As filed with the Securities and Exchange Commission on September 23, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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HOME PROPERTIES OF NEW YORK, INC.
(Exact name of registrant as specified in charter)
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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)
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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)
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Copies to:
Deborah McLean Quinn, Esq.
Nixon, Hargrave, Devans & Doyle LLP
900 Clinton Square
Rochester, New York 14604
(716) 263-1307
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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. / /
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed Amount
Class of Amount to Maximum Maximum of
Securities to be Offering Price Aggregate Registra-
Registered Registered Per Share Offering Price tion Fee
Common Stock
par value $.01 2,127,937 sh. $22.5625 $48,011,579 $14,549.00
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 and based upon the
prices reported on the New York Stock Exchange on September
17, 1998 of $22.5625.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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PROSPECTUS
2,127,937 Shares
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
($.01 par value)
-------------------
All of the shares of the common stock, par value $.01 per share (the
"Common Stock") of Home Properties of New York, Inc. ("Home Properties" or the
"Company") offered hereby are being offered by the Selling Shareholders of Home
Properties. See "Selling Shareholders." The Company will not receive any
proceeds from the sale of the shares offered hereby. The Common Stock is
listed on the New York Stock Exchange under the symbol "HME". On September 17,
1998, the closing price of the Common Stock on the New York Stock Exchange was
$22.5625 per share.
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Home Properties is a self-administered, self-managed, fully integrated
real estate investment trust. Home Properties conducts substantially all of its
business and owns all of its properties through Home Properties of New
York, L.P. (the "Operating Partnership"). To comply with certain technical
requirements of the Internal Revenue Code of 1986, as amended (the
"Code") applicable to real estate investment trusts ("REITs"), the Operating
Partnership carries out portions of its property management and development
activities through management companies beneficially owned by the Operating
Partnership but controlled by one or more officers of Home Properties
(collectively, the "Management Companies").
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at
prices and terms then prevailing, at prices related to the then-current market
price, or in negotiated transactions by the holders thereof, including donees
and pledgees of named holders ("Selling Shareholders"). The shares may be
sold by one or more of the following methods, without limitation:
(a) a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the block
as principal to facilitate a transaction; (b) purchases by a broker or a
dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face
transactions between sellers and purchasers without a broker or dealer.
In effecting sales, brokers or dealers engaged by one or more of the Selling
Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts
from Selling Shareholders in amounts to be negotiated. The Selling Shareholders
and such brokers and dealers and any other participating brokers or dealers
may be deemed "underwriters" under the Securities Act of 1933, as amended
(the "Securities Act").
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.
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The date of this Prospectus is September __, 1998
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ADDITIONAL INFORMATION
Home Properties has filed with the Securities and Exchange Commission
(the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder,
with respect to the Common Stock offered pursuant to this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and such exhibits,
copies of which may be examined without charge at, or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
also be available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Home Properties is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the locations described above.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding Home
Properties at http://www.sec.gov. In addition, the Common Stock is listed on
the New York Stock Exchange and similar information concerning Home
Properties can be inspected at the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
Home Properties furnishes its stockholders with annual reports
containing audited financial statements with a report thereon by its
independent public accountants.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed by Home Properties
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
are incorporated in this Prospectus Supplement by reference: The Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ending March 30, 1998, and June 30, 1998; the Company's Current Report on
Form 8-K filed on February 20, 1998, as amended by Form 8-K/A filed on
March 24,1998; Current Reports on Form 8-K filed on March 24, 1998, March
26, 1998, April 15, 1998, May 22, 1998, June 2, 1998, June 19, 1998,
July 13, 1998 and on August 6, 1998; the Company's Current Report on
Form 8-K/A filed on January 12, 1998, amending its Current
Report on Form 8-K filed on October 7, 1997; and all other reports filed
by the Company pursuant to Section 13(a) of the Exchange Act since
December 31, 1997.
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
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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
Home Properties is a fully integrated, self-managed real estate investment
trust which operates 256 communities containing 33,091 apartment units. Of
these, 22,780 units in 93 communities are wholly owned directly or indirectly
by the Company, 7,479 units are partially owned and managed by the Company as
general partner, and 2,832 units are managed for other owners. The communities
are located throughout the Northeastern quadrant of the United States,
including New York, Michigan, New Jersey, Pennsylvania, Maryland, Illinois,
Maine, Virginia, Connecticut, Indiana and Ohio. Home Properties also manages
1.7 million square feet of commercial space. 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"), of which the
Company is the general partner. The Company is also the sole shareholder of
Home Properties Trust (the "QRS"), a Maryland real estate trust, which is a
limited partner of the Operating Partnership. To comply with certain technical
requirements of the Internal Revenue Code, the Operating Partnership carries
out portions of its property management and development activities through
management companies beneficially owned by the Operating Partnership or
controlled by one or more officers of Home Properties (the "Management
Companies")
The Company's executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Its telephone number is (716) 546-4900.
USE OF PROCEEDS
The Company will not receive any cash proceeds as a result of this
offering. The Company will, however, acquire additional partnership units in
the Operating Partnership in exchange for the shares of Common Stock issued to
the Selling Shareholders which are being sold hereunder. See "Selling
Shareholders" below.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of Home Properties consists of 50 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 and the Preferred
Stock sets forth certain general terms and conditions of the capital stock of
Home Properties. The descriptions below do not purport to be complete and are
qualified entirely by reference to Home Properties' Articles of Amendment and
Restatement of Articles of Incorporation, as amended ("Articles of
Incorporation").
COMMON STOCK
All shares of Common Stock offered will be duly authorized, fully
paid, and nonassessable. Holders of the Common Stock will have no conversion,
redemption, sinking fund or preemptive rights; however, shares of Common
Stock will automatically convert into shares of Excess Stock as described below.
Under the Maryland General Corporation Law ("MGCL"), stockholders are generally
not liable for Home Properties' debts or obligations, and the holders of shares
will not be liable for further calls or assessments by Home Properties.
Subject to the provisions of Home Properties' Articles of Incorporation
regarding Excess Stock described below, all shares of Common Stock have equal
dividend, distribution, liquidation and other rights and will have no
preference or exchange rights.
