UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 (IRS Employer Identification No.)
of incorporation or organization)
598 Asylum Avenue, Hartford, Connecticut 06105
---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(860) 246-1126
--------------
(Issuer's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class: Name of Each Exchange on Which Registered:
-------------------- ------------------------------------------
Common Shares of Beneficial Interest, American Stock Exchange
$.01 par value
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90-days.
Yes: X No:
---- ----
The number of Common Shares of Beneficial Interest outstanding as of July 31,
2000 was 8,301,604.
1
<PAGE>
GROVE PROPERTY TRUST
Form 10-Q
Index
Page
----
PART I: FINANCIAL INFORMATION 3
Item 1: Consolidated Financial Statements (unaudited) 3
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 3
Consolidated Statements of Income for the Three
Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Income for the Six
Months Ended June 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3: Quantitative and Qualitative Disclosures About
Market Risk 15
PART II: OTHER INFORMATION 16
Item 1: Legal Proceedings 16
Item 2: Change in Securities and Use of Proceeds 16
Item 3: Defaults upon Senior Securities 16
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
ASSETS
------
<S> <C> <C>
Real estate assets:
Land ................................................... $ 50,808 $ 45,770
Buildings and improvements ............................. 298,954 266,432
Furniture, fixtures and equipment ...................... 4,665 3,972
--------- ---------
354,427 316,174
Less accumulated depreciation .......................... (22,786) (17,639)
--------- ---------
Net real estate assets ............................... 331,641 298,535
Real estate held for sale ................................... -- 2,671
Cash and cash equivalents ................................... 19,612 12,733
Due from affiliates ......................................... 111 112
Deferred charges, net of accumulated amortization
of $374 and 229, respectively .......................... 7,990 1,714
Other assets ................................................ 2,120 1,432
--------- ---------
Total assets .............................................. $ 361,474 $ 317,197
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgage notes payable (including fair value step up of
$7,855 and $8,164, respectively) ..................... $ 213,777 $ 180,290
Revolving credit facility .............................. 29,100 15,300
Accounts payable, accrued expenses and other liabilities 6,598 11,377
Acquisition notes payable .............................. 3,905 4,675
Distributions payable .................................. 2,199 2,177
Security deposits ...................................... 3,956 3,394
Due to affiliates ...................................... 80 78
--------- ---------
Total liabilities ......................................... 259,615 217,291
Minority interest in the Operating Partnership .............. 32,266 32,231
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; 8,296,661 and 8,197,141
shares issued and outstanding, respectively .......... 83 82
Additional paid-in capital ............................. 76,766 75,968
Distributions in excess of earnings .................... (7,256) (8,375)
--------- ---------
Total shareholders' equity ................................ 69,593 67,675
--------- ---------
Total liabilities and shareholders' equity ................ $ 361,474 $ 317,197
========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
For the Three Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Rental income .......................................... $16,455 $15,615
Property management income-affiliates .................. 26 91
Other property related income .......................... 256 184
Interest income ........................................ 201 134
------- -------
Total revenues ..................................... 16,938 16,024
------- -------
Expenses:
Property operating expenses ............................ 5,872 5,819
Real estate taxes ...................................... 1,364 1,453
Interest expense ....................................... 3,886 3,448
Depreciation ........................................... 2,642 2,515
Amortization ........................................... 80 56
General and administrative ............................. 574 1,170
------- -------
Total expenses ..................................... 14,418 14,461
------- -------
Income before minority interests .................. 2,520 1,563
Minority interest in consolidated partnerships ............. -- 23
Minority interest in Operating Partnership ................. 801 485
------- -------
Net income ...................................... $ 1,719 $ 1,055
======= =======
Net income per common share - basic ........................ $ 0.21 $ 0.12
======= =======
Net income per common share - diluted ...................... $ 0.20 $ 0.12
======= =======
Weighted average number of common shares outstanding - basic 8,269 8,510
Effect of stock options .................................... 276 154
------- -------
Weighted average number of shares outstanding - diluted .... 8,545 8,664
======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Rental income .............................................. $31,979 $30,868
Property management income- affiliates ..................... 61 140
Other property related income .............................. 398 358
Interest income ............................................ 367 280
------- -------
Total revenues ......................................... 32,805 31,646
------- -------
Expenses:
Property operating expenses ................................ 11,691 11,905
Real estate taxes .......................................... 2,710 2,863
Interest expense ........................................... 7,510 6,848
