ITEM 1. BUSINESS
THE COMPANY
Home Properties of New York, Inc. ("Home Properties" or the "Company") is a self-administered and self-managed real estate investment trust ("REIT") that owns, manages, acquires, rehabilitates and develops apartment communities. The Company's properties are regionally focused in the Northeastern, Mid-Atlantic and Midwestern United States. It was formed to continue and expand the operations of Home Leasing Corporation ("Home Leasing"). The Company completed an initial public offering of 5,408,000 shares of common stock (the "IPO") on August 4, 1994.
The Company conducts its business through Home Properties of New York, L.P. (the "Operating Partnership"), a New York limited partnership in which the Company held a 62.4% partnership interest as of December 31, 1999 (64% at December 31, 1998) and two management companies (the "Management Companies") - Home Properties Management, Inc. ("HP Management") and Conifer Realty Corporation ("Conifer Realty"), both of which are Maryland corporations.
Home Properties, through its affiliates described above, as of December 31, 1999, operated 291 communities with 44,982 apartment units. Of these, 33,807 units in 126 communities are owned outright (the "Owned Properties"), 7,710 units in 125 communities are managed and partially owned by the Company as general partner, and 3,465 units in 40 communities are managed for other owners (collectively, the "Managed Properties"). The Management Companies and the Operating Partnership are also involved in the development and redevelopment of government-assisted apartment communities and certain other development activities.
The Owned Properties and the Managed Properties (collectively, the "Properties") are concentrated in the following market areas:
APARTMENTS OWNED AND MANAGED AT 12/31/99
Subsequent to December 31, 1999 and as of March 16, 2000, the Company has acquired 2,113 additional units in Philadelphia, Pennsylvania.
The Company's mission is to provide investors with dependable financial returns that exceed those of comparable investments. The Company intends to pursue this mission in a socially responsible manner, by remaining committed to improving the quality of life for its residents, enhancing the broader communities in which the Company operates and providing employees with opportunities for growth and accomplishment.
The Company's business strategy includes: (i) aggressively managing and improving its communities to achieve increased net operating income; (ii) acquiring additional apartment communities with attractive returns at prices significantly below replacement costs; (iii) selectively developing and rehabilitating apartment communities that serve low to moderate income households to generate management and development fee revenues and (iv) maintaining a conservative capital structure with cost effective access to the capital markets.
STRUCTURE
The Company was formed in November, 1993 as a Maryland corporation and is the general partner of the Operating Partnership. On December 31, 1999, it owned a 62.4% interest in the Operating Partnership - one percent as general partner and the remainder as a limited partner through its wholly owned subsidiary, Home Properties Trust. A portion of the limited partner interests held by Home Properties Trust as of December 31, 1999 consisted of all of the Class A Limited Partnership Interests (1,666,667 interests or 4.5% of the total interests in the Operating Partnership) and all of the Series B Limited Partnership Units (2,000,000 units or 5.4% of the total). Those preferred interests in the Operating Partnership have rights and preferences that mirror the rights and preferences of the holders of the Series A and Series B preferred shares in Home Properties held by the State of Michigan Retirement Systems and GE Capital Equity Investment, Inc., respectively. The remaining units (19,225,470 or 51.5% of the total) held by Home Properties Trust have basically the same rights as the other limited partner interests (the "Units") in the Operating Partnership. Those other Units are owned by certain individuals who acquired Units in the Operating Partnership as partial consideration for their interests in entities owning apartment communities purchased by the Operating Partnership, as well as certain officers of the Company.
The Operating Partnership is a New York limited partnership formed in December, 1993. Holders of Units in the Operating Partnership may redeem a Unit for one share of the Company's common stock or cash equal to the fair market value at the time of the redemption, at the option of the Company. The Company currently anticipates that it will issue shares of common stock rather than pay cash in connection with such redemptions. Management expects that it will continue to utilize Units as partial consideration for a significant portion of its acquisition properties.
Both of the Management Companies were formed to comply with the technical requirements of federal income tax laws. Both are Maryland corporations. HP Management was formed in January, 1994 and Conifer Realty was formed in December, 1995. As of December 31, 1999, the Operating Partnership held 95% of the economic interest in both Management Companies, with Nelson and Norman Leenhouts (the "Leenhoutses") holding the remaining five percent interest in HP Management and the Leenhoutses and Richard J. Crossed, holding the remaining five percent interest in Conifer Realty. The Management Companies manage, for a fee, certain of the residential, commercial and development activities of the Company and provide construction, development and redevelopment services for the Company.
In September 1997, Home Properties Trust ("QRS") was formed as a Maryland real estate trust and as a qualified REIT subsidiary, with 100% of its shares being owned by the Company. The QRS has been admitted as a limited partner of the Operating Partnership and the Company transferred all but one percent of its interest in the Operating Partnership to the QRS.
The Company currently has approximately 1,925 employees and its executive offices are located at 850 Clinton Square, Rochester, New York 14604. Its telephone number is (716) 546-4900.
OPERATING STRATEGIES
The Company will continue to focus on enhancing the investment returns of its Properties by: (i) acquiring apartment communities at prices below new construction costs and repositioning those properties for long-term growth; (ii) reinforcing its decentralized company orientation by encouraging employees' personal improvement and by providing extensive training; (iii) enhancing the quality of living for the Company's residents by improving the quality of service and physical amenities available at each community every year; (iv) readily adopting new technology so that the time and cost spent on administration can be decreased and the time spent attracting and serving residents can be increased; (v) continuing to utilize its written "Pledge" of customer satisfaction that is the foundation on which the Company has built its name-brand recognition; and (vi) engaging in aggressive cost controls and taking advantage of volume discounts, thus benefiting from economies of scale while constantly improving the level of customer service.
ACQUISITION AND DEVELOPMENT STRATEGIES
The Company's strategy is to make acquisitions in geographic regions that have similar climates, easy access to the Company's headquarters, enough apartments available for acquisition to achieve a critical mass and minimal investment ownership by other apartment REITs. Targeted markets also possess other characteristics similar to the Company's existing markets, including a limited amount of new construction, acquisition opportunities below replacement costs, a mature housing stock and stable or moderate job growth. The Company expects that its growth will be focused in select metropolitan areas within the Northeast, Mid-Atlantic and Midwest United States, where it has already established a regional presence. Continued geographic specialization is expected to have a greater impact on operating efficiencies than widespread accumulation of properties. The Company will pursue acquisition of individual properties as well as larger portfolios. It may also consider strategic investments in other apartment companies.
In addition, the Company intends to continue to develop and re-develop apartment communities utilizing various government programs, with expansion of these activities being primarily in areas where the Company already has established operations. These activities are expected to generate development fees, ongoing management and incentive management fees and participation in residual value for the Company. They also increase the Company's volume purchasing ability, provide a pipeline for future acquisitions and re-development opportunities and position the Company to build market rate communities when and if market factors warrant.
FINANCING AND CAPITAL STRATEGIES
The Company intends to adhere to the following financing policies: (i) maintaining a ratio of debt-to-total market capitalization (total debt of the Company as a percentage of the market value of outstanding diluted common stock and Units plus total debt) of approximately 50% or less; (ii) utilizing primarily fixed rate debt; (iii) varying debt maturities to avoid significant exposure to interest rate changes upon refinancing; and (iv) maintaining a line of credit so that it can respond quickly to acquisition opportunities.
On December 31, 1999, the Company's debt was approximately $670 million and the debt-to-total market capitalization ratio was 40% based on the year-end closing price of the Company's stock at $27.4375. The weighted average interest rate on the Company's mortgage debt as of December 31, 1999 was 7.4% and the weighted average maturity was approximately 12 years. Debt maturities are staggered. As of December 31, 1999, the Company had an unsecured line of credit facility from M&T Bank of $100 million. This facility is available for acquisition and other corporate purposes and bears an interest rate at 1.25% over the one-month LIBOR rate or at a money market rate as quoted on a daily basis by the lending institution, at the Company's option. As of December 31, 1999, there was approximately $51 million outstanding on the line of credit.
Management expects to continue to fund a significant portion of its continued growth by taking advantage of its UPREIT structure and using Units as currency in acquisition transactions. The Company issued approximately $149 million worth of Units as partial consideration in acquisition transactions during 1999.
The Company also intends to continue to structure other creative equity transactions to raise capital with limited transaction costs. In 1999, $50 million of Series B Convertible Cumulative Preferred Stock ("Series B Preferred") was issued in a private sale to GE Capital Equity Investments, Inc. Approximately $49 million was also raised in 1999 under the Company's Dividend Reinvestment and Direct Stock Purchase Plan (the "Dividend Reinvestment Plan"). The Dividend Reinvestment Plan currently provides a 3% discount from the current market price for purchases up to $5,000 by existing shareholders. In its discretion, the Company can permit investments in excess of $5,000 under the Dividend Reinvestment Plan at discounts between 0% and 3%. The Dividend Reinvestment Plan has provided a steady source of capital to fund the Company's continued growth.
COMPETITION
The Company competes with other multifamily developers and other real estate companies in seeking properties for acquisition, potential residents and land for development. The Company's Properties are primarily in developed areas where there are other properties of the same type which directly compete for residents. The Company, however, believes that its focus on service and resident satisfaction will enable it to maintain its historic occupancy levels. The Company also believes that the moderate level of new construction of multifamily properties in its markets in 1999 will not have a material adverse effect on its turnover rates, occupancies or ability to increase rents and minimize operating expenses. To date, the Company has faced limited competition in acquiring properties from other REIT's or other operators from outside the region. However, other apartment REITs are becoming more interested in the Company's markets and the Company may encounter competition from others as it seeks attractive properties in a broader geographic area. Given the perceived depth of available opportunities, management does not believe that increased competition will pose a significant problem.
MARKET ENVIRONMENT
The markets in which Home Properties operates can be characterized as stable, with moderate levels of job growth. Occupancies are relatively high, and new apartment construction activity is low relative to the existing multifamily rental housing stock. Zoning restrictions, a scarcity of land and high construction costs make new development difficult to justify in many of the Company's markets. After considering the obsolescence of older communities and the conversion of rental housing to condominiums or co-ops, the Company views the net increase in the multifamily rental housing stock in the Company's markets as representing only a fraction of the estimated number of new units needed to satisfy increased demand.
New construction in the Company's markets for the past two decades has been limited, with most of the existing housing stock built before 1980. In 1999, Home Properties' markets represented 18% of the total estimated existing U.S. multifamily housing stock, but only 10% of the country's estimated net new supply of multifamily housing units.
An analysis of future multifamily supply compared to projected multifamily demand can indicate whether a particular market is tightening, softening or in equilibrium. The fourth to last column in the following Multifamily Supply and Demand table on page 9 reflects current estimated net new multifamily supply as a percentage of new multifamily demand for the Company's markets and the United States. Net new multifamily supply as a percent of new multifamily demand for 1999 in the Home Properties' markets was approximately 47%, compared to a national average of 71%.
The third to the last column in the Multifamily Supply and Demand table on page 9 shows the net new multifamily supply as percent of existing multifamily housing stock. In the Company's markets, net new supply only represents 0.6% of the existing multifamily housing stock. This compares to the national average net new multifamily supply estimates at 1.1% of the multifamily housing stock.
The information on the following Market Demographics table on page 8 was compiled by the Company from the sources indicated on the table. The methods used includes estimates and, while the Company feels that the estimates are reasonable, there can be no assurance that the estimates are accurate. There can also be no assurance that the historical information included on the table will be consistent with future trends.
(1) Eastern Pennsylvania is defined for this report as Philadelphia, PA MSA & Allentown-Bethlehem-Easton MSA. (2) Northern New Jersey is defined for this report as Middlesex-Somerset- Hunterdon MSA, Bergen-Passaic MSA, Monmouth-Ocean MSA, & Newark MSA. (3) Downstate New York is defined for this report as the Hudson Valley Region of Dutchess Co MSA, Newburgh NY-PA MSA, Putnam & Ulster Counties; Long Island, NY (Nassau-Suffolk MSA); Westchester County MSA; & Rockland County MSA. (4) Western Pennsylvania is defined for this report as Pittsburgh, PA MSA and Erie, PA MSA. (5) Based on 1990 U.S. Census figures (6) 1999 MULTIFAMILY HOUSING STOCK = 1999 total housing stock multiplied by the % of the total housing stock in each market that consists of multifamily units (based on 1990 U.S. Census figures).
SOURCES: BUREAU OF LABOR STATISTICS (BLS); CLARITAS, INC.; US CENSUS BUREAU - MANUFACTURING & CONSTRUCTION DIV.; NEW YORK STATE DEPARTMENT OF LABOR, DIV. OF RESEARCH AND STATISTICS. DATA COLLECTED IS DATA AVAILABLE AS OF FEBRUARY 2, 2000 AND IN SOME CASES MAY BE PRELIMINARY.
(a) ESTIMATED 1999 NEW SUPPLY OF MULTIFAMILY = Multifamily permits (1999 figures U.S. Census Bureau, Mfg. & Constr. Div., 5+ permits only) adjusted by the average % of permits resulting in a construction start (estimated at 95%). (b) ESTIMATED 1999 MULTIFAMILY OBSOLESCENCE = 0.5% of the 1999 Multifamily Housing Stock. (c) ESTIMATED 1999 NET NEW MULTIFAMILY SUPPLY = Estimated 1999 New Supply of Multifamily minus the Estimated 1999 Multifamily Obsolescence. (d) ESTIMATED 1999 NEW MULTIFAMILY HOUSEHOLD DEMAND = Trailing 12 month job growth (Nonfarm, not seasonally adjusted payroll employment figures) (12/31/98-12/31/99) multiplied by the expected % of new household formations resulting from new jobs (66.7%) and by the % of the total housing stock in each market that consists of multifamily units (based on 1990 U.S. Census figures). (e) EXPECTED EXCESS DEMAND = Estimated 1999 New Multifamily Household Demand minus the Estimated 1999 Net New Multifamily Supply. (f) EXPECTED EXCESS REVENUE GROWTH = Expected Excess Demand divided by the 1999 Multifamily Housing Stock. This percentage is expected to reflect the relative impact that changes in the supply and demand for multifamily housing units will have on occupancy rates and/or rental rates in each market, beyond the impact caused by broader economic factors such as inflation and interest rates.
REGULATION
Many laws and governmental regulations are applicable to the Properties and changes in the laws and regulations, or their interpretation by agencies and the courts, occur frequently. Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. In addition, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment communities first occupied after March 13, 1990 to be accessible to the handicapped. Non-compliance with the ADA or the FHAA could result in the imposition of fines or an award of damages to private litigants. Management believes that the Owned Properties are substantially in compliance with present ADA and FHAA requirements.
Under various laws and regulations relating to the protection of the environment, an owner of real estate may be held liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in its property. These laws often impose liability without regard to whether the owner was responsible for, or even knew of, the presence of such substances. The presence of such substances may adversely affect the owner's ability to rent or sell the property or use the property as collateral. Independent environmental consultants have conducted "Phase I" environmental audits (which involve visual inspection but not soil or groundwater analysis) on substantially all of the Owned Properties. Phase I audit reports did not reveal any environmental liability that would have a material adverse effect on the Company. In addition, the Company is not aware of any environmental liability that management believes would have a material adverse effect on the Company. There is no assurance that Phase I reports would reveal all environmental liabilities or that environmental conditions not known to the Company may exist now or in the future which would result in liability to the Company for remediation or fines, either under existing laws and regulations or future changes to such requirements.
