<PAGE>
 
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB/A

                                 Amendment No. 1

                                       to


                 [X]ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                           Commission file No. 1-13080

                              GROVE PROPERTY TRUST
                 (Name of Small Business Issuer in Its Charter)

             Maryland                                    06-1391084
State of Incorporation or Organization)    (I.R.S. Employer Identification No.)

598 Asylum Avenue, Hartford, Connecticut                   06105
 (Address of Principal Executive Offices)                (Zip Code)

                                (860) 520-4789
                          (Issuer's Telephone Number)

                         GROVE REAL ESTATE ASSET TRUST
                                 (Former Name)

                 Securities registered under Section 12(b) of
                               the Exchange Act:

  Title of Each Class:                Name of Each Exchange on Which Registered:
Common Shares of Beneficial                       American Stock Exchange, Inc.
Interest, $.01 par value                      
                                       

       Securities registered under Section 12(g) of the Exchange Act: None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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:

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. __

The issuer's revenues for the 1996 fiscal year were $2,082,239.

The aggregate market value of voting stock held by  non-affiliates as of October
29, 1997 was $35,412,723.

The number of Common Shares of Beneficial Interest outstanding as of October 29,
1997 was 3,953,829.

                      DOCUMENTS INCORPORATED BY REFERENCE:
              Definitive proxy statement for 1997 Annual Meeting of
                     Shareholders - Part III of Form 10-KSB
<PAGE>
 
PART I

Item 7.  Financial Statements

Financial statements and supplementary financial information are contained on
pages F-1 to F-13 of this report.
<PAGE>
 
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this amendment to its report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                            REGISTRANT:


                                            GROVE PROPERTY TRUST

Date:  October 30, 1997                     By:/s/ Joseph R. LaBrosse
                                               ----------------------
                                            Name:    Joseph R. LaBrosse
                                            Title:   Chief Financial Officer, 
                                                     Secretary, Treasurer, and
                                                     Trust Manager
<PAGE>
 
              INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The following financial statements of the Registrant and its subsidiaries
required to be included in Item 13(a)(1) are listed below:

GROVE PROPERTY TRUST
                                                                        Page
                                                                        ----
Report of Independent  Certified Public  Accountants                     F-2 
Balance Sheet as of December 31, 1996                                    F-3 
Income Statements for the years ended December 31, 1996
and 1995                                                                 F-4 
Statements of Shareholders' Equity for the years ended
   December 31, 1996 and 1995                                            F-5
Statements of Cash Flows for the years ended December 31, 1996
   and 1995                                                              F-6
Notes to Financial Statements                                        F-7 - F-13

                                      F-1
<PAGE>
 
REPORT OF INDEPENDENT AUDITORS

The Shareholders and Board of Trust Managers
Grove Property Trust

We have audited the accompanying balance sheet of Grove Property Trust (formerly
known as Grove Real Estate Asset Trust) as of December 31, 1996 and the related
statements of income, changes in shareholders' equity, and cash flows for the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 assurances about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 financial position of Grove Property Trust as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.




Ernst & Young LLP


New York, New York
September 2, 1997



                                      F-2
<PAGE>
 
                        GROVE PROPERTY TRUST
                          BALANCE SHEET
                           December 31,
                               1996
                              ASSETS
Real estate assets:
        Land .................................................      $   920,293
        Buildings and improvements ...........................        8,528,075
        Furniture, fixtures and equipment ....................          349,768
                                                                    -----------
                                                                      9,798,136
        Less - accumulated depreciation ......................       (1,049,815)
                                                                    -----------
                Net real estate assets .......................        8,748,321

Cash and cash equivalents ....................................          381,340
Cash - resident security deposits ............................          157,537
Deferred charges, net of accumulated amortization
     of $5,762 and $11,736, respectively .....................          222,930
Other assets .................................................           10,482
                                                                    -----------

 Total assets ................................................      $ 9,520,610
                                                                    ===========
               LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
        Mortgage notes payable ...............................      $ 5,668,578
        Accounts payable, accrued expense and other ..........           72,054
        Due to affiliates ....................................           19,190
        Resident security deposits ...........................          157,537
        Dividends payable ....................................          120,750
                                                                    -----------

