UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
(Issuer's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class: Name of Each Exchange on Which Registered:
-------------------- ------------------------------------------
Common Shares of Beneficial Interest, American Stock Exchange, Inc.
$.01 par value
Securities registered pursuant to Section 12(g) of the Exchange Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant as of February 28, 1999 was $ 73,179,581.
The number of Common Shares of Beneficial Interest outstanding as of February
28, 1999 was 8,639,659.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement for 1999 Annual Meeting of Shareholders -
Part III of Form 10-K
<PAGE>
GROVE PROPERTY TRUST
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ITEM PAGE
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PART I
<S> <C>
1. Business 2
Recent Developments 2
Growth Strategies 3
Apartment Communities 5
Property Table 6
Insurance 8
Regulation 8
Environmental Matters 9
Employees 10
2. Properties 10
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 12
6. Selected Financial Data 15
7. Management's Discussion and Analysis of Financial Condition
and Results of 16 Operations
7a. Market Risk and Risk Management Policies 21
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants on Accounting and Financial 21
Disclosure
PART III
10. Directors and Executive Officers of the Registrant 21
11. Executive Compensation 21
12. Security Ownership of Certain Beneficial Owners and Management 21
13. Certain Relationships and Related Transactions 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
</TABLE>
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<PAGE>
PART 1
ITEM 1. BUSINESS
THE COMPANY
Grove Property Trust, a Maryland real estate investment trust (the "Company" or
"Grove") is a self-managed and self-administered real estate investment trust
("REIT") that is engaged in the acquisition, repositioning, management and
operation of mid-priced and subsidized multifamily and specialty retail
properties in the Northeastern United States. The Company is a fully integrated
real estate organization with in-house acquisition, repositioning and
renovation, financing, marketing, leasing and property management expertise.
As of March 15, 1999, Grove owned interests in and operated 61 Apartment
Communities containing a total of 6,526 units in Connecticut, Massachusetts and
Rhode Island and 4 specialty retail properties in Massachusetts and Maine
containing an aggregate of approximately 118,700 rentable square feet. The
Apartment Communities are mid-priced and subsidized apartment properties
consisting primarily of two- and three-story buildings in landscaped settings.
The Apartment Communities are well located within their markets and appeal to
middle income and moderate income residents who are generally "renters by
necessity", with the exception of the Boston suburban properties where residents
are renters by choice in many instances.
Grove's predecessors commenced operations in 1980. The Company completed its
initial public offering in 1994 with the acquisition of three apartment
properties. At that time, affiliates of Grove owned additional apartment
properties and other real estate assets outside of the Company and conducted
management and acquisition activities through entities that were also owned
outside of the Company. In 1996, management began to undertake a number of
strategic initiatives intended to maximize shareholder value. In March 1997, the
Company completed the following: (i) the creation of an Umbrella Partnership
REIT (an "UPREIT") structure by forming Grove Operating, L.P. (the "Operating
Partnership") to facilitate the consolidating transactions described below and
to provide potential sellers with a mechanism to defer their tax liability; (ii)
the acquisition through the Operating Partnership of 20 properties owned by
affiliates of Grove; (iii) the acquisition of the property management assets and
related liabilities of Grove Property Services Limited Partnership ("GPS"), the
entity that managed the properties owned by Grove as well as the 20 properties
owned by affiliates of Grove; (iv) a $30 million private placement (3,333,333
shares at $9.00 per share) of equity securities to investors that included,
among others, four investment funds managed by Morgan Stanley Group, Inc. and
the Oregon Public Employees Retirement Fund and (v) the closing of a $25 million
Credit Facility and a $15 million term loan facility (collectively, the
"Consolidation Transactions").
In November 1997, the Company completed a public offering underwritten by
Salomon Smith Barney and co-managed by Lehman Brothers. Simultaneously, the
Company sold additional shares directly to certain investors. The Company sold
an aggregate of 4,500,000 shares at a public offering price per share of $10
7/8.
On November 24, 1997, the date of the closing of the offering, the yearly
dividend was increased to $0.68 per Common Share. The proceeds from this
offering were primarily used to reduce the then outstanding corporate debt.
In April 1998, the Operating Partnership entered into a new two-year Revolving
Credit Facility (the "1998 Credit Facility") with its bank and retired the
three-year Revolving Credit Facility with a bank that was entered into in March
1997 (the "Original Revolving Credit Facility"). The new 1998 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.
On June 1, 1998, the Company obtained a $63.0 million ten-year term loan with a
lender. The net proceeds of the loan were used to repay an existing $15.0
million loan, acquire two properties in East Providence for $17.0 million (see
Note 2), pay down $27.0 million of the 1998 Credit Facility and the remaining
amount of approximately $3.0 million was deposited in working capital reserves
or used for transaction costs. Payments of interest only are due under the new
$63.0 million loan at an effective fixed interest rate of 6.71% and the loan
matures in June 2008. As of December 31, 1998, the Company's weighted average
interest rate on its long-term debt is approximately 7.75% and its weighted
average maturity is approximately 11.2 years.
During 1998, the Company purchased 3,605 apartments units and a 23,325 square
foot retail property for a total of approximately $171 million.
In January 1999, the indicated yearly dividend was increased to $0.72 per Common
Share.
As of December 31, 1998, the Company's assets were approximately $327.1 million
and its debt to total market capitalization ratio was approximately 57.4%.
The Company operates in three industry segments: residential, subsidized
residential and retail. Certain financial data on a segment basis is included in
Note 16 to the consolidated financial statements , included elsewhere, herein.
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<PAGE>
THE OPERATING PARTNERSHIP
The Operating Partnership was formed to act as the vehicle for the acquisition
of properties. Grove is the sole general partner of the Operating Partnership
and thereby controls the Operating Partnership. Using the Operating Partnership,
the Company is able to acquire properties in exchange for Common Units of the
Operating Partnership ("Common Units" or "OP Units"), which represent limited
partnership interests in the Operating Partnership. The recipients of Common
Units are restricted from transferring such Common Units for a period of one
year from the acquisition date. The Common Units are redeemable after such time
for cash (based on the fair market value of an equivalent number of Common
Shares at the time of such redemption) or, at the Company's option, for Common
Shares of the Company on a one-for-one basis, subject to certain anti-dilution
adjustments and exceptions. While the holders of Common Units determine whether
they want to redeem Common Units, the Company decides if the redemption price
will be paid in cash or in Common Shares. With the Operating Partnership, the
Company believes it is able to offer attractive purchase terms to owners of
properties who have little or no tax basis remaining in such properties. In many
cases, the immediate tax liability incurred by such owners upon a transfer of
such properties would be significant if the purchase price were paid in cash. By
utilizing the Operating Partnership structure, the Company can make payment in
Common Units, thereby deferring all or a portion of an owner's federal income
tax liability. During 1998, the Operating Partnership issued approximately
1,000,000 Common Units in conjunction with acquisition of 20 properties with
approximately 2,200 apartments. At December 31, 1998, Grove owned approximately
69.6% of the total partnership interests, including the sole general partner
interest, in the Operating Partnership, consisting of Grove's ownership of
8,639,659 Common Units.
BUSINESS OBJECTIVES AND GROWTH STRATEGIES
The Company's current long-term objectives are; (i) acquiring and, where
appropriate, repositioning and renovating under-managed multifamily properties
at significant discounts to replacement costs and at returns that enhance
shareholder value; (ii) aggressively managing its portfolio to increase revenues
and reduce operating costs; (iii) consistently providing quality service and a
desirable living environment to all of its residents. A variety of factors, many
of which are beyond the Company's control, may prevent the Company from
achieving these objectives. In addition, future developments and events may
cause the Company to redefine its objectives either by modifying current
objectives or by identifying additional ones.
ACQUISITIONS. The Company's primary growth strategy has been to acquire
under-managed, mid-priced apartment properties in the Northeastern United
States. Grove purchased $115 million of Residential property, $49 million of
Subsidized Residential property, and $7 million of Commercial property in 1998
and expects to devote substantial management time in 1999 integrating these
properties into its portfolio rather than aggressively pursuing additional
property acquisitions. Grove believes that opportunities for acquisitions in the
Northeastern United States are attractive because the region is generally
characterized by: (i) limited new construction due to significant barriers to
entry resulting from high construction costs, limited land availability, strict
zoning laws and extended permitting processes; (ii) a limited number of publicly
traded companies focusing on the acquisition of under-managed, mid-priced
multifamily communities; (iii) highly fragmented markets with many
small-to-medium sized family owned companies that own older apartment properties
in which the owners are looking to sell with minimal tax impact and (iv) many
older apartment properties where maintenance and improvements have been deferred
and where the Company believes selective capital improvements and professional
management may create opportunities for increased rents.
When evaluating potential acquisitions, the following factors are among those
the Company considers: (i) the demographic characteristics and resident profile
of the neighborhood; (ii) the age and quality of the property; (iii) the current
and projected cash flow of the property and the ability to increase cash flow
through return-oriented capital improvements; (iv) the potential for capital
appreciation of the property; (v) the terms of leases, including the potential
for rent increases; (vi) the potential for economic growth and the tax and
regulatory environment of the community in which the property is located; (vii)
the occupancy of and demand for properties of a similar type in the market and
(viii) competition from existing properties and the potential for the
construction of new properties in the area.
The Company's acquisitions of all Apartment Communities have ranged from single
communities in the $3 million range (88 apartments) to a $105 million portfolio
that totaled 2,160 units (the McNeil Portfolio).
REPOSITIONING AND RENOVATION. The Company evaluates, repositions and renovates
all acquired properties as appropriate. Subsidized residential properties in the
portfolio receive necessary renovations as required. Repositioning of subsidized
residential assets may occur upon partial conversion to market rates. When
pursuing an acquisition, members of the Company's in-house acquisition,
development and property management teams work together in evaluating potential
renovation and repositioning strategies and budgets. Additionally, the Company
reviews its portfolio to determine where opportunities exist to make incremental
capital improvements that meet its targeted returns on cost. Typical renovations
include replacing carpets, appliances, kitchen cabinets, counter tops, bathroom
fixtures and vanities as well as upgrading landscaping, adding fitness centers
and community rooms, repaving existing parking spaces and adding additional
parking spaces.
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<PAGE>
FINANCING STRATEGIES
The Company intends to maintain a debt-to-total market capitalization ratio of
60% or less. At December 31, 1998, the Company had debt totaling $196.4 million
and a ratio of debt-to-total market capitalization of approximately 57.4% based
on the closing price of the Company's Common Shares on the American Stock
Exchange of $11.75 and assuming conversion of all OP Units. The weighted average
interest rate on the Company's mortgage debt as of December 31, 1998 was
approximately 7.75% and the weighted average maturity was approximately 11.2
years.
REVOLVING CREDIT FACILITY
In March 1997, the Operating Partnership entered into the Original Revolving
Credit Facility with a bank, guaranteed by the Company for up to $25.0 million.
Borrowings under the Original Revolving Credit Facility were collateralized by
thirteen properties and interest was payable monthly at a floating rate of 1.5%
above the 30, 60, or 90-day LIBOR rate.
In April 1998, the Operating Partnership entered into the 1998 Credit Facility
with its bank and retired the Original Revolving Credit Facility. The new 1998
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 1998 Credit Facility bears interest payable monthly at a floating rate
of 1.5% above the 30, 60, or 90-day LIBOR rate. The 1998 Credit Facility is
available to fund future property acquisitions and up to $5.0 million is
available to fund working capital needs. As of December 31, 1998, the 1998
Credit Facility had $34.25 million outstanding. The outstanding credit line
balance was used primarily for the acquisition of properties.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
GENERAL. The following is a discussion of certain current investments, financing
and other practices of the Company. These practices may be amended or revised
from time to time without a vote of the Company's shareholders, except that the
Company cannot change its policy of holding its assets and conducting its
business principally through the Operating Partnership without the consent of
the holders of Common Units as provided in the Agreement of the Operating
Partnership. No assurance can be given that the Company's objectives will be
attained or that the value of the Company will not decrease.
INVESTMENT OBJECTIVES AND PRACTICES. The Company's investment objective is to
provide quarterly distribution of a portion of cash available for distribution
and to achieve long-term capital appreciation through increases in cash flow
from operations, reinvestment of retained cash and growth of the Company's
property portfolio through accretive acquisitions and strategic return oriented
repositioning capital improvements. The Company's practice is to acquire assets
primarily for generation of current income and appreciation.
The Company may purchase or lease income-producing multifamily, mixed-use or
specialty retail properties for long-term investment, expand and improve the
properties acquired, or sell such properties, in whole or in part, when
circumstances warrant. Any financing or indebtedness secured by the Company's
properties will have a priority over the Common Shares in the event of a forced
sale or upon liquidation of any property in the Company's portfolio which serves
as such security.
While the Company has emphasized equity real estate investments in multifamily
properties, it may, at the discretion of the Board, invest in specialty retail
or mixed-use buildings, equity real estate investments in other types of
properties, mortgages (including participating or convertible mortgages), stock
of other REIT's and other real estate interests. The Company does not currently
intend to invest in mortgages or stock of other REIT's. The investment by the
Company in securities of other REIT's, other concerns engaged in real estate
activities or other issues is subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification.
DISPOSITION. The Company will periodically review the total assets in the
Company's portfolio. The Company may dispose of some of its properties, based
upon management's strategic review of its total portfolio.
FINANCING PRACTICES. The Company expects to continue to maintain a conservative
debt to total market capitalization ratio of 60% or less. Such ratio represents
total debt of the Company as a percentage of the market value of the Common
Shares (assuming the exchange of all Common Units for Common Shares) plus total
debt of the Company. The Company's Third Amended and Restated Declaration of
Trust, as amended (the "Charter"), and Bylaws, however, do not limit the amount
or percentage of indebtedness that the Company may incur. In addition, from time
to time, the Company may modify its debt practice in light of changing economic
conditions, relative costs of debt and equity capital, market values of its
properties, general conditions in the market for debt and equity securities,
fluctuations in the market price of the Common Shares, growth and acquisition
opportunities and other factors. Accordingly, the Company may increase or
decrease its debt to total market capitalization above or below 60%.
OTHER. The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
(i) to invest in the securities of other issuers for the purpose of exercising
control over such issuer; (ii) to underwrite securities of other issuers or
(iii) to trade actively in loans or other investments.
-4-
<PAGE>
THE APARTMENT COMMUNITIES
The Company at March 15, 1999 owned interests in and operated 61 Apartment
Communities containing a total of 6,526 units. The Apartment Communities are
mid-priced and subsidized apartment properties that consist primarily of two-
and three-story buildings in landscaped settings. The Apartment Communities are
well located within their markets and appeal to middle income and moderate
income residents who are generally "renters by necessity", with the exception of
the Boston suburban properties where residents are renters by choice in many
instances. The Apartment Communities are located in the following states:
<TABLE>
<CAPTION>
Number of Percentage of
--------- -------------
Apartment Number of Number of Subsidized Total
--------- --------- -------------------- -----
State Communities Residential Units Residential Units Apartment Units
- ----- ----------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Connecticut 29 2,875 0 44%
Massachusetts 27 1,642 1,231 44%
Rhode Island 5 778 0 12%
----- ----- ----- ----
Totals as of March 1999 61 5,295 1,231 100%
===== ===== ===== ====
</TABLE>
Of the current 61 Apartment Communities, 32 have 100 units or more, with the
largest having 416 units and the smallest having 18 units. Thirteen Apartment
Communities totaling 1,231 units are subsidized under various programs
administered by the U.S. Department of Housing and Urban Development ("HUD") or
the Massachusetts Housing Finance Authority ("MHFA"). The average size of the
Apartment Communities is approximately 107 units. Of the 6,526 units in the
Apartment Communities, 240 units or 3.7% are studios, 2,728 units or 41.9% are
one bedrooms, 3,302 units or 50.6% are two bedrooms, 242 units or 3.7% are three
bedrooms and 4 units or 0.1% are four bedrooms. The Apartment Communities
contain an aggregate of 6,382,760 million rentable square feet with an average
unit size of 978 square feet. For the twelve months ended December 31, 1998, the
Apartment Communities had an average economic occupancy rate of 96.0% and an
average monthly rental rate of $758 per unit.
