AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1997
REGISTRATION NO. 333-2674
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
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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PROSPECTUS
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
PREFERRED STOCK
COMMON STOCK PURCHASE
RIGHTS OR WARRANTS AND
DEBT SECURITIES
Home Properties of New York, Inc. (the "Company") may from time to time
offer in one or more series (i) shares of its common stock, par value $.01 per
share (the "Common Stock"); (ii) shares of its preferred stock, par value $.01
per share (the "Preferred Stock); (iii) rights or warrants to purchase shares
of its Common Stock (the "Common Stock Purchase Rights") and (iv) one or more
series of debt securities ("Debt Securities") which may be either senior debt
securities or subordinated debt securities, with an aggregate public offering
price of up to $100,000,000.00 on terms to be determined at the time or times
of offering. The Common Stock, Preferred Stock, and Common Stock Purchase
Rights and Debt Securities (collectively, the "Offered Securities") may be
offered, separately or together, in separate classes or series, in amounts, at
prices and on terms to be set forth in a supplement to this Prospectus (a
"Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Common Stock,
any initial public offering price; (ii) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(iii) in the case of Common Stock Purchase Rights, the duration, offering
price, exercise price and any reallocation of Purchase Rights not initially
subscribed, and (iv) in the case of Debt Securities, the title, aggregate
principal amount, denominations, maturity, rate (which may be fixed or
variable) or method of calculation thereof, time of payment of any interest,
any terms for redemption at the option of the holder or the Company, any terms
for sinking fund payments, rank, any conversion or exchange rights, any listing
on a securities exchange, and the initial public offering price and any other
terms in connection with the offering and sale of any Debt Securities. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement. The Common Stock is listed
on the New York Stock Exchange under the symbol "HME." Any Common Stock
offered pursuant to a Prospectus Supplement will be listed on such exchange,
subject to official notice of issuance.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution."
No Offered Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
class or series of the Offered Securities.
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 February 24, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
IN CONNECTION WITH AN OFFERING OF SECURITIES, THE UNDERWRITERS, IF ANY,
FOR SUCH OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICES OF THE SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
__________________________
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 securities 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 such
securities, 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.
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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 (all File No. 1-13136): 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 and Amendment No. 2; the Company's Quarterly
Report on Form 10-Q for the quarterly period ending March 31, 1996, as
amended by Form 10-Q/A Amendment No. 1; the Company's Quarterly Report on Form
10-Q for the quarterly period ending June 30, 1996, as amended by Form 10-Q/A
Amendment No. 1; the Company's Quarterly Report on Form 10-Q for the quarterly
period ending September 30, 1996, as amended by Form 10-Q/A Amendment No. 1;
the Company's Current Report on Form 8-K dated May 16, 1995, as amended by Form
8-K/A Amendment No. 1, Amendment No. 2 and Amendment No. 3; the Company's
Current Report on Form 8-K dated January 1, 1996, as amended by Form 8-K/A
Amendment No. 1, Amendment No. 2 and Amendment No. 3; the Company's Current
Report on Form 8-K dated January 5, 1996, as amended by Form 8-K/A Amendment
No. 1; the Company's Current Report on Form 8-K dated August 6, 1996; the
Company's Current Report on Form 8-K dated December 23, 1996; 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 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
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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").
Home Properties currently owns and manages 29 communities with
7,544 apartment units and one community containing 202 manufactured home
sites. The Company also holds general partner interests in an additional
3,914 apartment units and manages 1,630 apartment units and
approximately 1.6 million square feet of commercial space for other owners
(primarily affiliates). The 13,088 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 December
31, 1996, 5,604 of the Company's owned multifamily units(approximately
75%) 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 indebtedness. At
December 31, 1996, the ratio of the Company's indebtedness to its market
capitalization was 34.2%.
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
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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 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
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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 (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.
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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.
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. As of the date of this Prospectus, approximately
9% 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.
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 December 31, 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.
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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.
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
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<PAGE>
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.
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 December 31, 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. The Operating Partnership has
also issued a Class A Interest which is presently convertible into 1,666,667
shares of Common Stock (which number will be adjusted under certain
circumstances to prevent such interest from being diluted). In addition, as of
December 31, 1996, Home Properties has granted options to purchase an
aggregate of 697,778 shares of Common Stock to certain directors,
officers and employees of the Company.
All of the Shares issuable upon the exchange of Units or 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 and in
exchange for Units 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.
