SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Amendment No. 1 to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 14, 1999
GROVE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 1-13080 06-1391084
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification Number)
598 Asylum Avenue, Hartford, Connecticut 06105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (860) 246-1126
N/A
(Former name or former address, if changed since last report)
<PAGE>
Item 7
(a) and (b)
Grove Property Trust
Financial Statements of Properties Acquired and Pro Forma
Financial Information
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1998..................................................3
Notes to Pro Forma Condensed Consolidated Balance Sheet........................5
Pro Forma Condensed Consolidated Statements of Income
for the Nine Months Ended September 30, 1998 and for
the Year Ended December 31, 1997..........................................7
Notes to Pro Forma Condensed Consolidated Statements
of Income...............................................................10
Property Acquired:
Highland Glen
Financial Statements:
Report of Independent Auditors................................................14
Statements of Revenues and Certain Expenses for
the Nine Months Ended September 30, 1998 (Unaudited)
and for the Year Ended December 31, 1997.................................15
Notes to the Statements of Revenues and Certain Expenses......................16
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
This unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as if
the acquisitions including related financing subsequent to September 30, 1998,
had occurred as of September 30, 1998. The unaudited Pro Forma Condensed
Consolidated Balance Sheet should be read in conjunction with the consolidated
financial statements and notes thereto of the Company, included in its Annual
Report on Form 10-K for the year ended December 31, 1997, and its Quarterly
Report on Form 10-Q for the nine months ended September 30, 1998 and its Current
Reports on Form 8-K, as amended, during 1998 and 1999, all as filed with the
Securities and Exchange Commission. In management's opinion, all adjustments
necessary to present fairly the effects of the above mentioned transactions have
been made.
The pro forma information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it necessarily indicative of the Company's future results.
3
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Balance Sheet (continued)
September 30, 1998
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Abbington
Glen
and
Historical October Rockingham Highland
Company Acquisitions Glen Glen Pro Forma
(A) (B) (C) (D) Consolidated
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Real estate, net $ 190,488 $ 85,586 $ 10,868 $ 7,134 $ 294,076
Cash and cash equivalents,
including resident 2,950 2,589 800 387 6,726
security deposits
Construction- escrow - 1,211 - - 1,211
Deferred charges, net 971 199 81 - 1,251
Due from affiliates 564 - - - 564
Other assets 3,039 5,355 243 536 9,173
-------------------------------------------------------------------------------------------
Total assets $ 198,012 $ 94,940 $ 11,992 $ 8,057 $ 313,001
===========================================================================================
Liabilities and
shareholders' equity
Mortgage notes payable $ 92,771 $ 59,549 $ 6,520 $ 6,922 $ 165,762
Acquisition notes payable - 12,951 - - 12,951
Revolving credit facility 9,600 17,262 3,799 924 31,585
Accounts payable and other 1,623 1,380 303 312 3,618
liabilities
Due to affiliates 209 - - - 209
Resident security deposits 2,485 373 63 - 2,921
Distributions payable 1,923 - - - 1,923
-------------------------------------------------------------------------------------------
Total liabilities 108,611 91,515 10,685 8,158 218,969
-------------------------------------------------------------------------------------------
Minority interests in
consolidated partnerships 1,065 - - - 1,065
Minority interest in
operating partnership 21,804 5,559 1,339 90 28,792 E
Shareholders' equity:
Common shares 84 - - 84
Additional paid-in capital 68,389 2,510 506 E 177 E 71,582
Distributions in excess of (1,941) (4,644) (538) (368) (7,491)
earnings
-------------------------------------------------------------------------------------------
Total shareholders' equity 66,532 (2,134) (32) (191) 64,175
-------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 198,012 $ 94,940 $ 11,992 $ 8,057 $ 313,001
===========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998
(Unaudited)
(in thousands)
(A) Balance sheet data was derived from the Company's consolidated financial
statements as of September 30, 1998, as filed in its Quarterly Report on
Form 10Q.
