AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1998
REGISTRATION NO. 333-52601
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO.1
FORM S-3/A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
HOME PROPERTIES OF NEW YORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MARYLAND 16-1455126
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
850 CLINTON SQUARE ROCHESTER, NEW YORK 14604 (716) 546-4900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANN M. MCCORMICK, ESQ.
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
HOME PROPERTIES OF NEW YORK, INC.
850 CLINTON SQUARE
ROCHESTER, NEW YORK 14604
(716) 246-4105
FACSIMILE: (716) 546-5433
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
Deborah McLean Quinn, Esq.
Nixon, Hargrave, Devans & Doyle LLP
900 Clinton Square
Rochester, New York 14604
(716) 263-1307
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box. [ ]
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box.[x]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier registration
statement for the same offering.[ ] ____________
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier registration statement for the same offering.
[ ] _______________
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Maximum Proposed Maximum Amount of
Each Class Registered Offering Price Aggregate Registration
of Securities Per Unit (2) Offering Fee (5)
to be Registered Price (3)
---------------- ------------ ---------------- ---------------- ------------
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Common Stock,
par value $.01 (1)(4) (6) (6)
Preferred Stock,
par value $.01 (1)(7) (6) (6)
Common Stock Rights
or Warrants (1)(8) (6) (6)
Debt Securities (1)(10) (6) (6)
Total $400,000,000 $400,000,000 $118,000.00 (5)
- --------------------------------------------------------------------------------
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(1) The Common Stock, the Preferred Stock, Common Stock Rights or
Warrants, and Debt Securities (collectively the "Offered Securities")
registered hereunder may be sold separately, together or as
units with other Offered Securities registered hereunder.
(2) The proposed maximum offering price per unit will be
determined from time to time by Registrant in connection with the
issuance of such securities.
(3) The proposed maximum aggregate offering price has been
estimated solely for purposes of calculating the registration fee
as provided in General Instruction II.D to Form S-3.
(4) Subject to the limitations set forth in Note 10, an
indeterminate amount of Common Stock is registered to be sold
from time to time by Registrant. In addition, an intermediate
number of shares of Common Stock as may be issuable upon the
exercise of any rights to purchase Common Stock or on the
conversion of any Preferred Stock registered hereunder.
(5) The prospectus forming part of this Registration
Statement, as such prospectus may be amended and supplemented
from time to time (the "Prospectus"), shall be deemed to relate
to the $400,000,000 of Offered Securities being offered
pursuant to this registration statement and, pursuant to
Rule 429 under the Securities Act, to $13,750,000 of Common Stock,
the Preferred Stock, Common Stock Rights or Warrants, and Debt
Securities registered and issuable by the Company pursuant to the
Registration Statement on Form S-3, Registration No. 333-02674
(the "Prior Shelf Registration Statement"). The amount of filing fees
associated with such securities registered pursuant to the
Prior Shelf Registration Statement (calculated at the fee in
effect at the time of filing of the Prior Shelf Registration
Statement is approximately $47,103.
(6) Omitted pursuant to General Instruction II.D. of Form S-3.
(7) Subject to the limitations set forth in Note 10, an
indeterminate number of shares of Preferred Stock is registered
to be sold by the registrant
(8) Subject to the limitations set forth in Note 10, an
indeterminate number of shares of Common Stock Purchase Rights
or Warrants is registered to be sold by the registrant.
(9) Subject to the limitations set forth in Note 10, an
indeterminate principal amount of Debt Securities is registered
to be sold by the registrant.
(10) The aggregate initial offering price of all securities issued
from time to time pursuant to this registration statement,
calculated in accordance with Rule 457, will not exceed
$400,000,000.00. The securities registered hereunder may be
sold separately or in units with other securities registered
hereunder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
Prospectus Supplement Preliminary Prospectus
dated May __, 1998
(To Prospectus dated May __, 1998)
1,085,000 Shares
HOME PROPERTIES OF NEW YORK, INC.
Common Stock
All of the 1,085,000 shares of common stock, par value $.01 per
share (the "Common Stock"), offered hereby (the "Offering") will
be sold by Home Properties of New York, Inc. ("Home Properties" or
the "Company"). The Company's Common Stock is listed on the New
York Stock Exchange (the "NYSE") under the symbol "HME." The last
reported sale price of the shares of Common Stock on the NYSE on
May __, 1998 was $_____ per share. To ensure that the Company
maintains its qualification as a real estate investment trust (a
"REIT"), ownership of the Common Stock by any single stockholder
is generally limited to 8% of the value of the Company's
outstanding capital stock. See "Description of Capital Stock" in
the accompanying Prospectus.
PaineWebber Incorporated ("PaineWebber") has agreed to
purchase the shares of Common Stock from the Company at a price of
$__.__ per share, resulting in aggregate proceeds to the Company
of $___________, before payment of expenses by the Company
estimated at $_____, subject to the terms and conditions of the
underwriting agreement between the Company and PaineWebber (the
"Underwriting Agreement"). PaineWebber intends to deposit the
shares of Common Stock with the trustee of PaineWebber Equity
Trust REIT Series 1 (the "Trust") in exchange for units in the
Trust. If all of the shares of Common Stock so deposited with the
trustee of the Trust are valued at their reported last sale price
on the NYSE on May 27, 1998, the aggregate underwriting
commissions would be $______. The Company and Home Properties of
New York, L.P. (the "Operating Partnership") have agreed to
indemnify PaineWebber against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 4 OF THE
ACCOMPANYING PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares of Common Stock are offered by PaineWebber,
subject to prior sale, when, as and if delivered to and accepted
by PaineWebber and subject to its right to reject orders in whole
or in part. It is expected that delivery of the shares of Common
Stock will be in New York City on or about May 29, 1998.
