AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO. 333-2672
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOME PROPERTIES OF NEW YORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MARYLAND 16-1455126
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
850 CLINTON SQUARE
ROCHESTER, NEW YORK 14604
(716) 546-4900
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANN M. MCCORMICK, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
HOME PROPERTIES OF NEW YORK, INC.
850 CLINTON SQUARE
ROCHESTER, NEW YORK 14604
(716) 246-4105
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
Deborah McLean Quinn, Esq.
Nixon, Hargrave, Devans & Doyle LLP
900 Clinton Square
Rochester, New York 14604
(716) 263-1307
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box.[x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier registration statement for the same offering. [ ]___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
2,630,000 SHARES
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
($.01 par value)
All of the shares of the common stock, par value $.01 per share (the
"Common Stock") of Home Properties of New York, Inc. ("Home Properties" or the
"Company") offered hereby are being offered by the Selling Shareholders of Home
Properties. See "Selling Shareholders." The Company will not receive any
proceeds from the sale of the shares offered hereby. The Common Stock is
listed on the New York Stock Exchange under the symbol "HME". On July 30,
1996, the closing price of the Common Stock on the New York Stock Exchange was
$20 3/8 per share.
Home Properties is a self-administered, self-managed, fully integrated real
estate investment trust. Home Properties conducts substantially all of its
business and owns all of its properties through Home Properties of New York,
L.P. (the "Operating Partnership"). To comply with certain technical
requirements of the Internal Revenue Code of 1986, as amended
(the "Code") applicable to real estate investment trusts ("REITs"), the
Operating Partnership carries out portions of its property management and
development activities through management companies beneficially owned by the
Operating Partnership but controlled by one or more officers of Home Properties
(collectively, the "Management Companies").
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at
prices and terms then prevailing, at prices related to the then-current market
price, or in negotiated transactions. The shares may be sold by one or more of
the following methods, without limitation: (a) a block trade in which a broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate a transaction; (b)
purchases by a broker or a dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a broker or
dealer. In effecting sales, brokers or dealers engaged by one or more of the
Selling Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such brokers and dealers and any
other participating brokers or dealers may be deemed "underwriters" under the
Securities Act of 1933, as amended (the "Securities Act").
SEE "RISK FACTORS" (beginning on page 4) FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------------
The date of this Prospectus is November 19, 1996
<PAGE>
ADDITIONAL INFORMATION
Home Properties has filed with the Securities and Exchange Commission
(the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a
Registration Statement on Form S-3 under the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, with respect to the common stock offered pursuant to this
Prospectus. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect
to the Company and the Common Stock, reference is made to the Registration
Statement and such exhibits, copies of which may be examined without charge
at, or obtained upon payment of prescribed fees from, the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511.
Home Properties is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the locations described above.
Copies of such materials can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
Home Properties at http://www.sec.gov. In addition, the Common Stock is
listed on the New York Stock Exchange and similar information concerning
Home Properties can be inspected at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Home Properties furnishes its stockholders with annual reports
containing audited financial statements with a report thereon by its
independent public accountants.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed by Home Properties
under the Exchange Act with the Commission, are incorporated in this
Prospectus by reference: the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as amended by Form 10-K/A Amendment
No. 1 (File No. 1-13136), the Company's Quarterly Report on Form 10-Q for
the quarterly period ending March 31, 1996 (File No. 1-13136); the
Company's Current Report on Form 8-K dated September 14, 1995 as amended by
Form 8-K/A Amendment No. 1 and Amendment No. 2 (File No. 1-13136); the
Company's Current Report on Form 8-K dated January 1, 1996 as amended by
Form 8-K/A Amendment No. 1 (File No. 1-13136); the Company's Quarterly
Report on Form 10-Q for the quarterly period ending June 30, 1996 (File No.
1-13136) and all other reports filed by the Company pursuant to Section
13(a) or 15(d) of the Exchange Act since December 31, 1995.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior
to the filing of a post-effective amendment
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which indicates that all
securities offered hereby have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated by
references in and to be a part of this Prospectus from the date of filing
of such reports and documents (provided, however, that the information
referred to in Instruction 8 to Item 402(a)(3) of Regulation S-K
promulgated by the Securities and Exchange Commission is not incorporated
herein by reference).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in the Registration Statement containing this
Prospectus or in any other subsequently filed documents which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the written or
oral request of any such person, a copy of any and all of the documents
referred to above which have been or may be incorporated in this Prospectus
by reference, other than exhibits to those documents. Requests should be
directed to: David P. Gardner, Chief Financial Officer, Home Properties of
New York, Inc., 850 Clinton Square, Rochester, New York 14604 (716) 546-
4900.
THE COMPANY
AS USED IN THIS SECTION, THE TERMS "HOME PROPERTIES" AND "COMPANY",
INCLUDES HOME PROPERTIES OF NEW YORK, INC., A MARYLAND CORPORATION, HOME
PROPERTIES OF NEW YORK, L.P., A NEW YORK LIMITED PARTNERSHIP, AND THE
MANAGEMENT COMPANIES.
Home Properties of New York, Inc. is a self-administered, self-
managed, fully integrated real estate investment trust formed in November,
1993 to continue and expand the multifamily residential real estate
business of Home Leasing Corporation, which was organized in 1967. The
Company is one of the largest owners and operators of multifamily
residential properties in Upstate New York (based on the number of
apartment units) and the only publicly traded real estate investment trust
headquartered in the area. It recently combined its operations with those
of Conifer Realty, Inc. and its affiliates ("Conifer"), another large owner
and operator of multifamily properties throughout New York State.
Home Properties conducts substantially all of its business and owns
all of its properties through Home Properties of New York, L.P. (the
"Operating Partnership"). To comply with certain technical requirements of
the Internal Revenue Code of 1986, as amended (the "Code") applicable to
real estate investment trusts ("REITs"), the Operating Partnership carries
out portions of its property management and development activities through
management companies beneficially owned by the Operating Partnership but
controlled by one or more officers of Home Properties (collectively, the
"Management Companies").
-3-
Home Properties currently owns and manages 23 communities with 6,008
apartment units and one community containing 202 manufactured home sites.
The Company also holds general partner interests in an additional 3,368
apartment units and manages 1,363 apartment units and approximately 1.6
million square feet of commercial space for other owners (primarily
affiliates). The 10,739 total apartment units now owned and/or managed by
Home Properties are primarily located throughout New York State. The
Company is fully integrated with operations that include multifamily
acquisitions, development, redevelopment, management, marketing, finance,
leasing and asset management.
The Company's executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Its telephone number is (716) 546-4900.
RISK FACTORS
An investment in the Shares involves various risks. In addition to
general investment risks and those factors set forth elsewhere in this
Prospectus, prospective investors should consider, among other things, the
following factors:
DEPENDENCE ON UPSTATE NEW YORK REGION
A significant number of the properties owned and managed by the
Company (the "Properties") are located in the Upstate New York Region. At
June 30, 1996, 5,604 of the Company's owned multifamily units (or 90%) were
located in the Upstate New York Region. Accordingly, the Company's
performance is partially linked to economic conditions and the demand for
apartments in the Upstate New York Region. A decline in the economy in
this region generally may result in a decline in the demand for apartments
which may adversely affect the ability of the Company to make distributions
to stockholders.
DEBT FINANCING; NO LIMITATION ON DEBT
The Company is subject to the customary risks associated with debt
financing including the potential inability to refinance existing mortgage
indebtedness upon maturity on favorable terms. If a property is mortgaged
to secure payment of indebtedness and the Company is unable to make
mortgage payments, the property could be foreclosed upon with a consequent
loss of cash flow and asset value to the Company. In addition, the Company
funds acquisitions and development activities partially through short-term
borrowings. It expects to refinance any properties purchased with short-
term debt either with long-term debt or equity financing depending upon
economic conditions at the time of refinancing. The Board of Directors has
adopted a policy of limiting the Company's indebtedness to approximately
50% of its market capitalization (i.e., the market value of issued and
outstanding shares of Common Stock and Units plus total debt), but the
organizational documents of the Company do not contain any limitation on
the amount or percentage of indebtedness, funded or otherwise, the Company
may incur. Accordingly, the Board of Directors could alter or eliminate
its current policy on borrowing. If this policy were changed, the Company
could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's ability to make expected
distributions to its stockholders and an increased risk of default on the
Company's
-4-
indebtedness. At June 30, 1996, the ratio of the Company's
indebtedness to its market capitalization was 44.4%.
The Company has established its debt policy relative to the market
capitalization of the Company rather than to the book value of its assets,
a ratio that is frequently employed. The Company has used its market
capitalization because it believes that the book value of its assets (which
to a large extent is the depreciated value of real property, the Company's
primary tangible asset) does not accurately reflect its ability to borrow
and to meet debt service requirements. The market capitalization of the
Company, however, is more variable than book value and may not necessarily
reflect the fair market value of the underlying assets of the Company at
all times. Although the Company will consider factors other than market
capitalization in making decisions regarding the incurrence of indebtedness
(such as the estimated market value of such assets upon refinancing and the
ability of particular properties and the Company as a whole to generate
cash flow to cover expected debt service), there can be no assurance that
the amount of debt service will not impair the Company's ability to make
distributions to its stockholders.
FAILURE TO QUALIFY AS A REIT
Although the Company believes that it is organized and operated to
qualify as a real estate investment trust (a "REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"), no assurance can be given
that the Company will remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions
for which there are only limited judicial or administrative
interpretations. The complexity of these provisions and applicable
Treasury Regulations is also increased in the context of a REIT that holds
its assets in partnership form. The determination of various factual
matters and circumstances not entirely within the Company's control may
affect its ability to qualify as a REIT. In addition, no assurance can be
given that legislation, new regulations, administrative interpretations, or
court decisions will not significantly change the tax laws with respect to
the qualification as a REIT or the Federal income tax consequences of such
qualification; however, the Company is not aware of any proposal in
Congress to amend the tax laws that would materially and adversely affect
the Company's ability to operate as a REIT.
If in any taxable year the Company fails to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders
in computing its taxable income and would be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. As a result, the amount available for
distribution to the Company's shareholders would be reduced for the year or
years involved. In addition, unless entitled to relief under certain
statutory provisions, the Company would also be disqualified from treatment
as a REIT for the four taxable years following the year during which
qualification was lost.
DEPENDENCE OF THE COMPANY ON THE OPERATING PARTNERSHIP TO MAKE
DISTRIBUTIONS
The Company's sole material asset is its interest in the Operating
Partnership, and the Company's dividend policy is based on the Operating
Partnership's distribution policy. Even if the Operating Partnership makes
sufficient distributions to enable the Company to satisfy the
-5-
REIT distribution requirements described above, other priorities for
utilization of cash could reduce additional distributions by the
Operating Partnership to partners and, accordingly, the funds available
to the Company to pay dividends. In addition, the Operating Partnership
is likely to borrow funds to enable it to follow its distribution policy.
Borrowings to finance distributions will result in an increase in interest
expense for the Operating Partnership and a corresponding reduction in
the amount that the Operating Partnership would otherwise distribute to
its partners.
EFFECT OF DISTRIBUTION REQUIREMENTS
To maintain its qualification as a REIT, Home Properties must
distribute to its stockholders annually at least 95% of REIT taxable
income. Under certain circumstances, Home Properties may not have
sufficient cash or other liquid assets to meet this distribution
requirement. This could arise because of timing differences between income
recognition and cash receipts and disbursements (income may have to be
reported before cash is received, or expenses may have to be paid before a
deduction is allowed), and Home Properties could have taxable income
without sufficient cash to meet the REIT distribution requirements. The
Company also may face competing demands for its cash, such as expenditures
for future acquisitions or for improvements or repairs to the Properties.