Total liabilities ............................................        6,038,109
                                                                    -----------

Commitments and subsequent event .............................             --

Shareholders' equity:
        Preferred shares, $.01 par value per share,
            4,000,000 shares authorized; no shares
            issued or outstanding ............................             --
        Common shares, $.01 par value per share,
            10,000,000 shares authorized; 525,000
            shares issued and outstanding ....................            5,250
        Additional paid-in capital ...........................        3,913,176
        Distributions in excess of earnings ..................         (435,925)
                                                                    -----------

Total equity .................................................        3,482,501
                                                                    -----------


Total liabilities and shareholders' equity ...................      $ 9,520,610
                                                                    ===========

See accompanying notes.

                                      F-3
<PAGE>
 
                              GROVE PROPERTY TRUST
                                INCOME STATEMENTS




                                              Years Ended December 31,
                                          -------------------------------

                                               1996            1995

Revenues:
    Rental income .......................   $2,046,390   $1,287,013
    Interest and other income ...........       35,849       29,902
                                                ------       ------

        Total revenues ..................    2,082,239    1,316,915
                                             ---------    ---------



Expenses:
    Property operating and maintenance ..      655,821      406,227
    Real estate taxes ...................      208,302      147,770
    Related party management fees .......      108,731       66,781
    General and administrative ..........       66,798       56,363
                                                ------       ------

        Total expenses ..................    1,039,652      677,141
                                             ---------      -------


                                             1,042,587      639,774

Interest expense ........................      394,657       85,103
Depreciation and amortization ...........      386,641      216,413
                                               -------      -------


Net income ..............................   $  261,289   $  338,258
                                            ==========   ==========




Net income per common share .............   $     0.42   $     0.55
                                            ==========   ==========


Weighted average number of shares .......      620,102      620,102
                                               =======      =======

See accompanying notes.



                                      F-4
<PAGE>
 
                               GROVE PROPERTY TRUST
                        STATEMENT OF SHAREHOLDERS' EQUITY
                 



                                                       Additional  Distributions
                                              Common     Paid-in    in Excess of
                                              Shares     Capital     Net Income
                                              ------     -------     ----------

Shareholders' equity, January  1, 1995....  $   5,250  $ 3,913,176  $  (78,659)
        Net income ......................                              338,258
        Declared dividends ..............                             (475,125)
                                             --------   ---------     --------
Shareholders' equity, December 31, 1995         5,250    3,913,176    (215,526)
        Net income                                                     261,289
        Declared dividends..............                              (481,688)
                                             --------   ---------     ---------
Shareholders' equity, December 31, 1996     $   5,250  $ 3,913,176  $ (435,925)
                                            =========    =========     ========

See accompanying notes.

                                     F-5
<PAGE>
 
                              GROVE PROPERTY TRUST
                            STATEMENTS OF CASH FLOWS

                                                       Years Ended December 31,
                                                 -------------------------------
                                                           1996        1995
                                                           ----        ----

Cash flows from operating activities:
 Net income ........................................... $261,289     $338,258
 Adjustments to reconcile net income to net cash
 provided by operating activities:
       Depreciation and amortization ..................  386,641      216,413
       Imputed interest - mortgage ....................   37,508       34,892
       (Increase) decrease in other assets ............   (7,670)       4,472
       Increase (decrease) in accounts payable, accrued
               expenses and other .....................   40,751       (8,891)
                                                         ------       ------

             Net cash provided by operating activities   718,519      585,144
                                                         -------      -------
Cash flows from investing activities:
 Deferred charges ..................................... (174,079)        --
 Other ................................................   (2,714)        --
 Additions to real estate assets ...................... (125,634)     (99,002)
                                                        --------      -------

             Net cash used in investing activities .... (302,427)     (99,002)
                                                        --------      -------
Cash flows from financing activities:
 Net proceeds from mortgage payable on acquisition ....  220,198         --
 Financing costs ......................................  (21,000)     (23,000)
 Repayment of mortgage payable ........................  (58,961)        --
 Payments to affiliates ...............................  (78,338)     (22,929)
 Dividends paid ....................................... (480,376)    (472,500)
                                                        --------     --------

                  Net cash used in financing activities (418,477)    (518,429)
                                                        --------     --------
Net decrease in cash and cash equivalents .............   (2,385)     (32,287)

Cash and cash equivalents, beginning of period ........  383,725      416,012
                                                         -------      -------


Cash and cash equivalents, end of period .............. $381,340     $383,725
                                                         =======      =======

See accompanying notes.