(B) Reflects the acquisition of the McNeil Portfolio which were consummated by
the Company on October 30, 1998, as follows: Total sources and allocation
of the purchase price of $97,831 is as follows:
<TABLE>
<CAPTION>
Sources of Funds Uses of Funds
<S> <C> <C>
Revolving credit facility $ 17,262 Real estate assets $ 85,586
Mortgage notes payable (1) 59,549 Operating assets and liabilities, net 7,601
Acquisition notes payable (2) 12,951 Management contracts (3) 4,644
Operating partnership units 8,069
------------------- ------------------
Total $ 97,831 Total $ 97,831
=================== ==================
</TABLE>
(1) As of October 31, 1998, Mortgage Notes Payable had an outstanding
balance of $51,856 with a weighted average interest rate of 8.73%. The
pro forma Mortgage Notes Payable amount of $59,549 has been adjusted
to reflect the fair value of the notes assuming a borrowing cost of
approximately 7.0%.
(2) The Acquisition Notes Payable relates to an obligation, related to
three McNeil Properties (Rockingham Glen, 929 House, and Glen Meadow),
to pay additional cash and issue additional Operating partnership
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's 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 $12,000 of
the Acquisition Notes Payable will be paid on April 30, 1999
(consisting of approximately $4,400 in cash and $7,600 in Operating
partnership units). The remaining balance of the Acquisition Notes
Payable of approximately $900 is expected to be paid over a three-year
period.
(3) The management contracts were purchased for $4,644 from an unrelated
third party management company. The term of the contracts was for an
average of approximately 20 years. The cost of the management
contracts has been expensed in the Pro Forma Condensed Consolidated
Statements of Income. The Company plans to self manage the McNeil
Portfolio.
5
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Balance Sheet (continued)
(C) Reflects the acquisitions of Abbington Glen and Rockingham Glen which were
consummated by the Company during December 1998, as follows: Total sources
and allocation of the purchase price of $12,164 is as follows:
<TABLE>
<CAPTION>
Sources of Funds Uses of Funds
- -------------------------------------- ---------------------------------------
<S> <C> <C>
Revolving credit facility $ 3,799 Real estate assets $ 10,868
Mortgage notes payable (1) 6,520 Operating assets and liabilities, net 758
Operating partnership units 1,845 Management contracts (2) 538
----------------- -----------------
Total $ 12,164 Total $ 12,164
================= =================
</TABLE>
(1) As of the acquisition dates, Mortgage Notes Payable had an outstanding
balance of $6,138 with a weighted average interest rate of 8.73%. The
pro forma Mortgage Notes Payable amount of $6,520 has been adjusted to
reflect the fair value of the notes assuming a borrowing cost of
approximately 7.0%.
(2) The management contracts were purchased for $538 from an unrelated
third party management company. The term of the contracts was for an
average of approximately 20 years. The cost of the management
contracts has been expensed in the Pro Forma Condensed Consolidated
Statements of Income. The Company plans to self manage Abbington Glen
and Rockingham Glen.
(D) Reflects the acquisition of Highland Glen which was consummated by the
Company during January 1999, as follows: Total sources and allocation of
the purchase price of $8,113 is as follows:
<TABLE>
<CAPTION>
Sources of Funds Uses of Funds
- -------------------------------------- ---------------------------------------
<S> <C> <C>
Revolving credit facility $ 924 Real estate assets $ 7,134
Mortgage notes payable (1) 6,922 Operating assets and liabilities, net 611
Operating partnership units 267 Management contract (2) 368
----------------- -----------------
Total $ 8,113 Total $ 8,113
================= =================
</TABLE>
(1) As of the acquisition date, Mortgage Notes Payable had an outstanding
balance of $6,518 with a weighted average interest rate of 7.5%. The
pro forma Mortgage Notes Payable amount of $6,922 has been adjusted to
reflect the fair value of the notes assuming a borrowing cost of
approximately 7.0%.
