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 June 30, 1999
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 (IRS Employer Identification No.)
incorporation or organization)
598 Asylum Avenue, Hartford, Connecticut 06105
(Address of Principal Executive Offices) (Zip Code)
(860) 246-1126
(Issuer's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class: Name of Each Exchange on Which Registered:
-------------------- ------------------------------------------
Common Shares of Beneficial American Stock Exchange
Interest, $.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
preceding 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 July 31,
1999 was 8,510,115.
1
<PAGE>
GROVE PROPERTY TRUST
Form 10-Q
Index
- --------------------------------------------------------------------------------
Page
Part I: Financial Information 3
Item 1: Consolidated Financial Statements (unaudited) 3
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income for the Three
Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Income for the Six Months
Ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3: Quantitative and Qualitative Disclosures About
Market Risk 18
Part II: Other Information 19
Item 1: Legal Proceedings 19
Item 2: Change in Securities and Use of Proceeds 19
Item 3: Defaults upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 46,052 $ 47,208
Buildings and improvements 263,618 268,683
Furniture, fixtures and equipment 3,265 2,708
---------------------- ---------------------
312,935 318,599
Less accumulated depreciation (13,216) (9,651)
---------------------- ---------------------
Net real estate assets 299,719 308,948
Real estate held for sale 9,136 0
Cash and cash equivalents 13,045 15,262
Due from affiliates 160 262
Deferred charges, net of accumulated amortization
of $272 and $153, respectively 1,435 1,192
Other assets 1,995 1,451
---------------------- ---------------------
Total assets $ 325,490 $ 327,115
====================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable (including fair value step up of
$8,583 and $9,421, respectively) $ 158,244 $ 162,141
Revolving credit facility 41,650 34,250
Other liabilities 5,839 5,723
Acquisition notes payable 7,344 12,951
Distributions payable 2,231 2,062
Security deposits 3,457 3,194
Due to affiliates 292 139
---------------------- ---------------------
Total liabilities 219,057 220,460
Minority interests in consolidated partnerships 690 686
Minority interest in the Operating Partnership 33,747 32,186
Shareholders' equity:
Preferred shares, $.01 par value per share,
1,000,000 shares authorized; no shares
issued or outstanding - -
Common shares, $.01 par value per share,
34,000,000 shares authorized; 8,510,115 and 8,639,659
shares issued and outstanding, respectively 85 86
Additional paid-in capital 79,297 80,182
Distributions in excess of earnings (7,386) (6,485)
---------------------- ---------------------
Total shareholders' equity 71,996 73,783
---------------------- ---------------------
Total liabilities and shareholders' equity $ 325,490 $ 327,115
====================== =====================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended June 30,
1999 1998
---- ----
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Rental income $ 15,615 $ 8,438
Property management income- affiliates 91 139
Other property related income 184 43
Interest income 134 32
------------------- ------------------
Total revenues 16,024 8,652
------------------- ------------------
Expenses:
Property operating expenses 5,819 2,893
Real estate taxes 1,453 837
Interest expense 3,448 1,388
Depreciation 2,515 1,266
Amortization 56 34
General and administrative 1,170 444
------------------- ------------------
Total expenses 14,461 6,862
------------------- ------------------
Income before extraordinary expense and minority 1,563 1,790
interests
Minority interest in consolidated partnerships 23 22
Minority interest in operating partnership 485 456
------------------- ------------------
Income before extraordinary items 1,055 1,312
Extraordinary expense related to debt extinguishment 0 (838)
------------------- ------------------
Net income $ 1,055 $ 474
=================== ==================
Income before extraordinary expense per common share - basic and
assuming dilution $ 0.12 $ 0.16
=================== ==================
Extraordinary expense per common share - basic and
assuming dilution $ (0.00) $ (0.10 )
=================== ==================
Net income per common share - basic and assuming dilution $ 0.12 $ 0.06
=================== ==================
Weighted average number of common shares outstanding-basic 8,510 8,454
Effect of warrants and stock options 154 8
------------------- ------------------
Weighted average number of shares outstanding-assuming dilution 8,664 8,462
=================== ==================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Six Months Ended June 30,
1999 1998
---- ----
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Rental income $ 30,868 $ 15,879
Property management income- affiliates 140 233
Other property related income 358 81
Interest income 280 47
------------------- ------------------
Total revenues 31,646 16,240
------------------- ------------------
Expenses:
Property operating expenses 11,905 5,540
Real estate taxes 2,863 1,616
Interest expense 6,848 2,390
Depreciation 4,948 2,409
Amortization 120 70
General and administrative 2,105 799
------------------- ------------------
Total expenses 28,789 12,824
------------------- ------------------