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<PAGE>
<TABLE>
<CAPTION>
PROPERTY TABLE
Average Monthly
---------------
Average Economic Rental Rate
---------------- -----------
Occupancy Rate (1) Per Unit (2)
------------------ ------------
Average Year Year Year Year
Percentage Number Year Year Sq. Ft. Ended Ended Ended Ended
Property Town/City Ownership of Units Built Renovated Per Unit 12/31/97 12/31/98 12/31/97 12/31/98
-------- --------- --------- -------- ----- --------- -------- -------- -------- -------- --------
Connecticut
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
208-210 Main St (3) Manchester 100% 28 1969 1988 929 95.8% 95.7% $780 $809
Arbor Commons (3) Ellington 100% 28 1975 1988 780 96.6% 95.4% 695 713
Avon Place Avon 99% 156 1973 1995 1,448 98.3% 99.0% 867 914
Barons Apartments Southington 100% 54 1970 1994 900 95.8% 90.0% 710 742
Bradford Apartments Newington 91% 64 1964 1989 894 96.6% 94.7% 696 714
Briar Knoll Apts Vernon 100% 150 1986 n/a 867 - 94.6% - 645
(4)(5)
Brooksyde Apts (4) West Hartford 100% 80 1945 1997 800 96.5% 97.6% 684 727
Burgundy Studios Middletown 100% 102 1973 1996 443 97.2% 95.7% 436 446
Cambridge Estates Norwich 100% 92 1977 1990 939 97.7% 91.9% 737 756
Colonial Village Plainville 100% 104 1968 1989 981 97.1% 92.2% 747 780
Dogwood Hill Hamden 100% 46 1971 1993 1,330 97.5% 96.5% 743 766
Summit & Birch Hill Farmington 100% 184 1967 1996 937 96.8% 97.5% 785 823
Fox Hill Apartments Enfield 97% 168 1974 1991 796 93.9% 96.2% 667 684
Fox Hill Commons Vernon 100% 74 1965 1989 849 94.5% 94.6% 710 736
Greenfield Village Rocky Hill 100% 131 1965 1997 735 - 92.9% - 690
(4)(5)
Hamden Centre Hamden 100% 65 1968 1993 873 95.1% 94.3% 655 676
High Meadow (4)(6) Ellington 100% 100 1975 n/a 691 93.4% 95.4% 595 599
Hilltop (4)(5) Norwich 100% 120 1987 n/a 986 - 88.4% - 661
Glastonbury Center Glastonbury 100% 104 1962 1989 961 90.8% 96.7% 801 832
Loomis Manor West Hartford 91% 43 1948 1990 1,138 99.5% 94.8% 848 882
Ocean Reef New London 97% 163 1962 1995 829 94.4% 89.1% 650 667
Park Place West West Hartford 100% 63 1961 1989 861 97.5% 95.6% 671 687
Pinney Brook (4)(5) Ellington 100% 34 1968 n/a 882 - n/a - n/a
Parkwood (4) East Haven 100% 102 1975 n/a 857 - 96.6% - 620
Sandalwood New London 97% 39 1977 1996 517 97.6% 95.1% 464 481
Ribbon Mill (4)(5) Manchester 100% 104 1908 n/a 1,221 - 94.4% - 681
River's Bend Windsor 100% 358 1973 1996 1,038 96.0% 97.4% 752 778
Westwynd Apts West Hartford 91% 46 1969 1990 901 97.2% 95.7% 659 673
Woodbridge Newington 100% 73 1968 1991 792 99.2% 97.0% 724 741
Massachusetts
- -------------
929 House (4) Cambridge 100% 127 1975 n/a 752 - 98.8% - 1,075
Abington Grove (4) Abington 100% 90 1968 n/a 867 - 92.8% - 686
Cedar Glen (4) (7) Reading 100% 114 1980 n/a 931 - 99.7% - 1,023
Chestnut Glen (4) Abington 100% 130 1983 n/a 1,192 - 98.2% - 1,051
(7)
Coachlight Village Agawam 100% 88 1967 1994 655 - 97.4% - 556
(4)
Conway Court (4) Roslindale 100% 28 1920 n/a 839 - 91.5% - 449
(7)
Dean Estates Taunton 100% 58 1984 n/a 1,014 97.5% 96.1% 687 705
Four Winds Fall River 100% 168 1987 1996 1,089 95.2% 95.3% 692 725
Glen Grove (4) (7) Wellesley 100% 125 1979 n/a 1,294 - 99.4% - 1,043
Glen Meadow (4) Franklin 100% 288 1971 n/a 1,017 - 93.9% - 464
Gosnold Grove (4) East Falmouth 100% 33 1978 n/a 796 - 96.8% - 843
(7)
Highland Glen (4) Westwood 100% 180 1979 n/a 1,250 - n/a - n/a
(7)
Longfellow Glen Sudbury 100% 120 1984 n/a 905 - 95.8% - 1,130
(4) (7)
Nehoiden Glen (4) Needham 100% 61 1978 n/a 951 - 99.0% - 1,048
(7)
Noonan Glen (4) (7) Winchester 100% 18 1983 n/a 997 - 99.0% - 1,022
Norton Glen (4) (7) Norton 100% 150 1983 n/a 1,100 - 93.2% - 1,055
Old Mill Glen (4) (7) Maynard 100% 50 1983 n/a 1,120 - 92.7% - 1,215
Phillips Park (4) Wellesley 100% 49 1988 n/a 1,245 - 102.5% - 1,351
Rockingham Glen (4) West Roxbury 100% 143 1974 n/a 1,480 - 96.1% - 933
Security Manor Westfield 89% 63 1971 1988 1,150 99.8% 99.0% 584 601
Sturbridge Meadows Sturbridge 100% 104 1985 1998 1,208 - 93.5% - 609
(4)
Summerhill Glen Maynard 100% 120 1980 n/a 801 - 94.8% - 426
(4) (7)
Van Deene Manor (3) West 89% 109 1970 1990 664 99.3% 96.8% 618 634
Springfield
Village Arms (4) (5) Acton 100% 123 1973 1998 732 - 95.1% - 777
Webster Green (4) Needham 100% 76 1985 n/a 1,342 - 100.8% - 1,308
Westwood Glen (4) Westwood 100% 156 1972 n/a 817 - 94.2% - 1,020
Wilkins Glen (4) (7) Medfield 100% 102 1975 n/a 1,249 - 104.5% - 547
Rhode Island
- ------------
Dean Estates II Cranston 97% 48 1970 1994 1,170 96.5% 96.9% 701 714
Royale Cranston 97% 76 1976 1993 1,151 91.7% 97.4% 700 724
Tanglewood (4)(5) West Warwick 100% 176 1973 1998 1,042 - 96.3% - 647
Winchester Park (4) East Providence 100% 416 1972 1998 881 - 94.5% - 558
Winchester Wood (4) East Providence 100% 62 1989 1998 1,330 - 98.2% - 934
------- -------------------------------------------------
Total/Weighted Average 6,526 978 96.1% 96.0% $702 $758
======= =================================================
Same Community Weighted Average (4) 96.4% 95.8% $706 $731
=================================================
</TABLE>
(NOTES ON FOLLOWING PAGE)
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<PAGE>
(1) Average economic occupancy rate is derived by dividing; actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(2) Average monthly rental rate per unit is derived by dividing; gross
potential rental income by total number of leasable units.
(3) The following Apartment Communities contain additional space, which is
rented to commercial tenants:
Apartment Communities Commercial Sq. Ft.
- --------------------- ------------------
208-210 Main St. 9,597
Arbor Commons 4,016
Van Deene Manor 1,630
------
Total 15,243
======
(4) The same community weighted average amounts represent the average occupancy
and rental rates for the 27 Apartment Communities owned by Grove or its
affiliated predecessors for the years 1996, 1997 and 1998. 34 properties
were purchased by Grove or its affiliated predecessors during or subsequent
to such periods and have been excluded from the same community amounts. The
following sets forth the acquisition dates for such Apartment Communities:
<TABLE>
<CAPTION>
Apartment Communities Acquisition Date Apartment Communities Acquisition Date
- --------------------- ---------------- --------------------- ----------------
<S> <C> <C> <C>
Brooksyde Oct-96 Chestnut Glen Oct-98
Greenfield Village Jul-97 Conway Court Oct-98
High Meadow Oct-97 Glen Grove Oct-98
Pinney Brook Dec-97 Glen Meadow Oct-98
Briar Knoll Dec-97 Gosnold Grove Oct-98
Hill Top Dec-97 Longfellow Glen Oct-98
Ribbon Mill Dec-97 Nehoiden Glen Oct-98
Village Arms Dec-97 Noonan Glen Oct-98
Tanglewood Jan-98 Norton Glen Oct-98
Coachlight Village Apr-98 Old Mill Glen Oct-98
Winchester Park Jun-98 Phillips Park Oct-98
Winchester Woods Jun-98 Summerhill Glen Oct-98
Sturbridge Meadows Aug-98 Webster Green Oct-98
Parkwood Aug-98 Westwood Glen Oct-98
929 House Oct-98 Wilkins Glen Oct-98
Abington Grove Oct-98 Rockingham Glen Nov-98
Cedar Glen Oct-98 Highland Glen Dec-98
</TABLE>
(5) These seven properties were purchased from non-affiliated parties in 1997
or 1998, as noted in note 4 above. Information on these properties is not
available for the entirety of the periods covered in the above table. (6)
High Meadow was purchased in October 1997 from a non-affiliated party. (7)
These thirteen properties are subsidized residential properties.
(6) High Meadow was purchased in October 1997 from a non-affiliated party.
(7) These thirteen properties are subsidized residential properties.
THE RETAIL PROPERTIES
Although the Company's principal focus is the acquisition and ownership of
apartment communities, it owns and may in the future acquire mixed-use and
specialty retail properties. The Company currently owns 4 retail properties. One
of these properties is a community shopping center in Longmeadow, Massachusetts,
that contains approximately 79,000 rentable square feet of retail and office
space. The shopping center, which was originally constructed by an unaffiliated
owner in 1962 and subsequently expanded in 1978, was purchased by an affiliate
of the Company in 1994 and renovated and retenanted by management at various
times from 1994 through 1998. For the year ended December 31, 1998, the shopping
center had an average annual base rental rate of $13.56 per square foot and was
99.3 % leased. One of these properties is a shopping center in Freeport, Maine,
that contains approximately 23,300 rentable square feet of retail space. The
shopping center was originally constructed by an unaffiliated owner in 1985. For
the year ended December 31, 1998, the shopping center had an average annual base
rental of $22.92 per square foot and was 100% leased.
The other two retail properties are specialty retail properties, which were
acquired from an affiliate of the Company on October 31, 1997. These properties
are in the historic district of Edgartown, Massachusetts. The two properties
were originally constructed in the 1800's. The first building, known as the
Wharf Building, contains approximately 11,000 rentable square feet, and was
renovated by the previous affiliated owner in 1996. As of December 31, 1998, the
Wharf Building had an average annual rental rate of $29.28 per square foot and
was 100 % leased. The second building, the Cornerblock, contains approximately
5,400 rentable square feet and was substantially renovated by an unaffiliated
predecessor owner in 1988. For the twelve months ended December 31, 1998, the
Cornerblock had an average annual rental rate of $32.52 per square foot and was
98.0% leased.
PROPERTY MANAGEMENT
Grove manages its portfolio through its staff of approximately 242 professional
and support personnel and approximately 33 part-time support personnel,
including the Chief Operating Officer and regional property managers at the
corporate level and property managers, service technicians, leasing agents,
porters and landscapers at the property level. The Chief Operating Officer,
regional property
-7-
<PAGE>
managers and on-site personnel are supported by 30 accounting and administrative
employees.
During 1996, 1997 and 1998, the Company experienced average resident retention
rates of 61%, 62% and 68%, respectively. The management division implements
on-site management programs, accounting systems, marketing systems and resident
quality control and retention procedures. On-site property management teams
perform leasing and rent collection functions and coordinate resident services.
The Company uses newspaper advertisements, resident referrals, apartment guides
and the Internet to market and advertise the Apartment Communities. The Company
supplements its marketing and advertising effort with point-of-purchase
materials and well-maintained properties with strong curb appeal. The Company's
marketing personnel market the Apartment Communities on a continual basis rather
than waiting until vacancies occur. The Company does not need to market its
subidized residential properties due to the fact these properties have resident
waiting lists. In addition, the Company does not market its retail properties.
On-site management is assisted by the regional managers and accounting
department personnel. Regional managers monitor performance criteria at each
Apartment Community, and the accounting division audits and monitors each
Apartment Community's financial records.
Prior to entering into commercial leases, Grove conducts background
investigations and credit checks of potential commercial tenants.
Prior to entering into residential and subsidized residential leases, Grove
conducts background investigations of potential residents, including credit
checks, prior landlord references and employer verifications. Substantially all
of the apartments in the Apartment Communities are rented pursuant to standard
twelve-month leases, which facilitate uniform lease administration by helping to
standardize rent collections, security deposit dispositions, evictions, repairs
and renewals. The Company typically requires residents to provide security
deposits equal to one month's rent. In addition, the Company manages lease
expirations to ensure that vacancies occur on a staggered basis.
The Company's marketing and leasing procedures are designed to ensure compliance
with all federal, state and local laws and regulations. Underwriting guidelines
for prospective residents comply with FHAA and ADA (both as defined below)
regulations and are designed to stabilize cash flows. Approximately 13 Apartment
Communities are subsidized under various programs administered by HUD or the
MHFA.
INSURANCE
Grove carries comprehensive liability, fire, flood (where required) and extended
coverage and rental loss insurance on all of its properties with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses which may be either
uninsurable or not economically insurable, such as those resulting from
earthquakes, floods, tidal waves, explosion of water pipes, nuclear hazards,
wars, civil disturbances and environmental matters.
COMPETITION
All of the Apartment Communities are located in developed areas that include
other apartment communities. The number of competitive apartment properties in a
particular area could have a material effect on the Company's ability to lease
apartment units or at any newly acquired properties and on the rental rates
charged. There are numerous real estate companies, including those operating in
the markets in which the Company's properties are located, which compete with
the Company in seeking properties for acquisition and for tenants to occupy such
properties. The Company may compete with companies that have greater resources
than the Company. Further, the availability of single-family housing especially
with lower than normal mortgage rates and other forms of multifamily residential
properties, such as manufactured housing communities, provide alternatives to
existing and potential residents of apartment communities.
REGULATION
GENERAL. Multifamily apartment properties and retail properties are subject to
various laws, ordinances and regulations, including regulations relating to
recreational facilities such as swimming pools, activity centers and other
common areas.
AMERICANS WITH DISABILITIES ACT. The Company's properties must comply with Title
III of the Americans with Disabilities Act (the "ADA") to the extent that such
properties are "public accommodations" and/or "commercial facilities" (each as
defined by the ADA). Compliance with the ADA could require removal of structural
barriers to handicapped access in certain public areas of properties where such
removal is readily achievable. The ADA does not, however, consider residential
properties, such as multifamily properties, to be public accommodations or
commercial facilities, except to the extent portions of such facilities, such as
a leasing office, are open to the public. Noncompliance with ADA requirements
and applicable state laws could result in imposition of fines or an award of
-8-
<PAGE>
damages to private litigants. The Company may incur additional costs to comply
with such laws.
FAIR HOUSING AMENDMENTS ACT OF 1988. The Fair Housing Amendments Act of 1988
(the "FHAA") requires multifamily properties first occupied after March 13, 1990
to be accessible to the handicapped. Noncompliance with the FHAA could result in
the imposition of fines or an award of damages to private litigants.
RENT CONTROL LEGISLATION. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to recover
increases in operating expenses and costs of capital improvements from
residents. Enactment of such laws has been considered from time to time in other
jurisdictions, although such laws have not been adopted in the jurisdictions in
which the Company currently operates. The regulations of HUD and MHFA applicable
to the Company's subsidized residential properties limit the Company's ability
to increase rents at these properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations relating
to the protection of the environment, a current or previous owner or operator of
real estate may be held liable for the costs of investigations or performing
removal or remediation of certain hazardous or toxic substances or petroleum
products released on, under, in, emitting from, or located on, under or in the
property and may be held liable to a governmental entity or third parties for
damages, investigation, remediation, or other costs associated with such
contamination. These laws often impose liability without regard to whether the
owner was responsible for, or even knew of, the presence of such hazardous or
toxic substances or petroleum products. The costs of investigation, removal or
remediation of such substances may be substantial, and the presence of such
substances may adversely affect the owner's ability to rent or sell the property
or to borrow using such property as collateral and may expose it to liability
resulting from any release of or exposure to such substances. Moreover, certain
loan documents provide for recourse liability in connection with hazardous or
toxic substances. Persons who arrange for the disposal or treatment of hazardous
or toxic substances at another location may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is owned or operated by such person. Certain
environmental laws impose liability for release of asbestos containing materials
into the air, and third parties may also seek recovery from owners or operators
of real properties for personal injury associated with asbestos containing
materials and other hazardous or toxic substances or petroleum products. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties regulated by such laws, ordinances, and regulations
relating to the protection of the environment or as having arranged for the
off-site disposal or treatment of hazardous or toxic substances and, therefore,
if environmental contamination were to be found at such real properties or
off-site locations, the Company could be potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental penalties and injuries to persons and property.
Federal legislation requires owners and landlords of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers of
the properties any known lead-paint hazards and will impose treble damages for
failure to give the required notice. The existence of lead-based paint in a
property may result in lead poisoning in children residing therein if chips or
particles of lead-based paint are ingested, and the Company may be held liable
under state laws for any injuries caused by ingestion of lead-based paint by
children living at the Apartment Communities or any apartment properties
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior Phase I)
or similar environmental assessments by independent environmental consultants.
Phase I assessments are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed property and surrounding
properties. Phase I assessments generally include a historical review, a public
records review, a preliminary investigation of the surveyed site and surrounding
properties, and preparation and issuance of a written report, but do not include
soil sampling or subsurface investigations. The environmental assessments
identify underground storage tanks at the following properties: Tanglewood
Village, Glen Grove, Conway Court, Nehoiden Glen, Chestnut Glen, Abington Grove,
Cedar Glen, Noonan Glen, Longfellow Glen and Rockingham Glen. The underground
storage tank at Tanglewood Village has been removed and replaced with a new
unit, Rockingham Glen's storage tank was removed by the previous owner and the
property has been fully converted to natural gas eliminating the need for any
future underground storage tanks. The remaining new properties are awaiting
contracts for future removal and replacement of their underground storage tanks.
Various environmental laws and regulations also control how certain activities
can or must be conducted at the Company's properties. Such requirements govern
maintenance activities, renovation projects and other worker operations
involving asbestos or lead-based paint. They also may govern air emissions,
wastewater discharges, waste management or similar activities related to
operation of the Company's properties.
-9-
<PAGE>
Under various laws and regulations, owners and operators of underground and
aboveground storage tanks containing petroleum are obligated to meet certain
construction and operating standards. In addition, such tank owners and
operators are responsible for remediating any contamination caused by petroleum
released from such tanks.
Grove's environmental assessments of its properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on its business, assets or results of operations taken as a whole, nor is
the Company aware of any such material environmental liability. Nonetheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that material environmental liabilities exist of which the
Company is unaware. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations or new interpretations of existing laws or regulations
will not impose any material environmental liability or (ii) the current
environmental condition of the Company's properties will not be affected by
tenants, by the condition of land or operations in the vicinity of the Company's
properties (such as the presence of leaking underground storage tanks), or by
third parties unrelated to the Company so as to impose any material
environmental liability.
EMPLOYEES
As of February 15, 1999 the Company employed approximately 280 persons including
part time employees and its executive officers, none of whom is represented by a
labor union. The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The information concerning the Company's properties contained in Item 1 hereof
under the captions "The Apartment Communities" and "The Retail Properties" is
incorporated herein by reference.
Certain of the Company's properties secure mortgage indebtedness on such
property as summarized by the following table.