(2) The management contract was purchased for $368 from an unrelated third
party management company. The term of the contract was for
approximately 20 years. The cost of the management contract has been
expensed in the Pro Forma Condensed Consolidated Statements of Income.
The Company plans to self manage Highland Glen.
6
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Balance Sheet (continued)
(E) To adjust minority interest in the Company to reflect the Highland Glen
acquisition as follows:
Total shareholders' equity and minority interest $ 92,967
Percentage of units which are not owned by the Company 30.97%
Minority interest in the operating partnership -----------------
$ 28,792
==================
Minority interest in operating partnership including
October Acquisition and Abbington
Glen and Rockingham Glen $ 28,702
Operating partnership units issued 267
Minority interest in operating partnership (28,792)
-----------------
$ 177
==================
7
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
These unaudited Pro Forma Condensed Consolidated Statements of Income are
presented as if (i) the Company had acquired Grove Property Services Limited
Partnership and Property Partnerships and completed various other 1997 and
January 1998 through August 1998 acquisitions, the McNeil Portfolio acquisition
(the "October Acquisitions"), the Abbington Glen and Rockingham Glen
acquisitions, and the Highland Glen acquisition, (ii) the Consolidation
Transactions (see notes to Pro Forma Condensed Consolidation Statements of
Income), including the New Equity Investment and Refinancings and (iii) the
November 1997 Offerings and the application of the net proceeds therefrom, all
had occurred as of January 1, 1997 and the effect thereof was carried forward
through the nine months ended September 30, 1998. The unaudited Pro Forma
Condensed Consolidated Statements of Income should be read in conjunction with
the consolidated financial statements of the Company, Grove Property Services
Limited Partnership and Property Partnerships and various other properties
acquired during 1997 and January 1998 through August 1998; the October
Acquisitions, the Abbington Glen and Rockingham Glen acquisitions and the
Highland Glen acquisition which financial statements are included herein or have
been filed with the Securities and Exchange Commission on various Forms 8-K, as
amended, during 1997, 1998 and 1999, Form 10-K for the year ended December 31,
1997 and Form 10-Q for the nine months ended September 30, 1998. In management's
opinion, all adjustments necessary to present fairly the effects of the above
mentioned transactions have been made.
The pro forma information is not necessarily indicative of the results that
would have been reported had such events actually occurred on the date
specified, nor is it necessarily indicative of the Company's future results.
8
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income (Continued)
Nine months ended September 30, 1998
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
January 1998 Abbington
through Glen and
Historical August 1998 October Rockingham Highland
Company Acquisitions Acquisitions Glen Glen ProForma Pro Forma
(A) (B) (C) (D) (E) Adjustments Consolidated
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Rental income $ 25,130 $ 1,948 $ 7,161 $ 1,080 $ 558 $ - $ 35,877
Rental subsidies - - 5,982 591 795 - 7,368
Mortgage interest - - 506 - - - 506
subsidies
Property management 341 - - - - - 341
Interest on restricted - - 221 10 29 - 260
cash
Interest and other 231 32 99 7 4 - 373
--------------------------------------------------------------------------------------------
Total revenues 25,702 1,980 13,969 1,688 1,386 - 44,725
--------------------------------------------------------------------------------------------
Expenses:
Real estate taxes 2,561 226 1,036 135 109 - 4,067
Other property 8,600 472 4,283 492 504 511N 14,862
operating
Interest expense 4,056 904 3,614 337 370 777 P 11,193
1,135 F
Depreciation and
amortization 4,094 334 1,442 175 115 - 6,160
General and
administrative 1,242 - - - - 340 N 1,582
--------------------------------------------------------------------------------------------
Total expenses 20,553 1,936 10,375 1,139 1,098 2,763 37,864
--------------------------------------------------------------------------------------------
Income before minority
interests 5,149 44 3,594 549 288 (2,763) 6,861
Minority interests in
earnings of 58 - - - - 58
consolidated
partnerships
Minority interest in
earnings of Operating 1,303 12 - - 792M 2,107
Partnership
--------------------------------------------------------------------------------------------
Income before
extraordinary expenses 3,788 32 3,594 549 288 (3,555) 4,696
Extraordinary expenses
related to debt
refinancing, net of 838 - - - - - 838
minority interests
--------------------------------------------------------------------------------------------
Net income $ 2,950 $ 32 $ 3,594 $ 549 $ 288 $ (3,555) $ 3,858
============================================================================================
</TABLE>
See accompanying notes.