Under the Federal Fair Housing Act and state fair housing laws, discrimination on the basis of certain protected classes is prohibited. Violation of these laws can result in significant damage awards to victims. The Company has a strong policy against any kind of discriminatory behavior and trains its employees to avoid discrimination or the appearance of discrimination. There is no assurance, however, that an employee will not violate the Company's policy against discrimination and thus violate fair housing laws. This could subject the Company to legal actions and the possible imposition of damage awards.
ITEM 2.
ITEM 2. PROPERTIES
As of December 31, 1999, the Owned Properties consisted of 126 multifamily residential properties containing 33,807 apartment units. At the time of the IPO, Home Properties owned 11 communities containing 3,065 units and simultaneously with the closing of the IPO acquired an additional four communities containing 926 units. From the time just prior to the IPO to December 31, 1999, the Company therefore experienced a compounded annualized growth rate of 55% in the number of apartment units it owned. In 1999 alone, Home Properties acquired 10,127 apartment units in 30 communities for a total purchase price of approximately $487 million, including $6.2 million allocated to the purchase of management contracts. In addition, during the first quarter of 2000, the Operating Partnership has acquired six additional properties, representing an increase of 2,113 Units. During 1999, the Company sold a 35,000 square foot ancillary shopping center located adjacent to a multifamily property.
The Owned Properties are generally located in established markets in suburban neighborhoods and are well maintained and well leased. Average economic occupancy at the Owned Properties held throughout 1998 and 1999 was 94.5% for 1999. The Owned Properties are typically two and three story garden style apartment buildings in landscaped settings and a majority are of brick or other masonry construction. The Company believes that its strategic focus on appealing to middle income and senior residents and the quality of the services it provides to such residents result in low turnover. Average turnover at the Owned Properties was approximately 40% for 1999, which is significantly below the national average of 65% for garden apartments.
Resident leases are generally for one year terms and security deposits equal to one month's rent are generally required.
Certain of the Owned Properties secure mortgage loans. See Note 4 to the Consolidated Financial Statements contained herein.
The table on the following pages illustrates certain of the important characteristics of the Owned Properties as of December 31, 1999.
COMMUNITIES WHOLLY OWNED AND MANAGED BY HOME PROPERTIES
(1) "CORE COMMUNITIES" REPRESENTS THE 14,048 APARTMENT UNITS OWNED CONSISTENTLY THROUGHOUT 1998 AND 1999. (2) "% MATURE RESIDENTS" IS THE PERCENTAGE OF RESIDENTS AGED 55 YEARS OR OLDER AS OF DECEMBER 31, 1999. (3) "% RESIDENT TURNOVER" REFLECTS, ON AN ANNUAL BASIS, THE NUMBER OF MOVEOUTS DIVIDED BY THE TOTAL NUMBER OF APARTMENT UNITS. (4) "AVERAGE % OCCUPANCY" IS THE AVERAGE ECONOMIC OCCUPANCY FOR THE 12 MONTHS ENDED DECEMBER 31, 1998 AND 1999. FOR COMMUNITIES ACQUIRED DURING 1998 AND 1999, THIS IS THE AVERAGE OCCUPANCY FROM THE DATE OF ACQUISITION. (5) THE LANSDOWNE GROUP CONSOLIDATED FIGURES ARE REFLECTED IN THE MARSHALL HOUSE LINE.
Communities Wholly Owned and Managed by Home Properties
(1) "Core Communities" represents the 14,048 apartment units owned consistently throughout 1998 and 1999. (2) "% Mature Residents" is the percentage of residents aged 55 years or older as of December 31, 1999. (3) "% Resident Turnover" reflects, on an annual basis, the number of moveouts divided by the total number of apartment units. (4) "Average % Occupancy" is the average economic occupancy for the 12 months ended December 31, 1998 and 1999. For communities acquired during 1998 and 1999, this is the average occupancy from the date of acquisition. (5) The Lansdowne Group consolidated figures are reflected in the Marshall House line.
Communities Wholly Owned and Managed by Home Properties
(1) "Core Communities" represents the 14,048 apartment units owned consistently throughout 1998 and 1999. (2) "% Mature Residents" is the percentage of residents aged 55 years or older as of December 31, 1999. (3) "% Resident Turnover" reflects, on an annual baisi, the number of moveouts divided by the total number of apartment units. (4) "Average % Occupancy" is the average economic occupancy for the 12 months ended December 31, 1998 and 1999. For communities acquired during 1998 and 1999, this is the average occupancy from the date of acquisition. (5) The Lansdowne Group consolidated figures are reflected in the Marshall House line.
PROPERTY DEVELOPMENT
Management believes that new construction of market rate multifamily apartments is not economically feasible in most of its markets. Therefore, Home Properties' development and redevelopment activities have been limited to government-assisted multifamily housing. In 1996, the Operating Partnership acquired substantially all of the assets of C.O.F., Inc. (formerly Conifer Realty, Inc.) and Conifer Development, Inc. (collectively, "Conifer"), a developer and manager of government-assisted multifamily housing. Through these predecessors, the Company has been developing affordable housing for over 20 years. Management anticipates that this experience, coupled with the financial and property management strengths of the Company, positions the Company as a regional leader in the affordable housing arena.
Home Properties' strategy has been to expand its development activities carefully into areas where it has already established operations. It currently operates and develops affordable housing communities in six states.
Through affiliated partnerships, in 1999 the Company commenced development or redevelopment of 1,304 units in nine communities, completed three communities with 926 units and continued progress on 734 units in three communities. Management is optimistic about opportunities for continued growth due to the Company's broadened geographic reach and continued partnering with not-for-profit sponsors.
LOW INCOME HOUSING TAX CREDIT PROGRAM. Since its inception in 1986, the LIHTC program has been responsible for the creation or rehabilitation of more than 1 million rental units for low or moderate income Americans. Under this program, states are authorized to allocate federal tax credits as an incentive for developers to build rental housing for low income households. Each state has received an allocation of tax credits from the Internal Revenue Service in an amount equal to $1.25 per state resident. This amount has not been adjusted for over a decade. However, legislation has been introduced to increase the housing credit allocations by 40% over five years. This graduated increase would put the per capita allocation at $1.35 for the 2000 calendar year and at $1.75 per capita by 2004. It is expected that the cap increase, if adopted, will generate the construction of an additional 30,000 units of affordable housing each year.
Although REITs do not pay income taxes at the corporate level, the Company benefits from the credits by structuring transactions where the Operating Partnership serves as the managing general partner and limited partners contribute substantial equity in exchange for the tax credits. The economic benefits of management and ownership to the Company include:
* Initial developer fee revenue * Receipt of certain of the project cash flow after debt service as "incentive management fees" * Substantial property management fees * Participation in future equity build-up * Involvement in the real estate as the managing general partner
TAX EXEMPT BOND FINANCING. The increased competition for tax credits has led developers to the tax exempt bond market for financing. Projects can be financed with tax exempt bonds if they meet a threshold of having at least 20% of the units rented to households at 50% or less of the area median income, or 40% of the units at 60% or less of the area median income. The bond program provides a reduced level of tax credits, automatically, without the need to go through the competitive allocation process for tax credits. While this program has historically not been as competitive, the recent increasing popularity has resulted in most states running out of their available tax exempt bond allocations. Legislation has also been introduced to significantly increase the volume cap levels for tax-exempt bonds.
HUD SECTION 8 PROGRAM. Within a decade, it is expected that virtually all of HUD's roughly three million Section 8 project and tenant-based contracts will expire. Many of the affected properties will need to be recycled into other programs or repositioned to compete as market rate communities. The Company's financial strength and expertise in this area could lead to attractive investment opportunities as these properties are sold or restructured. Currently, the Company holds five Section 8 communities in its owned portfolio, Conifer Village (199 units), Doub Meadow (95 units), Pines of Perinton (508 units), Shakespeare Park (82 units) and Timbercroft Townhomes (284 units). The rental subsidy contracts extend for several more years on all properties except Doub Meadow and Shakespeare Park, both of which expire in 2000. The Company expects to renew these two expiring contracts for at least one additional year.
PROPERTY MANAGEMENT
As of December 31, 1999, the Managed Properties consist of: (i) 7,710 apartment units where Home Properties is the general partner of the entity that owns the property; (ii) 3,465 apartment units managed for others; (iii) commercial properties which contain approximately 1.7 million square feet of gross leasable area; (iv) a master planned community known as Gananda; (v) a 140-lot Planned Unit Development known as College Greene; (vi) a 202-lot Planned Unit Development known as Riverton; and (vii) 153 acres of vacant land in Old Brookside, the development of which, if it occurs, will be managed by HP Management. Management fees are based on a percentage of rental revenues or costs and, in certain cases, revenues from sales. The Company may pursue the management of additional properties not owned by the Company, but will only do so when such additional properties can be effectively and efficiently managed in conjunction with other properties owned or managed by Home Properties.
The table on the following pages details managed communities broken down by market area.
The commercial properties consist of: (i) approximately 1,025,000 square feet of office space; (ii) approximately 400,000 square feet of retail space; (iii) approximately 75,000 square feet of industrial space; and (iv) approximately 164,000 square feet of warehouse space.
MANAGED COMMUNITIES BY MARKET AREA
SUPPLEMENTAL PROPERTY INFORMATION
At December 31, 1999, none of the Properties have an individual net book value equal to or greater than ten percent of the total assets of the Company or would have accounted for ten percent or more of the Company's aggregate gross revenues for 1999.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings. All such proceedings, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by liability insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company's liquidity, financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM X. EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the six executive officers and certain of the key employees of the Company, together with their respective ages (as of March 23, 2000), positions and offices.
NAME AGE POSITION
Information regarding Richard Crossed, Nelson and Norman Leenhouts and Amy Tait is set forth below under "Board of Directors" in Item 10.
DAVID P. GARDNER has served as Vice President and Chief Financial Officer of the Company, HP Management and Conifer Realty since their inception. Mr. Gardner joined Home Leasing Corporation in 1984 as Vice President and Controller. In 1989, he was named Treasurer of Home Leasing and Chief Financial Officer in December, 1993. From 1977 until joining Home Leasing, Mr. Gardner was an accountant at Cortland L. Brovitz & Co. Mr. Gardner is a graduate of the Rochester Institute of Technology and is a Certified Public Accountant.
ANN M. MCCORMICK has served as Vice President, General Counsel and Secretary of the Company and HP Management since their inception. She has also served as Secretary and General Counsel of Conifer Realty since 1998. Mrs. McCormick joined Home Leasing in 1987 and was named Vice President, Secretary and General Counsel in 1991. Prior to joining Home Leasing, she was an associate with the law firm of Nixon, Hargrave, Devans & Doyle. Mrs. McCormick is a graduate of Colgate University and holds a Juris Doctor from Cornell University.
WILLIAM E. BEACH has served as Vice President of the Company and HP Management since their inception. He joined Home Leasing in 1972 as a Vice President. Mr. Beach is a graduate of Syracuse University and is a Certified Property Manager (CPM) as designated by the Institute of Real Estate Management.
C. TERENCE BUTWID has served as Vice President of the Company and Executive Vice President of Conifer Realty since 1996. He also served as Vice President of HP Management since 1998. He joined Conifer in 1990 as a Vice President. Prior to joining Conifer, Mr. Butwid was employed by Chase Lincoln First Bank as Vice President and Manager of Corporate Banking National Accounts. He was also President of Ontario Capital Management. Mr. Butwid is a graduate of Bowling Greene State University. He has an MBA from American University and graduated from The National School of Credit and Financial Management at Dartmouth College.
LAVONNE R. CHILDS has served as Vice President of the Company since 1997. She joined Home Properties in December of 1996 as a Regional Property Manager. Mrs. Childs has been in property management for 15 years. Prior to joining Home Properties, she worked with Walden Residential, United Dominion Realty Trust and Winthrop Management.
SCOTT A. DOYLE has served as Vice President of the Company since 1997. He joined Home Properties in 1996 as a Regional Property Manager. Mr. Doyle has been in property management for 17 years. Prior to joining Home Properties he worked with CMH Properties, Inc., Rivercrest Realty Associates and Arcadia Management Company. Mr. Doyle is a graduate of S.U.N.Y. at Plattsburgh, New York.
KATHLEEN M. DUNHAM has served as Vice President of the Company and Conifer Realty since 1996. She joined Conifer in 1978 and was named Vice President in 1990. Ms. Dunham is a Certified Property Manager (CPM) as designated by the Institute of Real Estate Management.
DOUGLAS ERDMAN has served as Vice President of the Company since 1999. Prior to joining Home Properties, he was President of Community Realty Company, Inc., a Washington D. C. based real estate firm providing commercial and multi-family property management, commercial leasing, brokerage, general contracting, and real estate development services. Mr. Erdman is a graduate of Towson University, is a Certified Property Manager (CPM) and holds real estate brokers licenses in Maryland, Virginia and Washington D. C. Mr. Erdman serves on the Multi-housing Council of the Urban Land Institute and on the Board of Directors of JFGH, an organization of group homes for disabled adults.
JOHANNA A. FALK has served as a Vice President of the Company since 1997. She joined the Company in 1995 as an investor relations specialist and is currently responsible for the Information Systems Department. Prior to joining the Company, Mrs. Falk was employed as a marketing manager at Bausch & Lomb Incorporated and Champion Products, Inc. and as a financial analyst at Kidder Peabody. She is a graduate of Cornell University and holds a Masters Degree in Business Administration from the Wharton School of The University of Pennsylvania.
JOHN H. FENNESSEY has served as Vice President of the Company and Conifer Realty since 1996. He has also been a Vice President of HP Management since 1998. He joined Conifer in 1975 as a founder and Vice President, responsible for the operation of Conifer's Syracuse office. Prior to joining Conifer, he was a Project Director with the New York State Urban Development Corporation. Mr. Fennessey is a graduate of Harpur College and holds a Masters Degree in regional planning from the Maxwell School, Syracuse University. He is a Charter Member of the American Institute of Certified Planners (AICP).
RHONDA FINEHOUT has served as a Vice President of the Company and Conifer Realty since 1998. She joined the Company in 1996 as a regional property manager with responsibilities in market rate, rural development, low income housing tax credit and fee managed properties. Ms. Finehout is a graduate of the State University of New York at Oswego.
TIMOTHY A. FLORCZAK has served as a Vice President of the Company since its inception. He joined Home Leasing in 1985 as a Vice President. Prior to joining Home Leasing, Mr. Florczak was Vice President of Accounting of Marc Equity Corporation. Mr. Florczak is a graduate of the State University of New York at Buffalo.
CHRISTIANA FOGLIO has served as a Vice President of the Company since 1999. Prior to joining Home Properties, Ms. Foglio served as President of Community Investment Strategies, an affordable housing developer in New Jersey. Ms Foglio served as the Executive Director of the New Jersey Housing and Mortgage Finance Agency as well as the Chair of the New Jersey Council on Affordable Housing. She received a Bachelor of Arts in Economics as well as a Masters Degree in City and Regional Planning from Rutgers University.