-10-
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Total Book Value
Outstanding at Fair Value Principal Amount Contractual
Name of Property December 31, 1998 Step Up (3) Outstanding Interest Rate Maturity Date
- ---------------- ----------------- ----------- ---------------- ------------- -------------
(amounts in
thousands)
<S> <C> <C> <C> <C> <C>
Avonplace $ 6,342 $ 6,432 6.71% (1) May 2008
Brooksyde 1,937 1,937 6.71% (1) May 2008
Coachlight Village 2,097 2,097 6.71% (1) May 2008
Colonial Village 3,584 3,584 6.71% (1) May 2008
Dean Estates II 1,225 1,225 6.71% (1) May 2008
Four Winds 6,005 6,005 6.71% (1) May 2008
Fox Hill Apartments 5,554 5,554 6.71% (1) May 2008
River's Bend 12,389 12,389 6.71% (1) May 2008
Summitt & Birch Hill 7,286 7,286 6.71% (1) May 2008
Royale 2,018 2,018 6.71% (1) May 2008
Barons Apartments 1,229 1,229 7.25% June 2013
Bradford Apartments 1,958 1,958 6.71% (1) May 2008
Burgundy Studios 1,822 1,822 6.71% (1) May 2008
Cambridge Estates 4,299 4,299 7.04% (2) January 2006
Parkwood 2,882 2,882 7.88% October 2031
Sturbridge Meadows 2,412 2,412 10.08% November 2019
Fox Hill Commons 2,196 2,196 6.71% (1) May 2008
Glastonbury Center 4,358 4,358 8.33% December 2003
Loomis Manor 1,768 1,768 6.71% (1) May 2008
Ocean Reef 2,292 2,292 7.49% September 2005
Winchester Woods 2,376 2,376 7.05% December 2005
Woodbridge 2,304 2,304 6.71% (1) May 2008
Dean Estates 1,989 1,989 7.09% December 2000
Longmeadow Shops 4,000 4,000 7.00% December 2007
Security Manor 1,444 1,444 6.71% (1) May 2008
Van Deene Manor 3,071 3,071 6.71% (1) May 2008
Glen Meadow 2,884 2,884 6.19% March 2013
Westwood Glen 3,468 3,468 6.19% April 2013
Rockingham Glen 4,193 $ 222 4,415 7.46% April 2018
Wilkins Glen 1,964 433 2,397 8.96% April 2016
Summerhill 2,209 295 2,504 7.46% April 2018
Abington Grove 1,922 158 2,080 10.05% November 2001
Nehoiden Glen 1,142 133 1,275 8.20% May 2008
Gosnold Grove 770 41 811 7.69% April 2016
Glen Grove 3,338 351 3,689 8.20% October 2009
Conway Court 515 78 593 7.90% April 2016
Norton Glen 5,275 2,049 7,324 12.47% June 2013
Cedar Glen 3,274 354 3,628 8.40% October 2009
Highland Glen 6,518 404 6,922 7.50% September 2022
Chestnut Glen 5,221 925 6,146 9.70% December 2011
Noonan Glen 661 127 788 9.75% June 2011
Old Mill Glen 2,209 884 3,093 12.26% October 2012
Longfellow Glen 5,304 2,189 7,493 12.26% June 2013
Webster Green 4,572 131 4,703 7.55% December 2005
929 House 5,354 394 5,748 7.40% April 2018
Phillips Park 3,090 253 3,343 8.39% November 2006
-----------------------------------------
Total $152,720 $9,421 $162,141
=========================================
</TABLE>
-11-
<PAGE>
(1) These seventeen properties secure the Company's $ 63 million interest only
first mortgage note. The effective interest rate on this note is 6.71%.
(2) This loan is secured by three properties, Cambridge Estates, Dogwood, and
Hamden Center.
(3) These amounts represent the mortgage step up required by generally accepted
accounting principles to state the debt at fair value assuming a 7.0%
interest rate.
Reference is also made to Note 5 to the Company's Consolidated Financial
Statements for the year ended December 31, 1998 included elsewhere herein.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings, other than
litigation arising in the ordinary course of business, some of which is expected
to be covered by liability insurance and all of which, collectively, is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Shares of Beneficial Interest, $.01 par value (the "Common
Shares") are listed on the American Stock Exchange (the "AMEX") (Regular List)
under the symbol "GVE." Prior to November 1997, the Common Shares were listed on
the Emerging Company Marketplace of the AMEX. The following table sets forth for
the periods indicated the high and low sale prices as reported on the AMEX and
the dividends declared and paid by the Company on each Common Share for each
such period. All 1997 prices and dividends have been adjusted to reflect the
share split and share dividend paid by the Company in March 1997.
1998 Quarter Ending
-------------------
Dividend Per
High Low Common Share
---- --- ------------
March 31, 1998 $ 10.938 $ 10.125 $ 0.17
June 30, 1998 $ 11.250 $ 10.000 $ 0.17
September 30, 1998 $ 10.875 $ 8.750 $ 0.17
December 31, 1998 $ 11.750 $ 9.250 $ 0.17
1997 Quarter Ending
-------------------
Dividend Per
High Low Common Share
---- --- ------------
March 31, 1997 $ 10.371 $ 7.719 $ 0.1558 (1)
June 30, 1997 $ 11.250 $ 9.625 $ 0.1890 (2)
September 30, 1997 $ 12.375 $ 10.625 $ 0.1575
December 31, 1997 $ 12.000 $ 10.062 $ 0.1620
(1) Represents the dividend declared and paid for the period beginning on
January 1, 1997 and ending on March 14, 1997, the date of the consummation
of the Consolidation Transactions.
(2) Represents the dividend declared and paid for the period beginning on March
15, 1997 and ending June 30, 1997.
-12-
<PAGE>
The Company made no sales of Common Shares during 1996, 1997 or 1998 that were
not registered under the Securities Act of 1933, except for sales for which
information has been previously included in a Quarterly Report on Form 10-Q or
Form 10-QSB.
EQUITY OFFERINGS AND OP UNIT ISSUANCES
In March 1997, the Company completed a private offering of 3,333,333 of Common
Shares at $9.00 per share and received net proceeds of approximately $27 million
in connection therewith.
In March 1997, the Company, through the Operating Partnership, issued 2,114,439
OP Units at $9.00 per OP Unit in exchange for partnership interests in 20
properties owned by affiliates of the Company and the assets and related
liabilities of GPS, the entity that managed the Company's properties. The total
value of the OP Units at the time of issuance for the above transactions was
approximately $19 million.
In June 1997, the Company, through the Operating Partnership, issued 420,183 OP
Units at $10.00 per OP Unit in exchange for partnership interests in 3
properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for the above transactions was approximately $4.2
million.
In September 1997, the Company, through the Operating Partnership, issued
325,836 OP Units at $10.50 per OP Unit in exchange for partnership interests in
3 properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for the above transactions was approximately $3.4
million.
In October 1997, the Company, through the Operating Partnership, issued 143,334
OP Units at $10.50 per OP Unit in exchange for partnership interests in 2
properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for the above transaction was approximately $1.5
million.
In November 1997, the Company completed a registered public offering of
3,141,475 Common Shares and a concurrent offering to certain institutional
investors of 1,358,525 Common Shares both at $10.875 per share and received net
proceeds of approximately $45.2 million in connection therewith.
In April 1998, the Company, through the Operating Partnership, issued 5,818 OP
Units at $10.50 per OP Unit in exchange for partnership interests in one
property owned by an affiliate of the Company. The total value of the OP Units
at the time of issuance for the above transaction was approximately $0.06
million.
From April to December 1998, 252,153 OP Units were redeemed for cash at a
weighted average cost of $10.26 per OP Unit.
From July to December 1998, 35,307 OP Units were exchanged for the Company's
Common Shares on a one-for-one basis. The offer and sale of these shares was
registered on the Company's Registration Statement on Form S-3 (no. 333-48551).
From September to December 1998, 304,630 Common Shares were repurchased by the
Company at a weighted average cost of $9.79 per Common Share.
In September 1998, the Company issued 63,153 Common Shares to Executive Officers
under the 1996 Share Incentive Plan. The offer and sale of these shares was
registered on the Company's Registration Statement on Form S-8 (no. 333-53653).
In October 1998, the Company, through the Operating Partnership, issued 845,569
OP Units at $9.82 per OP Unit in exchange for partnership interests in 17
properties owned by an unaffiliated party. The total value of the OP Units at
the time of issuance for the above transaction was approximately $8.3 million.
In addition, on October 31, 1998, the Company, through the Operating
Partnership, issued 73,440 OP Units at $10.33 per OP Unit in exchange for
partnership interests in a property owned by an unaffiliated third party. The
total value of the OP Units at the time of issuance for this transaction was
approximately $0.8 million.
In November 1998, the Company sold 392,000 Common Shares directly to Executive
Officers of the Company at a price of $ 10.25 per share (the then current market
price per share).
In November 1998, the Company, through the Operating Partnership, issued 104,525
OP Units at $10.40 per OP Unit in exchange for partnership interests in a
property owned by an unaffiliated third party. The total value of the OP Units
at the time of issuance for the above transaction was approximately $1.1
million.
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<PAGE>
In January 1999, effective December 31, 1998, the Company, through the Operating
Partnership issued 23,091 OP Units at $11.40 per OP Unit in exchange for
partnership interest in a property owned by an unaffiliated third party. The
total value of the OP Units at the time of issuance for the above transaction
was approximately $0.3 million.
Except as otherwise stated above, all of the transactions referred to above were
not registered under the Securities Act of 1933 in reliance on the exemption
contained in Rule 506 thereunder on the basis that each of the purchasers in
such transaction was an accredited investor.
DIVIDENDS
During 1998, the Company declared dividends totaling $0.68 per Common Share, or
approximately 63% of its Funds from Operations during the year. For 1997, the
Company declared dividends totaling $0.66 per Common Share, or approximately 63%
of its Funds from Operations during the year. The payment of dividends by the
Company will be at the discretion of the Board of Trust Managers and will depend
on numerous factors, including the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Code and such other factors that the Board of
Trust Managers deems relevant.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to shareholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits (return of capital) will be treated as a
non-taxable reduction of a shareholder's basis in the Common Shares to the
extent thereof, and thereafter as taxable gain. Dividends that are treated as a
reduction of a shareholder's basis in its Common Shares will have the effect of
deferring taxation until the sale of such shareholder's Common Shares.
Approximately 13.83% of the $0.68 dividends declared for 1998 represented return
of capital. None of the $0.66 of dividends declared for 1997, represented a
return of capital.
HOLDERS
The approximate number of holders of record of the Common Shares on February 28,
1999 was 99.
-14-
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
Company Predecessor (1)
----------------------------------------------------------
Years Ended December 31, 6/24/94 1/1/94
to to
1998 1997 1996 1995 12/31/94 6/23/94
----------------------------------------------------------
(In thousands, except per share data and
Apartment Data)
OPERATING INFORMATION:
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Rental income $ 37,994 $ 17,111 $2,046 $1,287 $ 641 $ 574
Property and management 477 518 - - - -
Interest and other 361 309 36 30 13 9
----------------------------------------------------------
Total revenues 38,832 17,938 2,082 1,317 654 583
----------------------------------------------------------
Expenses:
Property operating and maintenance 13,433 6,078 656 406 208 235
Real estate taxes 3,798 1,770 208 149 76 71
Related party management fees - 22 109 67 33 33
Interest expense 6,791 2,741 394 85 45 173
Non-recurring acquisition expense (2) 5,550 - - - - -
Depreciation and amortization 6,167 2,701 387 216 117 102
General and administrative 2,002 908 67 56 16 -
----------------------------------------------------------
Total expenses 37,741 14,220 1,821 979 495 614
----------------------------------------------------------
Income (loss) before minority interests 1,091 3,718 261 338 159 (31)
Minority interests in consolidated partnerships 76 155 - - - -
Minority interest in Operating Partnership 268 1,267 - - - -
----------------------------------------------------------
Income (loss) before extraordinary expense 747 2,296 261 338 159 (31)
Extraordinary expenses related to debt 888 - - - - -
refinancing or extinguishment
==========================================================
Net income (loss) $ (141)$ 2,296 $ 261 $ 338 $ 159 $ (31)
==========================================================
Income (loss) before extraordinary expense per
common share - basic $ 0.09 $ 0.61 $ 0.42 $ 0.55 $ 0.26
==========================================
Net income (loss) per common share - basic $ (0.02)$ 0.61 $ 0.42 $ 0.55 $ 0.26
==========================================
Income (loss) before extraordinary expense per $ 0.09 $ 0.61 $ 0.42 $ 0.55 $ 0.26
common share - diluted ==========================================
Net income (loss) per common share - diluted $ (0.02)$ 0.61 $ 0.42 $ 0.55 $ 0.26
==========================================
Weighted average number of common shares 8,449 3,765 620 620 620
outstanding-basic ==========================================
Weighted average number of common shares 8,458 3,785 620 620 620
outstanding-assuming dilution ==========================================
BALANCE SHEET INFORMATION:
Real estate, before accumulated depreciation $318,599 $147,767 $9,798 $5,393 $ 5,294
==========================================
Total assets $327,115 $148,150 $9,521 $5,241 $ 5,377
==========================================
Total mortgage and revolving credit facility debt $196,391 $ 49,058 $5,669 $1,190 $ 1,537
==========================================
Minority interests $ 32,872 $ 25,696 $ - $ - $ -
==========================================
Shareholders' equity $ 73,783 $ 68,498 $3,483 $3,703 $ 3,840
==========================================
OTHER INFORMATION:
Funds from operations $ 12,409 $ 5,977 $ 596 $ 508 $ 502
==========================================
Cash flow from (used in):
Operating activities $ 15,697 $ 5,821 $ 718 $ 585 $ 448
==========================================
Investment activities $(52,635)$(40,440) $ (302) $ (99) $(5,045)
==========================================
Financing activities $ 50,734 $ 35,546 $ (418) $ (518) $ 5,013
==========================================
APARTMENT DATA:
Number of apartment communities (end of period) 61 35 4 3 3
==========================================
Number of apartment units (end of period) 6,526 3,403 257 165 165
==========================================
Average monthly rental rate per unit $ 758 $ 702 676 $ 660 $ 642
==========================================
Average economic occupancy rate 96.0% 96.1% 95.5% 97.8% 95.6%
==========================================
Number of retail properties (end of period) 4 3 0 0 0
==========================================
</TABLE>
(1) The Company began operations on June 24, 1994, the date of its initial
public offering. The operations of the predecessor represents the
operations of the Original Properties prior to June 24, 1994.
-15-
<PAGE>
(2) In conjunction with the acquisition of the McNeil Portfolio, the Company
paid approximately $5.6 million for the purchase of the related management
contracts from an unrelated third party management company. The term of the
contracts was for an average of approximately 20 years. The purchased
contracts historically produced gross annual revenue of approximately $1.6
million. In accordance with generally accepted accounting principles, the
cost of the management contracts has been expensed in the fourth quarter of
1998; however this amount, which is a non-recurring item, has been added
back for FFO. The Company plans to self manage the McNeil Portfolio.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Report.
The results of operations for the year ended December 31, 1998 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, twenty
properties acquired on March 14, 1997 in conjunction with the Consolidation
Transactions, the fourteen properties subsequently acquired in 1997 and the
twenty-seven properties purchased in 1998. The Consolidation Properties and the
fourteen subsequent acquisitions are collectively referred to as the "1997
Acquisitions". In addition, all of the previously mentioned properties of the
Company are collectively referred to as the "1997 Properties". The twenty-seven
properties purchased during 1998 referred to as the "1998 Acquisitions". In
addition, all of the previously mentioned properties of the Company are
collectively referred to as the "Properties". (See Note 2 to the consolidated
financial statements for details).
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF THE COMPANY FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997.
Total revenues increased $20,894,000 from $17,938,000 to $38,832,000 during the
year ended December 31, 1998, as compared to the year ended December 31, 1997.
The increase is mainly due to the operations of the properties acquired during
the period from March 1997 to December 31, 1998 (the "recent acquisitions").
(See Note 2 to the consolidated financial statements for details).
The Properties experienced an increase in rental rates and a slight decrease in
occupancy. The weighted average monthly rental rates increased to $758 for the
year ended December 31, 1998 from $702 for the year ended December 31, 1997.
Economic occupancy for the year decreased to an aggregate weighted average
occupancy of 96.0% for the year ended December 31, 1998 from an aggregate
weighted average of 96.1% for the year ended December 31, 1997.
Property operating and maintenance expenses increased $7,355,000 from $6,078,000
to $13,433,000 during the year ended December 31, 1998, as compared to the year
ended December 31, 1997. The increase is primarily due to the operations of the
recent acquisitions.
Real estate taxes increased $2,028,000 from $1,770,000 to $3,798,0000 during the
year ended December 31, 1998, as compared to the year ended December 31, 1997.
The increase is primarily due to the recent acquisitions. Related party
management fees decreased $22,000 from $22,000 to $0. This decrease is due to
acquisition by the Company of the management services division of Grove Property
Services Limited Partnership ("GPS") as part of consolidated transactions in
March 1997.
Interest expense increased $4,050,000 from $2,741,000 to $6,791,000 during the
year ended December 31, 1998, as compared to the year ended December 31, 1997.
The increase is primarily due to the assumption of mortgage debt and new debt
related to the recent acquisitions.
Depreciation and amortization increased $3,466,000 from $2,701,000 to $6,167,000
during the year ended December 31, 1998, as compared to the year ended December
31, 1997. The increase is related to the recent acquisitions.
General and administrative expenses increased $1,094,000 from $908,000 to
$2,002,000 during the year ended December 31, 1998, as compared to the year
ended December 31, 1997. This increase is primarily due to the increased costs
associated with the change in size of the Company.
The Company's income before extraordinary expenses, related to debt refinancing
and debt extinguishment, decreased $1,549,000 from $2,296,000 to $747,000 during
the year ended December 31, 1998, as compared to the year ended December 31,
1997.
-16-
<PAGE>
The decrease is mainly due to an increase in revenue of $20,894,000, offset by
increases in property operating and maintenance expenses of $7,355,000, real
estate taxes of $2,028,000, general and administrative expenses of $1,094,000,
interest expense of $4,050,000, depreciation and amortization of $3,466,000 and
a $5,550,000 non-recurring expense for the purchase of the management contracts
related to the acquisition of the McNeil Portfolio.
RESULTS OF OPERATIONS FOR THE COMPANY FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996.
Total revenues increased $15,856,000 from $2,082,000 to $17,938,000 during the
year ended December 31, 1997, as compared to the year ended December 31, 1996.
The increase is mainly due to the operations of the 1997 Acquisitions.
Additionally, $518,000 of the increase is related to property management
revenues which represent fees earned on management services provided to
properties owned by affiliated entities. Such revenue is derived from management
contracts acquired in conjunction with the Consolidation Transactions; therefore
there was no comparable revenue during 1996.
On a comparable basis, the 1997 Properties experienced increases in both rental
rates and occupancy. The weighted average monthly rental rates increased to $702
for the year ended December 31, 1997 from $676 for the year ended December 31,
1996. Furthermore, economic occupancy for the year increased to an aggregate
weighted average occupancy of 96.1% for the year ended December 31, 1997 from an
aggregate weighted average of 95.5% for the year ended December 31, 1996.
Property operating and maintenance expenses increased $5,422,000 from $656,000
to $6,078,000 during the year ended December 31, 1997, as compared to the year
ended December 31, 1996. The increase is primarily due to the operations of the
1997 Acquisitions.
Real estate taxes increased $1,562,000 from $208,000 to $1,770,000 during the
year ended December 31, 1997, as compared to the year ended December 31, 1996.
The increase is due primarily to the 1997 Acquisitions. Related party management
fees decreased $87,000 from $109,000 to $22,000. This decrease is due to the
Company's acquisition of the management company in conjunction with the
Consolidation Transactions, resulting in the elimination of all such expenses in
consolidation.