9
<PAGE>
Grove Property Trust
Pro Forma Condensed Consolidated Statements of Income (Continued)
Year Ended December 31, 1997
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
1997 and
January Abbington
1998 Glen and
Historical through Management October Rockingham Highland
Company August 1998 Company Acquisitions Glen Glen Pro Forma Pro Forma
(A) Adjustments (C) (D) (E) Adjustments Consolidated
Acquisitions
(B)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Rental income $ 17,111 $ 18,443 $ (9) J $ 8,865 $ 1,321 $ 1,098 $ - $ 46,829
Rental subsidies - - - 7,966 150 707 - 8,823
Mortgage interest - - - 675 133 - - 808
subsidies
Property management 518 - (207) K - - - - 311
Interest on restricted - - - 315 15 37 - 367
cash
Interest and other 309 361 (4) J 135 8 6 - 815
----------------------------------------------------------------------------------------------------
Total revenues 17,938 18,804 (220) 17,956 1,627 1,848 - 57,953
----------------------------------------------------------------------------------------------------
Expenses:
Related party management
fees 22 185 (207) K - - - - -
Real estate taxes 1,770 2,092 - 1,296 155 153 - 5,466
Other property operating 6,078 6,457 (71) J 6,065 753 729 (20) J 20,768
135 J - 642 N
Interest expense 2,741 2,578 - 4,897 418 499 2,988 F 15,157
1,036 P
Depreciation and 2,701 1,036 - 1,923 234 154 2,172 H 8,230
amortization 10 G
General and 908 - 71 J - - - (35) J 1,393
administrative 30 I
419 N
Other expense - - - - - - 5,550 O 5,550
----------------------------------------------------------------------------------------------------
Total expenses 14,220 12,348 (72) 14,181 1,560 1,535 12,792 56,564
----------------------------------------------------------------------------------------------------
Income before minority
interests 3,718 6,456 (148) 3,775 67 313 (12,792) 1,389
Minority interests in
earnings of consolidated 155 - - - - - (23) L 132
partnerships
Minority interest in
earnings of Operating 1,267 361 - - - - (1,239)M 389
Partnership
----------------------------------------------------------------------------------------------------
Net income $ 2,296 $ 6,095 ($ 148) $ 3,775 $ 67 $ 313 $ (11,530) $ 868
====================================================================================================
</TABLE>
See accompanying notes.
10
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except share data)
On March 14, 1997, the Company entered into a series of Consolidation
Transactions. The Consolidation Transactions were a business combination of the
Company and Grove Property Services Limited Partnership (the "Management
Company") and Property Partnerships. In addition, the Company simultaneously
issued 3,333,333 common shares at $9 per share ("New Equity Investment") and
retired or refinanced certain mortgage and credit facility debt
("Refinancings"). The effect of these transactions on the accompanying Pro Forma
Condensed Consolidated Statements of Income is reflected as outlined in the
notes below.
(A) Historical results of operations data were derived from the financial
statements of the Company as filed with the Securities and Exchange
Commission in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and in its Quarterly Report on Form 10-Q for the nine
months ended September 30, 1998.
(B) The historical financial statements of the Company contain results of
operations data for the properties and Management Company identified below
from the date of acquisition to the end of the respective period. The
results of operations from the beginning of the respective period to the
acquisition date is included in this column.