- 9 -
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended August 4- January 1- Year Ended
SEPTEMBER 30 DECEMBER 31, DECEMBER 31, AUGUST 3, DECEMBER 31
------------------- ------------ ------------ ---------- -------------------------
1996 1995 1995 1994 1994(1) 1993(1) 1992(1) 1991(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Combined Fixed
Charges and Preferred
Stock Dividends 1.42 1.63 1.61 2.59 1.23 1.33 1.21 1.02
_________________
</TABLE>
(1) Information relates to the predecessor to the Company.
For purposes of computing the ratio of earnings to combined fixed charges,
"earnings" consists of income from operations before Federal income taxes and
fixed charges. "Fixed charges" consists of interest expense, capitalized
interest, amortization of debt expense, such portion of rental expense as can
be demonstrated to be representative of the interest factor in the particular
case and preferred stock dividend requirements.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include the acquisition of
multifamily residential properties as suitable opportunities arise, the
expansion and improvement of certain properties in the Company's portfolio,
payment of development costs for new multifamily residential properties and the
repayment of certain indebtedness outstanding at such time.
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, the Preferred
Stock and the Common Stock Purchase Rights or Warrants and Debt Securities sets
forth certain general terms and conditions of the capital stock of Home
Properties to which any Prospectus Supplement may relate. 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"), any certificate of
designations with respect to Preferred Stock and any applicable Prospectus
Supplement.
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.
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<PAGE>
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 of
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 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.
The applicable Prospectus Supplement will describe specific terms of the
shares of Preferred Stock offered thereby, including, among other things:
(i) the title or designation of the series of Preferred Stock; (ii) the number
of shares of the series of Preferred Stock offered, the liquidation preference
per share and the offering price of the Preferred Stock; (iii) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to the Preferred Stock; (iv) the date from which dividends on such
Preferred Stock shall accumulate, if at all; (v) any restrictions on the
issuance of shares of the same series or of any other class or series; (vi) the
provision for a sinking fund, if any, for such Preferred Stock; (vii) the
provision for redemption, if applicable, of such Preferred Stock; (viii) any
listing of such Preferred Stock on any securities exchange; (ix) the terms and
conditions, if applicable, upon which such Preferred Stock will be convertible
into Common Stock of the Company, including the conversion price (or manner of
calculation thereof); (x) any other specific terms, preferences, rights,
limitations or restrictions of such Preferred Stock, including any voting
rights; (xi) a discussion of federal income tax considerations applicable to
such Preferred Stock; (xii) the relative ranking and preferences of such
Preferred Stock as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of Home Properties; (xiii) any limitations on
issuance of any series of Preferred Stock, ranking senior to or on a parity
with such series of Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding of the affairs of the Company; and (xiv)
any limitations on direct or beneficial ownership and restriction on transfer,
in each case as may be appropriate to preserve the status of the Company as a
REIT.
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<PAGE>
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of Home Properties, rank (i) senior to all classes or
series of Common Stock and to all other equity securities ranking junior to
such Preferred Stock, (ii) on a parity with all equity securities issued by
Home Properties the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock, and (iii) junior to all
equity securities issued by Home Properties the terms of which specifically
provide that such equity securities rank senior to the Preferred Stock. The
term "equity securities" does not include convertible debt securities.
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 the 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 (set forth
in the applicable Prospectus Supplement), 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.
COMMON STOCK PURCHASE RIGHTS
The applicable Prospectus Supplement will describe the specific terms of
any rights or warrants to purchase Common Stock offered thereby, including,
among other things: the duration, offering price and exercise price of the
Common Stock Purchase Rights and any provisions for the reallocation of
Purchase Rights not initially subscribed. The Prospectus Supplement will
describe the persons to whom the Common Stock Purchase Rights will be issued
(Home Properties' stockholders, the general public or others) and any
conditions to the offer and sale of the Common Stock Purchase Rights offered
thereby.
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
- 12 -
<PAGE>
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 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
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<PAGE>
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.
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 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
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<PAGE>
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 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 the 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.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities.
The Debt Securities are to be issued in one or more series under an
Indenture, a copy of which is filed as an Exhibit to the Registration Statement
of which this Prospectus forms a part, as amended or supplemented by one or
more supplemental indentures, (the "Indenture"), to be entered into between the
Company and a financial institution as Trustee (the "Trustee"). The
statements herein relating to the Debt Securities and the Indenture are
summaries and are subject to the detailed provisions of the applicable
Indenture. The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms capitalized in this Prospectus.
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GENERAL
The Indenture does not limit the aggregate amount of Debt Securities
which may be issued thereunder, nor does it limit the incurrence or issuance of
other secured or unsecured debt of the Company.