Depreciation ............................................... 5,164 4,948
Amortization ............................................... 155 120
General and administrative ................................. 1,094 2,105
------- -------
Total expenses ......................................... 28,324 28,789
------- -------
Income before gain on sales of property, minority
interests and extraordinary item .................... 4,481 2,857
Gain on sales of property ...................................... 1,533 --
------- -------
Income before minority interests and extraordinary item 6,014 2,857
Minority interest in consolidated partnerships ................. -- 42
Minority interest in Operating Partnership ..................... 1,921 869
------- -------
Income before extraordinary item ...................... 4,093 1,946
Extraordinary income related to debt extinguishment, net ....... -- 226
------- -------
Net income .......................................... $ 4,093 $ 2,172
======= =======
Income before extraordinary item per common share - basic ...... $ 0.50 $ 0.23
======= =======
Extraordinary item per common share - basic .................... $ 0.00 $ 0.02
======= =======
Net income per common share - basic ............................ $ 0.50 $ 0.25
======= =======
Income before extraordinary item per common share - diluted .... $ 0.48 $ 0.23
======= =======
Extraordinary item per common share - diluted .................. $ 0.00 $ 0.02
======= =======
Net income per common share - diluted .......................... $ 0.48 $ 0.25
======= =======
Weighted average number of common shares outstanding - basic ... 8,243 8,576
Effect of stock options ........................................ 235 119
------- -------
Weighted average number of shares outstanding - diluted ........ 8,478 8,695
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Operating Activities:
Net income ................................................. $ 4,093 $ 2,172
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ..................... 5,320 5,068
Extraordinary item related to debt extinguishment . -- (226)
Minority interests ................................ 1,921 911
Non-cash compensation expense ..................... 81 60
Gain on sale of property .......................... (1,533) --
Other non-cash items .............................. 19 --
Change in other assets ..................................... (687) (393)
Change in accounts payable, accrued expenses, other
liabilities and security deposits ..................... (4,586) (1,206)
-------- --------
Net cash provided by operating activities .................. 4,628 6,386
-------- --------
Investing activities:
Purchase of partnership interests ..................... -- (1,231)
Additions to real estate assets ....................... (16,743) (5,129)
Proceeds from sale of property, net of closing costs .. 4,194 --
Deferred charges ...................................... -- (1)
-------- --------
Net cash used in investing activities ............. (12,549) (6,361)
-------- --------
Financing activities:
Net proceeds from mortgage notes payable .............. 14,868 8,668
Net borrowings under revolving credit facility ........ 13,800 7,400
Equity offering costs ................................. -- (11)
Repayment of mortgage notes payable ................... (2,890) (12,161)
Borrowings from affiliates, net ....................... 2 232
Financing costs ....................................... (6,422) (441)
Proceeds from exercise of stock options ............... -- 18
Repurchase of common shares ........................... (207) (1,654)
Dividends and distributions paid ...................... (4,351) (4,293)
-------- --------
Net cash provided by (used in) financing activities 14,868 (2,242)
-------- --------
Net change in cash and cash equivalents .................... 6,879 (2,217)
Cash and cash equivalents, beginning of period ............. 12,733 15,262
-------- --------
Cash and cash equivalents, end of period ................... $ 19,612 $ 13,045
======== ========
Supplemental Information:
Cash paid for interest ................................ $ 7,354 $ 6,782
Reclassification of real state assets to held for sale $ -- $ 9,136
Assumed mortgage notes ................................ $ 21,510 $ --
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
1. 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 wholly owned
by the Operating Partnership. All significant intercompany transactions are
eliminated in consolidation.
The accompanying interim financial statements have been prepared by the
Company's management in accordance with accounting principles generally
accepted in the United States for interim financial information and with
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the interim financial statements presented herein
reflect all adjustments of a normal and recurring nature, which are
necessary to fairly state the interim financial statements. The results of
operations for the interim period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2000. These financial statements should be read in conjunction with the
Company's audited financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
2. MORTGAGE NOTES PAYABLE
---------------------------
Total mortgage notes payable consist of the following at June 30, 2000 (in
thousands):
Amortizing mortgage notes $ 150,777
Interest only first mortgage note 63,000
-------------
$ 213,777
=============
The contractual principal amount outstanding of mortgage notes payable is
$205.9 million. The book value of approximately $44.6 million of amortizing
mortgage notes, assumed with above average market interest rates in
conjunction with the McNeil Portfolio acquisition, have been adjusted
upward by approximately $7.9 million to reflect the fair value of the notes
at the Company's estimated market interest rate of 7.0%.