Income before extraordinary expense and minority 2,857 3,416
interests
Minority interest in consolidated partnerships 42 39
Minority interest in operating partnership 869 878
------------------- ------------------
Income before extraordinary expense 1,946 2,499
Extraordinary income (expense) related to debt extinguishment 226 (838)
------------------- ------------------
Net income $ 2,172 $ 1,661
=================== ==================
Income before extraordinary expense per common share - basic and
assuming dilution $ 0.23 $ 0.30
=================== ==================
Extraordinary income (expense) per common share - basic and
assuming dilution $ 0.02 $ (0.10)
=================== ==================
Net income per common share - basic and assuming dilution $ 0.25 $ 0.20
=================== ==================
Weighted average number of common shares outstanding-basic 8,576 8,454
Effect of warrants and stock options 119 18
------------------- ------------------
Weighted average number of shares outstanding-assuming dilution 8,695 8,472
=================== ==================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Operating Activities:
Net income $ 2,172 $ 1,661
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 5,068 2,479
Extraordinary (income) expense related to debt extinguishment 838
(226)
Minority interests 911 917
Non-cash compensation expense 60 60
Change in other assets
(393) (577)
Change in accounts payable, accrued expenses and other
liabilities (1,206) 748
------------------- ---------------------
Net cash provided by operating activities 6,386 6,126
------------------- ---------------------
Investing activities:
Purchase of partnership interests (1,231) (2,336)
Deferred charges (1) (42)
Cash acquired on purchase of partnership interests - 62
Additions to real estate assets (5,129) (29,553)
------------------- ---------------------
Net cash used in investing activities (6,361) (31,869)
------------------- ---------------------
Financing activities:
Net proceeds from mortgage notes payable 8,668 63,000
Net proceeds (repayments) from Revolving Credit Facility 7,400 (12,350)
Proceeds from exercise of stock options 18 -
Equity offering costs (11) (30)
Repayment of mortgage notes payable (12,161) (18,113)
Borrowings from affiliates, net 232 59
Financing costs (441) (562)
Extraordinary income from debt refinancing - (668)
Repurchase of stock (1,654) -
Dividends and distributions paid (4,293) (3,429)
------------------- ---------------------
Net cash (used in) provided by financing activities (2,242) 27,907
------------------- ---------------------
Net change in cash and cash equivalents (2,217) 2,164
Cash and cash equivalents, beginning of period 15,262 1,466
------------------- ---------------------
Cash and cash equivalents, end of period $ 13,045 $ 3,630
=================== =====================
Supplemental Information:
Cash paid for interest $ 6,782 $ 2,077
Mortgage notes payable assumed through property acquisitions $ - $ 6,300
Excess of liabilities over assets assumed on acquisition of
partnership interests $ - $ 80
OP Units redeemed for cash $ 884 $ 178
Reclassification of real estate assets to held for sale $ 9,136 -
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
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 sixty-one apartment communities and four specialty
retail properties. The apartment communities are generally mid-priced or
subsidized multi-family communities that are primarily located in the
southern New England area.
2. 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 99%) 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 June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1999. 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,
1998.
3. MORTGAGE NOTES PAYABLE
----------------------
Total mortgage notes payable of $158,244,000 includes a fair value step up
of $8,583,000. The contractual principal amount outstanding of mortgage
notes payable is $149,661,000. The $8,583,000 step up relates to
$47,630,000 of above market interest rate mortgages, which were assumed in
connection with the purchase of the 20 apartment communities in October
1998 through December 1998 (the "McNeil Portfolio"). The interest rates on
the assumed debt are between 7.46% and 12.47%. The step up was computed
using the Company's estimated market interest rate at acquisition of 7.0%.
The step up amount is not the legal stipulated principal amount of the
respective mortgage and, accordingly, this increase does not increase the
contractual obligation of the Company. If these loans are paid off in
advance of their maturity, the amount of the related step up on the
consolidated balance sheets will be accounted for as extraordinary income.
On March 15, 1999 the Company prepaid the Highland Glen mortgage note of
$6.5 million. This prepayment transaction resulted in the recognition of
extraordinary income related to debt extinguishment of $0.32 million ($0.4
million fair value step up offset by $0.08 million prepayment penalty and
other expenses related to the prepayment of the mortgage).
On June 29, 1999, the Company obtained a $7.6 million ten-year term loan
with a lender. The net proceeds of the loan were used to refinance an
existing $4.0 million loan and the remaining net proceeds of $3.6 million
were used to repay borrowings under the Company's Revolving Credit
Facility.
As of June 30, 1999, the Company's weighted average interest rate on its
long-term debt is 7.8% and its weighted average maturity is 10.6 years.