Subject to the right of any holders of Preferred Stock to receive
preferential distributions, the holders of the shares of Common Stock will be
entitled to receive distributions in the form of dividends if and when declared
by the Board of Directors of Home Properties out of funds legally
available therefor, and, upon liquidation of Home Properties, each outstanding
share of Common Stock will be entitled to participate pro rata in the assets
remaining after payment of, or adequate provision for, all known debts and
liabilities of Home Properties, including debts and liabilities arising out of
its status as general partner of the Operating Partnership, and any liquidation
preference of issued and outstanding Preferred Stock. Home Properties
intends to continue paying quarterly distributions.
The holder of each outstanding share of Common Stock will be entitled
to one vote on all matters presented to stockholders for a vote, subject to the
provisions of Home Properties' Articles of Incorporation regarding Excess Stock
described below. As described below, the Board of Directors of Home Properties
may, in the future, grant holders of one or more series of Preferred Stock the
right to vote with respect to certain matters when it fixes the attributes of
such series of Preferred Stock. Pursuant to the MGCL, Home Properties cannot
dissolve, amend its charter, merge 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 Second
Amended and Restated Partnership Agreement of the Operating Partnership, as
amended (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
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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. The
State Treasurer of the State of Michigan, as custodian of various public
employee retirement systems (the "Michigan Retirement System") owns the Class A
interest in the Operating Partnership which is, under certain circumstances,
convertible into 1,666,667 shares of Common Stock (subject to adjustment).
Under the purchase agreement with respect to that Class A interest, the
Michigan Retirement System has the right to nominate one person to stand for
election the Home Properties' Board of Directors. If the preferred return on
the Class A interest is not paid by the Operating Partnership, the Michigan
Retirement System may nominate additional directors. The Michigan Retirement
System also owns a substantial number of shares of Common Stock.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors of Home Properties.
The Board of Directors will fix the attributes of any Preferred Stock
that it authorizes for issuance. Because the Board of Directors has the
power to establish the preferences and rights of each series of Preferred
Stock, it may afford the holders of any series of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
shares of Common Stock. The issuance of Preferred Stock could have the
effect of delaying or preventing a change in control of Home Properties.
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of Home Properties, then, before any distribution or payment
shall be made to the holders of any shares of Common Stock, any Excess Shares
or any other class or series of capital stock of Home Properties ranking junior
to any outstanding Preferred Stock in the distribution of assets upon
any liquidation, dissolution or winding up of Home Properties, the holders of
shares of each series of Preferred Stock shall be entitled to receive out of
assets of Home Properties legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per
share, plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such shares of Preferred Stock do not have cumulative
dividend). After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of shares of Preferred Stock will have
no right or claim to any of the remaining assets of Home Properties. In the
event that, upon any such voluntary or involuntary liquidation, dissolution
or winding up, the available assets of Home Properties are insufficient to
pay the amount of the liquidating distributions on all outstanding shares
of Preferred Stock and the corresponding amounts payable on all shares of
other classes or series of capital stock of Home Properties ranking on a
parity with such shares of Preferred Stock in the distribution of assets,
then the holders of such shares of Preferred Stock and all other such classes
or series of capital stock shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
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RESTRICTIONS ON TRANSFER
OWNERSHIP LIMITS. Home Properties' Articles of Incorporation contain
certain restrictions on the number of shares of capital stock that
stockholders may own. For Home Properties to qualify as a REIT under the Code,
no more than 50% in value of its outstanding shares of capital stock may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year or
during a proportionate part of a shorter taxable year. The capital stock
must also be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable
year. Because Home Properties expects to continue to qualify as a REIT, its
Articles of Incorporation contain restrictions on the ownership and transfer
of shares of its capital stock intended to ensure compliance with these
requirements.
Subject to certain exceptions specified in the Articles of
Incorporation, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 8.0% (the "Ownership Limit") of
the value of the issued and outstanding shares of capital stock of Home
Properties. Certain entities, such as qualified pension plans, are treated as
if their beneficial owners were the holders of the Common Stock held by such
entities. Stockholders ("Existing Holders") whose holdings exceeded the
Ownership Limit immediately after Home Properties' initial public offering of
its Common Stock, assuming that all Units of the Operating Partnership are
counted as shares of Common Stock, are permitted to continue to hold the number
of shares they held on such date and may acquire additional shares of capital
stock upon (i) the exchange of Units for Shares, (ii) the exercise of stock
options or receipt of grants of shares of capital stock pursuant to a
stock benefit plan, (iii) the acquisition of shares of capital stock pursuant
to a dividend reinvestment plan, (iv) the transfer of shares of capital stock
from another Existing Holder or the estate of an Existing Holder by devise,
gift or otherwise, or (v) the foreclosure on a pledge of shares of
capital stock; provided, no such acquisition may cause any Existing Holder to
own, directly or by attribution, more than 17.5% (the "Existing Holder Limit")
of the issued and outstanding Shares, subject to certain additional
restrictions. The Board of Directors of Home Properties may increase or
decrease the Ownership Limit and Existing Holder Limit from time to time,
but may not do so to the extent that after giving effect to such increase or
decrease (i) five beneficial owners of Shares could beneficially own in the
aggregate more than 49.5% of the aggregate value of the outstanding capital
stock of Home Properties or (ii) any beneficial owner of capital stock would
violate the Ownership Limit or Existing Holder Limit as a result of a
decrease. The Board of Directors may waive the Ownership Limit or the
Existing Holder Limit with respect to a holder if such holder provides
evidence acceptable to the Board of Directors that such holder's
ownership will not jeopardize Home Properties' status as a REIT.
Any transfer of outstanding capital stock of Home Properties
("Outstanding Stock") that would (i) cause any holder, directly or by
attribution, to own capital stock having a value in excess of the Ownership
Limit or Existing Holder Limit, (ii) result in shares of capital stock other
than Excess Stock, if any, to be owned by fewer than 100 persons, (iii) result
in Home Properties being closely held within the meaning of section 856(h) of
the Code, or (iv) otherwise prevent Home Properties from satisfying any
criteria necessary for it to qualify as a REIT, is null and void, and the
purported transferee acquires no rights to such Outstanding Stock.