In these situations, the funds necessary to meet the distribution
requirements or the other expenditures would have to be obtained, to the
extent available, primarily from cash flow, net proceeds from the issuance
of equity securities, the sale of existing properties, institutional
borrowings and the issuance of debt securities. In such instances, the
Company might need to borrow funds in order to avoid adverse tax
consequences even if management believed that the then prevailing interest
rates, terms and other market conditions were not generally favorable for
such borrowings or that such borrowings would not be advisable in the
absence of such tax considerations. No assurance can be given that
necessary funds will be available to allow Home Properties to meet the REIT
requirements or the Company's other obligations.
REAL ESTATE INVESTMENT CONSIDERATIONS
OCCUPANCY AND ABILITY OF RESIDENTS TO PAY RENT. The Company is
dependent on rental income to pay operating expenses and to generate cash
to enable Home Properties to make distributions to its stockholders. If
the Company is unable to attract and retain residents or if its residents
are unable, through an adverse change in the economic condition of the
region or otherwise, to pay their rental obligations, Home Properties'
ability to make expected distributions will be adversely affected.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively
illiquid and, therefore, the Company has limited ability to vary its
portfolio quickly in response to changes in economic or other conditions.
In addition, the prohibition in the Code on REITs holding property for sale
and related regulations may affect the Company's ability to sell properties
without adversely affecting distributions to Home Properties' stockholders.
COMPLIANCE WITH LAWS AND REGULATIONS. Many laws and governmental
regulations are applicable to the Properties and changes in these laws and
regulations, or their interpretation by agencies and the courts, occur
frequently. Under the Americans with Disabilities Act of 1990
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(the "ADA"), all places of public accommodation are required to meet certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. Compliance with the ADA requires
removal of structural barriers to handicapped access in certain public
areas of the Properties, where such removal is "readily achievable." The
ADA does not, however, consider residential properties, such as apartment
communities, to be public accommodations or commercial facilities, except
to the extent portions of such facilities, such as a leasing office, are
open to the public. A number of additional federal, state and local laws
exist which also may require modifications to the Properties, or restrict
certain further renovations thereof, with respect to access thereto by
disabled persons. For example, the Fair Housing Amendments Act of 1988
(the "FHAA") requires apartment communities first occupied after March 13,
1990 to be accessible to the handicapped. Non-compliance with the ADA or
the FHAA could result in the imposition of fines or an award of damages to
private litigants. Although management believes that the Properties are
substantially in compliance with present requirements, the Company may
incur additional costs in complying with the ADA for both existing
properties and properties acquired in the future. The Company believes
that the Properties that are subject to the FHAA are in compliance with
such laws.
Under the federal Fair Housing Act and state fair housing laws,
discrimination on the basis of certain protected classes is prohibited.
The Company has a policy against any kind of discriminatory behavior and
trains its employees to avoid discrimination or the appearance of
discrimination. There is no assurance, however, that an employee will not
violate the Company's policy against discrimination and violate the fair
housing laws. Such a violation could subject the Company to legal action
and the possible awards of damages.
Under various laws and regulations relating to the protection of the
environment, an owner of real estate may be held liable for the costs of
removal or remediation of certain hazardous or toxic substances located on
or in the property. These laws often impose liability without regard to
whether the owner was responsible for, or even knew of, the presence of
such substances. The presence of such substances may adversely affect the
owner's ability to rent or sell the property or use the property as
collateral. Independent environmental consultants conducted "Phase I"
environmental audits (which involve visual inspection but not soil or
groundwater analysis) of substantially all of the Properties owned by the
Company prior to their acquisition by the Company. The Phase I audit
reports did not reveal any significant issues of environmental concern, nor
is the Company aware of any environmental liability that management
believes would have a material adverse effect on the Company. One issue
raised by the Phase I audit reports was the existence in certain of the
Properties of asbestos that does not require remediation under current
conditions. There is no assurance that Phase I reports would reveal all
environmental liabilities or that environmental conditions not known to the
Company may exist now or in the future on existing properties or those
subsequently acquired which would result in liability to the Company for
remediation or fines, either under existing laws and regulations or future
changes to such requirements.
If compliance with the various laws and regulations, now existing or
hereafter adopted, exceeds the Company's budgets for such items, Home
Properties' ability to make expected distributions could be adversely
affected.
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COMPETITION IN THE COMPANY'S MARKETS. The Company plans to continue
to acquire additional multifamily residential properties in New York State
and may expand its activities into nearby states. There are a number of
multifamily developers and other real estate companies that compete with
the Company in seeking properties for acquisition, prospective residents
and land for development. Most of the Company's Properties are in
developed areas where there are other properties of the same type.
Competition from other properties may affect the Company's ability to
attract and retain residents, to increase rental rates and to minimize
expenses of operation. Virtually all of the leases for the Properties are
short-term leases (i.e., one year or less).
HAP CONTRACTS. Approximately 11% of the apartment units owned by the
Company are entitled to the benefits of Housing Assistance Payments
contracts ("HAP Contracts") with the U.S. Department of Housing and Urban
Development. The future of the HAP Contract program is uncertain. If the
HAP Contracts are not renewed by HUD or if the HAP Contract program is
terminated, there could be an adverse effect on cash flow of the Properties
affected. If any of the above occurred, Home Properties' ability to make
expected distributions to stockholders could be adversely affected.
UNINSURED LOSSES. Certain extraordinary losses may not be covered by
the Company's comprehensive liability, fire, extended and rental loss
insurance. If an uninsured loss occurred, the Company could lose its
investment in and cash flow from the affected Property (but would be
required to repay any indebtedness secured by that Property and related
taxes and other charges).
CAPITAL IMPROVEMENTS. The properties owned by the Company and which
it may acquire vary widely in age and require capital improvements
regularly. If the cost of improvements, whether required to attract and
retain residents or to comply with governmental requirements, substantially
exceed management's expectations, cash available for distribution to
stockholders would be reduced. The actual expenditures on capital
improvements by the Company has varied from property to property as the
Company has repositioned newly acquired properties. These expenditures
were within the expectations of management and taken into account in the
price paid for the units.
RISKS OF AFFILIATED PROPERTY MANAGEMENT BUSINESS. Almost all of the
properties managed by the Company pursuant to management contracts are
owned by affiliates of Home Leasing and Conifer. Although the management
contracts are generally for one to five years in most cases, these
contracts may be terminated by the owners at any time in the event the
property is sold or on 30 to 60 days' notice. Since these managed
properties are generally owned by limited partnerships of which Home
Leasing or Conifer is the general partner and in which various members of
management and their affiliates have significant ownership interests,
conflicts could arise in enforcement of the management contracts. Such
conflicts could arise with respect to liabilities incurred by the Company
as property manager which the owners are required to pay or indemnify the
Company against and which such owners are unable or unwilling to pay.
Conflicts of interest may also arise in connection with the property
owners' decisions to sell the properties or renegotiate the management
contracts. Any of these events could adversely affect the Company's
ability to make distributions to stockholders.
-8-
RISKS OF REAL ESTATE DEVELOPMENT AND GOVERNMENT ASSISTED MULTIFAMILY
HOUSING DEVELOPMENT ACTIVITIES. While the Company's primary focus is
currently on the acquisition of multifamily residential properties, it is
also a part of the Company's operating strategy to seek attractive
opportunities for development, primarily of government assisted properties.
All of the Company's development activities at June 30, 1996 related to
government-assisted multifamily residential properties. The real estate
development business involves significant risks in addition to those
involved in the ownership and operation of established properties,
including the risks that construction and long-term financing may not be
available on favorable terms and that construction may not be completed on
schedule or on budget resulting in increased debt service expense and
construction costs. A primary source of support for government assisted
multifamily housing is the federal "Low Income Housing Tax Credit" program
(the "Tax Credit Program"). The Tax Credit Program was included in the Tax
Reform Act of 1986 and was extended several times. The Tax Credit Program
may be subjected to a sunset provision effective in 1997. Even if this
occurs, management believes that Congress is likely to extend the Program
on an annual basis since it is the only large scale rental housing program
currently available to encourage the construction and operation of rental
housing for low and moderate income households. In addition, management
believes that there will continue to be a need for subsidized housing and
that various forms of government subsidy programs will be available,
although their format may change. From time to time, the Company plans to
make advances in connection with development projects.
LIMITS ON OWNERSHIP AND CHANGE OF CONTROL
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding stock of Home Properties may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of its taxable year.
Home Properties has limited ownership of the issued and outstanding Shares
by any single stockholder to 8.0% of the outstanding Shares. Norman and
Nelson Leenhouts will be permitted to acquire additional Shares, except to
the extent that such acquisition results in 50% or more in value of the
outstanding Common Stock of the Company being owned, directly or
indirectly, by five or fewer individuals. Although the Board of Directors
presently has no intention of doing so, the Board of Directors could waive
these restrictions if it were satisfied, based upon the advice of tax
counsel or otherwise, that such action would be in the best interests of
Home Properties. Shares acquired or transferred in breach of the
limitation may be redeemed by Home Properties for the lesser of the price
paid or the average closing price for the ten trading days immediately
preceding redemption or may be sold at the direction of the Company. A
transfer of Shares to a person who, as a result of the transfer, violates
the ownership limit will be void and the Shares will automatically be
converted into shares of Excess Stock. See "Description of Capital Stock -
- - Restrictions on Transfer" for additional information regarding the
ownership limits.
The Articles of Incorporation authorize the Board of Directors to
issue up to a total of thirty million Shares and ten million shares of
preferred stock and to establish the rights and preferences of any shares
issued. No shares of preferred stock are currently issued or outstanding.
Further, under the Articles of Incorporation, the stockholders do not have
cumulative voting rights.
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The percentage ownership limit, the issuance of preferred stock in the
future and the absence of cumulative voting rights could have the effect of
(i) delaying or preventing a change of control of Home Properties even if a
change in control were in stockholders' interest; (ii) deterring tender
offers for the Shares that may be beneficial to the stockholders; or
(iii) limiting the opportunity for stockholders to receive a premium for
their Shares that might otherwise exist if an investor attempted to
assemble a block of Shares in excess of the percentage ownership limit or
otherwise to effect a change of control of Home Properties.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Norman Leenhouts, Nelson Leenhouts and Richard Crossed, for
strategic business direction and their experience in the real estate
market. The loss of their services could have an adverse effect on the
operations of the Company. The Company does not have, and is not currently
contemplating obtaining, key man life insurance for its executive officers.
CONFLICTS OF INTEREST WITH RESPECT TO PROPERTY MANAGEMENT
Unlike persons acquiring Common Stock, the Company's executive
officers own most of their interest in the Company through Units of limited
partnership interest in the Operating Partnership. As a result of their
status as holders of Units, the executive officers and other limited
partners may have interests that conflict with stockholders with respect to
business decisions affecting the Company and the Operating Partnership. In
particular, certain executive officers may suffer different or more adverse
tax consequence than the Company upon the sale or refinancing of some of
the Properties as a result of unrealized gain attributable to certain
Properties. Thus, executive officers and the stockholders may have
different objectives regarding the appropriate pricing and timing of any
sale or refinancing of Properties. In addition, executive officers of the
Company, as limited partners of the Operating Partnership, have the right
to approve certain fundamental transactions such as the sale of all or
substantially all of the assets of the Operating Partnership, merger or
consolidation or dissolution of the Operating Partnership and certain
amendments to the Operating Partnership Agreement.