General and administrative expenses increased $841,000 from $67,000 to $908,000
during the year ended December 31, 1997, as compared to the year ended December
31, 1996. This increase is mainly due to the increased costs associated with the
change in size of the Company.
Interest expense increased $2,347,000 from $394,000 to $2,741,000 during the
year ended December 31, 1997, as compared to the year ended December 31, 1996.
The increase is primarily due to the $38.3 million mortgage debt assumed and/or
refinanced as part of the 1997 Acquisitions.
Depreciation and amortization increased $2,314,000 from $387,000 to $2,701,000
during the year ended December 31, 1997, as compared to the year ended December
31, 1996. The increased expense is primarily due to depreciation related to the
1997 Acquisitions.
The Company's net income increased $2,035,000 from $261,000 to $2,296,000 during
the year ended December 31, 1997, as compared to the year ended December 31,
1996. The increase is mainly due to the operations of the 1997 Acquisitions.
SAME COMMUNITY ANALYSIS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997.
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 3.5% to $731 from $706 and the economic occupancy
rate decreased to 95.8% from 96.4% for the twelve months of 1998 as compared to
the twelve months of 1997, respectively. Overall, Same Community net operating
income increased 7.6% to $12.89 million from $11.98 million for the twelve
months of 1998 as compared to the twelve months of 1997. Net operating income
increased due to a 3.0% increase in revenues and 2.9% decrease in operating
expenses. Revenues increased due to the increase in rental rates partially
offset by a decrease in occupancy. Operating expenses decreased primarily due to
lower insurance costs, 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:
-17-
<PAGE>
---------------------
Twelve Months Ended
December 31,
---------------------
(Dollars in
-----------
Millions)
---------
%
1998 1997 Change
---- ---- ------
Economic Occupancy 95.8% 96.4% -0.6%
=====================
Average monthly rental rate per unit $ 731 $ 706 3.5%
=====================
Revenues (millions) $21.71 $21.08 3.0%
Operating expenses (millions) 8.82 9.10 -2.9%
------------------------------
Net operating income (millions) $12.89 $11.98 7.6%
==============================
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $15,262,000 as of December 31, 1998. The
Company's ratio of long-term debt, including the Revolving Credit Facility, to
market capitalization on December 31, 1998 was 57.4% based on total market
capitalization of $342,190,000 based on 3,768,775 Common Units and 8,639,659
Common Shares valued at $11.75 per share/unit (the closing price on December 31,
1998) plus long-term debt of $196,391,000 including the Revolving Credit
Facility.
Cash provided by operating activities was $15,697,000 for the twelve months
ended December 31, 1998. Cash used in investing activities was $52,635,000 for
the twelve months ended December 31, 1998. Net cash provided by financing
activities was $50,734,000 for the twelve months ended December 31, 1998.
On December 14, 1998, the Company declared a dividend of $0.17 per share for the
quarter ended December 31, 1998. The dividend was paid on January 15, 1999 to
shareholders of record on December 31, 1998. On September 15, 1998, the Company
declared a dividend of $0.17 per share for the quarter ended September 30, 1998.
The dividend was paid on October 16, 1998 to shareholders of record on September
30, 1998. On June 15, 1998, the Company declared a dividend of $0.17 per share
for the quarter ended June 30, 1998. The dividend was paid on July 17, 1998 to
shareholders of record on June 30, 1998. On March 11, 1998, the Company declared
a dividend of $0.17 per share for the quarter ended March 31, 1998. The dividend
was paid on April 17, 1998 to shareholders of record on March 31, 1998. The
dividends declared during the year ended December 31, 1998 of $0.68 per share
resulted in a 63% payout of funds from operations for the twelve months ended
December 31, 1998.
On January 19, 1999 the Company announced an increase in its anticipated yearly
dividend from $.68 to $.72 per share annually.
On March 15, 1999 the Company prepaid the Highland Glen mortgage note of
approximately $6.5 million. Additional borrowings under the 1998 Credit Facility
were advanced to fund this prepayment.
In April 1998, the Operating Partnership entered into the 1998 Credit Facility
with its bank and retired the Original Revolving Credit Facility. The 1998
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 1998 Credit Facility bears interest payable monthly at a floating rate
of 1.5% above the 30, 60, or 90-day LIBOR rate. The 1998 Credit Facility is
available to fund future property acquisitions and up to $5.0 million is
available to fund working capital needs. As of December 31, 1998, borrowings of
$34.25 million were outstanding under the 1998 Credit Facility.
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. It is
anticipated that approximately $12.0 million of the Acquisition Notes Payable
will be paid on April 30, 1999 (consisting of approximately $4.4 million in cash
and $7.6 million in Common Units). The remaining balance of the Acquisition
Notes Payable of approximately $0.95 million is expected to be paid over a
three-year period.
The Company intends to meet its short-term liquidity requirements through cash
on hand, cash flow provided by operations and borrowings under the 1998 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 1998 Credit
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<PAGE>
Facility, and exchanging Common Shares or Common Units for properties or
interests in properties.
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.
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 $
0 specifically related to Year 2000 compliance and anticipates $ 50,000 of
future related costs. The Company The Company has begun to identify 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 100% Complete 70% Complete 70% Complete 70% Complete
TECHNOLOGY
Expected Expected Expected
completion date, completion date, completion date,
October 1999 October 1999 October 1999
- -------------------- -------------------- -------------------- -------------------- --------------------
OPERATING
EQUIPMENT WITH 100% Complete 50% Complete 30% Complete 20% Complete
EMBEDDED CHIPS OR
SOFTWARE Expected Expected Expected
completion date, completion date, completion date,
September 1999 September 1999 September 1999
- -------------------- -------------------- -------------------- -------------------- --------------------
3RD PARTY Expected 50% Complete 50% Complete 50% Complete
completion date
for surveying all
third parties,
June 1999
- -------------------- -------------------- -------------------- -------------------- --------------------
</TABLE>
Although the Company believes that there will be no direct material effects on
its net income, assets or liabilities from the 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") to be 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. FFO for years prior to 1997 have
been adjusted to conform to the NAREIT definition. The Company believes that in
order to facilitate a clear understanding of its operating results, FFO should
be examined in conjunction with the net income as presented in the financial
statements and information included elsewhere in this Report. FFO does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs. FFO should not be considered as an alternative to
net income as an indication of the Company's performance or as an alternative to
cash flow as a measure of liquidity.
-19-
<PAGE>
FFO increased $6,432,000 from $5,977,000 to $12,409,000 for the years ended
December 31, 1997 and 1998, respectively. Dividends declared for the year ended
December 31, 1998 were $5,782,000, representing 63% of FFO, while dividends
declared for the year ended December 31, 1997 were $2,423,000, representing 63%
of FFO.
FFO increased $5,381,000 from $596,000 in 1996 to $5,977,000 in 1997. Dividends
declared for the year ended December 31, 1997 were $2,423,000 representing 63%
of FFO. Dividends declared for the year ended December 31, 1996 were $481,000
representing 81% of FFO.
FFO was calculated as follows:
For the Year Ended December 31,
-------------------------------
(dollars in thousands)
1998 1997 1996
---- ---- ----
Income before extraordinary expenses and
minority interests $ 1,091 $ 3,718 $ 261
Real estate depreciation and amortization 5,894 2,530 335
Non-recurring expenses 5,550 69 -
----------------------------
Funds from operations before extraordinary 12,535 6,317 596
expenses and minority interests
Minority interests in consolidated (126) (340) -
partnerships ----------------------------
FFO $12,409 5,977 596
============================
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 Apartment Communities are for a term of
one year or less, which may enable the Company to seek increased rents upon
renewal or rerenting. Such short-term leases generally lessen the risk to the
Company of the potential adverse effects of inflation.
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
Certain statements contained in this report, and in particular in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," statements in other filings with the Securities and Exchange
Commission and statements in other public documents of the Company may be
forward looking and are subject to a variety of risks and uncertainties. Forward
looking statements generally contain words like "believes," "expects,"
`anticipates" or words of similar import. 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 ability of the Company effectively to
integrate recently acquired properties into its operations and to adapt its
operations to the ownership of subsidized housing, (iii) 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, (iv) 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, (v) the effect of weather and other conditions which can
significantly affect property operating expenses, (vi) the availability of
acquisition financing or refinancing, (vii) compliance with applicable laws and
regulations, including the regulations of HUD and MHFA, and (viii) other factors
which might be described from time to time in the Company's filings with the
Securities and Exchange Commission. In addition, the Company is subject to the
effects of changes in the general business economic conditions.
Although the Company believes that its properties will continue to be attractive
to tenants and that it will be able to control expenses, future revenue and
operating trends cannot be reliably predicted. These trends may cause the
Company to adjust its operation in the future. Factors external to the Company
can also affect the price of the Company's Common Shares. Because of the
foregoing and other factors, recent trends should not be considered reliable
indicators of future financial results or stock prices.
-20-
<PAGE>
ITEM 7A. MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is exposed to changes in interest rates primarily from its 1998
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 $ 342,500
at December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included on pages F-1 to F-20.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference from the
Company's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference from the
Company's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from the
Company's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference from the
Company's definitive Proxy Statement for its 1999 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities and
Exchange Act of 1934, which Proxy Statement will be filed within 120 days after
the end of the Company's fiscal year ended December 31, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
The financial statements listed in the accompanying Index to Financial
Statements and Supplementary Data at page F-1 are filed as part of this Report.
(a)(2) FINANCIAL STATEMENT SCHEDULES:
Schedule III, Real Estate and Accumulated Depreciation, is included on pages
F-21 to F-24 of this report.
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<PAGE>
(a)(3) EXHIBITS:
EXHIBIT NO. DESCRIPTION
2.1 Contribution Agreement, dated as of May 30, 1997, by and
between Grove Operating, L.P., Northeast Apartments I Limited
Partnership, West Hartford Center Associated Limited
Partnership, Windsor Equity Partnership and Windsor Commons
Corporation (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated May 30, 1997
(Commission File No. 1-13080))
2.2 Form of First Amendment effective as of June 1, 1997 to
Agreement of Limited Partnership of Windsor Arbor Limited
Partnership (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated May 30, 1997
(Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between
Highland Income Partners, L.P., as Seller, and Grove
Corporation, a Purchaser (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
July 2, 1997 (Commission File No. 1-13080))
2.4 Purchase and Sale Agreement, dated September 5, 1997, by and
between Werner O. Kunzli, as Seller, and Grove Corporation, a
Purchaser (incorporated by reference to Exhibit 2.4 to the
Company's Registration Statement on Form S-2, No. 333-38183)
2.5 Grove Operating, L.P., Solicitation of Consent and Offer to
Exchange Certain Outstanding Units of Limited Partnership
Interest in Grove-Coastal Associates, L.P. for Consideration
of 3,435.5 Common Units of Grove Operating, L.P. with an
option to holders to instead receive cash consideration,
dated June 19, 1997, as supplemented on June 19, 1997, and
Letter of Transmittal and Addendum to Letter of Transmittal
in connection therewith (incorporated by reference to Exhibit
2.5 to the Company's Registration Statement on Form S-2, No.
333-38183)
2.6 Agreement dated as of April 22, 1998 among The Grove
Corporation and the twenty-two limited partnerships
identified on Schedule 1 thereto (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated October 30, 1998 (Commission File No. 1-13080))
2.7 Amendment dated as of August 31, 1998 to Conveyance Agreement
dated as of April 22, 1998 among The Grove Corporation and
the twenty-two limited partnerships identified on Schedule 1
thereto (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated October 30, 1998
(Commission File No. 1-13080))
3.1 Third Amended and Restated Declaration of Trust of the
Company dated March 14, 1997, as amended by Articles
Supplementary dated October 23, 1997 and by Articles of
Amendment dated June 30, 1998 (incorporated by reference to
Exhibit 3.0 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (Commission File No.
1-123080))
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on
Form 8-K dated March 14, 1997 and filed March 31, 1997
(Commission File No. 1-13080))
4.1 Form of Agreement of Limited Partnership of Grove Operating,
L.P., among the Company and the other partners named therein
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated February 13, 1997
(Commission File No. 1-13080))
4.2 Amendment to the Agreement of Limited Partnership of Grove
Operating, L.P. among the Company and the other partners
named therein (incorporated by reference to Exhibit 4.3 of
the Company's Registration Statement on Form S-2, No.
333-38183)
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<PAGE>
4.3 Revolving Credit Agreement among Grove Operating, L.P., and
Rhode Island Hospital Trust National Bank (a Bank of Boston
company) and Other Banks which may become parties to the
Agreement and Rhode Island Hospital Trust National Bank, as
Agent BancBoston Securities, Inc. As Arranger Dated April 30,
1998 (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (Commisssion File No. 1-13080))
10.1 Securities Purchase Agreement, dated February 20, 1997,
between the Company and Morgan Stanley Group Inc.
(incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.2 Securities Purchase Agreement, dated February 21, 1997,
between the Company and ABKB/LaSalle Securities Limited
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other
Investors in the Private Placement (incorporated by reference
to Exhibit 10.3 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.4 Registration Rights Agreement, dated March 14, 1997, between
the Company and the Investors (incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.5 Registration Rights Agreement, dated March 14, 1997, between
the Company, Grove Operating, L.P. and certain partners of
Grove Operating, L.P. (incorporated by reference to Exhibit
10.9 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.6 1994 Share Option Plan (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form SB-2
(File No. 33-76732))
10.7 1996 Share Incentive Plan of Grove Property Trust, Grove
Operating LP and Property Partnerships, as amended to March
11, 1998 (incorporated by reference to Appendix A to the
Company's Notice of Annual Meeting and Proxy Statement dated
April 30, 1998 (Commission File No. 1-13080))
10.8 Noncompetition Agreement, dated March 14, 1997, among the
Company, Grove Operating, L.P., National Realty Services
Limited Partnership, GIG and Burgundy Associates Limited
Partnership (incorporated by reference to Exhibit 10.12 to
the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.9 Form of Noncompetition Agreement executed by each of Damon
Navarro, Brian Navarro, Joseph LaBrosse, Edmund Navarro and
Gerald McNamara (incorporated by reference to Exhibit 10.13
to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.10 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.15 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.11 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.16 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.12 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.17 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.13 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-2, No.
333-38183)
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<PAGE>
10.14 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit 10.19
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.15 Employment Agreement, dated March 14, 1997, between the
Company and Damon Navarro (incorporated by reference to
Exhibit 10.14 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.16 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.21 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.17 Employment Agreement, dated March 14, 1997, between the
Company and Brian Navarro (incorporated by reference to
Exhibit 10.15 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.18 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.23 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.19 Employment Agreement, dated March 14, 1997, between the
Company and Edmund Navarro (incorporated by reference to
Exhibit 10.16 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.20 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.25 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.21 Employment Agreement, dated March 14, 1997, between the
Company and Joseph LaBrosse (incorporated by reference to
Exhibit 10.17 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.22 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.27
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.23 Employment Agreement, dated March 14, 1997, between the
Company and Gerald McNamara (incorporated by reference to
Exhibit 10.18 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.24 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit 10.29
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.25 Form of Contribution Agreement among the Company, Grove
Operating, L.P. and certain other parties (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated February 13, 1997 (Commission File No.
1-13080))
10.26 Form of Indemnification Agreement by and between the Company,
the Trust Managers and each of Damon Navarro, Brian Navarro,
Edmund Navarro, Joseph LaBrosse, and Gerald McNamara
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form SB-2 (No. 33-76732))
10.27 Assumption of Mortgage Deed and Security Agreement made June
23, 1994 by and among Southington Baron Limited Partnership,
Charles D. Gersten, Ada C Berin, the Company, Damon D.
Navarro and Brian A. Navarro (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994 (Commission File No.
1-13080))
10.28 Mortgage Note from Southington Baron Limited Partnership to
Charles D. Gersten and Ada C. Berin dated June 8, 1994
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1994 (Commission File No. 1-13080))
-24-
<PAGE>
10.29 Purchase and Sale Agreement between the Company and Grove
Cambridge Associates Limited Partnership (incorporated by
reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated October 30, 1995 (Commission File No.
1-13080))
10.30 Mortgage Note from the Company to First Union Bank of
Connecticut dated January 11, 1996 (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995 (Commission File
No. 1-13080))
10.31 Unlimited Guaranty among Grove Property Trust and Bankboston,
N.A. dated November 6, 1998
21 List of Subsidiaries
23 Consent of Ernst & Young, LLP
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the fourth quarter of the year ended December 31, 1998, the Company filed
a Current Report on Form 8-K dated October 30, 1998 (reporting under Items 2 and
7) regarding the Company's acquisition of nineteen residential properties; a
Current Report on Form 8-K/A no. 1 dated October 30, 1998, amending Item 7 as
originally filed; and a Current Report on Form 8-K dated December 2, 1998
(reporting under Items 5, and 7) regarding the Company's acquisition of two
residential properties.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 1999.
GROVE PROPERTY TRUST
By /s/ Joseph R. LaBrosse
-----------------------------
Joseph R. LaBrosse
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Damon D. Navarro Trust Manager and Chairman of the Board March 30, 1999
- ---------------------- and Chief Executive Officer (Principal
Damon D. Navarro executive officer)
/s/ Joseph R. LaBrosse Trust Manager and Chief Financial Officer March 30, 1999
- ---------------------- (Principal financial and accounting
Joseph R. LaBrosse officer)
/s/ Edmund F. Navarro Trust Manager and Chief Operating Officer March 30, 1999
- ----------------------
Edmund F. Navarro
/s/ J. Joseph Garrahy Trust Manager March 30, 1999
- ----------------------
J. Joseph Garrahy
/s/ Harold V. Gorman Trust Manager March 30, 1999
- ----------------------
Harold V. Gorman
/s/ Gerald A. McNamara Trust Manager March 30, 1999
- ----------------------
Gerald A. McNamara
/s/ J. Timothy Morris Trust Manager March 30, 1999
- ----------------------
Timothy Morris
/s/ Keith Munsell Trust Manager March 30, 1999
- ----------------------
Keith Munsell
/s/ James F. Twaddell Trust Manager March 30, 1999
- ----------------------
James F. Twaddell
</TABLE>
-26-
<PAGE>
GROVE PROPERTY TRUST
Consolidated Financial Statements and Schedule
Index
- --------------------------------------------------------------------------------
Page
----
Item 14(a) (1 and 2) Financial Statements filed as part of this
report
Consolidated Financial Statements:
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Income Statements for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-9
Schedule filed as part of this report:
Schedule III - Real Estate and Accumulated Depreciation F-21
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements and notes thereto.
