SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13136
HOME PROPERTIES OF NEW YORK, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 16-1455126
-------- ----------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
850 CLINTON SQUARE, ROCHESTER, NEW YORK 14604
---------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 546-4900
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former year, if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class of Common Stock Outstanding at April 30, 1999
--------------------- -----------------------------
$.01 par value 18,119,976
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1999 1998
---- ----
(Unaudited) (Note 1)
ASSETS
Real estate:
Land $120,867 $119,221
Buildings, improvements and equipment 837,339 821,567
-------- --------
958,206 940,788
Less: accumulated depreciation ( 73,133) ( 65,627)
--------- --------
Real estate, net 885,073 875,161
Cash and cash equivalents 27,341 33,446
Cash in escrows 17,006 17,431
Accounts receivable 5,583 6,269
Prepaid expenses 8,325 6,155
Deposits 688 175
Investments in and advances to affiliates 52,832 54,229
Deferred financing costs 2,538 2,749
Other assets 15,971 16,620
---------- ----------
Total assets $1,015,357 $1,012,235
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $419,185 $418,942
Line of credit - -
Accounts payable 7,836 8,300
Accrued interest payable 2,307 1,962
Accrued expenses and other liabilities 3,166 4,962
Security deposits 11,452 11,404
---------- ----------
Total liabilities 443,946 445,570
---------- ----------
Minority interest 203,240 204,709
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized;
no shares issued - -
Common stock, $.01 par value;
50,000,000 shares authorized;
18,032,655 and 17,635,000 shares
issued and outstanding at
March 31, 1999 and
December 31, 1998, respectively 182 177
Excess stock, $.01 par value;
10,000,000 shares authorized;
no shares issued - -
Additional paid-in capital 413,524 401,814
Distributions in excess of
accumulated earnings ( 29,492) ( 26,622)
Unrealized loss on available-
for-sale securities ( 2,360) ( 1,607)
Treasury stock, at cost,
158,200 and 79,600 shares
at March 31, 1999 and
December 31, 1998, respectively ( 3,726) ( 1,863)
Officer and director notes for stock
purchases ( 9,957) ( 9,943)
---------- ----------
Total stockholders' equity 368,171 361,956
---------- ----------
Total liabilities and stockholders'
equity $1,015,357 $1,012,235
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues:
Rental income $43,943 $25,094
Property other income 1,286 502
Interest and dividend income 1,895 914
Other income 642 263
------- -------
Total revenues 47,766 26,773
Expenses:
Operating and maintenance 20,999 12,140
General and administrative 2,156 1,209
Interest 7,716 4,398
Depreciation and amortization 7,541 4,079
------- -------
Total expenses 38,412 21,826
------- -------
Income before minority interest 9,354 4,947
Minority interest 3,343 2,172
------- -------
Net income $6,011 $ 2,775
======= =======
Per share data:
Net income - Basic $.34 $.29
======= =======
- Diluted $.33 $.28
======= =======
Weighted average number of shares
outstanding - Basic 17,871,753 9,702,975
========== =========
- Diluted 17,960,058 9,900,451
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED, IN THOUSANDS)
1999 1998
---- ----
Cash flows from operating activities:
Net income $6,011 $2,775
------ ------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in income of HP Management
and Conifer Realty ( 178) 208
Income allocated to minority interest 3,343 2,172
Depreciation and amortization 7,753 4,239
Unrealized loss on available-for-
sale securities 1,169 -
Loss on disposition of property 16 -
Changes in assets and liabilities:
Other assets ( 2,446) ( 2,260)
Accounts payable and accrued
liabilities ( 1,867) ( 762)
------- -------
Total adjustments 7,790 3,597
------- -------
Net cash provided by
operating activities 13,801 6,372
------- -------
Cash flows used in investing activities:
Purchase of properties, net of
mortgage notes assumed and UPREIT
Units issued ( 8,055) ( 35,644)
Additions to properties ( 8,218) ( 6,808)
Deposits on property ( 513) ( 2,051)
Advances to affiliates ( 5,975) ( 6,068)
Payments on advances to affiliates 7,550 5,366
Other 59 -
------- -------
Net cash used in investing
activities (15,152) ( 45,205)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 11,031 24,650
Purchase of treasury stock ( 1,863) -
Proceeds from mortgage notes payable - 8,000
Payments of mortgage notes payable ( 982) ( 720)
Proceeds from line of credit - 33,000
Payments on line of credit - ( 19,500)
Additions to deferred loan costs ( 2) ( 21)
Additions to and payments received
from cash escrows 425 ( 300)
Dividends and distributions paid (13,363) ( 7,264)
------- -------
Net cash provided by (used in)
financing activities ( 4,754) 37,845
------- -------
Net decrease in cash ( 6,105) ( 988)
Cash and cash equivalents:
Beginning of period 33,446 3,809
------- -------
End of period $27,341 $ 2,821
======= =======
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 7,422 $ 4,157
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. Unaudited Interim Financial Statements
--------------------------------------
The interim consolidated financial statements of Home Properties of New York,
Inc. (the "Company") are prepared pursuant to the requirements for reporting on
Form 10-Q. Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with generally accepted accounting principles
are omitted. The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments, consisting solely of normal recurring adjustments, necessary for
the fair presentation of the consolidated financial statements for the interim
periods have been included. The current period's results of operations are not
necessarily indicative of results which ultimately may be achieved for the
year. The interim consolidated financial statements and notes thereto should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-K, as filed with the Securities and Exchange
Commission on March 17, 1999.