PaineWebber Incorporated
The date of this Prospectus Supplement is May __, 1998.
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statment relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This 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, or solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
<PAGE>
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 AND TO
COVER SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The following information in this Prospectus Supplement is
qualified in its entirety by the more detailed information
appearing in the accompanying Prospectus and
the documents incorporated by reference into the accompanying
Prospectus. References to the Company in this Prospectus
Supplement mean, except as the context otherwise requires, the
Company, the Operating Partnership, Home Properties Trust,
HP Management, Inc., Conifer Realty, Inc. and all other
subsidiaries of the Company on a consolidated basis.
FORWARD LOOKING STATEMENTS
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 and Section
21E of the Securities Exchange Act of 1934, as amended. 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 is a fully integrated, self-administered and
self-managed real estate investment trust (a "REIT"), which owns,
operates, acquires and 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, Ohio, and Indiana (the "Current Markets"). Since its
initial public offering in August 1994, 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 the same period, the Company acquired 59 communities
containing 13,736 apartment units for a total acquisition cost of
approximately $483 million.
Home Properties conducts substantially all of its business
and operations through, and all of the communities and other
assets of the Company are held by the Operating Partnership. Home
Properties indirectly owns a controlling 58.2% interest in the
Operating Partnership and is solely responsible for all aspects of
its management. The Operating Partnership performs certain
operations relating to its property management and development
activities through management companies beneficially owned by the
Operating Partnership and controlled by one or more officers of
Home Properties.
The Company's executive offices are located at 850 Clinton
Square, Rochester, New York 14604, and its telephone number is
(716) 546-4900.
RECENT DEVELOPMENTS
Pending Acquisitions
On May 15, 1998, the Company entered into purchase agreements
to acquire a portfolio of 17 multifamily communities containing
4,002 apartment units (the "Acquisition Portfolio") for a total
purchase price of approximately $155 million. The Acquisition
Portfolio communities are located in New Jersey, Maine, New York,
Pennsylvania, Ohio and Michigan. During the first quarter of
1998, the Acquisition Portfolio had an average occupancy rate of
96%. In addition to the Acquisition Portfolio, the Company has
entered into agreements to acquire three other apartment
communities (the "Other Pending Acquisitions") aggregating 1,647
units for a total purchase price of approximately $57 million. The
Other Pending Acquisitions communities are located in Illinois,
Pennsylvania and New York. The closings of the Acquisition
Portfolio and the Other Pending Acquisitions are subject to
customary approvals and conditions.
1998 Completed Acquisitions
Since January 1, 1998, the Company has completed the
acquisition of nine multifamily communities aggregating 3,055
apartment units for a total 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.
Financing Activities
On May 15, 1998, the Company signed a commitment for a $155
million standby acquisition facility (the "Acquisition Facility")
in connection with the pending purchase of the Acquisition
Portfolio. 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. The Company may
draw on the Acquisition Facility at any time during the 90 days
following May 15, 1998 to fund up to 100% of the purchase price of
the Acquisition Portfolio, subject to certain conditions.
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. The net cash proceeds from the offering of $35 million
were used primarily to repay amounts outstanding on the Company's
unsecured credit facility, with remaining funds available for
general corporate purposes and to fund acquisitions.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of Common Stock offered hereby are expected to be approximately
$___. The Company intends to contribute or otherwise transfer the
net proceeds of the sale of the Common Stock offered hereby to
Home Properties Trust, a wholly-owned qualified REIT subsidiary of
the Company, and that entity will contribute such proceeds to the
Operating Partnership in exchange for an equal number of units of
limited partnership interest in the Operating Partnership. Such
net proceeds will be used to fund acquisitions, which may include
the Acquisition Portfolio, and for general corporate purposes.
UNDERWRITING
Subject to the terms and conditions contained in the
Underwriting Agreement, the Company has agreed to sell to
PaineWebber, and PaineWebber has agreed to purchase from the Company,
all of the shares of Common Stock offered hereby at the price set
forth on the cover page of this Prospectus Supplement. Pursuant
to the terms of the Underwriting Agreement, PaineWebber is
obligated to purchase all of the shares of Common Stock if any
shares are purchased.
PaineWebber intends to deposit the shares of Common Stock
offered hereby with the trustee of the Trust, a registered unit
investment trust under the Investment Company Act of 1940, as
amended, in exchange for units in Trust. If all of the shares of
Common Stock so deposited with the trustee of the Trust are valued
at their last sale price on the NYSE on May __, 1998, the
aggregate underwriting commissions would be $___. PaineWebber is
acting as sponsor and depositor of the Trust and is therefore
considered an affiliate of the Trust.
