As filed with the Securities and Exchange Commission on February 12, 1998
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
HOME PROPERTIES OF NEW YORK, INC.
(Exact name of registrant as specified in charter)
------------------------
Maryland 16-1455126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Clinton Square
Rochester, New York 14604
(716) 546-4900
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
-------------------
Ann M. McCormick, Esq.
Vice President, Secretary and General Counsel
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
(716) 246-4105
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
-------------------
Copies to:
Deborah McLean Quinn, Esq.
Nixon, Hargrave, Devans & Doyle LLP
900 Clinton Square
Rochester, New York 14604
(716) 263-1307
----------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed Amount
Class of Amount to Maximum Maximum of
Securities to be Offering Price Aggregate Registra-
Registered .......... Registered Per Share Offering Price tion Fee
Common Stock 2,476,161 $27.8125 $13,243,227.81 $3,906.75
par value $.01
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 and based upon the average of
the high and low prices reported on the New York Stock Exchange on February 6,
1998 of $27.8125.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
476,161 Shares
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
($.01 par value)
-------------------
All of the shares of the common stock, par value $.01 per share (the
"Common Stock") of Home Properties of New York, Inc. ("Home Properties" or the
"Company") offered hereby are being offered by the Selling Shareholders of Home
Properties. See "Selling Shareholders." The Company will not receive any
proceeds from the sale of the shares offered hereby. The Common Stock is listed
on the New York Stock Exchange under the symbol "HME". On February 6, 1998, the
closing price of the Common Stock on the New York Stock Exchange was $27 13/16
per share.
---------------
Home Properties is a self-administered, self-managed, fully integrated
real estate investment trust. Home Properties conducts substantially all of its
business and owns all of its properties through Home Properties of New York,
L.P. (the "Operating Partnership"). To comply with certain technical
requirements of the Internal Revenue Code of 1986, as amended (the "Code")
applicable to real estate investment trusts ("REITs"), the Operating Partnership
carries out portions of its property management and development activities
through management companies beneficially owned by the Operating Partnership but
controlled by one or more officers of Home Properties (collectively, the
"Management Companies").
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at prices
and terms then prevailing, at prices related to the then-current market price,
or in negotiated transactions. The shares may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate a transaction; (b)
purchases by a broker or a dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a broker or
dealer. In effecting sales, brokers or dealers engaged by one or more of the
Selling Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such brokers and dealers and any other
participating brokers or dealers may be deemed "underwriters" under the
Securities Act of 1933, as amended (the "Securities Act").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-----------
The date of this Prospectus is February __, 1998
<PAGE>
ADDITIONAL INFORMATION
Home Properties has filed with the Securities and Exchange Commission
(the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations promulgated thereunder,
with respect to the common stock offered pursuant to this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and such exhibits, copies
of which may be examined without charge at, or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
also be available for inspection and copying at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Home Properties is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and proxy statements and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding Home Properties at http://www.sec.gov. In addition,
the Common Stock is listed on the New York Stock Exchange and similar
information concerning Home Properties can be inspected at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
Home Properties furnishes its stockholders with annual reports
containing audited financial statements with a report thereon by its independent
public accountants.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed by Home Properties under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated in this Prospectus Supplement by reference: The Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996; the Company's
Quarterly Reports on Form 10-Q for the quarterly periods ending March 30, 1997,
June 30, 1997 and September 30, 1997; the Company's Current Reports on Form 8-K
dated January 7, 1997, as amended on February 4, 1997; dated June 6, 1997, as
amended on August 11, 1997; dated July 7, 1997, as amended on December 30,1997;
dated September 25, 1997, as amended on December 3, 1997; dated October 2, 1997,
dated October 7, 1997, dated October 9, 1997, dated October 31, 1997 and dated
December 23, 1997, as amended on January 12,1998; and all other reports filed by
the Company pursuant to Section 13(a) of the Exchange Act since December 31,
1996. Documents incorporated herein by reference are available to any
shareholder 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
2
<PAGE>
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 references in and to be a part of
this Prospectus from the date of filing of such reports and documents (provided,
however, that the information referred to in Instruction 8 to Item 402(a)(3) of
Regulation S-K promulgated by the Securities and Exchange Commission is not
incorporated herein by reference).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in the Registration Statement containing this Prospectus or in any other
subsequently filed documents which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to those documents. Requests should be directed to: David P.
Gardner, Chief Financial Officer, Home Properties of New York, Inc., 850 Clinton
Square, Rochester, New York 14604 (716) 546-4900.
THE COMPANY
As used in this section, the terms "Home Properties" and "Company",
includes Home Properties of New York, Inc., a Maryland corporation, Home
Properties of New York, L.P., a New York limited partnership, and the Management
Companies.
Home Properties of New York, Inc. (the "Company" or "Home
Properties") is a self-managed real estate investment trust which manages 158
communities with 21,316 apartment units. Of these, 14,048 units in 63
communities are owned outright, 4,782 units are managed by the Company as
general partner and 2,486 are managed for affiliates of the Company or third
parties. The majority of the communities are located throughout New York, with
additional holdings in Michigan, New Jersey, Pennsylvania and Ohio. Home
Properties also manages 1.7 million square feet of commercial space. Home
Properties conducts substantially all of its business and owns all of its
properties through Home Properties of New York, L.P. (the "Operating
Partnership"), of which the Company is the general partner. The Company is also
the sole shareholder of Home Properties Trust (the "QRS"), a Maryland real
estate trust, which is a limited partner of the Operating Partnership. To comply
with certain technical requirements of the Internal Revenue Code, the Operating
Partnership carries out portions of its property management and development
activities through management companies beneficially owned by the Operating
Partnership or controlled by one or more officers of Home Properties (the
"Management Companies")
3
<PAGE>
The Company's executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Its telephone number is (716) 546-4900.
USE OF PROCEEDS
The Company will not receive any cash proceeds as a result of this
offering. The Company will, however, acquire additional partnership units in the
Operating Partnership in exchange for the shares of Common Stock issued to the
Selling Shareholders which are being sold hereunder. See "Selling Shareholders"
below.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of Home Properties consists of 30 million
shares of Common Stock, par value $.01 per share ("Common Stock"), 10 million
shares of excess stock ("Excess Stock"), par value $.01 per share, and 10
million shares of preferred stock ("Preferred Stock"), par value $.01 per share.
The following summary description of the Common Stock sets forth certain general
terms and conditions of the capital stock of Home Properties. The descriptions
below do not purport to be complete and are qualified entirely by reference to
Home Properties' Articles of Amendment and Restatement of Articles of
Incorporation, as amended ("Articles of Incorporation").
Common Stock
All shares of Common Stock offered will be duly authorized, fully paid,
and nonassessable. Holders of the Common Stock will have no conversion,
redemption, sinking fund or preemptive rights; however, shares of Common Stock
will automatically convert into shares of Excess Stock as described below. Under
the Maryland General Corporation Law ("MGCL"), stockholders are generally not
liable for Home Properties' debts or obligations, and the holders of shares will
not be liable for further calls or assessments by Home Properties. Subject to
the provisions of Home Properties' Articles of Incorporation regarding Excess
Stock described below, all shares of Common Stock have equal dividend,
distribution, liquidation and other rights and will have no preference or
exchange rights.
Subject to the right of any holders of Preferred Stock to receive
preferential distributions, the holders of the shares of Common Stock will be
entitled to receive distributions in the form of dividends if and when declared
by the Board of Directors of Home Properties out of funds legally available
therefor, and, upon liquidation of Home Properties, each outstanding share of
Common Stock will be entitled to participate pro rata in the assets remaining
after payment of, or adequate provision for, all known debts and liabilities of
Home Properties, including debts and liabilities arising out of its status as
general partner of the Operating Partnership, and any liquidation preference of
issued and outstanding Preferred Stock. Home Properties intends to continue
paying quarterly distributions.