2. Organization and Basis of Presentation
--------------------------------------
Organization
Home Properties of New York, Inc. (the "Company") was formed in November
1993, as a Maryland corporation and is engaged primarily in the ownership,
management, acquisition and development of residential apartment communities in
the Northeastern, Mid-Atlantic and Midwestern United States. As of March 31,
1999, the Company operated 261 apartment communities with 34,493 apartments.
Of this total, the Company owned 98 communities, consisting of 23,944
apartments, managed as general partner 7,738 apartments and fee managed 2,811
apartments for affiliates and third parties. The Company also fee manages 1.7
million square feet of office and retail properties.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Company and its 64.4% (55.0% at March 31, 1998) general partnership interest in
the Operating Partnership. The remaining 35.6% (45.0% at March 31, 1998) is
reflected as Minority Interest in these consolidated financial statements. For
financing purposes, the Company has formed a limited liability company (the
"LLC") and a partnership (the "Financing Partnership") which beneficially own
certain apartment communities encumbered by mortgage indebtedness. The LLC is
wholly owned by the Operating Partnership. The Financing Partnership is owned
99.9% by the Operating Partnership and .1% by Home Properties Trust, a wholly
owned qualified REIT subsidiary (QRS) of Home Properties of New York, Inc. All
significant intercompany balances and transactions have been eliminated in
these consolidated financial statements.
3. Earnings Per Common Share
-------------------------
Basic earnings per share ("EPS") is computed as net income divided by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur from common shares
issuable through stock-based compensation including stock options. The
exchange of an Operating Partnership Unit for common stock will have no effect
on diluted EPS as unitholders and stockholders effectively share equally in the
net income of the Operating Partnership.
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. Earnings Per Common Share Cont'd
--------------------------------
Net income is the same for both the basic and diluted calculation. The
reconciliation of the basic weighted average shares outstanding and diluted
weighted average shares outstanding for the three months ended March 31, 1999
and 1998 is as follows:
1999 1998
---- ----
Basic weighted average number of
shares outstanding 17,871,753 9,702,975
Effect of dilutive stock options 88,305 197,476
---------- ---------
Diluted weighted average number
of shares outstanding 17,960,058 9,900,451
========== =========
4. Comprehensive Income
--------------------
Total comprehensive income for the three months ended March 31, 1999 and 1998
is as follows:
1999 1998
---- ----
Net income $6,011 $2,775
Comprehensive income:
Unrealized loss on available-
for-sale securities
before minority interest (1,169) -
------ ------
Net comprehensive income $4,842 $2,775
====== ======
5. Other Income
------------
Other income for the three months ended March 31, 1999 and 1998 is summarized
as follows:
1999 1998
---- ----
Management fees $374 $271
Development fees 62 171
Other 28 29
Management Companies 178 ( 208)
---- ----
$642 $263
==== ====
Certain property management, leasing and development activities are performed
by Home Properties Management, Inc. and Conifer Realty Corporation (the
"Management Companies"). The Operating Partnership owns non-voting common
stock in the Management Companies which entitles the Operating Partnership to
receive 95% (99% in 1998) of the economic interest in the Management Companies.