In the Underwriting Agreement, the Company and the Operating
Partnership have agreed to indemnify PaineWebber against certain
liabilities, including liabilities under the federal securities
laws, or to contribute to payments PaineWebber may be required to
make in respect thereof.
In connection with this offering of Common Stock, the rules
of the Securities and Exchange Commission permit PaineWebber 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 PaineWebber creates a short position in the Common Stock
in connection with this offering (i.e., if it sells more shares of
Common Stock than are set forth on the cover page of this
Prospectus Supplement), PaineWebber may reduce that short
position by purchasing Common Stock in the open market. In
general, purchases of a security for purposes of stabilization
could cause the price of the security to be higher than it might
be in the absence of such purchases.
Neither the Company nor PaineWebber 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 PaineWebber
makes any representation that PaineWebber will engage in such
transactions or that such transactions, once commenced, will not
be discontinued without notice.
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.
In the ordinary course of business, PaineWebber has 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.
EXPERTS
The financial statements incorporated by reference in this
Prospectus Supplement or elsewhere in the Registration Statement
have been incorporated herein in reliance on the reports audited
by Coopers & Lybrand L.L.P, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters, including the legality of the shares
of Common Stock offered hereby, will be passed upon for the
Company by Nixon, Hargrave, Devans & Doyle LLP, Rochester, New
York, and for PaineWebber by Rogers & Wells LLP, New York, New
York. As to matters of Maryland law contained in its opinion,
Rogers & Wells LLP will rely on the opinion of Nixon, Hargrave,
Devans & Doyle LLP.
<PAGE>
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<S> <C>
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 or incorporated by reference
in this Prospectus Supplement or the accompanying Prospectus and,
if given or made, such information or representations must not be ________ SHARES
relied upon as having been authorized by the Company or the COMMON STOCK
PaineWebber. 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 anytime subsequent to its date. This HOME PROPERTIES OF
Prospectus Supplement and the accompanying Prospectus do not NEW YORK, INC.
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.
Prospectus Supplement
Table of Contents
Forward-Looking Statements . . . . .
The Company . . . . . . . . . . PROSPECTUS
Recent Developments . . . . . . . . . . . . SUPPLEMENT
Use of Proceeds . . .
Underwriting . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . .. . . . .
Prospectus
Available information. . . . . . . . . . . .
Forward Looking Statements . . . . . .
Documents Incorporated by
Reference. . . . . . . .. . . . . . . . . PaineWebber Incorporated
The Company . . . . . . . .. . . . . . .
Risk Factors. . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . .
Description of Capital Stock . .. . . . .
Description of Debt Securities . . . . . May __, 1998
Federal Income Tax Considerations..
Other Tax Considerations. . . . . . . . . .
ERISA Considerations . . . . . . . . . . . .
Plan of Distribution. . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . ..
Experts. . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PROSPECTUS
$413,750,000
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
PREFERRED STOCK
COMMON STOCK PURCHASE
RIGHTS OR WARRANTS AND
DEBT SECURITIES
Home Properties of New York, Inc., 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 ("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 , 1998
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
--------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to by be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy not shall there by 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 any such State.
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 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.
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 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.
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 ws 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.
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.
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, 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 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 consequence than the
Company upon the sale or refinancing of some of the Properties as a result of
unrealized gain attributable to certain Properties. Thus, executive officers and
the stockholders may have different objectives regarding the appropriate pricing
and timing of any sale or refinancing of Properties. In addition, executive
officers of the Company, as limited partners of the Operating Partnership, have
the right to approve certain fundamental transactions such as the sale of all or
substantially all of the assets of the Operating Partnership, merger or
consolidation or dissolution of the Operating Partnership and certain amendments
to the Operating Partnership Agreement.
The Company manages multifamily residential properties through the
Operating Partnership and commercial and development properties and certain
multifamily residential properties 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.
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
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,
------------- ------------- ------------- ------------ ------------ ------------
<C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1994 1993
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 the Company's initial public offering.
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, payment of development costs for new multifamily
residential properties, the repayment of certain indebtedness outstanding at
such time and 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 of 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
entitled to vote on such matter. In addition, the Second Amended and Restated
Partnership Agreement of the Operating Partnership, as amended (the "Partnership
Agreement") requires that any merger or sale of all or substantially all of the
assets of Operating Partnership be approved by partners holding a majority of
the outstanding Units, excluding Operating 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
of the affairs of the Company; and (xiv) any limitations on direct or beneficial
ownership and restriction on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
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.
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 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 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 contain a
provision exempting from these provisions of the MGCL any business combination
involving the Leenhoutses (or their affiliates) or any other person acting in
concert or as a group with any of the foregoing persons.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by the affirmative vote of two-thirds of
the votes entitled to be cast on the matter other than "interested shares"
(shares of stock in respect of which any of the following persons is entitled to
exercise or direct the exercise of the voting power of shares of stock of the
corporation in the election of directors: an "acquiring person," an officer of
the corporation or an employee of the corporation who is also a director).