Outstanding Stock owned by or attributable to a stockholder or shares
of Outstanding Stock purportedly transferred to a stockholder which cause such
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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 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
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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
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MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that
the Interested Stockholder becomes an Interested Stockholder. The Articles of
Incorporation of Home Properties contain a provision exempting from these
provisions of the MGCL any business combination involving the Leenhoutses
(or their affiliates) or any other person acting in concert or as a group
with any of the foregoing persons.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares"
of a Maryland corporation acquired in a "control share acquisition" have no
voting rights except to the extent approved by the affirmative vote of
two-thirds of the votes entitled to be cast on the matter other than
"interested shares" (shares of stock in respect of which any of the following
persons is entitled to exercise or direct the exercise of the voting power
of shares of stock of the corporation in the election of directors:
an "acquiring person," an officer of the corporation or an employee of the
corporation who is also a director). "Control shares" are shares of stock
which, if aggregated with all other such shares of stock owned by the
acquiring person, or in respect of which such person is entitled to exercise
or direct the exercise of voting power of shares of stock of the corporation
in electing directors within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third, (ii) one-third or more but
less than a majority, or (iii) a majority of more of all voting power.
Control shares do not include shares the acquiring person is entitled to vote
as a result of having previously obtained stockholder approval. The control
share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to
the transaction, or to acquisitions approved or exempted by the charter or
bylaws of the corporation.
A person who has made or proposes to make a control share
acquisition, under certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting
rights of the control shares upon delivery of an acquiring person statement
containing certain information required by the MGCL, including a
representation that the acquiring person has the financial capacity to make
the proposed control share acquisition, and a written undertaking to pay the
corporation's expenses of the special meeting (other than the expenses of
those opposing approval of the voting rights). If no request for a meeting is
made, the corporation may itself present the question at any stockholders
meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the MGCL,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value, determined without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or, if a stockholder meeting is held, as of the date of the
meeting of stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved
at a stockholders' meeting before the control share acquisition and the
acquiring person becomes entitled to exercise or direct the exercise of a
majority or more 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.
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The Articles of Incorporation contain a provision exempting from the
control share acquisition statute any and all acquisitions to the extent
that such acquisitions would not violate the Ownership Limit or Existing Owner
Limit. There can be no assurance that such provision will not be amended or
eliminated at any point in the future.
FEDERAL INCOME TAX CONSIDERATIONS
Introductory Notes
The following is a general summary of certain federal income tax
considerations that may be relevant to a prospective holder of shares of Common
Stock. Nixon, Hargrave, Devans & Doyle LLP has acted as tax counsel to Home
Properties in connection with its formation and its election to be taxed as a
REIT, has reviewed the following discussion and is of the opinion that it
fairly summarizes the federal income tax considerations that are likely to
be material to a holder of Shares. The following discussion is not exhaustive
of all possible tax considerations and does not give a detailed discussion
of any state, local or foreign tax considerations. This discussion does not
address all of the aspects of federal income taxation that may be relevant to
stockholders in light of their particular circumstances or to certain types
of stockholders subject to special treatment under the federal income tax
laws (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States).
This discussion contains a general summary of certain Code sections
that govern the federal income tax treatment of a REIT and its stockholders.
These sections of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the Treasury
Regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change prospectively or
retroactively. Home Properties has not sought or obtained any ruling from the
Internal Revenue Service or any opinions of counsel specifically related to
the tax matters described below.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE PURCHASE, OWNERSHIP AND SALE OF SHARES OF COMMON STOCK AND THE ELECTION BY
HOME PROPERTIES TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
The Company 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. The
Company believes that it was organized and has operated in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company 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 the
Company's taxable year ending December 31, 1994, the Company 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
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assumptions and is conditioned upon certain representations made by the
Company as to certain factual matters relating to the Company's 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. The Company's qualification and taxation as a
REIT will depend upon 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 the Company will satisfy such
tests on a continuing basis. See "-Requirements for Qualification-Failure to
Qualify" below.
If the Company 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, the Company will be
subject to federal income tax in the following circumstances. First, the
Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by the Company 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 the Company 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 the Company 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 the Company fails the 75% or 95% test, multiplied by a
fraction intended to reflect the Company's profitability. Sixth, if the
Company 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, the Company would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed. Seventh, if the Company 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 the Company's hands
is determined by reference to the basis of the asset (or any other property)
in the hands of the C corporation, and the Company 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 (i.e., the excess of the fair market value of such
property at the time of acquisition by the Company over the adjusted basis in
such property at such time), such gain will be subject to tax at the highest
regular corporate rate applicable (as provided in Treasury Regulations that
have not yet been promulgated). The results described above with respect to
the tax on "built-in-gain" assume that the Company will elect pursuant to IRS
Notice 88-19 to be subject to the rules described in the preceding sentence if
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it were to make any such acquisition.
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); (7) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that must be met
in order to elect and maintain REIT status; and (8) 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.
The Company satisfies the requirements set forth above. In addition, the
Company's Articles of Incorporation provide restrictions regarding the
transfer of its shares that are intended to assist the Company 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, the Company's
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 the Company 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
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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 the Company 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," the
Company 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 the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only (such as furnishing
water, heat, light and air conditioning, and cleaning windows, public
entrances and lobbies) and are not otherwise considered "rendered to the
occupant." However, all of the rental income derived by the Company with
respect to a property will not cease to qualify as "rents from real property"
if any impermissible tenant services income from such property (which is
deemed to be an amount that is no less than 150% of the Company's direct costs
of furnishing or rendering the service or providing the management or
operation) does not exceed 1% of all amounts received or accrued during the
taxable year directly or indirectly by the Company with respect to such
property.
REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expense directly
connected with the production of such income. "Foreclosure property" is
defined as any real property (including interests in real property) and any
personal property incident to such real property (i) that is acquired by a
REIT as the result of such REIT having bid in such property at foreclosure, or
having otherwise reduced such property to ownership or possession by agreement
or process of law, after there was a default (or default was imminent) on a
lease of such property or on an indebtedness owed to the REIT that such
property secured, (ii) for which the related loan was acquired by the REIT at
a time when default was not imminent or anticipated, and (iii) for which such
REIT makes a proper election to treat such property as foreclosure property.
The Company does not anticipate that it will receive significant income from
foreclosure property that is not qualifying income for purposes of the 75%
gross income test, but, if election to treat the related property as
foreclosure property.
If property is not eligible for the election to be treated as foreclosure
property ("Ineligible Property") because the related loan was acquired by the
REIT at a time when default was imminent or anticipated, income received with
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respect to such Ineligible Property may not be qualifying income for purposes
of (receives with respect to Ineligible Property will be qualifying income for
purposes of) the 75% and 95% gross income tests.