F-1
<PAGE>
Report Of Independent Auditors
The Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying consolidated balance sheets of Grove Property
Trust as of December 31, 1998 and 1997 and the related consolidated income
statements, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. We have also audited the financial
statement schedule listed on the Index as item 14a. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
statement schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial statement schedule. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Grove Property
Trust as of December 31, 1998 and 1997 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also in our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
/s/Ernst & Young LLP
New York, New York
February 5, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
As of December 31,
-------------------
1998 1997
---- ----
ASSETS
Real estate assets:
<S> <C> <C>
Land $ 47,208 $ 21,403
Buildings and improvements 268,683 125,412
Furniture, fixtures and equipment 2,708 952
------------------ -----------------
318,599 147,767
Less accumulated depreciation (9,651) (3,674)
------------------ -----------------
Net real estate assets 308,948 144,093
Cash and cash equivalents 15,262 1,466
Due from affiliates 262 620
Deferred charges, net of accumulated
amortization of $153 and $127, respectively 1,192 849
Other assets 1,451 1,122
------------------ -----------------
Total assets $ 327,115 $ 148,150
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable (including
$9,421 fair value step up) $ 162,141 $ 33,457
Revolving credit facility 34,250 15,601
Other liabilities 5,723 1,387
Acquisition notes payable 12,951 -
Distributions payable 2,062 1,436
Security deposits 3,194 2,026
Due to affiliates 139 49
------------------ -----------------
Total liabilities 220,460 53,956
Minority interests in consolidated 686 1,357
partnerships
Minority interest in Operating Partnership 32,186 24,339
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; 8,639,659
and 8,453,829 shares issued and
outstanding, respectively 86 84
Additional paid-in capital 80,182 68,976
Distributions in excess of earnings (6,485) (562)
------------------ -----------------
Total shareholders' equity 73,783 68,498
------------------ -----------------
Total liabilities and shareholders' equity $ 327,115 $ 148,150
================== =================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GROVE PROPERTY TRUST
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Rental income $37,994 $17,111 $2,046
Property management income-affiliates 477 518 -
Other property related income 178 168 5
Interest income 183 141 31
------------------------------------------
Total revenues 38,832 17,938 2,082
------------------------------------------
Expenses:
Property operating expenses 13,433 6,078 656
Real estate taxes 3,798 1,770 208
Related party management fees - 22 109
Interest expense 6,791 2,741 394
Non-recurring acquisition expense 5,550 - -
Depreciation expense 5,977 2,568 356
Amortization expense 190 133 31
General and administrative 2,002 908 67
------------------------------------------
Total expenses 37,741 14,220 1,821
------------------------------------------
Income before extraordinary expense and 1,091 3,718 261
minority interests
Minority interest in consolidated partnerships 76 155 -
Minority interest in operating partnership 268 1,267 -
------------------------------------------
Income before extraordinary expense 747 2,296 261
Extraordinary expenses related to debt refinancing and
extinguishment 888 - -
------------------------------------------
Net income (loss) $(141) $2,296 $261
==========================================
Income before extraordinary expenses per common
share-basic and assuming dilution $0.09 $0.61 $0.42
Extraordinary expenses per common share-basic and
assuming dilution 0.11 - -
==========================================
Net income (loss) per common share-basic and assuming $(0.02) $0.61 $0.42
dilution
==========================================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted average number of common shares 8,449 3,765 620
outstanding-basic
Effect of warrants and stock options 9 20 -
------------------------------------------
Weighted average number of common shares
outstanding-assuming dilution 8,458 3,785 620
==========================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
Number of Additional Dividends
Common Common Paid-In in Excess
Shares Shares Capital of Earnings
------ ------ ------- -----------
<S> <C> <C> <C> <C>
Shareholders' equity as of January 1, 1996 620,102 $ 6 $ 3,912 $ (215)
Net income - - - 261
Declared dividends - - - (481)
------------ ------------- ------------ -------------
Shareholders' equity as of December 31, 620,102 6 3,912 (435)
1996
Issuance of common shares on March 14,
1997, net of offering costs 3,333,333 33 27,491 -
Exercise of stock options 394 - 4 -
Issuance of common shares on November 24,
1997, net of offering costs 4,500,000 45 45,223 -
Net income - - - 2,296
Declared dividends - - - (2,423)
Allocation of shareholders' equity to
minority interest in Operating Partnership - - (7,654) -
------------ ------------- ------------ -------------
Shareholders' equity as of December 31, 8,453,829 84 68,976 (562)
1997
OP Units exchanged July 1998 through
December 1998 35,307 - 10,348 -
Issuance of executive stock grants on
September 15, 1998 63,153 1 119 -
Common shares repurchased September 1998
through December 1998 (304,630) (3) (2,979) -
Private placement to executive officers on
November 30, 1998 392,000 4 3,886 -
Net loss - - - (141)
Declared dividends - - - (5,782)
Allocation of shareholders' equity to
minority interest in Operating
Partnership-net - - (168) -
============ ============= ============ =============
Shareholders' equity as of December 31, 8,639,659 $ 86 $ 80,182 $ (6,485)
1998
============ ============= ============ =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (141) $ 2,296 $ 261
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 6,167 2,701 387
Extraordinary expenses - related to debt
refinancings, and extinguishment 888 - -
Minority interests 344 1,422 -
Non-cash compensation expense 120 120 -
Imputed interest - mortgage - 22 38
Non-recurring acquisition expense 5,550 - -
Changes in other assets 122 (347) (8)
Changes in accounts payable, accrued
expenses and other liabilities 2,647 (393) 98
-------------------------------------------
Net cash provided by operating activities 15,697 5,821 776
-------------------------------------------
INVESTING ACTIVITIES:
Non-recurring acquisition expense 5,550 - -
Purchase of partnership interests (19,456) (10,417) -
Cash acquired on purchase of partnership interests 11,031 3,565 -
Deferred charges (50) (6) (174)
Additions to real estate assets (38,610) (33,582) (4,629)
-------------------------------------------
Net cash used in investing activities (52,635) (40,440) (4,803)
-------------------------------------------
FINANCING ACTIVITIES:
Net proceeds from mortgage notes payable and
Revolving Credit Facility 81,650 51,109 4,720
Financing costs, prepayment penalty on debt and (2,158) (668) (21)
offering costs
Repayment of mortgage notes payable (22,438) (84,438) (59)
Net proceeds from sale of common stock and exercise
of stock options 3,890 72,796 -
Borrowings from (payments to) affiliates 67 (659) (78)
Treasury stock (2,982) - -
Dividends and distributions paid (7,295) (2,594) (480)
-------------------------------------------
Net cash provided by (used in) financing 50,734 35,546 (4,082)
activities
-------------------------------------------
Net change in cash and cash equivalents 13,796 927 55
Cash and cash equivalents, beginning of year 1,466 539 484
-------------------------------------------
Cash and cash equivalents, end of year $ 15,262 $ 1,466 $ 539
===========================================
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Supplemental Information:
<S> <C> <C> <C>
Cash paid for interest $ 6,913 $ 2,600 $ 400
Net rental property acquired in connection with
debt assumed $ 88,120 $ 76,696 $ -
OP Units exchanged for net rental properties $ 10,143 $ 15,279 $ -
Step-up in basis related to property acquisitions $ 12,636 $ - $ -
Excess of liabilities over assets assumed on
acquisition and partnership interests $ 1,989 $ 1,995 $ -
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. FORMATION AND DESCRIPTION OF THE COMPANY
Grove Property Trust (formerly Grove Real Estate Asset Trust) (the
"Company") was organized in the State of Maryland on April 4, 1994 as a Real
Estate Investment Trust ("REIT"). The Company currently operates 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. ACQUISITIONS AND CONSOLIDATION TRANSACTIONS
On March 14, 1997, the Company completed a series of transactions (the
"Consolidation Transactions") that included the following:
o The Company formed an operating partnership (the "Operating
Partnership") to serve as the vehicle for the consolidation of ownership
and control of the Company's operations and assets.
o Pursuant to an exchange offer, the Operating Partnership purchased from
non-affiliated limited partners substantially all of the outstanding
partnership interests of twenty properties, including one retail
property ("Property Partnerships") in exchange for 1,205,324 partnership
units (the "Common Units") of the Operating Partnership, or, in certain
circumstances, cash. Common Units are generally exchangeable for the
Company's Common Shares on a one-for-one basis.
o 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-for-one (collectively
the "Stock Split"), thereby issuing on a pro rata basis a total of
95,102 additional Common Shares to the holders of the issued and
outstanding Common Shares just prior to the Consolidation Transactions.
All outstanding Common Shares were retroactively adjusted to reflect the
Stock Split.
o The Company issued 3,333,333 Common Shares to new equity investors (the
"New Equity Investment") in exchange for $30 million (approximately
$27.5 million after costs of issuance).
o 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.
o 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 New Equity
Investment in exchange for 3,333,333 additional Common Units.
o 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"). 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
Original 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 Original Revolving Credit Facility for
these units.
F-9
<PAGE>
On September 1, 1997, the Company acquired two apartment communities from
related parties, Glastonbury Centre Apartments in Glastonbury, Connecticut, and
Summit and Birch Hill in Farmington, Connecticut. The Operating Partnership
issued 325,836 Common Units valued at $10.50 per unit, assumed $9.8 million in
debt and drew down $750,000 against the Original 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 with proceeds from the Original
Revolving Credit Facility.
On October 31, 1997, the Company purchased an apartment community from an
unrelated party in Ellington, Connecticut ("High Meadow"). The $4.2 million
purchase price was paid utilizing borrowings under the Original 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 the Original Revolving Credit Facility.
In November 1997, the Company completed the sale of 4,500,000 Common Shares (the
"November 1997 Offering"). The net proceeds from the sale after underwriting
discounts and other costs were approximately $45.2 million. The Company used the
proceeds to pay off the Original Revolving Credit Facility and certain mortgage
notes payable (see Notes 5 and 6) and for working capital purposes.
On December 1, 1997, the Company acquired an apartment complex from an unrelated
party in Ellington, Connecticut, ("Pinney Brook") for approximately $950,000.
The purchase price was paid from working capital.
On December 31, 1997, the Company acquired four communities from unrelated
parties for approximately $20.0 million. The individual communities are Briar
Knoll, Ribbon Mill, Hilltop and Spring Hill Commons and are located respectively
in Manchester, Vernon and Norwich, Connecticut, and Acton, Massachusetts. The
purchase price was paid utilizing borrowings under the Original Revolving Credit
Facility and cash on hand.
On January 23, 1998, the Company purchased an apartment community, Tanglewood
Apartments, located in West Warwick, Rhode Island, from an unrelated party. The
purchase price of approximately $7.0 million was paid utilizing borrowings under
the Original 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 $6.8 million first mortgages, issuance of
5,818 Common Units for $0.06 million, and utilizing borrowings under the
Original Revolving Credit Facility.
On June 1, 1998, the Company acquired two residential properties in East
Providence, Rhode Island, from an unrelated party. The purchase price of $19.4
million was financed with the assumption of a $2.4 million loan and $17.0
million from the new long-term mortgage financing described in Note 4.
On August 7, 1998, the Company acquired an apartment community located in
Sturbridge, Massachusetts, for approximately $4.0 million. The purchase price
was financed with the assumption of a $2.4 million loan and $1.6 million from
the 1998 Credit Facility (as defined in Note 6).
On August 28, 1998, the Company acquired an apartment community located in East
Haven, Connecticut, for approximately $4.5 million. The purchase price was
financed with the assumption of a $2.9 million loan and $1.6 million from the
1998 Credit Facility.
On October 31, 1998, the Company acquired 18 apartment communities located in
Greater Boston, Massachusetts, from an unrelated party. The Operating
Partnership issued 919,009 Common Units as part of the purchase price for the
assets acquired from the McNeil Partnership, at $9.82 per unit for $9.02
million, assumed $62.3 million in debt and drew down $18.75 million from the
1998 Credit Facility. In connection with the McNeil Transaction, certain other
debt obligations of the Company relate to this acquisition (see Note 7).
On October 31, 1998, management contracts purchased in connection with the
McNeil Transaction were expensed (see Note 15).
On November 30, 1998 the Company acquired an apartment community, Rockingham
Glen Apartments, located in West Roxbury, Massachusetts , from an unrelated
party. The Operating Partnership issued 104,525 Common Units valued at $10.40
per unit for $1.09 million, assumed $4.4 million in mortgage debt and borrowed
$2.9 million under the 1998 Credit Facility.
As of December 31, 1998 for financial purposes the Company acquired an apartment
community, Highland Glen Apartments, located in Westwood, Massachusetts, from an
unrelated party. The Operating Partnership issued 23,091 Common Units as part of
the purchase price
F-10
<PAGE>
for the assets acquired from the McNeil Partnership, at
$11.43 per unit for $0.26 million, assumed $6.9 million in mortgage debt and
drew down $0.5 million from the 1998 Credit Facility. In connection with the
McNeil Transaction, certain other debt obligations of the Company relate to this
acquisition (see Note 7).
The Company intends to continue to operate all of its multi-family communities
and retail commercial properties as rental properties.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The 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.
Reclassification
----------------
Certain amounts in 1997 and 1996 were reclassified to conform to the 1998
presentation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The combined account balances at each financial institution
periodically exceed the Federal Depository Insurance Corporation ("FDIC")
insurance coverage 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 cash is on
deposit with major financial institutions.
Real Estate Asset Capitalization and Depreciation
-------------------------------------------------
Acquisitions are 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 redevelopment
properties, the Company generally capitalizes all costs incurred throughout
the redevelopment stage.
Depreciation is provided for building and land improvements and buildings
using the straight-line method over the estimated useful lives of the assets
(10 to 30 years). Additionally, furniture, fixtures and equipment are
depreciated using an accelerated method over the estimated useful lives of
the assets (5 to 7 years).
Long-Lived Assets
-----------------
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
requires long-lived assets to be reviewed for impairment when events or
circumstances indicate that an impairment might exist. When an impairment
indicator is present, assets must be grouped at the lowest level for which
there are identifiable cash flows. If the sum of the undiscounted cash flows
is less than the carrying amounts of the assets, an impairment loss must be
recorded. The impairment loss is measured by comparing the fair value of the
assets with their carrying amount. To date, no losses have been recognized
and management believes that no impairment conditions exist.
Per Share Data
--------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share ("Statement 128"). Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes the dilutive effects of options and warrants (see Note 8).
Earnings per share, assuming dilution, is very similar to fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
Income per common share information is based on the weighted average number
of Common Shares outstanding during each year. On February 10, 1997, the
Board of Trust Managers of the Company declared a stock dividend aggregating
26,250 Common Shares and the concurrent effectuation of a 1.125-for-one
common stock split. All shares outstanding and per share amounts have been
restated to reflect these changes in capital structure.
F-11
<PAGE>
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 Principle Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. Under APB No. 25, compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date
over the amount the employee must pay to acquire the stock. The Company has
elected to continue to account for its employee stock compensation plans
under APB No. 25. (See Note 8).
Income Taxes and Dividends
--------------------------
The Company has made the election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. To qualify as
a REIT, the Company generally must distribute at least 95% of its taxable
income to its shareholders and comply with other requirements. Accordingly,
no provision has been made for federal income taxes for the Company in the
accompanying financial statements. Even though the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and to federal income and excise taxes on
its undistributed income, if any. Shareholders are taxed on dividends
declared and must report such dividends as either ordinary income, short
term gains, long term gains, or as a return of capital. The federal income
tax characteristics of dividends paid by the Company consisted of:
1998 1997 1996
---- ---- ----
Ordinary income 86.17% 100.00% 97.46%
Return of capital 13.83% 0.00% 2.54%
No income taxes were paid during 1998, 1997 and 1996.
Advertising
-----------
The Company expenses advertising costs as incurred. Advertising costs were
$543,000, $214,000 and $24,000 in 1998, 1997 and 1996, 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.
4. PRO FORMA INFORMATION (UNAUDITED)
In 1998, the historical consolidated financial statements of the Company
contain results of operations data for the properties below from their
respective dates of acquisition to December 31, 1998.
Effective
Acquisition Date
----------------
Tanglewood Village January 23, 1998
Freeport April 1, 1998
Coachlight Village April 1, 1998
Winchester Park June 1, 1998
Winchester Wood June 1, 1998
Sturbridge Meadows August 7, 1998
Parkwood August 28, 1998
McNeil Transaction (18 Properties) October 31, 1998
McNeil Transaction - Rockingham Glen November 30, 1998
McNeil Transaction - Highland Glen December 31, 1998
The following unaudited pro forma information for the year ended December 31,
1998, is presented as if the 1998 acquisitions listed above had all occurred
on January 1, 1998. The unaudited information does not purport to represent
what the Company's results of operations would have actually been if such
transactions, in fact, had occurred on January 1, 1998, nor does it purport
to represent the results of operations for future periods.
F-12
<PAGE>
(In thousands,
except share data)
Revenues $ 57,953
===============
Income before minority interests $ 1,389
===============
Net income $ 868
===============
Net income per common share - basic and diluted $ 0.10
===============
5. MORTGAGE NOTES PAYABLE
Total mortgage notes payable of $162,141 includes a fair value step up of
$9,421. The contractual principal amount outstanding of mortgage notes
payable is $152,720. The $9,421 step up relates to $57,531 of above market
interest rate mortgages, which were assumed in connection with the purchase
of 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
current market interest rate of 7%. 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 sheet will be accounted for as
extraordinary income. (see Note 14 - Subsequent Event)
On June 1, 1998, the Company obtained a $63.0 million ten-year term loan
with a lender. The net proceeds of the loan were used to repay an existing
$15.0 million loan, acquire two properties in East Providence for $17.0
million (see Note 2), pay down $27.0 million of the Revolving Credit
Facility and the remaining amount of approximately $3.0 million was
deposited in working capital reserves or used for transaction costs.
Payments of interest only are due under the new $63.0 million loan at an
effective fixed interest rate of 6.71% and the loan matures in June 2008. As
of December 31, 1998, the Company's weighted average interest rate on its
long-term debt is approximately 7.75% and its weighted average maturity is
approximately 11.2 years.
As a result of the $15.0 million loan repayment and retirement of the
Original Revolving Credit Facility (see Note 6), the Company incurred $0.2
and $0.3 million, respectively, of expenses related to the write-off of
unamortized finance costs. In addition, the Company incurred $0.7 million of
expense in connection with the breakage of certain LIBOR swap contracts
related to the $15.0 million loan repayment. Accordingly, the results of
operations for the year ended December 31, 1998 reflect approximately $0.9
million of extraordinary expenses (net of $0.3 million allocated to minority
interests).