THOMAS L. FOUNTAIN, JR. has served as a Vice President of the Company and Conifer Realty since 1996 and as a Vice President of HP Management since 1997. He joined Conifer in 1994 as the Director of Commercial Properties. Prior to joining Conifer, Mr. Fountain was the Leasing Manager for Faber Management Services, Inc. and Vice President of Asset Management for Realty Diversified Services,Inc. Mr. Fountain is a graduate of West Virginia University.
TIMOTHY FOURNIER has served as Vice President of Home Properties and Executive Vice President of Conifer Realty since 1996. He has also been a Vice President of HP Management since 1998. He joined Conifer in 1986 as Vice President of Finance. Prior to joining Conifer, Mr. Fournier was an accountant at PricewaterhouseCoopers. Mr. Fournier is a graduate of New Hampshire College and is a Certified Public Accountant.
GERALD B. KORN has served as a Vice President and been employed at the Company since 1998. From 1984 until 1998, he was employed by Rochester Community Savings Bank in various capacities, including as a Senior Vice President in charge of the bank's national commercial real estate portfolio. Prior to 1984, Mr. Korn was employed for 11 years as a FDIC Bank Examiner. Mr. Korn is a graduate of the Rochester Institute of Technology.
LAURIE LEENHOUTS has served as a Vice President of the Company since its inception and has been a Vice President of HP Management since 1998. She joined Home Leasing in 1987 and has served as a Vice President since 1992. Ms. Leenhouts is a graduate of the University of Rochester. She is the daughter of Norman Leenhouts.
ROBERT J. LUKEN has served as Controller of the Company since 1996 and as a Vice President since 1997. He has also served as a Vice President and Controller of Conifer Realty and HP Management since 1998. Prior to joining the Company, he was the Controller of Bell Corp. of Rochester and an Audit Supervisor for PricewaterhouseCoopers. Mr. Luken is a graduate of St. John Fisher College and is a Certified Public Accountant.
PAUL O'LEARY has served as a Vice President of the Company since its inception. He joined Home Leasing in 1974 and has served as Vice President of Home Leasing since 1978. Mr. O'Leary is a graduate of Syracuse University and is a Certified Property Manager (CPM) as designated by the Institute of Real Estate Management.
JOHN OSTER has served as Vice President of the Company and Conifer Realty since 1996. He has also been a Vice President of HP Management since 1998. He joined Conifer as a Vice President in 1988. Before joining Conifer, Mr. Oster was Director of Operations for the New York State Division of Housing and Community Renewal. He is a graduate of Hamilton College.
JAMES E. QUINN, JR. has served as Vice President of the Company since 1998. He joined the Company in 1997 as the regional leader for the Philadelphia region. Prior to joining the Company, Mr. Quinn was Vice President of Mill Creek Realty Group. Mr. Quinn is a graduate of Drexel University.
SHARON SANFRATELLO has served as a Vice President of the Company since 1998. She joined Home Properties in 1993 as a property manager. Mrs. Sanfratello has been in property management for 19 years. Prior to joining Home Properties, Mrs. Sanfratello worked for Beacon Residential.
JOHN E. SMITH joined Home Properties as Vice President of Acquisitions in 1997. Prior to joining the Company, Mr. Smith was general manager for Direct Response Marketing, Inc. and Executive Vice President for The Equity Network, Inc. Mr. Smith was Director of Investment Properties at Hunt Commercial Real Estate for 20 years. He has been a Certified Commercial Investment Member (CCIM) since 1982, a New York State Certified Instructor and has taught commercial real estate courses in four states.
ERIC STEVENS has served as a Vice President of the Company and Conifer Realty since 1998. He joined the Company in 1996 in connection with the merger with Conifer. At Conifer, he was a property manager for 13 years in the affordable housing area, including working with the Low Income Housing Tax Credit Program, New York State Housing Finance Agency, New York State Division of Housing and Community Renewal and the U.S. Department of Housing and Urban Development. Mr. Stevens is on the Board of Directors of the Housing Council in Monroe County, Inc. Mr. Stevens is a graduate of Babson College.
RICHARD J. STRUZZI has served as a Vice President of the Company and HP Management since their inception. He joined Home Leasing in 1983 as a Vice President. Mr. Struzzi is a graduate of the State University of New York at Potsdam and holds a Masters Degree in Public School Administration from St. Lawrence University. He is the son-in-law of Nelson Leenhouts.
ROBERT C. TAIT has served as a Vice President of the Company and HP Management since their inception. He joined Home Leasing in 1989 and served as a Vice President of Home Leasing since 1992. Prior to joining Home Leasing, he was a manufacturing/industrial engineer with Moscom Corp. Mr. Tait is a graduate of Princeton University, holds a Masters Degree in Business Administration from Boston University and holds the Real Property Administrator Degree from the Building Owners and Managers International Institute. Married to Amy L. Tait, he is the son-in-law of Norman Leenhouts.
MARILYN THOMAS has served as a Vice President of the Company since 1999. She joined the Company in 1998. Prior to joining Home Properties, Mrs. Thomas was a Vice President at Patterson-Erie Corporation for 15 years, working in the affordable housing, market rate apartment and development areas. Mrs. Thomas is a licensed Pennsylvania real estate broker and has been a Certified Property Manager since 1988.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock has been traded on the New York Stock Exchange ("NYSE") under the symbol "HME" since July 28, 1994. The following table sets forth for the previous two years the quarterly high and low sales prices per share reported on the NYSE, as well as all distributions paid.
As of March 23, 2000, the Company had approximately 4,400 shareholders. It has historically paid distributions on a quarterly basis in the months of February, May, August and November. The Credit Agreement relating to the Company's $100 million line of credit provides that the Company may not pay any distribution if a distribution, when added to other distributions paid during the three immediately preceding fiscal quarters, exceeds the greater of: (i) 90% of funds from operations and 110% of cash available for distribution; and (ii) the amounts required to maintain the Company's status as a REIT.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data on a historical basis for the Company and the Original Properties and should be read in conjunction with the financial statements appearing elsewhere in this Form 10-K.
*Excludes 256 units at Leland Gardens in New Jersey owned at December 31, 1998 in an affiliated entity in contemplation of rehabilitating under the Low Income Housing Tax Credit Program. In January, 1999, a 99% limited partnership interest was transferred to the ultimate tax credit partner.
Item 6. SELECTED FINANCIAL DATA (CONTINUED)
(1) Management considers Funds from Operations to be an appropriate measure of the performance of an equity REIT. "Funds from Operations" is generally defined by NAREIT as net income (loss) before gains (losses) from the sale of property, extraordinary items, plus real estate depreciation, including adjustments for unconsolidated partnerships and joint ventures. Funds from Operations does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. Funds from Operations should not be considered as an alternative to net income as an indication of the Company's performance or to cash flow as a measure of liquidity. Funds from Operations does not actually represent the cash made available to investors in the periods presented.
Funds from Operations is calculated as follows:
*Includes amounts passed through from unconsolidated investments.
The FFO presentation above may not be comparable to other similarly titled measures of FFO of other REITs.
Quarterly information on Funds from Operations for the two most recent years is as follows:
Item 6. SELECTED FINANCIAL DATA NOTES (CONTINUED)
(2) Cash Available for Distribution is defined as Funds from Operations less an annual reserve for anticipated recurring, non-revenue generating capitalized costs of $375 ($350 for 1996-1997 and $300 for 1995) per apartment unit, $94 per manufactured home site and $.25 per square foot for the 35,000 square foot ancillary convenient shopping area at Wedgewood. It is the Company's policy to fund its investing activities and financing activities with the proceeds of its Line of Credit or new debt or by the issuance of additional Units in the Operating Partnership.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion is based primarily on the Consolidated Financial Statements of Home Properties of New York, Inc.. This should be read in conjunction with the financial statements appearing elsewhere in this report. Certain capitalized terms, as used herein, are defined in the Notes to the Consolidated Financial Statements.
The Company is engaged primarily in the ownership, management, acquisition and development of residential apartment communities in the Northeastern, Mid-Atlantic and Midwestern United States. As of December 31, 1999, the Company operated 291 apartment communities with 44,982 apartments. Of this total, the Company owned 126 communities, consisting of 33,807 apartments, managed as general partner 125 partnerships that owned 7,710 apartments and fee managed 3,465 apartments for affiliates and third parties. The Company also fee manages 1.7 million square feet of office and retail properties.
This annual report contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic and local real estate conditions, the weather and other conditions that might affect operating expenses, the timely completion of repositioning activities, the actual pace of acquisitions, and continued access to capital to fund growth.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998.
The Company owned 62 communities with 14,048 apartment units throughout 1998 and 1999 where comparable operating results are available for the years presented (the "1999 Core Properties"). For the year ending December 31, 1999, the 1999 Core Properties showed an increase in rental revenues of 5.3% and a net operating income increase of 9.0% over the 1998 year-end period. Property level operating expenses increased 1.7%. Average economic occupancy for the 1999 Core Properties increased from 94.0% to 94.5%, with average monthly rental rates increasing 4.8% to $661.
A summary of the 1999 Core Property net operating income is as follows:
During 1999, the Company acquired a total of 10,127 apartment units in 30 newly acquired communities (the "1999 Acquisition Communities"). In addition, the Company experienced full year results for the 9,632 apartment units in 34 apartment communities (the "1998 Acquisition Communities") acquired during 1998. The inclusion of these acquired communities generally accounted for the significant changes in operating results for the year ended December 31, 1999. The 1998 Acquisition Communities exclude 256 units at Leland Gardens in New Jersey owned at December 31, 1998 in an affiliated entity in contemplation of rehabilitating under the Low Income Housing Tax Credit Program. In January, 1999, a 99% limited partnership interest was transferred to the ultimate tax credit partner.
The Company also disposed of one property during 1999, a 35,000 square foot ancillary shopping center located adjacent to a multifamily community, which had partial results for 1999 (the "1999 Disposed Community").
For the year ended December 31, 1999, operating income (income before loss on disposition of property, minority interest and extraordinary item) increased by $11,060,000 when compared to the year ended December 31, 1998. The increase was primarily attributable to the following factors: an increase in rental income of $80,034,000 and an increase in other income of $5,186,000. These changes were partially offset by an increase in operating and maintenance expense of $32,064,000, an increase in general and administrative expense of $4,011,000, an increase in interest expense of $15,578,000, an increase in depreciation and amortization of $14,159,000 and loss on available-for- sale securities and non-recurring acquisition expense totaling $8,348,000 not previously incurred.
Of the $80,034,000 increase in rental income, $35,554,000 is attributable to the 1998 Acquisition Communities and $39,295,000 is attributable to the 1999 Acquisition Communities, offset in part by a $155,000 reduction attributable to the 1999 Disposed Community. The balance of $5,340,000 is a 5.3% increase from the 1999 Core Properties due primarily to an increase of 4.8% in weighted average rental rates, plus an increase in occupancy from 94.0% to 94.5%.
Property other income, which consists primarily of income from operation of laundry facilities, administrative fees, garage and carport rentals and miscellaneous charges to residents, increased in 1999 by $3,264,000. Of this increase, $1,358,000 is attributable to the 1998 Acquisition Communities, $1,191,000 is attributable to the 1999 Acquisition Communities, $439,000 represents a 15.6% increase from the 1999 Core Properties, offset in part by a $28,000 reduction attributable to the 1999 Disposed Community. In addition, $304,000 represents the increase in the net results for limited partnerships accounted for on the equity method.
Interest and dividend income increased in 1999 by $1,990,000, primarily attributable to an increase in construction loans and advances made to affiliated tax credit development partnerships, as well as increased levels of cash reserves invested. Dividend income of $714,000 and $147,000 in 1999 and 1998, respectively, from investments in marketable securities, are not expected to continue into 2000.
Other income reflects the net contribution from management and development activities after allocating certain overhead and interest expense. The net contribution decreased by $68,000, or 2% from 1998 to 1999. Increased activities in government assisted housing contributed to an 11.5% annual increase in gross management and development fee revenues. These revenue gains were offset by increased outlays to expand the staff and carrying costs associated with land in inventory for future development.
Of the $32,064,000 increase in operating and maintenance expenses, $16,302,000 is attributable to the 1998 Acquisition Communities, $14,980,000 is attributable to the 1999 Acquisition Communities and a reduction of $31,000 is attributable to the 1999 Disposed Community. The balance for the 1999 Core Properties, a $813,000 increase in operating expenses or 1.7%, is primarily a result of increases in utilities, real estate taxes, and snow removal costs.
The operating expense ratio (the ratio of operating and maintenance expense compared to rental and property other income) for the 1999 Core Properties was 44.8% and 46.5% for 1999 and 1998, respectively. This 1.7% reduction is a result of the 5.6% increase in total rental and property other income achieved through ongoing efforts to upgrade and reposition properties for maximum potential. In general, the Company's operating expense ratio is higher than that experienced in other parts of the country due to relatively high real estate taxes in its markets and the Company's practice, typical in its markets, of including heating expenses in base rent. The exposure to swings in heating costs have been reduced as the number of units in the entire portfolio including heat in base rent has been reduced from 85% at December 31, 1998 to 70% at December 31, 1999.
General and administrative expenses increased in 1999 by $4,011,000, or 60% from $6,685,000 in 1998 to $10,696,000 in 1999. As the Company expands geographically, travel and lodging expenses have increased, along with expenses associated with new and expanding regional offices. In addition, personnel costs have increased to handle the growing owned portfolio, which increased in size by 41% as of December 31, 1999 compared to a year ago. The percentage of G&A compared to total revenue was 4.6% for 1999 compared to 4.5% for 1998.
Interest expense increased in 1999 by $15,578,000 as a result of the acquisition of the 1999 Acquisition Communities and full year interest expense for the 1998 Acquisition Communities. The 1998 Acquisition Communities, costing in excess of $376,000,000, were acquired with $81,000,000 of assumed debt in addition to the use of UPREIT Units. The 1999 Acquisition Communities, costing in excess of $480,000,000, were acquired with $203,000,000 of assumed debt, in addition to the use of UPREIT Units. Amortization relating to interest rate reduction agreements of $198,000 and $335,000 was included in interest expense during 1999 and 1998, respectively. In addition, amortization from deferred charges relating to the financing of properties totaling $516,000 and $457,000 was included in interest expense for 1999 and 1998, respectively. Finally, $294,000 of unamortized fees related to a standby loan facility, which allowed the Company to enter into a non-contingent contract for a 17 property portfolio acquisition, were written off during the third quarter of 1998, as the facility was only partially used and quickly repaid.
During 1999, the Company disposed of a 35,000 square foot shopping center in Columbus, Ohio that was ancillary to an adjacent multifamily property formerly owned by the Company. The property was sold for approximately $1,000,000, resulting in a gain on disposition of $457,000. In addition, the Company liquidated its original $11.6 million investment in common stock of Associated Estates Realty Corporation (NYSE:AEC), recognizing a loss of $2,123,000. Finally, the Company reported a non-recurring acquisition expense of $6,225,000 during the third quarter of 1999. In conjunction with the acquisition of two large portfolios, this amount of the reported acquisition price was allocated (based on the contracts) to the purchase of the related management contracts. As the Company is self-managing the properties, these management contracts have no future value and the cost was expensed to operations in the current year.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997.