7
<PAGE>
Mortgage notes payable consist of the following at June 30, 1999 (in
thousands):
Amortizing first mortgage notes $ 95,244
Interest only first mortgage notes 63,000
----------
$ 158,244
==========
The amortizing first mortgage notes have fixed interest rates between 7.04%
and 12.47%. These notes mature between the years 2000 and 2031 and are
collateralized by twenty-eight of the properties with an aggregate-carrying
amount of approximately $129.4 million as of June 30, 1999. Certain of
these notes are partially guaranteed by certain executive officers and
shareholders of the Company.
There is one interest only first mortgage note. This note has a principal
balance of $63.0 million requiring monthly payments of interest at an
effective fixed interest rate of 6.71% and matures in 2008. This note is
collateralized by seventeen properties with an aggregate-carrying amount of
approximately $85.3 million as of June 30, 1999.
Annual principal payments due as of June 30, 1999, are as follows (in
thousands):
1999 $ 1,550
2000 5,301
2001 3,508
2002 3,679
2003 7,905
Thereafter 136,301
---------
$ 158,244
=========
4. ACQUISITION NOTES PAYABLE
-------------------------
In conjunction with the purchase of the McNeil Portfolio, the Company
agreed to issue additional Common Units and pay cash to certain continuing
partners in the event that a McNeil Portfolio property was converted to a
market rate property. The Acquisition Notes Payable are obligations related
to three McNeil Properties (Rockingham Glen, 929 House, and Glen Meadow),
to pay additional cash and issue additional Common Units when the
properties are converted to market rate properties. On November 30, 1998,
the mortgages on two of the properties (Glen Meadow and 929 House) were
modified to allow these properties to be converted to 80% market rate units
and 20% moderate income units. The Rockingham Glen mortgage was modified in
the third quarter of 1998 to allow this property to be converted to 80%
market rate units and 20% moderate income units. On May 1, 1999, the
Operating Partnership issued 314,846 Common Units valued at $3.5 million
and $1.6 million in cash payments on the Acquisition Notes Payable. As of
June 30, 1999, Acquisition Notes Payable outstanding decreased $5.6 million
to $7.3 million from $12.9 million as of December 31, 1998, due to the
payment above and a change in estimate. The majority of the remaining
Acquisition Notes Payable is expected to be paid on or about October 31,
1999 (consisting of approximately $3.2 million in cash and approximately
$4.1 million in Common Units). When the Common Units are issued, the
Acquisition Notes Payable balance will be reduced by the value of Common
Units issued and the Company's Minority Interests in the Operating
Partnership will be increased by a corresponding amount.
8
<PAGE>
5. SHAREHOLDERS' EQUITY
--------------------
The following table outlines the 1999 activity in the Operating Partnership
equity accounts:
<TABLE>
<CAPTION>
Number of:
----------------------------------
Limited
Company's Partners'
Operating Operating
Partnership Partnership
Units Units
----- -----
<S> <C> <C>
Outstanding at December 31, 1998 8,639,659 3,768,775
Common Units exchanged January 1999 through June 1999 18,177 (18,177)
Common Shares repurchased January 1999 through June 1999 (150,083) -
Common Shares issued pursuant to stock options exercised in June 1999 2,362 -
Common Units redeemed January 1999 through June 1999 - (76,507)
May 1999 Acquisition Note payment - 314,846
----------------- ----------------
Outstanding at June 30, 1999 8,510,115 3,988,937
================= ================
Ownership Percentage 68.1 % 31.9 %
================= ================
</TABLE>
Common Shares have been reserved for future issuance as follows:
<TABLE>
<CAPTION>
<S> <C>
Common Units not owned by the Company (see above) 3,988,937
Stock options issued 1,150,020
Additional stock options issuable 367,100
-------------
5,507,057
=============
</TABLE>
6. SUBSEQUENT EVENT
-----------------
In August 1999, the Company's outstanding revolving credit facility was
paid off with proceeds from new long-term debt (the "August 1999 Long-term
Debt") and a new revolving credit facility (the "1999 Credit Facility").
The 1999 Credit Facility decreased the availability of the credit line to
$40.0 million from $50.0 million, extended the maturity to August 2001 and
modified certain financial covenants. The 1999 Credit Facility bears
interest payable monthly at a floating rate of 2.0% above the 30, 60, or
90-day LIBOR rate, as applicable. The 1999 Credit Facility is available to
fund future property acquisitions and working capital needs.
The August 1999 Long-term Debt totals $26.3 million, matures in August
2009, is secured by five apartment communities, and requires monthly
payments of principal and interest based on a 30 year amortization schedule
and has a fixed annual interest rate of 7.61%. The net proceeds from the
loan were used to repay outstanding borrowings under the Company's prior
revolving credit facility.