4
<PAGE>
The holder of each outstanding share of Common Stock will be entitled
to one vote on all matters presented to stockholders for a vote, subject to the
provisions of Home Properties' Articles of Incorporation regarding Excess Stock
described below. As described below, the Board of Directors of Home Properties
may, in the future, grant holders of one or more series of Preferred Stock the
right to vote with respect to certain matters when it fixes the attributes of
such series of Preferred Stock. Pursuant to the MGCL, Home Properties cannot
dissolve, amend its charter, merge with another entity, sell all or
substantially all its assets, engage in a share exchange or engage in similar
transactions unless such action is approved by stockholders holding a majority
of the outstanding shares entitled to vote on such matter. In addition, the
Amended and Restated Partnership Agreement of the Operating Partnership (the
"Partnership Agreement") requires that any merger or sale of all or
substantially all of the assets of Operating Partnership be approved by partners
holding a majority of the outstanding Units, excluding Operating Partnership
Units held by Home Properties. Home Properties' Articles of Incorporation
provide that its Bylaws may be amended by its Board of Directors.
The holder of each outstanding share of Common Stock will be entitled
to one vote in the election of directors who serve for terms of one year.
Holders of the shares of Common Stock will have no right to cumulative voting
for the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of the shares entitled to vote in the
election of directors will be able to elect all of the directors. Directors may
be removed only for cause and only with the affirmative vote of the holders of a
majority of the shares entitled to vote in the election of directors.
Preferred Stock
Preferred Stock may be issued from time to time, in one or more series,
as authorized by the Board of Directors of Home Properties. The Board of
Directors will fix the attributes of any Preferred Stock that it authorizes for
issuance. Because the Board of Directors has the power to establish the
preferences and rights of each series of Preferred Stock, it may afford the
holders of any series of Preferred Stock preferences, powers and rights, voting
or otherwise, senior to the rights of holders of shares of Common Stock. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of Home Properties.
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of Home Properties, then, before any distribution or payment
shall be made to the holders of any shares of Common Stock, any Excess Shares or
any other class or series of capital stock of Home Properties ranking junior to
any outstanding Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of Home Properties, the holders of shares
of each series of Preferred Stock shall be entitled to receive out of assets of
Home Properties legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share, plus an
amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such shares of Preferred Stock do not have cumulative dividend).
After payment of the full amount of the liquidating distributions to which they
are entitled, the holders of shares of Preferred Stock will have no right or
claim to any of the remaining assets of Home Properties. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of Home Properties are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable
5
<PAGE>
on all shares of other classes or series of capital stock of Home Properties
ranking on a parity with such shares of Preferred Stock in the distribution of
assets, then the holders of such shares of Preferred Stock and all other such
classes or series of capital stock shall share ratably in any such distribution
of assets in proportion to the full liquidating distributions to which they
would otherwise be respectively entitled.
Restrictions on Transfer
Ownership Limits. Home Properties' Articles of Incorporation contain
certain restrictions on the number of shares of capital stock that stockholders
may own. For Home Properties to qualify as a REIT under the Code, no more than
50% in value of its outstanding shares of capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year. The capital stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because Home
Properties expects to continue to qualify as a REIT, its Articles of
Incorporation contain restrictions on the ownership and transfer of shares of
its capital stock intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of
Incorporation, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 8.0% (the "Ownership Limit") of
the value of the issued and outstanding shares of capital stock of Home
Properties. Stockholders ("Existing Holders") whose holdings exceeded the
Ownership Limit immediately after Home Properties' initial public offering of
its Common Stock, assuming that all Units of the Operating Partnership are
counted as shares of Common Stock, are permitted to continue to hold the number
of shares they held on such date and may acquire additional shares of capital
stock upon (i) the exchange of Units for Shares, (ii) the exercise of stock
options or receipt of grants of shares of capital stock pursuant to a stock
benefit plan, (iii) the acquisition of shares of capital stock pursuant to a
dividend reinvestment plan, (iv) the transfer of shares of capital stock from
another Existing Holder or the estate of an Existing Holder by devise, gift or
otherwise, or (v) the foreclosure on a pledge of shares of capital stock;
provided, no such acquisition may cause any Existing Holder to own, directly or
by attribution, more than 17.5% (the "Existing Holder Limit") of the issued and
outstanding Shares, subject to certain additional restrictions. The Board of
Directors of Home Properties may increase or decrease the Ownership Limit and
Existing Holder Limit from time to time, but may not do so to the extent that
after giving effect to such increase or decrease (i) five beneficial owners of
Shares could beneficially own in the aggregate more than 49.5% of the aggregate
value of the outstanding capital stock of Home Properties or (ii) any beneficial
owner of capital stock would violate the Ownership Limit or Existing Holder
Limit as a result of a decrease. The Board of Directors may waive the Ownership
Limit or the Existing Holder Limit with respect to a holder if such holder
provides evidence acceptable to the Board of Directors that such holder's
ownership will not jeopardize Home Properties' status as a REIT.
Any transfer of outstanding capital stock of Home Properties
("Outstanding Stock") that would (i) cause any holder, directly or by
attribution, to own capital stock having a value in excess of the Ownership
Limit or Existing Holder Limit, (ii) result in shares of capital stock other
than Excess Stock, if any, to be owned by fewer than 100 persons, (iii) result
in Home Properties being closely held within the meaning of section 856(h) of
the Code, or (iv) otherwise
6
<PAGE>
prevent Home Properties from satisfying any criteria necessary for it to qualify
as a REIT, is null and void, and the purported transferee acquires no rights to
such Outstanding Stock.
Outstanding Stock owned by or attributable to a stockholder or shares
of Outstanding Stock purportedly transferred to a stockholder which cause such
stockholder or any other stockholder to own shares of capital stock in excess of
the Ownership Limit or Existing Holder Limit will automatically convert into
shares of Excess Stock. Such Excess Stock will be transferred by operation of
law to a separate trust, with Home Properties acting as trustee, for the
exclusive benefit of the person or persons to whom such Outstanding Stock may be
ultimately transferred without violating the Ownership Limit or Existing Holder
Limit. Excess Stock is not treasury stock, but rather constitutes a separate
class of issued and outstanding stock of Home Properties. While the Excess Stock
is held in trust, it will not be entitled to vote, will not be considered for
purposes of any stockholder vote or the determination of a quorum for such vote
and will not be entitled to participate in dividends or other distributions. Any
record owner or purported transferee of Outstanding Stock which has converted
into Excess Stock (the "Excess Holder") who receives a dividend or distribution
prior to the discovery by Home Properties that such Outstanding Stock has been
converted into Excess Stock must repay such dividend or distribution upon
demand. While Excess Stock is held in trust, Home Properties will have the right
to purchase it from the trust for the lesser of (i) the price paid for the
Outstanding Stock which converted into Excess Stock by the Excess Holder (or the
market value of the Outstanding Stock on the date of conversion if no
consideration was given for the Outstanding Stock) or (ii) the market price of
shares of capital stock equivalent to the Outstanding Stock which converted into
Excess Stock (as determined in the manner set forth in the Articles of
Incorporation) on the date Home Properties exercises its option to purchase.
Home Properties must exercise this right within the 90-day period beginning on
the date on which it receives written notice of the transfer or other event
resulting in the conversion of Outstanding Stock into Excess Stock. Upon the
liquidation of Home Properties, distributions will be made with respect to such
Excess Stock as if it consisted of the Outstanding Stock from which it was
converted.
Any Excess Holder, with respect to each trust created upon the
conversion of Outstanding Stock into Excess Stock, may designate any individual
as a beneficiary of such trust; provided, such person would be permitted to own
the Outstanding Stock which converted into the Excess Stock held by the trust
under the Ownership Limit or Existing Holder Limit and the consideration paid to
such Excess Holder in exchange for designating such person as the beneficiary is
not in excess of the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding Stock
on the date of conversion if no consideration was given for the Outstanding
Stock). Home Properties' redemption right must have expired or been waived prior
to such designation. Immediately upon the designation of a permitted
beneficiary, the Excess Stock, if any, will automatically convert into shares of
the Outstanding Stock from which it was converted and Home Properties as trustee
of the trust will transfer such shares, if any, and any proceeds from redemption
or liquidation to the beneficiary.