Mortgage notes payable consist of the following at December 31 (in
thousands):
1998 1997
---- ----
Amortizing first mortgage notes $ 95,141 $ 14,373
Interest only first mortgage notes 67,000 19,084
--------- ---------
$ 162,141 $ 33,457
========= =========
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 a carrying value of
approximately $144.8 million as of December 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 $7.9 million as of December
31, 1998. The other note has a principal balance of $63.0 million requiring
monthly payments of interest only at an effective fixed interest rate of
6.71% and matures in 2008. This note is collateralized by seventeen
properties with an aggregate carrying value of approximately $85.7 million
as of December 31, 1998.
Annual principal payments due as of December 31, 1998, are as follows (in
thousands):
Year Ending December 31,
------------------------
1999 $ 3,289
2000 5,345
2001 3,552
2002 3,723
2003 7,948
Thereafter 138,284
--------
$162,141
========
F-13
<PAGE>
6. REVOLVING CREDIT FACILITY
In March, 1997, the Operating Partnership entered into the Original
Revolving Credit Facility, guaranteed by the Company for up to $25.0
million. Borrowings under the Original Revolving Credit Facility were
collateralized by thirteen properties and interest was payable monthly at a
floating rate of 1.5% above the 30, 60, or 90-day LIBOR rate.
In April 1998, the Operating Partnership entered into a new two-year
Revolving Credit Facility (the "1998 Credit Facility") with its bank and
retired the Original Revolving Credit Facility. The 1998 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
1998 Credit Facility bears interest payable monthly at a floating rate of
1.5% above the 30, 60, or 90-day LIBOR rate. The 1998 Credit Facility is
available to fund future property acquisitions and up to $5.0 million is
available to fund working capital needs. As of December 31, 1998, the 1998
Credit Facility had $34.25 million outstanding. The Operating Partnership is
required to meet certain financial covenants as defined in the 1998 Credit
Facility agreement.
7. ACQUSITION 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. It is anticipated that approximately $12.0
million of the Acquisition Notes Payable will be paid on April 30, 1999
(consisting of approximately $4.4 million in cash and $7.6 million in Common
Units). The remaining balance of the Acquisition Notes Payable of
approximately $0.95 million is expected to be paid over a three-year period
(consisting of approximately $.2 million in cash and approximately $.75
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 will be increased by a corresponding
amount.
8. SHAREHOLDERS' EQUITY
The following table outlines the 1998 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 January 1, 1997 620,102 0
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
Proceeds from stock options in May 1997 394 -
June 1997 acquisitions - 420,183
September 1997 acquisitions - 325,836
October 1997 acquisitions - 143,334
The November 1997 Offering 4,500,000 -
April 1998 acquisitions - 5,818
Common Units redeemed April 1998 through December 1998 - (252,153)
Common Units exchanged July 1998 through December 1998 35,307 (35,307)
Common Shares repurchased September 1998 through (304,630) -
December 1998
Executive stock grants - September 1998 63,153 -
Private placement to executive officers - November 1998 392,000 -
October 1998 acquisitions - 919,009
November 1998 acquisitions - 104,525
December 1998 acquisitions 23,091
------------ ------------
Outstanding at December 31, 1998 8,639,659 3,768,775
============ ============
Ownership Percentage 69.6% 30.4%
============ ============
</TABLE>
F-14
<PAGE>
Income is allocated to the Minority Interest in the Operating Partnership
based on its weighted average ownership percentage of the Operating
Partnership ("OP"). The ownership percentage is computed by dividing the
weighted average number of Common Units held by the Limited Partners other
than the Company ("Minority Interest") by the total weighted average Common
Units outstanding. Issuance of additional Common Shares in connection with
requested redemptions of Common Units or redemptions of Common Units for
cash changes the ownership percentage of both the Minority Interest and the
Company. Such transactions and the proceeds therefrom are treated as capital
transactions and result in an allocation between Shareholders' Equity and
Minority Interest to account for the change in the respective percentage
ownership of the underlying equity of the OP.
A Common Unit and a Common Share have essentially the same economic
characteristics as they effectively share equally in the net income or loss
and distributions of the OP. Common 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 adjustment provisions.
Common Shares have been reserved for future issuance as follows:
Common Units not owned by the Company 3,768,775
(see above)
Underwriters warrants (Note 9) 47,248
Stock options issued (Note 9) 1,092,723
Additional stock options issuable 475,000
------------
5,383,746
============
9. WARRANTS AND STOCK OPTION PLANS
In conjunction with the Company's initial public offering of Common Shares
in 1994, the managing underwriter was granted Underwriter Warrants to
purchase 47,248 Common Shares. The Underwriter Warrants are exercisable at
$11.31 per Common Share and expire in June 1999. No warrants have been
exercised as of December 31, 1998.
The Company adopted a stock option plan in 1994 (the "1994 Plan") for a
maximum of 118,120 Common Shares for key employees and non-employee Trust
Managers of the Company. Options are granted at the market price of the
Company's Common Shares on the date of grant, become exercisable ratably on
each of the first three anniversaries of the date of the grant and have a
maximum term of ten years. At December 31, 1996, no options had been
exercised. In May 1997, a Trust Manager exercised options on 394 Common
Shares. In March 1997, the Company instituted an additional stock option
plan ("1996 Plan"). The Company reserved a total of 900,000 Common Shares,
subject to adjustment, pursuant to the 1996 Plan. In June, 1998, the Company
amended the 1996 Plan by reserving an additional 500,000 Common Shares. The
provisions of the 1996 Plan are similar to the 1994 Plan. The 1996 Plan also
allows awards to advisors and consultants. Pursuant to the Consolidation
Transactions and the November Offering, the Company granted 810,000 options
to certain executive officers, employees and non-employee Trust Managers and
an additional 50,000 nonqualified options were granted to a Company advisor.
Each non-employee Trust Manager receives 10,000 options upon his original
election to the Board and 5,000 options each time he is reelected to the
Board. The exercise price of the options is between $7.20 and $10.91 per
share.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 977,723 $10.30 118,117 $ 8.48
Granted 115,000 $10.26 860,000 $10.54
Exercised - $ - (394) $ 7.73
------------- -------------
Outstanding at end of year 1,092,723 $10.29 977,723 $10.30
============= =============
Options exercisable at end of year 448,249 $10.05 69,296 $ 9.33
============= =============
</TABLE>
The Company accounts for stock option grants in accordance with APB No. 25.
Accordingly, no compensation cost has been recognized for stock option
grants since all of the options have exercise prices equal to the market
value of the Company's Common Shares at the date they were granted.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of FAS
No. 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions
for 1998: risk-free
F-15
<PAGE>
interest rate of 5%; dividend yields of 6.48%; volatility factors of the
expected market price of the Company's Common Shares of 2.31 and a
weighted-average expected life of the options of ten years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. The Company's employee stock options have characteristics
significantly different from those of traded options; furthermore, changes
in the subjective input assumptions can materially affect the fair value
estimate. Therefore, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except for earnings
per share information):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Pro forma (net loss) income $ (436) $ 2,221
=========================================
Pro forma (net loss) income per share - basic
and assuming dilution $ (.0$) $ 0.59
=========================================
</TABLE>
10. RELATED PARTY TRANSACTIONS
Management Fee
--------------
On June 23, 1994, the Company entered into a Management Agreement ( the
"Agreement" ) with Grove Property Services Limited Partnership ("GPS"), an
affiliated company which provided operating and support functions requisite
to the operation of the Company's properties. The Agreement provided for a
management fee equal to 5% of gross monthly revenues, as defined, and was
terminated pursuant to the Consolidation Transactions in March 1997.
Management fees incurred in 1998, 1997 and 1996 were approximately $0,
$22,000 and $109,000, respectively.
Subsequent to the Consolidation Transactions, the Company earned revenues,
through GPS, of approximately $477,100 in 1998, and $518,013 in 1997, by
providing management services to affiliated companies not owned by the
Company or the OP.
Rent to Related Party
---------------------
The Company's executive offices were leased from an affiliated company under
a three year lease which expired in 1997. The lease has been extended on a
month-to-month basis at a rate of $4,780 per month.
Related party rent expense was approximately $79,000, $41,000 and $6,000 in
1998, 1997 and 1996, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair values.
Cash equivalents, accounts receivable and accounts payable, because of their
short-term nature, approximate fair value. Mortgage notes payable, the 1998
Credit Facility, and Acquisition Notes Payable are also carried at amounts
that approximate their fair values.
12. PENSION PLAN
The Company sponsors a defined contribution pension plan (the "Plan") that
is qualified under Section 401(k) of the Internal Revenue Code. New
full-time employees are eligible to join the Plan on the first day of the
month following their 60-day waiting period. Employee contributions are in
accordance with I.R.S. guidelines; the Company matches twenty-five percent
of employee contributions up to one percent of the individual's total annual
base salary. The Company's contribution vests over a term of 5 years.
F-16
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
The Company, as an owner of real estate, is subject to various environmental
and other laws of federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations. However, the Company cannot
predict the impact of new or changed laws or regulations on its current
properties or on properties that it may acquire in the future. The Company
is party to various litigation from time to time in the normal course of
business. Management believes that substantially all matters are covered by
insurance or, in the event of an unfavorable outcome, would not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
In November 1998, the Company guaranteed up to $8.2 million of a bank loan
to certain officers of the Company to be used by officers to purchase Common
Shares. (See note 8)
14. SUBSEQUENT EVENT (UNAUDITED)
On March 15, 1999 The Company prepaid The Highland Glen mortgage note of
approximately $6.5 million. This prepayment transaction will result in the
recognition of extraordinary income related to debt extinguishment of
approximately $0.35 million (approximately $0.40 million fair value step up
net of approximately $.05 million prepayment penalty).
F-17
<PAGE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected unaudited quarterly financial data (in
thousands, except per share data):
<TABLE>
<CAPTION>
---------------------------1998--------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
January-March April-June July-September October-December
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,588 $ 8,652 $ 9,461 $ 13,131
===============================================================
Income before minority interests
and Extraordinary expenses $ 1,626 $ 1,790 $ 1,733 $ (4,058) (1)
Minority interests (439) (478) (444) 1,017
---------------------------------------------------------------
Income before extraordinary expenses 1,187 1,312 1,289 (3,041)
Extraordinary expenses related to debt
Refinancing, net of minority
interests - (838) - (50)
===============================================================
Net income (loss) $ 1,187 $ 474 $ 1,289 $ (3,091)
===============================================================
Income before extraordinary expenses
Per weighted average share-basic and
Assuming dilution $ 0.14 $ 0.16 $ 0.15 $ (0.36)
Extraordinary expenses per
share-basic - (0.10) - (0.01)
And assuming dilution
===============================================================
Net income per share-basic and
Assuming dilution $ 0.14 $ 0.06 $ 0.15 $ (0.37)
===============================================================
Weighted average common shares 8,454 8,454 8,477 8,408
Outstanding-basic
Effect of warrants and stock options 29 8 - 13
===============================================================
Weighted average common shares
Outstanding-assuming dilution 8,483 8,462 8,477 8,421
===============================================================
</TABLE>
(1) In conjunction with the acquisition of the McNeil Portfolio, the Company
paid approximately $5.6 million for the purchase of the related management
contracts from an unrelated third party management company. The term of the
contracts was for an average of approximately 20 years. The purchased contracts
historically produced gross annual revenue of approximately $1.6 million. In
accordance with generally accepted accounting principles, the cost of the
management contracts has been expensed in the fourth quarter of 1998, and as a
result there was a net loss for the quarter.
<TABLE>
<CAPTION>
---------------------------1997--------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
January-March April-June July-September October-December
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,306 $ 4,478 $ 5,752 $ 6,402
===============================================================
Income before minority interests $ 130 $ 847 $ 932 $ 1,809
Minority interests (33) (337) (412) (640)
---------------------------------------------------------------
Net income $ 97 $ 510 $ 520 $ 1,169
===============================================================
Net income per weighted average
Share-basic and assuming dilution $ 0.08 $ 0.13 $ 0.13 $ 0.20
===============================================================
Weighted average common shares
Outstanding 1,250 3,954 3,954 5,813
===============================================================
</TABLE>
The first three quarters of 1997 earnings per share amounts have been restated
to comply with Statement 128. Statement 128 had an immaterial impact with
respect to 1997 earnings per share.
F-18
<PAGE>
16. SEGMENT REPORTING
The Company's reportable segments are strategic real estate types of
investments. They are managed separately because each real estate type
requires a different strategy.
Prior to 1998 the Company operated as one segment. Accordingly, only 1998
segment reporting information is presented below. The Company has three
reportable segments; residential, subsidized residential, and retail. The
residential segment includes those properties that are rented to residents
only for residential purposes. The subsidized residential segment includes
properties that are used for residential purposes; however, these properties
are operating and receive subsidization according to HUD and MHFA
guidelines. The retail segment includes those properties whose space is
rented for stores, restaurants, and other retail uses.
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>
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues $ 33,840 $ 1,985 $ 2,422 $ 38,247
Interest Expense $ 4,464 $ 409 $ 463 $ 5,336
Depreciation and amortization $ 5,293 $ 197 $ 473 $ 5,963
Segment Profit $ 7,053 $ 592 $ 825 $ 8,470
Extraordinary expense $ 1,173 $ - $ 83 $ 1,256
Segment Assets $ 239,505 $ 56,298 $19,293 $315,096
FFO $ 13,310 $ 789 $ 1,370 $ 15,469
</TABLE>
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based upon profit or loss from operations before income taxes.
The following presentation of reconciliation of reportable segment revenues,
profit or loss, and assets, to the Company's consolidated totals.
Revenues:
---------
Total revenues for reportable segments $ 38,247
Other revenues 585
---------------
Total consolidated revenues $ 38,832
===============
Profit or Loss
--------------
Total profit/loss for reportable segments $ 8,470
Other profit or loss ( 1,829)
Unallocated amounts:
Other corporate expenses ( 5,550)
Income before minority interest and ---------------
extraordinary items $ 1,091
===============
Assets
------
Total assets for reportable segments $ 315,096
Other assets 12,019
Other unallocated amounts -
---------------
Total consolidated assets $ 327,115
===============
F-19
<PAGE>
Other Significant Items
-----------------------
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
Interest expense $ 5,336 $ 1,455 $6,791
Depreciation and amortization $ 5,963 $ 204 $6,167
17. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company expects to adopt the new
Statement effective January 1, 2000. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. The Company
does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
F-20
<PAGE>
1998
SCHEDULE III
PART 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Initial Cost
Apartment Name Location Encumbrances Land Building
-------------- -------- ------------ ---- --------
Connecticut
- -----------
<S> <C> <C> <C> <C>
208-210 Main St Manchester $ - $ 149,629 $ 847,897
Arbor Commons Ellington - 164,946 934,695
Avon Place Avon 6,342,236 1,095,513 6,207,906
Barons Apartments Southington 1,228,545 162,696 1,445,468
Bradford Apartments Newington 1,957,653 358,864 2,036,562
Briar Knoll Apts Vernon - 956,711 5,421,363
Brooksyde Apts West Hartford 1,937,190 467,829 2,651,030
Burgundy Studios Middletown 1,821,650 313,856 1,778,520
Cambridge Estates Norwich (A) 4,299,482 426,470 3,808,829
Colonial Village Plainville 3,584,186 604,027 3,422,818
Dogwood Hill Hamden - 170,942 1,680,865
Summit & Birch Hill Farmington 7,286,123 1,432,693 8,118,593
Fox Hill Apartments Enfield 5,553,940 1,034,266 5,877,842
Fox Hill Commons Vernon 2,195,541 395,047 2,238,597
Greenfield Village Rocky Hill - 783,698 3,498,803
Hamden Centre Hamden - 160,185 1,607,407
High Meadow Ellington - 626,395 3,549,569
Hilltop Norwich - 777,880 4,407,984
Glastonbury Center Glastonbury 4,358,292 793,383 4,497,538
Loomis Manor West Hartford 1,768,351 305,045 1,728,588
Ocean Reef New London (A) 2,292,297 579,134 3,281,760
Park Place West West Hartford - 256,440 1,453,161
Parkwood East Haven 2,881,935 678,382 3,844,167
Sandalwood New London - 112,314 636,444
Ribbon Mill Manchester - 591,778 3,353,407
River's Bend Windsor 12,389,455 2,244,296 12,909,411
Westwynd Apts West Hartford - 224,822 1,273,991
Woodbridge Newington 2,303,845 361,635 2,049,267
Maine
- -----
Freeport Shops Freeport - 1,079,260 6,115,808
Massachusetts
- -------------
929 House Cambridge 5,747,945 1,755,911 9,950,160
Abington Grove Abington 2,080,225 490,465 2,779,304
Cedar Glen Reading 3,628,455 597,351 3,384,992
Chestnut Glen Abington 6,145,530 1,064,882 6,034,329
Coachlight Village Agawam 2,096,516 505,464 2,864,297
Conway Court Roslindale 593,232 92,618 524,835
Cornerblock Edgartown - 272,295 1,543,005
Dean Estates Taunton (A) 1,988,561 376,705 2,134,664
Four Winds Fall River 6,004,919 1,051,300 5,957,369
Glen Grove Wellesley 3,688,566 642,075 3,638,426
Glen Meadow Franklin 2,884,277 1,070,881 6,068,322
Gosnold Grove East Falmouth 810,716 152,784 865,774
Highland Glen Westwood 6,921,907 1,070,133 6,064,083
Longfellow Glen Sudbury 7,493,105 1,118,731 6,339,476
Longmeadow Shops Longmeadow 4,000,000 976,373 5,532,783
Nehoiden Glen Needham 1,275,377 215,233 1,219,652
Noonan Glen Winchester 788,406 118,267 670,177
Norton Glen Norton 7,323,665 1,094,229 6,200,631
Old Mill Glen Maynard 3,092,940 468,084 2,651,256
Phillips Park Wellesley 3,343,113 875,667 4,962,113
Rockingham Glen West Roxbury 4,415,256 1,139,721 6,458,416
Security Manor Westfield 1,443,634 348,661 1,999,499
Sturbridge Meadows Sturbridge 2,411,691 625,710 3,545,687
Summerhill Glen Maynard 2,504,099 337,834 1,914,392
Van Deene Manor West Springfield 3,071,031 585,049 3,360,177
Village Arms Acton - 806,777 4,571,736
Webster Green Needham 4,703,108 1,654,299 9,374,358
Westwood Glen Westwood 3,467,667 1,301,329 7,374,194
The Wharf Edgartown - 387,888 2,198,032
Wilkins Glen Medfield 2,396,514 398,911 2,260,494
Rhode Island
- ------------
Dean Estates II Cranston 1,225,289 253,198 1,434,786
Royale Cranston 2,018,441 342,607 1,941,439
Tanglewood West Warwick - 1,048,689 5,942,569
Winchester Park East Providence - 2,200,003 12,466,684
Winchester Woods East Providence 2,375,991 694,825 3,937,343
---------------- ------------- ---------------
$ 162,140,897 $ 43,443,085 $ 248,843,744
================ ============= ===============
</TABLE>
(A) - One of three properties that secure one of the Company's amortizing first
mortgage notes
F-21
<PAGE>
1998
SCHEDULE III
PART 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs Capitalized Gross Carrying Amount at
Subsequent to Acquisition Close of Period (B)
Apt Name Land Building Land Building Accum. Depr.
