HOME PROPERTIES OF NEW YORK INC, 424B2, 1998-06-04

HOME PROPERTIES OF NEW YORK INC
424B2, 1998-06-04
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>

RULE NO. 424(b)(2)
REGISTRATION NO. 333-52601

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED +
+EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 415 +
+UNDER THE SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT AND +
+PROSPECTUS WILL BE DELIVERED TO PURCHASERS OF THESE SECURITIES. THIS +
+PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JUNE 2, 1998

PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 26, 1998)

4,500,000 SHARES

[LOGO] HOME
PROPERTIES

COMMON STOCK
------------

Home Properties of New York, Inc. ("Home Properties" or the "Company"), a
fully integrated, self-administered and self-managed real estate investment
trust (a "REIT"), owns, operates, acquires and selectively develops multifamily
apartment communities throughout the Northeastern, Mid-Atlantic and Midwestern
regions of the United States. The Company currently operates 231 communities
containing 26,090 apartment units. Of these, 17,103 units in 71 communities are
wholly-owned by the Company, 6,139 units in 119 communities are managed and
partially-owned by the Company as general partner, and 2,848 units in 41
communities are managed for other owners. The communities are located
throughout the Northeastern quadrant of the United States in New York,
Michigan, Pennsylvania, Maryland, New Jersey, Virginia, Connecticut, Indiana
and Ohio.

The Company has entered into agreements to purchase a portfolio of 17
apartment communities containing 4,002 apartment units as well as three
additional apartment communities containing 1,647 apartment units (together,
the "Acquisition Communities"). The Acquisition Communities are located in
seven Northeast, Mid-Atlantic and Midwest states and are being acquired for an
aggregate purchase price of approximately $213 million.

All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by the Company. The
Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol "HME." On June 1, 1998, the last reported sales price of the Common
Stock on the NYSE was $26.8125 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS AND CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON
STOCK.

----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) the Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- --------------------------------------------------------------------------------
Total................................... $ $ $
- --------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3)............... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and Home Properties of New York, L.P. have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 675,000 additional shares of Common
Stock, on the same terms, solely to cover over-allotments. See
"Underwriting."

----------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
, 1998.

----------

PAINEWEBBER INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
CIBC OPPENHEIMER
SALOMON SMITH BARNEY
WHEAT FIRST UNION

----------

THE DATE OF THE PROSPECTUS SUPPLEMENT IS , 1998.
<PAGE>

[LOGO]HOME
PROPERTIES

[MAP APPEARS HERE]

CORE COMMUNITIES PRO FORMA*
At January 1, 1997

CORE PRO FORMA*
[GRAPH APPEARS HERE] ======================================== [GRAPH APPEARS
HERE]
UNITS % LOCATION UNITS %

6,168 94.1% .NEW YORK 8,569 37.7%
.MICHIGAN 3,646 16.0%
384 5.9% .PENNSYLVANIA 3,169 13.9%
.NEW JERSEY 2,913 12.8%
.MARYLAND 1,589 7.0%
.ILLINOIS 672 3.0%
.MAINE 596 2.6%
.VIRGINIA 548 2.4%
.CONNECTICUT 498 2.2%
.INDIANA 310 1.3%
.OHIO 242 1.1%
----------------------------------------
6,552 100.0% TOTAL 22,752 100.0%
----------------------------------------

*Pro forma for the closing of the Recent Acquisitions and the Acquisition
Communities.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS
MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
<PAGE>

LOGO HOME
PROPERTIES

[PHOTO]

MOUNTAINSIDE Garnerville,
New York (Acquisition Community)

[PHOTO]

1600 ELMWOOD Rochester, New York
(Core Community)

[PHOTO]
FINGER LAKES MANOR Rochester,
New York (Core Community)

[PHOTO] [PHOTO]

CANTERBURY SQUARE Troy, Michigan PLEASANTVIEW Piscataway,
(Recent Acquisition) New Jersey (Acquisition
Community)
<PAGE>

LOGO HOME
PROPERTIES

[PHOTO]

[PHOTO] CHARTER SQUARE Troy, Michigan
(Recent Acquisition)
RIVERTON KNOLLS Rochester,
New York (Core Community)

[PHOTO]

PERINTON MANOR Rochester, New York
(Core Community)

[PHOTO] [PHOTO]

THE TOWERS Passaic, MORNINGSIDE HEIGHTS Owings Mills,
New Jersey (Acquisition Community) Maryland (Recent Acquisition)
<PAGE>

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information included elsewhere in this
Prospectus Supplement or the accompanying Prospectus or incorporated therein by
reference. References to "Home Properties" or the "Company" in this Prospectus
Supplement mean, except as the context otherwise requires, Home Properties of
New York, Inc., a Maryland corporation, Home Properties of New York, L.P., a
New York limited partnership (the "Operating Partnership"), Home Properties
Trust, a Maryland trust (the "Trust"), HP Management, Inc., a Maryland
corporation ("HP Management"), Conifer Realty Corporation, a Maryland
corporation ("Conifer Realty" and, together with HP Management, the "Management
Companies"), and all other subsidiaries of the Company on a consolidated basis.
The information set forth in this Prospectus Supplement assumes no exercise of
the Underwriters' over-allotment option. This Prospectus Supplement contains,
and the accompanying Prospectus contains or incorporates by reference,
statements that may be deemed to be "forward-looking" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Risk Factors" in
the accompanying Prospectus.

THE COMPANY

Home Properties of New York, Inc., a fully integrated, self-administered and
self-managed real estate investment trust (a "REIT"), owns, operates, acquires
and selectively develops multifamily apartment communities throughout the
Northeastern, Mid-Atlantic and Midwestern regions of the United States. The
Company currently operates 231 communities containing 26,090 apartment units.
Of these, 17,103 units in 71 communities are wholly-owned by the Company, 6,139
units in 119 communities are managed and partially- owned by the Company as
general partner and 2,848 units in 41 communities are managed for other owners.
The communities are located throughout the Northeastern quadrant of the United
States in New York, Michigan, Pennsylvania, Maryland, New Jersey, Virginia,
Connecticut, Indiana and Ohio (together, the "Current Markets"). Since its
initial public offering in August 1994 (the "IPO"), the Company has more than
quadrupled the size of its wholly-owned portfolio and has expanded its
geographic presence from Upstate New York to eight additional states. During
this period, the Company acquired 59 communities containing 13,736 apartment
units for a total acquisition cost of approximately $483 million.

The Company has entered into agreements to purchase a portfolio of 17
apartment communities containing 4,002 apartment units for an aggregate
purchase price of $155 million as well as three additional apartment
communities containing 1,647 apartment units for an aggregate purchase price of
$58 million (together, the "Acquisition Communities"). The Acquisition
Communities are located in New Jersey, New York, Pennsylvania, Illinois, Maine,
Ohio and Michigan. Following the purchase of the Acquisition Communities, the
Company will operate a total of 31,739 apartment units, of which 22,752 units
will be wholly-owned. The purchase of the Acquisition Communities will result
in a 33% increase in the number of wholly-owned apartment units in the
Company's portfolio. Management believes that the inclusion of the Acquisition
Communities will result in incremental cash flow growth per share, both in the
short-term and long-term, while also providing additional operating
efficiencies and geographic diversification for the Company's portfolio. While
the Company has substantially completed its due diligence for the Acquisition
Communities with regard to their financial performance, physical condition and
market environment, their purchase remains subject to customary closing
conditions.

S-3
<PAGE>

limited new construction activity, where the majority of the existing
multifamily housing stock is over 20 years old. The Company's communities,
which generally have brick exteriors and mature landscaping, are typically
located in established suburban neighborhoods. With a commitment to customer
service and the ability to provide quality housing at affordable prices, Home
Properties' communities appeal to a broad range of senior and middle-income
residents. The Company maintains 11 regional property management offices that
provide support for the on-site property management teams.

Home Properties, which was incorporated under the laws of the State of
Maryland in November 1993, was formed to continue and expand the multifamily
apartment community investment, management acquisition and development
operations of Home Leasing Corporation ("Home Leasing"). In 1996, Home
Properties combined its operations with those of Conifer Realty Inc. and its
affiliates, an owner and operator of multifamily communities with an expertise
in the area of government-assisted and affordable housing. The Company and its
predecessors have operated multifamily communities for over 30 years and its 24
officers have been employed by such entities for an average of 13 years. As of
May 31, 1998, the Company had approximately 1,400 employees.

RISK FACTORS

An investment in the Common Stock involves various risks, including the risks
associated with the purchase of the Acquisition Communities and the risk that
the purchase of some or all of the Acquisition Communities may not occur. See
"Risk Factors" beginning on page 4 of the accompanying Prospectus for certain
factors and considerations relevant to an investment in the Common Stock.

BUSINESS STRATEGIES

The Company seeks to maximize growth in funds from operations ("FFO") and
cash available for distribution to stockholders through effective management,
operation, acquisition and selective development of multifamily apartment
communities. The Company believes that opportunities exist to increase FFO and
cash available for distribution per share by: (i) aggressively managing its
communities and maintaining a firm commitment to resident satisfaction in order
to achieve increased net operating income; (ii) acquiring additional apartment
communities at attractive returns and significantly below replacement costs;
(iii) selectively developing and rehabilitating apartment communities to
maximize development fee income while increasing the number of communities
under management; and (iv) maintaining a conservative capital structure with
efficient access to the capital markets to facilitate the accretive acquisition
of additional communities.

. PROPERTY MANAGEMENT. The Company follows a decentralized management
approach, providing on-site personnel with the training, information,
authority and incentives to achieve specific goals established for each
community. Two goals are always reinforced--to enhance the quality of
living for residents and to improve the financial performance and
physical condition of each community on an annual basis. The Company has
been able to consistently increase its net operating income, while
keeping resident turnover well below national averages. In 1997, the
Company's same property net operating income growth was 8.4%, which
management believes ranked among the highest in the multifamily REIT
sector. Resident turnover in 1997 averaged 40% at the Company's
communities owned throughout 1996 and 1997.

. ACQUISITIONS. The Company pursues external growth through acquisitions
which are expected to generate returns in excess of its average cost of
capital, both initially and over the long-term. In addition, the Company
aims to acquire strategically located communities which will increase the
geographic diversification and operating efficiencies. Targeted markets
include select metropolitan areas within the Northeast, Mid-Atlantic and
Midwest states that possess characteristics similar to those found in the
Current Markets, including a limited amount of new construction,
acquisition opportunities well below replacement costs, a mature housing
stock and a stable or growing job market.

S-4
<PAGE>

. DEVELOPMENT. The Company, through its subsidiary, Conifer Realty, intends
to continue to selectively develop and rehabilitate apartment communities
using various forms of government assistance. The Company manages and
partially owns these government-assisted communities through its
interests as a general partner. These activities provide development
fees, ongoing management and incentive management fee income and the
potential for participation in residual values. The Company's active
development capabilities also position the Company to build market rate
communities for its own portfolio, when market conditions warrant.

. FINANCING. Management intends to maintain a conservative capital
structure that allows the Company continued access to the capital
markets. Due to its ability to readily access the debt and equity
markets, management believes the Company enjoys a competitive advantage
in negotiating acquisitions and generating returns from those
acquisitions that exceed its average cost of capital. Since the IPO, the
Company has efficiently raised equity capital through a variety of
methods, including the issuance of units of limited partnership interest
in the Operating Partnership (the "OP Units") as consideration for
acquisitions, the issuance of Common Stock and a preferred interest in
the Operating Partnership directly to institutional investors and the
issuance of new shares of Common Stock through its Dividend Reinvestment,
Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan
(the "Direct Stock Purchase and Dividend Reinvestment Program").

As of March 31, 1998, the Company's ratio of debt to total market
capitalization was approximately 32%. Management intends to maintain
predominantly fixed-rate debt with staggered maturities. As of May 31,
1998, the Company had no floating interest rate debt outstanding and its
$50 million unsecured credit facility (the "Unsecured Credit Facility")
was fully available.

The Company, in pursuing its business strategy, has achieved the following
results and secured the following opportunities:

. Rental increases for the "Core Communities" (communities owned since the
beginning of the prior calendar year, so that same property comparisons
are available) have averaged 3.2% over the past eight years while
occupancies, subject to normal seasonal variations, have remained stable
at an average of 95%.

. Net operating income growth for the Core Communities has averaged 4.1%
over the past eight years.

. Since the IPO, the Company has acquired 59 apartment communities
containing 13,736 apartment units for an aggregate purchase price of
approximately $483 million (approximately $35,000 per apartment unit).

. The Company has entered into agreements to purchase the Acquisition
Communities, which total 20 communities containing 5,649 apartment units,
for an aggregate purchase price of approximately $213 million. In
addition to the Acquisition Communities, the Company currently has a
number of other apartment communities under consideration for
acquisition.

. Since its merger with Conifer Realty, Inc. on January 1, 1996, the
Company has developed or rehabilitated 12 communities containing 1,744
apartment units under a variety of government programs for affordable
housing.

. Since the IPO, the Company has efficiently raised approximately $394
million in equity capital through the issuance of OP Units, Common Stock
and a preferred interest in the Operating Partnership.

. Since the IPO, the per share price of the Common Stock has increased from
$19.00 to $26.8125 (as of June 1, 1998) and annual dividends per share
have increased from $1.65 to $1.80. The compounded annual return to
investors since the IPO (including the reinvestment of dividends) has
averaged 18.2%.

S-5
<PAGE>

RECENT DEVELOPMENTS

PENDING ACQUISITIONS

The Company has entered into agreements to purchase the Acquisition
Communities containing 5,649 apartment units for an aggregate purchase price of
approximately $213 million. The Acquisition Communities are located in New
Jersey, New York, Pennsylvania, Illinois, Maine, Ohio and Michigan. Upon
purchase of the Acquisition Communities, the Company will have increased the
number of apartment units in its wholly-owned portfolio by 33%. Management
believes that the purchase of the Acquisition Communities will increase the
Company's market presence in the Current Markets, thereby increasing its
economies of scale in these markets, while also establishing an initial
presence in Illinois and Maine, two regions targeted by the Company for future
expansion. While the Company has substantially completed its due diligence for
the Acquisition Communities with regard to their financial performance,
physical condition and market environment, their purchase remains subject to
customary closing conditions.

1998 COMPLETED ACQUISITIONS

Since January 1, 1998, the Company has completed the acquisition of nine
multifamily apartment communities aggregating 3,055 apartment units for an
aggregate purchase price of approximately $120 million. These communities are
located in the Current Markets where the Company continues to increase its
presence and diversify its portfolio.

The completion of the acquisition of these nine communities, coupled with the
anticipated closings of the Acquisition Communities, will result in the Company
having acquired 29 apartment communities containing 8,704 units for an
aggregate purchase price of approximately $333 million since January 1, 1998,
representing a 62% increase in the number of wholly-owned apartment units.

In addition, in May 1998, the Company acquired the general partnership
interests in a portfolio of Rural Development (formerly Farmers Home
Administration) communities. This portfolio consists of 46 communities
containing 1,337 units, of which three communities with 92 units are under
construction. Each of these communities will be directly managed by the Company
from its new regional office in Erie, Pennsylvania. In addition, the Company
will fee manage an additional eight communities containing 225 units. Forty-one
of the communities are located in Pennsylvania, 11 are located in Upstate New
York and two are located in Ohio.

FINANCING ACTIVITIES

On May 29, 1998, the Company completed an offering of 1,085,000 shares of
Common Stock with PaineWebber Incorporated. PaineWebber Incorporated deposited
the shares of Common Stock with the trustee of PaineWebber Equity Trust REIT
Series 1, a unit investment trust registered under the Investment Company Act
of 1940, as amended. The net cash proceeds to the Company of approximately
$27.4 million will be used to fund acquisitions, which may include the
Acquisition Communities, and for general corporate purposes.

On May 15, 1998, the Company obtained a commitment for a $155 million standby
acquisition facility (the "Acquisition Facility") in connection with the
pending purchase of the portfolio of 17 apartment communities included in the
Acquisition Communities. The Acquisition Facility provides financing in
addition to the Company's $50 million Unsecured Credit Facility. The
Acquisition Facility, if drawn, will bear interest at LIBOR plus 1.65% and
mature one year following funding. Subject to customary closing conditions, the
Company may draw on the Acquisition Facility at any time during the 90 days
following May 15, 1998, to pay up to 100% of the purchase price of such
portfolio.

On April 14, 1998, the Company completed a direct placement of 1,320,755
shares of Common Stock at a price of $26.50 per share to the State Treasurer of
the State of Michigan, as custodian for various public

S-6
<PAGE>

employee retirement systems (the "Michigan Retirement System"). The net cash
proceeds from the offering of $35 million were used primarily to repay amounts
outstanding on the Company's Unsecured Credit Facility and for general
corporate purposes.

On March 27, 1998, the Company completed an offering of 384,615 shares of
Common Stock with Wheat First Securities, Inc. Wheat First Securities, Inc.
sold the shares to Van Kampen American Capital, which deposited them into Wheat
First Union REIT Income & Growth Trust, Series 1. In addition, on March 27,
1998, the Company completed a direct placement of 39,650 shares of Common Stock
to the Michigan Retirement System. The aggregate net proceeds of approximately
$10.5 million were used by the Company to repay borrowings outstanding under
the Unsecured Credit Facility and for general corporate purposes.

Since January 1, 1998, the Company has sold an aggregate of 1,229,480 shares
of Common Stock pursuant to its Direct Stock Purchase and Dividend Reinvestment
Program at an average price of $25.943 per share. The aggregate proceeds of
approximately $31.9 million have been used by the Company to fund acquisitions,
to repay borrowings outstanding under the Unsecured Credit Facility and for
general corporate purposes.

THE OFFERING

<TABLE>
<C> <S>
Common Stock Offered by the Company... 4,500,000 shares of Common Stock
Common Stock Outstanding After the
Offering............................. 17,942,258 shares(1)
Offering Price........................ $ per share
Use of Proceeds....................... To fund a portion of the purchase
price of the Acquisition Communities
and for general corporate purposes.
NYSE Symbol........................... HME
</TABLE>
- --------
(1) Excludes (a) 8,987,312 shares of Common Stock reserved for issuance upon
exchange of outstanding OP Units and a preferred interest in the Operating
Partnership, (b) 834,123 shares of Common Stock reserved for issuance
pursuant to outstanding employee stock options, (c) 25,000 shares of Common
Stock reserved for issuance pursuant to the Company's Directors' Grant
Stock Plan, (d) 500,000 shares of Common Stock reserved for issuance
pursuant to the Company's Director, Officer and Employee Stock Purchase
Plan and (e) 1,376,681 shares of Common Stock reserved for issuance
pursuant to the Direct Stock Purchase and Dividend Reinvestment Program.