The Company's share of income from the Management Companies for the three
months ended March 31, 1999 and 1998 is summarized as follows:
1999 1998
---- ----
Management fees $922 $793
Development fees 1,303 954
Miscellaneous 35 26
General and administrative (1,754) (1,789)
Interest expense ( 202) ( 130)
Other expenses ( 116) ( 64)
----- -----
Net income $188 ($ 210)
===== =====
Company's share $178 ($ 208)
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. Segment Reporting
-----------------
Effective January 1, 1998, the Company has adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). The Company has engaged in two primary business segments - the ownership
and management of market rate apartment communities and the management and
development of government assisted housing. Company management views each
apartment community as a separate component of the operating segment. The
Company's two reportable segments are managed separately as each requires
different operating strategies and management expertise. There are no material
intersegment sales or transfers.
Non-segment revenue to reconcile total revenue consists of unconsolidated
management and development fees and interest income. Non-segment assets to
reconcile to total assets include cash, cash in escrows, accounts receivable,
prepaid expenses, deposits, investments in and advances to affiliates, deferred
charges and other assets.
The Company assesses and measures segment operating results based on FFO.
The revenues, profit (loss), and assets for each of the reportable segments are
summarized as follows for the three months ended March 31, 1999 and 1998.
1999 1998
---- ----
Revenues
- --------
Apartments owned $45,229 $25,596
Management & development fees 2,724 2,244
Reconciling items ( 187) ( 1,067)
------ ------
Total Revenue $47,766 $26,773
Profit(loss)
- -----------
Funds from operations:
Apartments owned $24,230 $13,456
Management & development fees 642 263
Reconciling items 1,895 914
------ ------
Segment contribution to FFO 26,767 14,633
General & administrative expenses ( 2,156) ( 1,209)
Interest expense ( 7,716) ( 4,398)
Unconsolidated depreciation 84 196
Non-real estate depreciation/amort. ( 64) ( 41)
------ ------
Funds from Operations 16,915 9,181
Depreciation - apartments owned ( 7,477) ( 4,038)
Unconsolidated depreciation ( 84) ( 196)
Minority interest in earnings ( 3,343) ( 2,172)
------ ------
Net Income $ 6,011 $ 2,775
====== ======
Assets
- ------
Apartments owned $885,073 $548,169
Apartments managed 566 398
Reconciling items 129,718 69,523
------- -------
Total Assets $1,015,357 $618,090
========= ========
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. Pro Forma Financial Information
-------------------------------
Pro Forma Combined Statement of Operations
For the Three Months Ended March 31, 1999
------------------------------------------
Home
Properties Pro Forma Company
Historical Adjustment Pro Forma
---------- ---------- ---------
Revenue:
Rental income $43,943 $ 260 $44,203
Property other income 1,286 7 1,293
Interest and dividend income 1,895 1,895
Other income 642 642
------ ----- -------
Total Revenues 47,766 267 48,033
Expenses:
Operating and Maintenance 20,999 85 21,084
General and administrative 2,156 8 2,164
Interest 7,716 80 7,796
Depreciation and amortization 7,541 28 7,569
------ ----- -------
Total Expenses 38,412 201 38,613
------ ----- -------
Income before minority interest $ 9,354 $ 66 9,420
====== =====
Minority Interest 3,372
-----
Net income $ 6,048
======
Net income per common share - Basic $0.34
======
- Diluted $0.34
======
Weighted average number of
shares outstanding - Basic 17,871,753
==========
- Diluted 17,960,058
==========
The pro forma information was prepared as if the transactions related to the
acquisition of the Manor Apartments (on February 18, 1999, 198 units for
$7,200) and Ridgeway Court Apartments (on February 22, 1999, 66 units for
$2,150) had occurred on January 1, 1999.
Adjustments to the pro forma combined statements of operations for the three
months ended March 31, 1999, consist principally of providing net property
operating activity and recording interest, depreciation and amortization from
January 1, 1999 to the acquisition date.
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion is based primarily on the consolidated financial
statements of Home Properties of New York, Inc. as of March 31, 1999 and 1998
and for the three month periods then ended. This information should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto.
Forward-Looking Statements
- --------------------------
This discussion contains forward-looking statements. Although the Company
believes expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Factors that may cause actual results to differ include general
economic and local real estate conditions, other conditions that might affect
operating expenses, the timely completion of repositioning and current
development activities within anticipated budgets, the actual pace of future
acquisitions and developments and continued access to capital to fund growth.