- -------- ---- -------- ---- -------- ------------
Connecticut
- -----------
<S> <C> <C> <C> <C> <C>
208-210 Main St $ 48,185 $ 310,402 $ 197,814 $ 1,158,299 $ 52,984
Arbor Commons 44,382 283,760 209,328 1,218,455 58,636
Avon Place 1,403,531 81,757 2,499,044 6,289,663 397,857
Barons Apartments 126 55,636 162,822 1,501,104 295,269
Bradford Apartments 86,452 565,142 445,316 2,601,704 129,433
Briar Knoll Apts 6,940 196,751 963,651 5,618,114 186,718
Brooksyde Apts 4,866 469,323 472,695 3,120,353 167,132
Burgundy Studios 91,617 598,744 405,473 2,377,264 118,363
Cambridge Estates 331 107,735 426,801 3,916,564 415,566
Colonial Village 85,062 597,516 689,089 4,020,334 218,855
Dogwood Hills 133 11,835 171,075 1,692,700 433,828
Summit & Birch Hill 32,374 355,155 1,465,067 8,473,748 374,337
Fox Hill Apartments 223,785 1,306,731 1,258,051 7,184,573 377,181
Fox Hill Commons 96,713 625,310 491,760 2,863,907 141,304
Greenfield Village 83,720 807,273 867,418 4,306,076 201,254
Hamden Centre 124 99,802 160,309 1,707,209 369,965
High Meadow 152,919 1,060,556 779,314 4,610,125 173,660
Hilltop 7,358 215,942 785,238 4,623,926 153,727
Glastonbury Center 24,360 277,730 817,743 4,775,268 209,611
Loomis Manor 90,779 568,313 395,824 2,296,901 119,276
Ocean Reef 186,554 1,399,915 765,688 4,681,675 221,093
Park Place West 85,034 498,511 341,474 1,951,672 89,646
Parkwood 527 36,296 678,909 3,880,463 43,125
Sandalwood 40,573 235,596 152,887 872,040 39,144
Ribbon Mill 5,463 512,836 597,241 3,866,243 121,725
River's Bend 58,812 457,469 2,303,108 13,366,880 553,037
Westwynd Apts 52,889 315,630 277,711 1,589,621 76,452
Woodbridge 142,960 903,548 504,595 2,952,815 132,429
Maine
- -----
Freeport Shops 838 11,621 1,080,098 6,127,429 153,033
Massachusetts
- -------------
929 House 1,363 75,889 1,757,274 10,026,049 55,635
Abington Grove 381 8,272 490,846 2,787,576 18,089
Cedar Glen 464 10,051 597,815 3,395,043 19,123
Chestnut Glen 827 7,335 1,065,709 6,041,664 34,289
Coachlight Village 392 19,445 505,856 2,883,742 72,196
Conway Court 72 441 92,690 525,276 2,925
Cornerblock 499 17,220 272,794 1,560,225 60,611
Dean Estates 46,238 295,561 422,943 2,430,225 132,439
Four Winds 8,735 207,671 1,060,035 6,165,040 325,415
Glen Grove 498 3,748 642,573 3,642,174 16,101
Glen Meadow 831 5,095 1,071,712 6,073,417 33,816
Gosnold Grove 119 727 152,903 866,501 4,825
Highland Glen 831 5,091 1,070,964 6,069,174 103
Longfellow Glen 868 9,966 1,119,599 6,349,442 35,983
Longmeadow Shops 243,153 1,474,210 1,219,526 7,006,993 341,965
Nehoiden Glen 167 1,024 215,400 1,220,676 6,817
Noonan Glen 92 563 118,359 670,740 2,823
Norton Glen 849 293,363 1,095,078 6,493,994 36,257
Old Mill Glen 363 2,226 468,447 2,653,482 14,774
Phillips Park 680 14,761 876,347 4,976,874 30,052
Rockingham Glen 885 294,417 1,140,606 6,752,833 18,560
Security Manor 80,267 484,062 428,928 2,483,561 127,958
Sturbridge Meadows 486 89,469 626,196 3,635,156 50,202
Summerhill Glen 262 2,093 338,096 1,916,485 10,672
Van Deene Manor 136,897 805,388 721,946 4,165,565 216,032
Village Arms 37,178 738,877 843,955 5,310,613 168,861
Webster Green 1,284 29,860 1,655,583 9,404,218 52,511
Westwood Glen 1,010 396,334 1,302,339 7,770,528 43,265
The Wharf 3,877 45,670 391,765 2,243,702 87,183
Wilkins Glen 310 4,951 399,221 2,265,445 12,632
Rhode Island
- ------------
Dean Estates II 51,728 335,139 304,926 1,769,925 90,853
Royale 82,329 517,679 424,936 2,459,118 123,523
Tanglewood 814 368,655 1,049,503 6,311,224 186,889
Winchester Park 1,708 285,594 2,201,711 12,752,278 247,680
Winchester Wood 539 21,965 695,364 3,959,308 77,098
------------ ------------- --------------- -------------- ----------
Totals: $ 3,764,401 $ 19,839,647 $ 47,207,486 $ 268,683,391 $8,782,797
============ ============= =============== ============== ==========
</TABLE>
(B) -- The aggregate cost of land and buildings as of December 31, 1998 was
$242,166,589 for Federal income tax purposes
F-22
<PAGE>
1998
SCHEDULE III (CONTINUED)
PART 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
Date Estimated
Apt Name Constructed Renovated Acquired Life (Years)
- -------- ----------- --------- -------- ------------
Connecticut
- -----------
208-210 Main St 1969 1988 1997 10 to 30
Arbor Commons 1975 1988 1997 10 to 30
Avon Place 1973 1995 1997 10 to 30
Barons Apartments 1970 1994 1994 10 to 30
Bradford Apartments 1964 1989 1997 10 to 30
Briar Knoll Apts 1986 - 1997 10 to 30
Brooksyde Apts 1945 1997 1997 10 to 30
Burgundy Studios 1973 1996 1997 10 to 30
Cambridge Estates 1977 1990 1996 10 to 30
Colonial Village 1968 1989 1997 10 to 30
Dogwood Hill 1971 1993 1994 10 to 30
Summit & Birch Hill 1967 1996 1997 10 to 30
Fox Hill Apartments 1974 1991 1997 10 to 30
Fox Hill Commons 1965 1989 1997 10 to 30
Greenfield Village 1965 1997 1997 10 to 30
Hamden Centre 1968 1993 1994 10 to 30
High Meadow 1975 - 1997 10 to 30
Hilltop 1987 - 1997 10 to 30
Glastonbury Center 1962 1989 1997 10 to 30
Loomis Manor 1948 1990 1997 10 to 30
Ocean Reef 1962 1995 1997 10 to 30
Park Place West 1961 1989 1997 10 to 30
Parkwood 1975 - 1998 10 to 30
Sandalwood 1977 1996 1997 10 to 30
Ribbon Mill 1908 1985 1997 10 to 30
River's Bend 1973 1996 1997 10 to 30
Westwynd Apts 1969 1990 1997 10 to 30
Woodbridge 1968 1991 1997 10 to 30
Maine
- -----
Freeport Shops 1985 - 1998 10 to 30
Massachusetts
- -------------
929 House 1975 - 1998 10 to 30
Abington Grove 1968 - 1998 10 to 30
Cedar Glen 1980 - 1998 10 to 30
Chestnut Glen 1983 - 1998 10 to 30
Coachlight Village 1967 1994 1998 10 to 30
Conway Court 1920 - 1998 10 to 30
Cornerblock 1800's 1988 1997 10 to 30
Dean Estates 1984 - 1997 10 to 30
Four Winds 1987 1996 1997 10 to 30
Glen Grove 1979 - 1998 10 to 30
Glen Meadow 1971 - 1998 10 to 30
Gosnold Grove 1978 - 1998 10 to 30
Highland Glen 1979 - 1998 10 to 30
Longfellow Glen 1984 - 1998 10 to 30
Longmeadow Shops 1962 1978 1997 10 to 30
Nehoiden Glen 1978 - 1998 10 to 30
Noonan Glen 1983 - 1998 10 to 30
Norton Glen 1983 - 1998 10 to 30
Old Mill Glen 1983 - 1998 10 to 30
Phillips Park 1988 - 1998 10 to 30
Rockingham Glen 1974 - 1998 10 to 30
Security Manor 1971 1988 1997 10 to 30
Sturbridge Meadows 1985 1998 1998 10 to 30
Summerhill Glen 1980 - 1998 10 to 30
Van Deene Manor 1970 1990 1997 10 to 30
Village Arms 1973 1998 1997 10 to 30
Webster Green 1985 - 1998 10 to 30
Westwood Glen 1972 - 1998 10 to 30
The Wharf 1800's 1996 1997 10 to 30
Wilkins Glen 1975 - 1998 10 to 30
Rhode Island
- ------------
Dean Estates II 1970 1994 1997 10 to 30
Royale 1976 1993 1997 10 to 30
Tanglewood 1973 1998 1998 10 to 30
Winchester Park 1972 1998 1998 10 to 30
Winchester Wood 1989 1998 1998 10 to 30
F-23
<PAGE>
SCHEDULE III
PART II
ROLLFORWARD OF ASSETS AND ACCUMULATED DEPRECIATION
Years
---------
Land, buildings and related improvements 10 to 30
Furniture, fixtures and equipment 5 to 7
The changes in total real estate assets for the
years ended December 31 are as follows (in
thousands):
1998 1997 1996
-------------------------------
Balance, beginning of year $146,815 $ 9,448 $5,153
New property acquisitions 166,268 136,321 4,279
Additions 2,808 1,046 16
-------------------------------
Balance, end of year $315,891 $146,815 $9,448
===============================
The changes in accumulated depreciation for the years ended December 31
are as follows (in thousands):
1998 1997 1996
-------------------------------
Balance, beginning of year $ 3,154 $ 867 $ 559
Depreciation 5,629 2,287 308
expense
-------------------------------
Balance, end of year $ 8,783 $ 3,154 $ 867
===============================
F-24
<PAGE>
EXHIBIT INDEX:
EXHIBIT NO. DESCRIPTION
2.1 Contribution Agreement, dated as of May 30, 1997, by and
between Grove Operating, L.P., Northeast Apartments I Limited
Partnership, West Hartford Center Associated Limited
Partnership, Windsor Equity Partnership and Windsor Commons
Corporation (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated May 30, 1997
(Commission File No. 1-13080))
2.2 Form of First Amendment effective as of June 1, 1997 to
Agreement of Limited Partnership of Windsor Arbor Limited
Partnership (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated May 30, 1997
(Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between
Highland Income Partners, L.P., as Seller, and Grove
Corporation, a Purchaser (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
July 2, 1997 (Commission File No. 1-13080))
2.4 Purchase and Sale Agreement, dated September 5, 1997, by and
between Werner O. Kunzli, as Seller, and Grove Corporation, a
Purchaser (incorporated by reference to Exhibit 2.4 to the
Company's Registration Statement on Form S-2, No. 333-38183)
2.5 Grove Operating, L.P., Solicitation of Consent and Offer to
Exchange Certain Outstanding Units of Limited Partnership
Interest in Grove-Coastal Associates, L.P. for Consideration
of 3,435.5 Common Units of Grove Operating, L.P. with an
option to holders to instead receive cash consideration,
dated June 19, 1997, as supplemented on June 19, 1997, and
Letter of Transmittal and Addendum to Letter of Transmittal
in connection therewith (incorporated by reference to Exhibit
2.5 to the Company's Registration Statement on Form S-2, No.
333-38183)
2.6 Agreement dated as of April 22, 1998 among The Grove
Corporation and the twenty-two limited partnerships
identified on Schedule 1 thereto (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated October 30, 1998 (Commission File No. 1-13080))
2.7 Amendment dated as of August 31, 1998 to Conveyance Agreement
dated as of April 22, 1998 among The Grove Corporation and
the twenty-two limited partnerships identified on Schedule 1
thereto (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K dated October 30, 1998
(Commission File No. 1-13080))
3.1 Third Amended and Restated Declaration of Trust of the
Company dated March 14, 1997, as amended by Articles
Supplementary dated October 23, 1997 and by Articles of
Amendment dated June 30, 1998 (incorporated by reference to
Exhibit 3.0 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (Commission File No.
1-123080))
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on
Form 8-K dated March 14, 1997 and filed March 31, 1997
(Commission File No. 1-13080))
4.1 Form of Agreement of Limited Partnership of Grove Operating,
L.P., among the Company and the other partners named therein
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated February 13, 1997
(Commission File No. 1-13080))
4.2 Revolving Credit Agreement among Grove Operating, L.P., and
Rhode Island Hospital Trust National Bank (a Bank of Boston
company) and Other Banks which may become parties to the
Agreement and Rhode Island Hospital Trust National Bank, as
Agent BancBoston Securities, Inc. As Arranger Dated April 30,
1998 (incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (Commisssion File No. 1-13080))
4.3 Amendment to the Agreement of Limited Partnership of Grove
Operating, L.P. among the Company and the other partners
named therein (incorporated by reference to Exhibit 4.3 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.1 Securities Purchase Agreement, dated February 20, 1997,
between the Company and Morgan Stanley Group Inc.
(incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
<PAGE>
10.2 Securities Purchase Agreement, dated February 21, 1997,
between the Company and ABKB/LaSalle Securities Limited
(incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated March 14, 1997 (Commission
File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other
Investors in the Private Placement (incorporated by reference
to Exhibit 10.3 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.4 Registration Rights Agreement, dated March 14, 1997, between
the Company and the Investors (incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.5 Registration Rights Agreement, dated March 14, 1997, between
the Company, Grove Operating, L.P. and certain partners of
Grove Operating, L.P. (incorporated by reference to Exhibit
10.9 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.6 1994 Share Option Plan (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form SB-2
(File No. 33-76732))
10.7 1996 Share Incentive Plan of Grove Property Trust, Grove
Operating LP and Property Partnerships, as amended to March
11, 1998 (incorporated by reference to Appendix A to the
Company's Notice of Annual Meeting and Proxy Statement dated
April 30, 1998 (Commission File No. 1-13080))
10.8 Noncompetition Agreement, dated March 14, 1997, among the
Company, Grove Operating, L.P., National Realty Services
Limited Partnership, GIG and Burgundy Associates Limited
Partnership (incorporated by reference to Exhibit 10.12 to
the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.9 Form of Noncompetition Agreement executed by each of Damon
Navarro, Brian Navarro, Joseph LaBrosse, Edmund Navarro and
Gerald McNamara (incorporated by reference to Exhibit 10.13
to the Company's Current Report on Form 8-K dated March 14,
1997 (Commission File No. 1-13080))
10.10 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.15 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.11 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.16 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.12 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.17 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.13 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.18
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.14 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit 10.19
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.15 Employment Agreement, dated March 14, 1997, between the
Company and Damon Navarro (incorporated by reference to
Exhibit 10.14 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.16 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.21 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.17 Employment Agreement, dated March 14, 1997, between the
Company and Brian Navarro (incorporated by reference to
Exhibit 10.15 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
<PAGE>
10.18 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.23 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.19 Employment Agreement, dated March 14, 1997, between the
Company and Edmund Navarro (incorporated by reference to
Exhibit 10.16 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.20 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.25 of
the Company's Registration Statement on Form S-2, No.
333-38183)
10.21 Employment Agreement, dated March 14, 1997, between the
Company and Joseph LaBrosse (incorporated by reference to
Exhibit 10.17 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.22 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.27
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.23 Employment Agreement, dated March 14, 1997, between the
Company and Gerald McNamara (incorporated by reference to
Exhibit 10.18 to the Company's Current Report on Form 8-K
dated March 14, 1997 (Commission File No. 1-13080))
10.24 Amendment, dated as of October 15, 1997, to Employment
Agreement, dated March 14, 1997, between the Company and
Gerald McNamara (incorporated by reference to Exhibit 10.29
of the Company's Registration Statement on Form S-2, No.
333-38183)
10.25 Form of Contribution Agreement among the Company, Grove
Operating, L.P. and certain other parties (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated February 13, 1997 (Commission File No.
1-13080))
10.26 Form of Indemnification Agreement by and between the Company,
the Trust Managers and each of Damon Navarro, Brian Navarro,
Edmund Navarro, Joseph LaBrosse, and Gerald McNamara
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form SB-2 (No. 33-76732))
10.27 Assumption of Mortgage Deed and Security Agreement made June
23, 1994 by and among Southington Baron Limited Partnership,
Charles D. Gersten, Ada C Berin, the Company, Damon D.
Navarro and Brian A. Navarro (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994 (Commission File No.
1-13080))
10.28 Mortgage Note from Southington Baron Limited Partnership to
Charles D. Gersten and Ada C. Berin dated June 8, 1994
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1994 (Commission File No. 1-13080))
10.29 Purchase and Sale Agreement between the Company and Grove
Cambridge Associates Limited Partnership (incorporated by
reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated October 30, 1995 (Commission File No.
1-13080))
10.30 Mortgage Note from the Company to First Union Bank of
Connecticut dated January 11, 1996 (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995 (Commission File
No. 1-13080))
10.31 Unlimited Guaranty among Grove Property Trust and Bankboston,
N.A. dated November 6, 1998
21 List of Subsidiaries
23 Consent of Ernst & Young, LLP
27 Financial Data Schedule
UNLIMITED GUARANTY
GUARANTY, dated as of November 6, 1998 by GROVE PROPERTY TRUST, a
Maryland Real Estate Investment Trust with a business address at 598 Asylum
Avenue, Hartford, Connecticut 06105 (the "GUARANTOR"), in favor of BANKBOSTON,
N.A. a national banking association, with an office at One Landmark Square,
Stamford, Connecticut 06901 (the "BANK"). In consideration of the Bank's giving,
in its discretion, time, credit or banking facilities or accommodations to
Gerald McNamara (the "CUSTOMER"), the Guarantor agrees as follows:
1. GUARANTY OF PAYMENT AND PERFORMANCE. The Guarantor hereby guarantees
to the Bank the full and punctual payment when due (whether at maturity, by
acceleration or otherwise), and the performance, of all liabilities, agreements
and other obligations of the Customer to the Bank, whether direct or indirect,
absolute or contingent, due or to become due, secured or unsecured, now existing
or hereafter arising or acquired (whether by way of discount, letter of credit,
lease, loan, overdraft or otherwise) arising under or in connection with the
Revolving Credit Agreement dated of even date herewith between the Customer and
the Bank (the "CREDIT AGREEMENT") or any document, agreement and instrument
executed in connection therewith (collectively, the "OBLIGATIONS"). This
Guaranty is an absolute, unconditional and continuing guaranty of the full and
punctual payment and performance of the Obligations and not of their
collectibility only and is in no way conditioned upon any requirement that the
Bank first attempts to collect any of the Obligations from the Customer or
resort to any security or other means of obtaining their payment. Should the
Customer default in the payment or performance of any of the Obligations, the
obligations of the Guarantor hereunder shall become immediately due and payable
to the Bank, without demand or notice of any nature, all of which are expressly
waived by the Guarantor. Payments by the Guarantor hereunder may be required by
the Bank on any number of occasions.