"Control shares" are shares of stock which, if aggregated with all other such
shares of stock owned by the acquiring person, or in respect of which such
person is entitled to exercise or direct the exercise of voting power of shares
of stock of the corporation in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of more of all
voting power. Control shares do not include shares the acquiring person is
entitled to vote as a result of having previously obtained stockholder approval.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
A person who has made or proposes to make a control share acquisition,
under certain conditions (including an undertaking to pay expenses), may compel
the board of directors to call a special meeting of stockholders to be held
within 50 days of demand to consider the voting rights of the control shares
upon delivery of an acquiring person statement containing certain information
required by the MGCL, including a representation that the acquiring person has
the financial capacity to make the proposed control share acquisition, and a
written undertaking to pay the corporation's expenses of the special meeting
(other than the expenses of those opposing approval of the voting rights). If no
request for a meeting is made, the corporation may itself present the question
at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the MGCL,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value, determined without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or, if a stockholder meeting is held, as of the date of the
meeting of stockholders at which the voting rights of such shares are considered
and not approved. If voting rights for control shares are approved at a
stockholders' meeting before the control share acquisition and the acquiring
person becomes entitled to exercise or direct the exercise of a majority or more
of all voting power, all other stockholders may exercise rights of objecting
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.
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 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 Supplement, payment of any installment of interest on Debt Securities
in registered form will be made to the person in whose name such Debt Security
is registered at the close of business on the regular record date for such
interest.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of the Company maintained for such purpose as designated by the Company from
time to time. Debt Securities may be transferred or exchanged without service
charge, other than any tax or other governmental charge imposed in connection
therewith.
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Under the terms of the Indenture, the Company shall not be consolidated
with or merge into any other corporation or transfer or lease its assets
substantially as an entirety, unless (i) the corporation formed by such
consolidation or into which the Company is merged or the corporation which
acquires its assets is organized in the United States and expressly assumes all
of the obligations of the Company under the Debt Securities and all Indentures
and (ii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing. Upon any such
consolidation, merger or transfer, the successor corporation formed by such
consolidation, or into which the Company is merged or to which such sale is made
shall succeed to, and be substituted for the Company under the Indenture.
The Indenture contains no covenants or other specific provisions to afford
protection to holders of the Debt Securities in the event of a highly leveraged
transaction or a change in control of the Company, except to the limited extent
described above. Such covenants or provisions are not subject to waiver by the
Company's Board of Directors without the consent of the holders of not less than
a majority in principal amount of the outstanding Debt Securities of each series
affected by the waiver as described under "Modification of the Indenture" below.
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
The Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to the
Company (and to the Trustee for such series, if notice is given by such holders
of Debt Securities), may declare the principal of (or, if the Debt Securities of
that series are Original Issue Discount Securities, such portion of the
principal amount specified in the Prospectus Supplement) and accrued interest on
all the Debt Securities of that series to be immediately due and payable.
The Indenture provides that the Trustee will, subject to certain
exceptions, within a specified number of days after the occurrence of a Default
with respect to the Debt Securities of any series, give to the holders of the
Debt Securities of that series notice of all Defaults known to it unless such
Default shall have been cured or waived. "Default" means any event which is or
after notice or passage of time or both, would be an Event of Default.
The Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each such
series voting as a class) may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee for such series, or
exercising any trust or power conferred on such Trustee.
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions and
covenants of the Indenture.
The holders of a majority in aggregate principal amount of any series of
Debt Securities by notice to the Trustee may waive on behalf of the holders of
all Debt Securities of such series, any past Default or Event of Default with
respect to that series and its consequences, except a Default or Event of
Default in the payment of the principal of, premium, if any, or interest, if
any, on any Debt Security or a provision of the Indenture which cannot be
amended without the consent of the holder of each Outstanding Security of such
series adversely affected.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee
to enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (i) to evidence the succession of
another corporation to the Company and the assumption of the covenants of the
Company by a successor to the Company; (ii) to add to the covenants of the
Company or surrender any right or power of the Company; (iii) to add additional
Events of Default with respect to any series of Debt Securities; (iv) to add or
change any provisions to such extent as necessary to permit or facilitate the
issuance of Debt Securities in book entry form or, if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (v) to change or eliminate any
provision affecting Debt Securities not yet issued; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities; (viii) to
cure any ambiguity, to correct or supplement any provision of the Indenture
which may be inconsistent with any other provision thereof, provided that such
action does not adversely affect the interests of any holder of Debt Securities
of any series; (ix) to make provision with respect to the conversion rights of
holders of Debt Securities; or (x) to conform to any mandatory provisions of
law.
The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debt Securities affected by such supplemental
indenture (with the Debt Securities of each series voting as a class), to
execute supplemental indentures adding any provisions to or changing or
eliminating any of the provisions of the Indenture or any supplemental indenture
or modifying the rights of the holders of Debt Securities of such series, except
that no such supplemental indenture may, without the consent of the holder of
each Debt Security so affected, (i) change the time for payment of principal or
premium, if any, or interest on any Debt Security; (ii) reduce the principal of,
or any installment of principal of, or premium, if any, or interest on any Debt
Security, or change the manner in which the amount of any of the foregoing is
determined; (iii) reduce the amount of premium, if any, payable upon the
redemption of any Debt Security; (iv) reduce the amount of principal payable
upon acceleration of the maturity of any Original Issue Discount Security; (v)
reduce the percentage in principal amount of the outstanding Debt Securities
affected thereby, the consent of whose holders is required for modification or
amendment of the Indenture or for waiver or compliance with certain provisions
of the Indenture or for waiver of certain defaults; (vi) make any change which
adversely affects the right to convert convertible Debt Securities or decrease
the conversion rate or increase the conversion price; or (vii) modify the
provisions relating to waiver of certain defaults or any of the foregoing
provisions.