Liquidity and Capital Resources
- -------------------------------
The Company's principal liquidity demands are expected to be distributions to
stockholders, capital improvements and repairs and maintenance for the
properties, acquisition of additional properties, property development and
scheduled debt maturities.
The Company intends to meet its short-term liquidity requirements through net
cash flows provided by operating activities and its unsecured line of credit.
The Company considers its ability to generate cash to continue to be adequate
to meet all operating requirements and make distributions to its stockholders
in accordance with the provisions of the Internal Revenue Code, as amended, to
enable the Company to qualify as a REIT.
As of March 31, 1999 the Company had an unsecured line of credit from Chase
Manhattan Bank of $50 million and a $50 million supplemental unsecured
revolving credit facility with M&T Bank, both with no outstanding balances.
Borrowings under the line of credit bear interest at 1.25% over the one-month
LIBOR rate. Accordingly, increases in interest rates will increase the
Company's interest expense and as a result will effect the Company's results of
operations and financial condition. The unsecured credit facilities expire on
September 4, 1999, with a one year extension at the Company's option.
To the extent that the Company does not satisfy its long-term liquidity
requirements through net cash flows provided by operating activities and its
credit facilities, it intends to satisfy such requirements through the issuance
of UPREIT units, proceeds from the Dividend Reinvestment Plan ("DRIP"), long
term secured or unsecured indebtedness, or the issuance of additional equity
securities. As of March 31, 1999, the Company owned twenty-four properties
with 3,907 apartment units, which were unencumbered by debt.
In May, 1998, the Company's Form S-3 Registration Statement was declared
effective relating to the issuance of up to $414 million of shares of common
stock or other securities. During 1998, $125.6 million of common shares were
issued from this and a previous shelf registration in various public and
private offerings. There has been no activity during 1999 relative to this
shelf. The available balance on the shelf at March 31, 1999 is $333.7 million.
<PAGE>
HOME PROPERTIES OF NEW YORK, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION CONT'D
The issuance of UPREIT Units for property acquisitions continues to be a
significant source of capital. During 1998, 4,512 apartment units in eight
separate transactions were acquired for a total cost of $176 million using
UPREIT Units valued at approximately $71 million, with the balance paid in cash
or assumed debt..
During 1998, over $72 million of common stock was issued under the Company's
DRIP, approximately twice the level of the previous year. An additional $12
million has been raised through the DRIP program during the first four months
of 1999.
The Company's Board of Directors approved a stock repurchase program under
which the Company may repurchase up to one million shares of its outstanding
common stock. The Board's action did not establish a target price or a
specific timetable for repurchase. During 1998, the Company repurchased 59,600
shares at a cost of $1.4 million. An additional 78,600 shares were repurchased
during the first quarter of 1999 at a cost of $1.9 million.
As of March 31, 1999, the weighted average rate of interest on mortgage debt is
7.2% and the weighted average maturity is approximately 10 years. All of the
debt is fixed rate. This limits the exposure to changes in interest rates,
minimizing the effect on results of operations and financial condition.
<PAGE>
The following table sets forth information regarding the mortgage indebtedness
at March 31, 1999.