It is expected that the Company's 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 the Company's 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 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 the Company 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. The Company 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 the Company through the Operating Partnership. As a result
of the corporate structure, the income will be earned by and taxed to the
Management Companies and will be received by the Operating Partnership only
indirectly as dividends that qualify under the 95% test.
If the Company 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 the Company's failure to meet
such tests was due to reasonable cause and not due to willful neglect, the
Company 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
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evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of these relief provisions. As
discussed above in "Generally," even if these relief provisions apply, a 100%
tax would be imposed on the net income attributable to the greater of the
amount by which the Company fails the 75% or 95% gross income test.
Although not an income test for REIT qualification, the "prohibited
transaction" penalty tax is imposed on certain types of REIT income. As
discussed below, any gain realized by the Company on the sale of any property
held as inventory or other property held primarily for sale to customers in
the ordinary course of its trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy two tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets, cash and cash items (including certain receivables) and
government securities. For this purpose real estate assets include (i) the
Company's 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 the Company 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.
For purposes of the 75% asset test, the term "interest in real property"
includes an interest in mortgage loans or land and improvements thereon, such
as buildings or other inherently permanent structures (including items that
are structural components of such buildings or structures), a leasehold of
real property, and an option to acquire real property (or a leasehold of real
property). An "interest in real property" also generally includes an interest
in mortgage loans secured by controlling equity interests in entities treated
as partnerships for federal income tax purposes that own real property, to the
extent that the principal balance of the mortgage does not exceed the fair
market value of the real property that is allocable to the equity interest.
The second asset test requires that, of the investments not included in the
75% asset class, the value of any one issuer's securities owned by the Company
may not exceed 5% of the value of the Company's total assets, and the Company
may not own more than 10% of any one issuer's outstanding voting securities
(except for its interests in the Operating Partnership, the Trust, any other
interests in any qualified REIT subsidiary or in any other entity that is
disregarded as a separate entity under Treasury Regulations dealing with
entity classification). The 1998 Budget Proposal would prohibit REITs from
holding stock possessing more than 10% of the vote or value of all classes of
stock of a corporation. This proposal would be effective with respect to stock
acquired on or after the date of first committee action. In addition, to the
extent that a REIT's stock ownership is grandfathered by virtue of this
effective date, that grandfathered status will terminate if the subsidiary
corporation engages in a trade or business that is not engaged in on the date
of first committee action or acquires substantial new assets on or after such
date. Reference to these provisions was excluded from the final language
included in the U.S. Senate Budget Committee's proposal for the 1998 budget,
but it still could be included in any number of steps required for final
budget approval.
The Company anticipates that it will continue to be able to comply with
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these asset tests. The Company 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, the Company plans to hold more
than 75% of its assets as real estate assets. In addition, the Company 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 the Company's gross assets
(determined in accordance with generally accepted accounting principles). As
previously discussed, the Company 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 the Company's
interest in the securities of the Management Companies through the Operating
Partnership does not exceed 5% of the total value of the Company's assets. No
independent appraisals have been obtained. Counsel, in rendering its opinion as
to the qualification of the Company 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, the
Company 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. The Company 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.
Operating Partnership. In the case of a REIT that is a partner in a
partnership, Treasury Regulations provide that the REIT will be deemed to
own its proportionate share of the assets of the partnership and will be
deemed to be entitled to the gross income of the partnership attributable
to such share. In addition, the assets and gross income of the partnership
will retain the same character in the hands of the REIT for purposes of
Section 856 of the Code, including satisfying the gross income and asset
tests described below.
Annual Distribution Requirements. The Company, in order to avoid corporate
income taxation of the earnings that it distributes, 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 the Company's "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 the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration.
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To the extent that the Company does not distribute 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. The Company may elect,
however, to pay the tax on its undistributed long-term capital gains on behalf
of its stockholders, in which case the stockholders would include in income
their proportionate share of the undistributed long-term capital gains and
receive a credit or refund for their share of the tax paid by the Company.
Furthermore, if the Company 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, the Company would be subject
to a 4% nondeductable excise tax on the excess of such required distribution
over the amounts actually distributed (apparently regardless of whether the
Company elects (as described above) to pay the capital gains tax on
undistributed capital gains).
The Company 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 the
Company to meet these distribution requirements. It is possible, however, that
the Company, from time to time, may not have sufficient cash or other liquid
assets to meet the 95% distribution requirement due to timing differences
between the actual receipt of income and actual payment of deductible expenses
and the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company, or if the amount of nondeductible expenses such
as principal amortization or capital expenditures exceed the amount of noncash
deductions. In the event that such timing differences occur, in order to meet
the 95% distribution requirement, the Company 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, the Company 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 the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest to the Service based
upon the amount of any deduction taken for deficiency dividends.
Recordkeeping Requirements. Pursuant to applicable Treasury Regulations,
in order to be able to elect to be taxed as a REIT, the Company must maintain
certain records and request on an annual basis certain information from its
stockholders designed to disclose the actual ownership of its outstanding
stock. The Company intends to comply with such requirements.
A REIT's failure to comply with such requirements would result in a monetary
fine imposed on such REIT. However, no penalty would be imposed if such
failure is due to reasonable cause and not to willful neglect.
Failure To Qualify. If the Company fails to qualify for taxation as a REIT
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in any taxable year and the relief provisions do not apply, the Company 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 the Company 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, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled
to such statutory relief.
TAXATION OF STOCKHOLDERS
Taxation Of Taxable Domestic Stockholders. As long as the Company qualifies
as a REIT, distributions made to the Company's 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. As used herein, the term "U.S. Stockholder" means a holder of
Common Stock that for U.S. federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity taxable as such created or organized in or under the laws of the United
States or of any State (including the District of Columbia), (iii) an estate
whose income from sources without the United States is includible in gross
income for U.S. federal income tax purposes, regardless of its connection with
the conduct of a trade or business within the United States, or (iv) any trust
with respect to which (A) a U.S. court is able to exercise primary supervision
over the administration of such trust and (B) one or more U.S. fiduciaries
have the authority to control all substantial decisions of the trust.