9
<PAGE>
7. SEGMENT REPORTING
-----------------
The following table presents information about reported segment profit or
loss and segment assets. The Company does not allocate income taxes or
unusual items to segments. In addition, not all segments have significant
noncash items other than depreciation and amortization in reporting profit
or loss (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues $ 11,785 $ 3,508 $ 667 $ 15,960
Interest Expense $ 1,957 $ 800 $ 72 $ 2,829
Depreciation and amortization $ 1,946 $ 362 $ 145 $ 2,453
Segment Profit $ 2,947 $ 1,051 $ 319 $ 4,317
Segment Assets $ 244,166 $ 54,596 $ 19,148 $ 317,910
FFO $ 4,871 $ 1,413 $ 461 $ 6,745
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
--------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues $ 7,808 $ 0 $ 671 $ 8,479
Interest Expense $ 813 $ 0 $ 140 $ 953
Depreciation and amortization $ 1,136 $ 0 $ 130 $ 1,266
Segment Profit $ 2,253 $ 0 $ 249 $ 2,502
Extraordinary expense $ 1,173 $ 0 $ 6 $ 1,179
Segment Assets $ 164,176 $ 0 $ 18,094 $ 182,270
FFO $ 3,370 $ 0 $ 378 $ 3,748
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues $ 23,198 $ 6,962 $ 1,327 $ 31,487
Interest Expense $ 3,896 $ 1,606 $ 142 $ 5,644
Depreciation and amortization $ 3,834 $ 718 $ 288 $ 4,840
Segment Profit $ 5,417 $ 1,960 $ 622 $ 7,999
Extraordinary income $ 0 $ 324 $ 0 $ 324
Segment Assets $ 244,166 $ 54,596 $ 19,148 $ 317,910
FFO $ 9,213 $ 2,679 $ 906 $ 12,798
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues $ 14,877 $ 0 $ 1,069 $ 15,946
Interest Expense $ 1,339 $ 0 $ 210 $ 1,549
Depreciation and amortization $ 2,225 $ 0 $ 209 $ 2,434
Segment Profit $ 4,304 $ 0 $ 386 $ 4,690
Extraordinary expense $ 1,173 $ 0 $ 6 $ 1,179
Segment Assets $ 164,176 $ 0 $ 18,094 $ 182,270
FFO $ 6,474 $ 0 $ 594 $ 7,068
</TABLE>
10
<PAGE>
The following presentation of reconciliation of reportable segment
revenues, profit or loss, and assets, to the Company's consolidated totals.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues
--------
<S> <C> <C> <C> <C>
Total revenues for reportable segments $ 15,960 $ 8,479 $ 31,487 $ 15,946
Other revenues 64 173 159 294
----------- ------------ ------------ ------------
Total consolidated revenues $ 16,024 $ 8,652 $ 31,646 $ 16,240
=========== ============ ============ ============
16,240
Profit or Loss
--------------
Total profit/loss for reportable segments $ 4,317 $ 2,502 $ 7,999 $ 4,690
Other profit or loss ( 2,754) ( 712) ( 5,142) ( 1,274)
---------- ----------- ---------- -----------
Income before extraordinary expense and
minority interests $ 1,563 $ 1,790 $ 2,857 $ 3,416
=========== ============ =========== ============
FFO
---
FFO for reportable segments $ 6,745 $ 3,748 $ 12,798 $ 7,068
Other FFO ( 2,753) ( 706) ( 5,143) ( 1,262)
---------- ----------- ---------- -----------
FFO before minority interests $ 3,991 $ 3,042 $ 7,655 $ 5,806
=========== ============= =========== ============
Assets
------
Total assets for reportable segments $ 317,910 $ 182,270
Other assets 7,580 5,672
----------- ------------
Total consolidated assets $ 325,490 $ 187,942
=========== ============
Three Months Ended June 30, 1999
--------------------------------
Other Significant Items
-----------------------
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
Interest expense $ 2,829 $ 619 $ 3,448
Depreciation and amortization $ 2,453 $ 118 $ 2,571
Three Months Ended June 30, 1998
--------------------------------
Other Significant Items
-----------------------
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
Interest expense $ 953 $ 435 $ 1,388
Depreciation and amortization $ 1,266 $ 34 $ 1,300
Six Months Ended June 30, 1999
------------------------------
Other Significant Items
-----------------------
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
Interest expense $ 5,644 $ 1,204 $ 6,848
Depreciation and amortization $ 4,840 $ 228 $ 5,068
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
------------------------------
Other Significant Items
-----------------------
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
<S> <C> <C> <C>
Interest expense $ 1,549 $ 841 $ 2,390
Depreciation and amortization $ 2,434 $ 45 $ 2,479
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The results of operations for the three and six months ended June 30, 1999
include the three multifamily properties that the Company has owned since
inception (the "Original Properties"), a fourth property that was acquired on
January 12, 1996, the twenty properties acquired on March 14, 1997, the fourteen
properties subsequently acquired in 1997 (collectively referred to as the "1997
Properties"), and the twenty-seven properties purchased in 1998 (the "1998
Properties"). In addition, all of the previously mentioned properties of the
Company are collectively referred to as the "Properties".