The Company manages multifamily residential properties through the
Operating Partnership and commercial and development properties and certain
multifamily residential properties through the Management Companies. As a
result, the Leenhoutses and other officers of and directors of the Company
will devote a significant portion of their business time and efforts to the
management of properties not owned by the Company.
Some officers of the Company have a significant interest in certain of
the managed properties as the only stockholders of Home Leasing or Conifer,
the general partners of the partnerships that own such managed properties
and as holders of other ownership interests. Accordingly, such officers
will have conflicts of interest between their fiduciary obligations to the
partnerships that own such managed properties and their fiduciary
obligations as officers and directors of the Company, particularly with
respect to the enforcement of the management contracts and timing of the
sale of the managed properties.
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In order to comply with technical requirements of the federal income
tax laws pertaining to the qualification of REITs, the Operating
Partnership owns all of the outstanding non-voting common stock (990
shares) of one of the Management Companies, Home Properties Management,
Inc., and Norman and Nelson Leenhouts own all of the outstanding voting
common stock (10 shares). The Operating Partnership also owns all of the
outstanding non-voting common stock (891 shares) of another of the
Management Companies, Conifer Realty Corporation, and Norman and Nelson
Leenhouts and Richard Crossed own all of the outstanding voting common
stock (9 shares). As a result, although the Company will receive
substantially all of the economic benefits of the business carried on by
the Management Companies through the Company's right to receive dividends,
the Company will not be able to elect directors and officers of the
Management Companies and, therefore, the Company's ability to cause
dividends to be declared or paid or influence the day-to-day operations of
the Management Companies will be limited. Furthermore, although the
Company will receive a management fee for managing the managed properties,
this fee has not been negotiated at arm's length and may not represent a
fair price for the services rendered.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public
market or the perception that such sales might occur could adversely affect
the market price of the Common Stock. The Operating Partnership has issued
an aggregate of 1,203,019 Units through June 30, 1996 to persons other than
the Company which may be exchanged on a one-for-one basis for shares of
Common Stock under certain circumstances. In addition, as of June 30,
1996, Home Properties has granted options to purchase an aggregate of
629,632 shares of Common Stock to certain directors, officers and employees
of the Company.
All of the Shares issuable upon the exercise of options will be
"restricted securities" within the meaning of Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), and may not be transferred
unless they are registered under the Securities Act or are otherwise
transferrable under Rule 144. The Company expects to file a registration
statement with respect to such shares of Common Stock, thereby allowing
shares issuable under the Company's Stock Benefit Plans to be transferred
or resold without restriction under the Securities Act, unless held by
directors, executive officers or other affiliates of Home Properties.
In addition to the limits placed on the sale of "restricted
securities" by operation of Rule 144 and other provisions of the Securities
Act, Norman and Nelson Leenhouts have agreed not to dispose of their shares
for a five-year period ending on August 4, 1999, and the other directors
and executive officers of the Company have agreed not to dispose of any of
their Shares for differing periods in each case, subject to certain
exceptions which include the ability to pledge their securities as
collateral for loans provided the pledgee is subject to the same
restrictions on disposition.
USE OF PROCEEDS
The Company will not receive any cash proceeds as a result of this
offering. The Company will, however, acquire additional partnership units
in the Operating Partnership in
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exchange for the shares of Common Stock issued to the Selling Shareholders
which are being sold hereunder. See "Selling Shareholders" below.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Home Properties consists of 30 million
shares of Common Stock, par value $.01 per share ("Common Stock"),
10 million shares of excess stock ("Excess Stock"), par value $.01 per
share, and 10 million shares of preferred stock ("Preferred Stock"), par
value $.01 per share. The following summary description of the Common
Stock sets forth certain general terms and conditions of the capital stock
of Home Properties. The descriptions below do not purport to be complete
and are qualified entirely by reference to Home Properties' Articles of
Amendment and Restatement of Articles of Incorporation, as amended
("Articles of Incorporation").
COMMON STOCK
All shares of Common Stock offered will be duly authorized, fully
paid, and nonassessable. Holders of the Common Stock will have no
conversion, redemption, sinking fund or preemptive rights; however, shares
of Common Stock will automatically convert into shares of Excess Stock as
described below. Under the Maryland General Corporation Law ("MGCL"),
stockholders are generally not liable for Home Properties' debts or
obligations, and the holders of shares will not be liable for further calls
or assessments by Home Properties. Subject to the provisions of Home
Properties' Articles of Incorporation regarding Excess Stock described
below, all shares of Common Stock have equal dividend, distribution,
liquidation and other rights and will have no preference or exchange
rights.
Subject to the right of any holders of Preferred Stock to receive
preferential distributions, the holders of the shares of Common Stock will
be entitled to receive distributions in the form of dividends if and when
declared by the Board of Directors of Home Properties out of funds legally
available therefor, and, upon liquidation of Home Properties, each
outstanding share of Common Stock will be entitled to participate pro rata
in the assets remaining after payment of, or adequate provision for, all
known debts and liabilities of Home Properties, including debts and
liabilities arising out of its status as general partner of the Operating
Partnership, and any liquidation preference of issued and outstanding
Preferred Stock. Home Properties intends to continue paying quarterly
distributions.
The holder of each outstanding share of Common Stock will be entitled
to one vote on all matters presented to stockholders for a vote, subject to
the provisions of Home Properties' Articles of Incorporation regarding
Excess Stock described below. As described below, the Board of Directors
of Home Properties may, in the future, grant holders of one or more series
of Preferred Stock the right to vote with respect to certain matters when
it fixes the attributes of such series of Preferred Stock. Pursuant to the
MGCL, Home Properties cannot dissolve, amend its charter, merge with
another entity, sell all or substantially all its assets, engage in a share
exchange or engage in similar transactions unless such action is approved
by stockholders
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holding a majority of the outstanding shares entitled to
vote on such matter. In addition, the Amended and Restated Partnership
Agreement of the Operating Partnership (the "Partnership Agreement")
requires that any merger or sale of all or substantially all of the assets
of Operating Partnership be approved by partners holding a majority of the
outstanding Units, excluding Operating Partnership Units held by Home
Properties. Home Properties' Articles of Incorporation provide that its
Bylaws may be amended by its Board of Directors.
The holder of each outstanding share of Common Stock will be entitled
to one vote in the election of directors who serve for terms of one year.
Holders of the shares of Common Stock will have no right to cumulative
voting for the election of directors. Consequently, at each annual meeting
of stockholders, the holders of a majority of the shares entitled to vote
in the election of directors will be able to elect all of the directors.
Directors may be removed only for cause and only with the affirmative vote
of the holders of a majority of the shares entitled to vote in the election
of directors.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors of Home Properties. The
Board of Directors will fix the attributes of any Preferred Stock that it
authorizes for issuance. Because the Board of Directors has the power to
establish the preferences and rights of each series of Preferred Stock, it
may afford the holders of any series of Preferred Stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of shares
of Common Stock. The issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of Home Properties.
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of Home Properties, then, before any distribution or
payment shall be made to the holders of any shares of Common Stock, any
Excess Shares or any other class or series of capital stock of Home
Properties ranking junior to any outstanding Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of
Home Properties, the holders of shares of each series of Preferred Stock
shall be entitled to receive out of assets of Home Properties legally
available for distribution to shareholders liquidating distributions in the
amount of the liquidation preference per share, plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if
such shares of Preferred Stock do not have cumulative dividend). After
payment of the full amount of the liquidating distributions to which they
are entitled, the holders of shares of Preferred Stock will have no right
or claim to any of the remaining assets of Home Properties. In the event
that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of Home Properties are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of
other classes or series of capital stock of Home Properties ranking on a
parity with such shares of Preferred Stock in the distribution of assets,
then the holders of such shares of Preferred Stock and all other such
classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
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RESTRICTIONS ON TRANSFER
Ownership Limits. Home Properties' Articles of Incorporation contain
certain restrictions on the number of shares of capital stock that
stockholders may own. For Home Properties to qualify as a REIT under the
Code, no more than 50% in value of its outstanding shares of capital stock
may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year or during a proportionate part of a shorter taxable year. The
capital stock must also be beneficially owned by 100 or more persons during
at least 335 days of a taxable year or during a proportionate part of a
shorter taxable year. Because Home Properties expects to continue to
qualify as a REIT, its Articles of Incorporation contain restrictions on
the ownership and transfer of shares of its capital stock intended to
ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of
Incorporation, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 8.0% (the "Ownership Limit")
of the value of the issued and outstanding shares of capital stock of Home
Properties. Stockholders ("Existing Holders") whose holdings exceeded the
Ownership Limit immediately after Home Properties' initial public offering
of its Common Stock, assuming that all Units of the Operating Partnership
are counted as shares of Common Stock, are permitted to continue to hold
the number of shares they held on such date and may acquire additional
shares of capital stock upon (i) the exchange of Units for Shares, (ii) the
exercise of stock options or receipt of grants of shares of capital stock
pursuant to a stock benefit plan, (iii) the acquisition of shares of
capital stock pursuant to a dividend reinvestment plan, (iv) the transfer
of shares of capital stock from another Existing Holder or the estate of an
Existing Holder by devise, gift or otherwise, or (v) the foreclosure on a
pledge of shares of capital stock; provided, no such acquisition may cause
any Existing Holder to own, directly or by attribution, more than 17.5%
(the "Existing Holder Limit") of the issued and outstanding Shares, subject
to certain additional restrictions. The Board of Directors of Home
Properties may increase or decrease the Ownership Limit and Existing Holder
Limit from time to time, but may not do so to the extent that after giving
effect to such increase or decrease (i) five beneficial owners of Shares
could beneficially own in the aggregate more than 49.5% of the aggregate
value of the outstanding capital stock of Home Properties or (ii) any
beneficial owner of capital stock would violate the Ownership Limit or
Existing Holder Limit as a result of a decrease. The Board of Directors
may waive the Ownership Limit or the Existing Holder Limit with respect to
a holder if such holder provides evidence acceptable to the Board of
Directors that such holder's ownership will not jeopardize Home Properties'
status as a REIT.
Any transfer of outstanding capital stock of Home Properties
("Outstanding Stock") that would (i) cause any holder, directly or by
attribution, to own capital stock having a value in excess of the Ownership
Limit or Existing Holder Limit, (ii) result in shares of capital stock
other than Excess Stock, if any, to be owned by fewer than 100 persons,
(iii) result in Home Properties being closely held within the meaning of
section 856(h) of the Code, or (iv) otherwise prevent Home Properties from
satisfying any criteria necessary for it to qualify as a REIT, is null and
void, and the purported transferee acquires no rights to such Outstanding
Stock.
Outstanding Stock owned by or attributable to a stockholder or shares
of Outstanding Stock purportedly transferred to a stockholder which cause
such stockholder or any other
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stockholder to own shares of capital stock in
excess of the Ownership Limit or Existing Holder Limit will automatically
convert into shares of Excess Stock. Such Excess Stock will be transferred
by operation of law to a separate trust, with Home Properties acting as
trustee, for the exclusive benefit of the person or persons to whom such
Outstanding Stock may be ultimately transferred without violating the
Ownership Limit or Existing Holder Limit. Excess Stock is not treasury
stock, but rather constitutes a separate class of issued and outstanding
stock of Home Properties. While the Excess Stock is held in trust, it will
not be entitled to vote, will not be considered for purposes of any
stockholder vote or the determination of a quorum for such vote and will
not be entitled to participate in dividends or other distributions. Any
record owner or purported transferee of Outstanding Stock which has
converted into Excess Stock (the "Excess Holder") who receives a dividend
or distribution prior to the discovery by Home Properties that such
Outstanding Stock has been converted into Excess Stock must repay such
dividend or distribution upon demand. While Excess Stock is held in trust,
Home Properties will have the right to purchase it from the trust for the
lesser of (i) the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding
Stock on the date of conversion if no consideration was given for the
Outstanding Stock) or (ii) the market price of shares of capital stock
equivalent to the Outstanding Stock which converted into Excess Stock (as
determined in the manner set forth in the Articles of Incorporation) on the
date Home Properties exercises its option to purchase. Home Properties
must exercise this right within the 90-day period beginning on the date on
which it receives written notice of the transfer or other event resulting
in the conversion of Outstanding Stock into Excess Stock. Upon the
liquidation of Home Properties, distributions will be made with respect to
such Excess Stock as if it consisted of the Outstanding Stock from which it
was converted.