The Company owned 27 communities with 6,552 apartment units throughout 1997 and 1998 where comparable operating results are available for the years presented (the "1998 Core Properties"). For the year ending December 31, 1998, the 1998 Core Properties showed an increase in rental revenues of 2.3% and a net operating income increase of 6.9% over the 1997 year-end period. Property level operating expenses decreased 1.9%. Average economic occupancy for the 1998 Core Properties decreased from 94.7% to 94.1%, with average monthly rental rates increasing 2.9% to $627.
A summary of the 1998 Core Property net operating income is as follows:
During 1998, the Company acquired a total of 9,632 apartment units in 34 newly acquired communities (the "1998 Acquisition Communities"). In addition, the Company experienced full year results for the 7,496 apartment units in 35 newly acquired apartment communities (the "1997 Acquisition Communities") acquired during 1997. The inclusion of these acquired communities generally accounted for the significant changes in operating results for the year ended December 31, 1998. The 1998 Acquisition Communities exclude 256 units at Leland Gardens in New Jersey owned at December 31, 1998 in an affiliated entity in contemplation of rehabilitating under the Low Income Housing Tax Credit Program. In January, 1999, a 99% limited partnership interest was transferred to the ultimate tax credit partner.
The Company also disposed of two communities during 1997 with 624 apartment units and a 202-site manufactured home community, all of which had partial results in 1997 (the "1997 Disposed Communities").
For the year ended December 31, 1998, operating income (income before loss on disposition of property, minority interest and extraordinary item) increased by $19,293,000 when compared to the year ended December 31, 1997. The increase was primarily attributable to the following factors: an increase in rental income of $73,555,000 and an increase in other income of $5,991,000. These changes were partially offset by an increase in operating and maintenance expense of $31,819,000, an increase in general and administrative expense of $4,430,000, an increase in interest expense of $12,013,000 and an increase in depreciation and amortization of $11,991,000.
Of the $73,555,000 increase in rental income, $38,127,000 is attributable to the 1997 Acquisition Communities and $37,316,000 is attributable to the 1998 Acquisition Communities, offset in part by a $2,933,000 reduction attributable to the 1997 Disposed Communities. The balance is a 2.3% increase from the 1998 Core Properties due primarily to an increase of 2.9% in weighted average rental rates, offset by a decrease in occupancy from 94.7% to 94.1%.
Property other income, which consists primarily of income from operation of laundry facilities, administrative fees, garage and carport rentals and miscellaneous charges to residents, increased in 1998 by $1,392,000. Of this increase, $643,000 is attributable to the 1997 Acquisition Communities, $1,026,000 is attributable to the 1998 Acquisition Communities and $185,000 represents a 13.0% increase from the 1998 Core Properties. In addition, $452,000 represents the decrease in the net results for limited partnerships accounted for on the equity method.
Interest income increased in 1998 by $2,906,000, primarily attributable to an increase in construction loans and advances made to affiliated tax credit development partnerships.
Other income increased in 1998 by $1,693,000, including $1,093,000 from increased management fees from residential properties and $329,000 from increased development fee income recognized directly by the Company from communities developed under the federal government's Low Income Housing Tax Credit Program where the Company is the general partner. The increased management fee activity resulted from full year results on 1,020 units managed in Detroit (acquired October, 1997) and 1,337 units in 46 Rural Development properties added in May of 1998.
Of the $31,819,000 increase in operating and maintenance expenses, $18,469,000 is attributable to the 1997 Acquisition Communities, $15,236,000 is attributable to the 1998 Acquisition Communities and a reduction of $1,458,000 is attributable to the 1997 Disposed Communities. The balance for the 1998 Core Properties, a $428,000 reduction in operating expenses, is primarily due to lower gas rates and relatively mild winter weather. Core Property operating expenses, excluding utility expenses, increased approximately 2.0%.
The operating expense ratio (the ratio of operating and maintenance expense compared to rental and property other income) for the 1998 Core Properties was 46.7% and 48.8% for 1998 and 1997, respectively. This 2.1% reduction is a direct result of lower than normal utility expenses. In general, the Company's operating expense ratio is higher than that experienced in other parts of the country due to relatively high real estate taxes in its markets and the Company's practice, typical in its markets, of including heating expenses in base rent.
General and administrative expenses increased in 1998 by $4,430,000, or 196% from $2,255,000 in 1997 to $6,685,000 in 1998. A higher bonus in 1998 compared to 1997 ($1,210,000 versus $287,000) resulted from our incentive compensation plan which rewards exceptional FFO growth per share, contributing 40% of the 196% increase in total G&A. As the Company expands geographically, travel and lodging expenses have increased, along with expenses associated with new and expanding regional offices. In addition, personnel costs have increased to handle the growing owned portfolio, which increased in size by 70% as of December 31, 1998 compared to a year ago. The growth of management fee income recognized directly by the Company, along with its affect on G&A, makes it difficult to compare G&A to historical numbers. If the management fee income is netted against G&A expense, the percentage of remaining G&A compared to adjusted revenue is 3.5% and 2.7% for 1998 and 1997, respectively.
Interest expense increased in 1998 by $12,013,000 as a result of the acquisition of the 1998 Acquisition Communities and full year interest expense for the 1997 Acquisition Communities. The 1997 Acquisition Communities, costing in excess of $266,000,000, were acquired with $87,000,000 of assumed debt in addition to the use of UPREIT Units. The 1998 Acquisition Communities, costing in excess of $376,000,000, were acquired with $81,000,000 of assumed debt, in addition to the use of UPREIT Units. Amortization relating to interest rate reduction agreements of $335,000 was included in interest expense during 1998 and 1997. In addition, amortization from deferred charges relating to the financing of properties totaling $457,000 and $276,000 was included in interest expense for 1998 and 1997, respectively. Finally, $294,000 of unamortized fees related to a standby loan facility, which allowed the Company to enter into a non-contingent contract for a 17 property portfolio acquisition, were written off during the third quarter, as the facility was only partially used and quickly repaid.
The December 31, 1998 balance sheet reflects an unrealized loss on available-for-sale securities of $1,607,000. This reduction to Other Assets and Stockholders Equity represents a markdown from $11,649,000 to $10,042,000 relative to a strategic investment in the common stock of Associated Estates Realty Corporation (NYSE:AEC) of 850,000 shares, representing approximately 4% of the outstanding shares of AEC.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity demands are expected to be distributions to the common and preferred stockholders and Operating Partnership unitholders, capital improvements and repairs and maintenance for the properties, acquisition of additional properties, property development and debt repayments. The Company may also engage in transactions whereby it acquires equity ownership in other public or private companies that own portfolios of apartment communities.
The Company intends to meet its short-term liquidity requirements through net cash flows provided by operating activities and the line of credit. The Company considers its ability to generate cash to be adequate to meet all operating requirements and make distributions to its stockholders in accordance with the provisions of the Internal Revenue Code, as amended, applicable to REITs.
To the extent that the Company does not satisfy its long-term liquidity requirements through net cash flows provided by operating activities and the line of credit described below, it intends to satisfy such requirements through the issuance of UPREIT Units, proceeds from the Dividend Reinvestment Plan, property debt financing, or issuing additional common shares or shares of the Company's preferred stock. As of December 31, 1999, the Company owned thirty-two properties, with 6,233 apartment units, which were unencumbered by debt.
In May, 1998, the Company's Form S-3 Registration Statement was declared effective relating to the issuance of up to $413.8 million of shares of common stock or other securities. The available balance on the shelf at December 31, 1998 was $333,650,000. There has been no activity on the shelf during 1999.
On September 30, 1999, the Company completed the sale of $50 million of Series B Preferred stock in a private transaction with GE Capital. The Series B Preferred stock carries an annual dividend rate equal to the greater of 8.36% or the actual dividend paid on the Company's common shares into which the preferred shares can be converted. The stock has a liquidation preference of $25.00 per share, a conversion price of $29.77 per share, and a five-year, non-call provision.
On December 22, 1999, the Class A limited partnership interests held by the State of Michigan Retirement Systems (originally issued in December, 1996 for $35 million) were converted to Series A Convertible Cumulative Preferred shares ("Series A Preferred") which retain the same material rights and preferences that were associated with the limited partnership interests. The conversion had no effect on reported results of operations and permits the Company to continue to use favorable tax depreciation methods.
The issuance of UPREIT Units for property acquisitions continues to be a significant source of capital. During 1999, 8,147 apartment units in four separate transactions were acquired for a total cost of $389,000,000, using UPREIT Units valued at approximately $149,000,000 with the balance paid in cash or assumed debt. During 1998, 4,512 apartment units in eight separate transactions were acquired for a total cost of $176,000,000, using UPREIT Units valued at approximately $71,000,000 with the balance paid in cash or assumed debt.
In 1997, the Company's Board of Directors approved a stock repurchase program under which the Company may repurchase up to one million shares of its outstanding common stock. The Board's action did not establish a target price or a specific timetable for repurchase. In 1998, the Company repurchased 59,600 shares at a cost of $1,437,000, reflecting a stock price which Company management felt was an attractive investment opportunity. During 1999, the Company repurchased an additional 125,300 shares at a cost of $2,974,000. Approval to repurchase 795,100 shares of common stock remains at December 31, 1999.
In November, 1995, the Company established a Dividend Reinvestment Plan. The Plan provides the stockholders of the Company an opportunity to automatically invest their cash dividends at a discount of 3% from the market price. In addition, eligible participants may make monthly payments or other voluntary cash investments in shares of common stock, typically purchased at discounts, which have varied between 2% and 3%. During 1998, over $72,000,000 of common stock was issued under this plan, with an additional $49,000,000 of common stock issued in 1999.
As of December 31, 1999, the Company had an unsecured line of credit from M&T Bank of $100,000,000 with $50,800,000 outstanding. Borrowings under the facilities bear interest, at the Company's option, at either 1.25% over the one-month LIBOR rate or at a money market rate as quoted on a daily basis by the lending institution. The line of credit expires on September 4, 2000.
As of December 31, 1999, the weighted average rate of interest on the Company's mortgage debt is 7.4% and the weighted average maturity of such indebtedness is approximately twelve years. Mortgage debt of $619 million was outstanding with 99% at fixed rates of interest with staggered maturities. This limits the exposure to changes in interest rates, minimizing the effect of interest rate fluctuations on results of operations and financial condition.
The Company's net cash provided by operating activities increased from $60,548,000 for the year ended December 31, 1998 to $90,571,000 for the year ended December 31, 1999. The increase was principally due to the acquisition of the 1998 and 1999 Acquisition Communities.
Net cash used in investing activities decreased from $297,788,000 in 1998 to $190,937,000 in 1999. The level of properties purchased increased in 1999 to $487 million from $383 million, while the amount of mortgages assumed and UPREIT units issued increased by $194 million, such that the net cash invested in properties decreased, accounting for most of the year over year decrease.
The Company's net cash provided by financing activities decreased from $266,877,000 in 1998 to $71,662,000 in 1999. The major source of financing in 1999 was $99,130,000 of proceeds from sales of preferred and common stock and net debt proceeds of $46,857,000, both used to fund property acquisitions and additions. In 1998, proceeds from the sale of common stock and net debt proceeds totaling $316,045,000 were used to fund property acquisitions and additions.
CAPITAL IMPROVEMENTS
Total capital improvement expenditures increased from $42,896,000 in 1998 to $61,034,000 in 1999. Of the $61,034,000 in total expenditures, $5,742,000 is attributable to the 1999 Acquisition Communities and $24,870,000 is attributable to the 1998 Acquisition Communities. The balance of $30,422,000 is allocated between the 1999 Core Properties of $29,920,000 and $502,000 for corporate office expenditures.
Recurring, non-revenue enhancing capital replacements typically include carpeting and tile, appliances, HVAC equipment, new roofs, site improvements and various exterior building improvements. Funding for these capital replacements are provided by cash flows from operating activities. The Company estimates that during 1999, approximately $375 per unit was spent on capital replacements to maintain the condition of its properties.
The schedule below summarizes the breakdown of capital improvements:
*No distinction is attempted between recurring or non-recurring expenditures for the corporate office.
The $50,110,000 incurred to fund non-recurring, revenue enhancing upgrades included, among other items, the following: construction of ten new community centers; the installation of nearly 10,000 new windows and other energy conservation measures; and the modernization of over 3,300 kitchens. Management believes that these upgrades contributed significantly towards achieving 9.0% average growth in net operating income at the 1999 Core Properties. For the combined Acquisition Communities, substantial rehabilitations were incurred as part of management's acquisition and repositioning strategies. The pace of capital replacements was accelerated to improve the overall competitive condition of the properties. Funding for these capital improvements was provided by the line of credit and equity proceeds.
During 2000, management expects that the communities will benefit further from improvements completed in 1999 and plans to continue to fund similar non-recurring, revenue enhancing upgrades in addition to normal capital replacements.
IMPACT OF THE YEAR-2000 ON SYSTEM PROCESSING
The year 2000 ("Y2K") problem concerned the inability of information systems to property recognize and process date-sensitive information beyond January 1, 2000. As a result, the Y2K problem could have affected any system that uses date data, including mainframes, PCs, and embedded microprocessors that control security systems, call-processing systems, building climate systems, elevators, office equipment and even fire alarms.
Since January 1, 2000, the Company has not experienced any disruption to its business operations as a result of Y2K compliance problems. One software application displayed the wrong date in a non-critical field. The date display is purely cosmetic and an updated version will be installed during the first quarter of 2000.
The Company's State of Readiness
The Company began addressing the Y2K issue in September 1997. As such it divided its review into two segments: business critical and mission critical systems. Business critical systems are those with the potential to affect the financial and operational infrastructure of the Company. Mission critical are those systems with a potential to affect the delivery of electricity and natural gas to our residents, commercial tenants and employees and the safety of residents, commercial tenants and employees.
Recognizing that the mission critical systems rely heavily on public service vendors, the Company's focus was on business critical systems under the assumption that market forces and regulatory agencies would encourage and monitor the compliance of the telecommunications, utilities and emergency service industries. The Company set up systems to monitor the progress of mission critical service providers and developed contingency plans to minimize the possibility that the Y2K problem would disrupt the lives of its residents, commercial tenants and employees.
The Company relies exclusively on micro computers (PC's). PC's exist in the corporate office, regional offices and at the communities. The Company completed its review and modification of corporate, regional and community office systems towards Y2K compliance in November, 1999. The Company had one and one-half full-time employees dedicated to upgrading regional offices and community based systems. Additional information systems employees assisted as needed.
Throughout 2000, the Company plans to periodically match its systems' inventory against hardware and software component manufacturer upgrade releases to assure that its systems have the most current Y2K upgrades (including any properties acquired).
To insure delivery of goods and services (i.e., building and elevator access, security systems, HVAC, life safety, etc.) to the Company's communities and without interruption, the Company mailed surveys to all critical suppliers in July, 1999. All critical suppliers indicated their expected compliance.
COSTS
The cost of the Company's Y2K activities, which was budgeted at $675,000 totaled approximately $700,000.
ENVIRONMENTAL ISSUES
Phase I environmental audits have been completed on substantially all of the Owned Properties. There are no recorded amounts resulting from environmental liabilities as there are no known contingencies with respect thereto. Furthermore, no condition is known to exist that would give rise to a material liability for site restoration or other costs that may be incurred with respect to the sale or disposal of a property.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company is not aware of any pronouncements which would have a material adverse effect on the Company's liquidity, financial position or results of operations.