The Debt Securities will be unsecured general obligations of the Company
and will rank with all other unsecured and unsubordinated obligations of the
Company as described in the applicable Prospectus Supplement. The Indenture
provides that the Debt Securities may be issued from time to time in one or
more series. The Company may authorize the issuance and provide for the terms
of a series of Debt Securities pursuant to a supplemental indenture.
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities being offered thereby for the terms of such Debt
Securities, including, where applicable: (1) the specific designation of such
Debt Securities; (2) any limit upon the aggregate principal amount of such Debt
Securities; (3) the date or dates on which the principal of and premium, if
any, on such Debt Securities will mature or the method of determining such date
or dates; (4) the rate or rates (which may be fixed, variable or zero) at which
such Debt Securities will bear interest, if any, or the method of calculating
such rate or rates; (5) the date or dates from which interest, if any, will
accrue or the method by which such date or dates will be determined; (6) the
date or dates on which interest, if any, will be payable and the record date
or dates therefor; (7) the place or places where principal of, premium, if any,
and interest, if any, on such Debt Securities may be redeemed, in whole or in
part, at the option of the Company; (8) the obligation, if any, of the Company
to redeem or purchase such Debt Securities pursuant to any sinking fund or
analogous provisions or upon the happening of a specified event and the period
or periods within which, the price or prices at which and the other terms and
conditions upon which, such Debt Securities shall be redeemed or purchased, in
whole or in part, pursuant to such obligations; (9) the denominations in which
such Debt Securities are authorized to be issued; (10) the currency or currency
unit for which Debt Securities may be purchased or in which Debt Securities may
be denominated and/or the currency or currencies (including currency unit or
units) in which principal of, premium, if any, and interest, if any, on such
Debt Securities will be payable and whether the Company or the holders of any
such Debt Securities may elect to receive payments in respect of such Debt
Securities in a currency or currency unit other than that in which such Debt
Securities are stated to be payable; (11) if the amount of payments of
principal of and premium, if any, or any interest, if any, on such Debt
Securities may be determined with reference to an index based on a currency or
currencies other than that in which such Debt Securities are stated to be
payable, the manner in which such amount shall be determined; (12) if the
amount of payments of principal of and premium, if any, or interest, if any, on
such Debt Securities may be determined with reference to changes in the prices
of particular securities or commodities or otherwise by application of a
formula, the manner in which such amount shall be determined; (13) if other
than the entire principal amount thereof, the portion of the principal amount
of such Debt Securities which will be payable upon declaration of the
acceleration of the maturity thereof or the method by which such portion shall
be determined; (14) the person to whom any interest on any such Debt Security
shall be payable if other than the person in whose name such Debt Security is
registered on the applicable record date; (15) any addition to, or modification
or deletion of, any Event of Default or any covenant of the Company specified
in the Indenture with respect to such Debt Securities; (16) the application, if
any, of such means of defeasance as may be specified for such Debt Securities;
and (17) any other special terms pertaining to such Debt Securities. Unless
otherwise specified in the applicable Prospectus Supplement, the Debt
Securities will not be listed on any securities exchange.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued only in fully registered form without coupons.
Unless the Prospectus Supplement relating thereto specifies otherwise, Debt
Securities will be denominated in U.S. dollars and will be issued only in
denominations of U.S. $1,000 and any integral multiple thereof.
Debt Securities may be sold at a substantial discount below their stated
principal amount and may bear no interest or interest at a rate which at the
time of issuance is below market rates. Certain federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the applicable Prospectus Supplement.
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If the amount of payments of principal of and premium, if any, or any
interest on Debt Securities of any series is determined with reference to any
type of index or formula or changes in prices of particular securities or
commodities, the federal income tax consequences, specific terms and other
information with respect to such Debt Securities and such index or formula and
securities or commodities will be described in the applicable Prospectus
Supplement.
If the principal of and premium, if any, or any interest on Debt
Securities of any series are payable in a foreign or composite currency, the
restrictions, elections, federal income tax consequences, specific terms and
other information with respect to such Debt Securities and such currency will
be described in the applicable Prospectus Supplement.