Property/Entity -Acquisitions Date Acquired
1. Grove Property Services Limited Partnership
and Property Partnerships (20 properties and
management company) March 14, 1997
2. Four Winds June 1, 1997
3. Brooksyde June 1, 1997
4. River's Bend June 1, 1997
5. Greenfield Village July 1, 1997
6. Glastonbury Center September 1, 1997
7. Summit & Birch Hill September 1, 1997
8. Corner Block and Wharf Building (2 properties) October 31, 1997
9. High Meadow Apartments October 31, 1997
10. Village Arms December 31, 1997
11. Ribbon Mill December 31, 1997
12. Briar Knoll December 31, 1997
13. Hill Top December 31, 1997
14. Tangelwood January 23, 1998
15. Coachlight Village April 1, 1998
16. Freeport Properties April 1, 1998
17. Village Park and Winchester Woods June 1, 1998
18. Sturbridge Meadows and Hobbes Farm August 7, 1998
19. Colonial Park Royal August 31, 1998
11
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income (continued)
(C) Reflects the results of operations for the October Acquisitions for the
period January 1, 1998 through September 30, 1998 and for the year ended
December 31, 1997. Pro forma depreciation and interest expense are also
included for the aforementioned periods.
Reflects the results of operations for Abbington Glen and Rockingham Glen
for the period from January 1, 1998 through September 30, 1998 and for the
year ended December 31, 1997. Pro forma depreciation and interest expense
are also included for the aforementioned periods.
(E) Reflects the results of operations for Highland Glen for the period from
January 1, 1998 through September 30, 1998 and for the year ended December
31, 1997. Pro forma depreciation and interest expense are also included for
the aforementioned periods.
(F) Represents the following:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, 1998
December 31,
1997
---------------------------------------
<S> <C> <C>
Pro forma interest expense on new (or assumed) or
refinanced mortgage debt and the Revolving Credit
Facility $ 5,252 $ 3,876
Historical interest expense on refinanced or retired
mortgage debt (2,264) (2,741)
=======================================
$ 2,988 $ 1,135
---------------------------------------
</TABLE>
Pro forma interest expense is based on rates ranging from 6.5% to 8.3% per
annum and assumes proceeds of $30,000 ($27,500 after costs) from the New
Equity Investment on March 14, 1997 and $48,900 ($45,300 after costs) from
the November 1997 Offerings were received by the Company on January 1,
1997.
12
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income (continued)
(G) Represents the following:
Year Ended
December 31,
1997 (1)
----------------
Pro forma deferred financing cost amortization on
new or refinanced mortgage debt and the Revolving
Credit Facility $ 138
Historical deferred financing cost amortization on
refinanced or retired mortgage debt (128)
================
$ 10
================
(1) The New Equity Investment was effective on March 14, 1997. The
historical financial information for the period March 15, 1997 to
December 31, 1997 reflects this transaction.
(H) Represents adjustment to record depreciation on the excess of the purchase
price relating to the purchase of certain partnership interests from
partners, over the net book amount and; for properties acquired during 1997
through August 31, 1998, to the extent depreciation was not reflected in
the historical financial statements during the period.
(I) Represents adjustment to record non-cash compensation expense in the first
quarter of 1997 associated with the Deferred Stock Grants granted to
Executive Officers in connection with the consummation of the Consolidation
Transactions, pursuant to the Company's 1996 Share Incentive Plan. Such
compensation expense was recorded by the Company commencing March 15, 1997
in its historical financial statements.
(J) Represents adjustments to: (i) exclude certain non-recurring expenses and
(ii) exclude revenues, including those of the Management Company
attributable to brokerage and other services, (iii) reclassify certain
expenses historically classified by the Management Company as property
operating expenses to general and administrative expenses, (iv) decrease
general and administrative expenses to reflect the cost savings
(predominately professional fees) associated with operating all Properties
on a combined, self-managed basis offset by an increase in compensation
expense to the Company's officers which took effect after the November 1997
Offerings, and (v) increase property operating costs subsequent to the
Consolidation Transactions to reflect the recombining of certain property
leasing costs that the
13
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income (continued)
Management Company provided prior to the Consolidation Transactions and
that the Company commenced providing subsequent to the November 1997
Offerings as follows:
Year Ended
December 31,
1997
-----------------
Non-recurring property operating expenses $ 20
Non-recurring rental revenues 9
Non-recurring brokerage services 4
Reclassification of other property
operating to general and administrative 71
Decrease in general and administrative 35
Increase in property operating expenses 135
(K) Elimination of intercompany management fees.