If the restrictions on ownership and transfer, conversion provisions or
trust arrangements in Home Properties' Articles of Incorporation are determined
to be void or invalid by virtue of any legal decision, statute, rule or
regulation, then the Excess Holder of any Outstanding Stock that would have
converted into shares of Excess Stock if the conversion provisions of the
Articles of Incorporation were enforceable and valid shall be deemed to have
acted as an agent
7
<PAGE>
on behalf of Home Properties in acquiring such Outstanding Stock and to hold
such Outstanding Stock on behalf of Home Properties unless Home Properties
waives its right to this remedy.
The foregoing ownership and transfer limitations may have the effect of
precluding acquisition of control of Home Properties without the consent of its
Board of Directors. All certificates representing shares of capital stock will
bear a legend referring to the restrictions described above. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines, and the stockholders concur, that it is no longer in the
best interests of Home Properties to attempt to qualify, or to continue to
qualify, as a REIT. Approval of the limited partners of the Operating
Partnership to terminate REIT status is also required.
Ownership Reports. Every owner of more than 5% of the issued and
outstanding shares of capital stock of Home Properties must file a written
notice with Home Properties containing the information specified in the Articles
of Incorporation no later than January 31 of each year. In addition, each
stockholder shall, upon demand, be required to disclose to Home Properties in
writing such information as Home Properties may request in order to determine
the effect of such stockholder's direct, indirect and attributed ownership of
shares of capital stock on Home Properties' status as a REIT or to comply with
any requirements of any taxing authority or other governmental agency.
Certain Other Provisions of Maryland Law and Charter Documents
The following discussion summarizes certain provisions of MGCL and Home
Properties' Articles of Incorporation and Bylaws. This summary does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Articles of Incorporation and Bylaws, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus constitutes a part. See
"Additional Information."
Limitation of Liability and Indemnification. The Articles of
Incorporation and Bylaws limit the liability of directors and officers to Home
Properties and its stockholders to the fullest extent permitted from time to
time by the MGCL and require Home Properties to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by the MGCL.
Business Combinations. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain circumstances,
an asset transfer or issuance or reclassification of equity securities) between
a Maryland corporation and any person who beneficially owns 10% or more of the
voting power of the outstanding voting stock of the corporation or an affiliate
or associate of the corporation who, at any time within the two-year period
immediately prior to the date in question, was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then-outstanding voting
stock of the corporation (an "Interested Stockholder") or an affiliate thereof,
are prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, in addition to any
other required vote, any such business combination must be recommended by the
board of directors of such corporation and approved by the affirmative vote of
at least (i) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation, voting together as a single voting
group, and (ii) two-thirds of the votes entitled to be cast by holders of voting
stock of the corporation (other than voting stock held by the Interested
8
<PAGE>
Stockholder who will, or whose affiliate will, be a party to the business
combination or by an affiliate or associate of the Interested Stockholder)
voting together as a single voting group. The extraordinary voting provisions do
not apply if, among other things, the corporation's stockholders receive a price
for their shares determined in accordance with the MGCL and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of the MGCL do not apply, however,
to business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Articles of Incorporation of Home Properties contain
a provision exempting from these provisions of the MGCL any business combination
involving the Leenhoutses (or their affiliates) or any other person acting in
concert or as a group with any of the foregoing persons.
Control Share Acquisitions. The MGCL provides that "control shares" of
a Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by the affirmative vote of 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
9
<PAGE>
other stockholders may exercise rights of objecting shareholders under Maryland
law to receive the fair value of their Shares. The fair value of the Shares for
such purposes may not be less than the highest price per share paid by the
acquiring person in the control share acquisition. Certain limitations and
restrictions otherwise applicable to the exercise of objecting shareholders'
rights do not apply in the context of a control share acquisition.
The Articles of Incorporation contain a provision exempting from the
control share acquisition statute any and all acquisitions to the extent that
such acquisitions would not violate the Ownership Limit or Existing Owner Limit.
There can be no assurance that such provision will not be amended or eliminated
at any point in the future.
FEDERAL INCOME TAX CONSIDERATIONS
Introductory Notes
The following discussion summarizes certain federal income tax
considerations that may be relevant to a prospective holder of shares of Common
Stock. Nixon, Hargrave, Devans & Doyle LLP has acted as tax counsel to Home
Properties in connection with its formation and its election to be taxed as a
REIT, has reviewed the following discussion and is of the opinion that it fairly
summarizes the federal income tax considerations that are likely to be material
to a holder of Shares. The following discussion is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local or foreign tax considerations. This discussion does not address all
of the aspects of federal income taxation that may be relevant to stockholders
in light of their particular circumstances or to certain types of stockholders
subject to special treatment under the federal income tax laws (including
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States).
This discussion contains a general summary of certain Code sections
that govern the federal income tax treatment of a REIT and its stockholders.
These sections of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the Treasury
Regulations promulgated thereunder and administrative and judicial
interpretations thereof. Home Properties has not sought or obtained any ruling
from the Internal Revenue Service or any opinions of counsel specifically
related to the tax matters described below.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF COMMON STOCK AND THE ELECTION BY HOME
PROPERTIES TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
10
<PAGE>
RECENT LEGISLATION
The Taxpayer Relief Act of 1997 was signed into law on August 5, 1997.
Since the Taxpayer Relief Act of 1997 was recently enacted, and since the IRS
has not yet issued regulations under it, certain aspects of its application to
REITs are unclear. Stockholders should consult their tax advisors regarding
changes made by the Taxpayer Relief Act of 1997 on REITs. The following
paragraphs summarize certain provisions of the Taxpayer Relief Act of 1997 which
should be read in conjunction with the information under the heading "Federal
Income Tax Considerations" in the accompanying Prospectus.
In determining whether a REIT satisfies the income tests for
qualification, for taxable years beginning after August 5, 1997, the Taxpayer
Relief Act of 1997 repeals the requirement that less than 30% of gross income
come from gain from the sale or other disposition of stock or securities held
for less than one year, 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 sale of foreclosure property).
Also, for taxable years beginning after August 5, 1997, the Taxpayer
Relief Act of 1997 permits a REIT to render a de minimis amount of otherwise
impermissible services to tenants, or in connection with the management of
property, and still treat amounts received with respect to that property as
rent. The value of such services must not exceed 1% of all amounts received or
accrued during the year, directly or indirectly, from the property. The amount
received for any such impermissible service or management operation for this
purpose will be deemed to be not less than 150% of the direct cost to the REIT
in furnishing or rendering the service or management operation.
For taxable years beginning after August 5, 1997, the Taxpayer Relief
Act of 1997 permits a REIT to designate the amount of its undistributed net
long-term capital gains received during the taxable year which its stockholders
are to include in their taxable income as long-term capital gains by a notice
mailed to stockholders within 60 days after the end of the taxable year (or in a
notice mailed with its annual report for the taxable year). If Home Properties
made this designation, the stockholders would include in their income as
long-term capital gains their proportionate share of the undistributed long-term
capital gains as designated by Home Properties. Home Properties would pay income
tax on such retained net long-term capital gains and the stockholders would be
deemed to have paid their proportionate share of the tax, which would be
credited to the stockholders. The basis of the stockholders' shares would be
increased by the amount of the undistributed long-term capital gains (less the
amount of capital gains tax paid by the REIT) included in the stockholders'
long-term capital gains.
The Taxpayer Relief Act of 1997 made certain changes with respect to
taxation of long-term capital gains earned by taxpayers other than corporations.
In general, assets sold after July 29, 1997 by an individual will be subject to
a maximum tax rate on net long-term capital gains (the excess of net long-term
capital gain over short-term capital loss) of 20% if the shares were held for at
least eighteen months. Capital gain on the disposition of assets on or after
July 29, 1997 held for more than one year but less than eighteen months at the
time of disposition will be taxed at a maximum rate of 28%. Other transition
rules may also apply. A maximum federal income tax rate of 25% applies to
"unrecaptured section 1250 gain." "Unrecaptured 1250 gain" generally includes
the long-term capital gain realized on (i) the sale after May 6, 1997 of a real
11
<PAGE>
property asset described in Section 1250 of the Code or (ii) the sale after July
28, 1997 of a real property asset described in Section 1250 of the Code which
the taxpayer held for more than eighteen months, but in each case not in excess
of the amount of depreciation (less the gain, if any, treated as ordinary income
under Section 1250) taken on such asset. In certain cases, an 18% maximum rate
will apply instead after December 31, 2000.
