PAGE>
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
" (FAS No. 121), requires long-lived assets to be reviewed for impairment
when events or circumstances indicate that an impairment might exist. When
an impairment indicator is present, assets must be grouped at the lowest
level for which there are identifiable cash flows. If the sum of the
undiscounted cash flows is less than the carrying amounts of the assets, an
impairment loss must be recorded. The impairment loss is measured by
comparing the fair value of the assets with their carrying amount. To date,
no losses have been recognized and management believes that no impairment
conditions exist.
Per Share Data
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share (Statement 128). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes the dilutive effects of options and warrants
(see Note 6). Earnings per share - assuming dilution is very similar to
fully diluted earnings per share. All earnings per share amounts for all
periods have been presented and restated to conform to Statement 128.
Income per common share information is based on the weighted average
number of Common Shares outstanding during each period. On February 10,
1997, the Board of Trust Managers of the Company declared a stock dividend
aggregating 26,250 Common Shares and the concurrent effectuation of a
1.125-for-one common stock split. All shares outstanding and per share
amounts have been restated to reflect these changes in capital structure.
Stock-Based Compensation
The Company has adopted Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation." This statement defines a fair
value based method of accounting for employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost
for those plans in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB No.
25, compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date over the amount the employee must pay to
acquire the stock. The Company has elected to continue to account for its
employee stock compensation plans under APB No. 25. (See Note 6).
Advertising
The Company expenses advertising costs as incurred. Advertising costs
were $106,354 and $14,276 in the three months ended March 31, 1998, and
1997, respectively.
Deferred Charges
Deferred charges, consisting principally of loan costs, are amortized
on a straight line basis over the term of the related obligation. When term
loans are retired prior to maturity, the unamortized deferred loan costs
are written-off and reported as an extraordinary item.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants
and recognized monthly as it is earned, which is not materially different
than the straight-line basis. The Company generally requires tenants to
provide a cash security deposit equal to one month's rent or pay the last
month's rent in advance. Such payments are deferred and are included in
security deposits on the accompanying consolidated balance sheets.
<PAGE>
4. MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at March 31,1998 (in
thousands):
Amortizing first mortgage notes $14,321
Interest only first mortgage notes 19,084
------
$33,405
=======
The amortizing first mortgage notes have fixed interest rates between
7.04% and 8.33%. These notes mature between the years 2000 and 2013 and are
collateralized by five of the properties with a carrying value of
approximately $16.4 million as of March 31, 1998. These notes are partially
guaranteed by certain executive officers and shareholders of the Company.
There are two interest only first mortgage notes. One note has a
principal balance of $4.0 million requiring monthly payments of interest
only at a fixed rate of 7.00%, and matures in 2007. This note is
collateralized by one property with a carrying value of approximately $6.3
million as of March 31, 1998. The other note has a principal balance of
$15.1 million requiring monthly payments of interest only at a variable
rate of one month LIBOR plus 1.14% (one month LIBOR was 5.72 % on March 31,
1998), and matures in 2007. This note is collateralized by eight properties
with an aggregate carrying value of approximately $20.5 million as of March
31, 1998.
The interest rate on the $15.1 million variable rate note has been
fixed with two interest rate swap contracts (the "Interest Swaps") with a
bank. The Interest Swaps have in effect: (i) fixed $7.6 million of debt at
7.67% for the period from October 1, 1997 through October 1, 2007 and (ii)
fixed an additional $7.6 million of debt at 7.68% for the period from
October 1, 1997 through January 4, 2005. The Interest Swaps have been
pledged as collateral under the related variable note.
Annual principal payments due as of March 31, 1998, are as follows (in
thousands):
Period Ending December 31,
--------------------------
1998 $ 151
1999 218
2000 235
2001 253
2002 273
Thereafter 32,275
------
$ 33,405
=========
In December 1997, the OP entered into an agreement whereby the OP
effectively locked the ten year U. S. treasury bond rate on $20.0 million
of future debt at a rate of 5.835%. The agreement is in effect through
July, 1998.
In January 1998, the Company entered into another agreement whereby
the Company effectively locked the ten year U. S. treasury bond rate on
$20.0 million of future debt at a rate of 5.47%. The agreement was
effective through April 1, 1998. On April 1, 1998, the agreement was
modified to extend the rate lock to June 1, 1998 and increase the rate to
5.52%.
In April 1998, the Company entered into another agreement whereby the
Company effectively locked the ten year U. S. Treasury bond rate on $24.0
million of future debt at a rate of 5.71%. The agreement is in effect
through June 1, 1998.