(L) Elimination of minority interest in a consolidated partnership (acquired in
June 1997) where the Company acquired the remaining interest in such
property partnership on September 30, 1997.
(M) Based upon Operating Partnership Units, which may be redeemed on a
one-for-one basis for Common Shares, assumed to be owned by the Limited
Partners and Common Shares assumed to be outstanding as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, 1998
December 31,
1997
--------------------------------------
<S> <C> <C>
Income before minority interests $ 1,389 $ 6,861
Less: Minority interests in earnings of consolidated
partnerships (132) (58)
--------------------------------------
1,257 6,803
Percentage of Units which are not owned by the Company
30.97% 30.97%
--------------------------------------
Minority interest in earnings of Operating Partnership
$ 389 $ 2,107
======================================
</TABLE>
14
<PAGE>
Grove Property Trust
Notes to Pro Forma Condensed Consolidated Statements of Income (continued)
<TABLE>
<CAPTION>
Operating
Common Shares Partnership Units
------------------------------------
<S> <C> <C>
Grove Property Trust at December 31, 1996 620,102 -
New Equity in March 1997 3,333,333 -
Consolidation Transactions in March 1997:
Affiliates - 909,115
Non-affiliates - 1,205,324
June 1997 acquisitions - 420,183
Exercise of stock options in May 1997 394 -
September 1997 acquisitions - 325,836
October 1997 acquisitions - 143,334
The November 1997 Offerings 4,500,000 -
April 1998 acquisition - 5,818
Operating Partnership Units redeemed April 1998 through
September 1998 - (213,264)
Operating Partnership Units exchanged July 1998 through
September 1998 25,722 (25,722)
Common Shares repurchased by the Company during September 1998
(83,950) -
Executive stock grants- September 1998 63,153 -
October 1998 acquisitions - 823,421
December 1998 acquisitions - 201,057
------------------------------------
8,458,754 3,795,102
------------------------------------
69.03% 30.97%
====================================
</TABLE>
(N) Represents adjustments to include additional operating expenses and
additional general and administrative expenses anticipated from the McNeil
Portfolio acquisition.
(O) Represents adjustment to expense the 20 year McNeil Portfolio management
company contracts acquired.
(P) Represents adjustment to include interest expense relating to the
acquisition notes resulting from the McNeil Portfolio acquisition.
15
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trust Managers Grove Property Trust
We have audited the statement of revenues and certain expenses of Highland Glen
(the "Property") for the year ended December 31, 1997. The statement of revenues
and certain expenses is the responsibility of the Property's management. Our
responsibility is to express an opinion on the statement of revenues and certain
expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenues and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of Grove
Property Trust, as described in Note 2, and is not intended to be a complete
presentation of the Property's revenues and expenses.
In our opinion, the statement of revenues and certain expenses referred to above
presents fairly, in all material respects, the revenues and certain expenses, as
described in Note 2, of Highland Glen for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
October 23, 1998
16
<PAGE>
Highland Glen
Statements of Revenues and Certain Expenses
(Notes 1 and 2)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended
1998 December 31, 1997
--------------------------------------
(Unaudited)
<S> <C> <C>
Revenues:
Rental $ 557,929 $ 1,097,768
Rental subsidies (Note 3) 795,159 707,020
Interest on restricted cash 29,213 36,780
Other 4,227 5,671
--------------------------------------
1,386,528 1,847,239
--------------------------------------
Certain expenses:
Property operating and maintenance 504,197 728,814
Real estate taxes 109,422 152,529
Mortgage interest (Note 4) 370,265 499,129
--------------------------------------
983,884 1,380,472
--------------------------------------
Revenues in excess of certain expenses $ 402,644 $ 466,767
======================================
</TABLE>
See accompanying notes.