The amortizing mortgage notes have fixed interest rates between 6.19% and
12.47%. These notes mature between the years 2000 and 2031 and are
collateralized by thirty-two of the properties with an aggregate carrying
amount of approximately $193.1 million as of June 30, 2000. Certain of
these notes are partially guaranteed by certain executive officers and
shareholders of the Company. During the second quarter, the Company
received second mortgage financing on six properties, with net proceeds
totaling approximately $8.3 million, and a face amount of approximately
$14.8 million. The average interest rate on the face amount of the new
second mortgages is 7.4% and the weighted average maturity of the new
second mortgages is 7.4 years.
The interest only first mortgage note requires monthly payments of interest
at an effective fixed interest rate of 6.71% and matures in 2008. This note
is collateralized by seventeen properties with an aggregate carrying amount
of approximately $86.1 million as of June 30, 2000.
3. ACQUISITION NOTES PAYABLE
------------------------------
In conjunction with the purchase of the McNeil Portfolio, the Company
agreed to issue additional OP units and pay cash (together the "Acquisition
Notes Payable") to certain continuing partners in the event that any of
certain McNeil Portfolio properties were converted to a market rate
property. During the second quarter of 2000, the Company paid $0.5 million
($0.1 million in cash and $0.4 million in OP units) of Acquisition Notes
Payable.
7
<PAGE>
4. SHAREHOLDERS' EQUITY
-------------------------
The following table outlines the 2000 activity in the Operating Partnership
equity accounts:
<TABLE>
<CAPTION>
Limited
Company's Partners'
Operating Operating
Partnership Partnership
Units Units
---------- ----------
<S> <C> <C>
Outstanding at December 31, 1999 ................................ 8,197,141 3,903,936
Common Units exchanged January 2000 through June 2000 .......... 87,789 (87,789)
Common Shares repurchased January 2000 through June 2000 ........ (16,249) --
Common Shares issued pursuant to employee stock compensation plan 27,980 --
May 2000 Acquisition Notes Payable .............................. -- 30,435
---------- ----------
Outstanding at June 30, 2000 .................................... 8,296,661 3,846,582
========== ==========
Ownership Percentage ........................................ 68% 32%
========== ==========
</TABLE>
Common Shares have been reserved for future issuance as follows:
Common Units not owned by the Company (see above).. 3,846,582
Stock options issued and outstanding............... 1,057,784
Additional stock options issuable.................. 351,355
-----------
5,255,721
===========
5. SUBSEQUENT EVENT
----------------------
On July 17, 2000, the Company announced that it had entered into a
definitive agreement and plan of merger with ERP Operating Limited
Partnership. Holders of Grove common shares will receive $17.00 (cash) per
share upon closing less an amount (not to exceed $3.5 million or
approximately $0.29 per share) that may be expended by Grove to resolve
certain potential liabilities. Holders of units in Grove's operating
partnership will have the option of receiving cash in the same amount as
received by Grove shareholders or 0.3696 of a unit (as similarly adjusted,
if necessary) in ERP Operating Limited Partnership. As part of the merger
agreement, certain Grove executives will acquire Grove's retail properties
at the merger closing for approximately $21.7 million, including the
assumption of approximately $7.5 million of debt. As The merger is expected
to close during the fourth quarter of 2000.
6. ACQUISITION OF ROLLING GREEN PORTFOLIO
-------------------------------------------
During the second quarter of 2000, the Company purchased three properties
located in Massachusetts including 912 apartments for approximately $33.5
million. The purchase price included a $12.0 million cash payment and the
assumption of mortgage debt totaling $21.5 million. The cash portion of the
purchase was funded with the Company's revolving credit facility and cash
on hand. The assumed mortgage debt has a weighted average fixed interest
rate of 7.9% and a weighted average maturity of 20.8 years.