Any Excess Holder, with respect to each trust created upon the
conversion of Outstanding Stock into Excess Stock, may designate any
individual as a beneficiary of such trust; provided, such person would be
permitted to own the Outstanding Stock which converted into the Excess
Stock held by the trust under the Ownership Limit or Existing Holder Limit
and the consideration paid to such Excess Holder in exchange for
designating such person as the beneficiary is not in excess of the price
paid for the Outstanding Stock which converted into Excess Stock by the
Excess Holder (or the market value of the Outstanding Stock on the date of
conversion if no consideration was given for the Outstanding Stock). Home
Properties' redemption right must have expired or been waived prior to such
designation. Immediately upon the designation of a permitted beneficiary,
the Excess Stock, if any, will automatically convert into shares of the
Outstanding Stock from which it was converted and Home Properties as
trustee of the trust will transfer such shares, if any, and any proceeds
from redemption or liquidation to the beneficiary.
If the restrictions on ownership and transfer, conversion provisions
or trust arrangements in Home Properties' Articles of Incorporation are
determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the Excess Holder of any Outstanding Stock that
would have converted into shares of Excess Stock if the conversion
provisions of the Articles of Incorporation were enforceable and valid
shall be deemed to have acted as an agent on behalf of Home Properties in
acquiring such Outstanding Stock and to hold such Outstanding Stock on
behalf of Home Properties unless Home Properties waives its right to this
remedy.
-15-
The foregoing ownership and transfer limitations may have the effect
of precluding acquisition of control of Home Properties without the consent
of its Board of Directors. All certificates representing shares of capital
stock will bear a legend referring to the restrictions described above.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines, and the stockholders concur, that it
is no longer in the best interests of Home Properties to attempt to
qualify, or to continue to qualify, as a REIT. Approval of the limited
partners of the Operating Partnership to terminate REIT status is also
required.
Ownership Reports. Every owner of more than 5% of the issued and
outstanding shares of capital stock of Home Properties must file a written
notice with Home Properties containing the information specified in the
Articles of Incorporation no later than January 31 of each year. In
addition, each stockholder shall, upon demand, be required to disclose to
Home Properties in writing such information as Home Properties may request
in order to determine the effect of such stockholder's direct, indirect and
attributed ownership of shares of capital stock on Home Properties' status
as a REIT or to comply with any requirements of any taxing authority or
other governmental agency.
CERTAIN OTHER PROVISIONS OF MARYLAND LAW AND CHARTER DOCUMENTS
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN PROVISIONS OF MGCL AND
HOME PROPERTIES' ARTICLES OF INCORPORATION AND BYLAWS. THIS SUMMARY DOES
NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE ARTICLES OF INCORPORATION AND BYLAWS, COPIES OF WHICH
ARE FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS CONSTITUTES A PART. SEE "ADDITIONAL INFORMATION."
Limitation of Liability and Indemnification. The Articles of
Incorporation and Bylaws limit the liability of directors and officers to
Home Properties and its stockholders to the fullest extent permitted from
time to time by the MGCL and require Home Properties to indemnify its
directors, officers and certain other parties to the fullest extent
permitted from time to time by the MGCL.
Business Combinations. Under the MGCL, certain "business
combinations" (including a merger, consolidation, share exchange or, in
certain circumstances, an asset transfer or issuance or reclassification of
equity securities) between a Maryland corporation and any person who
beneficially owns 10% or more of the voting power of the outstanding voting
stock of the corporation or an affiliate or associate of the corporation
who, at any time within the two-year period immediately prior to the date
in question, was the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then-outstanding voting stock of the
corporation (an "Interested Stockholder") or an affiliate thereof, are
prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder. Thereafter, in
addition to any other required vote, any such business combination must be
recommended by the board of directors of such corporation and approved by
the affirmative vote of at least (i) 80% of the votes entitled to be cast
by holders of outstanding shares of voting stock of the corporation, voting
together as a single voting group, and (ii) two-thirds of the votes
entitled to be cast by holders of voting stock of the corporation (other
than voting stock held by the Interested Stockholder who will, or whose
affiliate will, be a party to the business combination
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or by an affiliate or associate of the Interested Stockholder) voting
together as a single voting group. The extraordinary voting provisions
do not apply if, among other things, the corporation's stockholders receive
a price for their shares determined in accordance with the MGCL and the
consideration is received in cash or in the same form as previously paid by
the Interested Stockholder for its shares. These provisions of the MGCL do
not apply, however, to business combinations that are approved or exempted
by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. The Articles of
Incorporation of Home Properties contain a provision exempting from these
provisions of the MGCL any business combination involving the Leenhoutses
(or their affiliates) or any other person acting in concert or as a group
with any of the foregoing persons.
Control Share Acquisitions. The MGCL provides that "control shares"
of a Maryland corporation acquired in a "control share acquisition" have no
voting rights except to the extent approved by the affirmative vote of
two-thirds of the votes entitled to be cast on the matter other than
"interested shares" (shares of stock in respect of which any of the
following persons is entitled to exercise or direct the exercise of the
voting power of shares of stock of the corporation in the election of
directors: an "acquiring person," an officer of the corporation or an
employee of the corporation who is also a director). "Control shares" are
shares of stock which, if aggregated with all other such shares of stock
owned by the acquiring person, or in respect of which such person is
entitled to exercise or direct the exercise of voting power of shares of
stock of the corporation in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority, or (iii) a majority of
more of all voting power. Control shares do not include shares the
acquiring person is entitled to vote as a result of having previously
obtained stockholder approval. The control share acquisition statute does
not apply to shares acquired in a merger, consolidation or share exchange
if the corporation is a party to the transaction, or to acquisitions
approved or exempted by the charter or bylaws of the corporation.
A person who has made or proposes to make a control share acquisition,
under certain conditions (including an undertaking to pay expenses), may
compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the
control shares upon delivery of an acquiring person statement containing
certain information required by the MGCL, including a representation that
the acquiring person has the financial capacity to make the proposed
control share acquisition, and a written undertaking to pay the
corporation's expenses of the special meeting (other than the expenses of
those opposing approval of the voting rights). If no request for a meeting
is made, the corporation may itself present the question at any
stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
MGCL, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value, determined without
regard to the absence of voting rights for control shares, as of the date
of the last control share acquisition or, if a stockholder meeting is held,
as of the date of the meeting of stockholders at which the voting rights of
such shares are considered and not approved. If voting rights for control
shares are approved at a stockholders' meeting before the control share
acquisition and the acquiring person becomes entitled to exercise or direct
the exercise of a majority or more
-17-
of all voting power, all other stockholders may exercise rights of objecting
shareholders under Maryland law to receive the fair value of their Shares.
The fair value of the Shares for such purposes may not be less than the
highest price per share paid by the acquiring person in the control share
acquisition. Certain limitations and restrictions otherwise applicable to
he exercise of objecting shareholders' rights do not apply in the context of
a control share acquisition.
The Articles of Incorporation contain a provision exempting from the
control share acquisition statute any and all acquisitions to the extent
that such acquisitions would not violate the Ownership Limit or Existing
Owner Limit. There can be no assurance that such provision will not be
amended or eliminated at any point in the future.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following discussion summarizes certain federal income tax
considerations that may be relevant to a prospective holder of shares of
Common Stock. Nixon, Hargrave, Devans & Doyle LLP has acted as tax counsel
to Home Properties in connection with its formation and its election to be
taxed as a REIT, has reviewed the following discussion and is of the
opinion that it fairly summarizes the federal income tax considerations
that are likely to be material to a holder of Shares. The following
discussion is not exhaustive of all possible tax considerations and does
not give a detailed discussion of any state, local or foreign tax
considerations. This discussion does not address all of the aspects of
federal income taxation that may be relevant to stockholders in light of
their particular circumstances or to certain types of stockholders subject
to special treatment under the federal income tax laws (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States).
This discussion contains a general summary of certain Code sections
that govern the federal income tax treatment of a REIT and its
stockholders. These sections of the Code are highly technical and complex.
This summary is qualified in its entirety by the applicable Code
provisions, the Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof. Home Properties has
not sought or obtained any ruling from the Internal Revenue Service or any
opinions of counsel specifically related to the tax matters described
below.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF COMMON STOCK AND THE ELECTION BY
HOME PROPERTIES TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
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TAXATION OF HOME PROPERTIES AS A REIT
Home Properties has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ending December
31, 1994. Home Properties believes that, it is organized and operates in
such a manner as to qualify for taxation as a REIT under the Code, and Home
Properties intends to continue to operate in such a manner. No assurance,
however, can be given that Home Properties has operated or will operate in
a manner so as to qualify or remain qualified as a REIT.
In the opinion of Nixon, Hargrave, Devans & Doyle LLP, commencing with
Home Properties' taxable year ending December 31, 1994, Home Properties was
organized in conformity with the requirements for qualification as a REIT,
and its method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based
on certain assumptions and is conditioned upon certain representations made
by Home Properties as to certain factual matters relating to Home
Properties' organization, manner of operation, income and assets. Nixon,
Hargrave, Devans & Doyle LLP is not aware of any facts or circumstances
that are inconsistent with these assumptions and representations. Home
Properties' qualification and taxation as a REIT will depend upon Home
Properties' satisfaction of the requirements necessary to be classified as
a REIT, discussed below, on a continuing basis. Nixon, Hargrave, Devans &
Doyle LLP will not review compliance with these tests on a continuing
basis. Therefore, no assurance can be given that Home Properties will
satisfy such tests on a continuing basis. See "- Requirements for
Qualification - FAILURE TO QUALIFY" below.
If Home Properties qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on net income that it
currently distributes to its stockholders. This treatment substantially
eliminates the "double taxation" (at the corporate and stockholder levels)
that generally results from investment in a regular corporation. However,
Home Properties will be subject to federal income tax in the following
circumstances. First, Home Properties will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, Home Properties may be
subject to the "alternative minimum tax" on its items of tax preference.
Third, if Home Properties has (i) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property
acquired by Home Properties by foreclosure or otherwise on default on a
loan secured by the property) which is held primarily for sale to customers
in the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if Home Properties has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily
for sale to customers in the ordinary course of business), such income will
be subject to a 100% tax. Fifth, if Home Properties should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed in
"Requirements for Qualification - INCOME TESTS" below), and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which Home Properties fails
the 75% or 95% test, multiplied by a fraction intended to reflect Home
Properties' profitability. Sixth, if Home Properties should fail to
distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT
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capital gain net income for such year, and (iii) any undistributed taxable
income from prior years, Home Properties would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. Seventh, if Home Properties disposes of any asset acquired from
a C corporation (I.E., a corporation generally subject to full corporate
level tax) in a transaction in which the basis of the asset in Home
Properties' hands is determined by reference to the basis of the asset (or
any other property) in the hands of the C corporation, and Home Properties
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by the Company, then,
to the extent of such property's "built-in" gain (the excess of the fair
market value of such property at the time of acquisition by Home Properties
over the adjusted basis in such property at such time), such gain will be
subject to tax at the highest regular corporate rate applicable.