                                      F-6
<PAGE>
 
                              GROVE PROPERTY TRUST

                          NOTES TO FINANCIAL STATEMENTS


1.   FORMATION AND BUSINESS OF THE COMPANY

     Grove Property Trust (the "Company" or "GPT"), formerly Grove Real Estate
     Asset Trust ("GREAT") was organized in the State of Maryland on April 4,
     1994, as a Real Estate Investment Trust ("REIT"). As of December 31, 1996,
     the Company operated four properties with a total of 257 residential
     apartments. The Company purchased three properties, (the "Original
     Properties") on June 23, 1994, and the fourth property was acquired in
     January 1996 (collectively, the "Properties").

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     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 the purchase to be cash
     equivalents.

     Real Estate Assets and Depreciation

     The Original Properties were recorded at their historical cost due to the
     controlling relationship between the principals of the entities previously
     operating the Properties (the "Grove Affiliates"). The portion of the
     purchase price attributable to the net assets acquired from Grove
     Affiliates exceeds their amortized historical cost. Accordingly, the excess
     amount is reflected as a decrease in equity for accounting purposes. All
     real estate assets purchased subsequent to the initial acquisitions have
     been recorded at cost. Depreciation is provided using the straight-line
     method over the estimated useful lives of the assets (7 to 27.5 years).

     Long-Lived Assets

     In March 1995, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 121, "Accounting for the Impairment of
     Long-Lived Assets and Long-Lived Assets to be Disposed of " (FAS No. 121),
     which 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 undisclosed
     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.

     Per Share Data

     Net income per common share is based on the weighted average number of
     shares outstanding during each year. Common stock equivalents (options and
     warrants) did not have a dilutive effect on net income per share for any
     year presented. 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-7
<PAGE>
       GROVE PROPERTY TRUST NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

 
     In February 1997, the Financial Accounting Standard Board issued Statement
     No. 128, Earnings Per Share, which is required to be adopted on December
     31, 1997. At that time, the Company will be required to change the method
     currently used to compute earnings per share and to restate all prior
     periods. Under the new requirements for calculating primary earnings per
     share, the dilutive effect of stock options will be excluded. The impact of
     Statement 128 on the calculation of primary and fully diluted earnings per
     share for the years ended December 31, 1996 and 1995, is not material.

     Stock-Based Compensation

     Effective in fiscal year 1996, the Company 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.

     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 (the "Code").
     A REIT will generally not be subject to federal income tax to the extent it
     distributes at least 95% of its taxable income to its shareholders and
     complies 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:

                                               1996        1995
     Ordinary income                          97.46%       83.22%
     Return of principal                       2.54%       16.78%

     Advertising

     The Company expenses advertising costs as incurred.  Advertising costs 
     were $24,000 and $17,000 in 1996 and 1995, respectively.

     Deferred Charges

     Deferred charges, consisting principally of loan costs, are amortized on a
     straight line basis over the term of the related obligation.

     Rental Income

     Rental income attributable to leases is recognized on a straight-line basis
     over the term of the leases, which are generally for one year. 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 amounts are
     deposited into a restricted bank account and the Company records an
     offsetting liability.

3.   Acquisition

     On January 12, 1996, the Company purchased the assets and operations of
     Grove Cambridge Associates Limited Partnership ("Cambridge"), a ninety-two
     multifamily apartment complex located in Norwich, Connecticut, for
     $4,250,000, which was funded with a $4,500,000 mortgage note payable.


                                      F-8
<PAGE>

       GROVE PROPERTY TRUST NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
 
     The results of Cambridge's operations have been combined with those of
     the Company since the date of acquisition.

     The unaudited pro forma information for the period set forth below gives
     effect to the transaction as if it had occurred at the beginning of the
     period. The pro forma information is presented for informational purposes
     only and is not necessarily indicative of the results of operations that
     actually would have been achieved had the acquisition been consummated as
     of that time. The pro forma results for 1996 are not materially different
     from the reported amounts.