7. SEGMENT REPORTING
----------------------
The following table presents information about reported segment profit or
loss and segment assets. The Residential segment consists of 5,839
apartment units, the Subsidized Residential segment consists of 1,231
apartment units, and the Retail segment consists of approximately 129,900
square feet. The Company does not allocate income taxes or unusual items to
segments. In addition, not all segments have significant noncash items
other than depreciation and amortization in reporting profit or loss
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
--------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues .................... $ 12,555 $ 3,636 $ 651 $ 16,842
Interest Expense ............ $ 2,530 $ 633 $ 153 $ 3,316
Depreciation and amortization $ 2,071 $ 384 $ 148 $ 2,603
Segment Profit .............. $ 2,922 $ 1,088 $ 178 $ 4,188
Segment Assets .............. $276,389 $ 61,029 $ 18,818 $356,236
FFO ......................... $ 4,958 $ 1,472 $ 322 $ 6,752
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
-------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues .................... $ 11,785 $ 3,508 $ 667 $ 15,960
Interest Expense ............ $ 1,957 $ 800 $ 72 $ 2,829
Depreciation and amortization $ 1,946 $ 362 $ 145 $ 2,453
Segment Profit .............. $ 2,947 $ 1,051 $ 319 $ 4,317
Segment Assets .............. $244,166 $ 54,596 $ 19,148 $317,910
FFO ......................... $ 4,871 $ 1,413 $ 461 $ 6,745
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues .................... $ 24,168 $ 7,187 $ 1,299 $ 32,654
Interest Expense ............ $ 4,913 $ 1,276 $ 307 $ 6,496
Depreciation and amortization $ 4,034 $ 763 $ 295 $ 5,092
Segment Profit .............. $ 6,966 $ 2,027 $ 387 $ 9,380
Gain on sales of property ... $ 1,533 $ 0 $ 0 $ 1,533
Segment Assets .............. $276,389 $ 61,029 $ 18,818 $356,236
FFO ......................... $ 9,393 $ 2,790 $ 674 $ 12,857
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
------------------------------
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues .................... $ 23,198 $ 6,962 $ 1,327 $ 31,487
Interest Expense ............ $ 3,896 $ 1,606 $ 142 $ 5,644
Depreciation and amortization $ 3,834 $ 718 $ 288 $ 4,840
Segment Profit .............. $ 5,417 $ 1,960 $ 622 $ 7,999
Extraordinary income ........ $ 0 $ 324 $ 0 $ 324
Segment Assets .............. $244,166 $ 54,596 $ 19,148 $317,910
FFO ......................... $ 9,213 $ 2,679 $ 906 $ 12,798
</TABLE>
The following presentation is the reconciliation of reportable segment
revenues, profit, FFO, assets and other significant items to the Company's
consolidated totals (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues
--------
<S> <C> <C> <C> <C>
Total revenues for reportable segments $16,842 $15,960 $32,654 $31,487
Other revenues ....................... 96 64 151 159
------- ------- ------- -------
Total consolidated revenues .......... $16,938 $16,024 $32,805 $31,646
======= ======= ======= =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Profit or Loss
--------------
Total profit for reportable segments $ 4,188 $ 4,317 $ 9,380 $ 7,999
Other loss ......................... (1,668) (2,754) (3,366) (5,142)
-------- -------- -------- --------
Income before extraordinary item and
minority interests ............... $ 2,520 $ 1,563 $ 6,014 $ 2,857
======== ======== ======== ========
FFO
---
FFO for reportable segments ........ $ 6,752 $ 6,745 $ 12,857 $ 12,798
Other FFO .......................... (1,668) (2,754) (3,366) (5,143)
-------- -------- -------- --------
FFO before minority interests ...... $ 5,084 $ 3,991 $ 9,491 $ 7,655
======== ======== ======== ========
</TABLE>
June 30, June 30,
2000 1999
------- --------
Assets
------
Total assets for reportable segments $ 356,236 $ 317,910
Other assets 5,238 7,580
---------- -----------
Total consolidated assets $ 361,474 $ 325,490
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other Significant Items
Interest expense
Segment Totals ............. $3,316 $2,829 $6,496 $5,644
Non-segment ................ 570 619 1,014 1,204
------ ------ ------ ------
Consolidated Totals ......... $3,886 $3,448 $7,510 $6,848
====== ====== ====== ======
Depreciation and amortization
Segment Totals ............. $2,603 $2,453 $5,092 $4,840
Non-segment .............. 119 118 227 228
------ ------ ------ ------
Consolidated Totals ...... $2,722 $2,571 $5,319 $5,068
====== ====== ====== ======
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
---------------------
Results of operations of the Company for the six months ended June 30, 2000 and
--------------------------------------------------------------------------------
1999.
-----
Total revenues increased $1.2 million to $32.8 million from $31.6 million during
the six months ended June 30, 2000, as compared to the corresponding period in
1999. The increase is primarily due to the operations of three properties
acquired during the second quarter of 2000, increases in rental rates and
occupancy and increased earnings on escrow accounts offset by a decrease in
revenues due to the sale of residential apartment communities in the first
quarter of 2000 and the fourth quarter of 1999.
The weighted average monthly rental rate increased to $820 for the six months
ended June 30, 2000 from $783 for the same period in 1999. Economic occupancy
increased to an aggregate weighted average occupancy of 96.8% for the six months
ended June 30, 2000 from an aggregate weighted average occupancy of 95.8% for
the same period in 1999.