S-7
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following table sets forth certain financial data for the Company on a
consolidated historical basis and on a pro forma basis. This financial data
should be read in conjunction with the Company's consolidated financial
statements and notes thereto incorporated by reference in the accompanying
Prospectus. The historical financial data of the Company may not be indicative
of future operating results of the Company. The pro forma financial data of the
Company is not necessarily indicative of what the financial position and
results of operations of the Company would have been as of and for the periods
indicated, nor does it purport to represent the Company's future financial
position and results of operations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------------------- -----------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
1997 1998 1998(1) 1998(1)(2) HISTORICAL HISTORICAL HISTORICAL 1997(1) 1997(1)(2)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 1995 1996 1997 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues... $ 13,842 $ 26,773 $ 40,994 $ 40,994 $ 34,301 $ 45,670 $ 69,697 $ 130,910 $ 130,910
Total expenses... $ 12,001 $ 21,826 $ 34,034 $ 31,996 $ 29,801 $ 40,626 $ 56,739 $ 106,923 $ 98,770
Net income....... $ 1,269 $ 2,775 $ 4,159 $ 5,982 $ 2,796 $ 4,147 $ 6,390 $ 13,986 $ 21,437
Weighted average
shares:
Basic........... 6,378,441 9,702,975 13,398,063 17,898,063 5,408,474 5,601,027 7,415,888 11,476,623 15,976,623
Diluted......... 6,521,345 9,900,451 13,595,539 18,095,539 5,408,474 5,633,004 7,558,167 11,618,902 16,118,902
Net income per
share:
Basic........... $ 0.20 $ 0.29 $ 0.31 $ 0.33 $ 0.52 $ 0.74 $ 0.86 $ 1.22 $ 1.34
Diluted......... $ 0.20 $ 0.28 $ 0.31 $ 0.33 $ 0.52 $ 0.74 $ 0.84 $ 1.20 $ 1.33
BALANCE SHEET
DATA:
Real estate
before
accumulated
depreciation.... $ 283,910 $ 598,755 $ 863,376 $ 863,376 $ 198,203 $ 261,773 $ 525,128 $ 855,899 $ 855,899
Total assets..... $ 274,486 $ 618,090 $ 883,323 $ 883,323 $ 181,462 $ 248,631 $ 543,823 $ 876,586 $ 876,586
Total debt....... $ 113,582 $ 239,626 $ 408,408 $ 294,385 $ 91,119 $ 105,176 $ 218,846 $ 399,142 $ 285,119
Stockholder's
equity.......... $ 100,079 $ 174,687 $ 254,753 $ 368,776 $ 75,780 $ 83,030 $ 151,432 $ 256,233 $ 370,256
OTHER
INFORMATION:
Funds from
operations(3)... $ 4,150 $ 9,181 $ 13,204 $ 15,242 $ 11,025 $ 13,384 $ 24,345 $ 43,790 $ 51,943
Net cash provided
by (used in)
operating
activities...... $ 719 $ 6,372 -- -- $ 9,811 $ 14,241 $ 27,285 -- --
Net cash provided
by (used in)
investing
activities...... $ (24,709) $ (45,205) -- -- $ (21,348) $ (25,641) $ (102,460) -- --
Net cash provided
by (used in)
financing
activities...... $ 23,260 $ 37,845 -- -- $ 10,714 $ 12,111 $ 77,461 -- --
Total
communities, end
of period....... 29 67 91 91 20 28 63 91 91
Total apartment
units, end of
period.......... 7,544 15,514 22,752 22,752 5,650 7,176 14,048 22,752 22,752
</TABLE>
- -------
(1) Reflects the pro forma adjustments relating to the acquisitions and pending
acquisitions of communities during 1998 and included in the Company's
Current Reports on Form 8-K filed on March 23, 1998, May 22, 1998 and June
2, 1998. In addition, the following issuances of shares of Common Stock are
reflected: 1,229,480 shares at various dates in 1998 under the Company's
Dividend Reinvestment Plan; 424,265 shares on March 27, 1998; 1,320,755
shares issued on April 22, 1998; and 1,085,000 shares on May 29, 1998. The
proceeds of such issuances were used to repay amounts borrowed under the
Company's Unsecured Credit Facility, to fund anticipated acquisitions and
for general corporate purposes. All of the above are reflected assuming
such issuances had occurred as of January 1, 1997.
(2) Reflects the pro forma adjustments relating to this offering of the
4,500,000 shares of Common Stock offered by the Company (the "Offering")
and the use of the net proceeds from this Offering to pay down debt. See
"Use of Proceeds."

S-8
<PAGE>

(3) Management generally considers FFO to be an appropriate measure of the
operating performance of an equity REIT. Management believes that in order
to facilitate a clear understanding of the consolidated historical
operating results of the Company, FFO should be considered in conjunction
with net income as presented herein. FFO is determined in accordance with a
resolution adopted by the National Association of Real Estate Investment
Trusts, Inc. ("NAREIT"), and is defined as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. FFO does
not represent cash generated from operating activities in accordance with
GAAP and therefore should not be considered as an alternative to net
income, an indication of the Company's performance or an indication of cash
available to fund cash needs. Further, FFO as disclosed by other REITs may
not be comparable to the Company's calculation of FFO.

The calculation of FFO for the periods presented is reflected in the
following table:

SUMMARY CALCULATION OF FUNDS FROM OPERATIONS
(UNAUDITED)

S-9
<PAGE>

THE COMPANY

GENERAL

Home Properties, a fully integrated, self-administered and self-managed
REIT, owns, operates, acquires and selectively develops multifamily apartment
communities throughout the Northeastern, Mid-Atlantic and Midwestern regions
of the United States. The Company currently operates 231 communities
containing 26,090 apartment units in the Current Markets. Of these, 17,103
units in 71 communities are wholly-owned by the Company, 6,139 units in 119
communities are managed and partially-owned by the Company as general partner
and 2,848 units in 41 communities are managed for other owners. In addition,
Home Properties manages 1.7 million square feet of commercial space for other
owners.

Home Properties has a strategy of acquiring apartment communities at prices
significantly below replacement costs and repositioning them for long-term
growth. The Company focuses on stable markets with limited new construction
activity, where the majority of the existing multifamily housing stock is over
twenty years old. The Company's communities, which generally have brick
exteriors and mature landscaping, are typically located in established
suburban neighborhoods. With a commitment to customer service and the ability
to provide quality housing at affordable prices, Home Properties' communities
appeal to a broad range of senior and middle-income residents. The Company
maintains 11 regional property management offices that provide support for the
on-site property management teams.

The Company is led by a senior management team with extensive experience in
the acquisition, development, management and financing of multifamily
apartment communities. The personal and business relationships that management
has developed over time within the multifamily business have contributed
significantly to the Company's ability to identify and consummate favorable
acquisitions. The Company and its predecessors have operated multifamily
communities for over 30 years and its 24 officers have been employed by such
entities for an average of 13 years. As of May 31, 1998, the Company had
approximately 1,400 employees.

The Company's executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Its telephone number is (716) 546-4900.

S-10
<PAGE>

HISTORICAL AND PRO FORMA PORTFOLIO GROWTH

The following chart reflects the growth in the number of apartment units
wholly-owned by the Company and the total number of apartment units operated
by the Company from 1994 (prior to the IPO) through May 31, 1998, as well as
on a pro forma basis, assuming the purchase of all of the Acquisition
Communities.

PORTFOLIO GROWTH

[THE FOLLOWING TABLE WAS REPRESENTED IN THE PRINTED MATERIAL BY A BAR GRAPH]

Total Units Total Units
Operated Owned
----------- -----------

Pre-IPO 3,535 3,065
12/31/94 5,214 4,744
12/31/95 6,216 5,524
12/31/96 12,568 7,176
12/31/97 21,316 14,048
5/31/98 26,090 17,103
Pro Forma 31,739 22,752

SAME PROPERTY PERFORMANCE

The Company has consistently been able to increase rents at its wholly-owned
communities while maintaining stable occupancies. Since 1990, rent increases
at its Core Communities (communities owned since the beginning of the prior
calendar year, so that same property comparisons are available) have averaged
3.2%, while occupancies have remained stable, subject to normal seasonal
variations, at an average level of 95%. The following chart reflects the
annual average increases in rental rates at the Core Communities and the
average economic occupancy since 1990.

STABLE OCCUPANCIES AND
RENTAL RATE GROWTH

[THE FOLLOWING TABLE WAS REPRESENTED IN THE PRINTED MATERIAL BY A BAR GRAPH]

Average Average Rental
Occupancy Growth Rate
--------- --------------

1990 94.8% +4.3%
1991 94.7% +3.1%
1992 95.8% +2.6%
1993 95.1% +2.9%
1994 94.7% +3.2%
1995 93.5% +2.9%
1996 94.3% +3.3%
1997 95.3% +3.1%
1st Quarter 1998 93.7% +2.5%

S-11
<PAGE>

Due to the consolidation and growth of the Company's portfolio and
management's implementation of strict cost controls, the Company has
successfully limited the rate of increase in its property-level operating
expenses to less than the inflation rate. This has been particularly evident
since the Company's IPO in August 1994. In addition, the Company seeks to
upgrade and reposition the communities it acquires, generating improved
operating performance which may take a period of several years to fully
realize. As a result, the Company has been able to exceed inflationary
increases in the net operating income generated on a same property basis. The
following chart reflects the annual average increases in net operating income
at the Core Communities since 1990.

NET OPERATING INCOME GROWTH

[The following table is represented in the printed material as a bar graph.]

1st
Quarter
1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------ ------ ------ ------ ------ ------ ------ ------ ------

+2.7% +4.4% +1.8% +2.7% +2.2% +5.0% +5.9% +8.4% +15.2%

ORGANIZATION

Home Properties was incorporated under the laws of the State of Maryland in
November 1993. It was formed to continue and expand the multifamily apartment
community investment, management, acquisition and development operations of
Home Leasing. In 1996, Home Properties combined its operations with those of
Conifer Realty, Inc. and its affiliates, an owner and operator of multifamily
communities with an expertise in the area of government-assisted and
affordable housing. The Company and its predecessors have operated multifamily
communities for over 30 years and its 24 officers have been employed by such
entities for an average of 13 years. As of May 31, 1998, the Company had
approximately 1,400 employees.

The Company conducts substantially all of its business and owns all of its
properties through the Operating Partnership. The Operating Partnership holds
the wholly-owned communities either directly or through subsidiaries formed to
facilitate the financing of acquisitions. Many of the acquisitions of
communities since the IPO have been financed by issuing OP Units to the
sellers in "UPREIT" transactions. These transactions permit sellers to defer
recognition of taxable income on sale of their communities. Home Properties
holds a 1% interest as a general partner in the Operating Partnership and,
through the Trust, a 56.8% limited partnership interest in the Operating
Partnership. The other limited partnership interests in the Operating
Partnership are held by various members of the Company's management and by
former owners of various apartment communities acquired with OP Units since
the IPO. The 7,320,645 OP Units outstanding as of May 31, 1998 may be
exchanged for Common Stock on a one-for-one basis or cash, at the Company's
option, subject to certain conditions. On December 30, 1996, the Operating
Partnership raised $35 million in a private placement of a preferred limited
partnership interest to the Michigan Retirement System. The preferred interest
is exchangeable for 1,666,667 shares of Common Stock.

The Trust is a Maryland real estate development trust organized as a
"qualified REIT subsidiary" of the Company and is consolidated with the
Company for federal income tax purposes. The Trust was formed through

S-12
<PAGE>

the exchange of all of the stock of the Trust for all but 1% of the Company's
interest in the Operating Partnership. The Trust has no other assets and
engages in no activities other than holding the OP Units, which provides
certain state tax advantages.

Certain property management, leasing and development activities are
performed for the Company by the Management Companies. The Management
Companies were each organized with 99% of the economic interest represented by
non-voting stock held by the Operating Company and 1% of the economic interest
and all the voting stock held by members of management in order to comply with
certain REIT requirements under the Internal Revenue Code of 1986, as amended
(the "Code"). The Management Companies receive development, construction and
other fee income from communities being developed, as well as property
management fees.

HP Management manages certain commercial properties owned by affiliates of
Home Leasing at the time of the IPO. It also manages apartment communities for
other owners and engages in various development activities on behalf of the
Company. Conifer Realty principally develops and manages the Company's
government-assisted apartment communities.

Communities developed or rehabilitated under the Low Income Housing Tax
Credit ("LIHTC") program are generally held by the Company through special
purpose partnerships. Investors who are able to take advantage of LIHTCs
acquire limited partnership interests in these partnerships and provide equity
to acquire and develop or rehabilitate these communities, while the Company
retains a 1% general partnership interest. The Company receives development
fees and earns management fees from these communities.

S-13
<PAGE>

BUSINESS STRATEGIES

The Company seeks to maximize growth in FFO and cash available for
distribution to stockholders through effective management, operation,
acquisition and selective development of multifamily apartment communities.
The Company believes that opportunities exist to increase FFO and cash
available for distribution per share by: (i) aggressively managing its
communities and maintaining a firm commitment to resident satisfaction in
order to achieve increased net operating income; (ii) acquiring additional
apartment communities at attractive returns and significantly below
replacement costs; (iii) selectively developing and rehabilitating apartment
communities to maximize development fee income while increasing the number of
communities under management; and (iv) maintaining a conservative capital
structure with efficient access to the capital markets to facilitate the
accretive acquisition of additional communities.

PROPERTY MANAGEMENT

The Company follows a decentralized management approach, providing on-site
personnel with the training, information, authority and incentives to achieve
specific goals established for each community. Two goals are always
reinforced--to enhance the quality of living for residents and to improve the
financial performance and physical condition of each community on an annual
basis. The Company has been able to consistently increase net operating
income, while keeping resident turnover well below the national averages of
approximately 65%. In 1997, the Company's same property net operating income
growth was 8.4%, which management believes ranked among the highest in the
multifamily REIT sector. Resident turnover in 1997 averaged 40% at the Core
Communities.

Home Properties differentiates its communities through its commitment to
customer service, which is particularly important in attracting mature
residents. As of December 31, 1997, approximately 40% of the residents at the
Company's Core Communities were aged 55 or older. The Company has a policy of
instituting its Home Properties Pledge of Customer Satisfaction ("The Pledge")
at each of its owned and managed communities. Accordingly, management has
successfully implemented The Pledge at all of its Core Communities. Management
has made substantial progress in implementing The Pledge at its recently
acquired communities, and it intends to implement The Pledge at all of the
Acquisition Communities. The Pledge assures residents that they will be
treated "fairly, honestly, and courteously by a team of caring and qualified
people." The Pledge also includes a 24-hour guaranteed response to routine
maintenance items and provides for a refund of rent if a resident is not
completely satisfied. During 1997, $3,386 of rent was refunded under The
Pledge. The Company has also been adding community centers at most of its
larger communities, providing additional amenities and social programs and
activities for its residents. The Company completed the construction of three
new community centers in 1997 and has plans to construct seven additional
community centers in 1998.

ACQUISITIONS

The Company pursues external growth through acquisitions which are expected
to generate returns in excess of its average cost of capital, both initially
and over the long-term. In addition, the Company aims to acquire strategically
located communities which will increase the geographic diversification and
operating efficiencies of its portfolio. Targeted markets include select
metropolitan areas within the Northeast, Mid-Atlantic and Midwest states that
possess characteristics similar to those found in the Current Markets,
including a limited amount of new construction, acquisition opportunities well
below replacement costs, a mature housing stock and a stable or growing job
market.

Management expects to continue to: strengthen its presence in the Current
Markets while expanding into geographic regions with similar economic
environments, convenient access to Company headquarters or regional offices,
sufficient opportunities to create additional operating efficiencies through
the acquisition of a critical mass of apartments, and limited competition for
acquisitions. Typical acquisition candidates are well-located and well-
constructed communities with brick exteriors, are 20 years or older and
provide value-added opportunities to increase net operating income through
more effective management and/or physical upgrades. Management believes that
the Company can continue to achieve better long-term results with less risk by
acquiring, upgrading and repositioning mature communities rather than by
developing or purchasing newer communities at prices which approach or exceed
replacement values.

S-14
<PAGE>

Since the IPO, the Company has acquired 59 apartment communities containing
13,736 apartment units at an average cost per unit of approximately $35,000.
In addition, the Company has entered into contracts to acquire the Acquisition
Communities which total 20 communities containing 5,649 apartment units at an
average cost per unit of approximately $37,500. Management believes that its
acquisition costs per unit have averaged 60% of replacement costs per unit. In
addition to the Acquisition Communities, the Company has a number of other
acquisition opportunities under consideration and/or negotiation.

The Company has targeted and achieved an average unleveraged yield of 10% on
its cost of acquisitions including capital improvements, after allocating 3%
of rental revenues for management and overhead expenses but before normalized
capital expenditures estimated at approximately $375 per unit annually.
However, there can be no assurance that the Company will achieve its targeted
returns on the Acquisition Communities or future acquisitions.

DEVELOPMENT

Given the favorable acquisition environment for apartment communities in the
Current Markets, the Company intends to emphasize acquisitions over
development in pursuing growth in its wholly-owned portfolio. The Company,
through its Conifer Realty subsidiary, intends to continue to selectively
develop and rehabilitate apartment communities using various forms of
government assistance. The Company manages and partially owns these
government-assisted communities through its interests as a general partner.
These activities provide development fee income, ongoing management and
incentive management fee income and the potential for participation in
residual values. The Company's development capabilities also position it to
build market rate communities for its own portfolio, when market factors
warrant.

During 1997, the Company generated $3.6 million in development fee revenue
from the development and/or rehabilitation of communities supported with
LIHTCs. The Company commenced construction on four communities with 1,049
units, completed two communities with 125 units and received allocations for
future development of three communities with 159 units.

FINANCING

Management intends to maintain a conservative capital structure that allows
the Company continued access to the capital markets. Due to its ability to
readily access the debt and equity markets, management believes the Company
enjoys a competitive advantage in negotiating acquisitions that generate
returns which exceed its average cost of capital. Since the IPO, the Company
has efficiently raised equity capital through a variety of methods, including
the issuance of OP Units as consideration for acquisitions (valued at
approximately $163 million), the issuance of Common Stock and a preferred
interest in the Operating Partnership directly to institutional investors
(generating total proceeds of approximately $148 million) and the issuance of
new shares of Common Stock through its Direct Stock Purchase and Dividend
Reinvestment Program (generating total proceeds of approximately $83 million).
This Offering represents the Company's first public offering of Common Stock
since its IPO.

The Company's strategy is to maintain predominantly fixed-rate debt with
staggered maturities. As of March 31, 1998, the Company's ratio of debt to
total market capitalization was approximately 32%. The average interest rate
on its fixed rate debt was 7.7% (7.9% including amortization costs), with a
weighted average maturity of 7.5 years. As of May 31, 1998, the Company had no
floating interest rate debt outstanding and its Unsecured Credit Facility was
fully available. Approximately $43 million is currently invested by the
Company in interest bearing liquid securities to be applied toward funding the
purchase of the Acquisition Communities.

ACHIEVEMENTS

The Company, in pursuing its business strategy, has achieved the following
results and secured the following opportunities:

. Rental increases for the Core Communities have averaged 3.2% over the
past eight years while occupancies, subject to normal seasonal
variations, have remained stable at an average of 95%.

. Net operating income growth for the Core Communities has averaged 4.1%
over the past eight years.

S-15
<PAGE>

. Since the IPO, the Company has efficiently raised approximately $394
million in equity capital through the issuance of OP Units, Common Stock
and a preferred interest in the Operating Partnership.

. Since the IPO, the per share price of Common Stock has increased from
$19.00 to $26.8125 (as of June 1, 1998) and annual dividends per share
have increased from $1.65 to $1.80. The compounded annual return to
investors since the IPO (including the reinvestment of dividends) has
averaged 18.2%.

S-16
<PAGE>

MARKETS

The Company currently owns 71 apartment communities located in the Current
Markets. Since January 1, 1997, the Company has entered nine new market areas:
Detroit, Michigan, Philadelphia, Pennsylvania, Baltimore, Maryland, Long
Island, New York, Northern New Jersey, Washington, D.C., New Haven,
Connecticut, South Bend, Indiana and Pittsburgh, Pennsylvania. The purchase of
the Acquisition Communities will allow the Company to enter two additional
markets, Chicago, Illinois and Portland, Maine. These new markets possess many
characteristics which are similar to the housing environments in the Company's
original markets in Upstate New York, but also provide the Company with
broader geographic diversification and increased opportunities for external
growth from value-added acquisitions and repositioning activities.

The markets where the Company operates can be characterized as stable, with
modest job growth. Occupancies are relatively high, and the number of new
apartments constructed is small in relation to the size of the existing
multifamily housing stock. After considering the obsolescence of older
communities, new construction in the Company's markets represents only a
fraction of the estimated number of new units needed to satisfy increased
demand.

New construction in the Current Markets and the Acquisition Communities
markets has been minimal for the past two decades, with most of the existing
housing stock built prior to 1980. In 1997, Home Properties' markets
represented 17.1% of the total U.S. estimated multifamily housing stock but
only 6.2% of the country's estimated net new supply of multifamily housing
units.

Despite relatively tight markets, management believes the Current Markets
and the markets in which the Acquisition Communities are located will continue
to be insulated from construction of new market rate apartments for middle
income residents. To justify the cost of constructing a comparable property
today, rental rates ranging from 25% to 35% above the Company's rental rates
are typically required. Management feels these rates are not in the price
range of the Company's middle income residents and do not provide enough added
value to attract those residents who can afford higher rents. In addition,
many new communities being built cater to specialized groups and do not draw
substantially from the Company's current resident base.

Management further believes the Current Markets and the Acquisition
Communities markets are further protected from new construction because
existing communities with strong locations in fully developed areas can be
acquired and rehabilitated for significantly less than their replacement
costs. On average, the Company has paid approximately $35,000 per unit for
acquisition which represents roughly 60% of what it would cost to build
comparable apartments today.

Below is a summary of market demographic information for the Company's
markets compared to the U.S. average, as presented in more detail on the
following page.