INFLATION
Substantially all of the leases at the communities are for a term of one year or less, which enables the Company to seek increased rents upon renewal of existing leases or commencement of new leases. These short-term leases minimize the potential adverse effect of inflation on rental income, although residents may leave without penalty at the end of their lease terms and may do so if rents are increased significantly.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See Note 4 - Mortgage Notes Payable in the Consolidated Financial Statements of the Company concerning interest rate risk.
Item 8.
Item 8. Financial Statements and Supplemental Data
The financial statements and supplementary data are listed under Item 14(a) and filed as part of this report on the pages indicated.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Directors
The Board of Directors (the "Board") currently consists of twelve members. The terms for all of the directors of Home Properties expire at the 2000 Shareholders' Meeting.
The information sets forth, as of March 23, 2000, for each director of the Company such director's name, experience during the last five years, other directorships held, age and the year such director was first elected as director of the Company.
BURTON S. AUGUST, SR. has been a director of the Company since August, 1994. Mr. August is currently a director of Monro Muffler Brake, Inc., a publicly traded company where Mr. August served as Vice President from 1969 until he retired in 1980. Mr. August is Honorary Vice Chairman of the Board of Trustees of Rochester Institute of Technology, on the Board of Directors of Park Ridge Health Systems and Hillside Children's Center Foundation, on the cabinet of the Al Sigl Center and on the Finance Committee of the United Way of Greater Rochester.
WILLIAM BALDERSTON, III has been a director of the Company since August, 1994. From 1991 to the end of 1992, he was an Executive Vice President of The Chase Manhattan Bank, N.A. From 1986 to 1991, he was President and Chief Executive Officer of Chase Lincoln First Bank, N.A., which was merged into The Chase Manhattan Bank, N.A. He is a Trustee of the University of Rochester and a member of the Board of Governors of the University of Rochester Medical Center. Mr. Balderston is also a Trustee of the Genesee Country Village Museum, as well as a member of the Board of the Genesee Valley Conservancy. Mr. Balderston is a graduate of Dartmouth College.
RICHARD J. CROSSED has served as an Executive Vice President and as a director of the Company and as a director, President and Chief Executive Officer of Conifer Realty since January 1, 1996. He is also Executive Vice President of HP Management. He served as President and Chief Executive Officer of Conifer from 1985. Prior to becoming President of Conifer, he served as Director of Development for Conifer. Mr. Crossed is a director of St. Joseph's Villa and is active in many housing organizations. He has served on the New York State Housing Turnkey Task Force and New York State Low-Income Housing Tax Credit Task Force. Mr. Crossed is a graduate of Bellarmine College.
ALAN L. GOSULE, has been a director of the Company since December, 1996. Mr. Gosule has been a partner in the law firm of Clifford Chance Rogers & Wells LLP, New York, New York, since August, 1991 and prior to that time was a partner in the law firm of Gaston & Snow. He serves as Chairman of the Clifford Chance Rogers & Wells LLP Tax Department and Real Estate Securities practice group. Mr. Gosule is a graduate of Boston University and its Law School and received a LL.M. from Georgetown University. Mr. Gosule also serves on the Boards of Directors of 32 funds of the Pilgrim Capital Corporation, the Simpson Housing Limited Partnership, F.L. Putnam Investment Management Company, CORE Cap, Inc. and Colonnade Partners. Clifford Chance Rogers & Wells LLP acted as counsel to Coopers & Lybrand, LLP in its capacity as advisor to the State Treasurer of the State of Michigan in connection with its investment of retirement funds in the Operating Partnership and Mr. Gosule was the nominee of the State Treasurer under the terms of the investment agreements relating to the transaction.
LEONARD F. HELBIG, III has been a director of the Company since August, 1994. Since 1999 Mr. Helbig has served as President, Financial Services for Cushman & Wakefield. Prior to that, Mr. Helbig was the Executive Managing Director of the Asset Services and Financial Services Groups since 1984. He joined Cushman & Wakefield in 1980 and is also a member of that firm's Board of Directors and Executive Committee. Mr. Helbig is a member of the Urban Land Institute, the Pension Real Estate Association and the International Council of Shopping Centers. Mr. Helbig is a graduate of LaSalle University and holds the MAI designation of the American Institute of Real Estate Appraisers.
ROGER W. KOBER has been a director of the Company since August, 1994. Mr. Kober is currently a director of RGS Energy Corporation and its wholly owned subsidiary, Rochester Gas and Electric Corporation. He was employed by Rochester Gas and Electric Corporation from 1965 until his retirement on January 1, 1998. From March, 1996 until January 1, 1998 Mr. Kober served as Chairman and Chief Executive Officer of Rochester Gas and Electric Corporation. He is also a member of the Board of Trustees of Rochester Institute of Technology. Mr. Kober is a graduate of Clarkson College and holds a Masters Degree in Engineering from Rochester Institute of Technology.
NELSON B. LEENHOUTS has served as President, Co-Chief Executive Officer and a director of the Company since its inception in 1993. He has also served as President and Chief Executive Officer of HP Management since its formation and has been a director of Conifer Realty since its formation. He has been a Vice President of Conifer Realty since 1998. Nelson Leenhouts was the founder, and a co-owner, together with Norman Leenhouts, of Home Leasing, and served as President of Home Leasing from 1967. He is a director of Hauser Corporation and a member of the Board of Directors of the National Multi Housing Council. Nelson Leenhouts is a graduate of the University of Rochester. He is the twin brother of Norman Leenhouts.
NORMAN P. LEENHOUTS has served as Chairman of the Board of Directors, Co- Chief Executive Officer and a director of the Company since its inception in 1993. He has also served as Chairman of the Board of HP Management and as a director of Conifer Realty since their formation. Norman Leenhouts is a co-owner, together with Nelson Leenhouts, of Home Leasing and served as Chairman of Home Leasing from 1971. He is a director of Hauser Corporation and Rochester Downtown Development Corporation and is a member of the Board of Trustees of Roberts Wesleyan College. He is a graduate of the University of Rochester and is a certified public accountant. He is the twin brother of Nelson Leenhouts.
ALBERT H. SMALL has been a director of the Company since July, 1999. Mr. Small, who has been active in the construction industry for 50 years, is President of Southern Engineering Corporation. Mr. Small is a member of the Urban Land Institute, National Association of Home Builders and currently serves on the Board of Directors of the National Symphony Orchestra, National Advisory Board Music Associates of Aspen, Department of State Diplomatic Rooms Endowment Fund, James Madison Council of the Library of Congress, Tudor Place Foundation, The Life Guard of Mount Vernon, Historical Society of Washington, DC and the National Archives Foundation. Mr. Small is a graduate of the University of Virginia. In connection with the acquisition of a portfolio of properties located in the suburban markets surrounding Washington, D.C., Mr. Small and others received approximately 4,086,000 of operating partnership units in Home Properties of New York, L.P. Mr. Small is the nominee of the former owners of that portfolio under the terms of the acquisition documents.
CLIFFORD W. SMITH, JR. has been a director of the Company since August, 1994. Mr. Smith is the Epstein Professor of Finance of the William E. Simon Graduate School of Business Administration of the University of Rochester, where he has been on the faculty since 1974. He has written numerous books and articles on a variety of financial, capital markets and risk management topics and has held editorial positions for a variety of journals. Mr. Smith is a graduate of Emory University and has a PhD from the University of North Carolina at Chapel Hill.
PAUL L. SMITH has been a director of the Company since August, 1994. Mr. Smith was a director, Senior Vice President and the Chief Financial Officer of the Eastman Kodak Company from 1983 until he retired in 1993. He is currently a director of Performance Technologies, Inc. and Canandaigua Brands, Inc. He is also a member of the Board of Trustees of the George Eastman House and Ohio Wesleyan University. Mr. Smith is a graduate of Ohio Wesleyan University and holds an MBA Degree in finance from Northwestern University.
AMY L. TAIT has served as Executive Vice President and a director of the Company since its inception in 1993. She has also served as a director of HP Management since its formation. Mrs. Tait joined Home Leasing in 1983 and has had several positions, including Senior and Executive Vice President and Chief Operating Officer. She currently serves on the M & T Bank Advisory Board and the boards of the United Way of Rochester, Geva Theatre and The Commission Project. Mrs. Tait is also a member of the Board of Directors of the National Multi Housing Council. Mrs. Tait is a graduate of Princeton University and holds an MBA from the William E. Simon Graduate School of Business Administration of the University of Rochester. She is the daughter of Norman Leenhouts.
See Item X in Part I hereof for information regarding executive officers of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") requires the Company's executive officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Officers, directors and greater than 10% shareholders are required to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended December 31, 1999, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were satisfied with the following exceptions. Director Roger Kober filed his statement of beneficial ownership on Form 4 reporting a May, 1999 exercise of stock options subsequent to the due date for such filing. The State of Michigan Retirement Systems, the holder of in excess of 10% of a registered class of the Company's equity securities filed its required Form 4 subsequent to the due date for such filing.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Company's proxy statement to be issued in connection with the Annual Meeting of the Stockholders of the Company to be held on May 2, 2000 under "Executive Compensation", which proxy statement will be filed within 120 days after the end of the Company's fiscal year.
ITEM 12.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the Company's proxy statement to be issued in connection with the Annual Meeting of Stockholders of the Company to be held on May 2, 2000 under "Security Ownership of Certain Beneficial Owners and Management", which proxy statement will be filed within 120 days after the end of the Company's fiscal year.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference to the Company's proxy statement to be issued in connection with the Annual Meeting of Stockholders of the Company to be held on May 2, 2000 under "Certain Relationships and Transactions", which proxy statement will be filed within 120 days after the end of the Company's fiscal year.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. Financial Statements and Schedules
The financial statements and schedules listed below are filed as part of this annual report on the pages indicated.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants on Financial Statement Schedule
Schedule III: Real Estate and Accumulated Depreciation
(a) 3. Exhibits
2.1 Agreement among Home Properties of New York, Inc. and Philip J. Solondz, Daniel Solondz and Julia Weinstein relating to Royal Gardens I, together with Amendment No. 1.
2.2 Agreement among Home Properties of New York, Inc. and Philip Solondz and Daniel Solondz relating to Royal Gardens II, together with Amendment No. 1.
2.3 Purchase and Sale Agreement dated July 25, 1997 by and between Home Properties of New York, L.P. and Louis S. and Molly S. Wolk Foundation.
2.4 Purchase and Sale Agreement dated April 30, 1997 between Home Properties of New York, L.P. and Briggs Wedgewood Associates, L.P.
2.5 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and Chesfield Partnership.
2.6 Agreement and Plan of Merger dated July 31, 1997 between Home Properties of New York, L.P. and Valspring Partnership.
2.7 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and Exmark Partnership.
2.8 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and New Orleans East Limited Partnership.
2.9 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and Glenvwk Partnership.
2.10 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and PK Partnership.
2.11 First Amendment to Agreement and Plan of Merger, dated September 1, 1997 between Home Properties of New York, L.P. and PK Partnership and its partners.
2.12 First Amendment to Agreement and Plan of Merger, dated September 1, 1997 between Home Properties of New York, L.P. and NOP Corp. and Norpark Partnership.
2.13 Contribution Agreement dated July 31, 1997 between Home Properties of New York, L.P. and Lamar Partnership.
2.14 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and Curren Partnership.
2.15 Contribution Agreement, dated October __, 1997 between Home Properties of New York, L.P. and Berger/Lewiston Associates Limited Partnership; Stephenson-Madison Heights Company Limited Partnership; Kingsley-Moravian Company Limited Partnership; Woodland Garden Apartments Limited Partnership; B&L Realty Investments Limited Partnership; Southpointe Square Apartments Limited Partnership; Greentrees Apartments limited Partnership; Big Beaver-Rochester Properties Limited Partnership; Century Realty Investment Company Limited Partnership.
2.16 Agreement among Home Properties of New York, L.P. and Erie Partners, L.L.C. relating to Woodgate Place Apartments, together with Amendment No. 1.
2.17 Agreement among Home Properties of New York, L.P. and Mid-Island Limited Partnership relating to Mid-Island Estates, together with Amendment No. 1.
2.18 Purchase and Sale Agreement among Home Properties of New York, L.P. and Anthony M. Palumbo and Daniel Palumbo.
2.19 Purchase and Sale Agreements dated June 17, 1997 among Home Properties of New York, L.P. and various individuals relating to Hill Court Apartments South and Hudson Arms Apartments, together with a letter amendment dated September 24, 1997.
2.20 Contract of Sale, dated October 20,1997 between Home Properties of New York, L.P. and Hudson Palisades Associates relating to Cloverleaf Apartments.
2.21 Contribution Agreement, dated November 17, 1997 among Home Properties of New York, L.P. and various trusts relating to Scotsdale Apartments.
2.22 Contribution Agreement, dated November 7, 1997 among Home Properties of New York, L.P. and Donald Schefmeyer and Stephen W. Hall relating to Candlewood Apartments, together with Amendment No. One dated December 3, 1997.
2.23 Purchase and Sale Agreement dated November 26, 1997 among Home Properties of New York, L.P. and Cedar Glen Associates.
2.24 Contribution Agreement dated March 2, 1998 among Home Properties of New York, L.P., Braddock Lee Limited Partnership and Tower Construction Group, LLC.
2.25 Contribution Agreement dated March 2, 1998 among Home Properties of New York, L.P., Park Shirlington Limited Partnership and Tower Construction Group, LLC.
2.26 Contract of Sale between Lake Grove Associates Corp. and Home Properties of New York, L.P., dated December 12, 1996, relating to the Lake Grove Apartments.
2.27 Form of Contribution Agreement among Home Properties of New York, L.P. and Strawberry Hill Apartment Company LLLP, Country Village Limited Partnership, Morningside Six, LLLP, Morningside North Limited Partnership and Morningside Heights Apartment Company Limited Partnership with schedule setting forth material details in which documents differ from form.
2.28 Form of Purchase and Sale Agreement relating to the Kaplan Portfolio with schedule setting forth material details in which documents differ from form.
2.29 Form of Contribution Agreement relating to the CRC Portfolio with schedule setting forth material details in which documents differ from form.
2.30 Form of Contribution Agreement relating to the Mid-Atlantic Portfolio with Schedule setting forth material details in which documents differ from form.
2.31 Contribution Agreement among Home Properties of New York, L.P., Leonard Klorfine, Ridley Brook Associates and Greenacres Associates.
2.32 Purchase and Sale Agreement among Home Properties of New York, L.P. and Chicago Colony Apartments Associates.
3.1 Articles of Amendment and Restatement of the Articles of Incorporation of Home Properties of New York, Inc.
3.2 Articles of Amendment of the Articles of Incorporation of Home Properties of New York, Inc.
3.3 Articles of Amendment of the Articles of Incorporation of Home Properties of New York, Inc.
3.4 Amended and Restated Articles Supplementary of Series A Senior Convertible Preferred Stock of Home Properties of New York, Inc.
3.5 Series B Convertible Preferred Stock Articles Supplementary of Home Properties of New York, Inc.
3.6 Amended and Restated By-Laws of Home Properties of New York, Inc. (Revised 12/30/96).
4.1 Form of certificate representing Shares of Common Stock.
4.2 Agreement of Home Properties of New York, Inc. to file instruments defining the rights of holders of long-term debt of it or its subsidiaries with the Commission upon request.