Distributions that are properly designated by the Company as capital gain
dividends are subject to special treatment. According to a notice published by
the Service, until further guidance is issued, if the Company designates a
dividend as a capital gain dividend, it may also designate the dividend as (i)
a 20% rate gain distribution, (ii) an unrecaptured Section 1250 gain
distribution (25% rate) or (iii) a 28% rate gain distribution. However, the
Internal Revenue Service Restructuring Reform Act of 1998 eliminated the
18-month holding period requirement for 20% rate capital gains, effective for
taxable years after December 31, 1997, thus the 20% long-term capital gains
rates will generally apply capital assets held more than one year, effectively
eliminating the 20% rate. The maximum amount which may be designated in
each class of capital gain dividends is determined by treating the Company
as an individual with capital gains that may be subject to the maximum 20%
and the maximum 25% rate. Such designations are binding on each
stockholder, without regard to the period for which the stockholder has held
its Common Stock. However, corporate stockholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income. Capital gain
dividends are not eligible for the dividends received deduction for
corporations.
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 Common Stock, but rather will reduce the
adjusted basis of such stock. To the extent that such distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
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stockholder's Common Stock, such distributions will be included in income as
long-term capital gain (or short-term capital gain if the Common Stock had
been held for one year or less), assuming the Common Stock is a capital asset
in the hands of the stockholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the stockholder on December 31 of
such year, provided that the distribution is actually paid by the Company
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. Instead, such losses would
be carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Stock will not be treated as passive
activity income and, therefore, stockholders generally will not be able to
apply any passive activity losses (such as losses from certain types of
limited partnerships in which a stockholder is a limited partner) against such
income. In addition, taxable distributions from the Company generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of Common Stock (or
distributions treated as such), however, will be treated as investment income
only if the stockholder so elects, in which case such capital gains will be
taxed at ordinary income rates. The Company will notify stockholders after the
close of the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income or capital gain
dividends.
Capital Gains and Losses. A capital asset generally must be held for more
than one year in order for gain or loss derived from its sale or exchange to
be treated as long-term capital gain or loss. The highest marginal individual
income tax rate is 39.6% and the tax rate on long-term capital gains
applicable to non-corporate taxpayers is 20% for sales and exchanges of assets
held for more than one year. Thus, the tax rate differential between capital
gain and ordinary income for non-corporate taxpayers may be significant.
In addition, the characterization of income as capital gain or ordinary
income may affect the deductibility of capital losses. All or a portion
of any loss realized upon a taxable disposition of the Common Stock may
be disallowed if other shares of Common Stock are purchased within 30 days
before or after the disposition. Capital losses not offset by capital gains
may be deducted against a non-corporate taxpayer's ordinary income only up
to a maximum annual amount of $3,000. Unused capital losses may be carried
forward indefinitely by non-corporate taxpayers. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A corporate
taxpayer can deduct capital losses only to the extent of capital gains,
with unused losses being carried back three years and forward five years.
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The capital gains provisions in the legislation authorize the Service to
issue regulations (including regulations requiring reporting) applying the
provisions to any "pass-through entity" including a REIT and interests in such
an entity. No assurance can be given concerning the content of any such
regulations. Generally, the determination of when gain is properly taken into
account will be made at the entity level.
Distributions from the Company 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 the Company (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.
The Company will report to its domestic stockholders and the Service the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A stockholder who
does not provide the Company 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, the Company 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.
Gain or loss realized upon a taxable disposition of Common Stock by a
stockholder will be treated as long-term capital gain or loss if the Common
Stock has been held for more than one year and otherwise, generally, as
short-term capital gain or loss. Any loss upon a sale of Common Stock by a
stockholder who has held the stock for six months or less (after
applying certain holding period rules), will be treated as long-term capital
loss to the extent of distributions from the Company or undistributed captial
gains required to be treated by such stockholder as long-term capital gain.
Taxation of Tax-Exempt Stockholders. Tax-exempt entities, including
qualified employee pension and profit sharing trusts and individual
retirement accounts ("Exempt Organizations"), generally are exempt from
federal income taxation. However, they are subject to taxation
on their unrelated business taxable income ("UBTI"). While many investments in
real estate generate UBTI, the Service has issued a published ruling that
dividend distributions from a REIT to an exempt employee pension trust do not
constitute UBTI, provided that the shares of the REIT are not otherwise used
in an unrelated trade or business of the exempt employee pension trust. Based
on that ruling, amounts distributed by the Company to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of the Common Stock with debt, a portion of its
income from the Company will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Section 501(c) of the Code are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. See "ERISA Considerations."
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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 the Company, 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
the Company of a U.S. real property interest and not designated by the Company
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). The Company 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 (31% if appropriate documentation evidencing such Non-U.S.
Stockholders' foreign status has not been provided) unless (1) a lower
treaty rate applies and the required form evidencing eligibility for that
reduced rate is filed with the Company or (2) the Non-U.S. Stockholder files
an Service Form 4224 with the Company claiming that the distribution is
"effectively connected" income. The Treasury Department issued final
regulations in October 1997 that modify the manner in which the Company
complies with the withholding requirements, generally effective for
distributions after December 31, 1998.
Distributions in excess of current and accumulated earnings and profits of
the Company 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. Because it generally cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, amounts in excess thereof may
be withheld by the Company. However, any such excess amount withheld would be
refundable to the extent it is determined subsequently that such distribution
was, in fact, in excess of current and accumulated earnings and profits of the
Company. Under a separate provision, the Company is required to withhold 10%
of any distribution in excess of the Company's current and accumulated
earnings and profits. Consequently, although the Company intends to withhold
at a rate of 30% (or 31%, if applicable) on the entire amount of any
distribution, to the extent that the Company does not do so, any portion of a
distribution not subject to withholding at a rate of 30% (or 31%, if
applicable) will be subject to withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
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property interests will be taxed to a Non-U.S. Stockholder 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. The Company is required to withhold
35% of any distribution that is designated by the Company as a capital gains
dividend. The amount withheld is creditable against the Non-U.S. Stockholder's
FIRPTA tax liability.
The Company 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 the Company 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 the Company's
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 the Company's current or accumulated earnings and
profits. Tax treaties may reduce the Company's withholding obligations. If the
amount withheld by the Company 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 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 the Company
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 the Company is a domestically
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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 the Company's investment in the Operating
Partnership.
CLASSIFICATION OF THE OPERATING PARTNERSHIP. The Company 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 Service 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.
The 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 if such entity is not
a "publicly traded partnership". 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 confirmed this tax treatment by
electing to be treated as a partnership under the Treasury Regulations.
The Treasury Regulations state that the Service 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
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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 Service 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 Service or the courts.