Property operating expenses decreased $0.2 million to $11.7 million from $11.9
million during the six months ended June 30, 2000, as compared to the
corresponding period in 1999. The decrease is primarily due to the operations of
the sold properties, and lower snow removal costs, offset by higher payroll.
Real estate taxes decreased $0.2 to $2.7 million from $2.9 million during the
six months ended June 30, 2000, as compared to the corresponding period in 1999.
The decrease is due primarily to the sold properties.
Interest expense increased $0.7 million to $7.5 million from $6.8 million during
the six months ended June 30, 2000, as compared to the corresponding period in
1999. The increase is primarily due to new mortgage debt assumed from the
property acquisitions in 2000 and mortgage debt obtained in the third quarter of
1999.
General and administrative expenses decreased $1.0 million to $1.1 million from
$2.1 million during the six months ended June 30, 2000, as compared to the
corresponding period in 1999. This decrease is primarily due to the decrease in
costs associated with the executive stock bonus plan.
Depreciation and amortization increased $0.2 million to $5.3 million from $5.1
million during the six months ended June 30, 2000, as compared to the
corresponding period in 1999.
The Company's income before minority interests and extraordinary item increased
$3.1 million to $6.0 million from $2.9 million during the six months ended June
30, 2000, as compared to the corresponding period in 1999. The increase is
primarily due to the gain from the sale of two properties in 2000 and increased
rental rates and occupancy.
Results of operations of the Company for the three months ended June 30, 2000
--------------------------------------------------------------------------------
and 1999.
---------
Total revenues increased $0.9 million to $16.9 million from $16.0 million during
the three months ended June 30, 2000, as compared to the corresponding period in
1999. The increase is primarily due to the operations of new acquisitions in
2000, increases in rental rates and occupancy and increased earnings on escrow
accounts.
The properties experienced an increase in rental rates and an increase in
occupancy. The weighted average monthly rental rates increased to $824 for the
three months ended June 30, 2000 from $791 for the same period in 1999. Economic
occupancy increased to an aggregate weighted average occupancy of 96.7% for the
three months ended June 30, 2000 from an aggregate weighted average occupancy of
95.9% for the same period in 1999.
Property operating expenses increased $0.1 million to $5.9 million from $5.8
million during the three months ended June 30, 2000, as compared to the
corresponding period in 1999.
Real estate taxes decreased $0.1 million to $1.4 million from $1.5 million
during the three months ended June 30, 2000, as compared to the corresponding
period in 1999. The decrease is due primarily to the sale of two properties in
the first quarter of 2000 and four properties in the fourth quarter of 1999.
Interest expense increased $0.5 million to $3.9 million from $3.4 million during
the three months ended June 30, 2000, as compared to the corresponding period in
1999. The increase is primarily due to new mortgage debt assumed from the
property acquisitions in 2000 and mortgage debt obtained in the third quarter of
1999.
11
<PAGE>
General and administrative expenses decreased $0.6 million to $0.6 million from
$1.2 million during the three months ended June 30, 2000, as compared to the
corresponding period in 1999. The decrease is due primarily to the elimination
of the executive stock bonus plan.
Depreciation and amortization increased $0.1 million to $2.7 million from $2.6
million during the three months ended June 30, 2000, as compared to the
corresponding period in 1999. This increase is related to the property
acquisitions in 2000.
The Company's income before minority interests increased $0.9 million to $2.5
million from $1.6 million during the three months ended June 30, 2000, as
compared to the corresponding period in 1999. The increase is due to increased
rental rates and occupancy offset by a decrease in income from properties sold
in the first quarter of 2000 and the fourth quarter of 1999.
Same Community Analysis
-----------------------
For the six months and three months ended June 30, 2000 and 1999.
-----------------------------------------------------------------
Total Same Community Operations
-------------------------------
The following table summarizes total same community operations:
<TABLE>
<CAPTION>
For the Three Months For The Six Months Ended
Ended June 30, % June 30, %
2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Average number of apartments 6,162 6,144 0.3% 6,159 6,140 0.3%
Economic Occupancy 97.6% 97.2% 0.4% 97.6% 96.7% 0.8%
Average monthly rental rate per unit $ 837 $ 794 5.4% $ 829 $ 787 5.3%
Revenues (millions) $ 15.33 $ 14.34 6.9% $ 30.26 $ 28.33 6.8%
Operating expenses (millions) $ 5.70 $ 5.51 3.4% $ 11.45 $ 11.14 2.8%
-----------------------------------------------------------------
Net operating income (millions) $ 9.63 8.82 $ 9.1% $ 18.81 $ 17.19 9.4%
=================================================================
</TABLE>
In the first six months of 2000, total same community operations included 55
apartment communities (6,163 units, 47% in Massachusetts, 41% in Connecticut,
and 12% in Rhode Island) owned by the Company since the beginning of 1999.