4.3 Credit Agreement between Manufacturers and Traders Trust Company, Home Properties of New York, L.P. and Home Properties of New York, Inc.
4.4 Amendment Agreement between Manufacturers and Traders Trust Company, Home Properties of New York, L.P. and Home Properties of New York, Inc. amending the Credit Agreement.
4.5 Mortgage Spreader, Consolidation and Modification Agreement between Manufacturers and Traders Trust Company and Home Properties of New York, L.P., together with form of Mortgage, Assignment of Leases and Rents and Security Agreement incorporated therein by reference.
4.6 Mortgage Note made by Home Properties of New York, L.P. payable to Manufacturers and Traders Trust Company in the principal amount of $12,298,000.
4.7 Spreader, Consolidation, Modification and Extension Agreement between Home Properties of New York, L.P. and John Hancock Mutual Life Insurance Company, dated as of October 26, 1995, relating to indebtedness in the principal amount of $20,500,000.
4.8 Amended and Restated Stock Benefit Plan of Home Properties of New York, Inc.
4.9 Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan.
4.10 Amendment No. One to Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan.
4.11 Amendment No. Two to Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan.
4.12 Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan.
4.13 Amendment No. Three to Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan.
4.14 Directors' Stock Grant Plan.
4.15 Director, Officer and Employee Stock Purchase and Loan Program.
4.16 Home Properties of New York, Inc., Home Properties of New York, L.P. Executive Retention Plan.
4.17 Home Properties of New York, Inc. Deferred Bonus Plan.
4.18 Fourth Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan.
4.19 Directors Deferred Compensation Plan.
10.1 Second Amended and Restated Agreement of Limited Partnership of Home Properties of New York, L.P.
10.2 Amendments No. One through Eight to the Second Amended and Restated Agreement of Limited Partnership of Home Properties of New York, L.P.
10.3 Articles of Incorporation of Home Properties Management, Inc.
10.4 By-Laws of Home Properties Management, Inc.
10.5 Articles of Incorporation of Conifer Realty Corporation.
10.6 By-Laws of Conifer Realty Corporation.
10.7 Home Properties Trust Declaration of Trust, dated September 19, 1997.
10.8 Employment Agreement between Home Properties of New York, L.P. and Norman P. Leenhouts.
10.9 Amendments No. One, Two and Three to the Employment Agreement between Home Properties of New York, L.P. and Norman P. Leenhouts.
10.10 Employment Agreement between Home Properties of New York, L.P. and Nelson B. Leenhouts.
10.11 Amendments No. One, Two and Three to the Employment Agreement between Home Properties of New York, L.P. and Nelson B. Leenhouts.
10.12 Employment Agreement between Home Properties of New York, L.P. and Richard J. Crossed.
10.13 Amendments No. One and Two to the Employment Agreement between Home Properties of New York, L.P. and Richard J. Crossed.
10.14 Indemnification Agreement between Home Properties of New York, Inc. and certain officers and directors.
10.15 Indemnification Agreement between Home Properties of New York, Inc. and Richard J. Crossed.
10.16 Indemnification Agreement between Home Properties of New York, Inc. and Alan L. Gosule.
10.17 Registration Rights Agreement among Home Properties of New York, Inc., Home Leasing Corporation, Leenhouts Ventures, Norman P. Leenhouts, Nelson B. Leenhouts, Amy L. Tait, David P. Gardner, Ann M. McCormick, William E. Beach, Paul O'Leary, Richard J. Struzzi, Robert C. Tait, Timothy A. Florczak and Laurie Tones.
10.18 Lockup Agreements by Home Properties of New York, Inc. and Conifer Realty, Inc., Conifer Development, Inc., Richard J. Crossed, Peter J. Obourn and John F. Fennessey.
10.19 Contribution Agreement between Home Properties of New York, L.P. and Conifer Realty, Inc., Conifer Development, Inc., .Richard J. Crossed, Peter J. Obourn and John H. Fennessey.
10.20 Amendment to Contribution Agreement between Home Properties of New York, L.P. and Conifer Realty, Inc., Conifer Development, Inc., Richard J. Crossed, Peter J. Obourn and John H. Fennessey.
10.21 Agreement of Operating Sublease, dated October 1, 1986, among KAM, Inc., Morris Massry and Raintree Island Associates, as amended by Letter Agreement Supplementing Operating Sublease dated October 1, 1986.
10.22 Indemnification and Pledge Agreement between Home Properties of New York, L.P. and Conifer Realty, Inc., Conifer Development, Inc., Richard J. Crossed, Peter J. Obourn and John H. Fennessey.
10.23 Form of Term Promissory Note payable to Home Properties of New York, Inc. by officers and directors in association with the Executive and Director Stock Purchase and Loan Program.
10.24 Form of Pledge Security Agreement executed by officers and directors in connection with Executive and Director Stock Purchase and Loan Program.
10.25 Schedule of Participants, loan amounts and shares issued in connection with the Executive and Director Stock Purchase and Loan Program.
10.26 Subordination Agreement between Home Properties of New York, Inc. and The Chase Manhattan Bank relating to the Executive and Director Stock Purchase and Loan Program.
10.27 Partnership Interest Purchase Agreement, dated as of December 23, 1996 among Home Properties of New York, Inc., Home Properties of New York, L.P. and State of Michigan Retirement Systems.
10.28 Registration Rights Agreement, dated as of December 23, 1996 between Home Properties of New York, Inc. and State of Michigan Retirement Systems.
10.29 Lock-Up Agreement, dated December 23, 1996 between Home Properties of New York, Inc. and State of Michigan Retirement Systems.
10.30 Agreement, dated as of April 13, 1998, between Home Properties of New York, Inc. and the Treasurer of the State of Michigan.
10.31 Amendment No. Nine to the Second Amended and Restated Agreement of Limited Partnership to the Operating Partnership.
10.32 Master Credit Facility Agreement by and among Home Properties of New York, Inc., Home Properties of New York, L.P., Home Properties WMF I LLC and Home Properties of New York, L.P. and P-K Partnership doing business as Patricia Court and Karen Court and WMF Washington Mortgage Corp., dated as of August 28, 1998.
10.33 First Amendment to Master Credit Facility Agreement, dated as of December 11, 1998 among Home Properties of New York, Inc., Home Properties of New York, L.P., Home Properties WMF I LLC and Home Properties of New York, L.P. and P-K Partnership doing business as Patricia Court and Karen Court and WMF Washington Mortgage Corp. and Fannie Mae.
10.34 Second Amendment to Master Credit Facility Agreement, dated as of August 30, 1999 among Home Properties of New York, Inc., Home Properties of New York, L.P., Home Properties WMF I LLC and Home Properties of New York, L.P. and P-K Partnership doing business as Patricia Court and Karen Court and WMF Washington Mortgage Corp. and Fannie Mae.
10.35 Amendments No. Ten through Seventeen to the Second Amended and Restated Limited Partnership Agreement.
10.36 Amendments No. Eighteen through Twenty-Five to the Second Amended and Restated Limited Partnership Agreement.
10.37 Credit Agreement, dated 8/23/99 between Home Properties of New York, L.P., the Lenders Party hereto and Manufacturers and Traders Trust Company, as Administrative Agent.
10.38 Amendment No. Twenty-Seven to the Second Amended and Restated Limited Partnership Agreement.
10.39 Amendments Nos. Twenty-Six, Twenty-Eight through Thirty to the Second Amended and Restated Limited Partnership Agreement.
10.40 Registration Rights Agreement between Home Properties of New York, Inc. and GE Capital Equity Investments, Inc., dated September 29, 1999.
10.41 Amendment to Partnership Interest Purchase Agreement and Exchange Agreement.
10.42 2000 Stock Benefit Plan.
11 Computation of Per Share Earnings Schedule.
21 List of Subsidiaries of Home Properties of New York, Inc.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Home Properties of New York, Inc. certifies that it has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HOME PROPERTIES OF NEW YORK, INC.
By: /S/ NORMAN P. LEENHOUTS Norman P. Leenhouts Chairman of the Board, Co-Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Home Properties of New York, Inc. and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ NORMAN P. LEENHOUTS Director, Chairman of the March 23, 2000 Norman P. Leenhouts Board of Directors and Co-Chief Executive Officer (Co-Principal Executive Officer)
/S/ NELSON B. LEENHOUTS Director, President March 23, 2000 Nelson B. Leenhouts and Co-Chief Executive Officer (Co-Principal Executive Officer)
/S/ RICHARD J. CROSSED Director, Executive Vice March 23, 2000 Richard J. Crossed President
/S/ AMY L. TAIT Director, Executive Vice March 23, 2000 Amy L. Tait President
/S/ DAVID P. GARDNER Vice President, Chief March 23, 2000 David P. Gardner Financial Officer and Treasurer (Principal Financial and Accounting Officer)
/S/ BURTON S. AUGUST, SR Director March 23, 2000 Burton S. August, Sr.
/S/ WILLIAM BALDERSTON, III Director March 23, 2000 William Balderston, III
/S/ ALAN L. GOSULE Director March 23, 2000 Alan L. Gosule
/S/ LEONARD F. HELBIG, III Director March 23, 2000 Leonard F. Helbig, III
/S/ ROGER W. KOBER Director March 23, 2000 Roger W. Kober
/S/ ALBERT H. SMALL Director March 23, 2000 Albert H. Small
/S/ CLIFFORD W. SMITH, JR. Director March 23, 2000 Clifford W. Smith, Jr.
/S/ PAUL L. SMITH Director March 23, 2000 Paul L. Smith
HOME PROPERTIES OF NEW YORK, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants on Financial Statement Schedule
Schedule III: Real Estate and Accumulated Depreciation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Home Properties of New York, Inc.
In our opinion, the accompanying consolidated financial statements listed in item 14(a)(1) and (2) of this Form 10-K present fairly, in all material respects, the financial position of Home Properties of New York, Inc. (the "Company") at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Rochester, New York January 31, 2000, except for Note 17, as to which the date is March 15, 2000.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 and 1998 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The accompanying notes are an integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The accompanying notes are an integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1 ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Home Properties of New York, Inc. (the "Company " ) was formed in November 1993, as a Maryland corporation and is engaged primarily in the ownership, management, acquisition, rehabilitation and development of apartment communities in the Northeastern, Mid-Atlantic and Midwestern United States. The Company conducts its business through Home Properties of New York, L.P. (the "Operating Partnership"), a New York limited partnership. As of December 31, 1999, the Company operated 291 apartment communities with 44,982 apartments. Of this total, the Company owned 126 communities, consisting of 33,807 apartments, managed as general partner 125 partnerships that owned 7,710 apartments and fee managed 3,465 apartments for affiliates and third parties. The Company also fee managed 1.7 million square feet of office and retail properties.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the Company and its 62.4% (64.0% at December 31, 1998) partnership interest in the Operating Partnership. The remaining 37.6% (36.0% at December 31, 1998) is reflected as Minority Interest in these consolidated financial statements. Investments in which the Company does not have control are presented on the equity method. All significant intercompany balances and transactions have been eliminated in these consolidated financial statements.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE
Real estate is recorded at the lower of cost or net realizable value. Costs related to the acquisition, development, construction and improvement of properties are capitalized. Interest costs are capitalized until construction is substantially complete. When retired or otherwise disposed of, the related cost and accumulated depreciation are cleared from the respective accounts and the net difference, less any amount realized from disposition, is reflected in income. There was $263, $189 and $0 of interest capitalized in 1999, 1998 and 1997, respectively. Ordinary repairs and maintenance are expensed as incurred.
The Company quarterly reviews its properties to determine if its carrying costs will be recovered from future operating cash flows. In cases where the Company does not expect to recover its carrying costs, the Company recognizes an impairment loss. No such losses have been recognized to date.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Properties are depreciated using a straight-line method over the estimated useful lives of the assets as follows: buildings, improvements and equipment - 5-40 years; and tenant improvements - life of related lease. Depreciation expense charged to operations was $37,176, $23,067 and $11,104 for the years ended December 31, 1999, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash equivalents include all cash and highly liquid investments purchased with original maturities of three months or less. The Company estimates that the fair value of cash equivalents approximates the carrying value due to the relatively short maturity of these instruments.
CASH IN ESCROWS
Cash in escrows consists of cash restricted under the terms of various loan agreements to be used for the payment of property taxes and insurance as well as required replacement reserves and tenant security deposits for residential properties.
DEFERRED CHARGES
Costs relating to the financing of properties and interest rate reduction agreements are deferred and amortized over the life of the related agreement. The straight-line method, which approximates the effective interest method, is used to amortize all financing costs. The range of the terms of the agreements are from 1-23 years. Accumulated amortization was $1,165, $2,592 and $1,791 as of December 31, 1999, 1998 and 1997, respectively.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities were recorded at fair market value based upon quoted prices, with the unrealized gain (loss) recorded as a component of stockholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
ADVERTISING
Advertising expenses are charged to operations during the year in which they were incurred. Advertising expenses incurred and charged to operations were approximately $3,966, $2,891 and $1,291 for the years ended December 31, 1999, 1998 and 1997, respectively.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Operating Partnership leases its residential properties under leases with terms generally one year or less. Rental income is recognized when earned. Property other income, which consists primarily of income from operation of laundry facilities, administrative fees, garage and carport rentals and miscellaneous charges to residents, is recognized when earned.
The Operating Partnership earns development and other fee income from properties in the development phase. This fee income is recognized on the percentage of completion method.
INCOME TAXES
The Company has elected to be taxed as a real estate investment trust ( " REIT " ) under the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 1994. As a result, the Company generally will not be subject to Federal or State income taxation at the corporate level to the extent it distributes annually at least 95% of its REIT taxable income to its shareholders and satisfies certain other requirements. Accordingly, no provision has been made for federal income taxes in the accompanying consolidated financial statements for the years ended December 31, 1999, 1998 and 1997. Stockholders are taxed on dividends and must report such dividends as either ordinary income, capital gains, or as return of capital.
EARNINGS PER SHARE
Basic Earnings Per Share ("EPS") is computed as net income available to common shareholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock- based compensation including stock options and the conversion of any cumulative convertible preferred stock. The exchange of an Operating Partnership Unit for common stock will have no effect on diluted EPS as unitholders and stockholders effectively share equally in the net income of the Operating Partnership.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE (CONTINUED)
Income before extraordinary item, extraordinary item and net income available to common shareholders are the same for both the basic and diluted calculation. The reconciliation of the basic and diluted earnings per share for the years ended December 31, 1999, 1998 and 1997 is as follows:
Unexercised stock options to purchase 713,600, 138,500, 116,500 shares of the Company's common stock were not included in the computations of diluted EPS because the options' exercise prices were greater than the average market price of the Company's stock during the years ended December 31, 1999, 1998 and 1997, respectively. For the year ended December 31, 1999, the 1,666,667 shares of the 9% Series A Convertible Cumulative Preferred Stock ("Series A Preferred") and the 2,000,000 shares of 8.36% Series B Convertible Cumulative Preferred Stock ("Series B Preferred") on an as-converted basis has an antidilutive effect and is not included in the computation of diluted EPS.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3 INVESTMENT IN AND ADVANCES TO AFFILIATES
The Company has investments in and advances to approximately 150 limited partnerships where the Company acts as managing general partner. In addition, there are investments in other affiliated entities. The following is summarized financial information for the investment in and advances to affiliates carried under the equity method of accounting as of December 31, 1999 and 1998 and for each of the three years ended December 31, 1999.