DEFEASANCE
If so described in the Prospectus Supplement relating to Debt Securities
of a specific series, the Company may discharge its indebtedness and its
obligations or terminate certain of its obligations and covenants under the
Indenture with respect to the Debt Securities of such series by depositing funds
or obligations issued or guaranteed by the United States government with the
Trustee. The Prospectus Supplement will more fully describe the provisions, if
any, relating to such discharge or termination of obligations.
THE TRUSTEE
The Prospectus Supplement will identify the Trustee under the applicable
Indenture. The Company may also maintain banking and other commercial
relationships with any Trustee and its affiliates in the ordinary course of
business.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTORY NOTES
The following 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.
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."
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, 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 and does not anticipate charging more
than a de minimis amount of rent that is based in whole or in part on the income
or profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above). The Operating Partnership does not
anticipate receiving rents in excess of a de minimis amount from Related Party
Tenants. The Operating Partnership does not anticipate holding a lease on any
property in which rents attributable to personal property constitute greater
than 15% of the total rents received under the lease. Neither 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, these funds will be invested in interest-bearing
accounts and short-term, interest-bearing securities. The interest income earned
on those funds is expected to be includible under the 75% test as "qualified
temporary investment income" (which includes income earned on stock or debt
instruments acquired with the proceeds of a stock offering, not including
amounts received under a dividend reinvestment plan). Qualified temporary
investment income treatment only applies during the one-year period beginning on
the date 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 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 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.
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. If 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.
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.
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 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 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.
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 the such
partnerships and the transfer of the properties to the Operating Partnership,
the Contributing Partners were deemed to have contributed the portion of the
properties represented by the Contributed Interests (the "Contributed Property")
to the Operating Partnership, and the Operating Partnership's tax basis in the
Contributed Property will be the tax basis of the Contributing Partners in the
Contributed Interests. Because the Contributed Property has a Book-Tax
Difference, the Operating Partnership Agreement will require allocations to be
made in a manner consistent with section 704(c) of the Code.
Under these special rules, the Contributing Partners may be allocated
lower amounts of depreciation deductions for tax purposes with respect to the
Contributed Property than the amount of such deductions that would be allocated
to them if such Contributed Property had a tax basis equal to its fair market
value at the time of contribution. In addition, in the event of the disposition
of any of the Contributed Property, all income attributable to the Book-Tax
Difference of such Contributed Property generally will be allocated to the
Contributing Partners, and 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 to holds its properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning, and operating and leasing the properties and
to make such occasional sales of the properties, including adjoining land, as
are consistent with the Company's and the Operating Partnership's investment
objectives. No assurance can be given, however, that every property sale by the
Operating Partnership will constitute a sale of property held for investment.
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANIES. A portion of the amounts to be used to fund
distributions to stockholders is expected to come from the Management Companies
through dividends on stock of the Management Companies to be held by the
Operating Partnership. The Management Companies do not qualify as REITs and will
pay federal, state and local tax income taxes on its net income at normal
corporate tax rates. The Company expects that the Management Companies' income,
after deducting its expenses, will not give rise to significant corporate tax
liabilities. The amount of corporate tax liability will increase 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 subsidiairy." 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 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.
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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUSITEM
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
See original filing.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified
under Maryland law, the Articles of Incorporation of Home
Properties and the Partnership Agreement ("Operating Partnership
Agreement") of Home Properties of New York, L.P., a New York
limited partnership of which the Company is the general partner,
against certain liabilities. The Articles of Incorporation require
the Company to indemnify its directors and officers to the fullest
extent permitted from time to time by the laws of Maryland. The
Bylaws contain provisions which implement the indemnification
provisions of the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation
to indemnify its directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to
which they may be made a party by reason of their service in those
or other capacities unless it is established that the act or
omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty, or the director or
officer actually received an improper personal benefit in money,
property or services, or in the case of any criminal proceeding,
the director or officer had reasonable cause to believe that the
act or omission was unlawful. No amendment of the Articles of
Incorporation of Home Properties shall limit or eliminate the right
to indemnification provided with respect to acts or omissions
occurring prior to such amendment or repeal. Maryland law permits
Home Properties to provide indemnification to an officer to the
same extent as a director, although additional indemnification may
be provided if such officer is not also a director.
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its
directors and officers to the corporation and its stockholders for
money damages, subject to specified restrictions. The MGCL does
not, however, permit the liability of directors and officers to the
corporation or its stockholders to be limited to the extent that
(1) it is proved that the person actually received an improper
benefit or profit in money, property or services (to the extent
such benefit or profit was received) or (2) a judgment or other
final adjudication adverse to such person is entered in a
proceeding based on a finding that the person's action, or failure
to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. The
Articles of Incorporation of Home Properties contain a provision
consistent with the MGCL. No amendment of the Articles of
Incorporation shall limit or eliminate the limitation of liability
with respect to acts or omissions occurring prior to such amendment
or repeal.