Principal
Interest Balance as of
Rate as of Maturity March 31,1999
Communities Location March 31, 1999 Date (000's)
- ----------- -------- -------------- -------- -------------
Fixed Rate
- ----------
Perinton and
Riverton Rochester, NY 6.75% (1) 09/01/00 11,842
Springwood Philadelphia, PA 8.50% 11/01/01 1,472
Valley View Philadelphia, PA 8.50% 11/01/01 3,338
Royal Gardens Piscataway, NJ 7.66% 08/01/02 11,570
Brook Hill Rochester, NY 7.75% 11/01/02 4,839
Garden Village Buffalo, NY 7.75% 11/01/02 4,554
1600 Elmwood Rochester, NY 7.75% 11/01/02 5,313
Village Green Syracuse, NY 7.75% 11/01/02 4,744
Racquet Club Philadelphia, PA 7.63% 11/01/03 12,094
Curren Terrace Philadelphia, PA 8.36% 11/01/03 9,561
Rolling Park Baltimore, MD 7.88% 11/01/03 2,851
Sherry Lake Philadelphia, PA 7.88% 01/01/04 6,582
Glen Manor Philadelphia, PA 8.13% 05/01/04 3,688
Colonies Chicago, IL 8.88% 05/01/04 12,480
Springcreek/
Meadows Rochester, NY 7.63% (2) 08/01/04 3,147
Idylwood Buffalo, NY 8.63% 11/01/05 9,283
Carriage Hill Dearborn, MI 7.36% 01/01/06 3,896
Carriage Park Dearborn, MI 7.48% 01/01/06 5,612
Cherry Hill Dearborn, MI 7.99% 01/01/06 4,515
Mid Island
Estates Bay Shore, NY 7.50% (3) 05/01/06 6,675
Newcastle Rochester, NY 6.00% (4) 07/31/06 6,150
Country Village Baltimore, MD 8.39% 08/01/06 6,655
Raintree Island Buffalo, NY 8.50% 11/01/06 6,374
Woodgate Place Rochester, NY 7.87% 01/01/07 3,432
Strawberry Hill Baltimore, MD 8.26% 05/01/07 2,068
Valley Park
South Bethlehem, PA 6.93% 01/01/08 10,052
Hamlet Court Rochester, NY 7.11% 02/01/08 1,785
Candlewood South Bend, ID 7.02% 03/01/08 7,878
Multi-property Detroit, MI 7.51% 06/01/08 49,108
Conifer Village Syracuse, NY 7.20% 06/01/10 2,765
Ridgeway Court Philadelphia, PA 8.38% 11/01/10 1,220
Multi-property Various 6.16% 01/01/11 58,881
Morningside and
Carriage Hill Baltimore, MD 6.99% 05/01/13 20,339
Multi-property Various 6.48% 08/31/13 100,000
Pines of
Perinton Rochester, NY 8.50% 05/01/18 8,829
Village Green
(Fairways) Syracuse, NY 8.23% 10/01/19 4,416
Raintree Island Buffalo, NY 8.50% 05/01/20 1,177
-------
419,185
<PAGE>
Principal
Interest Balance as of
Rate as of Maturity March 31,1999
Communities Location March 31, 1999 Date (000's)
- ----------- -------- -------------- -------- -------------
Line of Credit
- --------------
Unsecured N/A 30 day LIBOR+1.25% On demand 0
$419,185
========
(1) Fixed through August 4, 1999, then prime +.5% until maturity.
(2) Fixed through July 31, 2000, then prime +.5% until maturity.
(3) Fixed through March 31, 2001; then 7.75% until maturity.
(4) Fixed through July 31, 1999, then variable.
Results of Operations
- ---------------------
Comparison of three months ended March 31, 1999 to the same period in 1998
The Company had 62 apartment communities with 14,048 units and one small
ancillary convenience shopping area which were owned during both of the three
month periods being presented (the "Core Properties"). The Company has
acquired an additional 36 apartment communities with 9,896 units during 1998
and 1999 (the "Acquired Communities"). The inclusion of these Acquired
Communities generally accounted for the significant changes in operating
results for three months ended March 31, 1999.
A summary of the Core Property net operating income is as follows:
1999 1998 %Change
---- ---- -------
Rent $26,002,000 $24,439,000 6.4%
Property other income 750,000 640,000 17.2%
---------- ---------- -------
Total income 26,752,000 25,079,000 6.7%
Operating and Maintenance ( 12,879,000) ( 11,944,000) (7.8%)
---------- ---------- ----
Net operating income $13,873,000 $13,135,000 5.6%
=========== =========== ====
Of the $18,849,000 increase in rental income, $17,286,000 is attributable to
the Acquired Communities. The balance of this increase, which is from the Core
Properties, was the result of an increase of 4.6% in weighted average rental
rates, plus an increase in occupancy from 93.4% to 95.0%.
Of the $784,000 increase in property other income, $533,000 is attributable to
the Acquired Communities, with $110,000 representing a 17.2% increase for the
Core Properties. This increase reflects increased laundry and
furniture/corporate rental activity. The balance, a $141,000 increase, is from
the Company's share of income/loss from various general partnership interests.
Interest and dividend income increased $981,000, primarily attributable to an
increase in construction loans and advances made to affiliated tax credit
development partnerships, as well as $395,000 in dividend income from an
investment in available-for-sale securities.
Other income increased by $379,000 due primarily to an increased level of
management and development activity.