REQUIREMENTS FOR QUALIFICATION.
GENERALLY. To qualify as a REIT, an entity must be a corporation,
trust or association: (1) which is managed by one or more trustees or
directors; (2) the beneficial ownership of which is evidenced by
transferable shares or by transferable certificates of beneficial interest;
(3) which would be taxable as a domestic corporation but for Sections 856
through 859 of the Code; (4) which is neither a financial institution nor
an insurance company subject to certain provisions of the Code; (5) the
beneficial ownership of which is held by 100 or more persons; (6) during
the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and
(7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months.
Electing REIT treatment requires that the entity adopt a calendar year
accounting period.
Home Properties satisfies the requirements set forth above. In
addition, Home Properties' Articles of Incorporation provide restrictions
regarding the transfer of its shares that are intended to assist Home
Properties in continuing to satisfy the share ownership requirements
described in (5) and (6) above. See "Description of Capital Stock -
Restrictions on Transfer."
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share
of the assets of the partnership and is deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character
of the assets and gross income of the partnership retain the same character
in the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and asset tests. Thus, Home Properties'
proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the partnerships, if any, in which the Operating
Partnership will have an interest will be treated as assets, liabilities
and items of Home Properties for purposes of applying the requirements
described herein.
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INCOME TESTS. In order to maintain qualification as a REIT, there are
three gross income requirements that must be satisfied annually. First, at
least 75% of the REIT's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments.
Second, at least 95% of the REIT's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from
such real property investments, and from dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of
the foregoing. Third, short-term gain from the sale or other disposition
of stock or securities, gain from prohibited transactions and gain on the
sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the REIT's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by Home Properties will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described
above only if several conditions are met. First, the amount of rent must
not be based in whole or in part on the income or profits of any person.
However, an amount received or accrued generally will not be excluded from
the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts of sales. Second, the Code
provides that rents received from a resident will not qualify as "rents
from real property" in satisfying the gross income tests if the Company, or
an owner of 10% or more of the Company, directly or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property, leased in connection with a lease of
real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will
not qualify as "rents from real property." Finally, for rents received to
qualify as "rents from real property," Home Properties generally must not
operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" who is adequately
compensated and from whom Home Properties derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by Home Properties are "usually or customarily
rendered" in connection with the rental of space for occupancy only (such
as furnishing water, heat, light and air conditioning, and cleaning
windows, public entrances and lobbies) and are not otherwise considered
"rendered to the occupant."
It is expected that Home Properties' real estate investments will
continue to give rise to income that will enable it to satisfy all of the
income tests described above. Substantially all of Home Properties' income
will be derived from its interest in the Operating Partnership, which will,
for the most part, qualify as "rents from real property" for purposes of
the 75% and the 95% gross income tests.
The Operating Partnership does not and does not anticipate charging
more than a de minimis amount of rent that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above). The Operating
Partnership does not anticipate receiving rents in excess of a de minimis
amount from Related Party Tenants. The Operating Partnership does not
anticipate holding a lease on any property in which rents attributable to
personal property constitute greater than 15% of the total rents received
under the lease. Neither Home Properties nor the Operating Partnership
will
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knowingly directly perform services considered to be rendered to the
occupant of property. The Operating Partnership will perform all
development, construction and leasing services for, and will operate and
manage, the properties owned by it directly without using an "independent
contractor." Management believes that the only material services to be
provided to lessees of these properties will be those usually or
customarily rendered in connection with the rental of space for occupancy
only. Home Properties does not anticipate that the Operating Partnership
will provide services that might be considered rendered primarily for the
convenience of the occupants of the property.
The Operating Partnership owns all of the non-voting common stock of
the Management Companies, corporations that are taxable as regular
corporations. The Management Companies will perform management,
development, construction and leasing services for certain properties not
owned by the Company. The income earned by and taxed to the Management
Companies would be nonqualifying income if earned by Home Properties
through the Operating Partnership. As a result of the corporate structure,
the income will be earned by and taxed to the Management Companies and will
be received by the Operating Partnership only indirectly as dividends that
qualify under the 95% test.
If Home Properties fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a
REIT for such year if it is entitled to relief under certain provisions of
the Code. These relief provisions generally will be available if Home
Properties' failure to meet such tests was due to reasonable cause and not
due to willful neglect, Home Properties attaches a schedule of the sources
of its income to its return, and any income information on the schedules
was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Home Properties would be
entitled to the benefit of these relief provisions. As discussed above in
"GENERALLY," even if these relief provisions apply, a tax would be imposed
with respect to the excess net income. No similar mitigation provision
applies to provide relief if the 30% income test is failed, and in such
case, Home Properties would cease to qualify as a REIT. See "FAILURE TO
QUALIFY" below.
ASSET TESTS. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of Home Properties' total assets must be
represented by real estate assets, cash and cash items (including
receivables) and government securities. For this purpose real estate
assets include (i) Home Properties' allocable share of real estate assets
held by the Operating Partnership and partnerships in which the Operating
Partnership owns an interest or held by "qualified REIT subsidiaries" of
Home Properties and (ii) stock or debt instruments held for not more than
one year purchased with the proceeds of a stock offering or long-term (at
least five-year) debt offering of the Company. Second, not more than 25%
of Home Properties' total assets may be represented by securities other
than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by Home
Properties may not exceed 5% of the value of Home Properties' total assets,
and Home Properties may not own more than 10% of any one issuer's
outstanding voting securities (excluding securities of a qualified REIT
subsidiary or another REIT).
Home Properties anticipates that it will continue to be able to comply
with these asset tests. Home Properties is deemed to hold directly its
proportionate share of all real estate and
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other assets of the Operating Partnership and should be considered to
hold its proportionate share of all assets deemed owned by the Operating
Partnership through its ownership of partnership interests in other
partnerships. As a result, Home Properties plans to hold more than 75%
of its assets as real estate assets. In addition, Home Properties does not
plan to hold any securities representing more than 10% of any one issuer's
voting securities, other than any qualified REIT subsidiary, nor securities
of any one issuer exceeding 5% of the value of Home Properties' gross assets
(determined in accordance with generally accepted accounting principles).
As previously discussed, Home Properties is deemed to own its proportionate
share of the assets of a partnership in which it is a partner so that the
partnership interest, itself, is not a security for purposes of this asset
test.
The Operating Partnership owns all of the nonvoting common stock of
the Management Companies. The Operating Partnership does not own any of
the voting securities of the Management Companies. Management believes
that Home Properties' interest in the securities of the Management
Companies through the Operating Partnership does not exceed 5% of the total
value of Home Properties' assets. No independent appraisals have been
obtained. Counsel, in rendering its opinion as to the qualification of
Home Properties as a REIT, is relying on the conclusions of management
regarding the value of such securities of the Management Companies.
After initially meeting the asset tests at the close of any quarter,
Home Properties will not lose its status as a REIT for failure to satisfy
the asset tests at the end of a later quarter solely by reason of changes
in asset values. If the failure to satisfy the asset tests results from an
acquisition of securities or other property during a quarter, the failure
can be cured by disposition of sufficient nonqualifying assets within 30
days after the close of that quarter. Home Properties intends to maintain
adequate records of the value of its assets to ensure compliance with the
asset tests, and to take such other action within 30 days after the close
of any quarter as may be required to cure any noncompliance. However,
there can be no assurance that such other action will always be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as
a REIT, is required to distribute dividends (other than capital gain
dividends) to its stockholders in an amount at least equal to (a) the sum
of (i) 95% of Home Properties' "REIT taxable income" (computed without
regard to the dividends paid deduction and the REIT's net capital gain) and
(ii) 95% of the net income (after tax), if any, from foreclosure property,
minus (b) the sum of certain items of noncash income. Such distributions
must be paid in the taxable year to which they relate, or in the following
taxable year if declared before Home Properties timely files its tax return
for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that Home Properties does not
distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax on the undistributed amount at regular capital gains and
ordinary corporate tax rates. Furthermore, if Home Properties should fail
to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year; (ii) 95% of its REIT capital gain
income for such year, and (iii) any undistributed taxable income from prior
periods, Home Properties would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed.
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Home Properties intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this
regard, the Partnership Agreement of the Operating Partnership authorizes
the Company, as general partner, to take such steps as may be necessary to
cause the Operating Partnership to distribute to its partners an amount
sufficient to permit Home Properties to meet these distribution
requirements. It is possible, however, that the Company, from time to
time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due to timing differences between the actual
receipt of income and actual payment of deductible expenses and the
inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company, or if the amount of nondeductible expenses
such as principal amortization or capital expenditures exceed the amount of
noncash deductions. In the event that such timing differences occur, in
order to meet the 95% distribution requirement, Home Properties may cause
the Operating Partnership to arrange for short-term, or possibly long-term,
borrowing to permit the payment of required dividends. If the amount of
nondeductible expenses exceeds noncash deductions, the Operating
Partnership may refinance its indebtedness to reduce principal payments and
borrow funds for capital expenditures.
Under certain circumstances, Home Properties may be able to rectify a
failure to meet the distribution requirement for a year by paying
"deficiency dividends" to stockholders in a later year that may be included
in Home Properties' deduction for dividends paid for the earlier year.
Thus, Home Properties may be able to avoid being taxed on amounts
distributed as deficiency dividends; however, Home Properties will be
required to pay interest to the IRS based upon the amount of any deduction
taken for deficiency dividends.
FAILURE TO QUALIFY. If Home Properties fails to qualify for taxation
as a REIT in any taxable year and the relief provisions do not apply, Home
Properties will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates.
Distributions to stockholders in any year in which Home Properties fails to
qualify will not be deductible by the Company, nor will they be required to
be made. In such event, to the extent of current and accumulated earnings
and profits, distributions to stockholders will be taxable as ordinary
income to the extent of current and accumulated earnings and profits, and,
subject to certain limitations in the Code, corporate distributees may be
eligible to claim the dividends received deduction. Unless entitled to
relief under specific statutory provisions, Home Properties also will be
disqualified from taxation as a REIT for the four taxable years following
the year during which qualification was lost. If is not possible to state
whether in all circumstances Home Properties would be entitled to such
statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as Home Properties
qualifies as a REIT, distributions made to Home Properties' taxable
domestic stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account
by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed Home Properties' actual net capital gain for the
taxable year) without regard to the period for which the stockholder has
held its stock. However, corporate stockholders may be required to treat
up to 20% of certain capital gain
-24-
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a stockholder's shares, they
will be included in income as long-term capital gain (or short-term capital
gain if the shares have been held for one year or less), assuming the shares
are a capital asset in the hands of the stockholder. In addition, any
dividend declared by Home Properties in October, November or December of any
year payable to a stockholder of record on a specific date in any such month
shall be treated as both paid by Home Properties and received by the
stockholder on December 31 of such year, provided that the dividend is
actually paid by Home Properties during January of the following calendar
year. Stockholders may not include in their individual income tax returns
any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss
to the extent of distributions from Home Properties required to be treated
by such stockholder as long-term capital gain.
Distributions from Home Properties and gain from the disposition of
shares will not ordinarily be treated as passive activity income, and
therefore, stockholders generally will not be able to apply any "passive
losses" against such income. Dividends from Home Properties (to the extent
they do not constitute a return of capital) and gain from the disposition
of shares generally will be treated as investment income for purposes of
the investment interest limitation.