<PAGE>
5. REVOLVING CREDIT FACILITY
In March 1997, the Operating Partnership entered into a three year
Revolving Credit Facility with a bank, guaranteed by the Company, for up to
$25.0 million (the "original Revolving Credit Faciltiy"). Borrowings under
the original Revolving Credit Facility were collateralized by thirteen
properties with a carrying value of approximately $38.7 million as of
December 31, 1997 and bears interest, payable monthly, at a floating rate
of 1.2% above the 30, 60, or 90 day LIBOR rate. The Operating Partnership
was required to maintain certain financial covenants as defined in the
original Revolving Credit Facility agreement. The original Revolving Credit
Facility was available to fund future property acquisitions; $4.0 million
was available to fund working capital needs, while $2.0 million was
available to fund the redemption of Common Units by the Operating
Partnership or the purchase of Common Shares. As of March 31, 1998 and
December 31, 1997, there was $23 million and $15.6 million, respectively,
outstanding under the original Revolving Credit Facility.
In April 1998, the Operating Partnership entered into a new two year
Revolving Credit Facility with its bank and retired the original Revolving
Credit Facility. The new Revolving Credit Facility increased the
availability of the credit line to $50.0 million from $25.0 million and
converted the line to an unsecured line from a secured line. The new
Revolving Credit Facility bears interest payable monthly at a floating rate
of 1.2% above the 30, 60, or 90 day LIBOR rate. The new Revolving Credit
Facility is available to fund future property acquisitions and up to $5.0
million is available to fund working capital needs.
6. SHAREHOLDERS' EQUITY
The following table outlines the 1997 and 1998 activity in the
Operating Partnership equity accounts:
Number of:
----------------------------------
Limited
Company's Partners'
Operating Operating
Partnership Partnership
Units Units
Outstanding at December 31, 1996 620,102 -
Consolidation Transactions in March 1997:
New Equity Investment 3,333,333 -
Transfer of property interests-Grove Companies - 909,115
Transfer of property interests-non-affiliates - 1,205,324
June 1997 acquisitions - 420,183
Proceeds from stock options in May 1997 394 -
September 1997 acquisitions - 325,836
October 1997 acquisitions - 143,334
The November 1997 Offering 4,500,000 -
----------------- ----------------
Outstanding at March 31, 1998 8,453,829 3,003,792
and December 31, 1997 ================= ================
Ownership Percentage 73.78% 26.22%
================= ================
Income is allocated to the Minority Interest in the Operating
Partnership based on its weighted average ownership percentage of the
Operating Partnership. The ownership percentage is computed by dividing the
weighted average number of OP Units held by the Minority Interest holders
by the total weighted average OP Units outstanding. Issuance or redemption
of additional Common Shares or OP Units changes the ownership percentage of
both the Minority Interest and the Company. Such transactions and the
proceeds or use of proceeds therefrom are treated as capital transactions
and result in an allocation between Shareholders' Equity and Minority
Interest to account for the change in the respective percentage ownership
of the underlying equity of the OP.
An OP Unit and each Common Share have essentially the same economic
characteristics as they effectively share equally in the net income or loss
and distributions of the OP. OP Units generally may be redeemed for cash
or, at the election of the Company, for Common Shares on a one-for-one
basis, subject to certain lock-up provisions.
<PAGE>
Common Shares have been reserved for future issuance as follows:
OP Units not owned by the Company (see above) 3,003,792
Underwriters warrants 47,248
Stock options issued 977,723
Additional stock options issuable 90,003
---------------
4,118,766
===============
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
The results of operations for the three months ended March 31, 1998
include the 36 residential communities and four retail properties owned
since January 1, 1998 and the Tanglewood Apartments purchased on January
23, 1998. (Collectively, the "Properties"). The following discussion should
be read in conjunction with the financial statements and notes thereto
included elsewhere in this Report.
The results of operations for the three months ended March 31, 1997
include the three multifamily properties (the "Original Properties") that
the Company has owned since its inception, a fourth property ("Cambridge"),
acquired on January 12, 1996, and twenty additional properties acquired on
March 14, 1997 in conjunction with the Consolidation Transactions (the
"Consolidation Properties").
Results of Operations
Results of operations of the Company for the three months ended March
31, 1998 and 1997.