MARKET DEMOGRAPHICS SUMMARY

<TABLE>
<CAPTION>
COMPANY
MARKETS U.S. AVERAGE
-------- ------------
<S> <C> <C>
December 1997--12-month Job Growth.................. 1.8% 2.7%
December 1997--Unemployment......................... 3.8% 4.4%
Median Home Value................................... $124,027 $97,497
Net New Multifamily Supply as Percentage of Existing
Stock.............................................. 0.4% 1.0%
Net New Multifamily Supply as Percentage of
Estimated Demand................................... 25.0% 53.5%
</TABLE>

S-17
<PAGE>

Certain relevant features of the market demographics associated with the
Current Markets and Acquisition Communities' markets are reflected in the
following chart.

<TABLE>
<CAPTION>
DECEMBER
JOB GROWTH DECEMBER
TRAILING JOB GROWTH 1997 1990
PRO FORMA 12 MONTHS TRAILING DECEMBER 1997 1997 MULTIFAMILY PERCENTAGE OF 1997 NEW 1997
PERCENTAGE PERCENT 12 MONTHS UNEMPLOYMENT MEDIAN HOUSING MULTIFAMILY SUPPLY OF MULTIFAMILY
MARKET OF UNITS CHANGE ACTUAL RATE HOME VALUE STOCK (1) HOUSEHOLDS MULTIFAMILY OBSOLESENCE
- ------ ---------- ---------- ---------- ------------- ---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Detroit, MI MSA. 16.0% 2.7% 55,800 3.1% $ 86,721 272,966 14.7% 2,013 1,365
Rochester, NY
MSA............. 13.1% 0.4% 1,900 4.0% $ 94,868 57,853 13.1% 645 289
Northern
New Jersey (4).. 12.8% 2.5% 64,100 4.2% $200,286 391,244 17.9% 2,047 1,956
Eastern
Pennsylvania (5). 12.6% 1.6% 40,900 3.9% $119,484 338,488 14.5% 3,176 1,692
Buffalo, NY MSA. 11.1% 0.3% 1,900 5.2% $ 84,215 53,233 10.0% 965 266
Baltimore, MD
MSA............. 7.0% 2.3% 26,200 4.7% $116,352 184,162 17.7% 1,920 921
Syracuse, NY
MSA............. 6.9% 0.6% 2,000 4.5% $ 84,304 45,113 14.7% 57 226
Downstate
New York (6).... 6.6% 1.6% 30,000 3.3% $224,792 243,704 14.0% 1,093 1,219
Chicago, IL MSA. 3.0% 1.7% 68,900 4.3% $136,808 844,796 26.9% 6,283 4,224
Portland, ME
MSA............. 2.6% 4.0% 5,700 2.4% $137,590 14,809 14.1% 41 74
DC-VA-MD-WV MSA. 2.4% 1.8% 44,300 3.2% $176,253 561,384 29.2% 6,562 2,807
New Haven-Meriden,
CT MSA.......... 2.2% 0.6% 1,500 4.2% $175,036 41,315 18.0% 296 207
South Bend, IN
MSA............. 1.3% 1.4% 1,900 3.1% $ 63,686 13,104 11.9% 187 66
Western
Pennsylvania (7). 1.3% 0.5% 6,200 4.5% $ 67,644 144,276 12.0% 1,329 721
Columbus, OH
MSA............. 1.1% 2.7% 22,100 2.6% $ 92,367 117,241 18.5% 2,163 586
HOME PROPERTIES
MARKETS......... 1.6% 373,400 3.8% $124,027 3,323,688 16.5% 28,777 16,619
United States... 2.7% 3,235,000 4.4% $ 97,497 19,491,307 17.1% 294,785 97,457
<CAPTION>
NET NEW NET NEW
MULTIFAMILY MULTIFAMILY
SUPPLY AS A SUPPLY AS A
PERCENTAGE PERCENTAGE
1997 1997 NEW OF 1997 OF 1997
NET NEW MULTIFAMILY NEW MULTIFAMILY
MULTIFAMILY HOUSEHOLD MULTIFAMILY HOUSING
MARKET SUPPLY (2) DEMAND (3) DEMAND STOCK
- ------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Detroit, MI MSA. 648 5,468 11.8% 0.2%
Rochester, NY
MSA............. 356 166 214.4% 0.6%
Northern
New Jersey (4).. 91 7,633 1.2% 0.0%
Eastern
Pennsylvania (5). 1,484 3,954 37.5% 0.4%
Buffalo, NY MSA. 699 127 551.6% 1.3%
Baltimore, MD
MSA............. 999 3,086 32.3% 0.5%
Syracuse, NY
MSA............. (169) 196 (86.2%) (0.4%)
Downstate
New York (6).... (126) 2,797 (4.5%) (0.1%)
Chicago, IL MSA. 2,059 12,375 16.7% 0.2%
Portland, ME
MSA............. (33) 536 (6.2%) (0.2%)
DC-VA-MD-WV MSA. 3,755 8,624 43.5% 0.7%
New Haven-Meriden,
CT MSA.......... 90 180 49.4% 0.2%
South Bend, IN
MSA............. 122 151 80.2% 0.9%
Western
Pennsylvania (7). 608 498 122.5% 0.4%
Columbus, OH
MSA............. 1,577 2,732 74.8% 1.3%
HOME PROPERTIES
MARKETS......... 12,158 48,544 25.0% 0.4%
United States... 197,328 368,877 53.5% 1.0%
</TABLE>
- ----
Sources: Bureau of Labor Statistics; Claritas, Inc.; US Census Bureau--
Manufacturing & Construction Division.; New York State Department of Labor,
Division of Research and Statistics. All data collected 1998.

(1) 1997 Multifamily Housing Stock equals 1997 total housing stock multiplied
by the percentage of multifamily housing stock in each MSA market (based
on 1990 US Census figures).
(2) 1997 Net New Multifamily Supply equals multifamily permits (1997 figures
US Census Bureau, Manufacturing and Construction Division, 5+ permits
only) adjusted by the average percentage of permits resulting in a
construction start (95%) less estimated multifamily obsolescence (0.5% of
1997 multifamily housing stock).
(3) 1997 New Multifamily Demand equals trailing 12-month job growth (Nonfarm,
not seasonally adjusted payroll employment figures 12/31/96-12/31/97)
multiplied by the expected percentage of new household formations
resulting from new jobs (66.7%) and the percentage of multifamily
households in each market (based on 1990 US Census figures).
(4) Northern New Jersey is defined for this report as Middlesex-Somerset-
Hunterdon MSA, Bergen-Passaic MSA, Monmouth-Ocean MSA, and Newark MSA.
(5) Eastern Pennsylvania is defined for this report as Philadelphia, PA MSA
and Allentown-Bethlehem-Easton MSA.
(6) Downstate New York is defined for this report as the Hudson Valley Region
of Dutchess Co MSA, Newburgh NY-PA MSA, Putnam and Ulster Counties; Long
Island, NY (Nassau-Suffolk MSA); Westchester County MSA; and Rockland
County MSA.
(7) Western Pennsylvania is defined for this report as Pittsburgh, PA MSA and
Erie, PA MSA.

S-18
<PAGE>

RECENT DEVELOPMENTS

PENDING ACQUISITIONS

The Company has entered into agreements to acquire the Acquisition
Communities which are described below.

<TABLE>
<CAPTION>
FIRST QUARTER 1998
---------------------------
AVERAGE AVERAGE CONTRACT
NUMBER OF OCCUPANCY MONTHLY RENT PRICE
PROPERTY NAME AND LOCATION UNITS PERCENTAGE (1) PER UNIT ($000)
-------------------------- --------- -------------- ------------ --------
<S> <C> <C> <C> <C>
NEW JERSEY
East Hill Gardens, Tenafly..... 33 97.1% $748 $ 1,787
Lakeview, Leonia............... 106 97.8% 701 5,174
Leland Gardens, Plainfield..... 256 97.1% 559 7,065
Oak Manor, Ridgewood........... 77 100.0% 939 4,717
Pleasantview, Piscataway....... 1,142 96.3% 671 53,371
Pleasure Bay, Long Branch...... 270 98.0% 581 7,813
The Towers, Passaic............ 137 97.3% 876 6,751
Wayne Village, Wayne........... 275 98.1% 731 14,783
Windsor Realty, Woodridge...... 67 98.1% 694 3,693
-----
2,363
NEW YORK
Mountainside, Garnerville...... 227 98.9% 744 8,414
Patricia, Peekskill............ 100 98.4% 772 4,782
Pines of Perinton, Rochester... 508 100.0% 392 10,496
-----
835
PENNSYLVANIA
Beechwood Gardens,
Philadelphia.................. 160 90.6% 579 3,900
Payne Hill Gardens, Payne Hill. 150 93.8% 551 4,500
Racquet Club Apartments,
Philadelphia.................. 467 96.1% 762 24,550
-----
777
ILLINOIS
Colonies Apartments, Steger.... 672 79.5% 597 22,780
MAINE
Mill Co. Gardens, South
Portland...................... 96 96.7% 441 2,037
South Portland, South Portland. 500 95.3% 470 15,927
-----
596
OHIO
Weston Gardens, Columbus....... 242 91.7% 439 5,550
MICHIGAN
Cherry Hill Club, Inkster...... 164 95.1% 515 4,536
----- --------
TOTAL........................ 5,649 $212,621
===== ========
</TABLE>
- --------
(1) "Average Occupancy Percentage" is the average economic occupancy for the
first three months of 1998.

The Acquisition Communities are primarily located in the Current Markets,
where the Company expects to increase its operating efficiencies. Portland,
Maine and Steger, Illinois represent new targeted markets for the Company.

Included in the Acquisition Communities are 1,887 apartment units which are
subject to rent control. As a result, the average monthly rents are below the
potential current market rents. In addition, 758 units receive rent subsidies.

S-19
<PAGE>

Management plans to reposition the Acquisition Communities by correcting
deferred maintenance items and through more aggressive management. Over the
next several years, additional investments will be made to upgrade apartments,
including replacing windows and remodeling kitchens and baths, as warranted.

1998 COMPLETED ACQUISITIONS

Since January 1, 1998, the Company has completed the acquisition of nine
multifamily apartment communities containing 3,055 apartment units for a total
purchase price of approximately $120 million.

Candlewood Apartments. On February 9, 1998, the Company acquired the
Candlewood Apartments, a 310-unit apartment community located in South Bend,
Indiana, for a purchase price of approximately $13.4 million. The Candlewood
Apartments were constructed in two phases between 1984 and 1989. The average
unit size is approximately 1,100 square feet. At the time of its acquisition,
Candlewood Apartments was 96% occupied with average monthly rents of $616. The
buildings are brick and vinyl-sided, with two and three stories, pitched
roofs, gas heat and hot water, upper-level balconies and patios. Amenities
include two community centers, one outdoor and one indoor swimming pool, a hot
tub spa, an exercise room and individual washers and dryers in the units.

Cedar Glen Apartments. On March 3, 1998, the Company acquired the Cedar Glen
Apartments, a 110-unit apartment community located in Philadelphia,
Pennsylvania, for a purchase price of approximately $2.6 million. Cedar Glen
Apartments is 32 years old. The average unit size is approximately 726 square
feet. When it was acquired, Cedar Glen Apartments was 95% occupied with
average monthly rents of $418. Gas for heat and hot water is paid by the
residents. The buildings are two and one-half stories with brick exteriors and
pitched roofs. The Company plans initial expenditures of approximately $2,000
per unit to replace windows and improve common areas, with additional
investments of approximately $2,500 per unit to remodel kitchens as apartments
turn over.

Park Shirlington and Braddock Lee Apartments. On March 16, 1998, the Company
acquired two communities with 548 garden-style apartment units in Northern
Virginia for a purchase price of approximately $26.8 million. Park Shirlington
Apartments includes 294 units in Arlington, Virginia, and Braddock Lee
Apartments includes 254 units in Alexandria, Virginia. Both properties are 44
years old, have brick exteriors, and are located about five minutes from the
Pentagon. The average unit size is 758 square feet. When the communities were
acquired 97% of the apartments were occupied at average monthly rents of $745.
The Company plans initial expenditures of $1.4 million to upgrade electrical
service and complete other miscellaneous improvements, with additional
investments of $3,000 per unit to remodel kitchens as apartments turn over.

Apple Hill Apartments. On March 27, 1998, the Company acquired the Apple
Hill Apartments, a 498-unit community located in Hamden, Connecticut, for a
purchase price of approximately $23.8 million. Completed in 1971, Apple Hill
consists of six identical brick buildings of six stories, with parking garages
underneath. The average unit size is 789 square feet. At the time Apple Hill
was acquired, 97% of the units were occupied at average monthly rents of $705.
The Company plans initial expenditures of $500,000 to correct deferred
maintenance items. Long-range plans include additional investments averaging
$5,000 per apartment to upgrade kitchens, improve entranceways and balconies,
redecorate common areas, improve landscaping, and build a new community center
adjacent to the pool.

Siegel Portfolio. On April 30, 1998, the Company acquired the 1,589-unit
Siegel portfolio for approximately $53.7 million. The portfolio consists of
four communities located in Baltimore, Maryland and its suburbs. The purchase
included 6.8 acres of vacant land adjacent to one of the properties where the
Company plans to construct a community center. The Siegel Portfolio was 92%
occupied at the time it was acquired, with monthly rents averaging $569. The
average age of the communities is approximately 25 years. The majority of the
buildings have brick exteriors, with unit sizes averaging 859 square feet. The
Company plans expenditures of approximately $3 million over the next two to
three years to upgrade the properties, including remodeling kitchens and
building the new community center.

S-20
<PAGE>

FINANCING ACTIVITIES

On May 15, 1998, the Company obtained the Acquisition Facility in connection
with the pending purchase of the portfolio of 17 apartment communities
included in the Acquisition Communities. The Acquisition Facility provides
financing in addition to the Company's Unsecured Credit Facility. The
Acquisition Facility, if drawn, will bear interest at LIBOR plus 1.65% and
mature one year following funding. Subject to customary closing conditions,
the Company may draw on the Acquisition Facility at any time during the 90
days following May 15, 1998, to pay up to 100% of the purchase price of such
portfolio.

On April 14, 1998, the Company completed a direct placement of 1,320,755
shares of Common Stock at a price of $26.50 per share to the Michigan
Retirement System. The net cash proceeds from the offering of $35 million were
used primarily to repay amounts outstanding on the Company's Unsecured Credit
Facility and for general corporate purposes.

On March 27, 1998, the Company completed an offering of 384,615 shares of
Common Stock with Wheat First Securities, Inc. Wheat First Securities, Inc.
sold the shares to Van Kampen American Capital, which deposited them into
Wheat First Union REIT Income & Growth Trust, Series 1. In addition, on March
27, 1998, the Company completed a direct placement of 39,650 shares of Common
Stock to the Michigan Retirement System. The aggregate net proceeds of
approximately $10.5 million were used by the Company to repay borrowings
outstanding under the Unsecured Credit Facility and for general corporate
purposes.

Since January 1, 1998, the Company has sold an aggregate of 1,229,480 shares
of Common Stock pursuant to its Direct Stock Purchase and Dividend
Reinvestment Program at an average price of $25.943 per share. The aggregate
proceeds of approximately $31.9 million have been used by the Company to fund
acquisitions, to repay borrowings outstanding under the Unsecured Credit
Facility and for general corporate purposes.

S-21
<PAGE>

THE PROPERTIES

The Company currently operates 231 communities containing 26,090 apartment
units. The following table further details the 71 communities containing
17,103 units which are wholly-owned by the Company.
<TABLE>
<CAPTION>
FIRST QUARTER 1998
---------------------------
PROPERTY NAME AND TOTAL COST
LOCATION NUMBER AVERAGE AVERAGE AS OF
OF THE CORE OF YEAR OCCUPANCY MONTHLY MARCH 31, 1998(3)
COMMUNITIES(1) UNITS ACQUIRED PERCENTAGE(2) RENT PER UNIT ($000)
- ----------------- ------ -------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
NEW YORK
Garden Village,
Cheektowaga............ 315 1994 97.4% $593 $ 9,978
Idylwood, Cheektowaga... 720 1995 95.4% 553 21,589
Raintree Island,
Tonawanda.............. 504 1985 95.3% 582 15,245
Williamstowne Village,
Cheektowaga............ 528 1985 93.8% 602 17,737
Carriage Hill, Goshen... 140 1996 91.5% 755 5,067
Cornwall Park, Cornwell. 75 1996 87.8% 909 5,116
Lakeshore Villas, Port
Ewen................... 152 1996 93.4% 619 5,478
Sunset Gardens,
Kingston............... 217 1996 95.2% 566 6,024
1600 Elmwood, Rochester. 210 1983 97.0% 744 11,314
Brook Hill, Rochester... 192 1994 91.3% 767 9,522
Finger Lakes Manor,
Canandaigua............ 153 1983 95.7% 674 7,489
Hamlet Court, Rochester. 98 1996 95.2% 607 2,829
The Meadows, Brockport.. 113 1984 94.9% 597 5,139
Newcastle Apartments,
Rochester.............. 197 1982 91.1% 670 9,979
Northgate Manor,
Rochester.............. 224 1994 92.1% 591 8,783
Perinton Manor,
Fairport............... 224 1982 94.4% 707 11,300
Riverton Knolls, West
Henrietta.............. 240 1983 94.4% 700 11,900
Spanish Gardens,
Rochester.............. 220 1994 91.0% 604 11,221
Springcreek, Dansville.. 82 1984 97.9% 536 3,065
Candlewood Gardens,
Baldwinsville.......... 126 1996 97.0% 467 3,111
Conifer Village,
Baldwinsville.......... 199 1994 100.0% 565 9,045
Fairview Heights,
Ithaca................. 210 1985 94.8% 716 9,923
Harborside Manor,
Liverpool.............. 281 1995 93.1% 557 7,878
Pearl Street, Liverpool. 60 1995 95.5% 463 1,352
Village Green (incl.
Fairways),
Baldwinsville.......... 448 1994 85.8% 589 16,990
Westminster Place,
Liverpool.............. 240 1996 93.5% 536 6,984
PENNSYLVANIA
Valley Park South,
Bethlehem.............. 384 1996 92.9% 715 19,159
----- ------ ---- --------
CORE COMMUNITIES
TOTAL/WEIGHTED AVERAGe. 6,552 93.7% $620 $253,217
===== ====== ==== ========
</TABLE>
- --------
(1) Core Communities represents the 6,552 apartment units owned consistently
throughout 1997 and 1998.
(2) "Average Occupancy Percentage" is the average economic occupancy for the
first three months of 1998.
(3) "Total Cost" represents the original acquisition costs of the community
plus capital improvements before depreciation.