The Prospectus Supplement, with respect to any particular series of Debt
Securities being offered thereby which provide for optional redemption,
prepayment or conversion of such Debt Securities on the occurrence of certain
event, such as a change of control of the Company, will provide: (1) a
discussion of the effects that such provisions may have in deterring certain
mergers, tender offers or other takeover attempts, as well as any possible
adverse effect on the market price of the Company's securities or the ability
to obtain additional financing in the future; (2) a statement the Company
will comply with any applicable provisions of the requirements of Rule 14e-1
under the Securities Exchange Act of 1934 and any other applicable securities
laws in connection with any optional redemption, prepayment or conversion
provisions and any related offers by the Company (including, if such Debt
Securities are convertible, Rule 13e-4); (3) a disclosure of any cross-defaults
in other indebtedness which may result as a consequence of the occurrence of
certain events so that the payments on such Debt Securities would be
effectively subordinated; (4) a disclosure of effect of any failure to
repurchase under the applicable Indenture, including in the event of a change
of control of the Company; (5) a disclosure of any risk that sufficient funds
may not be available at the time of any event resulting in a repurchase
obligation; and (6) a discussion of any definition of "change of control"
contained in the applicable Indenture.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement,
payments in respect of the Debt Securities will be made in the designated
currency at the office or agency of the Company maintained for that purpose as
the Company may designate from time to time, except that, at the option of the
Company, interest payments, if any, on Debt Securities in registered form may
be made by checks mailed to the holders of Debt Securities entitled thereto at
their registered addresses. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of any installment of interest on Debt
Securities in registered form will be made to the person in whose name such
Debt Security is registered at the close of business on the regular record date
for such interest.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the
agency of the Company maintained for such purpose as designated by the Company
from time to time. Debt Securities may be transferred or exchanged without
service charge, other than any tax or other governmental charge imposed in
connection therewith.
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Under the terms of the Indenture, the Company shall not be consolidated
with or merge into any other corporation or transfer or lease its assets
substantially as an entirety, unless (i) the corporation formed by such
consolidation or into which the Company is merged or the corporation which
acquires its assets is organized in the United States and expressly assumes all
of the obligations of the Company under the Debt Securities and all Indentures
and (ii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing. Upon any such
consolidation, merger or transfer, the successor corporation formed by such
consolidation, or into which the Company is merged or to which such sale is
made shall succeed to, and be substituted for the Company under the Indenture.
The Indenture contains no covenants or other specific provisions to
afford protection to holders of the Debt Securities in the event of a highly
leveraged transaction or a change in control of the Company, except to the
limited extent described above. Such covenants or provisions are not subject
to waiver by the Company's Board of
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Directors without the consent of the holders of not less than a majority in
principal amount of the outstanding Debt Securities of each series affected by
the waiver as described under "Modification of the Indenture" below.
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
The Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to the
Company (and to the Trustee for such series, if notice is given by such holders
of Debt Securities), may declare the principal of (or, if the Debt Securities
of that series are Original Issue Discount Securities, such portion of the
principal amount specified in the Prospectus Supplement) and accrued interest
on all the Debt Securities of that series to be immediately due and payable.
The Indenture provides that the Trustee will, subject to certain
exceptions, within a specified number of days after the occurrence of a Default
with respect to the Debt Securities of any series, give to the holders of the
Debt Securities of that series notice of all Defaults known to it unless such
Default shall have been cured or waived. "Default" means any event which is or
after notice or passage of time or both, would be an Event of Default.
The Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each such
series voting as a class) may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee for such series, or
exercising any trust or power conferred on such Trustee.
The Indenture includes a covenant that the Company will file annually
with the Trustee a certificate as to the Company's compliance with all
conditions and covenants of the Indenture.
The holders of a majority in aggregate principal amount of any series of
Debt Securities by notice to the Trustee may waive on behalf of the holders of
all Debt Securities of such series, any past Default or Event of Default with
respect to that series and its consequences, except a Default or Event of
Default in the payment of the principal of, premium, if any, or interest, if
any, on any Debt Security or a provision of the Indenture which cannot be
amended without the consent of the holder of each Outstanding Security of such
series adversely affected.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (i) to evidence the succession
of another corporation to the Company and the assumption of the covenants of
the Company by a successor to the Company; (ii) to add to the covenants of the
Company or surrender any right or power of the Company; (iii) to add additional
Events of Default with respect to any series of Debt Securities; (iv) to add or
change any provisions to such extent as necessary to permit or facilitate the
issuance of Debt Securities in book entry form or, if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (v) to change or eliminate any
provision affecting Debt Securities not yet issued; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities; (viii) to
cure any ambiguity, to correct or supplement any provision of the Indenture
which may be inconsistent with any other provision thereof, provided that such
action does not adversely affect the interests of any holder of Debt Securities
of any series; (ix) to make provision with respect to the conversion rights of
holders of Debt Securities; or (x) to conform to any mandatory provisions of
law.