Reconciliation of interests in the underlying net assets to the Company's carrying value of property investments in and advances to affiliates:
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4 MORTGAGE NOTES PAYABLE
Mortgage notes, collateralized by certain properties and listed in order of their maturity dates, are as follows:
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4 MORTGAGE NOTES PAYABLE (CONTINUED)
*The interest rate on these mortgages will convert to a variable rate on various dates between 2000 and 2003 and continue until maturity.
Principal payments on the mortgage notes payable for years subsequent to December 31, 1999 are as follows:
2000 $ 7,478 2001 12,535 2002 52,008 2003 30,359 2004 30,307 Thereafter 486,214 $618,901
The Company determines the fair value of the mortgage notes payable based on the discounted future cash flows at a discount rate that approximates the Company's current effective borrowing rate for comparable loans. Based on this analysis, the Company has determined that the fair value of the mortgage notes payable approximates $601,983 at December 31, 1999.
The Company has incurred prepayment penalties on debt restructurings which are accounted for as extraordinary items in the statement of operations. Prepayment penalties were approximately $174, $1,555 and $1,774 for the years ended December 31, 1999, 1998 and 1997, respectively. The 1999 paydowns totaled $13,669 from four debt instruments which were paid off from available cash on hand. The 1998 paydowns totaled $54,879 from 14 debt instruments which were financed by three new borrowings in excess of $179,000. The 1997 paydowns totaled $34,626 from one debt instrument which was financed by one new borrowing of $50,000.
5 LINE OF CREDIT
As of December 31, 1999, the Company had an unsecured line of credit from M&T Bank of $100,000 with $50,800 outstanding. The facility expires on September 4, 2000. Borrowings bear interest at 1.25% over the one-month LIBOR rate or at a money market rate as quoted on a daily basis by the lending institution. The money market interest rate (the rate used by the Company) was 6.75% at December 31, 1999.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6 MINORITY INTEREST
Minority interest in the Company relates to the interest in the Operating Partnership not owned by Home Properties of New York, Inc. Units in the Operating Partnership ("UPREIT Units") are exchangeable on a one-for-one basis into common shares. On December 30, 1996, $35 million was raised in a private placement through the sale of a Class A Limited Partnership Interest to a state pension fund. The interest, which can be converted into 1,666,667 shares of common stock, will receive a preferred return equal to the greater of: (a) 9.25% on the original investment during the first two years ending on December 30, 1998, declining to 9.0% up to and including December 30, 2003; or (b) the actual dividends paid to common shareholders on 1,666,667 shares. On December 22, 1999, the holder of the Class A Limited Partnership Interest converted its ownership to Series A Preferred stock.
The changes in minority interest for the two years ended December 31 are as follows:
7 STOCKHOLDERS' EQUITY
DIVIDEND REINVESTMENT PLAN
The Company has adopted the Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan (the "DRIP" ). The DRIP provides the stockholders of the Company an opportunity to automatically invest their cash dividends at a discount of 3% from the market price. In addition, eligible participants may make monthly or other voluntary cash investments, also typically at a discount, which has varied between 2% and 3% from the market price, in shares of common stock. A total of $49 million, $72 million and $34 million, net of officer and director notes, was raised through this program during 1999, 1998 and 1997, respectively.
PREFERRED SHARES
On September 30, 1999, the Company privately placed 2,000,000 of its 8.36% Series B Preferred shares, $25 liquidation preference per share. This offering generated net proceeds of approximately $48.7 million after offering costs of $1.3 million. The net proceeds were used to pay down Company borrowings. The Series B Preferred shares are convertible at any time by the holder into Common Shares at a conversion price of $29.77 per Common Share, equivalent to a conversion ratio of .8398 Common Shares for each Series B Preferred Share (equivalent to 1,679,543 Common Shares assuming 100% converted). The Series B Preferred Shares are non-callable for five years. Each Series B Preferred Share will receive the greater of a quarterly distribution of $0.5225 per share or the dividend paid on a share of common stock on an as converted basis.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7 STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED SHARES (CONTINUED)
On December 22, 1999, the holder of the Class A limited partnership interests converted its ownership to 9% Series A Preferred stock, liquidation preference of $21.00 per Common Share, total shares outstanding of 1,666,667. The conversion to preferred stock occurred at the Company's request and permits the Operating Partnership to continue to use favorable tax depreciation methods. The Series A Preferred shares are convertible at any time by the holder on a one-for-one basis into Common Shares. Each Series A Preferred share will receive a quarterly distribution equal to the greater of 9% per annum multiplied by the liquidation preference or the dividend paid on a share of common stock. The current dividend of $.53 per quarter (effective with the November, 1999 dividend) is equivalent to an annualized rate of $2.12 per share, which exceeds the 9% preferred return. On and after December 30, 2003, each preferred share will receive the dividend paid on a share of common stock as long as the actual distributions paid in each of the prior eight consecutive quarters equaled or exceeded a 9.25% annual return. Any unconverted interest can be redeemed without premium by the Company after December 30, 2006.
OFFICER AND DIRECTOR NOTES FOR STOCK PURCHASES
On August 12, 1996, eighteen officers and the six independent directors purchased an aggregate of 208,543 shares of Common Stock through the DRIP at the price of $19.79. The purchases were financed 50% from a bank loan and 50% by a recourse loan from the Company. The Company loans bear interest at 7% per annum and mature in August, 2016. The Company loans are subordinate to the above-referenced bank loans, and are collateralized by pledges of the 208,543 common shares. The loans are expected to be repaid from the regular quarterly dividends paid on the shares of common stock pledged, after the corresponding bank loans are paid in full.
On November 10, 1997, twenty-one officers and five of the independent directors purchased an aggregate of 169,682 shares of common stock through the DRIP at the price of $26.66. The purchases were financed 50% from a bank loan and 50% by a recourse loan from the Company. The Company loans bear interest at 6.7% per annum and mature in November, 2017. The Company loans are subordinate to the above-referenced bank loans, and are collateralized by pledges of the 169,682 common shares. The loans are expected to be repaid from the regular quarterly dividends paid on the shares of common stock pledged, after the corresponding bank loans are paid in full.
STOCK PURCHASE AND LOAN PLAN
In May, 1998, the Company adopted the Director, Officer and Employee Stock Purchase and Loan Plan (the "Stock Purchase Plan"). The program provides for the sale and issuance, from time to time as determined by the Board of Directors, of up to 500,000 shares of the Company's Common Stock to the directors, officers and key employees of the Company for consideration of not less than 97% of the market price of the Common Stock. The Stock Purchase Plan also allows the Company to loan the participants up to 100% of the purchase price (50% for non-employee directors).
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7 STOCKHOLDERS' EQUITY (CONTINUED)
STOCK PURCHASE AND LOAN PLAN (CONTINUED)
On August 12, 1998, thirty officers/key employees and the six independent directors purchased an aggregate of 238,239 shares of common stock through the Stock Purchase Plan at the price of $24.11. The purchases for the officers/key employees were financed 100% by a recourse loan from the Company (50% for non-employee directors). The loans bear interest at 7.13% per annum and mature on the earlier of the maturity of the 1996 and 1997 phases of the loan program or August, 2018. The loans are collateralized by pledges of the common stock and are expected to be repaid from the regular quarterly dividends paid on the shares.
DIVIDENDS
Stockholders are taxed on dividends and must report such dividends as either ordinary income, capital gains, or as return of capital. The appropriate amount of each per common share is as follows:
ORDINARY INCOME RETURN OF CAPITAL
1997 50.1% 49.9% 1998 79.4% 20.6% 1999 85.6% 14.4%
TOTAL SHARES/UNITS OUTSTANDING
At December 31, 1999, 19,598,464 common shares, 3,346,210 convertible preferred shares (on a diluted basis) and 14,034,301 UPREIT Units were outstanding for a total of 36,978,975.
8 SEGMENT REPORTING
The Company is engaged in one primary business segment - the ownership and management of market rate apartment communities (segregated as Core and Non-core properties). Company management views each apartment community as a separate component of the operating segment.
Non-segment revenue to reconcile total revenue consists of unconsolidated management and development fees and interest income. Non-segment assets to reconcile to total assets include cash, cash in escrows, accounts receivable, prepaid expenses, deposits, investments in and advances to affiliates, deferred charges and other assets.
Core properties consist of all apartment communities which have been owned more than one full calendar year. Therefore, the 1999 Core represents communities owned as of December 31, 1997. Non-core properties consist of apartment communities acquired during 1998 and 1999, such that full year comparable operating results are not available.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8 SEGMENT REPORTING (CONTINUED)
The accounting policies of the segments are the same as those described in Note 1.
The Company assesses and measures segment operating results based on a performance measure referred to as Funds from Operations ("FFO"). The National Association of Real Estate Investment Trusts defines FFO as net income (loss), before gains (losses) from the sale of property, extraordinary items, plus real estate depreciation including adjustments for unconsolidated partnerships and joint ventures. FFO is not a measure of operating results or cash flows from operating activities as measured by generally accepted accounting principles and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
THE REVENUES, PROFIT (LOSS), AND ASSETS FOR EACH OF THE REPORTABLE SEGMENTS ARE SUMMARIZED AS FOLLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9 MANAGEMENT COMPANIES
Certain property management, leasing and development activities are performed by Home Properties Management, Inc. and Conifer Realty Corp. (the "Management Companies"). The Management Companies issued non- voting common stock to the Operating Partnership in exchange for management contracts for residential, commercial, and development managed properties and certain other assets. This exchange entitles the Operating Partnership to receive 99% of the economic interest of each Management Company. The remaining 1% economic interest and voting stock were issued to certain inside directors of the Company. On December 31, 1998, additional shares representing a 4% economic interest were sold and issued to the same inside directors. Therefore, effective January 1, 1999, the Operating Partnership is entitled to receive 95% of the economic interest of each Management Company.
The Management Companies receive development, construction and other fee income from properties in the development phase. This fee income is recognized on the percentage of completion method. The Management Companies are accounted for under the equity method.
The Management Companies provide property management and administrative services to certain real estate and other entities. In consideration for these services, the Management Companies receive monthly management fees generally based on a percentage of revenues or costs incurred. Management fees are recognized as revenue when they are earned.
The Company's share of income from the Management Companies was $156, $113 and $92 for the years ended December 31, 1999, 1998 and 1997, respectively. Summarized combined financial information of the Management Companies at and for the years ended December 31, 1999, 1998 and 1997 is as follows:
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10 TRANSACTIONS WITH AFFILIATES
The Company and the Management Companies recognized management and development fee revenue, interest income and other miscellaneous income from affiliated entities of $15,199, $13,492 and $8,427 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company leases its corporate office space from an affiliate. The lease requires an annual base rent of $336 through June, 2000 and $335 from July, 2000 through the August, 2003 lease expiration. The lease also requires the Company to pay a pro rata portion of property improvements, real estate taxes and common area maintenance. Rental expense was $698, $619 and $387 for the years ended December 31, 1999, 1998 and 1997, respectively.
From time to time, the Company advances funds as needed to the Management Companies which total $19,782 and $9,462 at December 31, 1999 and 1998, respectively, and bear interest at 1% over prime.
11 COMMITMENTS AND CONTINGENCIES
GROUND LEASE
The Company has a non-cancelable operating ground lease for one of its properties. The lease expires May 1, 2020, with options to extend the term of the lease for two successive terms of twenty-five years each. The lease provides for contingent rental payments based on certain variable factors. The lease also requires the lessee to pay real estate taxes, insurance and certain other operating expenses applicable to the leased property. Ground lease expense was $194, $186 and $180 including contingent rents of $124, $116 and $110 for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, future minimum rental payments required under the lease are $70 per year until the lease expires.
401(K) SAVINGS PLAN
The Company participates in a contributory savings plan. Under the plan, the Company will match 75% of the first 4% of participant contributions. The matching expense under this plan was $398, $208 and $161 for the years ended December 31, 1999, 1998 and 1997, respectively.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11 COMMITMENTS AND CONTINGENCIES(CONTINUED)
INCENTIVE COMPENSATION PLAN
The Incentive Compensation Plan provides that eligible officers and key employees may earn a cash bonus based on increases in funds from operations ("FFO") per share/unit (computed based on the basic shares/units outstanding). No cash bonuses were payable under the Incentive Compensation Plan unless the increase in FFO per share, after giving effect to the bonuses, was equal to or greater than 2%. The Incentive Compensation Plan was amended in 1998 by establishing a floor of 5% in per share/unit FFO growth. The bonus expense charged to operations (including Management Companies) was $2,190, $1,997 and $1,193 for the years ended December 31, 1999, 1998 and 1997, respectively.
CONTINGENCIES
The Company is party to certain legal proceedings. All such proceedings, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by liability insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company's liquidity, financial position or results of operations.
In connection with a 1996 transaction, the Company is obligated to pay additional consideration in UPREIT Units if development fee income exceeds target levels over the first five years. The Company has issued approximately 78,000 UPREIT Units as of December 31, 1999. Management does not anticipate the issuance of these UPREIT Units nor additional issuance to have a material adverse effect on the Company's liquidity, financial position or results of operations.
In connection with various UPREIT transactions, the Company has agreed to maintain certain levels of nonrecourse debt associated with the contributed properties acquired. In addition, the Company is restricted in its ability to sell certain contributed properties (49% of the owned portfolio) for a period of time except through a tax deferred Internal Revenue Code Section 1031 like-kind exchange.
DEBT COVENANTS
The line of credit loan agreements contain restrictions which, among other things, require maintenance of certain financial ratios and limit the payment of dividends. At December 31, 1999, the Company was in compliance with these covenants.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11 COMMITMENTS AND CONTINGENCIES (CONTINUED)
GUARANTEES
The Company has guaranteed a total of $3,729 of debt associated with four entities where the Company is the general partner or managing agent. In addition, the Company has guaranteed the Low Income Housing Tax Credit to limited partners in thirty-five partnerships totaling approximately $35,000. The Company also guarantees the successful construction of properties developed under the federal government's Low Income Housing Tax Credit Program. The outstanding guarantee at December 31, 1999 is approximately $54,900. As of December 31, 1999, there were no known conditions that would make such payments necessary.
In addition, the Company, acting as general partner in certain partnerships, is obligated to advance funds to meet partnership operating deficits.
EXECUTIVE RETENTION PLAN
Effective February 2, 1999, the Executive Retention Plan provides for severance benefits and other compensation to be received by certain employees in the event of a change in control of the Company and a subsequent termination of their employment without cause or voluntarily with good cause.
