As filed with the Securities and Exchange Commission on March 30, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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HOME PROPERTIES OF NEW YORK, INC.
(Exact name of registrant as specified in charter)
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Maryland 16-1455126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Clinton Square
Rochester, New York 14604
(716) 546-4900
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
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Ann M. McCormick, Esq.
Vice President, Secretary and General Counsel
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
(716) 246-4105
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
-------------------
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. / /
<TABLE>
<CAPTION>
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
- -------------- ---------- ------------- -------------- --------
<S> <C> <C> <C> <C>
Common Stock
par value $.01 413,343 sh. $ 23.1875 $9,584,391 $2,665
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 and based upon the prices
reported on the New York Stock Exchange on March 25, 1999 of $23.1875.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
PROSPECTUS
413,343 SHARES
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
($.01 par value)
------------------------------------
The Prospectus relates to the offer and sale from time to time of up to
413,343 shares of our Common Stock by the stockholders listed below under
"Selling Stockholders." We may issue the 371,041 shares of Common Stock to the
Selling Stockholders in exchange for their 371,041 units of limited partner
interest in our Operating Partnership, Home Properties of New York, L.P. We
have already issued the remaining 42,302 shares of Common Stock that can be
offered.
The Selling Stockholders received the shares to which this Prospectus
relates from us without registration. We are registering the shares in order
to permit secondary trading of such shares. However, the registration of their
shares does not necessarily mean that the Selling Stockholders will sell their
shares.
The Selling Stockholders may offer their shares of Common Stock through
public or private transactions on the New York Stock Exchange where our Common
Stock is listed for trading under the symbol "HME," in other markets where our
Common Stock may be traded or in negotiated transactions. On March 25, 1999,
the closing price of our shares of Common Stock on the New York Stock Exchange
was $23.1875.
We will not receive any of the proceeds from the sale by the Selling
Stockholders and are paying the costs of preparing and filing the Registration
Statement of which this Prospectus is a part.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March , 1999.
The information contained in this Prospectus is not complete and may be
changed. We have filed a registration statement relating to these securities
with the SEC. This Prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any State where such
offer or sale is not permitted.
<PAGE>
Table of Contents
Page
-------
About this Prospectus 3
Where You Can Find More Information 3
The Company 4
Use of Proceeds 4
Description of Capital Stock 4
Certain other Provisions of Maryland Law
and Charter Documents 9
Federal Income Tax Considerations 11
Selling Stockholders 36
Plan of Distribution 37
Legal Opinions 37
Experts 37
<PAGE>
ABOUT THIS PROSPECTUS
You should read this Prospectus carefully. The Prospectus contains information
you should consider when making an investment decision. You should rely only
on information provided or incorporated by reference in this Prospectus. We
have not authorized anyone else to provide you with different information. We
are not making an offer of the Common Stock in any state where the offer is not
permitted. You should not assume that the information in this Prospectus is
accurate as of any date other than the date on the front of this Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports and proxy statements and other
information with the Securities and Exchange Commission. Our SEC filings are
available to the public over the Internet at the SEC's web site at . You may
also read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
We have filed with the SEC a Registration Statement (of which this Prospectus
is a part) on Form S-3 under the Securities Act of 1933, as amended, with
respect to the securities offered hereby by the Selling Stockholders of up to
413,343 shares of our Common Stock. This Prospectus does not contain all the
information set forth in the Registration Statement, because we have omitted
portions as permitted by the rules and regulations of the SEC. Statements
contained in this Prospectus as to the content of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further
information, we refer you to the Registration Statement and its exhibits and
schedules, which you may read and copy at, or obtain from, the SEC and its
regional offices listed above in the manner described above.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities:
* Annual Report on Form 10-K for the year ended December 31, 1998;
* The description of our Common Stock contained in our Registration Statement
on Form 8-A, filed pursuant to the Exchange Act, including and amendments
or reports filed for the purpose of updating such description.
You may request a copy of these filings at no cost, by writing or telephoning
us at the following address: David P. Gardner, Chief Financial Officer, Home
Properties of New York, Inc., 850 Clinton Square, Rochester, New York 14604,
(716) 546-4900.
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<PAGE>
THE COMPANY
Home Properties is a real estate investment trust (REIT) that owns, manages,
acquires, and develops apartment communities in the Northeast, Midwest and Mid-
Atlantic United States. As of December 31, 1998, the Company operates 259
communities containing 34,229 units. Of these, 23,936 units in 97 communities
are wholly owned directly or indirectly by the Company, 7,482 units are
managed and partially owned by the Company as general partner, and 2,811 units
are managed for others. The communities are located throughout the
Northeastern quadrant of the United States, including New York, Michigan, New
Jersey, Pennsylvania, Maryland, Illinois, Maine, Virginia, Connecticut, Indiana
and Ohio. Home Properties also manages 1.7 million square feet of commercial
space. Home Properties conducts substantially all of its business and owns all
of its properties through Home Properties of New York, L.P. (the "Operating
Partnership"), of which the Company is the general partner. The Company is
also the sole shareholder of Home Properties Trust (the "QRS"), a Maryland real
estate trust, which is a limited partner of the Operating Partnership. To
comply with certain technical requirements of the Internal Revenue Code, the
Operating Partnership carries out portions of its property management and
development activities through management companies beneficially owned by the
Operating Partnership or controlled by one or more officers of Home Properties
(the "Management Companies"). The Company's executive offices are located at 850 Clinton Square, Rochester,
New York 14604. Its telephone number is (716) 546-4900.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of Common Stock by the Selling
Stockholders.
DESCRIPTION OF CAPITAL STOCK
Our Articles of Incorporation, as amended (the "Charter"), allow us to issue up
to 70,000,000 shares of capital stock, currently consisting of 50,000,000
shares of Common Stock (par value $.01 per share)("Common Stock"), of which,
18,108,175 shares are issued and outstanding; 10,000,000 shares of preferred
stock (par value $.01 per share) ("Preferred Stock) and 10,000,000 shares of
excess stock (par value, $.01 per share) ("Excess Stock"). There are currently
no shares of the Preferred Stock or the Excess Stock issued or outstanding. As
of March 17, 1999, approximately 13,000,000 shares of Common Stock were
reserved for issuance under outstanding option awards, conversion of limited
partnership interests in the Operating Partnerships, the Directors' Stock Grant
Plan, the Director, Officer and Employee Stock Purchase and Loan Plan, and the
dividend reinvestment plan. In addition, we have available $333,655,941 in
securities under an existing registration statement (assuming a closing price
for the Common Stock on the NYSE of $25.00 per share, this would amount to
approximately 13,289,000 shares of Common Stock).
The following descriptions do not purport to be complete and are qualified
entirely to more complete descriptions set forth in our Articles of
Incorporation and By-Laws.
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<PAGE>
Common Stock
- ------------
The following description of our Common Stock sets forth certain general terms
and provisions of the Common Stock which may be offered by the Selling
Stockholders listed below from time to time hereunder. This description is
qualified entirely by reference to the applicable provisions of our Articles of
Incorporation and By-Laws. Our Common Stock is listed on the NYSE under the
symbol "HME". Our transfer agent and registrar is ChaseMellon Stockholder
Services.
All shares of Common Stock offered hereby will, when issued, 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 Maryland law, stockholders are generally not liable
for the Company's debts or obligations, and the holders of shares will not be
liable for further calls or assessments by the Company. Subject to the
provisions of our Articles of Incorporation regarding Excess Stock, 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. Upon liquidation of the Company, each outstanding share of
Common Stock will be entitled to participate pro rata in the assets remaining
after payment of, or adequate provision for, all known debts and liabilities of
the Company, including debts and liabilities arising out of it status as a
general partner of the Operating Partnership, and any liquidation preference of
issued and outstanding Preferred Stock. We currently pay quarterly dividends
to holders of Common Stock and plan to continue doing so.