S-22
<PAGE>

<TABLE>
<CAPTION>
FIRST QUARTER 1998
---------------------------
PROPERTY NAME AND TOTAL COST
LOCATION NUMBER AVERAGE AVERAGE AS OF
OF RECENTLY ACQUIRED OF YEAR OCCUPANCY MONTHLY MARCH 31, 1998(2)
COMMUNITIES UNITS ACQUIRED PERCENTAGE(1) RENT PER UNIT ($000)
- -------------------- ------ -------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
CONNECTICUT
Apple Hill Apartments,
Hamden................. 498 1998 (3) (3) $ 23,739
INDIANA
Candlewood Apartments,
South Bend............. 310 1998 (3) (3) 13,514
MARYLAND
Carriage House
Apartments, Baltimore.. 50 1998 (3) (3) (3)
Country Village
Apartments, Bel Air.... 344 1998 (3) (3) (3)
Morningside Heights
Apartments, Owings
Mills.................. 1,050 1998 (3) (3) (3)
Strawberry Hill
Apartments, Baltimore.. 145 1998 (3) (3) (3)
MICHIGAN
Canterbury Square, Troy. 336 1997 98.6% $ 619 13,207
Charter Square, Troy.... 494 1997 95.5% 675 22,282
Fordham Green, Canton... 146 1997 93.9% 684 6,201
Golfview Manor, Detroit. 44 1997 100.0% 460 659
Greentrees Apartments,
Riverview.............. 288 1997 95.7% 535 9,811
Kingsley Apartments,
Sterling Heights....... 328 1997 92.8% 583 13,343
Oak Park Manor, Oak
Park................... 298 1997 99.0% 580 10,402
Parkview Gardens,
Detroit................ 483 1997 99.3% 492 8,500
Scotsdale Apartments,
Westland............... 376 1997 96.3% 563 13,647
Southpointe Square,
Woodhaven.............. 224 1997 96.2% 531 5,555
Stephenson House,
Madison Heights........ 128 1997 99.4% 540 3,083
Woodland Gardens, Royal
Oak.................... 337 1997 95.9% 603 12,549
NEW JERSEY
Royal Gardens,
Piscataway............. 550 1997 93.9% 725 21,039
NEW YORK
Emerson Square, Amherst. 96 1997 78.1% 502 2,788
Fairway Apartments,
Tonawanda.............. 32 1997 49.2% 558 1,011
Paradise Lane at
Raintree, Tonawanda.... 324 1997 75.3% 507 9,003
Lake Grove, Lake Grove.. 368 1997 94.2% 804 21,766
Mid-Island Estates, Bay
Shore.................. 232 1997 92.5% 780 10,885
1600 East Avenue,
Rochester.............. 164 1997 80.8% 1,222 9,591
Hill Court South,
Rochester.............. 95 1997 92.4% 553 2,793
Ivy Ridge Apartments,
Rochester.............. 135 1997 83.0% 553 3,979
Woodgate Place,
Spencerport............ 120 1997 96.2% 645 4,595
PENNSYLVANIA
Cedar Glen Apartments,
Philadelphia........... 110 1998 (3) (3) 2,733
Chesterfield Apartments,
Levittown.............. 247 1997 92.2% 623 9,803
Curren Terrace,
Norristown............. 318 1997 98.1% 649 13,054
Executive House,
Lansdale............... 100 1997 89.5% 633 4,184
Glen Manor, Glenolden... 174 1997 96.3% 564 5,567
Karen Court,
Philadelphia,
Lansdowne.............. 49 1997 (4) (4) 1,958
Landon Court, Lansdowne. 44 1997 (4) (4) 1,729
Patricia Court,
Lansdowne.............. 66 1997 (4) (4) 2,653
Marshall House (4),
Lansdowne.............. 63 1997 93.4% 602 2,047
New Orleans Park,
Secane................. 308 1997 96.2% 562 11,113
Springwood Apartments,
West Lawn.............. 77 1997 89.3% 551 2,258
Valley View Apartments,
Pottstown.............. 176 1997 84.9% 577 6,144
Village Square,
Harleysville........... 128 1997 81.6% 566 4,399
Cloverleaf Village,
Pittsburgh............. 148 1997 91.2% 474 3,191
VIRGINIA
Braddock Lee Apartments,
Alexandria............. 254 1998 (3) (3) 12,481
Park Shirlington
Apartments, Arlington.. 294 1998 (3) (3) 14,395
------ ----- ----- --------
RECENTLY ACQUIRED
COMMUNITIES
TOTAL/WEIGHTED AVERAGe. 10,551 93.2% $ 607 $341,651
------ ----- ----- --------
OWNED PORTFOLIO
TOTAL/WEIGHTED AVERAGE
(5).................... 17,103 93.5% $ 620 $594,868
====== ===== ===== ========
</TABLE>
- --------
(1) "Average Occupancy Percentage" is the average economic occupancy for the
first three months of 1998.
(2) "Total Cost" represents the original acquisition costs of the community
plus capital improvements before depreciation.
(3) These communities were acquired during the first quarter or subsequent to
March 31, 1998. Information from the seller was not readily available for
this period.
(4) The Lansdowne Group consolidated figures are reflected in the Marshall
House line.
(5) "Owned Portfolio" includes the Core Communities and the Recently Acquired
Communities.

S-23
<PAGE>

In addition, the Company manages and partially owns as general partner 119
communities containing 6,139 apartment units and manages 41 communities
containing 2,848 apartment units for other owners.

The chart below presents, on a pro forma basis assuming the purchase of all
of the Acquisition Communities, the market breakdown of all of the communities
owned and managed by the Company.

<TABLE>
<CAPTION>
UNITS UNITS
NUMBER OF MANAGED AS FEE TOTAL
MARKET AREA UNITS GENERAL PARTNER MANAGED UNITS
----------- --------- --------------- ------- ------
<S> <C> <C> <C> <C>
Detroit, MI............................ 3,646 0 1,020 4,666
Rochester, NY.......................... 2,975 1,593 668 5,236
Northern NJ............................ 2,913 0 0 2,913
Eastern PA............................. 2,871 49 0 2,920
Buffalo, NY............................ 2,519 180 0 2,699
Baltimore, MD.......................... 1,589 0 77 1,666
Syracuse, NY........................... 1,564 1,271 260 3,095
Downstate NY........................... 1,511 142 0 1,653
Chicago, IL............................ 672 0 0 672
Portland, ME........................... 596 0 0 596
Northern VA............................ 548 0 0 548
Hamden, CT............................. 498 0 0 498
South Bend, IN......................... 310 0 0 310
Western PA............................. 298 1,030 225 1,553
Columbus, OH........................... 242 1,044 0 1,286
Albany, NY............................. 0 254 510 764
Watertown, NY.......................... 0 576 88 664
------ ----- ----- ------
TOTAL.................................. 22,752 6,139 2,848 31,739
====== ===== ===== ======
</TABLE>

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after deducting estimated
fees and expenses payable by the Company, are expected to be approximately
$ million (approximately $ million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use the net proceeds from
the Offering to fund a portion of the purchase price of the Acquisition
Communities and for general corporate purposes. Pending such uses, the Company
may invest the remaining net proceeds from the Offering in short-term,
investment-grade, income-producing investments. The Offering is not
conditioned on the closing of the purchase of the Acquisition Communities.

S-24
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1998 on a historical basis and on a pro forma basis as adjusted to give
effect to (i) the issuance of the shares of Common Stock in the Offering and
the application of the net proceeds therefrom, (ii) the purchase of the
Acquisition Communities, (iii) the purchase of the completed acquisitions
occurring after March 31, 1998, and (iv) the financings occurring after March
31, 1998. See "Recent Developments." The information presented below should be
read in conjunction with the Company's consolidated financial statements and
the notes thereto, the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 and the Company's Current Reports on Form 8-K filed on
March 23, 1998, May 22, 1998 and June 2, 1998, all of which are incorporated
by reference in the accompanying Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
(DOLLARS
IN THOUSANDS)
<S> <C> <C>
DEBT:
Mortgage notes payable.................................. $217,376 $280,967
Unsecured Credit Facility............................... 22,250 13,418
-------- --------
Total debt............................................ 239,626 294,385
-------- --------
MINORITY INTEREST......................................... 187,841 204,226
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued or outstanding................. -- --
Common stock, $.01 par value; 30,000,000 shares
authorized(1); 10,334,332 (historical) and 17,917,567
(pro forma) issued and outstanding(2).................. 104 180
Excess stock, $.01 par value; 10,000,000 shares
authorized; no shares issued........................... -- --
Additional paid-in capital.............................. 200,759 394,772
Distributions in excess of accumulated earnings......... (21,302) (21,302)
Treasury stock, at cost, 20,000 shares.................. (426) (426)
Officer and director notes for stock purchases.......... (4,448) (4,448)
-------- --------
Total stockholders' equity............................ 174,687 368,776
-------- --------
Total capitalization................................ $602,154 $867,387
======== ========
</TABLE>
- --------
(1) The number of authorized shares was increased to 50,000,000 effective May
5, 1998.
(2) Excludes (a) 24,691 shares of Common Stock issued in other transactions
since March 31, 1998, (b) 8,987,312 shares of Common Stock reserved for
issuance upon exchange of outstanding OP Units and a preferred interest in
the Operating Partnership, (c) 834,123 shares of Common Stock reserved for
issuance pursuant to outstanding employee stock options, (d) 25,000 shares
of Common Stock reserved for issuance pursuant to the Company's Directors'
Grant Stock Plan, (e) 500,000 shares of Common Stock reserved for issuance
pursuant to the Company's Director, Officer and Employee Stock Purchase
Plan, and (f) 1,376,681 shares of Common Stock reserved for issuance
pursuant to the Direct Stock Purchase and Dividend Reinvestment Program.

S-25
<PAGE>

PRICE RANGE OF STOCK AND DISTRIBUTIONS

The Common Stock has been traded on the NYSE under the symbol "HME" since
July 28, 1994. The following table sets forth for the previous two years the
quarterly high and low sales prices per share reported on the NYSE, as well as
all distributions paid.

<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1996
First Quarter..................................... $20.625 $17.250 $0.42
Second Quarter.................................... $20.750 $19.375 $0.42
Third Quarter..................................... $20.625 $19.500 $0.42
Fourth Quarter.................................... $22.500 $20.000 $0.43
1997
First Quarter..................................... $25.000 $22.375 $0.43
Second Quarter.................................... $23.250 $20.375 $0.43
Third Quarter..................................... $26.000 $21.625 $0.43
Fourth Quarter.................................... $28.063 $25.813 $0.45
1998
First Quarter..................................... $27.938 $25.063 $0.45
</TABLE>

As of March 17, 1998, the Company had approximately 1,700 stockholders of
record. The Company has historically paid distributions on a quarterly basis
in the months of February, May, August and November. The Credit Agreement
relating to the Unsecured Credit Facility provides that the Company may not
pay any distribution if such distribution when added to other distributions
paid during the three immediately preceding fiscal quarters exceeds the
greater of: (i) 90% of FFO and 110% of cash available for distribution; and
(ii) the amounts required to maintain the Company's status as a REIT.

S-26
<PAGE>

SELECTED FINANCIAL INFORMATION AND OTHER DATA

The following table sets forth certain financial data for the Company on a
consolidated historical basis and on a pro forma basis. This financial data
should be read in conjunction with the Company's consolidated financial
statements and notes thereto incorporated by reference in the accompanying
Prospectus. The consolidated historical financial data of the Company as of
and for the years ended December 31, 1997, 1996 and 1995 have been derived
from audited financial statements. The consolidated historical financial data
of the Company as of and for the three months ended March 31, 1998 and 1997
have been derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the consolidated statement
of results for the unaudited interim periods.

The unaudited pro forma operating data for the three months ended March 31,
1998 and the year ended December 31, 1997 is presented as if the Company had
purchased the Acquisition Communities, had purchased the other 1998 completed
acquisitions and had completed the 1998 financing activities as of January 1,
1997. See "Recent Developments." The pro forma balance sheets as of March 31,
1998 and the year ended December 31, 1997 are presented as if the above
described transactions had occurred on March 31, 1998 or December 31, 1997,
respectively. The unaudited pro forma financial information is also presented
as adjusted to reflect the completion of this Offering as of such dates.

The pro forma information is based upon certain assumptions that are
included in this Prospectus Supplement and the Company's Current Reports on
Form 8-K filed on March 23, 1998, May 22, 1998 and June 2, 1998 and
incorporated by reference in the accompanying Prospectus. The pro forma
financial information is unaudited and is not necessarily indicative of what
the financial position and results of operations of the Company would have
been as of and for the periods indicated, nor does it purport to represent the
Company's future financial position and results of operations.

S-27
<PAGE>

SELECTED FINANCIAL INFORMATION AND OTHER DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------------------- ------------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
1997 1998 1998(1) 1998(1)(2) HISTORICAL HISTORICAL HISTORICAL 1997(1) 1997(1)(2)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 1995 1996 1997 (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental income... $ 12,579 $ 25,094 $ 38,837 $ 38,837 $ 31,705 $ 42,214 $ 64,002 $ 123,446 $ 123,446
Property other
income......... 436 502 952 952 1,062 1,025 2,222 3,991 3,991
Other income.... 827 1,177 1,205 1,205 1,534 2,431 3,473 3,473 3,473
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total Revenues.. 13,842 26,773 40,994 40,994 34,301 45,670 69,697 130,910 130,910
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Expenses:
Operating &
maintenance.... 6,930 12,140 18,602 18,602 15,911 21,859 31,317 58,213 58,213
General &
administrative. 379 1,209 1,636 1,636 1,200 1,482 2,255 4,091 4,091
Interest........ 2,354 4,398 7,707 5,669 6,432 9,208 11,967 25,003 16,850
Depreciation &
amortization... 2,338 4,079 6,089 6,089 6,258 8,077 11,200 19,616 19,616
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Total Expenses.. 12,001 21,826 34,034 31,996 29,801 40,626 56,739 106,923 98,770
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Income before
loss on
disposition of
property,
minority
interest and
extraordinary
item............ 1,841 4,947 6,960 8,998 4,500 5,044 12,958 23,987 32,140
Loss on
disposition of
property........ -- -- -- -- -- -- 1,283 1,283 1,283
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Income before
minority
interest and
extraordinary
item............ 1,841 4,947 6,960 8,998 4,500 5,044 11,675 22,704 30,857
Minority
interest........ 572 2,172 2,801 3,016 455 897 4,248 7,533 8,112
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Income before
extraordinary
item............ 1,269 2,775 4,159 5,982 4,045 4,147 7,427 15,171 22,745
Extraordinary
item, net....... -- -- -- -- (1,249) -- (1,037) (1,185) (1,308)
---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
Net income....... $ 1,269 $ 2,775 $ 4,159 $ 5,982 $ 2,796 $ 4,147 $ 6,390 $ 13,986 $ 21,437
========== ========== =========== =========== ========== ========== ========== =========== ===========
Weighted average
shares:
Basic........... 6,378,441 9,702,975 13,398,063 17,898,063 5,408,474 5,601,027 7,415,888 11,476,623 15,976,623
Diluted......... 6,521,345 9,900,451 13,595,539 18,095,539 5,408,474 5,633,004 7,558,167 11,618,902 16,118,902
Net income per
share:
Basic........... $ 0.20 $ 0.29 $ 0.31 $ 0.33 $ 0.52 $ 0.74 $ 0.86 $ 1.22 $ 1.34
Diluted......... $ 0.20 $ 0.28 $ 0.31 $ 0.33 $ 0.52 $ 0.74 $ 0.84 $ 1.20 $ 1.33
Cash dividends
declared per
share........... $ 0.43 $ 0.45 $ 0.45 $ 0.45 $ 1.66 $ 1.69 $ 1.74 $ 1.74 $ 1.74
BALANCE SHEET
DATA:
Real estate
before
accumulated
depreciation.... $ 283,910 $ 598,755 $ 863,376 $ 863,376 $ 198,203 $ 261,773 $ 525,128 $ 855,899 $ 855,899
Total assets..... $ 274,486 $ 618,090 $ 883,323 $ 883,323 $ 181,462 $ 248,631 $ 543,823 $ 876,586 $ 876,586
Total debt....... $ 113,582 $ 239,626 $ 408,408 $ 294,385 $ 91,119 $ 105,176 $ 218,846 $ 399,142 $ 285,119
Stockholders'
equity.......... $ 100,079 $ 174,687 $ 254,753 $ 368,776 $ 75,780 $ 83,030 $ 151,432 $ 256,233 $ 370,256
OTHER
INFORMATION:
Funds from
operations(3)... $ 4,150 $ 9,181 $ 13,204 $ 15,242 $ 11,025 $ 13,384 $ 24,345 $ 43,790 $ 51,943
EBITDA(4)........ $ 6,537 $ 13,620 $ 20,952 $ 20,952 $ 17,487 $ 22,727 $ 36,449 $ 68,930 $ 68,930
Net cash provided
by (used in)
operating
activities...... $ 719 $ 6,372 -- -- $ 9,811 $ 14,241 $ 27,285 -- --
Net cash provided
by (used in)
investing
activities...... $ (24,709) $ (45,205) -- -- $ (21,348) $ (25,641) $ (102,460) -- --
Net cash provided
by (used in)
financing
activities...... $ 23,260 $ 37,845 -- -- $ 10,714 $ 12,111 $ 77,461 -- --
Total
communities, end
of period....... 29 67 91 91 20 28 63 91 91
Total apartment
units, end of
period.......... 7,544 15,514 22,752 22,752 5,650 7,176 14,048 22,752 22,752
</TABLE>

S-28
<PAGE>

- -------
(1) Reflects the pro forma adjustments relating to the acquisitions and
pending acquisitions of communities during 1998 and included in the
Company's Current Reports on Form 8-K filed on March 23, 1998, May 22,
1998 and June 2, 1998. In addition, the following issuances of shares of
Common Stock are reflected: 1,229,480 shares at various dates in 1998
under the Company's Dividend Reinvestment Plan; 424,265 shares on March
27, 1998; 1,320,755 shares issued on April 22, 1998; and 1,085,000 shares
issued on May 29, 1998. The proceeds of such issuances were used to repay
amounts borrowed under the Company's Unsecured Credit Facility, fund
anticipated acquisitions and for general corporate purposes. All of the
above are reflected assuming such issuances had occurred as of January 1,
1997.
(2) Reflects the pro forma adjustments relating to the Offering and the use of
the net proceeds therefrom to pay down debt. See "Use of Proceeds."
(3) Management generally considers FFO to be an appropriate measure of the
operating performance of an equity REIT. Management believes that in order
to facilitate a clear understanding of the consolidated historical
operating results of the Company, FFO should be considered in conjunction
with net income as presented herein. FFO is determined in accordance with
a resolution adopted by NAREIT, and is defined as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate asset related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated
from operating activities in accordance with GAAP and therefore should not
be considered as an alternative to net income, an indication of the
Company's performance or an indication of cash available to fund cash
needs. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation of FFO.

The calculation of FFO for the periods presented is reflected in the
following table:

SUMMARY CALCULATION OF FUNDS FROM OPERATIONS
(UNAUDITED)

(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, gain on sale of communities and extraordinary items. EBITDA
is relevant to an understanding of the economics of the Company because it
indicates cash flow available from Company operations to service fixed
obligations. EBITDA should not be considered as an alternative to
operating income, as determined in accordance with GAAP, as an indicator
of the Company's operating performance, or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity.

S-29
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with "Selected
Financial Information and Other Data" included herein and the Company's
consolidated financial statements and notes thereto incorporated by reference
in the accompanying Prospectus.

The Company receives income from rents and other revenue from its wholly-
owned communities and management, development and other fee income from its
managed communities. Since the IPO, the Company has acquired 59 apartment
communities containing 13,736 apartment units. As result of its acquisition
strategy, the financial data shows significant increases in total revenues
from year to year, largely attributable to the acquisitions over the years and
the benefit in subsequent years of full period rent and other revenues from
communities acquired in the preceding year.

RESULTS OF OPERATIONS

Comparison of three months ended March 31, 1998 to the same period in 1997

The Company had 27 apartment communities with 6,552 apartment units and one
small ancillary convenience shopping area which were owned during both of the
three month periods being presented (the "First Quarter 1998 Core
Properties"). The Company acquired an additional 40 apartment communities
containing 8,962 units during 1997 and 1998 (the "97/98 Acquired
Communities"). The inclusion of these 97/98 Acquired Communities generally
accounted for the significant changes in operating results for three months
ended March 31, 1998.

A summary of the net operating income derived from the First Quarter 1998
Core Properties is as follows:

<TABLE>
<CAPTION>
PERCENT
1998 1997 CHANGE
----------- ----------- -------
<S> <C> <C> <C>
Rent.................................... $11,467,000 $11,108,000 3.2%
Property other income................... 376,000 322,000 16.8
----------- ----------- ----
Total income............................ 11,843,000 11,430,000 3.6
Operating and Maintenance............... (5,805,000) (6,189,000) 6.2
----------- ----------- ----
Net operating income.................... $ 6,038,000 $ 5,241,000 15.2%
=========== =========== ====
</TABLE>

Of the $12,515,000 increase in rental income, $12,156,000 was attributable
to the 97/98 Acquired Communities. The balance of this increase, which is from
the First Quarter 1998 Core Properties, was the result of an increase of 2.5%
in weighted average rental rates, plus an increase in occupancy from 93.0% to
93.7%.

Of the $66,000 increase in property other income, $261,000 is attributable
to the 97/98 Acquired Communities, with $54,000 representing a 17% increase
for the First Quarter 1998 Core Properties. This increase reflects bringing
more laundry "in-house" versus contracting out. The balance, a $249,000
decrease, is from the Company's share of income/loss from various general
partnership interests.

Interest income increased $649,000, primarily attributable to an increase in
construction loans and advances made to affiliated tax credit development
partnerships.

Other income decreased by $299,000 due primarily to differences in the
amount of bonus accruals recorded during each period by the Management
Companies.

Of the $5,210,000 increase in operating and maintenance expenses, $5,594,000
is attributable to the 97/98 Acquired Communities. The balance for the First
Quarter 1998 Core Properties represents a 6.2% decrease over

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<PAGE>

1997. The major areas of decrease in the First Quarter 1998 Core Properties
occurred in utilities and snow removal costs. The abnormally mild 1998 weather
in the Company's markets, combined with a moderation in gas rates (compared to
very high rates in 1997) resulted in a decrease in utilities of $357,000, or
21.4%, and $47,000, or 16.7% in snow removal costs.