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this report.
RESULTS OF OPERATIONS
Results of operations of the Company for the six months ended June 30, 1999 and
1998.
Total rental revenues increased $14,989,000 to $30,868,000 from $15,879,000
during the six months ended June 30, 1999, as compared to the corresponding
period in 1998. The increase is primarily due to the operations of the
properties acquired during the period from April 1998 to December 31, 1998 (the
"Recent Acquisitions").
Property management income decreased due to the sale of two properties that were
affiliated with the Company. Other property related income and interest income
increased primarily due to the operations of the Recent Acquisitions.
The properties experienced an increase in rental rates and an increase in
occupancy. The weighted average monthly rental rates increased to $783 for the
six months ended June 30, 1999 from $692 for the same period in 1998. Economic
occupancy increased to an aggregate weighted average occupancy of 95.8% for the
six months ended June 30, 1999 from an aggregate weighted average occupancy of
94.8% for the same period in 1998.
Property operating expenses increased $6,365,000 to $11,905,000 from $5,540,000
during the six months ended June 30, 1999, as compared to the corresponding
period in 1998. The increase is primarily due to the operations of the Recent
Acquisitions.
Real estate taxes increased $1,247,000 to $2,863,000 from $1,616,000 during the
six months ended June 30, 1999, as compared to the corresponding period in 1998.
The increase is due primarily to the Recent Acquisitions.
Interest expense increased $4,458,000 to $6,848,000 from $2,390,000 during the
six months ended June 30, 1999, as compared to the corresponding period in 1998.
The increase is primarily due to the assumption of mortgage debt and new debt
related to the Recent Acquisitions.
General and administrative expenses increased $1,306,000 to $2,105,000 from
$799,000 during the six months ended June 30, 1999, as compared to the
corresponding period in 1998. This increase is primarily due to the increased
costs associated with the executive stock bonus plan.
Depreciation and amortization increased $2,589,000 to $5,068,000 from $2,479,000
during the six months ended June 30, 1999, as compared to the corresponding
period in 1998. This increase is related to the Recent Acquisitions.
The Company's income before extraordinary items decreased $553,000 to $1,946,000
from $2,499,000 during the six months ended June 30, 1999, as compared to the
corresponding period in 1998. The decrease in income before extraordinary items
is primarily due to increased interest expense due to borrowings related to
property acquisitions and increased general and administrative costs.
In March 1999 the Company prepaid The Highland Glen mortgage note of $6.5
million. This prepayment transaction resulted in the recognition of
extraordinary income related to debt extinguishment of $0.32 million ($0.4
million fair value step up offset by $0.08 million prepayment penalty).
13
<PAGE>
Results of operations of the Company for the three months ended June 30, 1999
and 1998.
Total rental revenues increased $7,177,000 to $15,615,000 from $8,438,000 during
the three months ended June 30, 1999, as compared to the corresponding period in
1998. The increase is primarily due to the operations of the the Recent
Acquisitions.
Property management income decreased due to the sale of two properties that were
affiliated with the Company. Other property related income and interest income
increased primarily due to the operations of the Recent Acquisitions.
The properties experienced an increase in rental rates and an increase in
occupancy. The weighted average monthly rental rates increased to $791 for the
three months ended June 30, 1999 from $695 for the same period in 1998. Economic
occupancy increased to an aggregate weighted average occupancy of 95.9% for the
three months ended June 30, 1999 from an aggregate weighted average occupancy of
95.4% for the same period in 1998.
Property operating expenses increased $2,926,000 to $5,819,000 from $2,893,000
during the three months ended June 30, 1999, as compared to the corresponding
period in 1998. The increase is primarily due to the operations of the Recent
Acquisitions.
Real estate taxes increased $616,000 to $1,453,000 from $837,000 during the
three months ended June 30, 1999, as compared to the corresponding period in
1998. The increase is due primarily to the Recent Acquisitions.
Interest expense increased $2,060,000 to $3,448,000 from $1,388,000 during the
three months ended June 30, 1999, as compared to the corresponding period in
1998. The increase is primarily due to the assumption of mortgage debt and new
debt related to the Recent Acquisitions.
General and administrative expenses increased $726,000 to $1,170,000 from
$444,000 during the three months ended June 30, 1999, as compared to the
corresponding period in 1998. This increase is primarily due to the increased
costs associated with the executive stock bonus plan.