The holder of each outstanding share of Common Stock is 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
Maryland law, we cannot dissolve, amend the Company's 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. Our Articles of Incorporation provide that our Bylaws may
be amended by its Board of Directors.
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<PAGE>
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 stockholders
liquidating distributions in the amount of the liquidation preference per
share, plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such shares of Preferred Stock do not have
cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of shares of Preferred
Stock will have no right or claim to any of the remaining assets of Home
Properties. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of Home
Properties are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and
the corresponding amounts payable on all shares of other classes or series
of capital stock of Home Properties ranking on a parity with such shares of
Preferred Stock in the distribution of assets, then the holders of such
shares of Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be
respectively entitled.
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<PAGE>
Restrictions on Transfer
- ------------------------
Ownership Limits. The 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.
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<PAGE>
Any transfer of outstanding capital stock of Home Properties
("Outstanding Stock") that would (i) cause any holder, directly or by
attribution, to own capital stock having a value in excess of the Ownership
Limit or Existing Holder Limit, (ii) result in shares of capital stock other
than Excess Stock, if any, to be owned by fewer than 100 persons, (iii) result
in Home Properties being closely held within the meaning of section 856(h) of
the Code, or (iv) otherwise
prevent Home Properties from satisfying any criteria necessary for it to
qualify as a REIT, is null and void, and the purported transferee acquires no
rights to such Outstanding Stock.
Outstanding Stock owned by or attributable to a stockholder or shares of
Outstanding Stock purportedly transferred to a stockholder which cause such
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.
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<PAGE>
If the restrictions on ownership and transfer, conversion provisions or trust
arrangements in Home Properties' Articles of Incorporation are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the Excess Holder of any Outstanding Stock that would have converted into
shares of Excess Stock if the conversion provisions of the Articles of
Incorporation were enforceable and valid shall be deemed to have acted as an
agent on behalf of Home Properties in acquiring such Outstanding Stock and to
hold such Outstanding Stock on behalf of Home Properties unless Home
Properties waives its right to this remedy.
The foregoing ownership and transfer limitations may have the effect of
precluding acquisition of control of Home Properties without the consent of its
Board of Directors. All certificates representing shares of capital stock 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.
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<PAGE>
Business Combinations. Under the MGCL, certain "business
combinations" (including a merger, consolidation, share exchange or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and any person who beneficially
owns 10% or more of the voting power of the outstanding voting stock of the
corporation or an affiliate or associate of the corporation who, at any
time within the two-year period immediately prior to the date in question,
was the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then-outstanding voting stock of the corporation
(an "Interested Stockholder") or an affiliate thereof, are prohibited for
five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, in addition to
any other required vote, any such business combination must be recommended
by the board of directors of such corporation and approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation, voting together as a
single voting group, and (ii) two-thirds of the votes entitled to be cast by
holders of voting stock of the corporation (other than voting stock held by the
Interested Stockholder who will, or whose affiliate will, be a party to
the business combination or by an affiliate or associate of the
Interested Stockholder) voting together as a single voting group. The
extraordinary voting provisions do not apply if, among other things, the
corporation's stockholders receive a price for their shares determined in
accordance with the MGCL and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations
that are approved or exempted by the board of directors of the corporation
prior to the time that the Interested Stockholder becomes an Interested
Stockholder. The Articles of Incorporation of 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.
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<PAGE>
A person who has made or proposes to make a control share acquisition, under
certain conditions (including an undertaking to pay expenses), may compel the
board of directors to call a special meeting of stockholders to be held
within 50 days of demand to consider the voting rights of the control
shares upon delivery of an acquiring person statement containing certain
information required by the MGCL, including a representation that the
acquiring person has the financial capacity to make the proposed control share
acquisition, and a written undertaking to pay the corporation's expenses of
the special meeting (other than the expenses of those opposing approval of
the voting rights). If no request for a meeting is made, the corporation
may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the MGCL, then,
subject to certain conditions and limitations, the corporation may redeem any
or all of the control shares (except those for which voting rights have
previously been approved) for fair value, determined without regard to the
absence of voting rights for control shares, as of the date of the last
control share acquisition or, if a stockholder meeting is held, as of the
date of the meeting of stockholders at which the voting rights of such shares
are considered and not approved. If voting rights for control shares are
approved at a stockholders' meeting before the control share acquisition and
the acquiring person becomes entitled to exercise or direct the exercise of a
majority or more of all voting power, all other stockholders may exercise
rights of objecting stockholders under Maryland law to receive the fair value
of their Shares. The fair value of the Shares for such purposes may not be
less than the highest price per share paid by the acquiring person in the
control share acquisition. Certain limitations and restrictions otherwise
applicable to the exercise of objecting stockholders' rights do not apply in
the context of a control share acquisition.
The Articles of Incorporation contain a provision exempting from the control
share acquisition statute any and all acquisitions to the extent that such
acquisitions would not violate the Ownership Limit or Existing Owner Limit.
There can be no assurance that such provision will not be amended or eliminated
at any point in the future.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax consequences regarding
Home Properties and the common stock we are registering is based on current
law, is for general information only and is not tax advice. The information in
this section is based on the Internal Revenue Code as currently in effect,
current, temporary and proposed Treasury Regulations promulgated under the
Internal Revenue Code, the legislative history of the Internal Revenue Code,
current administrative interpretations and practices of the IRS, including its
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practices and policies as expressed in private letter rulings which are not
binding on the IRS except with respect to the particular taxpayers who
requested and received such rulings, and court decisions, all as of the date of
this prospectus. There is no assurance that future legislation, Treasury
Regulations, administrative interpretations and practices or court decisions
will not adversely affect existing interpretations. Any change could apply
retroactively to transactions preceding the date of the change.
We have not requested, and do not plan to request, any rulings from the IRS
concerning our tax treatment and the statements in this prospectus are not
binding on the IRS or a court. Thus, we can provide no assurance that these
statements will not be challenged by the IRS or sustained by a court if
challenged by the IRS.
The tax treatment to holders of common stock will vary depending on a holder's
particular situation and this discussion does not purport to deal with all
aspects of taxation that may be relevant to a holder of common stock in light
of his or her personal investments or tax circumstances, or to stockholders
subject to special treatment under the federal income tax laws except to the
extent discussed under the headings "Taxation of Tax-Exempt Stockholders" and
"Taxation of Non-U.S. Stockholders." Stockholders subject to special treatment
include, without limitation, insurance companies, financial institutions or
broker-dealers, tax-exempt organizations, stockholders holding securities as
part of a conversion transaction or hedge or hedging transaction or as a
position in a straddle for tax purposes, foreign corporations and persons who
are not citizens or residents of the United States. In addition, the summary
below does not consider the effect of any foreign, state, local or other tax
laws that may be applicable to holders of the common stock.
If we meet the detailed requirements in the Internal Revenue Code for
qualification as a REIT, which are summarized below, we will be treated as a
REIT for federal income tax purposes. In this case, we generally will not be
subject to federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that generally results from investments in a corporation.
Double taxation refers to the imposition of corporate level tax on income
earned by a corporation and taxation at the shareholder level on funds
distributed to a corporation's shareholders. If we fail to qualify as a REIT
in any taxable year, we would not be allowed a deduction for dividends paid to
our stockholders in computing taxable income and would be subject to federal
income tax at regular corporate rates. Unless entitled to relief under
specific statutory provisions, we would be ineligible to be taxed as a REIT for
the four succeeding tax years. As a result, the funds available for
distribution to our stockholders would be reduced.
Each prospective purchaser should consult his or her own tax advisor regarding
the specific tax consequences of the purchase, ownership and sale of common
stock, including the federal, state, local, foreign and other tax consequences
of such purchase, ownership and sale and of potential changes in applicable tax
laws.
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TAX CONSEQUENCES OF REDEMPTION OR EXCHANGE OF UNITS
If you redeem or exchange units for cash or shares of stock, you will recognize
gain or loss because the redemption and exchange are each taxable transactions.