2. GUARANTOR'S AGREEMENT TO PAY. The Guarantor further agrees to pay to
the Bank, on demand, all costs and expenses (including court costs and
reasonable legal expenses) incurred or expended by Bank in connection with the
Obligations, this Guaranty and the enforcement thereof, together with interest
on amounts recoverable under this Guaranty from the time such amounts become due
until payment, at the interest rate set forth in the Credit Agreement; provided,
that if such interest exceeds the maximum amount permitted to be paid under
applicable law, then such interest shall be reduced to such maximum permitted
amount.
3. UNLIMITED GUARANTY. The liability of the Guarantor hereunder shall be
unlimited.
4. WAIVERS BY GUARANTORS; BANK'S FREEDOM TO ACT. The Guarantor agrees
that the Obligations will be paid and performed strictly in
<PAGE>
accordance with their respective terms regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Bank with respect thereto. The Guarantor waives
presentment, demand, protest, notice of acceptance, notice of Obligations
incurred and all other notices of any kind, all defenses which may be available
by virtue of any valuation, stay, moratorium law or other similar law now or
hereafter in effect, any right to require the marshalling of assets of the
Customer, and all suretyship defenses generally. Without limiting the generality
of the foregoing, the Guarantor agrees to the provisions of any instrument
evidencing, securing or otherwise executed in connection with any Obligation and
agrees that the obligations of the Guarantor hereunder shall not be released or
discharged, in whole or in part, or otherwise affected by (i) the failure of the
Bank to assert any claim or demand or to enforce any right or remedy against the
Customer; (ii) any extensions or renewals of any Obligation; (iii) any
rescissions, waivers, amendments or modifications of any of the terms or
provisions of any agreement evidencing, securing or otherwise executed in
connection with any Obligation; (iv) the substitution or release of any entity
primarily or secondarily liable for any Obligation (including, without
limitation, the release of the Guarantor); (v) the adequacy of any rights the
Bank may have against any collateral or other means of obtaining repayment of
the Obligations; (vi) the impairment of any collateral securing the Obligations,
including without limitation the failure to perfect or preserve any rights the
Bank might have in such collateral or the substitution, exchange, surrender,
release, loss or destruction of any such collateral; or (vii) any other act or
omission which might in any manner or to any extent vary the risk of the
Guarantor or otherwise operate as a release or discharge of the Guarantor, all
of which may be done without notice to the Guarantor.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST CUSTOMER. If for any reason
the Customer has no legal existence or is under no legal obligation to discharge
any of the Obligations, or if any of the Obligations have become irrecoverable
from such Customer by operation of law or for any other reason, this Guaranty
shall nevertheless be binding on the Guarantor to the same extent as if the
Guarantor at all times had been the principal obligor on all such Obligations.
In the event that acceleration of the time for payment of the Obligations is
stayed upon the insolvency, bankruptcy or reorganization of the Customer, or for
any other reason, all such amounts otherwise subject to acceleration under the
terms of any agreement evidencing, securing or otherwise executed in connection
with any Obligation shall be immediately due and payable by the Guarantor.
6. SUBROGATION; SUBORDINATION. Until the payment and performance in full
of all Obligations and any and all obligations of the Customer to any affiliate
of the Bank, the Guarantor shall not exercise any rights against the Customer
arising as a result of payment by the Guarantor hereunder, by way of subrogation
or otherwise, and will not prove any claim in competition with the Bank or its
affiliates in respect of any payment hereunder in bankruptcy or insolvency
proceedings of any nature; until the payment and
<PAGE>
performance of all of the Obligations and any and all Obligations of the
Customer to any affiliate of the Bank, the Guarantor will not claim any set-off
or counterclaim against the Customer in respect of any liability of the
Guarantor to the Customer; and the Guarantor waives any benefit of and any right
to participate in any collateral which may be held by the Bank or any such
affiliate. The payment of any amounts due with respect to any indebtedness of
the Customer now or hereafter held by the Guarantor is hereby subordinated to
the prior payment in full of the Obligations. The Guarantor agrees that the
Guarantor will not demand, sue for or otherwise attempt to collect any such
indebtedness of the Customer to the Guarantor until the Obligations shall have
been paid in full. If, notwithstanding the foregoing sentence, the Guarantor
shall collect, enforce or receive any amounts in respect of such indebtedness,
such amounts shall be collected, enforced and received by the Guarantor as
trustee for the Bank and be paid over to the Bank on account of the Obligations
without affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
7. SECURITY; SET-OFF. The Guarantor hereby grants to the Bank, as
security for the full and punctual payment and performance of the Guarantor's
obligations hereunder, a continuing lien on and security interest in all
securities or other property belonging to the Guarantor now or hereafter held by
the Bank and in all deposits (general or special, time or demand, provisional or
final) and other sums credited by or due from the Bank to the Guarantor or
subject to withdrawal by the Guarantor; and regardless of the adequacy of any
collateral or other means of obtaining repayment of the Obligations, the Bank is
hereby authorized at any time and from time to time during the continuance of a
Default or an event of Default, without notice to the Guarantor (any such notice
being expressly waived by the Guarantor) and to the fullest extent permitted by
law, to set off and apply such deposits and other sums against the obligations
of the Guarantor under this Guaranty, whether or not the Bank shall have made
any demand under this Guaranty and although such obligations may be contingent
or unmatured.
8. FURTHER ASSURANCES. The Guarantor agrees to do all such things and
execute all such documents, including financing statements, which may be
reasonably necessary or desirable to give full effect to this Guaranty and to
protect and preserve the rights and powers of the Bank hereunder.
9. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until the payment in full of the Obligations. This Guaranty shall
continue to be effective or be reinstated if at any time any payment made or
value received with respect to an Obligation is rescinded or must otherwise be
returned by the Bank upon the insolvency, bankruptcy or reorganization of any
Customer, or otherwise, all as though such payment had not been made or value
received.
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
Guarantor, and its respective heirs, trustees, successors and assigns,
<PAGE>
and shall inure to the benefit of and be enforceable by the Bank and its
successors, transferees and assigns. Without limiting the generality of the
foregoing sentence, the Bank may assign or otherwise transfer any agreement or
any note held by it evidencing, securing or otherwise executed in connection
with the Obligations, or sell participations in any interest therein, to any
other person or entity, and such other person or entity shall thereupon become
vested, to the extent set forth in the agreement evidencing such assignment,
transfer or participation, with all the rights in respect thereof granted to the
Bank herein.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall be
effective unless the same shall be in writing and signed by the Bank. No failure
on the part of the Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right.
12. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand,
overnight mail or mailed first class certified mail postage prepaid, return
receipt requested, addressed as follows: if to the Guarantor, at the address set
forth beneath its respective signature hereto, and if to the Bank, at One
Landmark Square, 7th Floor, Stamford, Connecticut 06901, Attention: Christina P.
Clark, or at such address as either party may designate in writing.
13. GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
governed by, and construed in accordance with, the laws of the State of
Connecticut. The Guarantor agrees that any suit for the enforcement of this
Guaranty may be brought in the courts of the State of Connecticut or any Federal
Court sitting therein and consents to the non-exclusive jurisdiction of such
court and to service of process in any such suit being made upon the Guarantor
by mail at the addresses specified in Section 12 hereof. The Guarantor hereby
waives any objection that it may now or hereafter have to the venue of any such
suit or any such court or that such suit was brought in an inconvenient court.
14. MISCELLANEOUS. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive of any remedies provided by law
or any other agreement, and this Guaranty shall be in addition to any other
guaranty of the Obligations. The invalidity or unenforceability of any one or
more sections of this Guaranty shall not affect the validity or enforceability
of its remaining provisions. Captions are for the ease of reference only and
shall not affect the meaning of the relevant provisions. The meanings of all
defined terms used in this Guaranty shall be equally applicable to the singular
and plural forms of the terms defined.
<PAGE>
15. GUARANTOR'S REPRESENTATIONS AND WARRANTIES. The Guarantor represents
and warrants to the Bank as follows:
(a) Incorporation; Good Standing. The Guarantor (i) is a
corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation, (ii) has all requisite corporate
power to own its property and conduct its business as now conducted and
as presently contemplated, and (iii) is in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction
where such qualification is necessary except where a failure to be so
qualified would not have a materially adverse effect on the business,
assets or financial condition of the Guarantor.
(b) Authorization. The execution, delivery and performance of
this Guaranty and the transactions contemplated hereby and thereby (i)
are within the authority of the Guarantor, (ii) have been duly
authorized by all necessary proceedings, (iii) do not conflict with or
result in any breach or contravention of any provision of law, statute,
rule or regulation to which the Guarantor is subject or any judgment,
order, writ, injunction, license or permit applicable to the Guarantor,
(iv) do not conflict with any provision of the corporate charter or
bylaws of the Guarantor and (v) do not conflict with any agreement or
instrument binding upon the Guarantor except where such conflict would
not have a material adverse effect on the business, assets or financial
condition of the Guarantor, considered as a whole.
(c) Enforceability. The execution and deliver of this Guaranty
will result in valid and legally binding obligations of the Guarantor
enforceable against it in accordance with the respective terms and
provisions hereof except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to
the extent that availability of the remedy of specific performance or
injunctive relief is subject to general principles of equity or the
discretion of the court before which any proceeding therefor may be
brought.
(d) Financial Statements. There has been furnished to the Bank a
consolidated balance sheet of the Guarantor as at June 30, 1998, and a
consolidated statement of income of the Guarantor for the fiscal year
then ended, certified by Ernst & Young. Such balance sheet and statement
of income have been prepared in accordance with generally accepted
accounting principles and fairly present the financial condition of the
Guarantor as the close of business on the date thereof and the results
of operations for the fiscal year then ended. There are no contingent
liabilities of the Guarantor as of such date involving material amounts,
known to the Guarantor, which were not disclosed in such balance sheet
and the notes related thereto.
<PAGE>
(e) No Material Changes, Etc. Since June 30, 1998, there has
occurred no materially adverse change in the financial condition or
business of the Guarantor as shown on or reflected in the consolidated
balance sheet of the Guarantor as at such date, or the consolidated
statement of income for the fiscal year then ended, other than changes
in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business
or financial condition of the Guarantor, taken as a whole.
16. COVENANTS. The Guarantor hereby covenants to the Bank that, so long
as any of the Obligations remain outstanding or this Guaranty remains in effect,
the Guarantor will furnish to the Bank (i) copies of the financial information
required under ss.7(a) of the Grove Credit Agreement (as defined in the Credit
Agreement) and (ii) together with such financial information, a copy of the most
recent 10K filed with the Securities and Exchange Commission detailing the
current salary and prior year bonuses (paid or deferred) of the Customer, such
financial information to be delivered on or before May 1 of each calendar year.
17. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. The Guarantor hereby
waives the Guarantor's right to a jury trial with respect to: (i) any action or
claim arising out of any dispute in connection with this Guaranty, any rights or
obligations hereunder or the performance of such rights and obligations; and,
(ii) any action or claim arising out of any dispute in connection with the
Credit Agreement or any document, agreement or instrument executed in connection
therewith (collectively, with the Credit Agreement and this Guaranty, the "LOAN
DOCUMENTS"). Except as prohibited by law, the Guarantor hereby waives any right
the Guarantor may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential damages or
any damages other than, or in addition to, actual damages. The Guarantor (a)
certifies that no representative, agent or attorney of the Bank has represented,
expressly or otherwise, that the Bank would not, in the event of litigation,
seek to enforce the foregoing waivers and (b) acknowledges that the Bank have
been induced to give credit to such Customer by, among other things, the waivers
and certifications contained herein.
The Guarantor hereby further agrees that the following courts: (i) State
Court-any state or local court of the State of Connecticut; and (ii) Federal
Court-United States District Court for the District of Connecticut, or at the
option of the Bank, any court in which the Bank shall initiate legal or
equitable proceedings and which has subject matter and personal jurisdiction
over the matter and parties in controversy, shall have exclusive jurisdiction to
hear and determine any claims or disputes between the undersigned and the Bank
pertaining directly or indirectly to the Loan Documents or to any matter arising
therefrom. The Guarantor expressly submits and consents in advance to such
jurisdiction in any action or proceeding commenced in such courts, hereby
waiving personal service of the summons and complaint, or other process or
<PAGE>
papers issued therein, and agreeing that service of such summons and complaint,
or other process or papers, may be made by registered or certified mail, return
receipt requested, addressed to the undersigned at the address set forth below.
Should the Guarantor fail to appear or answer any summons, complaint, process or
papers so served within thirty (30) days after the mailing thereof, the
Guarantor shall be deemed in default and an order and/or judgment may be entered
against the Guarantor as demanded or prayed for in such summons, complaint,
process or papers.
The exclusive choice of forum set forth in this Guaranty shall not be
deemed to preclude the enforcement of any judgment obtained in such forum or the
taking of any action under the Loan Documents to enforce the same in any
appropriate jurisdiction.
18. PREJUDGMENT REMEDY WAIVER; OTHER WAIVERS. THE GUARANTOR ACKNOWLEDGES
THAT THIS GUARANTY IS PART OF A COMMERCIAL TRANSACTION WITHIN THE MEANING OF
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES. THE GUARANTOR HEREBY WAIVES
THE GUARANTOR'S RIGHT TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER UNDER
CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET. SEQ. AS AMENDED OR UNDER ANY
OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT REMEDIES THE
BANK MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER. MORE SPECIFICALLY,
THE GUARANTOR ACKNOWLEDGES THAT THE BANK'S ATTORNEY MAY, PURSUANT TO CONN. GEN.
STAT. ss.52-278F, ISSUE A WRIT FOR A PREJUDGMENT REMEDY WITHOUT SECURING A COURT
ORDER. THE GUARANTOR ACKNOWLEDGES AND RESERVES THE GUARANTOR'S RIGHT TO NOTICE
AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR PREJUDGMENT REMEDY AS
AFORESAID AND THE BANK ACKNOWLEDGES THE GUARANTOR'S RIGHT TO SAID HEARING
SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered as of the date first appearing above.
GROVE PROPERTY TRUST
By: /s/Joseph R. LaBrosse
-----------------------------
Name: Joseph R. LaBrosse
Title: Chief Financial Officer
Address: 598 Asylum Avenue
Hartford, CT 06105
Telephone: (860) 246-1126
Telecopy: (860) 527-0401
GROVE PROPERTY TRUST
LIST OF SUBSIDIARIES
GPT-Acton, LLC
Avonplace Associates Limited Partnership
GPT-Briar Knoll, LLC
GR-West Hartford Associates Limited Partnership
GR-Enfield Associates Limited Partnership
GPT-East Providence, LLC
GPT-Freeport, LLC
Foxwoodburg Limited Partnership
ANE Associates Limited Partnership
Grove Avon Associates Limited Partnership
Grove Opportunity Fund II Limited Partnership
GPT-Highmeadow, LLC
Grove Operating L.P.
GPT-Plainville Limited Partnership
GPT-Windsor, LLC
Grove Properties III Limited Partnership
GR-Farmington Summit Associates Limited Partnership
GR-Heritage Court Associates Limited Partnership
Grove Westwynd Associates Limited Partnership
GPT-Hilltop, LLC
Grove-Longmeadow Associates Limited Partnership
Nautilus Properties Associates Limited Partnership
GR-Northeast Associates Limited Partnership
Shoreline London Associates Limited Partnership
GPT-Ribbon Mill, LLC
Grove Rocky Hill Associates Limited Partnership
GPT-Tanglewood, LLC
Grove-Westfield Associates Limited Partnership
Wharf Holding Company, LLC
Grove West-Springfield Associates Limited Partnership
GPT-Winchester Wood, LLC
GPT-Sturbridge, LLC
GPT-East Haven, LLC
GPT-Glen Meadow, LLC
GR-Westwood Glen Limited Partnership
GR-Rockingham Glen Limited Partnership
GR-Wilkins Glen Limited Partnership
GR-Summerhill Glen Limited Partnership
GPT-Abington Glen, LLC
GPT-Nehoiden Glen, LLC
GPT-Gosnold Grove, LLC
GPT-Glen Grove, LLC
GR-Conway Court Limited Partnership
GPT-Norton Glen, LLC
GR-Cedar Glen Limited Partnership
GR-Highland Glen Limited Partnership
GPT-Chestnut Glen, LLC
GPT-Noonan Glen, LLC
GPT-Old Mill Glen, LLC
GPT-Longfellow Glen, LLC
GPT-Webster Green, LLC
GPT-929 House, LLC
GPT-Phillips Park, LLC
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements, (i)
Form S-3 No. 333-36805, (ii) Form S-3 No. 333-48551, (iii) Form S-8 No.
333-53653, and (iv) Form S-8 No. 333-53655 of our report dated February 5, 1999
with respect to the consolidated financial statements and schedule of Grove
Property Trust included in its Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/ Ernst & Young LLP
New York, New York
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Grove Property Trust as of 12/31/98 and for the
year then ended and is qualified in its entirety by reference to such
statements.
</LEGEND>
<CIK> 0000920776
<NAME> Grove Property Trust
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 15,262
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,167
<PP&E> 318,599
<DEPRECIATION> 9,651
<TOTAL-ASSETS> 327,115
<CURRENT-LIABILITIES> 24,069
<BONDS> 196,391
0
0
<COMMON> 86
<OTHER-SE> 73,697
<TOTAL-LIABILITY-AND-EQUITY> 294,243
<SALES> 0
<TOTAL-REVENUES> 38,832
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,791
<INCOME-PRETAX> 747
<INCOME-TAX> 0
<INCOME-CONTINUING> 747
<DISCONTINUED> 0
<EXTRAORDINARY> 888
<CHANGES> 0
<NET-INCOME> (141)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