General and administrative expense increased in 1998 by $830,000, or 219%
during a period when the Company more than doubled the number of wholly-owned
apartment units. General and administrative expenses as a percentage of total
revenues increased from 2.7% in 1997 to 4.5% in 1998. This percentage growth
is primarily a result of the Company's incentive compensation plan which
rewards exceptional FFO growth per share. The extraordinary growth during the
first quarter of 1998 resulted in a $200,000 bonus accrual this year compared
to no bonus accrual in the first quarter of 1997. In addition, the Company
recorded a $73,000 non-recurring expense related to doing business in the
State of Pennsylvania.

Other income for the three months ended March 31, 1998 and 1997 is
summarized as follows:

<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Management fees............................................... $ 271 $116
Development fees.............................................. 171 353
Other......................................................... 29 15
Management Companies.......................................... (208) 78
----- ----
$ 263 $562
===== ====
</TABLE>

Certain property management, leasing and development activities are
performed by the Management Companies. The Operating Partnership owns non-
voting common stock in the Management Companies which entitles the Operating
Partnership to receive 99% of the economic interest in the Management
Companies. The Company's share of income from the Management Companies for the
three months ended March 31, 1998 and 1997 is summarized as follows:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Management fees......................................... $ 793 $ 738
Development fees........................................ 954 519
Miscellaneous........................................... 26 25
General and administrative.............................. (1,789) (1,106)
Interest expense........................................ (130) (59)
Other expenses.......................................... (64) (38)
------- -------
Net income.............................................. $ (210) $ 79
======= =======
Company's share......................................... $ (208) $ 78
======= =======
</TABLE>

Comparison of year ended December 31, 1997 to year ended December 31, 1996.

The Company owned 22 communities containing 5,384 apartment units throughout
1996 and 1997 where comparable operating results are available for the years
presented (the "1997 Core Properties"), including 464 units in three
communities acquired January 1, 1996. For the year ending December 31, 1997,
the 1997 Core Properties showed an increase in rental revenues of 4.4% and a
net operating income increase of 8.4% over the 1996 year-end period. Property
level operating expense increases were held to 0.7%. Average economic
occupancy for the 1997 Core Properties increased to 95.3% from 94.1%, with
average monthly rental rates increasing 3.1% to $600.

A summary of the 1997 Core Property net operating income is as follows:

<TABLE>
<CAPTION>
1997 1996 PERCENT CHANGE
------------ ------------ --------------
<S> <C> <C> <C>
Rent........................... $ 37,099,000 $ 35,540,000 4.4%
Property Other Income.......... 1,235,000 1,135,000 8.8
------------ ------------ ----
Total Income................... 38,334,000 36,675,000 4.5
Operating and Maintenance...... (18,663,000) (18,527,000) (0.7)
------------ ------------ ----
Net Operating Income........... $ 19,671,000 $ 18,148,000 8.4%
============ ============ ====
</TABLE>

S-31
<PAGE>

During 1997, the Company acquired a total of 7,496 apartment units in 35
newly acquired communities (the "1997 Communities"). In addition, the Company
experienced full year results for the 1,168 apartment units in six newly
acquired apartment communities (the "1996 Communities") acquired after January
1, 1996. The inclusion of these acquired communities generally accounted for
the significant changes in operating results for the year ended December 31,
1997.

The Company also disposed of two communities with 624 apartment units and a
202-site manufactured home community, all of which had partial results in 1997
and full year results during 1996 (the "1997 Disposed Communities"). Of the
two apartment communities, a 604 unit community was sold September 23, 1997
and a 20 unit community was sold on December 15, 1997. The manufactured home
community was sold on December 19, 1997. The loss on disposition of these
properties totaled $1,283,000.

For the year ended December 31, 1997, operating income (income before loss
on disposition of property, minority interest and extraordinary item)
increased by $7,914,000 when compared to the year ended December 31, 1996. The
increase was primarily attributable to the following factors: an increase in
rental income of $21,788,000 and an increase in other income of $2,239,000.
These changes were partially offset by an increase in operating and
maintenance expense of $9,458,000, an increase in general and administrative
expense of $773,000, an increase in interest expense of $2,759,000 and an
increase in depreciation and amortization of $3,123,000.

Of the $21,788,000 increase in rental income, $5,430,000 is attributable to
the 1996 Communities and $15,528,000 is attributable to the 1997 Communities,
offset in part by a $729,000 reduction attributable to the 1997 Disposed
Communities. The balance is a 4.4% increase from the Core Communities due
primarily to an increase of 3.1% in weighted average rental rates, plus an
increase in occupancy from 94.1% to 95.3%.

Property other income, which consists primarily of income from operation of
laundry facilities, administrative fees, garage and carport rentals and
miscellaneous charges to residents, increased in 1997 by $1,197,000. Of this
increase, $121,000 is attributable to the 1996 Communities, $560,000 is
attributable to the 1997 Communities and $100,000 represents an 8.8% increase
from the Core Communities. In addition, $416,000 represents the increase in
the net results for limited partnerships accounted for on the equity method.

Other income increased in 1997 by $1,042,000. The change was primarily
attributable to an increase in interest income of $1,553,000 on construction
loans and advances made to affiliated tax credit development partnerships.
Partially offsetting this are decreases in the following: development fee
income recognized directly by the Company of $349,000 from communities
developed under the federal government's Low Income Housing Tax Credit Program
where the Company is a general partner, $112,000 from decreased management
fees from residential properties and $50,000 from the decrease of the net
results from the Management Companies.

Of the $9,458,000 increase in operating and maintenance expenses, $2,706,000
is attributable to the 1996 Communities, $6,917,000 is attributable to the
1997 Communities and a reduction of $301,000 is attributable to the 1997
Disposed Communities. The balance for the 1997 Core Properties, or $136,000,
represents a 0.7% increase over 1996. The major areas of increase in the 1997
Core Properties occurred in personnel and real estate taxes. Helping to offset
this expense increase were reductions to insurance and advertising expenses.

The operating expense ratio (the ratio of operating and maintenance expense
compared to rental and property other income) for the 1997 Core Properties was
48.7% and 50.5% for 1997 and 1996, respectively. This 1.8% reduction reflects
cost reductions through operating efficiencies and economies of scale inherent
in the management of a larger portfolio of communities. In general, the
Company's operating expense ratio is higher than that experienced in other
parts of the country due to relatively high real estate taxes in New York
State and the Company's practice, typical in its markets, of including heating
expenses in base rent.

General and administrative expenses increased in 1997 by $773,000, or 52%
from $1,482,000 in 1996 to $2,255,000 in 1997. As the Company expands
geographically, travel and lodging expenses have increased, along

S-32
<PAGE>

with expenses associated with new and expanding regional offices. In addition,
personnel costs have increased to handle the growing owned portfolio, which
increased in size by 96% as of December 31, 1997 compared to a year ago.
General and administrative expenses as a percentage of total revenues remained
constant at a level of 3.2% for both 1997 and 1996.

Interest expense increased in 1997 by $2,759,000 as a result of the
acquisition of the 1997 Communities and full year interest expense for the
1996 Communities. The 1996 Communities, costing in excess of $41,000,000, were
acquired substantially with assumed or new debt. The 1997 Communities, costing
in excess of $266,000,000, were acquired with $87,000,000 of assumed debt, in
addition to the use of OP Units. Amortization relating to interest rate
reduction agreements of $335,000 was included in interest expense during 1997
and 1996. In addition, amortization from deferred charges relating to the
financing of properties totaling $276,000 and $277,000 was included in
interest expense for 1997 and 1996, respectively.

Comparison of year ended December 31, 1996 to year ended December 31, 1995.

The Company owned 18 properties consisting of 4,463 apartment units acquired
prior to January 1, 1995 where comparable operating results are available for
the years presented (the "1996 Core Properties"). For the year ending December
31, 1996, the 1996 Core Properties showed an increase in rental revenues of
4.2% and a net operating income increase of 3.3% over the 1995 year-end
period. Property level operating expense increases were 5.3%, primarily
attributable to significant increased utility costs associated with severe
winter weather during the first two quarters of 1996. Average economic
occupancy for the 1996 Core Properties increased to 94.3% from 93.5%, with
average monthly rental rates increasing 3.3% to $583.

During 1996, the Company acquired a total of 1,652 apartment units
(including 484 apartment units acquired on January 1, 1996) in ten newly
acquired communities (the "1996 Acquired Communities"). In addition, the
Company experienced full year results for the 1,061 apartment units in three
newly acquired apartment communities (the "1995 Communities") acquired during
1995. The inclusion of these acquired communities generally accounted for the
significant changes in operating results for the year ended December 31, 1996.

For the year ended December 31, 1996, operating income increased by $544,000
when compared to the year ended December 31, 1995. The increase was primarily
attributable to the following factors: an increase in rental income of
$10,509,000 and an increase in other income of $860,000. These changes were
partially offset by an increase in operating and maintenance expense of
$5,948,000, an increase in general and administrative expense of $282,000, an
increase in interest expense of $2,776,000 and an increase in depreciation and
amortization of $1,819,000.

Of the $10,509,000 increase in rental income, $4,106,000 is attributable to
the 1995 Communities and $5,176,000 is attributable to the 1996 Acquired
Communities. The balance is a 4.2% increase from the 1996 Core Properties due
primarily to an increase of 3.3% in weighted average rental rates, plus an
increase in occupancy from 93.5% to 94.3%.

Other income increased in 1996 by $897,000. Of this increase, $322,000 is
from development fee income from eight apartment communities developed under
the federal government's Low Income Housing Tax Credit Program where the
Company is a general partner. In addition, other significant components
include $179,000 from increased interest income, $168,000 from increased
management fees from residential properties and $107,000 from the increase of
the net results from the Management Companies.

Of the $5,948,000 increase in operating and maintenance expenses, $2,370,000
is attributable to the 1995 Communities and $2,821,000 is attributable to the
1996 Acquired Communities. The balance for the 1996 Core Properties, or
$757,000, represents a 5.3% increase over 1995. The major area of increase in
the 1996 Core Properties occurred in utilities, personnel and snow removal
costs due to the severe winter weather and a cooler spring experienced in 1996
compared to an unusually mild 1995. The operating expense ratio for the 1996
Core Properties was 48.6% and 48.2% for 1996 and 1995, respectively.

S-33
<PAGE>

General and administrative expenses increased in 1996 by $282,000, or 24%
from $1,200,000 in 1995 to $1,482,000 in 1996. These increases are primarily
due to increased corporate personnel. However, general and administrative
expenses as a percentage of total revenues decreased from 3.5% in 1995 to 3.2%
in 1996 as a result of increased efficiencies from the economies of scale.

Interest expense increased in 1996 by $2,776,000 as a result of the
acquisition of the 1996 Communities and full year interest expense for the
1995 Communities. The 1995 Communities, costing in excess of $25,000,000, were
acquired substantially with assumed or new debt. The 1996 Acquired
Communities, costing in excess of $54,000,000, were acquired with $44,000,000
of assumed new debt, in addition to the use of OP Units. Amortization relating
to interest rate reduction agreements of $335,000 was included in interest
expense during 1996 and 1995. In addition, amortization from deferred charges
relating to the financing of properties totaling $255,000 and $321,000 was
included in interest expense for 1996 and 1995, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal liquidity demands are expected to be distributions
to stockholders, capital improvements and repairs and maintenance for the
communities, acquisition of additional communities, property development and
scheduled debt maturities.

The Company intends to meet its short-term liquidity requirements through
net cash flows provided by operating activities and the Unsecured Credit
Facility. The Company considers its ability to generate cash to continue to be
adequate to meet all operating requirements and make distributions to its
stockholders in accordance with the provisions of the Code to enable the
Company to qualify as a REIT.

The Company's Unsecured Credit Facility had an available capacity of $27.8
million at March 31, 1998. Borrowings under the Unsecured Credit Facility bear
interest at 1.25% over the one-month LIBOR rate. Accordingly, increases in
interest rates will increase the Company's interest expense and as a result
will effect the Company's results of operations and financial condition. The
Unsecured Credit Facility expires on September 4, 1999, with a one-year
extension at the Company's option. As of April 30, 1998, the entire $50
million was available as a result of using the net proceeds from equity raised
in a direct placement to the Michigan Retirement System to repay the
outstanding balance.

To the extent that the Company does not satisfy its long-term liquidity
requirements through net cash flows provided by operating activities and the
Unsecured Credit Facility, it intends to satisfy such requirements through the
issuance of OP Units, proceeds from the Direct Stock Purchase and Dividend
Reinvestment Program, long-term secured or unsecured indebtedness or the
issuance of additional equity securities. As of June 1, 1998, the Company
owned 24 properties with 4,962 apartment units, which were unencumbered by
debt.

On May 26, 1998, the Company's Registration Statement on Form S-3 was
declared effective by the Securities and Exchange Commission with respect to
the registration of up to $400.0 million of Common Stock, preferred stock,
debt securities or other equity securities. During May 1998, $28.8 million of
Common Stock was issued under such shelf registration statement and, as of
June 1, 1998, approximately $385 million remained available under such shelf
registration statement. During April 1998, an additional $35 million of Common
Stock was issued in a direct placement to the Michigan Retirement System under
a previous shelf registration statement, with an additional $10.5 million of
Common Stock issued in March 1998, leaving a capacity under such registration
statement of approximately $13.5 million.

The issuance of OP Units for property acquisitions continues to be a
significant source of equity capital. During 1997, 5,636 apartment units in
four separate transactions were acquired for a total cost of approximately
$195 million using OP Units valued in excess of $106 million, with the balance
paid in cash or assumed debt. During 1998, 858 apartment units in two separate
transactions were acquired for a total cost of approximately $40 million using
OP Units valued in excess of $31 million, with the balance paid in cash or
assumed debt.

S-34
<PAGE>

In addition, over $36 million was raised during 1997 through the Company's
Direct Stock Purchase and Dividend Reinvestment Program, including over $4.5
million from officers and directors financed partially by a Company loan of
$2.3 million. An additional $31.9 million has been raised through the Direct
Stock Purchase and Dividend Reinvestment Program during the first five months
of 1998.

The Company's Board of Directors approved a stock repurchase program under
which the Company may repurchase up to one million shares of its outstanding
Common Stock. The Board of Directors action did not establish a target price
or a specific timetable for repurchase. During June 1997, the Company
repurchased 20,000 shares at a cost of approximately $426,000.

As of March 31, 1998, the weighted average rate of interest on debt is 7.6%
and the weighted average maturity is 7.0 years. Most of the debt is fixed
rate, with only 9% variable-rate debt. This limits the exposure to changes in
interest rates, minimizing the effect on results of operations and financial
condition.

IMPACT OF THE YEAR 2000

The study of the Year 2000 issue, undertaken by the Company's information
systems department, is nearly complete with some additional testing and
conversion to upgraded software and hardware required. The Company has
addressed this issue with key vendors supplying two material software
applications who have confirmed either current compliance or indicated future
compliance in a timely manner. Management's assessment of the Year 2000 issue
is that it will not have a material impact on the Company's business
operations, liquidity, financial position or results of operations.

INFLATION

Substantially all of the leases at the communities are for a term of one
year or less, which enables the Company to seek increased rents upon renewal
of existing leases or commencement of new leases. These short-term leases
minimize the potential adverse effect of inflation on rental income, although
residents may leave without penalty at the end of their lease terms and may do
so if rents are increased significantly.

MANAGEMENT AND DIRECTORS

The directors and executive officers of the Company as of June 1, 1998 are
as follows:

Norman P. Leenhouts. Mr. Leenhouts, 62, has served as Chairman of the Board
of Directors, Co-Chief Executive Officer and a director of the Company since
its inception in 1993. He has also served as Chairman of the Board of HP
Management and as a director of Conifer Realty since their formation. Norman
Leenhouts is a co-owner, together with Nelson Leenhouts, of Home Leasing
Corporation, the Company's predecessor ("Home Leasing"), and served as
Chairman of Home Leasing since 1971. He is a director of Hauser Corporation
and Rochester Downtown Development Corporation. He also serves on the Board of
Trustees of Roberts Wesleyan College. He is a graduate of the University of
Rochester and is a certified public accountant. He is the twin brother of
Nelson Leenhouts.

Nelson B. Leenhouts. Mr. Leenhouts, 62, has served as President, Co-Chief
Executive Officer and a director of the Company since its inception in 1993.
He has also served as President and Chief Executive Officer of HP Management
and as a director of Conifer Realty since their formation and has recently
been appointed a Vice President of Conifer Realty. Nelson Leenhouts was the
founder, and a co-owner, together with Norman Leenhouts, of Home Leasing, and
served as President of Home Leasing since 1967. He is a director of Hauser
Corporation. He is a graduate of the University of Rochester. He is the twin
brother of Norman Leenhouts.

Richard J. Crossed. Mr. Crossed, 58, has served as Executive Vice President
and a director of the Company and as a director, President and Chief Executive
Officer of Conifer Realty since January 1, 1996. He served as President and
Chief Executive Officer of Conifer Development, Inc. and C.O.F. (formerly
Conifer

S-35
<PAGE>

Realty, Inc.) (collectively, "Conifer") from 1985. Before becoming President
of Conifer, he served as Director of Development for Conifer. Mr. Crossed is a
director of the St. Joseph's Villa and is active in many housing
organizations. He has served on the New York State Housing Turnkey Task Force
and New York State Low-Income Housing Tax Credit Task Force. Mr. Crossed is a
graduate of Bellarmine College.

Amy L. Tait. Mrs. Tait, 39, has served as Executive Vice President and a
director of the Company since its inception in 1993. She has also served as a
director of HP Management since its formation. Mrs. Tait joined Home Leasing
in 1983 and has had several positions, including Senior and Executive Vice
President and Chief Operating Officer. She currently serves on the M & T Bank
Advisory Board and on the boards of the United Way of Rochester and GeVa
Theatre. Mrs. Tait is a graduate of Princeton University and holds a Masters
degree in Business Administration from the William E. Simon Graduate School of
Business Administration of the University of Rochester. She is the daughter of
Norman Leenhouts.

Burton S. August, Sr. Mr. August, 83, has been a director of the Company
since August 1994. Mr. August is currently a director of Monro Muffler Brake,
Inc., a publicly traded company where Mr. August served as Vice President from
1969 until he retired in 1980. Mr. August is also a trustee emeritus of
Rochester Institute of Technology, a trustee of Strong Museum and a trustee of
the Otetiana Council Boy Scouts of America.

William Balderston, III. Mr. Balderston, 70, has been a director of the
Company since August 1994. From 1991 to the end of 1992, he was an Executive
Vice President of The Chase Manhattan Bank, N.A. From 1986 to 1991, he was
President and Chief Executive Officer of Chase Lincoln First Bank, N.A., which
was merged into The Chase Manhattan Bank, N.A. He is a director of Bausch &
Lomb Incorporated and Rochester Gas and Electric Corporation, as well as a
trustee of the University of Rochester. Mr. Balderston is a graduate of
Dartmouth College.

Alan L. Gosule. Mr. Gosule, 57, has been a director of the Company since
December 1996. Mr. Gosule has been a partner in the law firm of Roger & Wells
LLP, New York, New York, since August 1991 and prior to that time was a
partner in the law firm of Gaston & Snow. He serves as Chairman of the Rogers
& Wells LLP Tax Department and Real Estate Securities practice group. Mr.
Gosule is a graduate of Boston University and its Law School and received a
LL.M. from Georgetown University. Mr. Gosule also serves on the Boards of
Directors of 15 funds of the Northstar Mutual Funds, the Simpson Housing
Limited Partnership, F.L. Putnam Investment Management Company and CORE Cap,
Inc. Rogers & Wells LLP acted as counsel to Coopers & Lybrand LLP in its
capacity as advisor to Michigan Retirement Systems in connection with its
investment of retirement funds in the Operating Partnership and Mr. Gosule was
the nominee of the Michigan Retirement Systems under the terms of the
investment agreements relating to that transaction.

Leonard F. Helbig, III. Mr. Helbig, 53, has been a director of the Company
since August 1994. Mr. Helbig has served as Executive Managing Director of the
Asset Services and Financial Services Groups and a Director of Cushman &
Wakefield since 1984. He joined Cushman & Wakefield in 1980 and is also a
member of that firm's Executive and National Management Committees. Mr. Helbig
is a member of the Urban Land Institute, the Pension Real Estate Association
and the International Council of Shopping Centers. Mr. Helbig is a graduate of
LaSalle University and holds the MAI designation of the American Institute of
Real Estate Appraisers.

Roger W. Kober. Mr. Kober, 65, has been a director of the Company since
August 1994. Mr. Kober is currently a director of Rochester Gas and Electric
Corporation where he was employed from 1965 until his retirement on January 1,
1998. From March 1996 until January 1, 1998, Mr. Kober served as Chairman and
Chief Executive Officer of Rochester Gas and Electric Corporation. He is also
a member of the Board of Trustees of Rochester Institute of Technology. Mr.
Kober is a graduate of Clarkson College and holds a Masters degree in
Engineering from Rochester Institute of Technology.