Depending upon your particular situation, it is possible that the amount of
gain you recognize or even your tax liability resulting from the gain could
exceed the amount of cash and the value of the shares of stock you receive upon
the redemption or exchange. You are advised to consult your own tax advisors
regarding the specific tax consequences of the redemption or exchange of units,
including the federal, state, local, foreign or other tax consequences of this
transaction.
TAXATION OF HOME PROPERTIES
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ended December 31,
1994. We believe we have been organized and have operated in a manner which
qualifies for taxation as a REIT under the Internal Revenue Code commencing
with our taxable year ended December 31, 1994. We intend to continue to
operate in this manner. However, our qualification and taxation as a REIT
depends upon our ability to meet, through actual annual operating results,
asset diversification, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Internal Revenue Code.
Accordingly, there is no assurance that we have operated or will continue to
operate in a manner so as to qualify or remain qualified as a REIT. Further,
legislative, administrative or judicial action may change, perhaps
retroactively, the anticipated income tax treatment described in this
prospectus. See "Failure to Qualify."
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. The sections of the Internal Revenue Code that
relate to the qualification and operation as a REIT are highly technical and
complex. The following sets forth the material aspects of the sections of the
Internal Revenue Code that govern the federal income tax treatment of a REIT
and its stockholders. This summary is qualified in its entirety by the
applicable Internal Revenue Code provisions, relevant rules and regulations
promulgated under the Internal Revenue Code, and administrative and judicial
interpretations of the Internal Revenue Code, and these rules and these
regulations.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" that generally results from investment in a corporation. However,
Home Properties will be subject to federal income tax as follows:
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First, we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on our items of tax
preference under some circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying income from foreclosure
property, we will be subject to tax at the highest corporate rate on this
income. Foreclosure property is defined generally as property we acquired
through foreclosure or after a default on a loan secured by the property or a
lease of the property.
Fourth, we will be subject to a 100% tax on any net income from prohibited
transactions. Prohibited transactions generally include sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than the sale or disposition of foreclosure property.
Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or
95% test multiplied by (b) a fraction intended to reflect our profitability, if
we fail to satisfy the 75% gross income test or the 95% gross income test but
have maintained our qualification as a REIT because we satisfied other
requirements. The gross income tests are discussed below.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of:
*85% of our REIT ordinary income for the year,
*95% of our REIT capital gain net income for the year, and
*any undistributed taxable income from prior periods.
Seventh, if we acquire any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the acquired asset in our
hands is determined by reference to the basis of the asset in the hands of the
C corporation, and we subsequently recognize gain on the disposition of the
asset during the ten-year period beginning on the date on which we acquired the
asset, then we will be subject to tax at the highest regular corporate tax rate
on this gain to the extent of the "built-in-gain" of the asset. The built-in-
gain of an asset equals the excess of (a) the fair market value of the asset
over (b) our adjusted basis in the asset, determined as of the date we acquired
the asset from the C corporation. A C corporation is generally a corporation
subject to full corporate-level tax. The results described in this paragraph
with respect to the recognition of built-in gain assume that we will make an
election pursuant to IRS Notice 88-19 and that the availability or nature of
such election is not modified as proposed in the Clinton Administration's
fiscal year 2000 budget proposal.
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Requirements for Qualification as a REIT. The Internal Revenue Code defines a
REIT as a corporation, trust or association that:
1. is managed by one or more trustees or directors;
2. uses transferable shares or transferable certificates to evidence
beneficial ownership;
3. would be taxable as a domestic corporation, but for Sections 856
through 860 of the Internal Revenue Code;
4. is not a financial institution referred to in Section 582(c) of the
Internal Revenue Code or an insurance company to which subchapter L
of the Internal Revenue Code applies;
5. is beneficially owned by 100 or more persons;
6. during the last half of each taxable year not more than 50% in value
of its outstanding stock is owned, actually or constructively, by
five or fewer individuals, as defined in the Internal Revenue Code
to include the entities set forth in Section 542(a)(2) of the
Internal Revenue Code; and
7. meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue 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 twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (5) and (6) do
not apply until after the first taxable year for which an election made to be
taxed as a REIT. For purposes of condition (6), pension funds and some other
tax-exempt entities are treated as individuals, subject to a "look-through"
exception in the case of pension funds.
We have satisfied condition (5) and believe that we have issued sufficient
shares to satisfy condition (6). In addition, our articles of incorporation
provides for restrictions regarding ownership and transfer of shares. These
restrictions are intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above. These ownership and
transfer restrictions are described in "Description of Capital Stock-
Restrictions on Transfer." Primarily, though not exclusively, as a result of
fluctuations in value among the different classes of our stock, these
restrictions may not ensure that we will, in all cases, be able to satisfy the
share ownership requirements described (5) and (6) above. If we fail to
satisfy these share ownership requirements, our status as a REIT will
terminate. However, if we comply with the rules contained in applicable
Treasury Regulations that require us to ascertain the actual ownership of our
shares and we do not know, or would not have known through the exercise of
reasonable diligence, that we failed to meet the requirement described in
condition (6) above, we will be treated as having met this requirement. See
"Failure to Qualify."
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In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. We have and will continue to have a calendar
taxable year.
Ownership of Subsidiaries. Internal Revenue Code Section 856(i) provides that
a corporation which is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities and items of income of the REIT for all purposes of the
Internal Revenue Code, including the REIT qualification tests. A "qualified
REIT subsidiary" is defined for taxable years beginning on or before August 5,
1997, as any corporation if 100 percent of the stock of the corporation is held
by the REIT at all times during the period the corporation was in existence. A
"qualified REIT subsidiary" is defined for taxable years beginning after August
5, 1997, as any corporation 100 percent of the stock of which is owned by the
REIT, without regard to prior ownership. Each of our subsidiaries qualifies as
a "qualified REIT subsidiary." Thus, in applying the requirements described
herein, our subsidiaries are ignored, and all of our subsidiaries, assets,
liabilities and items of income, deduction and credit are treated as our
assets, liabilities and items of income, deduction, and credit for all purposes
of the Internal Revenue Code, including the REIT qualification tests. For this
reason, references under "Federal Income Tax Consequences" to our income and
assets include the income and assets of the our subsidiaries. Because our
subsidiaries are treated as "qualified REIT subsidiaries" they will not be
subject to federal income tax. In addition, our ownership of the voting
securities of the subsidiaries will not violate the restrictions against
ownership of securities of any one issuer which constitutes more than 10% of
such issuer's voting securities or more than 5% in value of our assets,
described below under "Asset Tests."
Ownership of a Partnership Interest. In the case of a REIT which is a partner
in a partnership, IRS regulations provide that the REIT will be deemed to own
its proportionate share of the assets of the partnership. Also, a partner in a
partnership will be deemed to be entitled to the income of the partnership
attributable to its proportionate share. The character of the assets and gross
income of the partnership retains the same character in the hands of Home
Properties for purposes of Section 856 of the Internal Revenue Code, including
satisfying the gross income tests and the asset tests. Thus, our proportionate
share of the assets, liabilities and items of income of the Operating
Partnership, including the Operating Partnership's share of these items for any
partnership or limited liability company, are treated as our assets,
liabilities and items of income for purposes of applying the requirements
described in this prospectus. We have included a summary of the rules
governing the Federal income taxation of partnerships and their partners below
in "Tax Aspects of the Operating Partnership." We have direct control of the
Operating Partnership and will continue to operate it consistent with the
requirements for qualification as a REIT.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT.
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First, each taxable year we must derive directly or indirectly at least 75% of
our gross income from investments relating to real property or mortgages on
real property, including "rents from real property" and, in specific
circumstances, interest, or from particular types of temporary investments.
Gross income from prohibited transactions is excluded for purposes of
determining if we satisfy this test.
Second, each taxable year we must derive at least 95% of our gross income from
these real property investments, dividends, interest and gain from the sale or
disposition of stock or securities, or from any combination of the foregoing.