Home Properties will report to its domestic stockholders and the IRS
the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any, with respect thereto. Under the backup withholding
rules, a stockholder may be subject to backup withholding at the rate of
31% with respect to dividends paid unless such holder (a) is a corporation
or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide Home Properties with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, Home Properties may be
required to withhold a portion of capital gain distributions made to any
stockholders who fail to certify their non-foreign status to the Company.
See "TAXATION OF FOREIGN STOCKHOLDERS" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. The IRS has ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not
constitute "unrelated business taxable income" ("UBTI"). Although rulings
are merely interpretations of law by the IRS and may be revoked or
modified, based upon this ruling and the analysis therein, distributions by
Home Properties to a stockholder that is a tax-exempt entity should also
not constitute UBTI, provided that the tax-exempt entity has not financed
the acquisition of shares of Common Stock with "acquisition indebtedness"
within the meaning of the Code and the shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity.
-25-
Congress has enacted legislation which includes a provision that
requires qualified trusts that hold more than 10% (by value) of the
interests in a REIT to treat a percentage of REIT dividends as UBTI. The
requirement applies only if (i) the qualification of the REIT depends upon
the application of a "look-through" exception to the restriction on REIT
stockholdings by five or fewer individuals, including qualified trusts (see
"Description of Capital Stock - Restrictions on Transfer"), and (ii) the
REIT is "predominantly held" by qualified trusts. The qualification of
Home Properties as a REIT currently does not depend upon application of the
"look-through" exception and Home Properties currently is not
"predominantly held" by qualified trusts.
INCOME TAXATION OF THE OPERATING PARTNERSHIP,
THE UNDERLYING PARTNERSHIPS AND THEIR PARTNERS
The following discussion summarizes certain federal income tax
considerations applicable to Home Properties' investment in the Operating
Partnership.
CLASSIFICATION OF THE OPERATING PARTNERSHIP. Home Properties will be
entitled to include in its income its distributive share of the income and
to deduct its distributive share of the losses of the Operating Partnership
(including the Operating Partnership's share of the income or losses of any
partnerships in which it owns an interest) only if the Operating
Partnership is classified for federal income tax purposes as a partnership
rather than an association taxable as a corporation. An organization
formed as a partnership will be treated as a partnership for federal income
tax purposes rather than as a corporation only if it has no more than two
of the four corporate characteristics that the Treasury Regulations use to
distinguish a partnership from a corporation for tax purposes. These four
characteristics are continuity of life, centralization of management,
limited liability, and free transferability of interests.
The Operating Partnership has not requested, nor does it intend to
request, a ruling from the IRS that it will be treated as a partnership for
federal income tax purposes. In the opinion of Nixon, Hargrave, Devans &
Doyle LLP, which is based on the provisions of the partnership agreement of
the Operating Partnership and on certain factual assumptions and
representations of the Company, the Operating Partnership will be treated
as a partnership for federal income tax purposes. Nixon, Hargrave, Devans
& Doyle LLP's opinion is not binding on the IRS or the courts.
If for any reason the Operating Partnership was taxable as a
corporation rather than as a partnership for federal income tax purposes,
Home Properties would not be able to satisfy the income and asset
requirements for REIT status. See "- Requirements for Qualification -
INCOME TESTS" and "- Requirements for Qualification - ASSET TESTS." In
addition, any change in the Operating Partnership's status for tax purposes
might be treated as a taxable event, in which case Home Properties might
incur a tax liability without any related cash distribution. See "-
Requirements for Qualification - ANNUAL DISTRIBUTION REQUIREMENTS."
Further, items of income and deduction of the Operating Partnership would
not pass through to its partners, and its partners would be treated as
stockholders for tax purposes. The Operating Partnership would be required
to pay income tax at corporate tax rates on its net income, and
distributions to its partners would constitute dividends that would not be
deductible in computing the Operating Partnership's taxable income.
-26-
PARTNERS, NOT PARTNERSHIPS, SUBJECT TO TAX. A partnership is not a
taxable entity for federal income tax purposes. Rather, a partner is
required to take into account its allocable share of a partnership's
income, gains, losses, deductions and credits for any taxable year of the
partnership ending within or with the taxable year of the partner, without
regard to whether the partner has received or will receive any
distributions from the partnership.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will
generally determine the allocation of income and losses among partners,
such allocations may be disregarded for tax purposes under section 704(b)
of the Code if they do not have substantial economic effect. If an
allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking
into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. The Operating
Partnership's allocations of taxable income and loss are intended to comply
with the requirements of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the
partnership, the partnership generally takes a carryover basis in that
property for tax purposes equal to the adjusted basis of the contributing
partners in the property, rather than a basis equal to the fair market
value of the property at the time of contribution. Pursuant to section
704(c) of the Code, income, gain, loss and deduction attributable to such
contributed property must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis
of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not
affect the book capital accounts or other economic or legal arrangements
among the partners.
The partners of the Operating Partnership other than Home Properties
(the "Contributing Partners") are deemed to have contributed general or
limited partnership interests in other partnerships owning multifamily
residential properties which were acquired by Operating Partnership and
which may have had an adjusted tax basis which is less than the fair market
value of such interests (the "Contributed Interests"). Upon the merger or
dissolution of the such partnerships and the transfer of the properties to
the Operating Partnership, the Contributing Partners were deemed to have
contributed the portion of the properties represented by the Contributed
Interests (the "Contributed Property") to the Operating Partnership, and
the Operating Partnership's tax basis in the Contributed Property will be
the tax basis of the Contributing Partners in the Contributed Interests.
Because the Contributed Property has a Book-Tax Difference, the Operating
Partnership Agreement will require allocations to be made in a manner
consistent with section 704(c) of the Code.
Under these special rules, the Contributing Partners may be allocated
lower amounts of depreciation deductions for tax purposes with respect to
the Contributed Property than the amount of such deductions that would be
allocated to them if such Contributed Property had a tax basis equal to its
fair market value at the time of contribution. In addition, in the event
of
-27-
the disposition of any of the Contributed Property, all income
attributable to the Book-Tax Difference of such Contributed Property
generally will be allocated to the Contributing Partners, and Home
Properties generally will be allocated only its share of capital gains
attributable to appreciation, if any, occurring after the contribution of
the Contributed Property. These allocations will tend to eliminate the
Book-Tax Differences with respect to the Contributed Property over the life
of the Operating Partnership. However, the special allocation rules of
Section 704(c) may not entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a
sale. Thus, the carryover basis of the Contributed Property in the hands
of the Operating Partnership could cause Home Properties (i) to be
allocated lower amounts of depreciation and other deductions for tax
purposes than would be allocated to Home Properties if the Contributed
Property had a tax basis equal to its fair market value at the time of
contribution, and (ii) possibly to be allocated taxable gain in the event
of a sale of Contributed Property in excess of the economic or book income
allocated to Home Properties as a result of such sale. These allocations
possibly could cause Home Properties to recognize taxable income in excess
of cash proceeds, which might adversely affect its ability to comply with
the REIT distribution requirements. See " - Requirements for Qualification
- - ANNUAL DISTRIBUTION REQUIREMENTS."
DEPRECIATION. The Operating Partnership's assets other than cash will
consist largely of property treated as purchased by the Operating
Partnership. The Operating Partnership has an aggregate basis in the
assets of each partnership it acquires equal to the sum of the purchase
price paid for the partnership interests. To the extent that the Operating
Partnership's basis in a piece of depreciable property exceeds the basis of
the property when it was held by the acquired partnership, such basis
should in effect be treated as a newly acquired, separate asset and
entitled to 39-year depreciation.
Section 704(c) of the Code requires that depreciation as well as gain
and loss be allocated in a manner so as to take into account the variation
between the fair market value and tax basis of the property contributed.
Similarly, amortization on intangible contracts for services contributed to
the Operating Partnership will be allocated as required by section 704(c)
of the Code. Depreciation with respect to any property purchased by the
Operating Partnership subsequent to the admission of its partners will be
allocated among the partners in accordance with their respective percentage
interests in the Operating Partnership.
SALE OF PARTNERSHIP PROPERTY. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than
one year will be long-term capital gain, except for any portion of such
gain that is treated as depreciation or cost recovery recapture. However,
under the REIT Requirements, Home Properties' share as a partner of any
gain realized by the Operating Partnership on the sale of any property held
as inventory or other property held primarily for sale to customers in the
ordinary course of a trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "-
Taxation of Home Properties as a REIT." Such prohibited transaction income
will also have an adverse effect upon Home Properties' ability to satisfy
the income tests for REIT status. See "- Requirements for Qualification -
INCOME TESTS." Under existing law, whether property is held as inventory
or primarily for sale to customers in the ordinary course of a trade or
business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. A safe harbor to
avoid classification as a prohibited transaction exists as to real
-28-
estate assets held for the production of rental income by a REIT for at least
four years where in any taxable year the REIT has made no more than seven
sales of property or, in the alternative, the aggregate of the adjusted bases
of all properties sold does not exceed 10% of the adjusted bases of all of the
REIT's properties during the year and the expenditures includible in a
property's basis made during the four-year period prior to disposition must
not exceed 30% of the property's net sales price. The Operating
Partnership intends to hold its properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating and leasing the properties and to make such
occasional sales of the properties, including adjoining land, as are
consistent with Home Properties' and the Operating Partnership's investment
objectives. No assurance can be given, however, that every property sale
by the Operating Partnership will constitute a sale of property held for
investment.
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANIES. A portion of the amounts to be used to fund
distributions to stockholders is expected to come from the Management
Companies through dividends on stock of the Management Companies to be held
by the Operating Partnership. The Management Companies do not qualify as a
REITs and will pay federal, state and local tax income taxes on its net
income at normal corporate tax rates. Home Properties expects that the
Management Companies' income, after deducting its expenses, will not give
rise to significant corporate tax liabilities. The amount of corporate tax
liability will increase if the IRS disallows the items of expense which
Home Properties expects to be allocated to the Management Companies.
STATE AND LOCAL TAX CONSIDERATIONS. Home Properties and the
Management Companies will, and Home Properties' stockholders may, be
subject to state or local taxation in various states or local
jurisdictions, including those in which the Company, its stockholders or
the Operating Partnership transact business or reside. The state and local
tax treatment of Home Properties and its stockholders may not conform to
the federal income tax consequences discussed above. Consequently,
prospective stockholders should consult their own tax advisors regarding
the effect of state and local tax laws on their investment in the Company.
POSSIBLE FEDERAL TAX DEVELOPMENTS. The rules dealing with federal
income taxation are constantly under review by the IRS, the Treasury
Department and Congress. New federal tax legislation or other provisions
may be enacted into law or new interpretations, rulings or Treasury
Regulations could be adopted, all of which could affect the taxation of
Home Properties or of its stockholders. No prediction can be made as to
the likelihood of passage of any new tax legislation or other provisions
either directly or indirectly affecting Home Properties or its
stockholders. Consequently, the tax treatment described herein may be
modified prospectively or retroactively by legislative, judicial or
administrative action.
SELLING SHAREHOLDERS
The partners of the Operating Partnership may from time to time tender
their Units of limited partnership interest to the Operating Partnership.
The Company may give notice to such partners that the Company will acquire
such Units in exchange for shares of Common Stock (the "LP Purchase
Right"). All of the shares being offered hereby are being sold by the
partners in
-29-
the Operating Partnership who may acquire shares of Common
Stock in exchange for their Units pursuant to the LP Purchase
Right (all of such persons being collectively referred to as the
"Selling Shareholders"). Although none of the Selling Shareholders has
indicated a present intent to tender their Units which would trigger the
Company's right to issue shares of Common Stock to them under the LP
Purchase Right, the Company is required, pursuant to the terms of various
registration rights agreements, to file the registration statement of which
this Prospectus forms a part registering such shares for resale under the
Securities Act. The Company is bearing all costs of this registration.