Depreciation and amortization increased $1,271,000 to $2,571,000 from $1,300,000
during the three months ended June 30, 1999, as compared to the corresponding
period in 1998. This increase is related to the Recent Acquisitions.
The Company's income before extraordinary items decreased $257,000 to $1,055,000
from $1,312,000 during the three months ended June 30, 1999, as compared to the
corresponding period in 1998. The decrease in income before extraordinary items
is primarily due to increased interest expense due to borrowings related to
property acquisitions and increased general and administrative costs.
In March 1999 the Company prepaid The Highland Glen mortgage note of $6.5
million. This prepayment transaction resulted in the recognition of
extraordinary income related to debt extinguishment of $0.32 million ($0.4
million fair value step up offset by $0.08 million prepayment penalty).
SAME COMMUNITY ANALYSIS
For the six months ended June 30, 1999 and 1998.
The Same Community analysis includes 35 apartment communities (3,506 units, 79%
in Connecticut, 17% in Massachusetts, and 4% in Rhode Island) owned by Grove or
its affiliated predecessors since the beginning of 1998. On a Same Community
basis, the weighted average monthly rental rate per apartment increased 4.3% to
$738 from $707 and the economic occupancy rate increased to 95.8% from 94.9% for
the six months ended June 30, 1999 versus the first six months of 1998. Overall,
Same Community net operating income increased 7.5% to $8.72 million from $8.11
million for the six months ended June 30, 1999 versus the first six months of
1998. Net operating income increased 7.5% due to a 5.8% increase in revenues
offset by a 3.4% increase in operating expenses. Revenues increased due to the
increase in rental rates and occupancy. Operating expenses increased due to
higher snow plowing, landscaping, repairs and maintenance expenses.
14
<PAGE>
The following table summarizes Same Community operations:
-------------------------
Six Months Ended
June 30, %
-------------------------
1999 1998 Change
---- ---- ------
Economic Occupancy 95.8 % 94.9 % 0.9%
=========================
Average monthly rental rate per unit $ 738 $ 707 4.3%
=========================
Revenues (millions) $ 14.93 $ 14.12 5.8%
Operating expenses (millions) 6.21 6.01 3.4%
=================================
Net operating income (millions) $ 8.72 $ 8.11 7.5%
=================================
For the three months ended June 30, 1999 and 1998.
On a Same Community basis, the weighted average monthly rental rate per
apartment increased 4.3% to $742 from $711 and the economic occupancy rate
increased to 95.8% from 95.5% for the second quarter of 1999 versus the second
quarter of 1998. Overall, Same Community net operating income increased 6.8% to
$4.46 million from $4.18 million for the second quarter of 1999 versus the
second quarter of 1998. Net operating income increased 6.8% due to a 5.1%
increase in revenues offset by a 2.7% increase in operating expenses. Revenues
increased due to increases in rental rates and occupancy. Operating expenses
increased due to higher landscaping, repairs and maintenance expenses.
The following table summarizes Same Community operations:
-------------------------
Three Months Ended
June 30, %
-------------------------
1999 1998 Change
---- ---- ------
Economic Occupancy 95.8 % 95.5 % 0.3%
=========================
Average monthly rental rate per unit $ 742 $ 711 4.3%
=========================
Revenues (millions) $ 7.53 $ 7.16 5.1%
Operating expenses (millions) 3.07 2.99 2.7%
=================================
Net operating income (millions) $ 4.46 $ 4.18 6.8%
=================================
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $13,045,000 as of June 30, 1999. The Company's
ratio of long-term debt, including the 1998 Credit Facility, to total market
capitalization on June 30, 1999 was 55.2% based on total market capitalization
of $362.38 million based on 12,499,052 Common Units and Common Shares valued at
$13.00 per share/unit (the closing price on June 30, 1999) plus $199.90 million
of long-term debt, including the 1998 Credit Facility.
On June 18, 1999, the Company declared a $0.18 per share dividend, which was
paid on July 15, 1999. The dividends declared during the period resulted in a
57.3% pay out of funds from operations for the three months ended June 30, 1999.
In August 1999, the Operating Partnership entered into the 1999 Credit Facility
with its bank and retired the Company's prior revolving credit facility. The
1999 Credit Facility decreased the availability of the credit line to $40.0
million from $50.0 million, extended the maturity to August 2001 and modified
certain financial covenants. The 1999 Credit Facility bears interest payable
monthly at a floating rate of 2.0% above the 30, 60, or 90-day LIBOR rate, as
applicable. The 1999 Credit Facility is available to fund future property
acquisitions and working capital needs.