Gross income from prohibited transactions is excluded for purposes of
determining if we satisfy this test. The term "interest" generally does not
include any amount received or accrued, directly or indirectly, if the
determination of the amount depends 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 "interest" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Rents we receive 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 or sales.
Second, the Internal Revenue Code provides that rents received from a "related
party tenant" will not qualify as "rents from real property" in satisfying the
gross income tests. A related party tenant is a tenant of Home Properties that
Home Properties, or one or more actual or constructive owners of 10% or more of
Home Properties, actually or constructively own in the aggregate 10% or more of
such 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 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 the tenants of the property, other than through an
independent contractor from whom Home Properties derives no revenue. Home
Properties may, however, directly perform services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property.
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.
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We generally do not and do not intend to:
* charge rent for any property 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;
* rent any property to a related party tenant;
* derive rental income attributable to personal property,
other than personal property leased in connection with the
lease of real property, the amount of which is less than 15%
of the total rent received under the lease; or
* perform services considered to be rendered to the occupant
of the property, other than through an independent contractor
from whom we derive no revenue.
Notwithstanding the foregoing, we may have taken and may continue to take the
actions set forth above to the extent these actions will not, based on the
advice of our tax counsel, jeopardize our status as a REIT.
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 which the Company owns, holds general
partnership interests in or manages. 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, but not the 75% gross
income test. We believe that the aggregate amount of any non-qualifying income
in any taxable year has not exceeded and will not exceed the limit on non-
qualifying income under the gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any
taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under specific provisions of the Internal Revenue Code.
Generally, we may avail ourselves of the relief provisions if:
* our failure to meet these tests was due to reasonable cause
and not due to willful neglect;
* we attach a schedule of the sources of our income to our
federal income tax return; and
* any incorrect information on the schedule was not due to
fraud with intent to evade tax.
It is not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
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If these relief provisions do not apply to a particular set of circumstances,
we will not qualify as a REIT. As discussed above in "Taxation of Home
Properties -General," even if these relief provisions apply, and we retain our
status as a REIT, a tax would be imposed with respect to our excess net income.
We may not always be able to maintain compliance with the gross income tests
for REIT qualification despite our periodic monitoring of our income.
Prohibited Transaction Income. Any gain realized by us on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business, including our share of any such
gain realized by the Operating Partnership, will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely effect our ability to satisfy the income
tests for qualification as a REIT. 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 surrounding the particular transaction. The Operating
Partnership intends to hold the properties for investment with a view to long-
term appreciation, to engage in the business of acquiring, developing, owning,
and operating its properties and to make occasional sales of the properties as
are consistent with the Operating Partnership's investment objectives.
However, the IRS may contend that one or more of these sales is subject to the
100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by
real estate assets, cash, cash items and government securities. For purposes
of this test, real estate assets include stock or debt instruments held for one
year or less that are purchased with the proceeds of a stock offering or a
long-term (at least five years) debt offering.
Second, not more than 25% of our total assets may be represented by securities,
other than those securities includable in the 75% asset test.
Third, of the investments included in the 25% asset class, the value of any one
issuer's securities may not exceed 5% of the value of our total assets and we
may not own more than 10% of any one issuer's outstanding voting securities.
The Operating Partnership owns 100% of the nonvoting preferred stock of the
Management Companies. The Operating Partnership does not and will not own any
of the voting securities of the Management Companies. Therefore we will not be
considered to own more than 10% of the voting securities of the Management
Companies. In addition, we believe that the value of our pro rata share of the
securities of the Management Companies held by the Operating Partnership did
not exceed at any time up to and including the date of this prospectus 5% of
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the total value of our assets and will not exceed this amount in the future.
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. As previously discussed, Home Properties is deemed to
own its proportionate share of the assets of a partnership in which it is a
partner so that the partnership interest, itself, is not a security for
purposes of this asset test.
After initially meeting the asset tests at the close of any quarter, we will
not lose our 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 we fail to
satisfy the asset tests because we acquire additional securities of the
Management Companies or other securities or other property during a quarter,
including an increase in our interests in the Operating Partnership, we can
cure this failure by disposing of sufficient nonqualifying assets within 30
days after the close of that quarter. We have maintained and will continue to
maintain adequate records of the value of our assets to ensure compliance with
the asset tests and to take such other actions within the 30 days after the
close of any quarter as may be required to cure any noncompliance. If we fail
to cure noncompliance with the asset tests within this time period, we would
cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT, we
are required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to:
the sum of:
* 95% of our "REIT taxable income," computed without regard
to the dividends paid deduction and our net capital gain, and
* 95% of the after tax net income, if any, from foreclosure property,
minus:
* the excess of the sum of particular items of noncash income
over 5% of "REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they relate, or
in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. These distributions are taxable to holders of
common stock and convertible preferred stock, other than tax-exempt entities,
as discussed below, in the year in which paid. This is so even though these
distributions relate to the prior year for purposes of our 95% distribution
requirement. The amount distributed must not be preferential (e.g., every
shareholder of the class of stock to which a distribution is made must be
treated the same as every other shareholder of that class, and no class of
stock may be treated otherwise than in accordance with its dividend rights as a
class). To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax thereon at regular ordinary and capital
gain corporate tax rates. We have made and intend to make timely distributions
sufficient to satisfy these annual distribution requirements.
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We expect that our REIT taxable income will be less than our cash flow due to
the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. In this regard, the Partnership Agreement of the
Operating Partnership authorizes Home Properties, 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. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under specific circumstances identified in the Internal Revenue Code, we 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, which may be
included in our deduction for dividends paid for the earlier year. Thus, we
may be able to avoid being taxed on amounts distributed as deficiency
dividends. However, we will be required to pay interest based upon the amount
of any deduction taken for deficiency dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail
to distribute during each calendar year, or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year, at least the sum
of:
* 85% of our REIT ordinary income for such year,
* 95% of our REIT capital gain income for the year,
* and any undistributed taxable income from prior periods.
Any REIT taxable income and net capital gain on which this excise tax is
imposed for any year is treated as an amount distributed during that year for
purposes of calculating such tax.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our stockholders. As a result, our failure to qualify as a REIT
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would reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a REIT, all distributions to stockholders
will be taxable as ordinary income to the extent of our current and accumulated
earnings and profits, and subject to limitations identified in the Internal
Revenue Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, we
will also be ineligible to be taxed as a REIT for the four tax years following
the year during which we lost our qualification. It is not possible to state
whether in all circumstances we would be entitled to this statutory relief. In
addition, the Clinton Administration's fiscal year 2000 budget proposal
contains a provision which, if enacted in its present form, would result in
immediate taxation of all gain inherent in a C corporation's assets upon an
election by the corporation to become a REIT in taxable years beginning after
January 1, 2000. If enacted, this provision could effectively preclude us from
re-electing to be taxed as a REIT following a loss of our status as a REIT.
PROPOSED LEGISLATION
The Clinton Administration's fiscal year 2000 budget proposal, announced
February 1, 1999, includes a proposal that would limit a REITs ability to own
more than 10% by vote or value of the stock of another corporation. As
discussed above under the heading "Taxation of Home Properties - Asset Tests,"
a REIT cannot currently own more than 10% of the outstanding voting securities
of any one issuer. The budget proposal would allow a REIT to own all or a
portion of the voting stock and value of a "taxable REIT subsidiary" provided
all of a REIT's taxable subsidiaries do not represent more than 15% of the
REIT's total assets. In addition under the budget proposal, a "taxable REIT
subsidiary" would not be entitled to deduct any interest on debt funded
directly or indirectly by the REIT. The budget proposal, if enacted in its
current form, would be effective after the date of its enactment and would
provide transition rules to allow corporations, like the Management Companies
to convert into "taxable REIT subsidiaries" tax-free. It is presently
uncertain whether any proposal regarding REIT subsidiaries, including the
budget proposal, will be enacted, or if enacted, what the terms of such
proposal, including its effective date, will be.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used below, the term "U.S. stockholder" means a holder of shares of common
stock who, for United States federal income tax purposes:
* is a citizen or resident of the United States;
* is a corporation, partnership, or other entity
created or organized in or under the laws of the
United States or of any state thereof or in the District of
Columbia, unless, in the case of a partnership, Treasury
Regulations provide otherwise;
* is an estate the income of which is subject to United
States federal income taxation regardless of its source; or
* is a trust whose administration is subject to the primary
supervision of a United States court and which has one or
more United States persons who have the authority to control
all substantial decisions of the trust.