The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debt Securities affected by such supplemental
indenture (with the Debt Securities of each series voting as a class), to
execute supplemental indentures adding any provisions to or changing or
eliminating any of the provisions of the Indenture or any supplemental
indenture or modifying the rights of the holders of Debt Securities of such
series, except that no such supplemental indenture may, without the consent of
the holder of each Debt Security so affected, (i) change the time for payment
of principal or premium, if any, or interest on any Debt Security; (ii) reduce
the principal of, or any installment of
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principal of, or premium, if any, or interest on any Debt Security, or change
the manner in which the amount of any of the foregoing is determined;
(iii) reduce the amount of premium, if any, payable upon the redemption of any
Debt Security; (iv) reduce the amount of principal payable upon acceleration of
the maturity of any Original Issue Discount Security; (v) reduce the percentage
in principal amount of the outstanding Debt Securities affected thereby, the
consent of whose holders is required for modification or amendment of the
Indenture or for waiver or compliance with certain provisions of the Indenture
or for waiver of certain defaults; (vi) make any change which adversely affects
the right to convert convertible Debt Securities or decrease the conversion
rate or increase the conversion price; or (vii) modify the provisions relating
to waiver of certain defaults or any of the foregoing provisions.
DEFEASANCE
If so described in the Prospectus Supplement relating to Debt Securities
of a specific series, the Company may discharge its indebtedness and its
obligations or terminate certain of its obligations and covenants under the
Indenture with respect to the Debt Securities of such series by depositing
funds or obligations issued or guaranteed by the United States government with
the Trustee. The Prospectus Supplement will more fully describe the
provisions, if any, relating to such discharge or termination of obligations.
THE TRUSTEE
The Prospectus Supplement will identify the Trustee under the applicable
Indenture. The Company may also maintain banking and other commercial
relationships with any Trustee and its affiliates in the ordinary course of
business.
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. Any Prospectus Supplement which relates to a series of Preferred Stock
or of Debt Securities will set forth the federal income tax consequences of
that Preferred Stock to a prospective holder. 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,
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STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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 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.
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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.
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
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(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
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.
To the extent the Operating Partnership does not immediately use the
proceeds of the Offering, these funds will be invested in interest-bearing
accounts and short-term, interest-bearing securities. The interest income
earned on those funds is expected to be includible under the 75% test as
"qualified temporary investment income" (which includes income earned on stock
or debt instruments acquired with the proceeds of a stock offering, not
including amounts received under a dividend reinvestment plan). Qualified
temporary investment income treatment only applies during the one-year period
beginning on the date Home Properties receives the new capital.
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.
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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 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.
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%
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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
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
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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.
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.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of U.S. federal,
state and local income tax laws with regard to an investment in the capital
stock of Home Properties, including any reporting requirements, as well as the
tax treatment of such an investment under their home country laws.
Distributions that are not attributable to gain from sales or exchanges
by Home Properties of a U.S. real property interest and not designated by Home
Properties as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions, ordinarily, will be subject to
a withholding tax equal to 30% of the gross amount of the distribution unless
an applicable tax treaty reduces that tax. However, if income from the
investment in the shares is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a United States trade or business, the Non-U.S.
Stockholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. stockholders are taxed with respect to such dividends (and may
also be subject to the 30% branch profits tax if the stockholder is a foreign
corporation). Home Properties expects to withhold United States income tax at
the rate of 30% on the gross amount of any dividends paid to a Non-U.S.
Stockholder unless (1) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with Home Properties or
(2) the Non-U.S. Stockholder files an IRS Form 4224 with Home Properties
claiming that the distribution is "effectively connected" income.
Distributions in excess of current and accumulated earnings and profits of Home
Properties 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 Non-U.S. Stockholder's shares, they will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his shares as described below.
For any year in which Home Properties qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by Home Properties of
U.S. real property interests will be taxed to a Non-U.S. Stockholder
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under the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders would be taxed at the normal capital gain rates
applicable to U.S. stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Stockholder not
entitled to treaty relief or exemption.
Home Properties will be required to withhold from distributions to
Non-U.S. Stockholders, and remit to the IRS, (a) 35% of designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could be
designated as capital gain dividends) and (b) 30% of ordinary dividends paid
out of earnings and profits. In addition, if Home Properties designates prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of Home Properties'
earnings and profits may be subject to 30% dividend withholding if at the time
of the distribution it cannot be determined whether the distribution will be in
an amount in excess of Home Properties' current or accumulated earnings and
profits. Tax treaties may reduce Home Properties' withholding obligations.