Revenues increased primarily due to increases in rental rates and occupancy.
Operating expenses increased primarily due to higher payroll and property
insurance offset by lower utilities and snow removal costs.
In the second quarter, total same community operations included 55 apartment
communities (6,163 units, 47% in Massachusetts, 41% in Connecticut, and 12% in
Rhode Island) owned by Grove since the beginning of 1999. Revenues increased
primarily due to increases in rental rates and occupancy. Operating expenses
increased primarily due to higher payroll and property insurance offset by lower
snow removal..
Eastern Massachusetts and Rhode Island Same Community Operations
----------------------------------------------------------------
The following table summarizes eastern Massachusetts and Rhode Island Same
Community operations:
<TABLE>
<CAPTION>
For the Three Months For the Six Months Ended
Ended June 30, % June 30, %
2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Average number of apartments 3,287 3,287 0.0% 3,287 3,287 0.3%
Economic Occupancy 98.1% 98.1% 0.0% 98.3% 97.4% 1.0%
Average monthly rental rate per unit $ 894 $ 842 6.2% $ 883 $ 833 6.0%
Revenues (millions) $ 8.85 $ 8.24 7.4% $ 17.45 $ 16.25 7.4%
Operating expenses (millions) $ 3.08 $ 3.00 2.5% $ 6.21 $ 6.11 1.5%
---------------------------------------------------------------------
Net operating income (millions) $ 5.77 $ 5.23 10.2% $ 11.24 $ 10.14 10.9%
=====================================================================
</TABLE>
In the six months, eastern Massachusetts and Rhode Island same community
operations included 28 apartment communities (3,287 units, 76% in eastern
Massachusetts, and 24% in Rhode Island) owned by the Company since the beginning
of 1999. Revenues increased primarily due to increases in rental rates and
occupancy. Operating expenses increased primarily due to higher payroll, repairs
and maintenance, and marketing and advertising offset by lower utilities,
eviction costs, and snow removal costs.
12
<PAGE>
In the second quarter, Eastern Massachusetts and Rhode Island same community
operations included 28 apartment communities (3,287 units, 76% in Eastern
Massachusetts, and 24% in Rhode Island) owned by Grove since the beginning of
1999. Revenues increased primarily due to increases in rental rates. Operating
expenses increased primarily due to higher payroll, repairs and maintenance, and
marketing and advertising offset by lower eviction costs.
Connecticut and Western Massachusetts Same Community Operations
The following table summarizes Connecticut and western Massachusetts operations:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months For the Six Months Ended
Ended June 30, % June 30, %
2000 1999 Change 2000 1999 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Average number of apartments 2,875 2,857 0.6% 2,872 2,853 0.7%
Economic Occupancy 96.9% 96.1% 0.9% 96.5% 95.9% 0.6%
Average monthly rental rate per unit $ 772 $ 739 4.5% $ 767 $ 735 4.4%
Revenues (millions) $ 6.48 $ 6.10 6.3% $ 12.81 $ 12.09 6.0%
Operating expenses (millions) $ 2.62 $ 2.51 4.5% $ 5.24 $ 5.03 4.3%
--------------------------------------------------------------------
Net operating income (millions) $ 3.86 $ 3.59 7.5% $ 7.56 $ 7.06 7.2%
====================================================================
</TABLE>
In the first six months, Connecticut and western Massachusetts same community
operations included 27 apartment communities (2,869 units, 87% in Connecticut
and 13% in western Massachusetts) owned by the Company since the beginning of
1999. Revenues increased primarily due to increases in rental rates, occupancy,
and the purchase of condominiums at three properties. Operating expenses
increased primarily due to higher payroll and insurance offset by lower snow
removal costs.
In the second quarter, Connecticut and western Massachusetts same community
operations included 27 apartment communities (2,876 units, 87% in Connecticut
and 13% in western Massachusetts) owned by Grove since the beginning of 1999.
Revenues increased primarily due to increases in rental rates, occupancy, and
the purchase of condominiums at three properties. Operating expenses increased
primarily due to higher payroll and insurance.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents totaled $19.6 million as of June 30, 2000. The
Company's ratio of long-term debt including the Revolving Credit Facility to
total market capitalization on June 30, 2000 was 54.4% based on total market
capitalization of $432.4 million. Market capitalization was based on 12,143,243
Common Units and Common Shares, valued at $16.25 per share/unit (the closing
price on June 30, 2000), plus $235.0 million of long-term debt including
borrowings under the Revolving Credit Facility and excluding the fair value step
up of $7.9 million.