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Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as
United States persons, are also considered U.S. stockholders.
Distributions Generally. As long as we qualify as a REIT, distributions out of
our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable
U.S. stockholders as ordinary income. These distributions will not be eligible
for the dividends-received deduction in the case of U.S. stockholders that are
corporations.
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. stockholder. This treatment will reduce the adjusted basis which
each U.S. stockholder has in his shares of stock for tax purposes by the amount
of the distribution. This reduction will not, however, reduce a holder's
adjusted basis below zero. Distributions in excess of a U.S. stockholder's
adjusted basis in his shares will be taxable as capital gain, provided that the
shares have been held as a capital asset. In addition, these distributions
will be taxable as long-term capital gain if the shares have been held for more
than one year. Dividends that we declare in October, November, or December of
any year and that are payable to a stockholder of record on a specified date in
any of these months shall be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we actually pay the dividend
on or before January 31 of the following calendar year. Stockholders may not
include in their own income tax returns any of our net operating losses or
capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. stockholders as gains,
to the extent that they do not exceed our actual net capital gain for the
taxable year, from the sale or disposition of a capital asset. Depending on
the period of time we have held the assets which produced these gains, and on
designations which we may make, these gains may be taxable to non-corporate
U.S. stockholders at a 20% or 25% rate. U.S. stockholders that are
corporations may, however, be required to treat up to 20% of some capital gain
dividends as ordinary income.
Passive Activity Losses and Investment Interest Limitations. Distributions we
make and gain arising from the sale or exchange by a U.S. stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
stockholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make, to the extent they do not
constitute a return of capital, generally will be treated as investment income
for purposes of computing the investment income limitation. Gain arising from
the sale or other disposition of our shares, however, will not be treated as
investment income under some circumstances.
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Retention of Net Long-Term Capital Gains. We may elect to retain, rather than
distribute as a capital gain dividend, our net long-term capital gains. If we
make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a U.S. stockholder generally
would:
* include its proportionate share of our undistributed long-term
capital gains in computing its long-term capital gains in its
return for its taxable year in which the last day of our taxable
year falls subject to limitations as to the amount that is includable;
* be deemed to have paid the capital gains tax imposed on us on
the designated amounts included in the U.S. stockholder's long-term
capital gains;
* receive a credit or refund for the amount of tax deemed paid by it;
* increase the adjusted basis of its common stock by the difference
between the amount of includable gains and the tax deemed to have
been paid by it; and
* in the case of a U.S. stockholder that is a corporation,
appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be
prescribed by the IRS.
DISPOSITIONS OF COMMON STOCK
If you are a U.S. stockholder and you sell or dispose of your shares of common
stock, you will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss will be
capital if you have held the common stock as a capital asset and will be long-
term capital gain or loss if you have held the common stock for more than one
year. In general, if you are a U.S. stockholder and you recognize loss upon
the sale or other disposition of common stock that you have held for six months
or less, after applying holding period rules set forth in the Internal Revenue
Code, the loss you recognize will be treated as a long-term capital loss, to
the extent you received distributions from us which were required to be treated
as long-term capital gains.
BACKUP WITHHOLDING
We report to our U.S. stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the
backup withholding rules, a stockholder may be subject to backup withholding at
the rate of 31% with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact, or 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 U.S. stockholder
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that does not provide us with his 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, we may be required to withhold a portion of capital gain
distributions to any stockholders who fail to certify their non-foreign status.
See "Taxation of Non-U.S. Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT do
not constitute unrelated business taxable income when received by a tax-exempt
entity. Based on that ruling, provided that a tax-exempt shareholder, except
tax-exempt shareholders described below, has not held its shares as "debt
financed property" within the meaning of the Internal Revenue Code and the
shares are not otherwise used in a trade or business, dividend income from us
will not be unrelated business taxable income to a tax-exempt shareholder.
Similarly, income from the sale of shares will not constitute unrelated
business taxable income unless a tax-exempt shareholder has held its shares as
"debt financed property" within the meaning of the Internal Revenue Code or has
used the shares in its trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from federal income taxation under Internal Revenue
Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from
an investment in our shares will constitute unrelated business taxable income
unless the organization is able to properly deduct amounts set aside or placed
in reserve for certain purposes so as to offset the income generated by its
investment in our shares. These prospective investors should consult their own
tax advisors concerning these "set aside" and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act of
1993 provides that, effective for taxable years beginning in 1994, a portion of
the dividends paid by a "pension held REIT" shall be treated as unrelated
business taxable income as to any trust which:
* is described in Section 401(a) of the Internal Revenue Code;
* is tax-exempt under Section 501(a) of the Internal Revenue Code;
* and holds more than 10%, by value, of the interests in a REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Internal
Revenue Code are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if:
* it would not have qualified as a REIT but for the fact that
Section 856(h)(3) of the Internal Revenue Code provides that
stock owned by qualified trusts shall be treated, for purposes
of the "not closely held" requirement, as owned
by the beneficiaries of the trust, rather than by the trust
itself; and
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* either at least one such qualified trust holds more than 25%,
by value, of the interests in a REIT, or one or more such
qualified trusts, each of which owns more than 10%, by value,
of the interests in a REIT, holds in the aggregate
more than 50%, by value, of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
* the unrelated business taxable income earned by Home Properties,
treating Home Properties as if it were a qualified trust and
therefore subject to tax on unrelated business taxable income, to
* the total gross income of Home Properties.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as unrelated business taxable income will not apply if Home
Properties is able to satisfy the "not closely held" requirement without
relying upon the "look-through" exception with respect to qualified trusts. As
a result of the limitations on the transfer and ownership of stock contained in
our articles of incorporation, we are not and do not expect to be classified as
a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
When we use the term "non-U.S. stockholders," we mean holders of shares of
common stock that are nonresident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts. The rules governing United
States federal income taxation of the ownership and disposition of stock by
persons that are non-U.S. stockholders are complex. No attempt is made in this
prospectus to provide more than a brief summary of these rules. Accordingly,
this discussion does not address all aspects of United States federal income
tax and does not address state, local or foreign tax consequences that may be
relevant to a non-U.S. stockholder in light of its particular circumstances.
In addition, this discussion is based on current law, which is subject to
change, and assumes that we qualify for taxation as a REIT. Prospective non-
U.S. stockholders should consult with their own tax advisers to determine the
impact of federal, state, local and foreign income tax laws with regard to an
investment in stock, including any reporting requirements.
Distributions. If we make a distribution that is not attributable to gain from
the sale or exchange of United States real property interests and is not
designated as capital gains dividends, then the distribution will be treated as
dividends of ordinary income to the extent it is made out of current
or accumulated earnings and profits. These distributions ordinarily will be
subject to withholding of United States federal income tax on a gross basis at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
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However, if the dividends are treated as effectively connected with the conduct
by the non-U.S. stockholder of a United States trade or business, or if an
income tax treaty applies, as attributable to a United States permanent
establishment of the non-U.S. stockholder, the dividends will be subject to tax
on a net basis at graduated rates, in the same manner as domestic stockholders
are taxed with respect to such dividends and are generally not subject to
withholding. Any such dividends received by a non-U.S. stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Under current Treasury Regulations, dividends paid to an address in a country
outside the United States are generally presumed to be paid to a resident of
the country for purposes of determining the applicability of the withholding
rules discussed above and the applicability of a tax treaty rate. Under some
treaties, lower withholding rates generally applicable to dividends do not
apply to dividends from a REIT. Certification and disclosure requirements must
be satisfied to be exempt from withholding under the effectively connected
income and permanent establishment exemptions discussed above.