If the amount withheld by Home Properties with respect to a distribution to a
Non-U.S. Stockholder exceeds the stockholder's United States tax liability with
respect to such distribution (as determined under the rules described above),
the Non-U.S. Stockholder may file for a refund of such excess from the IRS. It
should be noted that the 35% withholding tax rate on capital gain dividends
currently corresponds to the maximum income tax rate applicable to
corporations, but is higher than the 28% maximum rate on capital gains of
individuals.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares of
capital stock generally will not be taxed under FIRPTA if a REIT is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. It is currently anticipated
that Home Properties will be a "domestically controlled REIT," and therefore
the sale of shares will not be subject to taxation under FIRPTA. However, gain
not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i)
investment in the shares of capital stock is "effectively connected" with the
Non-U.S. Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as United States stockholders
with respect to such gain, or (ii) the Non-U.S. Stockholder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual who was present in the U.S. will be
subject to a 30% tax on the individual's capital gains. If the gain on the
sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain (subject to applicable alternative minimum tax, possible
withholding tax and a special alternative minimum tax in the case of
nonresident alien individuals). A purchaser of shares of capital stock from a
Non-U.S. Stockholder will not be required under FIRPTA to withhold on the
purchase price if the purchased shares are "regularly traded" on an established
securities market or if Home Properties is a domestically controlled REIT.
Otherwise, under FIRPTA the purchaser of shares may be required to withhold 10%
of the purchase price and remit such amount to the IRS.
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. On December 17, 1996, the IRS issued
final Treasury Regulations regarding the classification of business entities
(known as the "check-the-box" rules) which changed the process for electing
business tax status.
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The new Treasury Regulations, which were effective January 1, 1997,
replaced the former rules for classifying business organizations with a simpler
elective classification system that generally allows eligible entities to
choose to be taxed as partnerships or corporations. Under the Treasury
Regulations, a limited partnership which qualifies as an eligible entity will
generally be allowed to choose to be taxed as a partnership or a corporation.
The default classification for an existing entity is the classification that
the entity claimed immediately prior to January 1, 1997. Alternatively, an
eligible entity may affirmatively elect its classification. An entity's default
classification continues until the entity elects to change its classification
by means of an affirmative election. Because the Operating Partnership was
classified as a partnership as of December 31, 1996, the Operating Partnership
will be treated as a partnership for federal income tax purposes for periods
after December 31, 1996 pursuant to the new Treasury Regulations. The
Operating Partnership plans to confirm this tax treatment by electing to be
treated as a partnership under the Treasury Regulations.
The Treasury Regulations state that the IRS will not challenge the prior
classification of an existing eligible entity for periods before January 1,
1997 if: (1) the entity had a reasonable basis for its claimed classification;
(2) the entity and all of its partners recognized the tax consequences of any
change in the entity's classification within 60 months before January 1, 1997;
and (3) neither the entity nor any member had been notified in writing on or
before May 8, 1996, that the classification was under examination by the IRS.
Requirements (2) and (3) described in this paragraph are either not relevant
to, or have been satisfied by, the Operating Partnership. Accordingly, the
Operating Partnership's claimed classification as a partnership for periods
prior to January 1, 1997 should be respected if the Operating Partnership had
a reasonable basis for such classification.
In determining whether a reasonable basis for partnership classification
existed for periods prior to January 1, 1997, it is necessary to review the
former classification rules, under which 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 has a reasonable basis for its claim
to be classified as a partnership for federal income tax purposes and
therefore should be taxed as a partnership rather than an association taxable
as a corporation for periods prior to January 1, 1997. 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.
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
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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 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.
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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 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 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.
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<PAGE>
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan ("Plan") subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), should consider the fiduciary standards under ERISA
in the context of the Plan's particular circumstances before authorizing an
investment of any of such Plan's assets in shares of Home Properties' capital
stock. Accordingly, such fiduciary should consider whether the investment (i)
satisfies the diversification requirements of section 404(a)(1)(C) of ERISA,
(ii) is in accordance with the documents and instruments governing the Plan to
the extent consistent with ERISA, (iii) is prudent and an appropriate
investment for the Plan, based on examination of the Plan's overall investment
portfolio and (iv) is for the exclusive benefit of Plan participants and
beneficiaries, as required by ERISA.