Total revenues increased $6,282,000 from $1,306,000 to $7,588,000
during the three months ended March 31, 1998, as compared to the
corresponding period in 1997. The increase is primarily due to operations
of the Consolidation Properties and the other 17 properties purchased
subsequent to March 31, 1997 (collectively, the "1997 Acquisition
Properties").
The 27 apartment communities (2,564 apartments) owned by Grove or its
affiliated predecessors since the beginning of 1996, a "Same Community"
comparison, experienced an increase in average monthly rental rates, offset
by a small decrease in average economic occupancy and experienced an
increase in net operating income. On a Same Community basis, the weighted
average monthly rental rate per apartment increased 3.9% to $723 from $695
and the economic occupancy rate decreased to 94.9% from 96.0% for the first
quarter of 1998 as compared to the first quarter of 1997, respectively.
Overall, Same Community net operating income increased 10.9% to $3.02
million from $2.72 million for the first quarter of 1998 as compared to the
first quarter of 1997, respectively. Net operating income increased due to
a 3.0% increase in revenues and 5.9% decrease in operating expenses.
Revenues increased due to the increase in rental rates partially offset by
a decrease in occupancy. Expenses decreased primarily due to a decrease in
utility costs and snow plowing as a result of the unusually mild weather
experienced in the first quarter of 1998. The following table summarizes
Same Community operations:
Quarter Ended %
---------------------------
3/31/98 3/31/97 Change
Economic Occupancy 94.9% 96.0% -1.1%
===========================
Average monthly rental rate per unit $ 723 $ 695 3.9%
===========================
Revenues (millions) $ 5.29 $ 5.14 3.0%
Operating expenses (millions) 2.27 2.42 -5.9%
====================================
Net operating income (millions) $ 3.02 $ 2.72 10.9%
====================================
Property operating and maintenance expenses increased $2,091,000 from
$556,000 to $2,647,000 during the three months ended March 31, 1998, as
compared to the corresponding period in 1997. The increase is primarily due
to additional expenses related to the acquisition of the 1997 Acquisition
Properties.
General and administrative expenses increased $286,000 from $69,000 to
$355,000 during the three months ended March 31, 1998, as compared to the
corresponding period in 1997. The increase is primarily due to additional
expenses related to the Consolidation Transactions and increased overhead
expenses.
Real estate taxes increased $663,000 from $116,000 to $779,000 during
the three months ended March 31, 1998, as compared to the corresponding
period in 1997. This increase is due to related to the 1997 Acquisition
Properties.
<PAGE>
Related party management fees were eliminated due to the acquisition
by the Company of the management services division of Grove Property
Services Limited Partnership ("GPS") as part of the Consolidation
Transactions in March 1997.
Interest expense increased $829,000 from $173,000 to $1,002,000 during
the three months ended March 31, 1998, as compared to the corresponding
period in 1997. This increase is due to the debt assumed and/or refinanced
related to the 1997 Acquisition Properties.
Depreciation and amortization increased $939,000 from $240,000 to
$1,179,000 during the three months ended March 31, 1998, as compared to the
corresponding period in 1997. The increase is primarily due to additional
depreciation related to the 1997 Acquisition Properties.
The Company's net income increased $1,090,000 from $97,000 to
$1,187,000 during the three months ended March 31, 1998, as compared to the
corresponding period in 1997. The increase is primarily due to additional
net income related to the 1997 Acquisition Properties.
Liquidity and Capital Resources
Cash and cash equivalents totaled $1,509,000 as of March 31, 1998. The
Company's ratio of long-term debt, including the Revolving Credit Facility,
to total market capitalization on March 31, 1998 was 31.8% based on total
market capitalization of $177,426,000, based on 3,003,792 Common Units and
8,453,829 Common Shares valued at $10.5625 per share/unit (the closing
price on March 31, 1998) plus long-term debt $56,405,000, including the
Revolving Credit Facility.
Cash provided by operating activities was $2,642,000 for the three
months ended March 31, 1998. Cash used in investing activities was
$8,589,000 for the three months ended March 31, 1998. Net cash provided by
financing activities was $5,990,000 for the three months ended March 31,
1998.
On March 11, 1998, the Company declared a dividend of $0.17 per share
which was paid on April 18, 1998. The dividends declared during the period
resulted in a 71.5% payout of funds from operations for the three months
ended March 31, 1998.
On March 11, 1998, the Operating Partnership declared a distribution
of $0.17 per Common Unit to the limited partners of the OP.