Taxation of Home Properties as a REIT
Home Properties has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ending December 31,
1994. Home Properties believes that, it is organized and operates in such a
manner as to qualify for taxation as a REIT under the Code, and Home Properties
intends to continue to operate in such a manner. No assurance, however, can be
given that Home Properties has operated or will operate in a manner so as to
qualify or remain qualified as a REIT.
Home Properties was organized in conformity with the requirements for
qualification as a REIT, and its method of operation has enabled it to meet the
requirements for qualification and taxation as a REIT under the Code. This
opinion is based on certain assumptions and is conditioned upon certain
representations made by Home Properties as to certain factual matters relating
to Home Properties' organization, manner of operation, income and assets. Nixon,
Hargrave, Devans & Doyle LLP is not aware of any facts or circumstances that are
inconsistent with these assumptions and representations. Home Properties'
qualification and taxation as a REIT will depend upon Home Properties'
satisfaction of the requirements necessary to be classified as a REIT, discussed
below, on a continuing basis. Nixon, Hargrave, Devans & Doyle LLP will not
review compliance with these tests on a continuing basis. Therefore, no
assurance can be given that Home Properties will satisfy such tests on a
continuing basis. See "- Requirements for Qualification - Failure to Qualify"
below.
If Home Properties qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on net income that it currently
distributes to its stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation. However, Home Properties will
be subject to federal income tax in the following circumstances. First, Home
Properties will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, Home Properties may be subject to the "alternative minimum tax"
on its items of tax preference. Third, if Home Properties has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by Home Properties by foreclosure or otherwise on
default on a loan secured by the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if Home Properties has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if Home Properties should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed in "Requirements for Qualification -
Income Tests" below), and has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which Home
Properties fails the 75% or
12
<PAGE>
95% test, multiplied by a fraction intended to reflect Home Properties'
profitability. Sixth, if Home Properties should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior years, Home Properties would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if Home Properties disposes of any asset acquired
from a C corporation (i.e., a corporation generally subject to full corporate
level tax) in a transaction in which the basis of the asset in Home Properties'
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and Home Properties recognizes gain
on the disposition of such asset during the 10-year period beginning on the date
on which such asset was acquired by the Company, then, to the extent of such
property's "built-in" gain (the excess of the fair market value of such property
at the time of acquisition by Home Properties over the adjusted basis in such
property at such time), such gain will be subject to tax at the highest regular
corporate rate applicable.
Requirements for Qualification.
Generally. To qualify as a REIT, an entity must be a corporation, trust
or association: (1) which is managed by one or more trustees or directors; (2)
the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
13
<PAGE>
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Electing REIT
treatment requires that the entity adopt a calendar year accounting period.
Home Properties satisfies the requirements set forth above. In
addition, Home Properties' Articles of Incorporation provide restrictions
regarding the transfer of its shares that are intended to assist Home Properties
in continuing to satisfy the share ownership requirements described in (5) and
(6) above. See "Description of Capital Stock - Restrictions on Transfer."
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the assets of the partnership and is deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership retain the same character in the hands of
the REIT for purposes of Section 856 of the Code, including satisfying the gross
income tests and asset tests. Thus, Home Properties' proportionate share of the
assets, liabilities and items of income of the Operating Partnership and the
partnerships, if any, in which the Operating Partnership will have an interest
will be treated as assets, liabilities and items of Home Properties for purposes
of applying the requirements described herein.
Income Tests. In order to maintain qualification as a REIT, there are
two 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.
Rents received by Home Properties will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts of sales. Second, the Code provides that rents received
from a resident will not qualify as "rents from real property" in satisfying the
gross income tests if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for rents received to
qualify as "rents from real property," Home Properties generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" who is adequately compensated and from
whom Home Properties derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by Home
Properties are "usually or customarily rendered" in connection with the rental
of space for occupancy only (such as furnishing water, heat, light and air
conditioning, and cleaning windows, public entrances and lobbies) and are not
otherwise considered "rendered to the occupant."
It is expected that Home Properties' real estate investments will
continue to give rise to income that will enable it to satisfy all of the income
tests described above. Substantially all of Home Properties' income will be
derived from its interest in the Operating Partnership, which will, for the most
part, qualify as "rents from real property" for purposes of the 75% and the 95%
gross income tests.
The Operating Partnership does not and does not anticipate charging
more than a de minimis amount of rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a percentage
of receipts or sales, as described above). The Operating Partnership does not
anticipate receiving rents in excess of a de minimis amount from Related Party
Tenants. The Operating Partnership does not anticipate holding a lease on any
property in which rents attributable to personal property constitute greater
than 15% of the total rents received under the lease. Neither Home Properties
nor the Operating Partnership will 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
14
<PAGE>
space for occupancy only. Home Properties does not anticipate that the Operating
Partnership will provide services that might be considered rendered primarily
for the convenience of the occupants of the property.
The Operating Partnership owns all of the non-voting common stock of
the Management Companies, corporations that are taxable as regular corporations.
The Management Companies will perform management, development, construction and
leasing services for certain properties not owned by the Company. The income
earned by and taxed to the Management Companies would be nonqualifying income if
earned by Home Properties through the Operating Partnership. As a result of the
corporate structure, the income will be earned by and taxed to the Management
Companies and will be received by the Operating Partnership only indirectly as
dividends that qualify under the 95% test.
If Home Properties fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if Home Properties' failure
to meet such tests was due to reasonable cause and not due to willful neglect,
Home Properties attaches a schedule of the sources of its income to its return,
and any income information on the schedules was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
Home Properties would be entitled to the benefit of these relief provisions. As
discussed above in "Generally," even if these relief provisions apply, a tax
would be imposed with respect to the excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of Home Properties' total assets must be represented
by real estate assets, cash and cash items (including receivables) and
government securities. For this purpose real estate assets include (i) Home
Properties' allocable share of real estate assets held by the Operating
Partnership and partnerships in which the Operating Partnership owns an interest
or held by "qualified REIT subsidiaries" of Home Properties and (ii) stock or
debt instruments held for not more than one year purchased with the proceeds of
a stock offering or long-term (at least five-year) debt offering of the Company.
Second, not more than 25% of Home Properties' total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by Home Properties may not exceed 5% of the value of Home Properties' total
assets, and Home Properties may not own more than 10% of any one issuer's
outstanding voting securities (excluding securities of a qualified REIT
subsidiary or another REIT).
Home Properties anticipates that it will continue to be able to comply
with these asset tests. Home Properties is deemed to hold directly its
proportionate share of all real estate and other assets of the Operating
Partnership and should be considered to hold its proportionate share of all
assets deemed owned by the Operating Partnership through its ownership of
partnership interests in other partnerships. As a result, Home Properties plans
to hold more than 75% of its assets as real estate assets. In addition, Home
Properties does not plan to hold any securities representing more than 10% of
any one issuer's voting securities, other than any qualified REIT subsidiary,
nor securities of any one issuer exceeding 5% of the value of Home Properties'
gross assets (determined in accordance with generally accepted accounting
principles). As previously discussed, Home Properties is deemed to own its
proportionate share of the assets of a
15
<PAGE>
partnership in which it is a partner so that the partnership interest, itself,
is not a security for purposes of this asset test.
The Operating Partnership owns all of the nonvoting common stock of the
Management Companies. The Operating Partnership does not own any of the voting
securities of the Management Companies. Management believes that Home
Properties' interest in the securities of the Management Companies through the
Operating Partnership does not exceed 5% of the total value of Home Properties'
assets. No independent appraisals have been obtained. Counsel, in rendering its
opinion as to the qualification of Home Properties as a REIT, is relying on the
conclusions of management regarding the value of such securities of the
Management Companies.