The Operating Partnership may fall into the definition of a "publicly
traded partnership" which will be treated as a corporation for federal income
tax purposes unless at least 90% of such partnership's gross income for a
taxable year consists of "qualifying income" under Section 7704(d) of the
Code, which generally includes any income that is qualifying income for
purposes of the 95% gross income test applicable to REITs. See "Requirements
for Qualification --Income Tests."
If for any reason the Operating Partnership were taxable as a corporation
rather than as a partnership for federal income tax purposes, the Company
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 the Company 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 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
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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 the Company (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
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 the Company 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 the Company (i)
to be allocated lower amounts of depreciation and other deductions for tax
purposes than would be allocated to the Company 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 the
Company as a result of such sale. These allocations possibly could cause the
Company 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
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partnership interests. To the extent that the Operating Partnership's basis in
a piece of depreciable property exceeds the basis of the property when it was
held by the acquired partnership, such basis should in effect be treated as a
newly acquired, separate asset and entitled to 39-year depreciation.
Section 704(c) of the Code requires that depreciation as well as gain and
loss be allocated in a manner so as to take into account the variation between
the fair market value and tax basis of the property contributed. Similarly,
amortization on intangible contracts for services contributed to the Operating
Partnership will be allocated as required by section 704(c) of the Code.
Depreciation with respect to any property purchased by the Operating
Partnership subsequent to the admission of its partners will be allocated
among the partners in accordance with their respective percentage interests in
the Operating Partnership.
SALE OF PARTNERSHIP PROPERTY. Generally, any gain realized by a partnership
on the sale of property held by the partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. However, under the REIT Requirements,
the Company's 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 the Company as a REIT." Such
prohibited transaction income will also have an adverse effect upon the
Company's 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
holds 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 the Company's 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. The Company 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
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if the Service disallows the items of expense which the Company expects to be
allocated to the Management Companies.
THE TRUST. The Trust was formed as a "qualified REIT subsidiary." As such it
is treated together with the Company as a single entity for federal income tax
purposes.
STATE AND LOCAL TAX CONSIDERATIONS. The Company and the Management Companies
will, and the Company's 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 the Company 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 the Company 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 the
Company or its stockholders. Consequently, the tax treatment described herein
may be modified prospectively or retroactively by legislative, judicial or
administrative action.
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 the Company's 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
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assets of the Company 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.
SELLING SHAREHOLDERS
The partners of the Operating Partnership may from time to time
tender their Units of limited partnership interest to the Operating
Partnership. The Company may give notice to such partners that the Company
will acquire such Units in exchange for shares of Common Stock (the
"LP Purchase Right"). All of the shares being offered hereby are being sold
by the partners in the Operating Partnership who may acquire shares of
Common Stock in exchange for their Units pursuant to the LP Purchase Right
(all of such persons being collectively referred to as the "Selling
Shareholders"). Although none of the Selling Shareholders has indicated
a present intent to tender their Units which would trigger the Company's
right to issue shares of Common Stock to them under the LP Purchase Right,
the Company is required, pursuant to the terms of various registration
rights agreements, to file the registration statement of which
this Prospectus forms a part registering such shares for resale under the
Securities Act. The Company is bearing all costs of this registration.
The Company will not receive any proceeds from the sale of the shares
offered hereby.
The following table sets forth certain information regarding the
Selling Shareholders' ownership of Units and the number of shares of Common
Stock which may be issued pursuant to the LP Purchase Right which are
registered for resale. Because the Selling Shareholders may sell all,
some or none of the shares registered for resale, no estimate can be made
concerning the number shares of Common Stock issued in exchange for Units
that will be offered hereby or the number of shares or Units that each
Selling Shareholder will own upon completion of the offering contemplated
by this Prospectus.
28
<PAGE> Number of Shares
Units Owned Registered for Sale
Name Prior to Offering in Offering
- ------------------------------- ----------------- --------------------
Tower Capital, LLC 279,782 279,782
Beverly Bernstein 72,304 72,304
Park Shirlington Apartments
Limited Partnership 72,304 72,304
Leona Libby Feldman 4,388 4,388
Braddock Lee Apartments
Limited Partnership 47,282 47,282
Sarah Selsky 42,779 42,779
Lauren Libby Pearce 21,938 21,938
Amy S. Rubenstein 11,627 11,627
Beth Dana Rubenstein 13,689 13,689
Barton S. Rubenstein 13,689 13,689
Lee G. Rubenstein 2,808 2,808
Trust U/W Daryl R. Rubenstein
F/B/O Amy Sara Rubenstein 2,062 2,062
Steven M. Reich 1976 Trust 59,313 59,313
WHC Associates, LLC 83,364 83,364
Merrill Bank 19,783 19,783
Ariel Golden Behr 1,469 1,469
Doris Berliner 2,637 2,637
Phillip Chmar 3,830 3,830
Louis K. Coleman 7,152 7,152
Mark Dopkin 371 371
Paul Goldberg 509 509
Joseph Goldman 3,661 3,661
Milton Goldman 8,363 8,363
Emmanuel Greenwald 1,243 1,243
Samuel and Esther Hanik 16,582 16,582
Muriel Hettleman 6,906 6,906
Charles Heyman 1,406 1,406
Samuel Hillman Marital Trust 9,758 9,758
Samuel Hillman Residuary Trust 9,758 9,758
Marvin A. Jolson 1,018 1,018
Isadore Kaplan Revocable Trust 15,824 15,824
Milton Klein 7,305 7,305
Dr. Lee Kress 7,152 7,152
Richard & Cheryl Kress 7,152 7,152
William Kress Marital Trust 60,305 60,305
Elmer W. Leibensperger 859 859
Merrill & Natalie S. Levy 2,637 2,637
Gertrude Myerberg 14,611 14,611
Bertha Pollack 2,486 2,486
Lawrence E. Putnam Family Trust 5,424 5,424
Stephen F. Rosenberg 367 367
Carol Golden 2,486 2,486
Z. Valeere Sass, Trustee 2,637 2,637
Isidore Schnaper 10,421 10,421
M. Gerald Sellman 18,347 18,347
Dr. Albert Shapiro 13,196 13,196
Earle K. Shawe 85,085 85,085
Rhoda E. Silverman, Trustee 1,469 1,469
Herbert J. Siegel 417,947 417,947
29
<PAGE>
Number of Shares
Units Owned Registered for Sale
Name Prior to Offering in Offering
- ------------------------------- ----------------- --------------------
Siegel Family, LLLP 31,995 31,995
Dr. Edgar Sweren 1,018 1,018
Dr.Myra Jody Whitehouse 2,085 2,085
Ms. Terry Whitehouse 2,085 2,085
Harold M. Davis 229,754 229,754
Nicholas V. Martell 229,754 229,754
R.C.E. Developers, Inc. 4,642 4,642
Frances Berkowitz 1,358 1,358
Richard Eisner 10,180 10,180
Norman Fieber 10,180 10,180
Sylvia Fieber 10,180 10,180
Michael Glick 18,664 18,664
Ronnie Glick 1,696 1,696
Shelley Mendell 1,500 1,500
Claire Morse 5,090 5,090
Enid Morse 5,090 5,090
Lester Morse, Jr. 19,088 19,088
Richard Morse 6,999 6,999
Leslie G. Berman 39,094 39,094
PLAN OF DISTRIBUTION
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at
prices and terms then prevailing, at prices related to the then-current market
price, or in negotiated transactions by the holders thereof, which may
include donees and pledgees. The shares may be sold by one or more
of the following methods, without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate a
transaction; (b) purchases by a broker or a dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face-to-face transactions between sellers and purchasers
without a broker or dealer. In effecting sales, brokers or dealers engaged
by one or more of the Selling Shareholders may arrange for other brokers or
dealers to participate. Such brokers or dealers may receive commissions or
discounts from Selling Shareholders in amounts to be negotiated. The Selling
Shareholders and such brokers and dealers and any other participating brokers
or dealers may be deemed "underwriters" under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Nixon, Hargrave, Devans & Doyle LLP. In
addition, Nixon, Hargrave, Devans & Doyle LLP will provide an opinion with
respect to certain tax matters which form the basis of the discussion
under "Federal Income Tax Considerations".