Clifford W. Smith, Jr. Mr. Smith, 51, has been a director of the Company
since August 1994. Mr. Smith has been the Clarey Professor of Finance of the
William E. Simon Graduate School of Business Administration of the University
of Rochester since 1988. He has written numerous books, monographs, articles
and papers on a

S-36
<PAGE>

variety of financial, capital markets, risk management and accounting topics
and has held a variety of editorial positions on a number of journals. Mr.
Smith is a graduate of Emory University and holds a Doctor of Economics from
the University of North Carolina at Chapel Hill.

Paul L. Smith. Mr. Smith, 62, has been a director of the Company since
August 1994. Mr. Smith was a director, Senior Vice President and the Chief
Financial Officer of the Eastman Kodak Company from 1983 until he retired in
1993. He is currently a director of Canandaigua Brands, Inc., Performance
Technologies, Incorporated and BioWorks, Inc. He is also a member of the Board
of Trustees of the George Eastman House, GeVa Theatre and Ohio Wesleyan
University. Mr. Smith is a graduate of Ohio Wesleyan University and holds a
Masters degree in Business Administration from Northwestern University.

David P. Gardner. Mr. Gardner, 43, has served as Vice President and Chief
Financial Officer of the Company, HP Management and Conifer Realty since their
inception. Mr. Gardner joined Home Leasing in 1984 as Vice President and
Controller. In 1989, he was named Treasurer of Home Leasing and Chief
Financial Officer in December 1993. From 1977 until joining Home Leasing, Mr.
Gardner was an accountant at Cortland L. Brovitz & Co. Mr. Gardner is a
graduate of the Rochester Institute of Technology and is a certified public
accountant.

Ann M. McCormick. Mrs. McCormick, 42, has served as Vice President, General
Counsel and Secretary of the Company and HP Management since their inception.
Mrs. McCormick joined Home Leasing in 1987 and was named Vice President,
Secretary and General Counsel in 1991. Prior to joining Home Leasing, she was
an associate with the law firm of Nixon, Hargrave, Devans & Doyle. Mrs.
McCormick is a graduate of Colgate University and holds a Juris Doctor from
Cornell University.

The other officers of the Company as of June 1, 1998, are as follows:

William E. Beach. Mr. Beach, 51, has served as Vice President of the Company
and HP Management since their inception. He joined Home Leasing in 1972 as a
Vice President. Mr. Beach is a graduate of Syracuse University and is a
certified property manager (CPM) as designated by the Institute of Real Estate
Management.

C. Terence Butwid. Mr. Butwid, 53, has served as Vice President of the
Company and Executive Vice President of Conifer Realty since 1996. He joined
Conifer in 1990 as a Vice President. Prior to joining Conifer, Mr. Butwid was
employed by Chase Lincoln First Bank, N.A. as Vice President and Manager of
Corporate Banking National Accounts. He was also President of Ontario Capital
Management. Mr. Butwid is a graduate of Bowling Green State University. He has
a Masters degree in Business Administration from American University and
graduated from The National School of Credit and Financial Management at
Dartmouth College.

Lavonne R. Childs. Mrs. Childs, 35, has served as Vice President of the
Company since 1997. She joined Home Properties in December of 1996 as a
Regional Property Manager. Mrs. Childs has been in property management for 14
years. Prior to joining Home Properties, she worked with Walden Residential,
United Dominion Realty Trust and Winthrop Management.

Scott A. Doyle. Mr. Doyle, 37 has served as Vice President of the Company
since 1997. He joined Home Properties in 1996 as a Regional Property Manager.
Mr. Doyle has been in property management for 14 years. Prior to joining Home
Properties he worked with CMH Properties, Inc., Rivercrest Realty Associates
and Arcadia Management Company. Mr. Doyle is a graduate of State University of
New York at Plattsburgh.

Kathleen M. Dunham. Mrs. Dunham, 52, has served as Vice President of the
Company and Conifer Realty since 1996. She joined Conifer in 1980 and was
named Vice President in 1990. Ms. Dunham is a certified property manager (CPM)
candidate with the Institute of Real Estate Management.

Johanna A. Falk. Mrs. Falk, 33, has served as a Vice President of the
Company since 1997. She joined the Company in 1995 as an investor relations
specialist. Prior to joining the Company, Mrs. Falk was employed as a
marketing manager at Bausch & Lomb Incorporated and Champion Products, Inc.
and as a financial analyst

S-37
<PAGE>

at Kidder Peabody. She is a graduate of Cornell University and holds a Masters
Degree in Business Administration from the Wharton School of The University of
Pennsylvania.

John H. Fennessey. Mr. Fennessey, 59, has served as Vice President of the
Company and Conifer Realty since 1996. He joined Conifer in 1975 as a founder
and Vice President, responsible for the operation of Conifer's Syracuse
office. Prior to joining Conifer, he was a Project Director with the New York
State Urban Development Corporation. Mr. Fennessey is a graduate of Harpur
College and holds a Masters degree in Regional Planning from the Maxwell
School, Syracuse University. He is a charter member of the American Institute
of Certified Planners (AICP).

Timothy A. Florczak. Mr. Florczak, 42, has served as a Vice President of the
Company since its inception. He joined Home Leasing in 1985 as a Vice
President. Prior to joining Home Leasing, Mr. Florczak was Vice President of
Accounting of Marc Equity Corporation. Mr. Florczak is a graduate of the State
University of New York at Buffalo.

Thomas L. Fountain, Jr. Mr. Fountain, 39, has served as a Vice President of
the Company and Conifer Realty since 1996 and as a Vice President of HP
Management since 1997. He joined Conifer in 1994 as the Director of Commercial
Properties. Prior to joining Conifer, Mr. Fountain was the Leasing Manager for
Faber Management Services, Inc. and Vice President of Asset Management for
Realty Diversified Services, Inc. Mr. Fountain is a graduate of West Virginia
University.

Timothy Fournier. Mr. Fournier, 37, has served as Vice President of Home
Properties and Executive Vice President of Conifer Realty since 1996. He
joined Conifer in 1986 as Vice President of Finance. Prior to joining Conifer,
Mr. Fournier was an accountant at Coopers & Lybrand. Mr. Fournier is a
graduate of New Hampshire College and is a certified public accountant.

Laurie Leenhouts. Ms. Leenhouts, 41, has served as a Vice President of the
Company since its inception. She joined Home Leasing in 1987 and has served as
a Vice President since 1992. Ms. Leenhouts is a graduate of the University of
Rochester. She is the daughter of Norman Leenhouts.

Robert J. Luken. Mr. Luken, 33, has served as Controller of the Company
since 1996 and as a Vice President since 1997. Prior to joining the Company,
he was the Controller of Bell Corp. of Rochester and an Audit Supervisor for
Coopers & Lybrand. Mr. Luken is a graduate of St. John Fisher College and is a
certified public accountant.

Paul O'Leary. Mr. O'Leary, 45, has served as a Vice President of the Company
since its inception. He joined Home Leasing in 1974 and has served as Vice
President of Home Leasing since 1978. Mr. O'Leary is a graduate of Syracuse
University and is a certified property manager (CPM) as designated by the
Institute of Real Estate Management.

John Oster. Mr. Oster, 48, has served as Vice President of the Company and
Conifer Realty since 1996. He joined Conifer as a Vice President in 1988.
Before joining Conifer, Mr. Oster was Director of Operations for the New York
State Division of Housing and Community Renewal. He is a graduate of Hamilton
College.

Dale C. Prunoske. Mr. Prunoske, 46, has served as a Vice President of the
Company and Conifer Realty since 1996. He joined Conifer in 1994 as a Vice
President. Prior to joining Conifer, he worked for Continuing Development
Services. He is a graduate of the State University of New York at Brockport
and holds a Masters degree of Public Administration.

John E. Smith. Mr. Smith, 47, joined Home Properties as Vice President of
Acquisitions in 1997. Prior to joining the Company, Mr. Smith was general
manager for Direct Response Marketing, Inc. and Executive Vice President for
The Equity Network, Inc. Mr. Smith has been a commercial real estate broker
for the past 20 years, a Certified Commercial Investment Member (CCIM) since
1982, a New York State certified instructor and has taught real estate courses
in four states.

S-38
<PAGE>

Richard J. Struzzi. Mr. Struzzi, 44, has served as a Vice President of the
Company and HP Management since their inception. He joined Home Leasing in
1983 as a Vice President. Mr. Struzzi is a graduate of the State University of
New York at Potsdam and holds a Masters degree of Public School Administration
from St. Lawrence University. He is the son-in-law of Nelson Leenhouts.

Robert C. Tait. Mr. Tait, 41, has served as a Vice President of the Company
and HP Management since their inception. He joined Home Leasing in 1989 and
served as a Vice President of Home Leasing since 1992. Prior to joining Home
Leasing, he was a manufacturing/industrial engineer with Moscom Corp. Mr. Tait
is a graduate of Princeton University and holds a Masters degree in Business
Administration from Boston University. Married to Amy L. Tait, he is the son-
in-law of Norman Leenhouts.

S-39
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom PaineWebber
Incorporated, BancAmerica Robertson Stephens, CIBC Oppenheimer Corp., Smith
Barney Inc. and Wheat First Union, a division of Wheat First Securities, Inc.,
are acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company, the number of shares of Common Stock set forth
opposite their respective names. Pursuant to the terms of the Underwriting
Agreement, the Underwriters are obligated to purchase all such shares of
Common Stock if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
PaineWebber Incorporated....................................
BancAmerica Robertson Stephens..............................
CIBC Oppenheimer Corp. .....................................
Smith Barney Inc. ..........................................
Wheat First Securities, Inc. ...............................
---------
Total................................................... 4,500,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession not in excess of $ per share of
Common Stock. The Underwriters may allow, and such dealers may re-allow, a
discount not in excess of $ per share of Common Stock on sales to certain
other brokers and dealers. The public offering price, concession and discount
may be changed by the Underwriters after the Common Stock is released for sale
to the public.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus Supplement, to purchase up to 675,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price, less the underwriting discounts and commissions set
forth on the cover page of this Prospectus Supplement. If the Underwriters
exercise this option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by it shown
in the foregoing table bears to the number of shares of Common Stock initially
offered hereby.

In the Underwriting Agreement, the Company and the Operating Partnership
have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the federal securities laws, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

Subject to certain exceptions, the Company and its executive officers and
directors have agreed not to sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise dispose of any shares of Common
Stock, or any securities convertible into, or exercisable, exchangeable or
redeemable for, shares of Common Stock, except for the shares of Common Stock
offered hereby, for a period of 90 days from the date of this Prospectus
Supplement, without the prior written consent of PaineWebber Incorporated.

The Underwriters do not intend to exercise discretion in confirming sales to
any account over which they otherwise have discretionary authority.

The Common Stock is listed on the NYSE under the symbol "HME" and on the
Berlin Stock Exchange under the symbol "HMP GR." The Company has applied for
listing of the shares of Common Stock offered hereby on the NYSE.

S-40
<PAGE>

In connection with the Offering, the rules of the Securities and Exchange
Commission permit the Underwriters to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with this Offering (i.e., if they sell more shares of Common Stock
than are set forth in the cover page of this Prospectus Supplement), the
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.

PaineWebber Incorporated, on behalf of the Underwriters, may also impose a
penalty bid on certain of the Underwriters. This means that if PaineWebber
Incorporated, on behalf of the Underwriters, purchases shares of Common Stock
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Common Stock, it may reclaim the amount of the selling
concession from the Underwriters who sold those shares as part of this
Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above might have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.

In the ordinary course of their business, certain of the Underwriters and/or
their affiliates have in the past engaged and may in the future engage in
financial advisory, investment banking and other transactions with the Company
for which customary compensation has been, and will be, received. CIBC Inc.,
an affiliate of CIBC Oppenheimer Corp., is the provider of the Acquisition
Facility.

LEGAL MATTERS

Certain legal matters, including the legality of the Common Stock, will be
passed upon for the Company by Nixon, Hargrave, Devans & Doyle llp as
securities and tax counsel to the Company, and for the Underwriter by Rogers &
Wells LLP, New York, New York. Mr. Alan L. Gosule, a partner at the firm of
Rogers & Wells LLP, is a member of the Board of Directors of the Company and
owns, or has the right to acquire, 3,688 shares of Common Stock. As to matters
of Maryland law contained in its opinion, Rogers & Wells LLP will rely on the
opinion of Nixon, Hargrave, Devans & Doyle LLP.

EXPERTS

The financial statements incorporated by reference in the Prospectus
Supplement or elsewhere in the Registration Statement, have been incorporated
herein in reliance on the reports of Coopers & Lybrand LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

S-41
<PAGE>

PROSPECTUS
$413,750,000
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
PREFERRED STOCK
COMMON STOCK PURCHASE
RIGHTS OR WARRANTS
DEBT SECURITIES

Home Properties of New York, Inc., a Maryland corporation (the "Company"),
may from time to time offer in one or more series (i) shares of its common
stock, par value $.01 per share (the "Common Stock"); (ii) shares of its
preferred stock, par value $.01 per share (the "Preferred Stock"); (iii)
rights or warrants to purchase shares of its Common Stock (the "Common Stock
Purchase Rights") and (iv) one or more series of debt securities ("Debt
Securities"), which may be either senior debt securities or subordinated debt
securities, with an aggregate public offering price of up to $413,750,000. The
Common Stock, Preferred Stock, Common Stock Purchase Rights or Warrants and
Debt Securities (collectively, the "Offered Securities") may be offered,
separately or together, in separate classes or series, in amounts, at prices
and on terms to be determined at the time of offering and set forth in a
supplement to this Prospectus (each, a "Prospectus Supplement").

The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Common
Stock, any public offering price; (ii) in the case of Preferred Stock, the
specific title and stated value, any distribution, any return of capital,
liquidation, redemption, conversion, voting and other rights, and any initial
public offering price; (iii) in the case of Common Stock Purchase Rights, the
duration, offering price, exercise price and any reallocation of Purchase
Rights not initially subscribed, and (iv) in the case of Debt Securities, the
title, aggregate principal amount, denominations, maturity, rate (which may be
fixed or variable) or method of calculation thereof, time of payment of any
interest, any terms for redemption at the option of the holder or the Company,
any terms for sinking fund payments, rank, any conversion or exchange rights,
any listing on a securities exchange, and the initial public offering price
and any other terms in connection with the offering and sale of any Debt
Securities. In addition, such specific terms may include limitations on direct
or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust (a "REIT") for federal income tax
purposes.

The applicable Prospectus Supplement will also contain information, where
applicable, about all material United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement. The Common Stock is listed
on the New York Stock Exchange under the symbol "HME." Any Common Stock
offered pursuant to a Prospectus Supplement will be listed on such exchange,
subject to official notice of issuance.

The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such class or series of the Offered Securities.

SEE "RISK FACTORS" (BEGINNING ON PAGE 4) FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.

The date of this Prospectus is May 26, 1998
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") 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 Offered Securities. This
Prospectus, which is part of such 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 Offered
Securities, reference is hereby 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.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, 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 the Company at http://www.sec.gov.
In addition, the Common Stock is listed on the New York Stock Exchange and
similar information concerning the Company can be inspected at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.

The Company furnishes its stockholders with annual reports containing
audited financial statements with a report thereon by its independent public
accountants.

FORWARD LOOKING STATEMENTS

Certain information contained herein or incorporated by reference may
contain forward-looking statements. Although the Company believes expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be achieved.
Factors that may cause actual results to differ include the general economic
and local real estate conditions, the weather and other conditions that might
affect operating expenses, the timely completion of repositioning activities,
the actual pace of acquisitions, and the continued access to capital to fund
growth.

2
<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

The following documents, which have been filed by the Company (Commission
File No. 1-13136) under the Exchange Act are incorporated into this Prospectus
by reference: the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, filed on March 24, 1998; the Company's Current
Reports on Form 8-K filed on February 20, 1998, as amended by Form 8-K/A filed
on March 24, 1998, on March 26, 1998 and on April 15, 1998, the Company's
Current Report on Form 8-K/A filed January 12, 1998 amending its Current
Report on Form 8-K filed on October 7, 1997, the Company's registration
statement with respect to its Common Stock on Form 8-A effective July 27, 1994
and two current Reports on Form 8-K filed on May 22, 1998.

Documents incorporated herein by reference are available to any stockholder
of the Company, on written or oral request, without charge, from the Company.
Requests should be directed to David P. Gardner, Chief Financial Officer, Home
Properties of New York, Inc., 850 Clinton Square, Rochester, New York 14604,
telephone (716) 546-4900. Copies of documents so requested will be sent by
first class mail, postage paid.

All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the
filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference 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 or information 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, in the Registration Statement containing this Prospectus or
in any 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

As used in this section, the terms "Home Properties" and "Company," include
Home Properties of New York, Inc., a Maryland Corporation, Home Properties of
New York, L.P. (the "Operating Partnership"), a New York Limited Partnership,
Home Properties Trust (the "Trust"), a Maryland Real Estate Investment Trust,
and the two management companies (the "Management Companies")-Home Properties
Management, Inc. ("HP Management") and Conifer Realty Corporation ("Conifer
Realty"), both of which are Maryland corporations.

The Company is a self-administered, self-managed and fully integrated real
estate investment trust ("REIT") formed in November, 1993 to continue and
expand the multifamily residential real estate business of Home Leasing
Corporation, which was organized in 1967. The Company is one of the largest
owners and operators of multifamily residential properties in upstate New York
(based on the number of apartment units owned and managed).

The Company, as of May 11, 1998, operates 231 communities (the "Properties")
containing 26,090 apartment units. Of these, 17,103 units in 71 communities
are owned outright by the Company, 6,139 units are managed by the Company as
general partner of a limited partnership, and 2,848 units are managed for
third-party owners. The Properties are located throughout the Northeast, Mid-
Atlantic and Midwest. In addition, the Company manages 1.7 million square feet
of commercial space.

3
<PAGE>

The Company conducts substantially all of its business and owns all of its
properties through the Operating Partnership and the Management Companies. To
comply with certain technical requirements of the Internal Revenue Code of
1986, as amended (the "Code"), applicable to REITs, the Operating Partnership
carries out portions of its property management and development activities
through the Management Companies, which are beneficially owned by the
Operating Partnership but controlled by one or more officers of the Company.
The Company owns a 1% general partnership interest in the Operating
Partnership and, through its wholly owned subsidiary the Trust, a 55.9%
limited partnership interest in the Operating Partnership as of March 31,
1998.

The Company's executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Its telephone number is (716) 546-4900.

RISK FACTORS

An investment in the Offered Securities involves various risks. In addition to
general investment risks and those factors set forth elsewhere in this
Prospectus, prospective investors should consider, among other things, the
following factors:

ASSIMILATION OF A SUBSTANTIAL NUMBER OF NEW ACQUISITIONS

The Company has undertaken a strategy of aggressive growth through
acquisitions. From January 1, 1997 through April 30, 1998, the Company has
acquired 44 new communities with 10,551 apartment units, more than doubling
the number of its owned multifamily units. The Company's ability to manage its
growth effectively will require the Company, among other things, to
successfully apply its experience in managing its existing portfolio to an
increased number of properties. In addition, the Company will be required to
successfully manage the integration of a substantial number of new personnel.
There can be no assurances that the Company will be able to integrate and
manage these operations effectively or maintain or improve on their historical
financial performance.

REAL ESTATE FINANCING RISKS

General. The Company is subject to the customary risks associated with debt
financing including the potential inability to refinance existing mortgage
indebtedness upon maturity on favorable terms. If a property is mortgaged to
secure payment of indebtedness and the Company is unable to meet its debt
service obligations, the property could be foreclosed upon. This could
adversely affect the Company's cash flow and, consequently, the amount
available for distributions to stockholders.

No Limitation on Debt. The Board of Directors has adopted a policy of
limiting the Company's indebtedness to approximately 50% of its total market
capitalization (i.e., the market value of issued and outstanding shares of
Common Stock and limited partnership interest in the Operating Partnership
("Units") plus total debt), but the organizational documents of the Company do
not contain any limitation on the amount or percentage of indebtedness, funded
or otherwise, the Company may incur. Accordingly, the Board of Directors could
alter or eliminate its current policy on borrowing. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's ability to
make expected distributions to its stockholders and an increased risk of
default on the Company's indebtedness.