The Company will not receive any proceeds from the sale of the shares offered
hereby.
The following tables set forth certain information regarding
the Selling Shareholders' ownership of Units and the number of shares of Common
Stock which may be issued pursuant to the LP Purchase Right which are
registered for resale. Because the Selling Shareholders may sell all, some
or none of the shares registered for resale, no estimate can be made
concerning the number shares of Common Stock issued in exchange for Units
that will be offered hereby or the number of shares or Units that each
Selling Shareholder will own upon completion of the offering contemplated
by this Prospectus. The relationships between certain of the Selling
Shareholders and Home Properties are described as of the date of this
Prospectus. Such relationships may change, and information contained in
subsequent reports filed with the Commission by Home Properties relating to
such relationships is incorporated herein by reference and may supersede
the information set forth herein. See "Documents Incorporated by
Reference".
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS, DIRECTORS AND RELATED PERSONS
Number of Shares
Units Owned Registered for Sale
Name Prior to Offering (1) in Offering
- ----------------------- -------------------- -------------------
<S> <C> <C>
Norman P. Leenhouts (2) 467 (3) 467
Nelson B. Leenhouts (4) 219 (3) 219
Richard J. Crossed (5) 68,021 (6) 68,021
Amy L. Tait (7) 11,195 11,195
Amy L. Tait (7) and
Robert C. Tait (8) 2,548 2,548
David P. Gardner (9) 3,506 3,506
Ann M. McCormick (10) 565 565
Ann M. McCormick (10) and
Patrick M. McCormick 1,737 1,737
Burton S. August (11) 4,246 4,246
Arlene Z. Leenhouts (12) 50,000 50,000
Nancy E. Leenhouts (13) 50,000 50,000
Laurie L. Willard (14) 6,033 6,033
Home Leasing Corporation (15) 429,376 (3) 429,376
Leenhouts Ventures (15) 8,010 (3) 8,010
Conifer Realty, Inc. (16) 285,403 (6) 285,403
Conifer Development,
Inc. (16) 20,738 (6) 20,738
</TABLE>
-30-
_________________
(1) Amounts do not reflect the number of shares of Common Stock the Selling
Shareholder may presently own.
(2) Mr. Leenhouts has been the Chairman and Co-Chief Executive Officer and a
Director of Home Properties since its inception.
(3) These Units, and any shares of Common Stock which may be exchanged for
them, are subject to the terms of lock-up agreements which expire August 4,
1999 between the owners of the Units and the underwriters of the Company's
initial public offering. The lock-up agreements restrict the owners'
ability to dispose of such Units without the lead underwriter's consent;
although, such Units may now be pledged if the pledgee agrees to be bound
by the lock-up agreements.
(4) Mr. Leenhouts has been the President and Co-Chief Executive Officer
and a Director of Home Properties since its inception.
(5) Mr. Crossed has been an Executive Vice President and a Director of
Home Properties since January 1, 1996.
(6) These Units, and any shares of Common Stock which may be exchanged for
them, are subject to the terms of lock-up agreements which expire
December 31, 1996.
(7) Ms. Tait has been an Executive Vice President and a Director of Home
Properties since its inception and is the daugher of Norman Leenhouts.
(8) Mr. Tait has been a Vice President of Home Properties since its
inception and is the spouse of Amy Tait.
(9) Mr. Gardner has been a Vice President and the Chief Financial Officer
and Treasurer of Home Properties since its inception.
(10) Ms. McCormick has been a Vice President and the General Counsel and
Secretary of Home Properties since its inception.
(11) Mr. August has been a Director of Home Properties since August, 1994.
(12) Ms. Leenhouts is the spouse of Norman Leenhouts.
(13) Ms. Leenhouts is the spouse of Nelson Leenhouts.
(14) Ms. Willard is a Vice President of Home Properties and the daughter of
Norman Leenhouts.
(15) Owned entirely by Norman and Nelson Leenhouts.
(16) Owned entirely by Richard Crossed and Peter Obourn and John Fennessey,
Vice Presidents of Home Properties identified in the table below.
OTHER SELLING SHAREHOLDERS
<TABLE>
Number of Shares
Units Owned Registered for Sale
Name Prior to Offering (1) in Offering
- ---------------------- --------------------- -------------------
<S> <C> <C>
Charles J. August (1) 4,246 4,246
Robert W. August (1) 1,158 1,158
William E. Beach (2) 2,433 2,433
William E. Beach (2) and
Richelle A. Beach 3,046 3,046
J. Neil Boger 1,225 1,225
Joyce P. Caldarone 1,225 1,225
Peter L. Cappuccilli, Sr. 6,250 6,250
Rocco M. Cappuccilli 6,250 6,250
John H. Cline 2,316 2,316
Estate of R. Bruce Davey 1,225 1,225
Ralph DeStephano, Sr. 2,316 2,316
John G. Dorschel 1,225 1,225
Richard J. Dorschel 1,225 1,225
Elizabeth Hatch Dunn 2,450 2,450
Philip W. Dunsker 2,316 2,316
-31-
John H. Fennessey (3) 34,300 (5) 34,300
Gerald A. Fillmore
F/B/O Living Trust of G.A.F. 2,316 2,316
Timothy A. Florczak (2) 600 600
John K. Gardner
Money Purchase Pension Plan 1,500 1,500
Rufus Hedges 2,450 2,450
The Joseph A. Cicci
Revocable Trust 104,118 104,118
Richard J. Katz, Jr. 2,316 2,316
Jeremy A. Klainer 612 612
Esther Lowenthal 2,316 2,316
J. Robert Maney 2,450 2,450
Anwer Masood, MD 2,316 2,316
John A. McAlpin 1,225 1,225
George E. Mercier 1,225 1,225
Harold S. Mercier 1,225 1,225
Michelle Mercier 1,225 1,225
Paul O'Leary (2) 3,207 3,207
Peter J. Obourn (3) 34,300 (5) 34,300
Elizabeth W. Pine 1,448 1,448
Jack E. Post 1,225 1,225
Estate of Ernest I. Reveal, Jr. 2,316 2,316
Gregory J. Riley, MD 2,316 2,316
Thomas P. Riley 2,316 2,316
Robert T. Silkett 1,225 1,225
Carolyn M. Steklof 1,225 1,225
Richard J. Struzzi (2) 2,363 2,363
Tamarack Associates 2,316 2,316
Tamarack II Associates 2,027 2,027
William G. Vonberg 2,316 2,316
Stephen C. Whitney 869 869
Mr. and Mrs. Frank Zamiara 2,316 2,316
</TABLE>
_________________
(1) Amounts do not reflect the number of shares of Common Stock the Selling
Shareholder may presently own.
(2) Charles August and Robert August are, respectively, the brother and son of
Burton August, a director of Home Properties identified in the first table
above.
(3) This individual has been a Vice President of Home Properties since its
inception.
(4) This individual has been a Vice President of Home Properties since
January 1, 1996.
(5) These Units, and any shares of Common Stock which may be exchanged for
them, are subject to the terms of lock-up agreements which expire December
31, 1996.
PLAN OF DISTRIBUTION
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at
prices and terms then
-32-
prevailing, at prices related to the then-current
market price, or in negotiated transactions. The shares may be sold by one
or more of the following methods, without limitation: (a) a block trade in
which a broker or dealer so engaged will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate a transaction; (b) purchases by a broker or a dealer as
principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchasers; and (d) face-to-face transactions
between sellers and purchasers without a broker or dealer. In effecting
sales, brokers or dealers engaged by one or more of the Selling
Shareholders may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such brokers and dealers and any
other participating brokers or dealers may be deemed "underwriters" under
the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Nixon, Hargrave, Devans & Doyle LLP. In
addition, Nixon, Hargrave, Devans & Doyle LLP will provide an opinion with
respect to certain tax matters which form the basis of the discussion under
"Federal Income Tax Considerations".
EXPERTS
The financial statements incorporated by reference in this Prospectus
or elsewhere in the Registration Statement have been incorporated herein in
reliance on the reports audited by Coopers & Lybrand LLP, independent
accountants, given on the authority of that firm as experts in accounting
and auditing.
-33-
<PAGE>
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING 2,630,000 SHARES
COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE HOME PROPERTIES
RELIED UPON AS HAVING BEEN OF
AUTHORIZED BY THE COMPANY. THIS NEW YORK, INC.
PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, COMMON STOCK
THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, PROSPECTUS
UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS NOVEMBER 19, 1996
SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
SUMMARY
TABLE OF CONTENTS
PAGE
Additional Information 2
Documents Incorporated
by Reference 2
The Company 3
Risk Factors 4
Use of Proceeds 12
Description of Capital Stock 12
Federal Income Tax
Considerations 18
Selling Shareholders 30
Plan of Distribution 33
Legal Matters 34
Experts 34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be incurred by
the Company in connection with the issuance and distribution of the shares
of Common Stock being registered hereby, other than discounts and
commissions:
SEC Registration Fee $18,024.69
NYSE Listing Fee 7,400.00*
Legal Fees and Expenses 6,500.00*
Accounting Fees and Expenses 2,000.00*
Miscellaneous 5,000.00*
-----------
Total $38,924.69*
===========
*Estimate
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland law, the Articles of Incorporation of Home Properties and the
Partnership Agreement ("Operating Partnership Agreement") of Home
Properties of New York, L.P., a New York limited partnership of which the
Company is the general partner, against certain liabilities. The Articles
of Incorporation require the Company to indemnify its directors and
officers to the fullest extent permitted from time to time by the laws of
Maryland. The Bylaws contain provisions which implement the
indemnification provisions of the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is
established that the act or omission of the director or officer was
material to the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty, or the
director or officer actually received an improper personal benefit in
money, property or services, or in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or
omission was unlawful. No amendment of the Articles of Incorporation of
Home Properties shall limit or eliminate the right to indemnification
provided with respect to acts or omissions occurring prior to such
amendment or repeal. Maryland law permits Home Properties to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
II-1
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors
and officers to the corporation and its stockholders for money damages,
subject to specified restrictions. The MGCL does not, however, permit the
liability of directors and officers to the corporation or its stockholders
to be limited to the extent that (1) it is proved that the person actually
received an improper benefit or profit in money, property or services (to
the extent such benefit or profit was received) or (2) a judgment or other
final adjudication adverse to such person is entered in a proceeding based
on a finding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. The Articles of Incorporation of Home
Properties contain a provision consistent with the MGCL. No amendment of
the Articles of Incorporation shall limit or eliminate the limitation of
liability with respect to acts or omissions occurring prior to such
amendment or repeal.
The Operating Partnership Agreement also provides for indemnification
of Home Properties and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of Home Properties and
its officers and directors to the Operating Partnership and its partners to
the same extent liability of officers and directors of the Company to Home
Properties and its stockholders is limited under Home Properties' Articles
of Incorporation.
Home Properties has entered into indemnification agreements with each
of Home Properties' directors and certain of its officers. The
indemnification agreements require, among other things, that Home
Properties indemnify its directors and those officers to the fullest extent
permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Home Properties also must indemnify and
advance all expenses incurred by directors and officers seeking to enforce
their rights under the indemnification agreements, and cover directors and
officers under Home Properties' directors' and officers' liability
insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by provisions in the
Articles of Incorporation and the Bylaws and the Operating Partnership
Agreement of the Operating Partnership, it provides greater assurance to
directors and officers that indemnification will be available, because, as
a contract, it cannot be modified unilaterally in the future by the Board
of Directors or by the stockholders to eliminate the rights it provides.