After initially meeting the asset tests at the close of any quarter,
Home Properties will not lose its status as a REIT for failure to satisfy the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. Home Properties intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests, and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance. However, there can be no assurance that such other action
will always be successful.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (a) the sum of (i) 95% of Home
Properties' "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (b) the sum of certain items of
noncash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before Home Properties
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration. To the extent that Home
Properties does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains and
ordinary corporate tax rates. Furthermore, if Home Properties should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year; (ii) 95% of its REIT capital gain income for such
year, and (iii) any undistributed taxable income from prior periods, Home
Properties would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Home Properties intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
Partnership Agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit Home
Properties to meet these distribution requirements. It is possible, however,
that the Company, from time to time, may not have sufficient cash or other
liquid assets to meet the 95% distribution requirement due to timing differences
between the actual receipt of income and actual payment of deductible expenses
and the inclusion of such income and deduction of such expenses in arriving at
16
<PAGE>
taxable income of the Company, or if the amount of nondeductible expenses such
as principal amortization or capital expenditures exceed the amount of noncash
deductions. In the event that such timing differences occur, in order to meet
the 95% distribution requirement, Home Properties may cause the Operating
Partnership to arrange for short-term, or possibly long-term, borrowing to
permit the payment of required dividends. If the amount of nondeductible
expenses exceeds noncash deductions, the Operating Partnership may refinance its
indebtedness to reduce principal payments and borrow funds for capital
expenditures.
Under certain circumstances, Home Properties may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year that may be included in Home
Properties' deduction for dividends paid for the earlier year. Thus, Home
Properties may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, Home Properties will be required to pay interest to the IRS
based upon the amount of any deduction taken for deficiency dividends.
Failure to Qualify. If Home Properties fails to qualify for taxation as
a REIT in any taxable year and the relief provisions do not apply, Home
Properties will be subject to tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which Home Properties fails to qualify will not be
deductible by the Company, nor will they be required to be made. In such event,
to the extent of current and accumulated earnings and profits, distributions to
stockholders will be taxable as ordinary income to the extent of current and
accumulated earnings and profits, and, subject to certain limitations in the
Code, corporate distributees may be eligible to claim the dividends received
deduction. Unless entitled to relief under specific statutory provisions, Home
Properties also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. If is not
possible to state whether in all circumstances Home Properties would be entitled
to such statutory relief.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders. As long as Home Properties
qualifies as a REIT, distributions made to Home Properties' taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed Home
Properties' actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a stockholder's shares, they will be
included in income as long-term capital gain (or short-term capital gain if the
shares have been held for one year or less), assuming the shares are a capital
asset in the hands of the stockholder. In addition, any dividend declared by
Home Properties in October, November or December of any year payable to a
stockholder of record on a specific date in any such month shall be treated as
both paid by Home Properties and received by the stockholder on December 31 of
such year, provided that the dividend is actually paid by Home Properties during
January of the following
17
<PAGE>
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder
who has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from Home Properties required to be treated by such stockholder as
long-term capital gain.
Distributions from Home Properties and gain from the disposition of
shares will not ordinarily be treated as passive activity income, and therefore,
stockholders generally will not be able to apply any "passive losses" against
such income. Dividends from Home Properties (to the extent they do not
constitute a return of capital) and gain from the disposition of shares
generally will be treated as investment income for purposes of the investment
interest limitation.
Home Properties will report to its domestic stockholders and the IRS
the amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not provide
Home Properties with its correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
Home Properties may be required to withhold a portion of capital gain
distributions made to any stockholders who fail to certify their non-foreign
status to the Company.
See "Taxation of Foreign Stockholders" below.
Taxation of Tax-Exempt Stockholders. The IRS has ruled that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not constitute
"unrelated business taxable income" ("UBTI"). Although rulings are merely
interpretations of law by the IRS and may be revoked or modified, based upon
this ruling and the analysis therein, distributions by Home Properties to a
stockholder that is a tax-exempt entity should also not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of shares
of Common Stock with "acquisition indebtedness" within the meaning of the Code
and the shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity.
Congress has enacted legislation which includes a provision that
requires qualified trusts that hold more than 10% (by value) of the interests in
a REIT to treat a percentage of REIT dividends as UBTI. The requirement applies
only if (i) the qualification of the REIT depends upon the application of a
"look-through" exception to the restriction on REIT stockholdings by five or
fewer individuals, including qualified trusts (see "Description of Capital Stock
- - Restrictions on Transfer"), and (ii) the REIT is "predominantly held" by
qualified trusts. The qualification of Home Properties as a REIT currently does
not depend upon application of the "look-through" exception and Home Properties
currently is not "predominantly held" by qualified trusts.
18
<PAGE>
Income Taxation of the Operating Partnership,
the Underlying Partnerships and Their Partners
The following discussion summarizes certain federal income tax
considerations applicable to Home Properties' investment in the Operating
Partnership.
Classification of the Operating Partnership. Home Properties will be
entitled to include in its income its distributive share of the income and to
deduct its distributive share of the losses of the Operating Partnership
(including the Operating Partnership's share of the income or losses of any
partnerships in which it owns an interest) only if the Operating Partnership is
classified for federal income tax purposes as a partnership rather than an
association taxable as a corporation. On December 17, 1996, the IRS issued final
Treasury Regulations regarding the classification of business entities (known as
the "check-the-box" rules) which changed the process for electing business tax
status.
The new Treasury Regulations, which were effective January 1, 1997,
replaced the former rules for classifying business organizations with a simpler
elective classification system that generally allows eligible entities to choose
to be taxed as partnerships or corporations. Under the Treasury Regulations, a
limited partnership which qualifies as an eligible entity will generally be
allowed to choose to be taxed as a partnership or a corporation. The default
classification for an existing entity is the classification that the entity
claimed immediately prior to January 1, 1997. Alternatively, an eligible entity
may affirmatively elect its classification. An entity's default classification
continues until the entity elects to change its classification by means of an
affirmative election. Because the Operating Partnership was classified as a
partnership as of December 31, 1996, the Operating Partnership will be treated
as a partnership for federal income tax purposes for periods after December 31,
1996 pursuant to the new Treasury Regulations. The Operating Partnership plans
to confirm this tax treatment by electing to be treated as a partnership under
the Treasury Regulations.
The Treasury Regulations state that the IRS will not challenge the
prior classification of an existing eligible entity for periods before January
1, 1997 if: (1) the entity had a reasonable basis for its claimed
classification; (2) the entity and all of its partners recognized the tax
consequences of any change in the entity's classification within 60 months
before January 1, 1997; and (3) neither the entity nor any member had been
notified in writing on or before May 8, 1996, that the classification was under
examination by the IRS. Requirements (2) and (3) described in this paragraph are
either not relevant to, or have been satisfied by, the Operating Partnership.
Accordingly, the Operating Partnership's claimed classification as a partnership
for periods prior to January 1, 1997 will 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.
19
<PAGE>
The Operating Partnership has not requested, nor does it intend to
request, a ruling from the IRS that it will be treated as a partnership for
federal income tax purposes. In the opinion of Nixon, Hargrave, Devans & Doyle
LLP, which is based on the provisions of the partnership agreement of the
Operating Partnership and on certain factual assumptions and representations of
the Company, the Operating Partnership has a reasonable basis for its claim to
be classified as a partnership for federal income tax purposes and therefore
should be taxed as a partnership rather than an association taxable as a
corporation for periods prior to January 1, 1997. Nixon, Hargrave, Devans &
Doyle LLP's opinion is not binding on the IRS or the courts.
If for any reason the Operating Partnership was taxable as a
corporation rather than as a partnership for federal income tax purposes, Home
Properties would not be able to satisfy the income and asset requirements for
REIT status. See "- Requirements for Qualification - Income Tests" and "-
Requirements for Qualification Asset Tests." In addition, any change in the
Operating Partnership's status for tax purposes might be treated as a taxable
event, in which case Home Properties might incur a tax liability without any
related cash distribution. See "- Requirements for Qualification - Annual
Distribution Requirements." Further, items of income and deduction of the
Operating Partnership would not pass through to its partners, and its partners
would be treated as stockholders for tax purposes. The Operating Partnership
would be required to pay income tax at corporate tax rates on its net income,
and distributions to its partners would constitute dividends that would not be
deductible in computing the Operating Partnership's taxable income.