Of the $8,859,000 increase in operating and maintenance expenses, $7,924,000 is
attributable to the Acquired Communities. The balance for the Core Properties
represents a 7.8% increase over 1998. The major areas of increase in the Core
Properties occurred in utilities, personnel and snow removal costs. All of
these items were affected based on a more normal winter following the unusually
mild winter weather experienced in 1998. Most of the personnel increase
results from the normal 13 week pay periods in 1999 compared to only 12 in
1998. This negative variance will reverse itself during the third quarter of
1999.
<PAGE>
General and administrative expense increased in 1999 by $947,000, or 78%.
General and administrative expenses as a percentage of total revenues was 4.5%
for both periods presented.
Funds From Operations
- ---------------------
Management considers funds from operations ("FFO") to be an appropriate measure
of performance of an equity REIT. The National Association of Real Estate
Investment Trusts ("NAREIT") revised White Paper definition of FFO is income
(loss) before gains (losses) from the sale of property and extraordinary items,
before minority interest in the Operating Partnership, plus real estate
depreciation. Management believes that in order to facilitate a clear
understanding of the combined historical operating results of the Company, FFO
should be considered in conjunction with net income as presented in the
consolidated financial statements included elsewhere herein. FFO does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs. FFO should not be considered as an alternative
to net income as an indication of the Company's performance or to cash flow as
a measure of liquidity.
The calculation of FFO for the previous six quarters are presented below:
<TABLE>
<CAPTION>
March 31 Dec. 31 Sept. 30 June 30 March 31 Dec. 31
1999 1998 1998 1998 1998 1997
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income $6,011 $5,388 $6,141 $4,384 $2,775 $2,417
Minority interest 3,343 3,408 3,726 3,297 2,172 2,451
Extraordinary item - 514 156 290 - 1,037
Non-recurring interest
amortization - - 294 - - -
Depreciation from real
property 7,477 8,183 5,991 4,770 4,038 3,715
Depreciation from real
property from
unconsolidated entities 84 393 72 72 196 168
(Gain) Loss from sale of
property - - - - - (872)
----- ----- ----- ----- ------ ------
FFO $16,915 $17,886 $16,380 $12,813 $9,181 $8,916
====== ====== ====== ====== ====== ======
Weighted average common
shares/units outstanding
- Basic 27,810.1 27,129.4 25,603.7 21,312.3 17,303.6 15,215.0
- Diluted 27,898.4 27,245.7 25,746.9 21,500.9 17,501.1 15,417.7
</TABLE>
All REITs may not be using the strict White Paper definition for new FFO.
Accordingly, the above presentation may not be comparable to other similarly
titled measures of FFO of other REITs.
Impact of the Year-2000 on System Processing
- --------------------------------------------
The Year 2000 ("Y2K") problem concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. As a result, the Y2K problem can affect any system that uses date data,
including mainframes, PCs, and embedded microprocessors that control security
systems, call-processing systems, building climate systems, elevators, office
equipment and even fire alarms. All references to percent complete below are
as of 5/1/99.
The Company's State of Readiness
The Company began addressing the Y2K issue in September 1997. As such it
divided its review into two segments: business critical and mission critical
systems. Business critical systems are those with the potential to affect the
financial and operational infrastructure of the Company. Mission critical are
those systems with a potential to affect the delivery of electricity and
natural gas to our residents, commercial tenants and employees and the safety
of residents, commercial tenants and employees.
Recognizing that the mission critical systems rely heavily on public service
vendors, the Company's focus to date has been on business critical systems
under the assumption that market forces and regulatory agencies would encourage
and monitor the compliance of the telecommunications, utilities and emergency
service industries. The Company has set up systems to monitor the progress of
mission critical service providers and will develop contingency plans, possibly
in coordination with industry organizations, as needed, to minimize the
possibility that the Y2K problem would disrupt the lives of its residents,
commercial tenants and employees.
<PAGE>
The Company relies exclusively on micro computers (PC's). PC's exist in the
corporate office, regional offices and at the communities. The Company is 95%
complete with its review and modification of corporate office systems towards
Y2K compliance. Outstanding projects include: upgrading the voicemail system
and installing Y2K compliant modules of non-critical property management
software. Specifically, the software vendors have advised the Company that the
property management, accounts payable and general ledger software and payroll
software is compliant. The Company will continue a dialog with all software
service providers so that any additional upgrades can be completed as
necessary.
The Company is 75% complete with its review and modification of regional office
systems and 45% complete with its review and modification of community based
systems. The Company has one and one-half full-time employees dedicated to
upgrading regional offices and community based systems. Additional information
systems employees will assist as needed. The Company anticipates its regional
office systems will be tested for compliance by July 1999 and that its
community based systems will be tested for compliance by September 1999.