Home Properties has purchased insurance under a policy that insures
both Home Properties and its officers and directors against exposure and
liability normally insured against under such policies, including exposure
on the indemnities described above.
ITEM 16. EXHIBITS
Number Description
- ------ -----------
3.1 Articles of Amendment and Restatement of Articles of
Incorporation of Home Properties of New York, Inc. (the
"Company")
II-2
3.2 Amended and Restated By-Laws of the Company
4.1 Form of certificate representing shares of Common Stock of the
Company
4.2 Agreement of the Company to file instruments defining the rights
of holders of long term debt or it or its subsidiaries with the
Commission on request
4.3 Credit Agreement between Manufacturers and Traders Trust Company,
Home Properties of New York, L.P. (the "Operating Partnership")
and the Company
4.4 Amendment Agreement between M&T, the Operating Partnership and
the Company
4.5 Mortgage Spreader, Consolidation and Modification Agreement
between M&T and the Operating Partnership, together with form of
Mortgage, Assignment of Leases and Rents and Security Agreement
incorporated therein by reference
4.6 Mortgage Note made by the Operating Partnership payable to M&T in
the principal amount of $12,298,999
4.7 Demand Grid Note, dated August 22, 1996, from the Operating
Partnership to M&T in the maximum principal amount of $25,000,000
4.8 Spreader, Consolidation, Modification and Extension Agreement, dated
as of October 26, 1995, between John Hancock Mutual Life Insurance
Company and the Operating Partnership relating to indebtedness in
the principal amount of $20,500,000.
4.9 Form of Indenture for Debt Securities
5.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP regarding the
legality of the Common Stock being registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP regarding certain
tax matters*
10.1 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 Amendments No. One through Eight to the Agreement of Limited
Partnership of the Operating Partnership
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP (included as part of
Exhibits 5.1 and 8.1)
23.2 Consent of Coopers & Lybrand LLP*
25 Power of Attorney (included on signature page)
* Included with this filing.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent,
II-3
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rochester, New York, on the 19th
day of November, 1996.
HOME PROPERTIES OF NEW YORK, INC.
By: /S/ NELSON B. LEENHOUTS
-------------------------------
Nelson B. Leenhouts
President and Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- -------------------- ----------------------------- ----------------
*
- -------------------- Director, Chairman November 19, 1996
Norman P. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
/S/ Nelson B. Leenhouts Director, President November 19, 1996
- ----------------------- and Co-Chief Executive
Nelson B. Leenhouts Officer
(Principal Executive Officer)
/S/ Richard J. Crossed Director, Executive Vice November 19, 1996
- ------------------------ President
Richard J. Crossed
/S/ Amy L. Tait Director, Executive Vice November 19, 1996
- ------------------------ President and
Amy L. Tait Chief Operating Officer
/S/ David P. Gardner Vice President, Chief Financial November 19, 1996
- ------------------------- Officer and Treasurer
David P. Gardner (Principal Financial and
Accounting Officer)
II-5
*
- --------------------- Director November 19, 1996
Burton S. August, Sr.
*
- --------------------- Director November 19, 1996
William Balderston, III
*
- ---------------------- Director November 19, 1996
Leonard F. Helbig, III
*
- ---------------------- Director November 19, 1996
Roger W. Kober
*
- ---------------------- Director November 19, 1996
Clifford W. Smith, Jr.
*
- ---------------------- Director November 19, 1996
Paul L. Smith
* By /S/ Nelson B. Leenhouts
-----------------------
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc. (the "Company")
Registration Statement on Form S-3 No. 333-2672
NUMBER DESCRIPTION LOCATION
- ------ ------------ --------
3.1 Articles of Amendment and Restatement Form S-11, File
of Articles of Incorporation of No. 33-78862
the Company ("S-11")
3.2 Amended and Restated By-Laws of the Company S-11
4.1 Form of certificate representing shares of S-11
Common Stock of the Company
4.2 Agreement of the Company to file instruments S-11
defining the rights of holders of long term
debt or it or its subsidiaries with the
Commission on request
4.3 Credit Agreement between Manufacturers and Traders Form 10-Q for
Trust Company, Home Properties of New York, L.P. Quarter Ended
(the "Operating Partnership") and the Company 6/30/96 (File
1-13136)
("6/96 10-Q")
4.4 Amendment Agreement between M&T, the Operating Form 10-K for
Partnership and the Company Year Ended
12/31/94
("1994 10-K")
4.5 Mortgage Spreader, Consolidation and Modification 6/96 10-Q
Agreement between M&T and the Operating Partnership,
together with form of Mortgage, Assignment of Leases
and Rents and Security Agreement incorporated
therein by reference
4.6 Mortgage Note made by the Operating Partnership 6/96 10-Q
payable to M&T in the principal amount of
$12,298,999
4.7 Demand Grid Note, dated August 22, 1996, from the Amendment
Operating Partnership to M&T in the maximum No. 1 to Form
principal amount of $25,000,000 S-3,
File No.
333-2674
("S-3")
II-7
4.8 Spreader, Consolidation, Modification and Extension Form 10-K for
Agreement, dated as of October 26, 1995, between Year Ended
John Hancock Mutual Life Insurance Company and the 12/31/95
Operating Partnership relating to indebtedness in the ("1995 10-K")
principal amount of $20,500,000.
4.9 Form of Indenture for Debt Securities S-3
5.1 Opinion of Nixon,Hargrave, Devans & Doyle LLP Amendment
regarding the legality of the Common Stock No. 1 to Form
being registered S-3, File No.
333-2672
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP Filed
regarding certain tax matters herewith
10.1 Amended and Restated Agreement of Limited S-11
Partnership of the Operating Partnership
10.2 Amendments No. One through Eight to the Agreement 1995 10-K
of Limited Partnership of the Operating Partnership
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP Included with
Exhibits 5.1
and 8.1
23.2 Consent of Coopers & Lybrand LLP Filed
herewith
24 Power of Attorney Included on
signature
page
II-8
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716)263-1600
November 20, 1996
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc. ("Home
Properties") in connection with the Registration Statement on Form S-3
(No. 333-2672) filed with the Securities and Exchange Commission on March 26,
1996, as amended (the "Registration Statement"). This opinion relates to the
Company's qualification for federal income tax purposes as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), for taxable years beginning with the taxable year ending
December 31, 1994 and to the accuracy of the "FEDERAL INCOME TAX
CONSIDERATIONS" section of the Registration Statement. All capitalized terms
used but not defined herein shall have the meaning assigned to them in the
Registration Statement.
For the purpose of rendering our opinion, we have examined and are
relying upon the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Articles of Amendment and Restatement of the Articles of
Incorporation of Home Properties and the Articles of Incorporation of the
Management Companies.
2. The By-Laws of Home Properties and the By-Laws of the Management
Companies.
3. The Certificate of Limited Partnership and the Amended and
Restated Agreement of Limited Partnership of Home Properties of New York, L.P.,
as amended (the "Operating Partnership").
4. The Registration Statement.
5. Representations made to us by officers of Home Properties, the
Operating Partnership and the Management Companies in certificates (the
"Certificates") delivered to us in connection with the Registration Statement
or this opinion and which we have no reason to believe contain any material
inaccuracies.
In connection with rendering this opinion, we have assumed and are
relying upon, without any independent investigation or review thereof, the
following: (i) the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
copies, and authenticity of the originals of such documents; (ii) that neither
Home Properties, the Operating Partnership nor the Management Companies will
make any amendments to its organizational documents after the date of this
opinion that would adversely affect Home Properties' qualification as a REIT
for any taxable year (iii) that no actions will be taken by Home Properties,
the Operating Partnership or the Management Companies after the date hereof
that would have the effect of altering the facts upon which the opinions set
forth below are based; and (iv) that all documents, certificates,
representations, warranties and covenants on which we have relied in rendering
the opinions set forth below and that were given or dated earlier than the date
of this opinion continue to remain accurate, insofar as relevant to the
opinions set forth herein, from such earlier date through and including the
date of this letter.
Based on our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that:
1. Commencing with Home Properties' taxable year ending December
31, 1994, Home Properties was organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue of 1986, as amended (the
"Code"), its method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code, and the proposed method of
operation described in the Prospectus included in the Registration Statement
will enable Home Properties to satisfy the requirements for such qualification
under the Code for subsequent taxable years.
2. Home Properties is properly treated as a partner for federal
income tax purposes in the Operating Partnership, and the Operating Partnership
is properly classified as a partnership for federal income tax purposes and not
as an association taxable as a corporation.
3. The discussion in the Prospectus included in the Registration
Statement under the caption "FEDERAL INCOME TAX CONSIDERATIONS" fairly
summarizes the federal income tax considerations that are likely to be material
to holders of common stock who are United States citizens or residents or
domestic corporations and who are not subject to special treatment under the
tax laws.
Our opinions expressed herein are based upon our interpretation of
the current provisions of the Code and existing judicial decisions,
administrative regulations and published rulings and procedures. Our opinions
are not binding upon the Internal Revenue Service or courts and there is no
assurance that the Internal Revenue Service will not successfully challenge the
conclusions set forth herein. The Internal Revenue Service has not yet issued
regulations or administrative interpretations with respect to various
provisions of the Code relating to REIT qualification. Consequently, no
assurance can be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. We undertake no
obligation to advise you of changes in law which may occur after the date
hereof.
Our opinions are limited to the federal income tax matters and the
federal law of the United States of America addressed herein, and no other
opinions are rendered with respect to any other matter not specifically set
forth in the foregoing opinion and we assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
Home Properties' qualification and taxation as a real estate
investment trust depend upon Home Properties' ability to satisfy, through
actual operating results, the applicable asset composition, source of income,
shareholder diversification, distribution, record keeping and other
requirements of the Code necessary to qualify and be taxed as a REIT. The
foregoing opinions are based upon the proposed method of operation as described
in the Registration Statement and facts stated in the Certificates and other
documents described herein. We undertake no obligation to review at any time
in the future whether Home Properties has fulfilled the requirements listed in
this paragraph and, consequently, no assurance can be given that the actual
results of Home Properties' operations for any taxable year will satisfy the
requirements of the Code necessary to qualify or be taxed as a REIT.
In the event any one of the statements, representations, warranties
or assumptions we have relied upon to issue this opinion is incorrect in a
material respect, our opinions might be adversely affected and may not be
relied upon.
We hereby consent to the reference to us under the captions "FEDERAL
INCOME TAX CONSIDERATIONS" and "LEGAL MATTERS" in the Registration Statement,
and to the filing of this opinion as an Exhibit to the Registration Statement,
without implying or admitting that we are experts within the meaning of the
Securities Act of 1933, as amended, with respect to any part of the
Registration Statement.
This letter is furnished to Home Properties, the Operating
Partnership and the Management Companies and is solely for your benefit. This
letter may not be relied upon by any other person or for any other purpose and
may not be referred to or quoted from without our prior written consent.
Very truly yours,
/s/Nixon, Hargrave, Devans & Doyle LLP
Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement
of Home Properties of New York, Inc. on Amendment No. 2 to Form S-3 (No.
333-2672) of our report dated February 1, 1996, on our audits of the
consolidated financial statements of Home Properties of New York, Inc. as
of December 31, 1995 and 1994, for the year ended December 31, 1995 and the
period from August 4, 1994 through December 31, 1994, and the combined
financial statements of the Original Properties for the period from January
1, 1994 through August 3, 1994, and the year ended December 31, 1993, which
report is included in the Annual Report on Form 10-K/A Amendment No. 2. We
also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
Rochester, New York
November 12, 1996