Partners, Not Partnerships, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, a partner is required to
take into account its allocable share of a partnership's income, gains, losses,
deductions and credits for any taxable year of the partnership ending within or
with the taxable year of the partner, without regard to whether the partner has
received or will receive any distributions from the partnership.
Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations may be disregarded for tax purposes under section 704(b) of 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
20
<PAGE>
time of contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners.
The partners of the Operating Partnership other than Home Properties
(the "Contributing Partners") are deemed to have contributed general or limited
partnership interests in other partnerships owning multifamily residential
properties which were acquired by Operating Partnership and which may have had
an adjusted tax basis which is less than the fair market value of such interests
(the "Contributed Interests"). Upon the merger or dissolution of the such
partnerships and the transfer of the properties to the Operating Partnership,
the Contributing Partners were deemed to have contributed the portion of the
properties represented by the Contributed Interests (the "Contributed Property")
to the Operating Partnership, and the Operating Partnership's tax basis in the
Contributed Property will be the tax basis of the Contributing Partners in the
Contributed Interests. Because the Contributed Property has a Book-Tax
Difference, the Operating Partnership Agreement will require allocations to be
made in a manner consistent with section 704(c) of the Code.
Under these special rules, the Contributing Partners may be allocated
lower amounts of depreciation deductions for tax purposes with respect to the
Contributed Property than the amount of such deductions that would be allocated
to them if such Contributed Property had a tax basis equal to its fair market
value at the time of contribution. In addition, in the event of the disposition
of any of the Contributed Property, all income attributable to the Book-Tax
Difference of such Contributed Property generally will be allocated to the
Contributing Partners, and Home Properties generally will be allocated only its
share of capital gains attributable to appreciation, if any, occurring after the
contribution of the Contributed Property. These allocations will tend to
eliminate the Book-Tax Differences with respect to the Contributed Property over
the life of the Operating Partnership. However, the special allocation rules of
Section 704(c) may not entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the Contributed Property in the hands of the Operating
Partnership could cause Home Properties (i) to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
Home Properties if the Contributed Property had a tax basis equal to its fair
market value at the time of contribution, and (ii) possibly to be allocated
taxable gain in the event of a sale of Contributed Property in excess of the
economic or book income allocated to Home Properties as a result of such sale.
These allocations possibly could cause Home Properties to recognize taxable
income in excess of cash proceeds, which might adversely affect its ability to
comply with the REIT distribution requirements. See " Requirements for
Qualification - Annual Distribution Requirements."
Depreciation. The Operating Partnership's assets other than cash will
consist largely of property treated as purchased by the Operating Partnership.
The Operating Partnership has an aggregate basis in the assets of each
partnership it acquires equal to the sum of the purchase price paid for the
partnership interests. To the extent that the Operating Partnership's basis in a
piece of depreciable property exceeds the basis of the property when it was held
by the acquired partnership, such basis should in effect be treated as a newly
acquired, separate asset and entitled to 39-year depreciation.
21
<PAGE>
Section 704(c) of the Code requires that depreciation as well as gain
and loss be allocated in a manner so as to take into account the variation
between the fair market value and tax basis of the property contributed.
Similarly, amortization on intangible contracts for services contributed to the
Operating Partnership will be allocated as required by section 704(c) of the
Code. Depreciation with respect to any property purchased by the Operating
Partnership subsequent to the admission of its partners will be allocated among
the partners in accordance with their respective percentage interests in the
Operating Partnership.
Sale of Partnership Property. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than one
year will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. However, under the REIT
Requirements, Home Properties' share as a partner of any gain realized by the
Operating Partnership on the sale of any property held as inventory or other
property held primarily for sale to customers in the ordinary course of a trade
or business will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "- Taxation of Home Properties as a REIT."
Such prohibited transaction income will also have an adverse effect upon Home
Properties' ability to satisfy the income tests for REIT status. See "-
Requirements for Qualification - Income Tests." Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. A safe
harbor to avoid classification as a prohibited transaction exists as to real
estate assets held for the production of rental income by a REIT for at least
four years where in any taxable year the REIT has made no more than seven sales
of property or, in the alternative, the aggregate of the adjusted bases of all
properties sold does not exceed 10% of the adjusted bases of all of the REIT's
properties during the year and the expenditures includible in a property's basis
made during the four-year period prior to disposition must not exceed 30% of the
property's net sales price. The Operating Partnership intends to hold its
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating and leasing the
properties and to make such occasional sales of the properties, including
adjoining land, as are consistent with Home Properties' and the Operating
Partnership's investment objectives. No assurance can be given, however, that
every property sale by the Operating Partnership will constitute a sale of
property held for investment.
Other Tax Considerations
The Management Companies. A portion of the amounts to be used to fund
distributions to stockholders is expected to come from the Management Companies
through dividends on stock of the Management Companies to be held by the
Operating Partnership. The Management Companies do not qualify as a REITs and
will pay federal, state and local tax income taxes on its net income at normal
corporate tax rates. Home Properties expects that the Management Companies'
income, after deducting its expenses, will not give rise to significant
corporate tax liabilities. The amount of corporate tax liability will increase
if the IRS disallows the items of expense which Home Properties expects to be
allocated to the Management Companies.
The QRS. The QRS is treated together with the Company as a single
entity for federal tax purposes.
22
<PAGE>
State and Local Tax Considerations. Home Properties and the Management
Companies will, and Home Properties' stockholders may, be subject to state or
local taxation in various states or local jurisdictions, including those in
which the Company, its stockholders or the Operating Partnership transact
business or reside. The state and local tax treatment of Home Properties and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on their investment in
the Company.
Possible Federal Tax Developments. The rules dealing with federal
income taxation are constantly under review by the IRS, the Treasury Department
and Congress. New federal tax legislation or other provisions may be enacted
into law or new interpretations, rulings or Treasury Regulations could be
adopted, all of which could affect the taxation of Home Properties or of its
stockholders. No prediction can be made as to the likelihood of passage of any
new tax legislation or other provisions either directly or indirectly affecting
Home Properties or its stockholders. Consequently, the tax treatment described
herein may be modified prospectively or retroactively by legislative, judicial
or administrative action.
SELLING SHAREHOLDERS
The partners of the Operating Partnership may from time to time tender
their Units of limited partnership interest to the Operating Partnership. The
Company may give notice to such partners that the Company will acquire such
Units in exchange for shares of Common Stock (the "LP Purchase Right"). All of
the shares being offered hereby are being sold by the partners in the Operating
Partnership who may acquire shares of Common Stock in exchange for their Units
pursuant to the LP Purchase Right (all of such persons being collectively
referred to as the "Selling Shareholders"). Although none of the Selling
Shareholders has indicated a present intent to tender their Units which would
trigger the Company's right to issue shares of Common Stock to them under the LP
Purchase Right, the Company is required, pursuant to the terms of various
registration rights agreements, to file the registration statement of which this
Prospectus forms a part registering such shares for resale under the Securities
Act. The Company is bearing all costs of this registration. The Company will not
receive any proceeds from the sale of the shares offered hereby.
The following tables set forth certain information regarding the
Selling Shareholders' ownership of Units and the number of shares of Common
Stock which may be issued pursuant to the LP Purchase Right which are registered
for resale. Because the Selling Shareholders may sell all, some or none of the
shares registered for resale, no estimate can be made concerning the number
shares of Common Stock issued in exchange for Units that will be offered hereby
or the number of shares or Units that each Selling Shareholder will own upon
completion of the offering contemplated by this Prospectus. The relationships
between certain of the Selling Shareholders and Home Properties are described as
of the date of this Prospectus. Such relationships may change, and information
contained in subsequent reports filed with the Commission by Home Properties
relating to such relationships is incorporated herein by reference and may
supersede the information set forth herein. See "Documents Incorporated by
Reference".