30
<PAGE>
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 of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
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 .................................. $ 14,549.00
NYSE Listing Fee ...................................... 2,000.00*
Legal Fees and Expenses ............................... 2,000.00*
Accounting Fees and Expenses .......................... 1,000.00*
Miscellaneous ......................................... 2,000.00*
----------
Total ......................................... $ 21,549.00*
*Estimate
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified under
Maryland law, the Articles of Incorporation of Home Properties and the
Partnership Agreement ("Operating Partnership Agreement") of Home Properties of
New York, L.P., a New York limited partnership of which the Company is
the general partner, against certain liabilities. The Articles of
Incorporation require the Company to indemnify its directors and officers to
the fullest extent permitted from time to time by the laws of Maryland.
The Bylaws contain provisions which implement the indemnification provisions
of the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is established
that the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty, or the director or officer
actually received an improper personal benefit in money, property or services,
or in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. No
amendment of the Articles of Incorporation of Home Properties shall limit or
eliminate the right to indemnification provided with respect to acts or
omissions occurring prior to such amendment or repeal. Maryland law permits
Home Properties to provide indemnification to an officer to the same extent as
a director, although additional indemnification may be provided if such
officer is not also a director.
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages, subject to
specified restrictions. The MGCL does not, however, permit the liability of
directors and officers to the corporation or its stockholders to be limited
to the extent that (1) it is proved that the person actually received an
improper benefit or profit in money, property or services (to the extent such
benefit or profit was received) or (2) a judgment or other final adjudication
adverse to such person is entered in a proceeding based on a finding that the
person's action, or failure to act, was the
II-1
<PAGE>
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The Articles of Incorporation of
Home Properties contain a provision consistent with the MGCL. No amendment
of the Articles of Incorporation shall limit or eliminate the limitation of
liability with respect to acts or omissions occurring prior to such
amendment or repeal.
The Operating Partnership Agreement also provides for indemnification
of Home Properties and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of Home Properties and
its officers and directors to the Operating Partnership and its partners to the
same extent liability of officers and directors of the Company to Home
Properties and its stockholders is limited under Home Properties' Articles of
Incorporation.
Home Properties has entered into indemnification agreements with each
of Home Properties' directors and certain of its officers. The indemnification
agreements require, among other things, that Home Properties indemnify its
directors and those officers to the fullest extent permitted by law, and
advance to the directors and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. Home Properties also must indemnify and advance all expenses
incurred by directors and officers seeking to enforce their rights under the
indemnification agreements, and cover directors and officers under Home
Properties' directors' and officers' liability insurance. Although the form
of indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Articles of Incorporation and the Bylaws and
the Operating Partnership Agreement of the Operating Partnership, it
provides greater assurance to directors and officers that indemnification
will be available, because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or by the stockholders
to eliminate the rights it provides.
Home Properties has purchased insurance under a policy that insures
both Home Properties and its officers and directors against exposure and
liability normally insured against under such policies, including exposure on
the indemnities described above.
Item 16. Exhibits
5.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP as to legality of common
stock*
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP as to certain tax matters*
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP (included as part of
Exhibits 5.1 and 8.1)
23.2 PricewaterhouseCoopers 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
II-2
<PAGE>
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) 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) To remove from registration by means of a post-effective
amendment any of the securities beign registered which remain unsold at the
termination of the 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
23rd day of September, 1998.
HOME PROPERTIES OF NEW YORK, INC.
By: /s/ Amy L. Tait
Amy L. Tait
Executive Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby severally constitutes and appoints Norman P.
Leenhouts, Nelson B. Leenhouts, Richard J. Crossed and Amy L. Tait, and
each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto such attorney-in-fact and agents, and each of them, full
power and authority to do and person each and every act and thing
requisite or necessary that he might do in person.
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
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Norman P. Leenhouts Director, Chairman September 23, 1998
Norman P. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
/s/ Nelson B. Leenhouts Director, President September 23, 1998
Nelson B. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
/s/ Richard J. Crossed Director, Executive Vice September 23, 1998
Richard J. Crossed President
/s/ Amy L. Tait Director, Executive Vice September 23, 1998
Amy L. Tait President and Chief
Operating Officer
/s/ David P. Gardner Vice President,Chief September 23, 1998
David P. Gardner Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
II-4
<PAGE>
/s/ Burton S. August, Sr Director September 23, 1998
Burton S. August, Sr
/s/ William Balderston, III Director September 23, 1998
William Balderston, III
/s/ Leonard F. Helbig, III Director September 23, 1998
Leonard F. Helbig, III
/s/ Alan L. Gosule Director September 23, 1998
Alan L. Gosule
/s/ Roger W. Kober Director September 23, 1998
Roger W. Kober
/s/ Clifford W. Smith, Jr Director September 23, 1998
Clifford W. Smith, Jr
/s/ Paul L. Smith Director September 23, 1998
Paul L. Smith
II-5
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc. (the "Company")
Registration Statement on Form S-3 No. 333-______
NUMBER DESCRIPTION LOCATION
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
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP Included
with Exhibits 5.1
and 8.1
23.2 Consent of PricewaterhouseCoopers LLP *
23 Power of Attorney Included on
signature page
* Filed herewith
</TABLE>
Exhibit 5.1
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counselors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716) 263-1600
September 23, 1998
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc.