     Pro Forma Year Ended December 31, 1995 (in thousands, except share data):

     Revenues                               $2,079
     Net income                                278
     Net income per common share            $    0.45

4.   MORTGAGE NOTES PAYABLE

     Mortgage notes payable consist of the following:

                                                  1996
       Southington Apartments note           $  1,227,539
       Cambridge Estates note                   4,441,039
                                                ---------
            Total                            $  5,668,578
                                                =========

     The mortgage note on the Southington Apartments property which has a face
     amount of $1,250,000, has an imputed interest rate of 7.25% due in monthly
     interest payments of $4,167 through June 1997 and monthly principal and
     interest payments of $8,527 through July 2013. The note is collateralized
     by the property and 15% of the face amount is guaranteed by certain
     executive officers and shareholders of the Company.

     The Cambridge note payable had an original principal balance of $4,500,000
     with interest payable at 7.04%. Monthly principal and interest payments of
     $31,920 are due through January 2006. The note is collateralized by the
     Cambridge property and by first mortgage liens on two additional
     properties.

     Aggregate annual maturities of mortgage notes payable are as follows:

               Years ending December 31,

                         1997                  $     54,512
                         1998                        86,056
                         1999                        92,418
                         2000                       102,579
                         2001                       110,951
                      Thereafter                  5,222,062
                                                  ---------
                         Total                 $  5,668,578
                                                  =========

     Interest paid was $379,666 and $84,892 in 1996 and 1995, respectively.

5.   INITIAL CREDIT FACILITY

     The Company entered into a Initial Credit Facility concurrent with its
     initial public offering ("IPO") in 1994. The Credit Facility, which
     provided for up to $3.0 million in borrowings, was expected to be used to
     finance acquisitions of properties, re-development and renovation costs and
     expenses, and for working capital purposes related to future acquisitions.
     The Credit Facility was not drawn upon, and was terminated in January 1996.
     In March 1997, the Company entered into a new credit facility (see Note
     10).

                                      F-9
<PAGE>

       GROVE PROPERTY TRUST NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
 
6.   1994 STOCK OPTION PLAN

     The Company has adopted a stock option plan in 1994 (the "1994 Plan") for a
     maximum of 118,120 common shares for key employees and non-employees of the
     Company. Options are granted at the market price of the Company's common
     stock on the date of grant, become exercisable in increments of 33 1/3% per
     year on each of the first three anniversaries of the date of grant and have
     a maximum term of ten years. In May 1997, an employee exercised options on
     394 Common Shares.. Information regarding the Company's stock option plan
     is summarized below. In March 1997, the Company instituted an additional
     stock option plan (see Note 10).

                                  1996                         1995
                           --------------------------    ----------------------
                                            Weighted                  Weighted
                                             Average                   Average
                                             Exercise                  Exercise
                             Options          Price      Options        Price
                             -------          -----      -------        -----
 Outstanding at beginning
     of year                  69,689       $   9.31       66,146     $   9.42
 Granted                      48,428       $   7.29        3,543     $   7.20
                              ------                     -------        
 Outstanding at end                                                     
   of year                   118,117       $   8.48       69,689     $   9.31
                             =======                      ======

 Options exercisable at
   end of year                45,272       $   9.36       22,049     $   9.42
                              ======                      ======


     The Company accounts for stock option grants under its Plan in accordance
     with APB No. 25. Accordingly, no compensation cost has been recognized for
     stock option grants since the options have exercise prices equal to the
     market value of the Company's common stock at the date of grant. The pro
     forma compensation cost for the Company's 1994 Plan determined in
     accordance with FAS No. 123 was not material for 1996 and 1995.

7.   UNDERWRITER WARRANTS

     In conjunction with the IPO, 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, 1996.

8.   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 provides operating and support functions requisite
     to the operation of the Properties. The Agreement provides for a management
     fee equal to 5% of gross monthly revenues, as defined, and was terminated
     pursuant to the Consolidated Transactions in March 1997. Management fees
     incurred in 1996 and 1995 were $108,731 and $66,781, respectively.