The Operating Partnership Agreement also provides for
indemnification of Home Properties and its officers and directors
to the same extent indemnification is provided to officers and
directors of the Company in its Articles of Incorporation, and
limits the liability of Home Properties and its officers and
directors to the Operating Partnership and its partners to the same
extent liability of officers and directors of the Company to Home
Properties and its stockholders is limited under Home Properties'
Articles of Incorporation.
Home Properties has entered into indemnification agreements with
each of Home Properties' directors and certain of its officers. The
indemnification agreements require, among other things, that Home
Properties indemnify its directors and those officers to the
fullest extent permitted by law, and advance to the directors and
officers all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Home
Properties also must indemnify and advance all expenses incurred by
directors and officers seeking to enforce their rights under the
indemnification agreements, and cover directors and officers under
Home Properties' directors' and officers' liability insurance.
Although the form of indemnification agreement offers substantially
the same scope of coverage afforded by provisions in the Articles
of Incorporation and the Bylaws and the Operating Partnership
Agreement of the Operating Partnership, it provides greater
assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or by the
stockholders to eliminate the rights it provides.
Home Properties has purchased insurance under a policy that insures
both Home Properties and its officers and directors against
exposure and liability normally insured against under such
policies, including exposure on the indemnities described above.
ITEM 16. EXHIBITS
NUMBER DESCRIPTION
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement (Common Stock)**
1.2 Form of Underwriting Agreement (Preferred Stock)**
1.3 Form of Underwriting Agreement (Common Stock Purchase Rights)**
1.4 Form of Underwriting Agreement (Debt Securities)**
3.1 Articles of Amendment and Restatement of Articles of
Incorporation of Home Properties of New York, Inc.
(the "Company")
3.2 Amendment to the Articles of Incorporation
3.3 Amended and Restated By-Laws of Home Properties (Revised 12/30/96)
4.1 Form of certificate representing shares of Common Stock
of the Company
4.2 Partnership Interest Purchase Agreement among the Company,
Home Properties of New York, L.P. (the "Operating Partnership")
and the State of Michigan Retirement Systems.
4.3 Form of Indenture for Debt Securities
5.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP regarding the legality of
the Common Stock being registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP regarding certain tax
matters*
10.1 Second Amended and Restated Agreement of Limited Partnership
of the Operating Partnership
10.2 Amendments No. One through Eight to the Second Amended and
Restated Agreement of Limited Partnership of the Operating
Partnership
10.3 Amendment No. Nine to the Second Amended and Restated
Agreement of Limited Partnership of the Operating Partnership
10.4 Form of Contribution Agreement for Strawberry Hill Apartment Company
LLLP, Country Village Limited Partnership, Morningside Six,
LLLP, Morningside North Limited Partnership, Morningside Heights
Apartment Company Limited Partnership with schedule setting forth
material details in which documents differ from form.
10.5 Form of Purchase and Sale Agreement for 17 apartment
communities with Schedule setting forth material details in which documents
differ from form.
10.6 Commitment letter from CIBC, Inc.
12.1 Statement of Computation of Ratios of Earnings to Combined
Fixed Charges
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP (included
as part of Exhibits 5.1 and 8.1)
23.2 Consent of Coopers & Lybrand LLP*
25 Power of Attorney (included on signature page)
</TABLE>
* Included with this filing.
** To be filed by amendment or by a Current Report on Form 8-K
incorporated by reference herein.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part
of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(4) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to such
information in the registration statement.
The undersigned registrant hereby undertakes, at the time of
any proposed offer of Debt Securities pursuant to a
Prospectus Supplement, to file an application for the purpose of
determining the eligibility of the trustee to act under Subsection
(a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission
under Section 305(b)(2) of the Trust Indenture Act.
The undersigned registrant hereby undertakes, at the time of
any proposed offer of any Common Stock Purchase Rights pursuant
to a Prospectus Supplement, to further supplement the prospectus,
after the expiration of the subscription period, to set forth
the results of the subscription offer, the transactions by
the underwriters, if any, during the subscription period, the
amount of any unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof.
If any public offering by the underwriters is to be made on terms
differing from those set forth on the cover page of the
applicable Prospectus Supplement, a post-effective amendment
will be filed to set forth the terms of such offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds
to believe that it meets all the requirements for filing on Form S-3
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Rochester, New York, on the 26th day of May, 1998.
HOME PROPERTIES OF NEW YORK, INC.
By: /S/ Amy L. Tait
Amy L. Tait
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
* Director, Chairman May 26, 1998
Norman P. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
* Director, President May 26, 1998
Nelson B. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
* Director, Executive Vice May 26, 1998
Richard J. Crossed President
/S/ Amy L. Tait Director, Executive Vice May 26, 1998
Amy L. Tait President and Chief Operating
Officer
/s/ David P. Gardner Vice President, Chief May 26, 1998
David P. Gardner Financial Officer and
Treasurer
(Principal Financial and Accounting
Officer
* Director May 26, 1998
Burton S. August, Sr.