Acquisition Notes Payable are obligations related to three McNeil Properties
(Rockingham Glen, 929 House, and Glen Meadow) to pay additional cash and issue
additional Common Units when the properties are converted to market rate
properties. On November 30, 1998, the mortgages on two of the properties (Glen
Meadow and 929 House) were modified to allow these properties to be converted to
80% market rate units and 20% moderate income units. The Rockingham Glen
mortgage was modified in the third quarter of 1998 to allow this property to be
converted to 80% market rate units and 20% moderate income units. On May 1,
1999, the Company issued 314,846 Operating Partnership Units valued at $3.5
million and made $1.6 million in cash payments on the Acquisition Notes Payable.
As of June 30, 1999, Acquisition Notes Payable outstanding decreased $5.6
million to $7.3 million from $12.9 million as of December 31, 1998, due to the
15
<PAGE>
payment above and a change in estimate. The majority of the remaining
Acquisition Notes Payable is expected to be paid on or about October 31, 1999
(consisting of approximately $3.2 million in cash and approximately $4.1 million
in Common Units). When the Common Units are issued, the Acquisition Notes
Payable balance will be reduced by the value of Common Units issued and the
Company's Minority Interests in the Operating Partnership will be increased by a
corresponding amount.
During 1998, the Board of Trustees authorized the Company to repurchase up to
400,000 Common Shares. In the first quarter of 1999, the Board of Trustees
authorized the Company to purchase up to an additional 500,000 Common Shares.
Purchases of Common Shares and Common Units presented for redemption which are
redeemed for cash are being funded from operating cash flow and the Company's
1999 Credit Facility. As of June 30, 1999, from inception, the Company has
redeemed 328,660 Common Units for cash at an average price of $10.56 and
repurchased 454,713 Common Shares at an average price of $10.20 per share.
The Company intends to meet its short-term liquidity requirements through cash
flow provided by operations and borrowings under the 1999 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 properties, the selling of additional equity interests in the
Company, non-distributed Funds From Operations, the issuance of debt securities,
funds from the 1999 Credit Facility, and exchanging Common Shares or Common
Units for properties or interests in properties.
ACQUISITIONS/DISPOSITIONS
The Company regularly evaluates properties for possible acquisition or
disposition. Individual properties may be acquired through direct purchase of
the property or through the purchase of the entity owning such property and may
be made for cash or securities of the Company or the Operating Partnership. In
connection with any acquisition, the Company may incur additional indebtedness.
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.
The Company has recently identified 5 properties in its portfolio (313
apartments) that no longer meet its long-term strategic criteria. The properties
are located in Connecticut. Four of the identified properties (285 apartments)
are currently under contract for sale. It is the Company's goal to finalize the
sale of these four properties by the end of the fourth quarter of 1999.
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. To date, the Company
anticipates that the upgrade of its information systems will be completed during
1999 and believes that the cost thereof is not material and will not have a
material impact on net income, assets or liabilities. The Company has incurred
costs of $12,375 specifically related to Year 2000 compliance and anticipates $
40,000 of future related costs. The Company has identified the other
non-information systems that depend on microprocessors in the conduct of its
business. Because of the nature of the Company's business, it does not depend to
any material extent on electronic interchange of data or information with its
residents, suppliers or vendors. The following table outlines the Company's
status to date of risks associated with the Year 2000 problem:
<TABLE>
<CAPTION>
- ------------------------- ------------------------ ------------------------- ------------------------ ----------------------
Assessment Remediation Testing Implementation
- ------------------------- ------------------------ ------------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
Information Technology 100% Complete 80% Complete 80% Complete 80% Complete
Expected completion Expected completion Expected completion
date, October 1999 date, October 1999 date, October 1999
- ------------------------- ------------------------ ------------------------- ------------------------ ----------------------
Operating Equipment
with Embedded Chips or 100% Complete 100% Complete 100% Complete 100% Complete
Software
- ------------------------- ------------------------ ------------------------- ------------------------ ----------------------
3rd Party 90% Complete 70% Complete 70% Complete 70% Complete
- ------------------------- ------------------------ ------------------------- ------------------------ ----------------------
</TABLE>
Although the Company believes that there will be no direct material effects on
its net income, assets or liabilities from the
16
<PAGE>
Year 2000 problem as it relates to the above stated systems, it is not possible
to quantify any potential indirect effects that may result from the lack of Year
2000 readiness on the part of other third parties with whom the Company conducts
its business.
Widespread disruptions in the national or international economy, including
disruptions affecting the financial markets, resulting from Year 2000 issues,
could also have an adverse impact on the Company. The likelihood and effect of
such disruptions to residential, subsidized residential, and retail properties
is not determinable at this time. The Company's fallback position, if a
disruption does occur, is to rebuild its information systems from
contemporaneous manual monthly records maintained at the Company's main office.
Property sites consist mainly of single-story and low-rise buildings with very
little reliance on microprocessors imbedded in systems that are part of property
operating systems. Any possible disruption can be avoided by manually operating
these property systems.