     Operating Expenses and Non-Operating Expenses

     Certain operating and non-operating expenses include amounts allocated to
     the Company by GPS. These charges reflect an allocation of the cost of
     services required by the Company, which are outside the scope of services
     customarily included in the property management fees. Total costs of
     $10,952 were allocated in 1996.

     Rent to Related Party

     The Company's executive offices are leased from an affiliated company for
     $500 per month under a three year lease which expired in June 1997; rent
     expense related thereto was $6,000 in 1996 and 1995. The lease was
     subsequently extended on a month-to-month basis at comparable rent.

                                      F-10
<PAGE>

         GROVE PROPERTY TRUST NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
 
9.   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 value of amounts.

Cash equivalents, accounts receivable, accounts payable and other accruals,
because of their short term nature, approximate fair value. Mortgage notes are
also carried at amounts that approximate their fair values. Fair values of
mortgage notes were estimated using discounted cash flow analyses, based on
interest rates currently available to the Company for issuance of debt with
similar terms and remaining maturities.

10.  SUBSEQUENT EVENT

On March 14, 1997, GPT completed a series of transactions pursuant to which the
Company was transformed into a self-administered and self-managed REIT with
control over a portfolio of 23 multi-family residential projects and a
neighborhood shopping center in the Northeastern United States. A summary of the
steps involved in these Consolidation Transactions are as follows:

     GPT formed an Operating Partnership to serve as the vehicle for the
     consolidation of ownership and/or control of the operations and assets
     liabilities of the Company.

     Pursuant to an Exchange Offer, the Operating Partnership purchased from the
     Limited Partners of certain Property Partnerships, the outstanding
     partnership units of each of the Property Partnerships in exchange for
     Common Units of the Operating Partnership, or, in certain circumstances,
     cash. The number of Common Units received by a Limited Partner (1,205,324
     in the aggregate, excluding Grove Companies) was calculated based upon such
     partners' interest in the applicable partnership as applied to the value of
     the property partnership associated therewith.

     Immediately prior to the consummation of the Consolidation Transactions,
     GPT declared and issued a stock dividend aggregating 26,222 Common Shares
     and concurrently effected a stock split of 1.125 to 1, thereby issuing on a
     pro rata basis a total of 95,102 Common Shares to the holders of the
     currently issued and outstanding Common Shares. The Company retroactively
     adjusted all share and per share amounts in the accompanying financial
     statements to reflect these transactions.

      GPT issued 3,333,333 Common Shares to new equity investors in exchange for
   $30 million.

     Pursuant to a Contribution Agreement among GPT, certain companies and
     individuals affiliated with GPT (the "Grove Companies") and the Operating
     Partnership, substantially all of the assets and operations of GPT, the
     management services division of Grove Property Services Limited Partnership
     and the Grove Companies' interests in the acquired Property Partnerships
     were transferred to the Company.

     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
     $177,669 from GPT, and GPT received 620,102 Common Units in the Operating
     Partnership. Additionally, GPT contributed to the Operating Partnership the
     proceeds received from new equity investment ($30 million less related
     costs) in exchange for a number of additional Common Units equal to the
     number of Common Shares issued by GPT to the new equity investors.

                                      F-11
<PAGE>
 
       GROVE PROPERTY TRUST NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Revolving Credit Facility and Mortgage Loan Refinancings

In connection with the Consolidation Transactions, the Operating Partnership
entered into a three-year secured revolving acquisition and working capital
facility ("Revolving Credit Facility") of up to $25 million and an approximately
$15.1 million ten-year term mortgage loan. Borrowings under the Revolving Credit
Facility are collateralized by certain properties and bear interest, payable
monthly, at a floating rate of 1.2% above the 30, 60 or 90 day LIBOR. The
Operating Partnership is required to maintain certain financial covenants.

The Company used a portion of the proceeds from the new equity investment,
together with borrowings under the $15.1 million ten-year mortgage loan to
paydown or refinance approximately $39.3 million of mortgage indebtedness of the
Property Partnerships and to acquire certain minority interests in certain of
the Property Partnerships.