During the second quarter, the Company received second mortgage financing on six
properties, with net proceeds totaling approximately $8.3 million, and a face
amount of approximately $14.8 million. The average interest rate on the face
amount of the new second mortgages is 7.4% and the weighted average maturity of
the new second mortgages is 7.4 years. In addition, the Company assumed debt in
connection with the acquisition of properties described below.
On June 15, 2000, the Company declared an $0.18 per share dividend, which was
paid on July 14, 2000. The dividends declared during the period resulted in a
42.9% pay out of funds from operations for the three months ended June 30, 2000.
Acquisition notes payable are obligations related to three McNeil Portfolio
properties to pay additional cash and issue additional Common Units when
apartment units are converted to market rate units. In 1998, the mortgages on
the three properties were modified to allow for each property to convert 80% of
its units to market rate units.
During 1998, the Board of Trust Managers authorized the Company to repurchase up
to 400,000 Common Shares. In the first quarter of 1999, the Board of Trust
Managers authorized the Company to purchase up to an additional 500,000 Common
Shares. In the third quarter of 1999, the Board of Trust Managers authorized the
Company to purchase up to an additional 500,000 Common Shares. Purchases of
Common Shares and Common Units presented for redemption which are redeemed for
cash are being funded from operating cash flow and the Company's Revolving
Credit Facility. Since beginning its share repurchase program and through June
30, 2000, the Company has redeemed 457,689 Common Units for cash at an average
price of $11.33 per unit and repurchased 881,176 Common Shares at an average
price of $11.42 per share.
13
<PAGE>
The Company intends to meet its short-term liquidity requirements through cash
flow provided by operations and borrowings under the Revolving Credit Facility.
The Company considers its ability to generate cash to be adequate and expects it
to continue to be adequate to meet operating requirements and pay shareholder
dividends in accordance with REIT requirements. The Company may use other
sources of capital to finance additional acquisitions including, but not limited
to, the selling of properties, the selling of additional equity interests in the
Company, non-distributed funds from operations, the issuance of debt securities,
funds from the Revolving Credit Facility, and exchanging Common Shares or Common
Units for properties or interests in properties.
Acquisitions/Dispositions
-------------------------
The Company regularly evaluates properties for possible acquisition or
disposition. Individual properties may be acquired through direct purchase of
the property or through the purchase of the entity owning such property and may
be made for cash or securities of the Company or the Operating Partnership. In
connection with any acquisition, the Company may incur additional indebtedness.
If the Company acquires or disposes of any property, such acquisition or
disposition could have a significant effect on the Company's financial
condition, results of operations or cash flows.
During the second quarter of 2000, the Company purchased three properties
located in Massachusetts including 912 apartments for approximately $33.5
million. The purchase price included a $12.0 million cash payment and the
assumption of mortgage debt totaling $21.5 million. The cash portion of the
purchase was funded with the Company's Revolving Credit Facility and cash on
hand. The assumed mortgage debt has a weighted average fixed interest rate of
7.9% and a weighted average maturity of 20.8 years.
Funds from Operations
---------------------
The Company generally considers funds from operations ("FFO") an appropriate
measure of performance of an equity REIT. FFO, as defined in the White Paper on
Funds From Operations, which was approved by the National Association of Real
Estate Investment Trusts ("NAREIT") in early 1995, is defined as net income
(computed in accordance with generally accepted accounting principles),
excluding gains or losses from debt restructuring and sales of properties, plus
real estate depreciation less preferred dividends. As provided in the NAREIT
guidance, items classified by generally accepted accounting principles as
extraordinary or unusual, along with significant non-recurring events that
materially distort the comparative measurement of a company's performance over
time, are disregarded in the calculation. 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 accounting
principles generally accepted in the United States and is not necessarily
indicative of cash available to fund cash needs. FFO should not be considered as
an alternative to net income as an indication of the Company's performance or as
an alternative to cash flow as a measure of liquidity.
FFO increased to $9.5 million from $7.6 million for the six months ended June
30, 2000 and 1999, respectively. Dividends declared for the six months ended
June 30, 2000 were $0.36 per share, representing 47.3% of FFO, while dividends
declared for the six months ended June 30, 1999 were $0.36 per share
representing 59.7% of FFO.