(the "Company") in connection with the Registration Statement on Form S-3,
filed on today, by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, relating to the offer and
sale of up to 2,127,937 of shares of common stock, par value $0.01 per
share (the "Common Stock"), which may be issued from time to time to the
"Selling Shareholders" named in the prospectus ("Prospectus") forming a
portion of the Registration Statement. This opinion is being provided to
you in connection with the filing of the Registration Statement.
We have examined the originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
other representatives of the Company, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein, including (i) the
Articles of Amendment and Restatement of the Articles of Incorporation of
the Company, as amended to the date hereof (the "Articles of
Incorporation"), (ii) the Amended and Restated By-Laws of the Company, as
amended to the date hereof (the "By-Laws"), (iii) certified copies of
certain resolutions duly adopted by the Board of Directors of the Company,
and (iv) the Second Amended and Restated Agreement of Limited Partnership,
as amended (the "Partnership Agreement") of Home Properties of New York,
L.P. (the "Operating Partnership"). As to factual matters material to the
opinions set forth below we have relied, without investigation, upon the
representations and statements of the Company in the Registration Statement
and in such certificates of government officials and officers of the
Company as we have deemed necessary for the purposed of the opinions
expressed herein.
The opinions stated herein are limited to the federal laws of the
United States, the laws of the State of New York and the General
Corporation Law of the State of Maryland.
Based upon and subject to the conditions and limitations set
forth herein, we are of the opinion that:
When the Registration Statement has become effective under the
Act and the shares of Common Stock have been issued in exchange for Units
as described in the Partnership Agreement, and the certificates
representing such shares of Common Stock are authenticated and delivered,
such shares of Common Stock issued will be duly authorized, validly issued,
fully paid and non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to
the above-referenced Registration Statement and to the use of our name as
it appears under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
Exhibit 8.1
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counselors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716) 263-1600
September 23, 1998
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc.
(the "Company") in connection with certain matters relating to its
Registration Statement on Form S-3 (the "Registration Statement") filed
today with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, 2,127,937 shares
of its common stock, par value $.01 per share ("Common Stock"), which may
be issued from time to time to the "Selling Shareholders" named in the
prospectus ("Prospectus") forming a portion of the Registration Statement
in exchange for units of limited partnership in Home Properties of New
York, L.P. held by such Selling Shareholders. This opinion relates to the
accuracy of information set forth under the caption "FEDERAL INCOME TAX
CONSEQUENCES" of the Prospectus which forms a portion of the Registration
Statement (the "Prospectus"). All capitalized terms used but not defined
herein shall have the meaning ascribed to them in the Registration
Statement.
Based on our examination of the foregoing items, and subject to the
assumptions, exceptions, limitations and qualifications set forth therein,
we are of the opinion that the discussion in the Prospectus under the
caption "FEDERAL INCOME TAX CONSIDERATIONS" fairly summarizes the federal
income tax considerations that are likely to be material to purchasers of
the Common Stock who are United States citizens or residents and who are
not subject to special treatment under the tax laws.
Our opinions expressed herein are based upon our interpretation of the
current provisions of the Code and existing judicial decisions,
administrative regulations and published rulings and procedures. Our
opinions are not binding upon the Internal Revenue Service or courts and
there is no assurance that the Internal Revenue Service will not
successfully challenge the conclusions set forth herein. No assurance can
be given that future legislative, judicial or administrative changes, on
either a prospective or retroactive basis, would not adversely affect the
accuracy of the conclusions stated herein. We undertake no obligation to
advise you of changes in law which may occur after the date hereof.
We hereby consent to the reference to us under the caption "LEGAL
MATTERS" in the Registration Statement, and to the filing of this opinion
as an Exhibit to the Registration Statement, without implying or admitting
that we are experts within the meaning of the Securities Act of 1933, as
amended, with respect to any part of the Registration Statement.
This letter is furnished to the Company and is solely for its benefit.
This letter may not be relied upon by any other person or for any other
purpose and may not be referred to or quoted from without our prior written
consent.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on this Form S-3 to be filed by Home Properties of New York,
Inc. of our reports, (1) dated February 2, 1998, on our audits of the
consolidated financial statements and financial statement schedule of
Home Properties of New York, Inc. as of December 31, 1997 and 1996, and
for the three years in the period ended December 31, 1997, which report
was included in the 1997 Annual Report on Form 10-K (2) dated December
23, 1997 on our audit of the Detroit Acquisition Properties for the year
ended December 31, 1996, which report is included in Form 8-K/A Amendment
No. 1 dated October 7, 1997 and filed on January 12, 1998, (3) dated
March 16, 1998 and March 18, 1998 on our audits of Candlewood Apartments
and Park Shirlington and Braddock Lee Apartments, respectively, for the
year ended December 31, 1997, which reports are included in Form 8-K,
dated March 23, 1998 and filed on March 24, 1998, (4) dated May 15, 1998
on our audits of the Acquisition Portfolio for the year ended December
31, 1997 and the Baltimore Portfolio for the year ended September 30,
1997, and dated May 20, 1998 on our audit of the Pines of Perinton for
the year ended September 30, 1997, respectively, which reports are
included in Forms 8-K dated May 21, 1998 and filed on May 22, 1998, (5)
dated May 28, 1998 on our audit of the Colonies' Apartments for the year
ended December 31, 1997, which report is included in Form 8-K dated March
17, 1998 and filed on June 2, 1998, (6) dated August 6, 1998 on our audit
of Racquet Club East for the year ended December 31, 1997, which report
is included in Form 8-K dated May 28, 1998 and filed August 6, 1998. We
also consent to the reference to our firm under the caption "Experts".
/S/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
September 23, 1998