In March 1997, the Operating Partnership entered into a three year
Revolving Credit Facility guaranteed by the Company, for up to $25.0
million (the "original Revolving Credit Facility"). Borrowings under the
original Revolving Credit Facility were collateralized by thirteen of the
Properties and interest was payable monthly at a floating rate of 1.2%
above the 30, 60, or 90 day LIBOR rate. The original Revolving Credit
Facility was available to fund future property acquisitions, up to $4.0
million was available to fund working capital needs, and up to $2.0 million
was available to fund the redemption of Common Units or the purchase of
Common Shares by the Operating Partnership.
In April 1998, the Operating Partnership entered into a new two year
Revolving Credit Facility with its bank and retired the original Revolving
Credit Facility. The new Revolving Credit Facility increased the
availability of the credit line to $50.0 million from $25.0 million and
converted the line to an unsecured line from a secured line. The new
Revolving Credit Facility bears interest payable monthly at a floating rate
of 1.2% above the 30, 60, or 90 day LIBOR rate. The new Revolving Credit
Facility is available to fund future property acquisitions and up to $5.0
million is available to fund working capital needs.
The Company intends to meet its short-term liquidity requirements
through cash flow provided by operations and borrowings under the Revolving
Credit Facility. The Company considers its ability to generate cash to be
adequate, and expects it to continue to be adequate to meet operating
requirements and pay shareholder dividends in accordance with REIT
requirements. The Company may use other sources of capital to finance
additional acquisitions including, but not limited to, the selling of
additional equity interests in the Company, non-distributed Funds From
Operations, the issuance of debt securities, funds from the Revolving
Credit Facility, and exchanging Common Shares or Common Units for
properties or interest in properties.
<PAGE>
Year 2000
In the course of the Company's planned upgrade of its information
systems, to accommodate growth of its business, the Company will assure
that its computer software and hardware will be year 2000 compliant. The
Company anticipates that the upgrade of its information systems will be
completed during 1998 and believes that the cost thereof will not have a
material impact on net income, assets or liabilities. Because of the nature
of the Company's business, it does not depend to any material extent on
electronic interchange of data or information with its residents, suppliers
or vendors.
Acquisitions/Dispositions
The Company continuously evaluates properties for possible acquisition
or disposition. Individual properties may be acquired through direct
purchase of the property or through the purchase of the entity owning such
property and may be made for cash or securities of the Company or the
Operating Partnership. In connection with any acquisition, the Company may
incur additional indebtedness. If the Company acquires or disposes of any
property, such acquisition or disposition could have a significant effect
on the Company's financial condition, results of operations or cash flows.
<PAGE>
Funds from Operations
Industry analysts generally consider funds from operations ("FFO") an
appropriate measure of performance of an equity REIT. FFO is defined as
income before gains (losses) on investments and extraordinary items
(computed in accordance with generally accepted accounting principles) plus
real estate depreciation, less preferred dividends and after adjustment for
significant non-recurring items, if any. This definition conforms to the
recommendations set forth in a White Paper adopted by the National
Association of Real Estate Investment Trusts ("NAREIT") in early 1995. The
Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with the net
income as presented in the financial statements and information included
elsewhere in this Report. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund cash
needs. FFO should not be considered as an alternative to net income as an
indication of the Company's performance or as an alternative to cash flow
as a measure of liquidity.
FFO increased $2,320,000 from $412,000 to $2,732,000 for the three
months ended March 31, 1998 and 1997, respectively. Dividends declared for
the three months ended March 31, 1998 were $.17 per share, representing
71.5% of FFO, while dividends declared for the three months ended March 31,
1997 were $.16 per share representing 69.5% of FFO. The dividends
declaration for the three months ended March 31, 1997 were for short period
from January 1, 1997 to March 14, 1997, the date the Consolidation
Transactions closed.
FFO was calculated as follows:
For the Three Months Ended
--------------------------
March 31,
1998 1997
-------------------
Income before minority interests $ 1,626 $ 130
Real estate depreciation and amortization 1,135 217
Non-recurring expenses 0 69
--------------- --------------
Funds from operations before minority 2,761 416
interests
Minority interests in consolidated 29 4
partnerships
--------------- --------------
FFO $ 2,732 $ 412
=============== ==============
Seasonality
Historically, net income from the Properties has been lower in the
first and second quarters than in the remainder of the year due to higher
utility charges, snow removal and other weather related expenses. In
addition, rental rates increase ratably during the year which results in
higher rental revenues in the second half of the year.