Property Acquisitions

Effective on June 1, 1997, the Company acquired two residential apartment
complexes through the Operating Partnership. These acquisitions were completed
by the Operating Partnership through the acquisition of the assets (other than
certain amounts of cash) and the assumption of liabilities of Northeast
Apartments I Limited Partnership, the owner of Four Winds Apartments, and of
West Hartford Center Associates, Limited Partnership, the owner of Brooksyde
Apartments. In addition, simultaneously with the acquisition of Four Winds
Apartments and Brooksyde Apartments, the Company acquired an interest in Windsor
Arbor Limited Partnership ("Windsor"), the owner of River's Bend Apartments, and
anticipates that it will acquire, pursuant to certain put and call options, the
remaining limited partnership interest in Windsor on or before December 31, 1997
for $4.9 million. Commencing June 1, 1997, the Company will consolidate Windsor
in its financial statements.

Upon consummation of the June 1, 1997 transactions referred to above, the
Operating Partnership issued an aggregate of 420,183 Common Units valued at $10
per unit, which under certain circumstances, could be redeemed for an equal
number of Common Shares of the Company. The Company also assumed mortgage debt
on Four Winds Apartments and Brooksyde Apartments in the aggregate remaining
principal amount of $6.2 million. Additionally, the Windsor Arbor investment is
encumbered by $8.6 million mortgage debt. To complete these transactions, the
Company borrowed $1.825 million under its Revolving Credit Facility and used
$68,000 of its available cash.

Four Winds Apartments is a 168-unit apartment community located in North Fall
River, Massachusetts. Brooksyde Apartments is an 80-unit apartment community
located in West Hartford, Connecticut. River's Bend Apartments is a 432-unit
condominium community located in Windsor, Connecticut, of which 349 units are
own by Windsor.

On July 1, 1997, the Company purchased 127 condominium units constituting a part
of Greenfield Village Condominium in Rocky Hill, Connecticut. The purchase was
made pursuant to a Purchase and Sale Agreement dated May 14, 1997, between
Highland Income Partners, L.P. and Grove Corporation, an affiliate of the
Company. The $4,282,500 purchase price for Greenfield Village was paid utilizing
a portion of the Company's cash and borrowings under the Revolving Credit
Facility. In addition, Grove Rocky Hill assumed certain obligations of the
seller, principally related security deposits held by the seller. In connection
with the purchase of Greenfield Village, the Company paid $107,000 for expense
and overhead reimbursement to National Realty Services, L.P., a limited
partnership owned by four of the executive officers of the Company.

Pursuant to two Offers of Exchange All Outstanding Limited Partnership Interests
in two affiliated partnerships, effective September 1, 1997, the Company
acquired three residential apartment communities through the Operating
Partnership. These acquisition were completed by the Operating Partnership
through the acquisition of the assets and the assumption of liabilities of
Heritage Court Associates Limited Partnership, the owner of the Glastonbury
Center Apartments, and of Farmington Summit Associates Limited Partnership, the
owner of Summit Apartments and Birch Hill Apartments.


                                      F-12
<PAGE>

       GROVE PROPERTY TRUST NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
 
Upon consummation of the transactions, the Operating Partnership issued and
aggregate of 328,332 Common Units valued at $10.50 per unit, which under certain
circumstances, could be redeemed for an equal number of Common Shares of the
Company. The Company also assumed mortgage debt on Summit Apartments, Birch Hill
Apartments and Glastonbury Apartments in the aggregate remaining principal
amount of $9.8 million. To complete these transactions, the Company borrowed
$750,000 under its Revolving Credit Facility, assumed a current liability of
$1.1 million (subsequently paid), including approximately $200,000 due to an
affiliate, and paid the balance from its available cash.

Summit Apartments and Birch Hill Apartments have a total of 184 apartments and
are located in Farmington Connecticut. Glastonbury Apartments is a 104-unit
apartment community located in Glastonbury, Connecticut.

1996 Stock Option Plan

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. The provisions of the 1996 Plan are
similar to the 1994 Plan (see Note 6). Pursuant to the Consolidation
Transactions, the Company granted 300,000 options to certain executive officers
and non-employee Board of Trust Managers. Each non-employee Board to Trust
Manager received 5,000 options per year.

                                      F-13