Number of Shares
Units Owned Registered for Sale
Name Prior to Offering in Offering
Robert C. Tait 70 70
William T. Uhlen, Jr 2,450 2,450
Crossed Family Partnership 7,200 7,200
23
<PAGE>
Lawrence R. Brattain 500 500
C. Terence Butwid 2,000 2,000
Kathleen M. Dunham 200 200
Timothy D. Fournier 3,750 3,750
Barbara Lopa 100 100
John Oster 1,911 1,911
Eric Stevens 100 100
Howard Weinstein, Trustee 2,316 2,316
U/T/A dated June 2, 1994
Princeton University 40 40
Michael G. Lowengrub 100 100
Custodian for Robin Lowengrub
United Jewish Appeal of 100 100
Metro West
Freedom House Foundation 100 100
Kelly Lowengrub Custodian for 100 100
Kaycee Lowengrub
Kelly Lowengrub Custodian for 100 100
Kate Lowengrub
Kelly Lowengrub 100 100
Kenneth Lowengrub 100 100
Michael G. Lowengrub Custodian 200 200
for Jason Lowengrub
Archibald T. Fort 1,748 1,748
John M. DiProsa 11,150 11,150
Claude S. Fedele 23,765 23,765
Gabriel W. Gruttadaro 11,150 11,150
Anthony M. Julian 11,150 11,150
Geraldine B. Lynch 7,922 7,922
Michael E. McCusker 31,687 31,687
Jack P. Schifano 3,961 3,961
Joanne M. Lobozzo 165,188 165,188
Linda Wells Davey 1,225 1,225
Donald H. Schefmeyer 92,889 92,889
Stephen W. Hall 92,889 92,889
24
<PAGE>
PLAN OF DISTRIBUTION
The shares offered hereby may be offered and sold from time to time as
market conditions permit on the New York Stock Exchange, or otherwise, at prices
and terms then prevailing, at prices related to the then-current market price,
or in negotiated transactions. The shares may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate a transaction; (b)
purchases by a broker or a dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a broker or
dealer. In effecting sales, brokers or dealers engaged by one or more of the
Selling Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from Selling
Shareholders in amounts to be negotiated. Such brokers and dealers and any other
participating brokers or dealers may be deemed "underwriters" under the
Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Nixon, Hargrave, Devans & Doyle LLP. In addition,
Nixon, Hargrave, Devans & Doyle LLP will provide an opinion with respect to
certain tax matters which form the basis of the discussion under "Federal Income
Tax Considerations".
EXPERTS
The financial statements incorporated by reference in this Prospectus
or elsewhere in the Registration Statement have been incorporated herein in
reliance on the reports of 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 PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table is an itemized listing of expenses to be incurred
by the Company in connection with the issuance and distribution of the shares of
Common Stock being registered hereby, other than discounts and commissions:
SEC Registration Fee .................................. $ 3,906.75*
NYSE Listing Fee ...................................... 2,000.00*
Legal Fees and Expenses ............................... 2,000.00*
Accounting Fees and Expenses .......................... 1,000.00*
Miscellaneous ......................................... 2,000.00*
----------
Total ......................................... $ 10,906.75*
*Estimate
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified under
Maryland law, the Articles of Incorporation of Home Properties and the
Partnership Agreement ("Operating Partnership Agreement") of Home Properties of
New York, L.P., a New York limited partnership of which the Company is the
general partner, against certain liabilities. The Articles of Incorporation
require the Company to indemnify its directors and officers to the fullest
extent permitted from time to time by the laws of Maryland. The Bylaws contain
provisions which implement the indemnification provisions of the Articles of
Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that the act
or omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. No amendment of the Articles of Incorporation of Home
Properties shall limit or eliminate the right to indemnification provided with
respect to acts or omissions occurring prior to such amendment or repeal.
Maryland law permits Home Properties to provide indemnification to an officer to
the same extent as a director, although additional indemnification may be
provided if such officer is not also a director.
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages, subject to
specified restrictions. The MGCL does not, however, permit the liability of
directors and officers to the corporation or its stockholders to be limited to
the extent that (1) it is proved that the person actually received an improper
benefit or profit in money, property or services (to the extent such benefit or
profit was received) or (2) a judgment or other final adjudication adverse to
such person is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. The
Articles of Incorporation of Home Properties contain a provision consistent with
the MGCL. No amendment of the Articles of Incorporation shall limit or eliminate
the limitation of liability with respect to acts or omissions occurring prior to
such amendment or repeal.
The Operating Partnership Agreement also provides for indemnification
of Home Properties and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of Home Properties and its
officers and directors to the Operating Partnership and its partners to the same
extent liability of officers and directors of the Company to Home Properties and
its stockholders is limited under Home Properties' Articles of Incorporation.
Home Properties has entered into indemnification agreements with each
of Home Properties' directors and certain of its officers. The indemnification
agreements require, among other things, that Home Properties indemnify its
directors and those officers to the fullest extent permitted by law, and advance
to the directors and officers all related expenses, subject to reimbursement if
it is subsequently determined that indemnification is not permitted. Home
Properties also must indemnify and advance all expenses incurred by directors
and officers seeking to enforce their rights under the indemnification
agreements, and cover directors and officers under Home Properties' directors'
and officers' liability insurance. Although the form of indemnification
agreement offers substantially the same scope of coverage afforded by provisions
in the Articles of Incorporation and the Bylaws and the Operating Partnership
Agreement of the Operating Partnership, it provides greater assurance to
directors and officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or by the stockholders to eliminate the rights it provides.
Home Properties has purchased insurance under a policy that insures
both Home Properties and its officers and directors against exposure and
liability normally insured against under such policies, including exposure on
the indemnities described above.
Item 16. Exhibits
5.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP as to legality of common
stock*
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP as to certain tax matters*
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP (included as part of
Exhibits 5.1 and 8.1)
23.2 Consent of Coopers & Lybrand LLP*
25 Power of Attorney (included on signature page)
* Included with this filing.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rochester, New York, on the 3rd day of February,
1998.
HOME PROPERTIES OF NEW YORK, INC.
By: /s/ Amy L. Tait
Amy L. Tait
Executive Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Norman P. Leenhouts,
Nelson B. Leenhouts, Richard J. Crossed and Amy L. Tait, and each of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to the Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agents, and each of them,
full power and authority to do and person each and every act and thing requisite
or necessary that he might do in person.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/Norman P. Leenhouts Director, Chairman February 3, 1998
Norman P. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
/s/ Nelson B. Leenhouts Director, President February 3, 1998
Nelson B. Leenhouts and Co-Chief Executive Officer
(Principal Executive Officer)
/s/ Richard J. Crossed Director, Executive Vice February 3, 1998
Richard J. Crossed President
<PAGE>
/s/ Amy L. Tait Director, Executive Vice February 3, 1998
Amy L. Tait President and Chief
Operating Officer
/s/ David P. Gardner Vice President,Chief February 3, 1998
David P. Gardner Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Burton S. August, Sr Director February 3, 1998
Burton S. August, Sr
/s/ William Balderston, III Director February 3, 1998
William Balderston, III
/s/ Leonard F. Helbig, III Director February 3, 1998
Leonard F. Helbig, III
/s/ Alan L. Gosule Director February 3, 1998
Alan L. Gosule
/s/ Roger W. Kober Director February 3, 1998
Roger W. Kober
/s/ Clifford W. Smith, Jr Director February 3, 1998
Clifford W. Smith, Jr
/s/ Paul L. Smith Director February 3, 1998
Paul L. Smith
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc. (the "Company")
Registration Statement on Form S-3 No. 333-______
NUMBER DESCRIPTION LOCATION
5.1 Opinion of Nixon,Hargrave, Devans & Doyle LLP *
regarding the legality of the Common Stock
being registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP *
regarding certain tax matters
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP Included
with Exhibits 5.1
and 8.1
23.2 Consent of Coopers & Lybrand LLP *
23 Power of Attorney Included on
signature page
* Filed herewith
Exhibit 5.1
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14604-1051
(716) 263-1000
Fax: (716)263-1600
February 12, 1998
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc. (the
"Company") in connection with the Registration Statement on Form S-3, filed on
February 12, 1998, by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, relating to the resale by the
holders thereof of up to 476,161 shares of Common Stock of the Company, par
value $.01 issuable to partners of Home Properties of New York, L.P. (the
"Operating Partnership") upon the exercise of certain rights with respect to
their interests in the Operating Partnership.