The Company's debt to total market capitalization ratio fluctuates based on
the timing of acquisitions and financings. At December 31, 1997, the ratio of
the Company's indebtedness to its total capitalization was 33%, based on a
year-end closing price of the Company's Stock of $27.1875, and at March 31,
1998 was 32%, based on the closing price of the Company's Common Stock on that
date of $27.75.

4
<PAGE>

Existing Debt Maturities. The Company is subject to the risks normally
associated with debt financing, including the risk that the Company's cash
flow will be insufficient to meet the required payments of principal and
interest. Because much of the financing is not fully self-amortizing, the
Company anticipates that only a portion of the principal of the Company's
indebtedness will be repaid prior to maturity. So, it will be necessary for
the Company to refinance debt. Accordingly, there is a risk that existing
indebtedness will not be able to be refinanced or that the terms of such
refinancing will not be as favorable as the terms of the existing
indebtedness. The Company aims to stagger its debt maturities with the goal of
minimizing the amount of debt which must be refinanced in any year.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

Although the Company believes that it was organized and has operated to
qualify as a REIT under the Code, no assurance can be given that the Company
will remain so qualified. Qualification as a REIT involves the application of
highly technical and complex Code provisions and REIT qualification rules,
which include (i) maintaining ownership of specified minimum levels of real
estate related assets; (ii) generating specified minimum levels of real estate
related income; (iii) maintaining diversity of ownership of Common Stock; and
(iv) distributing at least 95% of all real estate investment taxable income on
an annual basis.

If in any taxable year the Company fails to qualify as a REIT, the Company
would not be allowed a deduction in computing its taxable income for
distributions to stockholders and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. As a result, the amount available for distribution to
the Company's stockholders would be reduced for the year or years involved. In
addition, unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost.

REAL ESTATE INVESTMENT RISKS

General Risks. Real property investments are subject to varying degrees of
risk. If the Company's communities do not generate revenues sufficient to meet
operating expenses, including debt service and capital expenditures, the
Company's cash flow and ability to make distributions to its stockholders will
be adversely affected. A multifamily apartment community's revenues and value
may be adversely affected by the general economic climates; the local economic
climate; local real estate considerations (such as over supply of or reduced
demand for apartments); the perception by prospective residents of the safety,
convenience and attractiveness of the communities or neighborhoods in which
they are located and the quality of local schools and other amenities; and
increased operating costs (including real estate taxes and utilities). Certain
significant fixed expenses are generally not reduced when circumstances cause
a reduction in income from the investment.

Operating Risks. The Company is dependent on rental income to pay operating
expenses and to generate cash to enable the Company to make distributions to
its stockholders. If the Company is unable to attract and retain residents or
if its residents are unable, due to an adverse change in the economic
condition of the region or otherwise, to pay their rental obligations, the
Company's ability to make expected distributions will be adversely affected.

Dependence on Primary Markets. The Properties are located in the Northeast,
Midwest and Mid-Atlantic regions of the United States. At April 30, 1998,
6,550 of the Company's owned multifamily units were located in the upstate New
York region and 3,482 units were located in markets surrounding Detroit,
Michigan (representing approximately 38.3% and approximately 20.4% of the
units respectively of the Company's portfolio). Accordingly, the Company's
performance is partially linked to economic conditions and the demand for
apartments in upstate New York and the Detroit, Michigan area. A decline in
the economy in these regions particularly, or in any other areas where the
Company has a concentration of apartment units, may result in a decline in the
demand for apartments which may adversely affect the ability of the Company to
make distributions to stockholders.

5
<PAGE>

Illiquidity of Real Estate. Real estate investments are relatively illiquid
and, therefore, the Company has limited ability to vary its portfolio quickly
in response to changes in economic or other conditions. In addition, the
prohibition in the Code on REITs holding property for sale and related
regulations may affect the Company's ability to sell properties without
adversely affecting distributions to stockholders. A significant number of the
Company's properties acquired using Units restrict the Company's ability to
sell such properties in transactions which would create currrent taxable
income to the former owners.

Compliance with Laws and Regulations. Many laws and governmental regulations
are applicable to the Properties and changes in these laws and regulations, or
their interpretation by agencies and the courts, occur frequently. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. These requirements became effective in
1992. Compliance with the ADA requires removal of structural barriers to
handicapped access in certain public areas of the Properties, where such
removal is "readily achievable." The ADA does not, however, consider
residential properties, such as apartment communities, to be public
accommodations or commercial facilities, except to the extent portions of such
facilities, such as a leasing office, are open to the public. A number of
additional federal, state and local laws exist which also may require
modifications to the Properties, or restrict certain further renovations
thereof, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the ADA or the FHAA could result in the
imposition of fines or an award of damages to private litigants. Although
management believes that the Properties are substantially in compliance with
present requirements, the Company may incur additional costs in complying with
the ADA for both existing properties and properties acquired in the future.
The Company believes that the Properties that are subject to the FHAA are in
compliance with such laws.

Under the federal Fair Housing Act and state fair housing laws,
discrimination on the basis of certain protected classes is prohibited. The
Company has a policy against any kind of discriminatory behavior and trains
its employees to avoid discrimination or the appearance of discrimination.
There is no assurance, however, that an employee will not violate the
Company's policy against discrimination and violate the fair housing laws.
Such a violation could subject the Company to legal action and the possible
awards of damages.

Under various laws, ordinances and regulations relating to the protection of
the environment, a current or previous owner or operator of real estate may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances located on, under or in the property. These laws often impose
liability without regard to whether the owner or operator was responsible for,
or even knew of, the presence of such substances. The presence of
contamination from hazardous or toxic substances, or the failure to remediate
such contaminated property properly, may adversely affect the owner's ability
to rent or sell the property or use the property as collateral. Independent
environmental consultants conducted "Phase I" environmental audits (which
involve visual inspection but not soil or groundwater analysis) of
substantially all of the Properties owned by the Company prior to their
acquisition by the Company. The Phase I audit reports did not reveal any
significant issues of environmental concern, nor is the Company aware of any
environmental liability that management believes would have a material adverse
effect on the Company. There is no assurance that Phase I reports would reveal
all environmental liabilities or that environmental conditions not known to
the Company may exist now or in the future on existing properties or those
subsequently acquired which would result in liability to the Company for
remediation or fines, either under existing laws and regulations or future
changes to such requirements.

If compliance with the various laws and regulations, now existing or
hereafter adopted, exceeds the Company's budgets for such items, the Company's
ability to make expected distributions could be adversely affected.

Competition. The Company plans to continue to acquire additional multifamily
residential properties in the Northeast, Mid-Atlantic and Midwest regions of
the United States. There are a number of multifamily developers and other real
estate companies that compete with the Company in seeking properties for
acquisition,

6
<PAGE>

prospective residents and land for development. Most of the Company's
Properties are in developed areas where there are other properties of the same
type. Competition from other properties may affect the Company's ability to
attract and retain residents, to increase rental rates and to minimize
expenses of operation. Virtually all of the leases for the Properties are
short-term leases (i.e., one year or less).

Uninsured Losses. Certain extraordinary losses may not be covered by the
Company's comprehensive liability, fire, extended and rental loss insurance.
If an uninsured loss occurred, the Company could lose its investment in and
cash flow from the affected Property (but would be required to repay any
indebtedness secured by that Property and related taxes and other charges).

LIMITS ON OWNERSHIP

Ownership Limit. In order for the Company to maintain its qualification as a
REIT, not more than 50% in value of the outstanding stock of the Company may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) at any time during the last half of its
taxable year. The Company has limited ownership of the issued and outstanding
shares of Common Stock by any single stockholder to 8.0% of the outstanding
shares. Shares of Common Stock held by certain entities, such as qualified
pension plans, are treated as if the beneficial owners of such entities were
the holders of the Common Stock. Norman and Nelson Leenhouts will be permitted
to acquire additional shares, except to the extent that such acquisition
results in 50% or more in value of the outstanding Common Stock of the Company
being owned, directly or indirectly, by five or fewer individuals. These
restrictions can be waived by the Board of Directors if it were satisfied,
based upon the advice of tax counsel or otherwise, that such action would be
in the best interests of the Company. Shares acquired or transferred in breach
of the limitation may be redeemed by the Company for the lesser of the price
paid or the average closing price for the ten trading days immediately
preceding redemption or may be sold at the direction of the Company. A
transfer of Shares to a person who, as a result of the transfer, violates the
ownership limit will be void and the Shares will automatically be converted
into shares of "Excess Stock," which is subject to a number of limitations.
See "Description of Capital Stock -- Restrictions on Transfer" for additional
information regarding the ownership limits.

CHANGE OF CONTROL

The Articles of Amendment and Restatement of the Articles of Incorporation,
as amended (the "Articles of Incorporation"), authorize the Board of Directors
to issue up to a total of fifty million shares of Common Stock and ten million
shares of preferred stock and to establish the rights and preferences of any
shares issued. No shares of preferred stock are currently issued or
outstanding. Further, under the Articles of Incorporation, the stockholders do
not have cumulative voting rights.

The percentage ownership limit, the issuance of preferred stock in the
future and the absence of cumulative voting rights could have the effect of
(i) delaying or preventing a change of control of the Company even if a change
in control were in the stockholders' interest; (ii) deterring tender offers
for the Common Stock that may be beneficial to the stockholders; or (iii)
limiting the opportunity for stockholders to receive a premium for their
Common Stock that might otherwise exist if an investor attempted to assemble a
block of Shares in excess of the percentage ownership limit or otherwise to
effect a change of control of the Company.

POTENTIAL CONFLICTS OF INTEREST

Unlike persons acquiring Common Stock, the Company's executive officers own
most of their interest in the Company through Units. As a result of their
status as holders of Units, the executive officers and other limited partners
may have interests that conflict with stockholders with respect to business
decisions affecting the Company and the Operating Partnership. In particular,
certain executive officers may suffer different or more adverse tax
consequences than the Company upon the sale or refinancing of some of the
Properties as a result of unrealized gain attributable to certain Properties.
Thus, executive officers and the stockholders may have different objectives
regarding the appropriate pricing and timing of any sale or refinancing of
Properties. In addition, executive officers of the Company, as limited
partners of the Operating Partnership, have the right to approve certain
fundamental transactions such as the sale of all or substantially all of the
assets of the Operating Partnership, merger or consolidation or dissolution of
the Operating Partnership and certain amendments to the Operating Partnership
Agreement.

7
<PAGE>

The Company manages multifamily residential properties through the Operating
Partnership and commercial and development properties and certain multifamily
residential properties not owned by the Company through the Management
Companies. As a result, officers of the Company will devote a significant
portion of their business time and efforts to the management of properties not
owned by the Company.

Some officers of the Company have a significant interest in certain of the
managed properties as the only stockholders of the general partners of the
partnerships that own such managed properties and as holders of other
ownership interests. Accordingly, such officers will have conflicts of
interest between their fiduciary obligations to the partnerships that own such
managed properties and their fiduciary obligations as officers and directors
of the Company, particularly with respect to the enforcement of the management
contracts and timing of the sale of the managed properties.

In order to comply with technical requirements of the Code pertaining to the
qualification of REITs, the Operating Partnership owns all of the outstanding
non-voting common stock (990 shares) of one of the Management Companies, Home
Properties Management, Inc., and Norman and Nelson Leenhouts own all of the
outstanding voting common stock (10 shares). The Operating Partnership also
owns all of the outstanding non-voting common stock (891 shares) of the other
Management Company, Conifer Realty Corporation, and Norman and Nelson
Leenhouts and Richard Crossed own all of the outstanding voting common stock
(9 shares). As a result, although the Company will receive substantially all
of the economic benefits of the business carried on by the Management
Companies through the Company's right to receive dividends, the Company will
not be able to elect directors and officers of the Management Companies and,
therefore, the Company's ability to cause dividends to be declared or paid or
influence the day-to-day operations of the Management Companies will be
limited. Furthermore, although the Company will receive a management fee for
managing the managed properties, this fee has not been negotiated at arm's
length and may not represent a fair price for the services rendered.

SHARES AVAILABLE FOR FUTURE SALE

Sales of substantial amounts of shares of Common Stock in the public market
or the perception that such sales might occur could adversely affect the
market price of the Common Stock. The Operating Partnership has issued an
aggregate of 8,989,512 Units through April 30, 1998 to persons other than the
Company which may be exchanged on a one-for-one basis for shares of Common
Stock under certain circumstances. The Operating Partnership has also issued a
Class A Interest which is presently convertible into 1,666,667 shares of
Common Stock (which number will be adjusted under certain circumstances to
prevent such interest from being diluted). In addition, as of April 30, 1998,
the Company has granted options to purchase an aggregate of 836,102 shares of
Common Stock to certain directors, officers and employees of the Company.

All of the shares of Common Stock issuable upon the exchange of Units or the
exercise of options will be "restricted securities" within the meaning of Rule
144 under the Securities Act and may not be transferred unless they are
registered under the Securities Act or are otherwise transferrable under Rule
144. The Company has filed or expects to file registration statements with
respect to such shares of Common Stock, thereby allowing shares issuable under
the Company's stock benefit plans and in exchange for Units to be transferred
or resold without restriction under the Securities Act, unless held by
directors, executive officers or other affiliates of the Company.

RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
ORIGINAL PROPERTIES*
-----------------------
YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 4- JANUARY 1- YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, AUGUST 3 DECEMBER 31,
1997 1996 1995 1994 1994 1993
- ------------ ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
2.06 1.52 1.68 2.77 1.23 1.33
</TABLE>

* Original Properties is not a legal entity but rather a combination of twelve
entities which were owned by the predecessor corporation and its affiliates
prior to the Company's initial public offering.

8
<PAGE>

For purposes of computing the ratio of earnings to combined fixed charges,
"earnings" consists of income from operations before Federal income taxes and
fixed charges. "Fixed charges" consists of interest expense, capitalized
interest, amortization of debt expense, such portion of rental expense as can
be demonstrated to be representative of the interest factor in the particular
case and preferred stock dividend requirements.

USE OF PROCEEDS

Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered
Securities for the acquisition of multifamily residential properties as
suitable opportunities arise, the expansion and improvement of certain
properties in the Company's portfolio, the payment of development costs for
new multifamily residential properties, the repayment of certain indebtedness
outstanding at such time and for general corporate purposes.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company 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, the Preferred Stock and the
Common Stock Purchase Rights or Warrants and Debt Securities sets forth
certain general terms and conditions of the capital stock of the Company to
which any Prospectus Supplement may relate. The descriptions below do not
purport to be complete and are qualified entirely by reference to the
Company's Articles of Incorporation, as amended, any certificate of
designations with respect to Preferred Stock and any applicable Prospectus
Supplement.

COMMON STOCK

All shares of Common Stock offered will be duly authorized, fully paid, and
nonassessable. Holders of the Common Stock will have no conversion,
redemption, sinking fund or preemptive rights; however, shares of Common Stock
will automatically convert into shares of Excess Stock as described below.
Under the Maryland General Corporation Law ("MGCL"), stockholders are
generally not liable for the Company's debts or obligations, and the holders
of shares will not be liable for further calls or assessments by the Company.
Subject to the provisions of the Company's 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 the Company out of funds legally
available therefor, and, upon liquidation of the Company, 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 the Company, 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. The Company 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 the Company's Articles of Incorporation regarding Excess Stock
described below. As described below, the Board of Directors of the Company
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, the Company cannot
dissolve, amend its charter, merge with another entity, sell all or
substantially all its assets, engage in a share exchange or engage in similar
transactions unless such action is approved by stockholders holding a majority
of the outstanding shares

9
<PAGE>

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 the Operating Partnership be approved by
partners holding a majority of the outstanding Units, excluding Operating
Partnership Units held by the Company. The Company's 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 to the Company's 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.

PREFERRED STOCK

Preferred Stock may be issued from time to time, in one or more series, as
authorized by the Board of Directors of the Company. 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 the Company.

The applicable Prospectus Supplement will describe specific terms of the
shares of Preferred Stock offered thereby, including, among other things: (i)
the title or designation of the series of Preferred Stock; (ii) the number of
shares of the series of Preferred Stock offered, the liquidation preference
per share and the offering price of the Preferred Stock; (iii) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to the Preferred Stock; (iv) the date from which dividends on such
Preferred Stock shall accumulate, if at all; (v) any restrictions on the
issuance of shares of the same series or of any other class or series; (vi)
the provision for a sinking fund, if any, for such Preferred Stock; (vii) the
provision for redemption, if applicable, of such Preferred Stock; (viii) any
listing of such Preferred Stock on any securities exchange; (ix) the terms and
conditions, if applicable, upon which such Preferred Stock will be convertible
into Common Stock of the Company, including the conversion price (or manner of
calculation thereof); (x) any other specific terms, preferences, rights,
limitations or restrictions of such Preferred Stock, including any voting
rights; (xi) a discussion of federal income tax considerations applicable to
such Preferred Stock; (xii) the relative ranking and preferences of such
Preferred Stock as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of the Company; (xiii) any limitations on
issuance of any series of Preferred Stock, ranking senior to or on a parity
with such series of Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company; and
(xiv) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT.

Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of
Common Stock and to all other equity securities ranking junior to such
Preferred Stock, (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities
rank on a parity with the Preferred Stock, and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.

10
<PAGE>

Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, 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 the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation,
dissolution or winding up of the Company, the holders of shares of each series
of Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to stockholders liquidating distributions
in the amount of the liquidation preference per share (set forth in the
applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such shares of
Preferred Stock do not have cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the
holders of shares of Preferred Stock will have no right or claim to any of the
remaining assets of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of
the Company 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 the Company ranking on a parity with such shares of Preferred
Stock in the distribution of assets, then the holders of such shares of
Preferred Stock and all other such classes or series of capital stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.

COMMON STOCK PURCHASE RIGHTS

The applicable Prospectus Supplement will describe the specific terms of any
rights or warrants to purchase Common Stock offered thereby, including, among
other things: the duration, offering price and exercise price of the Common
Stock Purchase Rights and any provisions for the reallocation of Purchase
Rights not initially subscribed. The Prospectus Supplement will describe the
persons to whom the Common Stock Purchase Rights will be issued (the Company's
stockholders, the general public or others) and any conditions to the offer
and sale of the Common Stock Purchase Rights offered thereby.

RESTRICTIONS ON TRANSFER

Ownership Limits. The Company's Articles of Incorporation contain certain
restrictions on the number of shares of capital stock that stockholders may
own. For the Company 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
the Company 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 the Company. 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 the
Company's 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 the Company may
increase or

11
<PAGE>

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 the Company 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 the Company's status as a REIT.

Any transfer of outstanding capital stock of the Company ("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 the Company
being closely held within the meaning of section 856(h) of the Code, or (iv)
otherwise prevent the Company from satisfying any criteria necessary for it to
qualify as a REIT, is null and void, and the purported transferee acquires no
rights to such Outstanding Stock.

Outstanding Stock owned by or attributable to a stockholder or shares of
Outstanding Stock purportedly transferred to a stockholder which cause such
stockholder or any other stockholder to own shares of capital stock in excess
of the Ownership Limit or Existing Holder Limit will automatically convert
into shares of Excess Stock. Such Excess Stock will be transferred by
operation of law to a separate trust, with the Company 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 the Company.
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 the Company 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, the
Company 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 the Company exercises its option
to purchase. The Company 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 the Company, 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). The Company's 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 the
Company 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 the Company's 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

12
<PAGE>

Stock if the conversion provisions of the Articles of Incorporation were
enforceable and valid shall be deemed to have acted as an agent on behalf of
the Company in acquiring such Outstanding Stock and to hold such Outstanding
Stock on behalf of the Company unless the Company waives its right to this
remedy.

The foregoing ownership and transfer limitations may have the effect of
precluding acquisition of control of the Company without the consent of its
Board of Directors. All certificates representing shares of capital stock will
bear a legend referring to the restrictions described above. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines, and the stockholders concur, that it is no longer in the
best interests of the Company 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 the Company must file a written notice with the
Company 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 the Company in writing such
information as the Company may request in order to determine the effect of
such stockholder's direct, indirect and attributed ownership of shares of
capital stock on the Company's 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 the
Company's 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 the Company and
its stockholders to the fullest extent permitted from time to time by the MGCL
and require the Company to indemnify its directors, officers and certain other
parties to the fullest extent permitted from time to time by the MGCL.