Distributions we make in excess of our current or accumulated earnings and
profits will not be taxable to a non-U.S. stockholder to the extent that they
do not exceed the adjusted basis of the stockholder's stock, but rather will
reduce the adjusted basis of such stock. To the extent that these
distributions exceed the adjusted basis of a non-U.S. stockholder's stock, they
will give rise to gain from the sale or exchange of his stock. The tax
treatment of this gain is described below. If it cannot be determined at the
time a distribution is made whether or not a distribution will be in excess of
current or accumulated earnings and profits, the distribution will generally be
treated as a dividend for withholding purposes. However, the IRS will
generally refund amounts that are withheld if it is subsequently determined
that the distribution was, in fact, in excess of our current or accumulated
earnings and profits.
Distributions to a non-U.S. stockholder that we designate at the time of
distribution as capital gains dividends, other than those arising from the
disposition of a United States real property interest, generally will not be
subject to United States federal income taxation, unless:
* investment in the stock is effectively connected with the non-U.S.
stockholder's United States trade or business, in which case the
non-U.S. stockholder will be subject to the same treatment as
domestic stockholders with respect to such gain, except that a
stockholder that is a foreign corporation may also be subject to
the 30% branch profits tax, as discussed above; or
* the non-U.S. stockholder is a nonresident alien individual who
is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains.
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Distributions to a non-U.S. stockholder that are attributable to gain from our
sale or exchange of United States real property interests will cause the non-
U.S. stockholder to be treated as recognizing this gain as income effectively
connected with a United States trade or business. Non-U.S. stockholders would
thus generally be taxed at the same rates applicable to domestic stockholders,
subject to a special alternative minimum tax in the case of nonresident alien
individuals. Also, this gain may be subject to a 30% branch profits tax in the
hands of a non-U.S. stockholder that is a corporation, as discussed above. We
are required to withhold 35% of any such distribution. That amount is
creditable against the non-U.S. stockholder's United States federal income tax
liability.
We or any nominee (e.g., a broker holding shares in street name) may rely on a
certificate of non-foreign status on Form W-8 or Form W-9 to determine whether
withholding is required on gains realized from the disposition of United States
real property interests. A domestic person who holds shares of common stock on
behalf of a non-U.S. stockholder will bear the burden of withholding, provided
that we have properly designated the appropriate portion of a distribution as a
capital gain dividend.
Sale of Stock. If you are a non-U.S. stockholder and you recognize gain upon
the sale or exchange of shares of stock, the gain generally will not be subject
to United States taxation unless the stock constitutes a "United States real
property interest" within the meaning of FIRPTA. If we are a "domestically
controlled REIT," then the stock will not constitute a "United States real
property interest." A "domestically-controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock is
held directly or indirectly by non-U.S. stockholders. Because our shares of
stock are publicly traded, there is no assurance that we are or will continue
to be a "domestically-controlled REIT." Notwithstanding the foregoing, if you
are a non-U.S. stockholder and you recognize gain upon the sale or exchange of
shares of stock and the gain is not subject to FIRPTA, the gain will be subject
to United States taxation if:
* your investment in the stock is effectively connected with a
United States trade or business, or, if an income treaty applies,
is attributable to a United States permanent establishment; or
* you are a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and
you have a "tax home" in the United States. In this case, a
nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of such individual's gain.
If we are not or cease to be a "domestically-controlled REIT" whether gain
arising from the sale or exchange by a non-U.S. stockholder of shares of stock
would be subject to United States taxation under FIRPTA as a sale of a "United
States real property interest" will depend on whether the shares are "regularly
traded," as defined by applicable Treasury Regulations, on an established
securities market and on the size of the selling non-U.S. stockholder's
interest in our shares. If gain on the sale or exchange of shares of stock
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were subject to taxation under FIRPTA, the non-U.S. stockholder would be
subject to regular United States income tax on this gain in the same manner as
a U.S. stockholder and the purchaser of the stock would be required to withhold
and remit to the IRS 10% of the purchase price. In addition in this case, non-
U.S. stockholder would be subject to any applicable alternative minimum tax,
nonresident alien individuals may be subject to a special alternative minimum
tax and foreign corporations may be subject to the 30% branch profits tax.
Backup Withholding Tax and Information Reporting. Backup withholding tax
generally is a withholding tax imposed at the rate of 31% on reportable
payments, as defined in Section 3406 of the Internal Revenue Code, to persons
that fail to furnish the required information under the United States
information reporting requirements. Backup withholding tax and information
reporting will generally not apply to distributions paid to non-U.S.
stockholders outside the United States that are treated as:
* dividends subject to the 30%, or lower treaty rate, withholding
tax discussed above;
* capital gains dividends; or
* distributions attributable to gain from our sale or exchange
of United States real property interests.
As a general matter, backup withholding and information reporting will not
apply to a payment of the proceeds of a sale of stock by or through a foreign
office of a foreign broker. Information reporting, but not backup withholding,
will apply, however, to a payment of the proceeds of a sale of stock by a
foreign office of a broker that:
* is a United States person;
* derives 50% or more of its gross income for specific periods
from the conduct of a trade or business in the United States; or
* is a "controlled foreign corporation" for United States tax
purposes.
Information Reporting will not apply if the broker has documentary evidence in
its records that the holder is a non-U.S. stockholder and other conditions are
met, or the stockholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of
sale of stocks is subject to both backup withholding and information reporting
unless the stockholder certifies under penalties of perjury that the
stockholder is a non-U.S. stockholder, or otherwise establishes an exemption.
A non-U.S. stockholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
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New Withholding Regulations. Final regulations dealing with withholding tax on
income paid to foreign persons and related matters were recently promulgated.
In general, these new withholding regulations do not significantly alter the
substantive withholding and information reporting requirements, but unify
current certification procedures and forms and clarify reliance standards. For
example, these new withholding regulations adopt a certification rule under
which a foreign stockholder who wishes to claim the benefit of an applicable
treaty rate with respect to dividends received from a United Stated corporation
will be required to satisfy certification and other requirements. In addition,
these new withholding regulations require a corporation that is a REIT to treat
as a dividend the portion of a distribution that is not designated as a capital
gain dividend or return of basis and apply the 30% withholding tax, subject to
any applicable deduction or exemption, to such portion, and to apply the FIRPTA
withholding rules, discussed above, with respect to the portion of the
distribution designated by Home Properties as capital gain dividend. These new
withholding regulations will generally be effective for payments made after
December 31, 1999, subject to transition rules. The discussion set forth above
in "Taxation of Non-U.S. Stockholders" does not take these new withholding
regulations into account. Prospective non-U.S. stockholders are strongly urged
to consult their own tax advisors with respect to these new withholding
regulations.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
General. Substantially all of our investments will be held indirectly through
the Operating Partnership. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. We will include in our income our proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and
in the computation of our REIT taxable income. Moreover, for purposes of the
REIT asset tests, we will include our proportionate share of assets held by the
Operating Partnership. See "Taxation of Home Properties."
Entity Classification. Our interests in the Operating Partnership involve
special tax considerations, including the possibility of a challenge by the IRS
of the status of the Operating Partnership as a partnership, as opposed to an
association taxable as a corporation, for federal income tax purposes. If the
Operating Partnership were treated as an association, it would be taxable as a
corporation and therefore be subject to an entity-level tax on its income. In
such a situation, the character of our assets and items of gross income would
change and preclude us from satisfying the asset tests and possibly the income
tests (see "Taxation of Home Properties - Asset Tests" and "-Income Tests").