17
<PAGE>
Highland Glen
Notes to the Statements of Revenues and Certain Expenses
Year Ended December 31, 1997
1. Business
The accompanying Statements of Revenues and Certain Expenses of Highland Glen
relate to the operations of a residential apartment building located in
Massachusetts (the "Property"). Grove Property Trust (the "Company") has
contracted to acquire the interests in the partnership that owns the Property
from an unrelated party on or about December 31, 1998. In addition to the
Property, the Company will be acquiring certain of the related partnerships'
operating assets and liabilities and will assume the underlying mortgage notes
payable.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statements of Revenues and Certain Expenses were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Company's Current Report on Form 8-K
relating to the acquisition of the Property. Accordingly, the statements exclude
certain expenses that may not be comparable to those expected to be incurred by
the Company in the proposed future operations of the Property. Items excluded
consist of depreciation, amortization, and certain non-operating expenses.
Management fees were also excluded as the Company will self-manage the Property.
Use of Estimates
The preparation of the Statements of Revenues and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the Statements of
Revenues and Certain Expenses and accompanying notes. Actual results could
differ from those estimates.
18
<PAGE>
Highland Glen
Notes to the Statements of Revenues and Certain Expenses
(continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Rental income is recognized on a straight-line basis over the term of the
leases, which are generally one year. Interest income related to earnings on
various restricted cash accounts which are required by certain mortgages which
are being acquired by the Company (see Note 4) have been included on the
accompanying Statement of Revenues and Certain Expenses.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major replacements
and betterments are capitalized.
Unaudited Information
The Statement of Revenues and Certain Expenses for the nine months ended
September 30, 1998, is unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such information have been included. The
results of operations for this period are not necessarily indicative of the
results to be obtained for a full fiscal year.
3. Government Subsidies
Highland Glen (the "Subsidized Property") is subject to various forms of federal
or state subsidy programs. The subsidies are provided to the Subsidized Property
through direct rental payments. The Subsidized Property is regulated by the U.S.
Department of Housing and Urban Development ("HUD") as to rental changes and
operating methods. In exchange for this subsidy, the Subsidized Property is
required to set aside all of the apartment units to qualified moderate-income
elderly tenants until maturity or prepayment of the mortgage.
19
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Highland Glen
Notes to the Statements of Revenues and Certain Expenses
(continued)
4. Mortgage Notes Payable
The Property's partnership had a total $6,613,778 in outstanding mortgage notes
payable as of December 31, 1997. The mortgage matures on September 1, 2002 and
bears interest at 7.5% The mortgage is non-recourse and is generally
collateralized by the property and rents. Certain loan documents also: (i) place
restrictions on amounts of distributions, and (ii) require the partnership to
make payments to HUD.
The following represents scheduled principal payments on the mortgage notes
outstanding as of December 31, 1997.
In the Year Ending December 31,
1998 $ 95,742
1999 103,174
2000 111,184
2001 119,816
2002 129,118
Thereafter 6,054,744
----------------
Total $ 6,613,778
================
20
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(c) Exhibits
Exhibit No. Description
2.1 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))
2.2 Amendment dated as of August 31, 1998 to Conveyance Agreement
dated as of April 22, 1998 among The Grove Corporation and the
twenty-one 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))
21
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this amendment to its report to be signed on its behalf by the
undersigned hereunto duly authorized.
GROVE PROPERTY TRUST
Date: March 5, 1999 By: /s/ JOSEPH R. LABROSSE
----------------------------------
Joseph R. LaBrosse
Chief Financial Officer
22
<PAGE>
Exhibit Index
Exhibit No. Description
2.1 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))
2.2 Amendment dated as of August 31, 1998 to Conveyance Agreement
dated as of April 22, 1998 among The Grove Corporation and the
twenty-one 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))