12 STOCK BENEFIT PLAN
The Company has adopted the 1994 Stock Benefit Plan as Amended (the " Plan " ). Plan participants include officers, non-employee directors, and key employees of the Company. The Company has reserved 1,596,000 shares for issuance to officers and employees and 154,000 shares for issuance to non- employee directors. Options granted to officers and employees of the Company vest 20% for each year of service until 100% vested on the fifth anniversary. Certain officers' options (264,000) and directors' options (127,500) vest immediately upon grant. The exercise price per share for stock options may not be less than 100% of the fair market value of a share of common stock on the date the stock option is granted (110% of the fair market value in the case of incentive stock options granted to employees who hold more than 10% of the voting power of the Company's common stock). Options granted to directors and employees who hold more than 10% of the voting power of the Company expire after five years from the date of grant. All other options expire after ten years from the date of grant. The Plan also allows for the grant of stock appreciation rights and restricted stock awards, however, there were none granted at December 31, 1999. At December 31, 1999, 119,140 and 21,946 common shares were available for future grant of options or awards under the Plan for officers and employees and non-employee directors, respectively. On February 1, 2000, the Company adopted the 2000 Stock Benefit Plan (the "2000 Plan"). Plan participants have been expanded to include directors, officers, regional managers and on-site property managers. It is expected that all future awards of stock options will be granted under the 2000 Plan. The 2000 Plan limits the number of shares issuable under the plan to 2.2 million, of which 200,000 are to be available for issuance to the non-employee directors.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12 STOCK BENEFIT PLAN (CONTINUED)
Details of stock option activity during 1999, 1998 and 1997 are as follows:
The following table summarizes information about options outstanding at December 31, 1999:
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12 STOCK BENEFIT PLAN (CONTINUED)
The Company has adopted the disclosure only provisions of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation for the Company's stock option plan been determined based on the fair value at the date of grant for awards in 1999, 1998 and 1997, the Company's proforma net income before preferred dividends and proforma basic earnings per common share would have been $26,063, $18,563 and $6,299 and $1.33, $1.34 and $.85, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 1999, 1998 and 1997: dividend yield of 9.315%; expected volatility of 18.97%; forfeiture rate of 5%; and expected lives of 7.5 years for options with a lifetime of ten years, and five years for options with a lifetime of five years. The interest rate used in the option-pricing model is based on a risk free interest rate ranging from 5.25% to 6.87%.
13 PROPERTY ACQUISITIONS
For the years ended December 31, 1999, 1998 and 1997, the Company has acquired the communities listed below:
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14 PROFORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited proforma information was prepared as if the 1999 transactions related to the acquisitions of 30 apartment communities in ten separate transactions and the $50 million Series B Preferred stock offering had occurred on January 1, 1998. The proforma financial information is based upon the historical consolidated financial statements and is not necessarily indicative of the consolidated results which actually would have occurred if the transactions had been consummated at the beginning of 1998, nor does it purport to represent the results of operations for future periods.
15 SUPPLEMENTAL CASH FLOW DISCLOSURES
For the years ended December 31, 1999, 1998 and 1997 are as follows:
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16 QUARTERLY FINANCIAL STATEMENT INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1999 and 1998 are as follows:
Full year per share data does not equal the sum of the quarterly data due to the combination of seasonality and a growing number of shares outstanding.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17 SUBSEQUENT EVENT
On March 15, 2000, the Operating Partnership acquired a portfolio of six communities, with a total of 2,113 units, and two parcels of vacant land, in the suburbs of Philadelphia, Pennsylvania for $135,900. The purchase price was funded by $73,100 of assumed debt, $32,800 in UPREIT Units and $30,000 in cash from a short-term credit facility.
Report of Independent Accountants
To the Board of Directors and Stockholders of Home Properties of New York, Inc.
In our opinion, the accompanying financial statement schedule is fairly stated in all material respects in relation to the basic financial statements, taken as a whole, of Home Properties of New York, Inc. as of and for the three years ended December 31, 1999, which are covered by our report dated January 31, 2000, except for note 17, as to which the date is March 15, 2000, presented previously in this document. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. This information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Rochester, New York January 31, 2000
HOME PROPERTIES OF NEW YORK, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (IN THOUSANDS)
HOME PROPERTIES OF NEW YORK, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (IN THOUSANDS)
HOME PROPERTIES OF NEW YORK, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (IN THOUSANDS)
HOME PROPERTIES OF NEW YORK, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (IN THOUSANDS)
(A) REPRESENTS THE EXCESS OF FAIR VALUE OVER THE HISTORICAL COST OF PARTNERSHIP INTERESTS AS A RESULT OF THE APPLICATION OF PURCHASE ACCOUNTING FOR THE ACQUISITION OF NON-CONTROLLED INTERESTS.
(B) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES WAS APPROXIMATELY $1,257,000.
HOME PROPERTIES OF NEW YORK, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
Depreciation and amortization of the Company's investments in buildings and improvements reflected in the consolidated statements of operations are calculated over the estimated useful lives of the assets as follows:
Buildings and improvements 5-40 years Tenant improvements Life of related lease
The changes in total real estate assets for the three years ended December 31, 1999, are as follows:
The changes in accumulated depreciation for the three years ended December 31, 1999, are as follows:
HOME PROPERTIES OF NEW YORK, INC. FORM 10-K For Fiscal Year Ended December 31, 1999 Exhibit Index
EXHIBIT 4.19
HOME PROPERTIES OF NEW YORK, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
1. PURPOSE
Home Properties of New York, Inc. (the "Company") has adopted this Home Properties of New York, Inc. Director Deferred Compensation Plan (the "Plan") to assist its independent directors with their individual tax and financial planning and to permit the Company to remain competitive in attracting and retaining its independent directors. The Plan permits eligible directors to defer the receipt of annual compensation which they may be entitled to receive from the Company and the Company to contribute matching contributions on their behalf.
2. ELIGIBILITY
Any member of the Board of Directors of the Company who is not otherwise an employee of the Company or any subsidiary is eligible to participate in this Plan.
3. CONTRIBUTIONS
(a) Participant Contributions.
(1) AMOUNT OF DEFERRAL. A participant may elect to defer receipt of any whole percent (100 percent maximum) of his or her annual cash compensation otherwise payable to the participant by the Company during a calendar year.
(1) TIME FOR ELECTING DEFERRAL. An initial election to make a deferral shall be made within 30 days of the time the participant first becomes eligible to participate. All other deferral elections shall be made prior to the time that such compensation is to be earned by the participant but, in any event, prior to the December 31 of the year prior to the year in which the annual cash compensation is otherwise payable. Any election to defer shall be made in accordance with subsection 3 below.
(2) MANNER OF ELECTING DEFERRAL. A participant shall elect a deferral by giving written notice to the Company in a form prescribed by the Committee established pursuant to Section 9 (the "Committee"). The notice shall include (1) the year to which the deferral relates; (2) the percentage and type of compensation to be deferred; (3) the period with respect to which the deferral relates; and (4) the length of the deferral period. A participant may designate a deferral period of three, five or ten years in which case payment will be made within 30 days following the applicable anniversary date of the latest date any compensation is deferred in any applicable year. For example, a participant may elect in December 1999 to defer for three years compensation payable in 2000 with respect to 2000 services. If a portion of the compensation is otherwise payable in cash in April 2000, it will be deferred and actually paid in 2003 within 30 days after the anniversary date of the latest compensation deferred in 2000. Notwithstanding the foregoing, in the event the participant retires or otherwise ceases to be a member of the Board of Directors, vested benefits payments shall be paid within 60 days of retirement or such cessation notwithstanding any later date specified in the participant's election form.
(b) Company Matching Contributions.
The Company shall contribute 10 percent of the amount each participant defers. The Company's contribution shall be made as of the same date as the participant's deferral to which it relates and shall be deferred to the same payment date as the related participant deferral.
4. PARTICIPANT ACCOUNTS
For each participant there shall be established a Participant Account. A participant's Account shall be valued as of each day there occurs a transaction affecting the Account. Each deferral or Company contribution shall be reflected by crediting the Participant Account with the number of shares of Company Common Stock that could be purchased at the Common Stock's then fair market value with the amounts deferred by the participant, or contributed by the Company on behalf of a participant. For purposes of making these credits, the participant's quarterly compensation will be deemed to have been made on the first business day of the month following the end of each calendar quarter and the participants' meetings fees shall be deemed paid on the applicable meeting date. In addition, each Participant Account will be credited with the number of shares of Company Common Stock that could be purchased with hypothetical dividends that would be paid with respect to all shares previously allocated to the Account on the same date and at the same price that shares are purchased for participants in the dividend reinvestment feature of the Company's Dividend Reinvestment and Direct Stock Purchase Plan. Distributions from, or forfeiture of, the Participant Account shall be recorded as of the day of such distributions or forfeitures. The Account shall also be adjusted as of the date of any transaction requiring additions to or distributions from the Account to reflect any gains (or losses) in the fair market value of Company Common Stock held in the Account. Two subaccounts shall be established within the Account to track separately participant and Company contributions and the earnings and distributions on each. The Common Stock's fair market value shall be the closing price for a share of the Company's Common Stock as listed on the New York Stock Exchange on the date that the transaction occurs.
All amounts credited to participant contribution subaccounts shall be fully vested at all times. Except for the possible claims of the Company's general creditors, they shall not be subject to forfeiture on account of any action by a participant or by the Company, including termination of the participant's directorship. Amounts credited to a participant's Company contribution subaccount shall become fully vested on the third anniversary of the date first credited to the subaccount if the participant has continuously been a director of the Company through the third anniversary of the contribution date, or if the participant ceases to be a director on account of disability, death or retirement or upon a change in control as hereinafter provided. For this purpose, "disability" shall mean the participant's inability to perform his or her usual duties as a director of the Company on account of illness or injury. Amounts payable under this Plan shall be paid only to the participant provided that in the event of his or her death payments shall be made to his or her estate.
If a participant's Company subaccount becomes forfeitable, he or she shall forfeit both Company contributions and the earnings thereon.
The maintenance of individual Participant Accounts is for bookkeeping purposes only. The Company is not obligated to make actual contributions to fund this Plan or to acquire or set aside any particular assets for the discharge of its obligations, nor is any participant to have any property rights in any particular assets held by the Company, whether or not held for the purpose of funding the Company's obligations hereunder.
5. PAYMENT OF DEFERRED AMOUNTS
No withdrawal may be made from a Participant Account except as provided in this section 5. Payments of vested amounts from an Account shall normally be made in a lump sum amount within 30 days following the applicable anniversary date of the latest date any compensation is deferred in any applicable year and within 60 days of the participant's retirement or other termination as a director of the Company. In the case of financial hardship, the Committee, in its sole discretion may distribute all or a portion of the vested portion of an Account before an elected anniversary date or termination as a director but the amount of the, distribution shall not exceed the amount needed to relieve the financial hardship
Payments for any reason other than a change in control shall be made only in stock provided that any fractional shares from a Participant Account shall be paid in cash. In the event of a change in control, all account balances shall become fully and immediately vested and shall be paid, in cash or stock as the Committee in its sole discretion may determine, within five days of the change in control. For this purpose, the term "change in control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A or to Item I of Form 8-K promulgated under the Securities Exchange Act of 1934, as amended, provided that, without limitation, a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of such Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of twenty-four (24) consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.
An aggregate of 50,000 shares of Company Common Stock (subject to substitution or adjustment as provided below) shall be available for stock payments under this Plan. Such shares may be authorized and unissued shares or may be treasury shares. In the event of any change in the Common Stock of the Company by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of shares, or rights offering to purchase Common Stock at a price substantially below fair market value, or of any similar change affecting the Common Stock, the number and kind of shares which thereafter are available for stock payments under the Plan shall be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan.
6. PARTICIPANT'S RIGHTS UNSECURED
The right of any participant or, if applicable, the participant's estate, to receive benefits under the provisions of this Plan shall be an unsecured claim against the general assets of the Company. Any amounts held in a Participant Account, including amounts that may be set aside by the Company for the purpose of meeting its obligations under this Plan, are a part of the Company's general assets and shall be reachable by the general creditors of the Company.
7. STATEMENT OF ACCOUNT
Statements will be sent to participants no less frequently than annually setting forth the value of their Participant Accounts.
8. TRANSFERABILITY
The rights of a participant under this Plan shall not be transferable other than by will or by the laws of descent and distribution and are exercisable during the participant's lifetime only by the participant or by his guardian or legal representative.
9. PLAN ADMINISTRATOR
The administrator of this Plan shall be a Committee of the Board of Directors of the Company from time to time designated by the Board. The Committee's members shall not be employees of the Company. The Committee shall have the authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement the provisions of the Plan. The Committee may delegate some or all of its functions to another person as it may deem appropriate. The Board of Directors has designated the Management and Directors Committee of the Board of Directors as administrator of the Plan until further notice.
10. AMENDMENT
This Plan may at any time or from time to time be amended, modified or terminated by the Company's Board of Directors. No amendment, modification or termination shall, without the consent of a participant, adversely affect such participant's accruals in his or her Participant Account.
11. GOVERNING LAW
This Plan and any participant elections hereunder shall be interpreted and enforced in accordance with the laws of the State of New York.
12. EFFECTIVE DATE
The effective date of this Plan is January 1, 1999.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Plan document on its behalf this ____ day of November, 1999.
HOME PROPERTIES OF NEW YORK, INC.
By: _____________________________________
Its: _____________________________________
HOME PROPERTIES OF NEW YORK, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
Election Form
To: HOME PROPERTIES OF NEW YORK, INC.
In accordance with the provisions of the Plan, I hereby elect to defer the annual compensation otherwise payable in (enter year) to me by the Company as follows:
I . AMOUNT OF COMPENSATION DEFERRAL (fill in percentage):
_______ percentage of quarterly compensation*
_______ percentage of director meeting fees*
2. DEFERRAL PERIOD (subject to Plan's payment terms) (check one):
( three years
( five years
( ten years
In the event of my death before I have received all of the deferred payments, the payments which would have been paid to me shall be paid to my estate in the same manner I would have received them as noted above.
This election is subject to all of the terms of the Home Properties of New York, Inc. Director Deferred Compensation Plan on file with the records of the Company.
Dated: ___________ __________________________ Signature of Director
Accepted on the ___ day of ___________, 19___, on behalf of Home Properties of New York, Inc.
By: ___________________________________
*If less than 100% is elected to be deferred, the specified percentage will be deferred from each quarterly payment and/or meeting fee unless alternate directions are provided by the participant.
FEDERAL TAX ASPECTS
The Plan is a non-qualified deferred compensation plan under the provisions of the Internal Revenue Code. At the time a Company contribution or a participant's deferral of compensation is made, it is intended that the participants will not recognize income, for Federal income tax purposes. In addition, assumed dividends will not be treated as income at the time they are credited to the participant accounts.
Participants will recognize ordinary income at the time the Company contributions and participant deferrals, together with the earnings credited to these amounts, are actually paid out or made available to the participants. The amount of such ordinary income will equal the amount of cash received plus the fair market value, on the date of payment, of any shares paid or made available.
The ultimate sale or exchange of any shares of common stock received under the Plan will result in either long-term or short-term capital gain, or loss depending on the holding period. A participant's basis in the shares will be the amount of income he recognizes at the time the shares were actually paid or made available to the participant.
The Company is not entitled to deduct the amount of contributions or deferrals into the Plan or the assumed dividends credited to an account. Instead, the Company is entitled to take a deduction at the time a participant recognizes income. The amount of the deduction is the amount of income that a participant must recognize.
For Social Security tax (F.I.C.A.) and Medicare tax purposes the Company contributions and participant deferrals under the Plan are taxable as "wages" at the time the amounts are paid.
The Plan is not a tax-qualified plan under Section 401 (a) of the Internal Revenue Code and is not subject to ERISA. The Company has not received any ruling from the Internal Revenue Service concerning the tax consequences of the Plan.