This, in turn, would prevent us from qualifying as a REIT. See "Taxation of
Home Properties - Failure to Qualify" above for a discussion of the effect of
our failure to meet these tests for a taxable year. In addition, a change in
the Operating Partnership's status for tax purposes might be treated as a
taxable event. If so, we might incur a tax liability without any related cash
distributions.
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Treasury Regulations that apply for tax period beginning on or after January 1,
1997 provide that an "eligible entity" may elect to be taxed as a partnership
for federal income tax purposes. An eligible entity is a domestic business
entity not otherwise classified as a corporation and which has at least two
members. Unless it elects otherwise, an eligible entity in existence prior to
January 1, 1997 will have the same classification for federal income tax
purposes that it claimed under the entity classification Treasury Regulations
in effect prior to this date. In addition, an eligible entity which did not
exist, or did not claim a classification, prior to January 1, 1997, will be
classified as a partnership for federal income tax purposes unless it elects
otherwise. The Operating Partnership intends to claim classification as a
partnership under these regulations.
Even if the Operating Partnership is taxable as a partnership under these
Treasury Regulations, it could be treated as a corporation for federal income
tax purposes under the "publicly traded partnership" rules of Section 7704 of
the Internal Revenue Code. A publicly traded partnership is a partnership
whose interests trade on an established securities market or are readily
tradable on a secondary market, or the substantial equivalent thereof. While
units of the Operating Partnership are not and will not be traded on an
established trading market, there is some risk that the IRS might treat the
units held by the limited partners of the Operating Partnership as readily
tradable because, after any applicable holding period, they may be exchanged
for our common stock, which is traded on an established market.
A publicly traded partnership will be treated as a corporation for
federal income tax purposes unless at least 90% of such partnership's gross
income for a taxable year consists of "qualifying income" under the publicly
traded partnership provisions of Section 7704 of the Internal Revenue Code.
"Qualifying income" under Section 7704 of the Internal Revenue Code includes
interest, dividends, real property rents, gains from the disposition of real
property, and certain income or gains from the exploitation of natural
resources. Therefore, qualifying income under Section 7704 of the Internal
Revenue Code generally includes any income that is qualifying income for
purposes of the 95% gross income test applicable to REITs. We anticipate that
the Operating Partnership will satisfy the 90% qualifying income test under
Section 7704 of the Internal Revenue Code and, thus, will not be taxed as a
corporation.
There is one significant difference, however, regarding rent
received from related party tenants. For a REIT, rent from a tenant does not
qualify as rents from real property if the REIT and/or one or more actual or
constructive owners of 10% or more of the REIT actually or constructively own
10% or more of the tenant. See "Taxation of Home
Properties - Income Tests." Under Section 7704 of the Internal Revenue
Code, rent from a tenant is not qualifying income if a partnership and/or one
or more actual or constructive owners of 5% or more of the partnership actually
or constructively own 10% or more of the tenant. Accordingly, we will need to
monitor compliance with both the REIT rules and the publicly traded partnership
rules.
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 Home
Properties, 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.
Partnership Allocations. A partnership agreement will generally determine the
allocation of income and losses among partners. However, these allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Internal Revenue Code and the Treasury Regulations
promulgated under this section of the Internal Revenue Code. Generally,
Section 704(b) and the Treasury Regulations promulgated under this section of
the Internal Revenue Code require that partnership allocations respect the
economic arrangement of the partners.
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. This reallocation 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 Internal Revenue Code and the
Treasury Regulations promulgated under this section of the Internal Revenue
Code.
Tax Allocations with Respect to the Properties. Under Section 704(c) of the
Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership, must be allocated in a manner so
that the contributing partner is charged with the "book-tax difference"
associated with the property at the time of the contribution. The book-tax
difference with respect to property that is contributed to a partnership is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of the property
at the time of contribution. These allocations are solely for federal income
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tax purposes and do not affect the book capital accounts or other economic or
legal arrangements among the partners. The Operating Partnership was formed by
way of contributions of appreciated property, including some of the properties.
Moreover, subsequent to the formation of the Operating Partnership, additional
persons have contributed appreciated property to the Operating Partnership in
exchange for interests in the Operating Partnership. The partnership agreement
requires that these allocations be made in a manner consistent with Section
704(c) of the Internal Revenue Code.
In general, limited partners of the Operating Partnership who acquired their
limited partnership interests through a contribution of appreciated property
will be allocated depreciation deductions for tax purposes which are lower than
these deductions would be if determined on a pro rata basis. In addition, in
the event of the disposition of any of the contributed assets which have a
book-tax difference all income attributable to the book-tax difference will
generally be allocated to the limited partners who contributed the property,
and we will generally be allocated only our share of capital gains attributable
to appreciation, if any, occurring after the time of contribution to the
Operating Partnership. This will tend to eliminate the book-tax difference
over the life of the Operating Partnership. However, the special allocation
rules of Section 704(c) do not always 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 assets in the
hands the Operating Partnership may cause us to be allocated lower depreciation
and other deductions. Possibly we could be allocated an amount of taxable
income in the event of a sale of these contributed assets in excess of the
economic or book income allocated to us as a result of the sale. This may
cause us to recognize taxable income in excess of cash proceeds, which might
adversely affect our ability to comply with the REIT distribution requirements.
See "Taxation of Home Properties - Annual Distribution Requirements."
Treasury Regulations issued under Section 704(c) of the Internal Revenue Code
provide partnerships with a choice of several methods of accounting for book-
tax differences, including retention of the "traditional method" or the
election of other methods which would permit any distortions caused by a book-
tax difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. We and the Operating Partnership
have determined to use the "traditional method" for accounting for book-tax
differences for the properties initially contributed to the Operating
Partnership and for some assets acquired subsequently. We and the Operating
Partnerships have not yet decided what method will be used to account for book-
tax differences for properties acquired by the Operating Partnership in the
future.
Any property acquired by the Operating Partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Internal Revenue Code will not apply.
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Basis in the Operating Partnership Interest. The adjusted tax basis in our
interest in the Operating Partnership generally will be equal to:
* the amount of cash and the basis of any other property we
contribute to the Operating Partnership,
* increased by our allocable share of the Operating
Partnership's income and our allocable share of indebtedness
of the Operating Partnership, and
* reduced, but not below zero, by our allocable share of
losses suffered by the Operating Partnership, the amount
of cash distributed to us and constructive distributions
resulting from a reduction in our share of indebtedness of the
Operating Partnership.
If the allocation of our distributive share of the Operating Partnership's loss
exceeds the adjusted tax basis of our partnership interest in the Operating
Partnership, the recognition of this excess loss will be deferred until such
time and to the extent that we have adjusted tax basis in our interest in the
Operating Partnership.
We will recognize taxable income to the extent that the Operating Partnership's
distributions, or any decrease in our share of the indebtedness of the
Operating Partnership, exceeds our adjusted tax basis in the Operating
Partnership. A decrease in our share of the indebtedness of the Operating
Partnership is considered a cash distribution.
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." Such
prohibited transaction income will also have an adverse effect upon Home
Properties' ability to satisfy the income tests for REIT status. 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 includable
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.
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<PAGE>
OTHER TAX CONSEQUENCES
State and Local Tax Considerations. We may be subject to state or local
taxation in various state or local jurisdictions, including those in which we
transact business and our stockholders may be subject to state or local
taxation in various state or local jurisdiction, including those in which they
reside. Our state and local tax treatment may not conform to the federal
income tax consequences discussed above. In addition, your state and local
tax treatment may not conform to the federal income tax consequences discussed
above. Consequently, you should consult your own tax advisors regarding the
effect of state and local tax laws on an investment in our shares.
The Management Companies. A portion of the cash to be used by the Operating
Partnership to fund distributions to partners is expected to come from the
Management Companies, through interest payments and dividends on non-voting
preferred stock to be held by the Operating Partnership. The Management
Companies will pay federal and state tax on their net income at full corporate
rates, which will reduce the cash available for distribution to stockholders.
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.
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.