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 to $4.0 million from $3.0 million for the three months ended June
30, 1999 and 1998, respectively. Dividends declared for the three months ended
June 30, 1999 were $0.18 per share, representing 57.3% of FFO, while dividends
declared for the three months ended June 30, 1998 were $0.17 per share
representing 64.4% of FFO.
FFO increased to $7.6 million from $5.7 million for the six months ended June
30, 1999 and 1998, respectively. Dividends declared for the six months ended
June 30, 1999 were $0.36 per share, representing 59.5% of FFO, while dividends
declared for the six months ended June 30, 1998 were $0.34 per share
representing 67.7% of FFO.
FFO was calculated as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before minority interests and
extraordinary items $ 1,563 $ 1,790 $ 2,857 $ 3,416
Real estate depreciation and amortization 2,428 1,252 4,798 2,390
---------------------------------------------------------
Funds from operations before minority interests 3,991 3,042 7,655 5,806
Minority interests in consolidated partnerships 38 34 72 63
---------------------------------------------------------
FFO $ 3,953 $ 3,008 $ 7,583 $ 5,743
=========================================================
</TABLE>
SEASONALLY
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
17
<PAGE>
statements in other public documents of the Company may be forward looking and
are subject to a variety of risks and uncertainties. Forward looking statements
would typically include words like "believes," "anticipates" or "estimates."
Many factors could cause actual results to differ materially from these
statements. These factors include, but are not limited to, (i) population shifts
which may increase or decrease the demand for rental housing, (ii) the value of
commercial and residential rental properties in the Northeast where all of the
Company's properties are located, in recent years, have fluctuated considerably,
(iii) the effect on the Company's properties of competition from new apartment
complexes which may be completed in proximity to such properties thereby
increasing competition, (iv) the effect of weather and other conditions which
can significantly affect property operating expenses, (v) the ability of the
Company to successfully integrate the operation of properties it has acquired or
may acquire into its business and (vi) other factors which might be described
from time to time in the Company's filings with the Securities and Exchange
Commission. In addition, the Company is subject to the effects of changes in
general business economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its 1999
Credit Facility. A hypothetical 100 basis point adverse move (decrease) in
interest rates along the entire interest rate yield curve would adversely affect
the net fair value of all interest sensitive financial instruments by $416,500
at June 30, 1999.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
NONE
Item 2: Change in Securities and Use of Proceeds
On May 1, 1999 the Company issued 314,846 Common Units valued at $11.05 per
Common Unit and $1.6 million in cash as a payment on the Acquisition Notes
Payable. The total value of the Common Units at the time of issuance in the
transaction was approximately $ 3.5 million.
The issuance of the Common Units referred to in the preceding paragraph was not
registered under the Securities Act of 1933 in reliance on the exemption
contained in Rule 506 thereunder on basis that each of the purchase in such
transaction was an accredited investor.
Item 3: Defaults upon Senior Securities
NONE
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 18, 1999 (the
"Annual Meeting"). At the Annual Meeting, the shareholders of the Company:
1. Elected all of the nominees for the Board of Directors
2. Ratified the selection of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31,
1999;
each as described in the Notice of Annual Meeting and Proxy Statement
distributed in connection with the Annual Meeting. The results of the voting of
the shareholders with respect to such matters is set forth below.
1. Election of Directors
Total Vote for Total Vote Withheld
Each Trustee For Each Trustee
------------ ----------------
J. Joseph Garrahy 5,846,335 0
Joseph R. LaBrosse 5,789,035 57,300
Gerald A. McNamara 5,788,445 57,890
2. The ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 1999
For: 5,831,535
Against: 13,000
Abstain: 1,800
Item 5: Other Information
NONE
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
--- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGISTRANT:
GROVE PROPERTY TRUST
August 12, 1999 By: /s/ Joseph R. LaBrosse
--------------------------------
Name: Joseph R. LaBrosse
(On behalf of the registrant and
as Chief Financial Officer)
20
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Grove Property Trust as of June 30, 1999
and for the six months then ended and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000920776
<NAME> Grove Property Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,045
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,771
<PP&E> 312,935
<DEPRECIATION> 13,216
<TOTAL-ASSETS> 325,490
<CURRENT-LIABILITIES> 19,163
<BONDS> 199,894
0
0
<COMMON> 85
<OTHER-SE> 71,911
<TOTAL-LIABILITY-AND-EQUITY> 325,490
<SALES> 0
<TOTAL-REVENUES> 31,646
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,848
<INCOME-PRETAX> 1,946
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,946
<DISCONTINUED> 0
<EXTRAORDINARY> 226
<CHANGES> 0
<NET-INCOME> 2,172
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