* Director May 26, 1998
William Balderston, III
* Director May 26, 1998
Alan L. Gosule
* Director May 26, 1998
Leonard F. Helbig, III
* Director May 26, 1998
Roger W. Kober
* Director May 26, 1998
Clifford W. Smith, Jr.
* Director May 26, 1998
Paul L. Smith
*By: /s/ Amy L. Tait
Amy L. Tait, Attorney
In Fact
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Registration Statement on Form S-3 No. 333-52601
NUMBER DESCRIPTION LOCATION
<S> <C> <C>
1.1 Form of Underwriting Agreement (Common Stock) *
1.2 Form of Underwriting Agreement (Preferred Stock) *
1.3 Form of Underwriting Agreement (Common Stock *
Purchase Rights)
1.4 Form of Underwriting Agreement (Debt Securities) *
3.1 Articles of Amendment and Restatement Form S-3, File No.
of Articles of Incorporation of the 333-52601 ("Current
Company S-3") Filed on May 13, 1998
3.2 Amendment to Articles of Incorporation Current S-3
3.3 Amended and Restated By-Laws of the Company Form 8-K dated 12/31/96 and filed
on 1/7/97 (File No. 1-13136)
("12/96 8-K")
4.1 Form of certificate representing shares Form S- 11, File
of Common Stock of the Company No. 33-78862
4.2 Partnership Interest Purchase Agreement among 12/96 8-K
the Company, Home Properties of New York, L.P. (the
"Operating Partnership") and the State of Michigan
Retirement Systems.
4.3 Form of Indenture for Debt Securities Form S-3, File No.
2674 ("Prior
Shelf S-3")
5.1 Opinion of Nixon, Hargrave, Devans & Doyle Current S-3
LLP regarding the legality of the Common Stock being
registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle Filed herewith
LLP regarding certain tax matters
10.1 Second Amended and Restated Agreement of Limited Form 8-K dated
Partnership of the Operating Partnership 9/26/97 (File No. 1-13136
10.2 Amendments No. One through Eight to the Form 10-K for
Second Amended and Restated Agreement of year ended
Limited Partnership of the Operating Partnership December 31, 1997 (File
No. 1-13136)
10.3 Amendment No. Nine to the Second Amended and Restated
Agreement of Limited Partnership of the Operating Partnership Current S-3
10.4 Form of Contribution Agreement for Strawberry Form 8-K for March
Hill Apartment Company LLLP, Country Village 30, 1998 filed on
Limited Partnership, Morningside Six, LLLP, May 21, 1998 (File
Morningside North Limited Partnership, No. 1-13136)
Morningside Heights Apartment Company Limited Partnership
with schedule setting forth material details in which
documents differ from form.
10.5 Form of Purchase and Sale Agreement for 17 Form 8-K for May 15,
apartment communities with schedule setting 1998,filed May 21,
forth material details in which documents 1998 (File No. 1-
differ from form. 1-13136)
("Second 5/21/98 8-K")
10.6 Commitment Letter from CIBC, Inc. Second 5/21/98 8-K
12.1 Computation of Ratios of Earnings to Combined
Fixed Charges Current S-3
23.1 Consent of Nixon, Hargrave, Devans & Included with
Doyle LLP Exhibits 5.1 and 8.1
23.2 Consent of Coopers & Lybrand LLP Filed herewith
24 Power of Attorney Included on signature page
of Current S-3
* To be filed by amendment or on a Current Report on Form 8-K
incorporated herein by reference.
</TABLE>
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counselors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716) 263-1600
May 26, 1998
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc. ("Home
Properties") in connection with the Registration Statement on Form S-3
(No. 333-52601) filed with the Securities and Exchange Commission on May 13,
1998, as amended (the "Registration Statement"). This opinion relates to the
Company's qualification for federal income tax purposes as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), for taxable years beginning with the taxable year ending
December 31, 1994 and to the accuracy of the "FEDERAL INCOME TAX
CONSIDERATIONS" section of the Registration Statement. All capitalized terms
used but not defined herein shall have the meaning assigned to them in the
Registration Statement.
For the purpose of rendering our opinion, we have examined and are relying
upon the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Articles of Amendment and Restatement of the Articles of
Incorporation of Home Properties, as amended, and the Articles of Incorporation
of the Management Companies.
2. The By-Laws of Home Properties, as amended, and the By-Laws of the
Management Companies.
3. The Certificate of Limited Partnership and the Second Amended and
Restated Agreement of Limited Partnership of Home Properties of New York, L.P.,
as amended (the "Operating Partnership").
4. The Registration Statement.
5. Representations made to us by officers of Home Properties, the
Operating Partnership and the Management Companies in certificates (the
"Certificates") delivered to us in connection with the Registration Statement
or this opinion, which we have no reason to believe contain any material
inaccuracies.
In connection with rendering this opinion, we have assumed and are relying
upon, without any independent investigation or review thereof, the following:
(i) the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies,
and authenticity of the originals of such documents; (ii) that neither Home
Properties, the Operating Partnership nor the Management Companies will make
any amendments to its organizational documents after the date of this opinion
that would adversely affect Home Properties' qualification as a REIT for any
taxable year (iii) that no actions will be taken by Home Properties, the
Operating Partnership or the Management Companies after the date hereof that
would have the effect of altering the facts upon which the opinions set forth
below are based; and (iv) that all documents, certificates, representations,
warranties and covenants on which we have relied in rendering the opinions set
forth below and that were given or dated earlier than the date of this opinion
continue to remain accurate, insofar as relevant to the opinions set forth
herein, from such earlier date through and including the date of this letter.