Once all hardware and software components are believed to be Y2K ready, the
Company plans to periodically match its systems' inventory against hardware and
software component manufacturer upgrade releases to assure that its systems
have the most current Y2K upgrades (including any properties acquired).
The ability of the Company to successfully transact monetary exchanges is key
to continued successful operation. For this reason, all financial institutions
which the Company has a relationship will be identified and queried for Y2K
readiness status during the second quarter of 1999. The Company's significant
relationships are with regional and national financial institutions which are
also subject to the oversight of various federal regulatory agencies for their
Y2K compliance.
Delivery of goods and services (i.e., building and elevator access, security
systems, HVAC, life safety, etc.) to the Company's communities and offices
must continue to be provided without interruption. The Company expects to have
surveyed all critical suppliers by June, 1999 to determine their Y2K readiness
status.
Contingency Plans
Testing will begin in August 1999 to determine the Company's business critical
system readiness. Based on testing results, contingency plans may be put in
place.
Risks
Since the Company's major source of income is rental payments under term leases
at communities located in different municipalities, the failure of business
critical systems at any one community is not expected to have a material
adverse effect on the Company's financial condition, results of operations and
liquidity. Given the complexity and general uncertainty of the Y2K issues in
the gas, electric, telecommunications, banking and related industries, even the
most comprehensive program, however, cannot assure that unforeseen problems
will not occur. The Company therefore is unable at this time to determine
whether any unforeseen impacts could have a material effect on the Company's
financial condition. The Company believes that upon the full implementation of
our upgraded business system and assuming Y2K compliance of our public service
vendors, the possibility of significant interruptions of normal operations
should not be material.
Costs
The total cost of the Company's Y2K activities, which is estimated at $675,000,
is not expected to have a material effect on the Company's financial position.
Approximately $400,000 has been expended as of May 1, 1999. The remaining
expenditures to be incurred will be funded from operations. A majority of
these costs are an acceleration of the amounts the Company would anticipate
incurring to upgrade business systems, regardless of the Y2K problem,
considering the evolution of technology and the requirements for running newly
acquired and improved system applications.
<PAGE>
Inflation
- ---------
Substantially all of the leases at the communities are for a term of one year
or less, which enables the Company to seek increased rents upon renewal of
existing leases or commencement of new leases. These short-term leases
minimize the potential adverse effect of inflation on rental income, although
residents may leave without penalty at the end of their lease terms and may do
so if rents are increased significantly.
Declaration of Dividend
- -----------------------
On May 4, 1999, the Board of Directors approved a dividend of $.48 per share
for the period from January 1, 1999 to March 31, 1999. This is the equivalent
of an annual distribution of $1.92 per share. The dividend is payable May 27,
1999 to shareholders of record on May 18, 1999.
Subsequent Events
- -----------------
On April 8, 1999, the Company acquired 303 apartment units in one community
located in Dearborn, Michigan. The total purchase price and closing costs of
$18.2 million included the assumption of existing debt of approximately $11.7
million plus the issuance of UPREIT units valued at approximately $3.9 million,
plus cash of $2.6 million.
On April 29, 1999 the Company announced that it had entered into various
agreements to purchase three different apartment portfolios from private
sellers. The portfolios are primarily located in the suburban Washington, D.C.
Baltimore and Philadelphia markets and contain a combined total of 7,968
apartment units. If all three transactions are consummated, total
consideration of $370 million plus closing costs will be paid in the form of
UPREIT Units, assumed debt and cash. The transactions are subject to certain
approvals and conditions. There can be no assurances that these conditions
will be satisfied.
<PAGE>
PART II - OTHER INFORMATION
HOME PROPERTIES OF NEW YORK, INC.
Item 6. Exhibits and Reports or Form 8-K
- -----------------------------------------
(a)Exhibits: There are no exhibits which are filed with, or incorporated
by reference, to this report.
(b)Reports or Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME PROPERTIES OF NEW YORK, INC.
(Registrant)
Date: May 17, 1999
By: /s/ David P. Gardner
-----------------------------
David P. Gardner
Vice President
Chief Financial Officer and Treasurer
Date: May 17, 1999
By: /s/ David P. Gardner
------------------------------
David P. Gardner
Vice President
Chief Financial Officer and Treasurer