Inflation
Substantially all of the leases at the properties are for a term of
one year or less, which may enable the Company to seek increased rents upon
renewal or reletting. Such short-term leases generally lessen the risk to
the Company of the potential adverse effects of inflation.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1996
Certain statements contained in this report, and in particular in this
"Management"s Discussion and Analysis of Financial Condition and Results of
Operations, statements in other filings with the Securities and Exchange
Commission and statements in other public documents of the Company may be
forward looking and are subject to a variety of risks and uncertainties.
Many factors could cause actual results to differ materially from these
statements. These factors include, but are not limited to, (i) population
shifts which may increase or decrease the demand for rental housing, (ii)
the value of commercial and residential rental properties in the Northeast
where all of the Company's properties are located, in recent years, have
fluctuated considerably, (iii) the effect on the Company's properties of
competition from new apartment complexes which may be completed in
proximity to such properties thereby increasing competition, (iv) the
effect of weather and other conditions which can significantly affect
property operating expenses and (v) other factors which might be described
for time to time in the Company's filings with the Securities and Exchange
Commission. In addition, the Company is subject to the effects of changes
in the general business economic conditions.
<PAGE>
Although the Company believes that its properties will continue to be
attractive to tenants and that it will be able to control expenses, future
revenue and operating trends cannot be reliably predicted. These trends may
cause the Company to adjust its operation in the future. Factors external
to the Company can also affect the price of the Company's Common Shares.
Because of the foregoing and other factors, recent trends should not be
considered reliable indicators of future financial results or stock prices.
Item 3 Quantitative and Qualitative Disclosure About Market Risk
Based on Securities Exchange Act Release No. 38223, the Company is not
required to provide information in response to this item.
Part II. Other Information
Item 6
(A) Exhibits
4.1 Revolving Credit Agreement among Grove Operating, L.P., Grove
Property Trust and Rhode Island Hospital Trust National Bank and
Other Banks Which May Become Parties To This Agreement with
Rhode Island Hospital Trust National Bank, As Agent BancBoston
Securities, Inc. As Arranger Dated April 30, 1998- - to be filed
upon amendment
27. Financial Data Schedule
(B) Reports on Form 8-K
During the quarter ended March 31, 1998, the Company filed two Current
Reports on Form 8-K dated December 31, 1997 and January 23, 1998,
respectively, responding to Items 2 and 7.Amendments to such Current
Reports included the following financial statements:
12/31/97 Form 8-K:
(a) Financial statements of business acquired.
Ribbon Mill, Hilltop and Briar Knoll
Statement of Revenue and Certain Expenses for the nine months ended
September 30, 1997 and the year ended December 31, 1996.
Village Arms
Statement of Revenue and Certain Expenses for the period April 22,
1997 to December 31, 1997.
(b) Pro Forma Financial Statements.
Pro Forma Condensed Balance Sheet of Grove Property Trust (the
"Company") as of September 30, 1997. Pro Forma Condensed Consolidated
Statements of Income of the Company for the nine months ended September 30,
1997 and the year ended December 31, 1996.
<PAGE>
1/23/98 Form 8-K:
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1997
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statements of Income for the Nine Months
Ended September 30, 1997 and the Year Ended December 31, 1996
Notes to Pro Forma Condensed Consolidated Statements of Income
Tangelwood
Financial Statements:
Report of Independent Auditors
Statements of Revenues and Certain Expenses for the Nine Months
Ended September 30, 1997 (Unaudited) and for the Year Ended
December 31, 1996
Notes to the Statements of Revenues and Certain Expenses
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGISTRANT:
GROVE PROPERTY TRUST
Date: May 15, 1998 Joseph R. LaBrosse
Name:/s/ Joseph R. LaBrosse
---------------------------
(on behalf of the registrant and as Chief Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Revolving Credit Agreement among Grove Operating,L.P., Grove
Property Trust and Rhode Island Hospital Trust National Bank
and Other Banks Which May Become Parties To This Agreement
with Rhode Island Hospital Trust National Bank, As Agent
BancBoston Securities, Inc. As Arranger Dated April 30, 1998-
- to be filed upon amendment
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,509
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,629
<PP&E> 156,142
<DEPRECIATION> 4,818
<TOTAL-ASSETS> 155,953
<CURRENT-LIABILITIES> 5,898
<BONDS> 56,405
0
0
<COMMON> 84
<OTHER-SE> 68,183
<TOTAL-LIABILITY-AND-EQUITY> 155,953
<SALES> 0
<TOTAL-REVENUES> 7,588
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,002
<INCOME-PRETAX> 1,187
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,187
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,187
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