FFO was calculated as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before gain on sales of property, ...... $ 2,250 $ 1,563 $ 4,481 $ 2,857
Extraordinary item and minority interests
Real estate depreciation and amortization ..... 2,564 2,428 5,010 4,798
------- ------- ------- -------
Funds from operations before minority interests 5,084 3,991 9,491 7,655
Minority interests in consolidated partnerships -- (38) -- (72)
------- ------- ------- -------
FFO ........................................... $ 5,084 $ 3,953 $ 9,491 $ 7,583
======= ======= ======= =======
</TABLE>
Seasonally
----------
Historically, the Company's net income 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.
14
<PAGE>
Inflation
---------
Substantially all of the leases at the residential properties are for a term of
one year or less, which may enable the Company to seek increased rents upon
renewal or reletting. Such short-term leases generally lessen the risk to the
Company of the potential adverse effects of inflation.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1996
------------------------------------------------------------------------------
Certain statements contained in this report, and in particular in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," statements in other filings with the Securities and Exchange
Commission and statements in other public documents of the Company may be
forward looking and are subject to a variety of risks and uncertainties. Forward
looking statements would typically include words like "believes," "anticipates"
or "estimates." Many factors could cause actual results to differ materially
from these statements. These factors include, but are not limited to, (i)
population shifts which may increase or decrease the demand for rental housing,
(ii) the value of commercial and residential rental properties in the Northeast
where all of the Company's properties are located, in recent years, have
fluctuated considerably, (iii) the effect on the Company's properties of
competition from new apartment complexes which may be completed in proximity to
such properties thereby increasing competition, (iv) the effect of weather and
other conditions which can significantly affect property operating expenses, (v)
the ability of the Company to successfully integrate the operation of properties
it has acquired or may acquire into its business and (vi) other factors which
might be described from time to time in the Company's filings with the
Securities and Exchange Commission. In addition, the Company is subject to the
effects of changes in general business economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily from its Revolving
Credit Facility. A hypothetical 100 basis point adverse move (increase) in
interest rates along the entire interest rate yield curve would adversely affect
the net fair value of all interest sensitive financial instruments by $291,000
at June 30, 2000.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
--------------------------
The Company and each of its trust managers were named as defendants in an action
commenced on July 18, 2000 by the filing of a Class Action Complaint by the
Taylor Family Trust (the Plaintiff). In the complaint, the Plaintiff refers to
the proposed merger with ERP Operating Limited Partnership and to the proposed
transfer of the retail properties owned by the Company to a limited liability
company owned by four of the executive officers of the Company. The Plaintiff
alleges a breach in fiduciary duty by the defendants by approving and entering
into the agreement pursuant to which the retail properties are proposed to be
transferred. The Company believes that the suit is without merit and intends to
defend against the claims vigorously.
Item 2: Change in Securities and Use of Proceeds
-------------------------------------------------
On May 1, 2000 the Company issued 30,435 Common Units valued at $13.19 per
Common Unit and $0.1 million in cash as a payment on the Acquisition Notes
Payable. The total value of the Common Units at the time of issuance in the
transaction was approximately $0.4 million.
The issuance of the Common Units referred to in the preceding paragraph was not
registered under the Securities Act of 1933 in reliance on the exemption
contained in Rule 506 thereunder on the basis that each of the purchasers in
such transaction was an accredited investor.
Item 3: Defaults upon Senior Securities
----------------------------------------
NONE
Item 4: Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its Annual Meeting of Shareholders on June 16, 2000 (the
"Annual Meeting"). At the Annual Meeting, the shareholders of the Company:
1. Elected all of the nominees for the Board of Directors
2. Ratified the selection of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 2000;
each as described in the Notice of Annual Meeting and Proxy Statement
distributed in connection with the Annual Meeting. The results of the voting of
the shareholders with respect to such matters is set forth below.
1. Election of Directors
Total Vote for Total Vote Withheld
Each Trustee For Each Trustee
------------ ----------------
Harold V. Gorman 6,704,967 3,190
Damon D. Navarro 5,284,362 1,423,795
Timothy Morris 6,704,967 3,190
2. The ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year ending December 31, 2000
For: 6,699,753
Against: 7,590
Abstain: 814
Item 5: Other Information
--------------------------
NONE
16
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
No. Description
--- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 9, 2000, the Company filed a Current Report on Form 8-K dated May 31,
2000 in which it responded to items 2 and 7.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGISTRANT:
GROVE PROPERTY TRUST
August 10, 2000 By:/s/ Joseph R. LaBrosse
----------------------------------
Name: Joseph R. LaBrosse
(On behalf of the registrant and
as Chief Financial Officer)
18
<PAGE>
EXHIBIT INDEX
No. Description
--- -----------
27 Financial Data Schedule