Business Combinations. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and any person who beneficially
owns 10% or more of the voting power of the outstanding voting stock of the
corporation or an affiliate or associate of the corporation who, at any time
within the two-year period immediately prior to the date in question, was the
beneficial owner, directly or indirectly, of 10% or more of the voting power
of the then-outstanding voting stock of the corporation (an "Interested
Stockholder") or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, in addition to any other required vote, any such
business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (i) 80% of the
votes entitled to be cast by holders of outstanding shares of voting stock of
the corporation, voting together as a single voting group, and (ii) two-thirds
of the votes entitled to be cast by holders of voting stock of the corporation
(other than voting stock held by the Interested Stockholder who will, or whose
affiliate will, be a party to the business combination or by an affiliate or
associate of the Interested Stockholder) voting together as a single voting
group. The extraordinary voting provisions do not apply if, among other
things, the corporation's stockholders receive a price for their shares
determined in accordance with the MGCL and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Articles of Incorporation of the Company

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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 or 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 stockholders 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 stockholders' rights do not apply in
the context of a control share acquisition.

The Articles of Incorporation contain a provision exempting from the control
share acquisition statute any and all acquisitions to the extent that such
acquisitions would not violate the Ownership Limit or Existing Owner Limit.
There can be no assurance that such provision will not be amended or
eliminated at any point in the future.

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DESCRIPTION OF DEBT SECURITIES

The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities.

The Debt Securities are to be issued in one or more series under an
Indenture, a copy of which is incorporated as an Exhibit to the Registration
Statement of which this Prospectus forms a part, as amended or supplemented by
one or more supplemental indentures (the "Indenture"), to be entered into
between the Company and a financial institution as Trustee (the "Trustee").
The statements herein relating to the Debt Securities and the Indenture are
summaries and are subject to the detailed provisions of the applicable
Indenture. The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture, including
the definitions therein of certain terms capitalized in this Prospectus.

GENERAL

The Indenture does not limit the aggregate amount of Debt Securities which
may be issued thereunder, nor does it limit the incurrence or issuance of
other secured or unsecured debt of the Company.

The Debt Securities will be unsecured general obligations of the Company and
will rank with all other unsecured and unsubordinated obligations of the
Company as described in the applicable Prospectus Supplement. The Indenture
provides that the Debt Securities may be issued from time to time in one or
more series. The Company may authorize the issuance and provide for the terms
of a series of Debt Securities pursuant to a supplemental indenture.

Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities being offered thereby for the terms of such Debt
Securities, including, where applicable: (1) the specific designation of such
Debt Securities; (2) any limit upon the aggregate principal amount of such
Debt Securities; (3) the date or dates on which the principal of and premium,
if any, on such Debt Securities will mature or the method of determining such
date or dates; (4) the rate or rates (which may be fixed, variable or zero) at
which such Debt Securities will bear interest, if any, or the method of
calculating such rate or rates; (5) the date or dates from which interest, if
any, will accrue or the method by which such date or dates will be determined;
(6) the date or dates on which interest, if any, will be payable and the
record date or dates therefor; (7) the place or places where principal of,
premium, if any, and interest, if any, on such Debt Securities may be
redeemed, in whole or in part, at the option of the Company; (8) the
obligation, if any, of the Company to redeem or purchase such Debt Securities
pursuant to any sinking fund or analogous provisions or upon the happening of
a specified event and the period or periods within which, the price or prices
at which and the other terms and conditions upon which, such Debt Securities
shall be redeemed or purchased, in whole or in part, pursuant to such
obligations; (9) the denominations in which such Debt Securities are
authorized to be issued; (10) the currency or currency unit for which Debt
Securities may be purchased or in which Debt Securities may be denominated
and/or the currency or currencies (including currency unit or units) in which
principal of, premium, if any, and interest, if any, on such Debt Securities
will be payable and whether the Company or the holders of any such Debt
Securities may elect to receive payments in respect of such Debt Securities in
a currency or currency unit other than that in which such Debt Securities are
stated to be payable; (11) if the amount of payments of principal of and
premium, if any, or any interest, if any, on such Debt Securities may be
determined with reference to an index based on a currency or currencies other
than that in which such Debt Securities are stated to be payable, the manner
in which such amount shall be determined; (12) if the amount of payments of
principal of and premium, if any, or interest, if any, on such Debt Securities
may be determined with reference to changes in the prices of particular
securities or commodities or otherwise by application of a formula, the manner
in which such amount shall be determined; (13) if other than the entire
principal amount thereof, the portion of the principal amount of such Debt
Securities

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<PAGE>

which will be payable upon declaration of the acceleration of the maturity
thereof or the method by which such portion shall be determined; (14) the
person to whom any interest on any such Debt Security shall be payable if
other than the person in whose name such Debt Security is registered on the
applicable record date; (15) any addition to, or modification or deletion of,
any Event of Default or any covenant of the Company specified in the Indenture
with respect to such Debt Securities; (16) the application, if any, of such
means of defeasance as may be specified for such Debt Securities; and (17) any
other special terms pertaining to such Debt Securities. Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities will
not be listed on any securities exchange.

Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued only in fully registered form without coupons.
Unless the Prospectus Supplement relating thereto specifies otherwise, Debt
Securities will be denominated in U.S. dollars and will be issued only in
denominations of U.S. $1,000 and any integral multiple thereof.

Debt Securities may be sold at a substantial discount below their stated
principal amount and may bear no interest or interest at a rate which at the
time of issuance is below market rates. Certain federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the applicable Prospectus Supplement.

If the amount of payments of principal of and premium, if any, or any
interest on Debt Securities of any series is determined with reference to any
type of index or formula or changes in prices of particular securities or
commodities, the federal income tax consequences, specific terms and other
information with respect to such Debt Securities and such index or formula and
securities or commodities will be described in the applicable Prospectus
Supplement.

If the principal of and premium, if any, or any interest on Debt Securities
of any series are payable in a foreign or composite currency, the
restrictions, elections, federal income tax consequences, specific terms and
other information with respect to such Debt Securities and such currency will
be described in the applicable Prospectus Supplement.

The Prospectus Supplement, with respect to any particular series of Debt
Securities being offered thereby which provide for optional redemption,
prepayment or conversion of such Debt Securities on the occurrence of certain
event, such as a change of control of the Company, will provide: (1) a
discussion of the effects that such provisions may have in deterring certain
mergers, tender offers or other takeover attempts, as well as any possible
adverse effect on the market price of the Company's securities or the ability
to obtain additional financing in the future; (2) a statement the Company will
comply with any applicable provisions of the requirements of Rule 14e-1 under
the Securities Exchange Act of 1934 and any other applicable securities laws
in connection with any optional redemption, prepayment or conversion
provisions and any related offers by the Company (including, if such Debt
Securities are convertible, Rule 13e-4); (3) a disclosure of any cross-
defaults in other indebtedness which may result as a consequence of the
occurrence of certain events so that the payments on such Debt Securities
would be effectively subordinated; (4) a disclosure of effect of any failure
to repurchase under the applicable Indenture, including in the event of a
change of control of the Company; (5) a disclosure of any risk that sufficient
funds may not be available at the time of any event resulting in a repurchase
obligation; and (6) a discussion of any definition of "change of control"
contained in the applicable Indenture.

PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE

Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at
the office or agency of the Company maintained for that purpose as the Company
may designate from time to time, except that, at the option of the Company,
interest payments, if any, on Debt Securities in registered form may be made
by checks mailed to the holders of Debt Securities entitled thereto at their
registered addresses. Unless otherwise indicated in an applicable Prospectus

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Supplement, payment of any installment of interest on Debt Securities in
registered form will be made to the person in whose name such Debt Security is
registered at the close of business on the regular record date for such
interest.

Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the
agency of the Company maintained for such purpose as designated by the Company
from time to time. Debt Securities may be transferred or exchanged without
service charge, other than any tax or other governmental charge imposed in
connection therewith.

CONSOLIDATION, MERGER OR SALE BY THE COMPANY

Under the terms of the Indenture, the Company shall not consolidate with or
merge into any other corporation or transfer or lease its assets substantially
as an entirety, unless (i) the corporation formed by such consolidation or
into which the Company is merged or the corporation which acquires its assets
is organized in the United States and expressly assumes all of the obligations
of the Company under the Debt Securities and all Indentures and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing. Upon any such consolidation,
merger or transfer, the successor corporation formed by such consolidation, or
into which the Company is merged or to which such sale is made shall succeed
to, and be substituted for the Company under the Indenture.

The Indenture contains no covenants or other specific provisions to afford
protection to holders of the Debt Securities in the event of a highly
leveraged transaction or a change in control of the Company, except to the
limited extent described above. Such covenants or provisions are not subject
to waiver by the Company's Board of Directors without the consent of the
holders of not less than a majority in principal amount of the outstanding
Debt Securities of each series affected by the waiver as described under
"Modification of the Indenture" below.

EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT

The Indenture provides that, if an Event of Default specified therein occurs
with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to
the Company (and to the Trustee for such series, if notice is given by such
holders of Debt Securities), may declare the principal of (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount specified in the Prospectus Supplement) and accrued
interest on all the Debt Securities of that series to be immediately due and
payable.

The Indenture provides that the Trustee will, subject to certain exceptions,
within a specified number of days after the occurrence of a Default with
respect to the Debt Securities of any series, give to the holders of the Debt
Securities of that series notice of all Defaults known to it unless such
Default shall have been cured or waived. "Default" means any event which is or
after notice or passage of time or both, would be an Event of Default.

The Indenture provides that the holders of a majority in aggregate principal
amount of the Debt Securities of each series affected (with each such series
voting as a class) may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee for such series, or
exercising any trust or power conferred on such Trustee.

The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions
and covenants of the Indenture.

The holders of a majority in aggregate principal amount of any series of
Debt Securities by notice to the Trustee may waive on behalf of the holders of
all Debt Securities of such series, any past Default or Event of Default with
respect to that series and its consequences, except a Default or Event of
Default in the payment of

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<PAGE>

the principal of, premium, if any, or interest, if any, on any Debt Security
or a provision of the Indenture which cannot be amended without the consent of
the holder of each Outstanding Security of such series adversely affected.

MODIFICATION OF THE INDENTURE

The Indenture contains provisions permitting the Company and the Trustee to
enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (i) to evidence the succession
of another corporation to the Company and the assumption of the covenants of
the Company by a successor to the Company; (ii) to add to the covenants of the
Company or surrender any right or power of the Company; (iii) to add
additional Events of Default with respect to any series of Debt Securities;
(iv) to add or change any provisions to such extent as necessary to permit or
facilitate the issuance of Debt Securities in book entry form or, if allowed
without penalty under applicable laws and regulations, to permit payment in
respect of Debt Securities in bearer form in the United States; (v) to change
or eliminate any provision affecting Debt Securities not yet issued; (vi) to
secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities; (viii) to cure any ambiguity, to correct or supplement any
provision of the Indenture which may be inconsistent with any other provision
thereof, provided that such action does not adversely affect the interests of
any holder of Debt Securities of any series; (ix) to make provision with
respect to the conversion rights of holders of Debt Securities; or (x) to
conform to any mandatory provisions of law.

The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debt Securities affected by such supplemental
indenture (with the Debt Securities of each series voting as a class), to
execute supplemental indentures adding any provisions to or changing or
eliminating any of the provisions of the Indenture or any supplemental
indenture or modifying the rights of the holders of Debt Securities of such
series, except that no such supplemental indenture may, without the consent of
the holder of each Debt Security so affected, (i) change the time for payment
of principal or premium, if any, or interest on any Debt Security; (ii) reduce
the principal of, or any installment of principal of, or premium, if any, or
interest on any Debt Security, or change the manner in which the amount of any
of the foregoing is determined; (iii) reduce the amount of premium, if any,
payable upon the redemption of any Debt Security; (iv) reduce the amount of
principal payable upon acceleration of the maturity of any Original Issue
Discount Security; (v) reduce the percentage in principal amount of the
outstanding Debt Securities affected thereby, the consent of whose holders is
required for modification or amendment of the Indenture or for waiver or
compliance with certain provisions of the Indenture or for waiver of certain
defaults; (vi) make any change which adversely affects the right to convert
convertible Debt Securities or decrease the conversion rate or increase the
conversion price; or (vii) modify the provisions relating to waiver of certain
defaults or any of the foregoing provisions.

DEFEASANCE

If so described in the Prospectus Supplement relating to Debt Securities of
a specific series, the Company may discharge its indebtedness and its
obligations or terminate certain of its obligations and covenants under the
Indenture with respect to the Debt Securities of such series by depositing
funds or obligations issued or guaranteed by the United States government with
the Trustee. The Prospectus Supplement will more fully describe the
provisions, if any, relating to such discharge or termination of obligations.

THE TRUSTEE

The Prospectus Supplement will identify the Trustee under the applicable
Indenture. The Company may also maintain banking and other commercial
relationships with any Trustee and its affiliates in the ordinary course of
business.

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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. Any Prospectus Supplement which relates to a series of Preferred
Stock or of Debt Securities will set forth the federal income tax consequences
of that Preferred Stock to a prospective holder. Nixon, Hargrave, Devans &
Doyle LLP has acted as tax counsel to the Company 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. The Company 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 THE COMPANY
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.

TAXATION OF THE COMPANY AS A REIT

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
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.

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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
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."

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<PAGE>

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
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,

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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
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.

To the extent the Operating Partnership does not immediately use the
proceeds of the Offering, those funds will be invested in interest-bearing
accounts and short-term, interest-bearing securities. The interest income
earned on those funds is expected to be includible under the 75% test as
"qualified temporary investment income" (which includes income earned on stock
or debt instruments acquired with the proceeds of a stock offering, not
including amounts received under a dividend reinvestment plan). Qualified
temporary investment income treatment only applies during the one-year period
beginning on the date the Company receives the new capital.

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
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

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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
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

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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.

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.

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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
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. 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% rate, the maximum 25% rate, and the maximum
28% rate. If the Company does not designate all or part of a capital gain
dividend as within such classes, the undesignated portion will be considered
as a 28% rate gain distribution. 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.

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<PAGE>

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
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 28% for sales and exchanges of assets
held for more than one year but not more than eighteen months, and 20% for
sales and exchanges of assets held for more than eighteen months. 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.

Recently enacted legislation reduces the maximum rate on long-term capital
gains of non-corporate taxpayers from 28% to 20% (10% for taxpayers in the 15%
tax bracket). However, the reduced long-term capital gains rates are only
available for sales or exchanges of capital assets held for more than 18
months. Any long-term capital gains from the sale or exchange of depreciable
real property that would be subject to ordinary income taxation (i.e.,
"depreciation recapture") if it were treated as personal property will be
subject to a maximum tax rate of 25% instead of the 20% maximum rate for gains
taken into account after July 28, 1997. Also, under the legislation, for
taxable years beginning after December 31, 2000, the maximum capital gains
rates for assets which are held more than five years are 18% and 8% (rather
than 20% and 10%). These rates will generally only apply to assets for which
the holding period begins after December 31, 2000.

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.

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<PAGE>

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.

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."

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

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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
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 28% maximum rate on capital gains of individuals.

Gain recognized by a Non-U.S. Stockholder upon a sale of shares of capital
stock generally will not be taxed under FIRPTA if a REIT is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. It is currently anticipated that 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

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<PAGE>

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
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 new Treasury Regulations, which were effective January 1, 1997, replaced
the former rules for classifying business organizations with a simpler
elective classification system that generally allows eligible entities to
choose to be taxed as partnerships or corporations. Under the Treasury
Regulations, a limited partnership which qualifies as an eligible entity will
generally be allowed to choose to be taxed as a partnership or a corporation.
The default classification for an existing entity is the classification that
the entity claimed immediately prior to January 1, 1997. Alternatively, an
eligible entity may affirmatively elect its classification. An entity's
default classification continues until the entity elects to change its
classification by means of an affirmative election. Because the Operating
Partnership was classified as a partnership as of December 31, 1996, the
Operating Partnership will be treated as a partnership for federal income tax
purposes for periods after December 31, 1996 pursuant to the new Treasury
Regulations. The Operating Partnership 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
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.

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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.

If for any reason the Operating Partnership was 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
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.

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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
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.

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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
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
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

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under ERISA. Under the DOL Regulations, if a Plan acquires an equity interest
in an entity, the Plan's assets would include, for purposes of the fiduciary
responsibility provisions of ERISA and the prohibited transaction rules of
ERISA and the Code, both the equity interest and an undivided interest in each
of the entity's underlying assets unless (a) such interest is a "publicly
offered security," (b) such interest is a security issued by an investment
company registered under the Investment Company Act of 1940, as amended, or
(c) another specified exception applies.

PLAN OF DISTRIBUTION

The Company may sell the Offered Securities through underwriters or dealers,
directly to one or more purchasers, through agents or through a combination of
any such methods of sale. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.

The distribution of the Common Stock by the Company may be affected from
time to time in one or more transactions (which may involve block
transactions) on the NYSE or otherwise pursuant to and in accordance with the
applicable rules of the NYSE, in the over-the-counter market, in negotiated
transactions, through the writing of Common Stock Warrants or through the
issuance of Preferred Stock convertible into Common Stock (whether such Common
Stock Warrants or Preferred Stock is listed on a securities exchange or
otherwise), or a combination of such methods of distribution, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices.

In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or from purchasers of the
Offered Securities, for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell the Offered Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of the Offered Securities may be
deemed to be underwriters under the Securities Act, and any discounts or
commissions they receive from the Company and any profit on the sale of the
Offered Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.

Any Common Stock sold pursuant to a Prospectus Supplement will be listed on
the New York Stock Exchange, subject to official notice of issuance. Unless
otherwise specified in the applicable Prospectus Supplement, each series of
Offered Securities other than Common Stock will be a new issue with no
established trading market. The Company may elect to list any series of
Preferred Stock or other securities on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Offered Securities, but will not be obligated to do so and may discontinue
any market making at any time without notice. Therefore, no assurance can be
given as to the liquidity of, or the trading market for, the Offered
Securities.

Under agreements into which the Company may enter, underwriters, dealers and
agents who participate in the distribution of the Offered Securities may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.

Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be tenants of, the Company in the ordinary course of
business.

In order to comply with the securities laws of certain states, if
applicable, the Offered Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Offered Securities may not be sold unless they have been registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.

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LEGAL MATTERS

The legality of the Offered Securities issued pursuant to any Prospectus
Supplement will be passed upon by Nixon, Hargrave, Devans & Doyle LLP. In
addition, Nixon, Hargrave, Devans & Doyle LLP will provide an opinion with
respect to certain tax matters which form the basis of the discussion under
"Federal Income Tax Considerations."

EXPERTS

The financial statements incorporated by reference in this Prospectus or
elsewhere in the Registration Statement have been incorporated herein in
reliance on the reports audited by Coopers & Lybrand LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

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PROPERTIES

[PHOTO]

WESTON GARDENS Columbus, Ohio
(Acquisition Community)

[PHOTO]

PLEASURE BAY Long Branch,
New Jersey (Acquisition Community)

[PHOTO]

BRADDOCK LEE Alexandria,
Virginia (Recent Acquisition)

[PHOTO] [PHOTO]

SOUTH PORTLAND South Portland, COUNTRY VILLAGE Bel Air,
Maine (Acquisition Community) Maryland (Recent Acquisition)

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING OF SECURITIES MADE HEREBY
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE. THE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.

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TABLE OF CONTENTS

PAGE
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PROSPECTUS SUPPLEMENT

Prospectus Supplement Summary............................................. S-3
The Company............................................................... S-10
Business Strategies....................................................... S-14
Markets................................................................... S-17
Recent Developments....................................................... S-19
The Properties............................................................ S-22
Use of Proceeds........................................................... S-24
Capitalization............................................................ S-25
Price Range of Stock and Distribution..................................... S-26
Selected Financial Information and Other Data............................. S-27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-30
Management and Directors.................................................. S-35
Underwriting.............................................................. S-40
Legal Matters............................................................. S-41
Experts................................................................... S-41

PROSPECTUS

Available Information....................................................... 2
Forward Looking Statements.................................................. 2
Documents Incorporated By Reference......................................... 3
The Company................................................................. 3
Risk Factors................................................................ 4
Ratio of Earnings to Fixed Charges.......................................... 8
Use of Proceeds............................................................. 9
Description of Capital Stock................................................ 9
Description of Debt Securities.............................................. 15
Federal Income Tax Considerations........................................... 19
ERISA Considerations........................................................ 32
Plan of Distribution........................................................ 33
Legal Matters............................................................... 34
Experts..................................................................... 34

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4,500,000 SHARES

[LOGO] HOME
PROPERTIES

COMMON STOCK

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PROSPECTUS SUPPLEMENT

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PAINEWEBBER INCORPORATED

BANCAMERICA ROBERTSON STEPHENS

CIBC OPPENHEIMER

SALOMON SMITH BARNEY

WHEAT FIRST UNION

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, 1998

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