We have neither independently investigated nor verified such representations,
and we assume that such representations are true, correct and complete. We
assume that Home Properties has been and will operated in accordance with
applicable laws and the terms and that the descriptions of Home Properties, the
Operating Partnership and the Management Companies and their activities,
operations and governance set forth in the Registration Statement are true and
correct.
Based on our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that:
1. Commencing with Home Properties' taxable year ending December 31,
1994, Home Properties was organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue of 1986, as amended (the
"Code"), its method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code, and the proposed method of
operation described in the Prospectus included in the Registration Statement
will enable Home Properties to satisfy the requirements for such qualification
under the Code for subsequent taxable years.
2. Home Properties is properly treated as a partner for federal income
tax purposes in the Operating Partnership, and the Operating Partnership is
properly classified as a partnership for federal income tax purposes and not as
an association taxable as a corporation.
3. The statements in the Prospectus included in the Registration
Statement under the caption "FEDERAL INCOME TAX CONSIDERATIONS" to the extent
such information constitutes matters of law, summaries of legal matters or
legal conclusions, have been reviewed by us and are accurate in all material
respect and fairly summarize the federal income tax considerations that are
likely to be material to holders of common stock who are United States citizens
or residents or domestic corporations and who are not subject to special
treatment under the tax laws.
Our opinions expressed herein are based upon our interpretation of the
current provisions of the Code and existing judicial decisions, administrative
regulations and published rulings and procedures (including the practices and
policies in issuing private letter rulings, which are not binding on the
Internal Revenue Service except with respect to the taxpayer who receives such
ruling). Our opinions are not binding upon the Internal Revenue Service or
courts and there is no assurance that the Internal Revenue Service will not
successfully challenge the conclusions set forth herein. The Internal Revenue
Service has not yet issued regulations or administrative interpretations with
respect to various provisions of the Code relating to REIT qualification.
Consequently, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the conclusions stated herein. We undertake
no obligation to advise you of changes in law which may occur after the date
hereof.
Our opinions are limited to the federal income tax matters and the federal
law of the United States of America addressed herein, and no other opinions are
rendered with respect to any other matter not specifically set forth in the
foregoing opinion and we assume no responsibility as to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction.
Home Properties' qualification and taxation as a real estate investment
trust depend upon Home Properties' ability to satisfy, through actual operating
results, the applicable asset composition, source of income, shareholder
diversification, distribution, record keeping and other requirements of the
Code necessary to qualify and be taxed as a REIT. The foregoing opinions are
based upon the method of operation as described in the Registration Statement
and facts stated in the Certificates and other documents described herein. We
undertake no obligation to review at any time in the future whether Home
Properties has fulfilled the requirements listed in this paragraph and,
consequently, no assurance can be given that the actual results of Home
Properties' operations for any taxable year will satisfy the requirements of
the Code necessary to qualify or be taxed as a REIT.
In the event any one of the statements, representations, warranties or
assumptions we have relied upon to issue this opinion is incorrect in a
material respect, our opinions might be adversely affected and may not be
relied upon.
We hereby consent to the reference to us under the captions "FEDERAL
INCOME TAX CONSIDERATIONS" and "LEGAL MATTERS" in the Registration Statement,
and to the filing of this opinion as an Exhibit to the Registration Statement,
without implying or admitting that we are experts within the meaning of the
Securities Act of 1933, as amended, with respect to any part of the
Registration Statement.
This letter is furnished to Home Properties, the Operating Partnership and
the Management Companies and is solely for your benefit. This letter may not
be relied upon by any other person or for any other purpose and may not be
referred to or quoted from without our prior written consent.
Very truly yours,
/s/Nixon, Hargrave, Devans & Doyle LLP
Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement on this Form S-3/A to be filed by Home Properties of New
York, Inc. of our reports, (1) dated February 2, 1998, on our audits of the
consolidated financial statements and financial statement schedule of Home
Properties of New York, Inc. as of December 31, 1997 and 1996, and for the
three years in the period ended December 31, 1997, which report was included in
the 1997 Annual Report on Form 10-K, (2) dated December 23, 1997 on our audit
of the Detroit Acquisition Properties for the year ended December 31, 1996,
which report is included in Form 8-K/A Amendment No. 1 dated October 7, 1997
and filed on January 12, 1998, (3) dated March 16, 1998 and March 18, 1998 on
our audits of Candlewood Apartments and Park Schilington and Braddock Lee
Apartments, respectively, for the year ended December 31, 1997, which reports
are included in Form 8-K, dated March 23, 1998 and filed on March 24, 1998, (4)
dated May 15, 1998 on our audits of the Acquisition Portfolio for the year
ended December 31, 1997 and the Baltimore Portfolio for the year ended
September 30, 1997, respectively, which reports are included in Form 8-K dated
May 21, 1998 and filed on May 22, 1998. We also consent to the reference to
our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Rochester, New York
May 26, 1998
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