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<PAGE>
SELLING STOCKHOLDERS
The Secondary Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders named below. The following table sets
forth the name of each Selling Stockholder, the number of Units or unregistered
shares owned prior to the offering and the number of shares of Common Stock
owned by each Selling Stockholder after the offering. Because the Selling
Stockholder may sell all, some or none of their Secondary Shares, no estimate
can be made of the actual aggregate number of Secondary Shares that will be
sold hereby.
Number of
Shares
Units/Shares owned Registered for
Name Prior to Offering Sale in Offering
---- ----------------- ----------------
Carriage Hill 97,594 97,594
Apartments
Limited
Partnership
Carriage Park 127,976 127,976
Development
Cherry Hill 114,621 114,621
Village
Limited
Partnership
William S. Beinecke 1,946 1,946
Robert K. Kraft 1,946 1,946
Robert J. Sharp 1,946 1,946
Estate of Ross D. 11,672 11,672
Siragusa
Patricia D. Moore 4,447 4,447
Trust No. 413
Donald H. Schefmeyer 101,782(1) 8,893
RDS-Whitney Road Partners 42,302(2) 42,302
- -----------------
(1) This Selling Shareholder holds in the aggregate 101,782 units of limited
partnership in the Operating Partnership. The shares into which 92,889
of those units may be converted have previously been registered.
(2) These constitute shares of the Company's Common Stock, par value $.01
that were not, prior to the effectiveness of the Registration Statement
of which this Prospectus forms a part, registered under the securities
laws.
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<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 Stockholders may arrange for other brokers or
dealers to participate. Such brokers or dealers may receive commissions or
discounts from Selling Stockholders 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
Nixon, Hargrave, Devans & Doyle LLP will pass upon the legality of the
shares of Common Stock offered by this Prospectus.
EXPERTS
The consolidated balance sheets as of December 31, 1998 and 1997, and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998, incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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<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 ........................... $2,665.00
NYSE Listing Fee ........................... 2,000.00*
Legal Fees and Expenses .................... 2,000.00*
Accounting Fees and Expenses ............... 1,000.00*
Miscellaneous .............................. 2,000.00*
----------
Total ................................ $9,665.00*
*Estimate
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified under Maryland
law, the Articles of Incorporation of Home Properties and the Partnership
Agreement ("Operating Partnership Agreement") of Home Properties of New York,
L.P., a New York limited partnership of which the Company is the general
partner, against certain liabilities. The Articles of Incorporation require
the Company to indemnify its directors and officers to the fullest extent
permitted from time to time by the laws of Maryland. The Bylaws contain
provisions which implement the indemnification provisions of the Articles of
Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is established
that the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty, or the director or officer actually
received an improper personal benefit in money, property or services, or in the
case of any criminal proceeding, the director or officer had reasonable cause
to believe that the act or omission was unlawful. No amendment of the Articles
of Incorporation of Home Properties shall limit or eliminate the right to
indemnification provided with respect to acts or omissions occurring prior to
such amendment or repeal. Maryland law permits Home Properties to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
II-1
<PAGE>
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.
II-2
<PAGE>
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 PricewaterhouseCoopers LLP*
25 Power of Attorney (included on signature page)
* Included with this filing.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such information in the
registration statement.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Rochester, New York, on the 29th day of
March, 1999.
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 March 29, 1999
Norman P. Leenhouts and Co-Chief Executive
Officer (Principal
Executive Officer)
/S/ NELSON B. LEENHOUTS Director, President March 29, 1999
Nelson B. Leenhouts and Co-Chief Executive
Officer (Principal
Executive Officer)
/S/ RICHARD J. CROSSED Director, Executive Vice March 29, 1999
Richard J. Crossed President
II-4
<PAGE>
/S/ AMY L. TAIT Director, Executive Vice March 29, 1999
Amy L. Tait President and Chief
Operating Officer
/S/ DAVID P. GARDNER Vice President,Chief March 29, 1999
David P. Gardner Financial Officer and
Treasurer (Principal
Financial and
Accounting Officer)
/S/ BURTON S. AUGUST, SR Director March 29, 1999
Burton S. August, Sr
/S/ WILLIAM BALDERSTON, III Director March 29, 1999
William Balderston, III
/S/ LEONARD F. HELBIG, III Director March 29, 1999
Leonard F. Helbig, III
/S/ ALAN L. GOSULE Director March 29, 1999
Alan L. Gosule
/S/ ROGER W. KOBER Director March 29, 1999
Roger W. Kober
/S/ CLIFFORD W. SMITH, JR Director March 29, 1999
Clifford W. Smith, Jr
/S/ PAUL L. SMITH Director March 29, 1999
Paul L. Smith
II-5
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc. (the "Company")
Registration Statement on Form S-3 No. 333-______
NUMBER DESCRIPTION LOCATION
5.1 Opinion of Nixon,Hargrave, Devans & Doyle LLP *
regarding the legality of the Common Stock
being registered
8.1 Opinion of Nixon, Hargrave, Devans & Doyle LLP *
regarding certain tax matters
23.1 Consent of Nixon, Hargrave, Devans & Doyle LLP Included
with
Exhibits
5.1 and 8.1
23.2 Consent of PricewaterhouseCoopers LLP *
23 Power of Attorney Included on
signature
page
* Filed herewith
</TABLE>
Exhibit 5.1
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counselors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716) 263-1600
March 29, 1999
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 today by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, relating to the offer and
sale of up to 413,343 shares of common stock, par value $0.01 per share
(the "Common Stock"), which may be issued from time to time to the "Selling
Shareholders" named in the prospectus ("Prospectus") forming a portion of
the Registration Statement. This opinion is being provided to you in
connection with the filing of the Registration Statement.
We have examined the originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
other representatives of the Company, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein, including (i) the
Articles of Amendment and Restatement of the Articles of Incorporation of
the Company, as amended to the date hereof (the "Articles of
Incorporation"), (ii) the Amended and Restated By-Laws of the Company, as
amended to the date hereof (the "By-Laws"), (iii) certified copies of
certain resolutions duly adopted by the Board of Directors of the Company,
and (iv) the Second Amended and Restated Agreement of Limited Partnership,
as amended (the "Partnership Agreement") of Home Properties of New York,
L.P. (the "Operating Partnership"). As to factual matters material to the
opinions set forth below we have relied, without investigation, upon the
representations and statements of the Company in the Registration Statement
and in such certificates of government officials and officers of the
Company as we have deemed necessary for the purposed of the opinions
expressed herein.
The opinions stated herein are limited to the federal laws of the
United States, the laws of the State of New York and the General
Corporation Law of the State of Maryland.
Based upon and subject to the conditions and limitations set
forth herein, we are of the opinion that:
When the Registration Statement has become effective under the
Act and the shares of Common Stock have been issued in exchange for Units
as described in the Partnership Agreement, and the certificates
representing such shares of Common Stock are authenticated and delivered,
such shares of Common Stock issued will be duly authorized, validly issued,
fully paid and non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to
the above-referenced Registration Statement and to the use of our name as
it appears under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
Exhibit 8.1
Nixon, Hargrave, Devans & Doyle LLP
Attorneys and Counsellors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716)263-1600
March 29, 1999
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 today by the Company with the Securities and Exchange Commission (the
"Registration Statement") relating to the offer and sale of up to 413,343
shares of the Company's common stock, par value $.01 per share. 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 CONSEQUENCES" 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 CONSEQUENCES" fairly
summarizes the federal income tax consequences 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 CONSEQUENCES" 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
this Form S-3 to be filed by Home Properties of New York, Inc. of our report
dated January 30, 1999, on our audits of the consolidated financial statements
and financial statement schedule of Home Properties of New York, Inc. as of
December 31, 1998 and 1997, and for the three years in the period ended
December 31, 1998, which report was included in the 1998 Annual Report on Form
10-K. We also consent to the reference to our firm under the caption
"Experts."
/s/ PricewaterhouseCoopers LLP
- --------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
Rochester, New York
March 29, 1999