In addition to the imposition of general fiduciary standards, ERISA and
the corresponding provisions of the Code prohibit a wide range of transactions
involving Plans and persons who have certain relationships to Plans ("parties
in interest" within the meaning of ERISA, "disqualified persons" within the
meaning of the Code). The Code's prohibited transaction rules also apply to
certain direct or indirect transactions between "disqualified persons" and
individual retirement accounts or annuities ("IRAs"), as defined in section
408(a) and (b) of the Code. Thus, a Plan fiduciary and an IRA considering an
investment in shares also should consider whether the acquisition or the
continued holding of shares might constitute or give rise to a prohibited
transaction.
Those persons proposing to invest on behalf of Plans should also consider
whether a purchase of one or more shares of capital stock will cause the assets
of Home Properties to be deemed assets of the Plan for purposes of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code. The Department of Labor (the "DOL") has issued regulations (the "DOL
Regulations") as to what constitutes assets of a Plan under ERISA. Under the
DOL Regulations, if a Plan acquires an equity interest in an entity, the Plan's
assets would include, for purposes of the fiduciary responsibility provisions
of ERISA and the prohibited transaction rules of ERISA and the Code, both the
equity interest and an undivided interest in each of the entity's underlying
assets unless (a) such interest is a "publicly offered security," (b) such
interest is a security issued by an investment company registered under the
Investment Company Act of 1940, as amended, or (c) another specified exception
applies.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities through underwriters or
dealers, directly to one or more purchasers, through agents or through a
combination of any such methods of sale. Any such underwriter or agent
involved in the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or from purchasers of the
Offered Securities, for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell the Offered Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of the Offered Securities may be
deemed to be underwriters under the Securities Act, and any discounts or
commissions they receive from the Company and any profit on the sale of the
capital stock they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriting or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Any Common Stock sold pursuant to a Prospectus Supplement will be listed
on the New York Stock Exchange, subject to official notice of issuance. Unless
otherwise specified in the related Prospectus Supplement,
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<PAGE>
each series of Offered Securities other than Common Stock will be a new issue
with no established trading market. The Company may elect to list any series
of Preferred Stock or other securities on an exchange, but is not obligated to
do so. It is possible that one or more underwriters may make a market in a
series of Offered Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
Offered Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of the Offered Securities may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
In order to comply with the securities laws of certain states, if
applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
LEGAL MATTERS
The legality of the Offered Securities issued pursuant to any Prospectus
Supplement will be passed upon 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.
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<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 COVERED BY THIS PROSPECTUS.
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT HOME PROPERTIES
CONSTITUTE AN OFFER TO SELL, OR A OF
SOLICITATION OF AN OFFER TO BUY, THE NEW YORK, INC.
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 COMMON STOCK
THIS PROSPECTUS NOR ANY SALE MADE PREFERRED STOCK
HEREUNDER SHALL, UNDER ANY COMMON STOCK PURCHASE
CIRCUMSTANCES, CREATE AN IMPLICATION RIGHTS OR WARRANTS
THAT THERE HAS NOT BEEN ANY CHANGE IN DEBT SECURITIES
THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
SUMMARY PROSPECTUS
TABLE OF CONTENTS
PAGE
February 24, 1997
Additional Information 2
Documents Incorporated by
Reference 3
The Company 3
Risk Factors 4
Ratio of Earnings to
Fixed Charges 10
Use of Proceeds 10
Description of Capital Stock 10
Description of Debt Securities 15
Federal Income Tax
Considerations 19
Erisa Considerations 30
Plan of Distribution 30
Legal Matters 31
Experts 31
<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 $ 34,482.76
NYSE Listing Fee *
Printing and Engraving Costs *
Legal Fees and Expenses 12,000.00*
Accounting Fees and Expenses 2,000.00*
Miscellaneous 5,000.00*
---------
Total $53,482.76*
*Estimate
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
See original filing.
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")
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
II - 1
<PAGE>
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*
23.3 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, 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.
II - 2
<PAGE>
(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.
The undersigned registrant hereby undertakes, at the time of any proposed
offer of Debt Securities pursuant to a Prospectus Supplement, to file an
application for the purpose of determining the eligibility of the trustee to
act under Subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act.
The undersigned registrant hereby undertakes, at the time of any proposed
offer of any Common Stock Purchase Rights pursuant to a Prospectus Supplement,
to further supplement the prospectus, after the expiration of the subscription
period, to set forth the results of the subscription offer, the transactions by
the underwriters, if any, during the subscription period, the amount of any
unsubscribed securities to be purchased by the underwriters, and the terms of
any subsequent reoffering thereof. If any public offering by the underwriters
is to be made on terms differing from those set forth on the cover page of the
applicable Prospectus Supplement, a post-effective amendment will be filed to
set forth the terms of such offering.