We have examined the originals or copies, certified or otherwise
identified to our satisfaction, of all such records of the Company and the
Operating Partnership and all such agreements, certificates of public officials,
certificates of officers or other representatives of the Company, and such other
documents, certificates and corporate or other records as we have deemed
necessary or appropriate as a basis for the opinions set forth herein, including
(i) the Articles of Amendment and Restatement of the Articles of Incorporation
of the Company, as amended to the date hereof, (ii) the Amended and Restated
By-Laws of the Company, as amended to the date hereof, (iii) certified copies of
certain resolutions duly adopted by the Board of Directors and stockholders of
the Company, and (iv) the Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, as amended (the "Partnership
Agreement").
Based upon the foregoing, it is our opinion that the shares of Common
Stock have been duly authorized, and, after the Common Stock shall have been
issued and delivered as described in such Registration Statement and the
Partnership Agreement and the consideration therefor shall have been received by
the Company, such shares of Common Stock will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name as it appears
under the caption "Legal Matters" in the prospectus contained in such
Registration Statement.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
Exhibit 8.1
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716)263-1600
February 12, 1998
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc. (the
"Company" or "Home Properties") in connection with the Registration Statement on
Form S-3, filed on February 12, 1998, by the Company with the Securities and
Exchange Commission on February _, 1998 (the "Registration Statement"). This
opinion relates to the Company's qualification for federal income tax purposes
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code"), for taxable years beginning with the taxable year
ending December 31, 1994 and to the accuracy of the "FEDERAL INCOME TAX
CONSIDERATIONS" section of the Registration Statement. All capitalized terms
used but not defined herein shall have the meaning assigned to them in the
Registration Statement.
For the purpose of rendering our opinion, we have examined and are
relying upon the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Articles of Amendment and Restatement of the Articles of
Incorporation of Home Properties and the Articles of Incorporation of the
Management Companies.
2. The Amended and Restated By-Laws of Home Properties, as amended
through the date hereof, 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 and which we have no reason to believe contain any material
inaccuracies.
In connection with rendering this opinion, we have assumed and are
relying upon, without any independent investigation or review thereof, the
following: (i) the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as copies,
and authenticity of the originals of such documents; (ii) that neither Home
Properties, the Operating Partnership nor the Management Companies will make any
amendments to its organizational documents after the date of this opinion that
would adversely affect Home Properties' qualification as a REIT for any taxable
year (iii) that no actions will be taken by Home Properties, the Operating
Partnership or the Management Companies after the date hereof that would have
the effect of altering the facts upon which the opinions set forth below are
based; and (iv) that all documents, certificates, representations, warranties
and covenants on which we have relied in rendering the opinions set forth below
and that were given or dated earlier than the date of this opinion continue to
remain accurate, insofar as relevant to the opinions set forth herein, from such
earlier date through and including the date of this letter.
Based on our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that:
1. Commencing with Home Properties' taxable year ending December 31,
1994, Home Properties was organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue of 1986, as amended (the
"Code"), its method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code, and the proposed method of
operation described in the Prospectus included in the Registration Statement
will enable Home Properties to satisfy the requirements for such qualification
under the Code for subsequent taxable years.
2. Home Properties is properly treated as a partner for federal income
tax purposes in the Operating Partnership, and the Operating Partnership is
properly classified as a partnership for federal income tax purposes and not as
an association taxable as a corporation.
3. The discussion in the Prospectus included in the Registration
Statement under the caption "FEDERAL INCOME TAX CONSIDERATIONS" fairly
summarizes the federal income tax considerations that are likely to be material
to holders of common stock who are United States citizens or residents or
domestic corporations and who are not subject to special treatment under the tax
laws.
Our opinions expressed herein are based upon our interpretation of the
current provisions of the Code and existing judicial decisions, administrative
regulations and published rulings and procedures. Our opinions are not binding
upon the Internal Revenue Service or courts and there is no assurance that the
Internal Revenue Service will not successfully challenge the conclusions set
forth herein. The Internal Revenue Service has not yet issued regulations or
administrative interpretations with respect to various provisions of the Code
relating to REIT qualification. Consequently, no assurance can be given that
future legislative, judicial or administrative changes, on either a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. We undertake no obligation to advise you of changes in law which
may occur after the date hereof.
Our opinions are limited to the federal income tax matters and the
federal law of the United States of America addressed herein, and no other
opinions are rendered with respect to any other matter not specifically set
forth in the foregoing opinion and we assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
Home Properties' qualification and taxation as a real estate investment
trust depend upon Home Properties' ability to satisfy, through actual operating
results, the applicable asset composition, source of income, shareholder
diversification, distribution, record keeping and other requirements of the Code
necessary to qualify and be taxed as a REIT. The foregoing opinions are based
upon the proposed method of operation as described in the Registration Statement
and facts stated in the Certificates and other documents described herein. We
undertake no obligation to review at any time in the future whether Home
Properties has fulfilled the requirements listed in this paragraph and,
consequently, no assurance can be given that the actual results of Home
Properties' operations for any taxable year will satisfy the requirements of the
Code necessary to qualify or be taxed as a REIT.
In the event any one of the statements, representations, warranties or
assumptions we have relied upon to issue this opinion is incorrect in a material
respect, our opinions might be adversely affected and may not be relied upon.
We hereby consent to the reference to us under the captions "FEDERAL
INCOME TAX CONSIDERATIONS" and "LEGAL MATTERS" in the Registration Statement,
and to the filing of this opinion as an Exhibit to the Registration Statement,
without implying or admitting that we are experts within the meaning of the
Securities Act of 1933, as amended, with respect to any part of the Registration
Statement.
This letter is furnished to Home Properties, the Operating Partnership
and the Management Companies and is solely for your benefit. This letter may not
be relied upon by any other person or for any other purpose and may not be
referred to or quoted from without our prior written consent.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in this Registration
Statement on Form S-3 to be filed by Home Properties of New York, Inc. of our
reports, (1) dated February 3, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Home Properties of New York, Inc.
as of December 31, 1996 and 1995 and for the years ended December 31, 1996 and
1995, and the period from August 4, 1994 through December 31, 1994 and the
combined results of operations and cash flows of the Original Properties for the
period January 1, 1994 through August 3, 1994, which report is included in the
1996 Annual Report on Form 10-K (2) dated January 22, 1997 and January 24, 1997
on our audits of Hudson Valley Properties and Valley Park South Apartments,
respectively, for the year ended December 31, 1995, which reports are included
in Form 8-K/A Amendment No. 1, dated January 5, 1997 and filed on February 4,
1997 (3) dated July 15, 1997 and July 22, 1997 on our audits of Royal Gardens
Apartments and Lake Grove Apartments, respectively for the years ended December
31, 1996 and March 31, 1996, respectively, which reports are included in Form 8
K/A Amendment No. 1, dated June 6, 1997 and filed on August 11, 1997 (4) dated
October 24, 1997 on our audit of Philadelphia Acquisition Properties for the
year ended December 31, 1996, which report is included in Form 8-K/A Amendment
No. 1, dated September 23, 1997 and filed on December 3, 1997 (5) dated December
18, 1997 and December 23, 1997 on our audits of 1600 East Avenue Apartments and
Palumbo Properties, respectively, for the years ended December 31, 1996, 1995
and 1994 and for the year ended December 31, 1996, respectively, which reports
are included in Form 8-K/A Amendment No. 1, dated June 30, 1997 and filed on
December 30, 1997 and (6) 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. We also consent to the reference to our firm under the caption
"Experts".
/s/Coopers & Lybrand L.L.P.
Rochester, New York
February 12, 1998