II - 3
<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 24th day of
February, 1997.
HOME PROPERTIES OF NEW YORK, INC.
By: /S/ Amy L. Tait
Amy L. Tait
Executive Vice President
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 February 24, 1997
Norman P. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
* Director, President February 24, 1997
Nelson B. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
* Director, Executive Vice February 24, 1997
Richard J. Crossed President
/S/ AMY L. TAIT Director, Executive Vice February 24, 1997
Amy L. Tait President and Chief Operating
Officer
/S/ DAVID P. GARDNER Vice President, Chief February 24, 1997
David P. Gardner Financial Officer and
Treasurer
(Principal Financial
and Accounting Officer
II - 4
* Director February 24, 1997
Burton S. August, Sr.
* Director February 24, 1997
William Balderston, III
* Director February 24, 1997
Leonard F. Helbig, III
* Director February 24, 1997
Roger W. Kober
* Director February 24, 1997
Clifford W. Smith, Jr.
* Director February 24, 1997
Paul L. Smith
* By /S/ Amy L. Tait
Attorney-in-Fact
II - 5
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc. (the "Company")
Registration Statement on Form S-3 No. 333-2674
NUMBER DESCRIPTION LOCATION
3.1 Articles of Amendment and Restatement Form S-11, File
of Articles of Incorporation of the No. 33-78862
Company ("S-11")
3.2 Amended and Restated By-Laws of the Company S-11
4.1 Form of certificate representing shares S-11
of Common Stock of the Company
4.2 Agreement of the Company to file S-11
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 Form 10-Q for
Traders Trust Company, Home Properties of Quarter Ended
New York, L.P. (the "Operating Partnership") 6/30/96 (File
and the Company 1-13136)
("6/96 10-Q")
4.4 Amendment Agreement between M&T, the Form 10-K for
Operating Partnership and the Company Year Ended
12/31/94
("1994 10-K")
4.5 Mortgage Spreader, Consolidation and 6/96 10-Q
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 6/96 10-Q
Partnership payable to M&T in the principal
amount of $12,298,999
II - 6
4.7 Demand Grid Note, dated August 22, 1996, Amendment
from the Operating Partnership to M&T in No. 1 to Form
the maximum principal amount of $25,000,000 S-3, File No.
333-2674
("S-3")
4.8 Spreader, Consolidation, Modification and Form 10-K for
Extension Agreement, dated as of October Year Ended
26, 1995, between John Hancock Mutual Life 12/31/95
Insurance Company and the Operating ("1995 10-K")
Partnership relating to indebtedness in
the principal amount of $20,500,000
4.9 Form of Indenture for Debt Securities S-3
5.1 Opinion of Nixon, Hargrave, Devans & Doyle S-3
LLP regarding the legality of the Common
Stock being registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle Amendment
LLP regarding certain tax matters No. 3 to Form
S-3, File No.
333-2674
10.1 Amended and Restated Agreement of Limited S-11
Partnership of the Operating Partnership
10.2 Amendments No. One through Eight to the 1995 10-K
Agreement of Limited Partnership of the
Operating Partnership
23.1 Consent of Nixon, Hargrave, Devans & Included with
Doyle LLP Exhibits 5.1 and
8.1
23.2 Consent of Coopers & Lybrand LLP Filed herewith
23.3 Consent of Coopers & Lybrand LLP Filed herewith
24 Power of Attorney Included on
signature page
II - 7
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. 3 to Form S-4 (No.
333-2674) 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
February 24, 1997
Exhibit 23.3
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. 4 to Form S-3 (No.
333-2672) of our reports (1) dated October 10, 1995, on our audit of Idlywood
Apartments for the year ended December 31, 1994, which report is included in
Form 8-K/A Amendment No. 3, dated May 16, 1995 and filed November 13, 1996
(2) dated March 8, 1996, on our audits of Conifer Corporation and Subsidiaries
for the years ended March 31, 1995 and 1994, which report is included in Form
8-K/A Amendment No. 3, dated January 1, 1996 and filed November 13, 1996 and
(3) dated January 22, 1997 and January 24, 1997, on our audits of the Hudson
Valley Properties and Valley Park South Apartments, respectively, for the year
ended December 31, 1995, which reports are included in Form 8-K/A Amendment
No. 1, dated January 5, 1996 and filed February 4, 1997. We also consent to
the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
Rochester, New York
February 24, 1997
