SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 2
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13136
HOME PROPERTIES OF NEW YORK, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 16-1455126
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
850 CLINTON SQUARE
ROCHESTER, NEW YORK 14604
(Address of principal executive offices)
Registrant's telephone number, including area code: (716) 546-4900
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
Common Stock, $.01 par value New York Stock Exchange
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the shares of common stock held by non-
affiliates (based upon the closing sale price on the New York Stock
Exchange) on February 26, 1996 was approximately $100,159,969. As of
February 26, 1996, there were 5,408,822.48 shares of common stock, $.01 par
value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1
HOME PROPERTIES OF NEW YORK, INC.
TABLE OF CONTENTS
PART I.
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item X. Executive Officers and Key Employees
PART II.
Item 5. Market of the Registrant's Common Equity and
Related Shareholder Matters
Item 6. Selected Financial and Operating Information
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Page 2
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 engages in the ownership, management, acquisition,
development and marketing of real estate, focusing on multifamily
residential properties. 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 89.8% interest as of December 31, 1995 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.
Effective January 1, 1996, the Company combined its operations (the
"Conifer Transaction") with those of Conifer Realty, Inc. and Conifer
Development, Inc. (collectively, "Conifer"). Conifer is another large
owner and operator of multifamily properties throughout New York State
with whom the Company has previously participated in several joint
venture development projects.
Home Properties, through its affiliates described above, and after the
Conifer Transaction, owns and manages 23 communities with 6,008
apartment units and one community containing 202 manufactured home
sites (the "Owned Properties"). The Operating Partnership also holds
general partnership interests in an additional 3,368 apartment units
and it and the Management Companies manage 1,302 apartment units and
approximately 1.6 million square feet of commercial space for other
owners (primarily affiliates) (collectively, the "Managed
Properties"). The Management Companies 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 located in New York State and primarily Upstate New
York with the exception of one 604 unit apartment community and 35,000
square feet ancillary shopping area, located in Columbus, Ohio.
Page 3
The Company's primary business objective is to increase shareholder
value and dividends per share by concentrating on the ownership of a
critical mass of apartment communities in each market or geographical
area where it operates and by enhancing the value of its portfolio
through effective management, acquisition, development and financing
strategies. The Company believes that attractive opportunities exist
and it can achieve its objectives by: (i) acquiring properties and
portfolios of properties in market areas where it can own a
concentration of multifamily units so that property management,
customer service and marketing can be conducted effectively; (ii)
capitalizing on its acquisition of Conifer's assets and management
team by increasing its involvement in the development and
redevelopment of government-assisted housing; and (iii) increasing
rental revenues through effective leasing and management of its
Properties, including a continuing emphasis on customer satisfaction.
Structure
The Company was formed in November 1993 as a Maryland corporation and
is the general partner of the Operating Partnership. On December 31,
1995, it owned 89.8% of the limited partnership units (the "Units") in
the Operating Partnership. After the Conifer Transaction, in which the
principals of Conifer accepted Units as consideration, the Company
owned a 83.1% interest in the Operating Partnership. The remaining
Units are owned by the officers of the Company and certain individuals
who took Units in the Operating Partnership as partial consideration
for their interests in entities purchased by the Operating
Partnership.
The Operating Partnership is a New York limited partnership formed in
December, 1993. Subsequent to August 4, 1995, 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. The Company has filed a
registration statement with respect to shares of common stock into
which the Units may be converted (up to 2,630,000 shares). Management
plans to aggressively pursue the use of Units as consideration for
acquisition properties.
Both of the Management Companies were formed to comply with the
technical requirements of the federal income tax laws. Both are
Maryland corporations. HP Management was formed in January, 1994 and
Conifer Realty was formed in December, 1995. The Operating Partnership
holds 99% of the economic interest in both Management Companies, with
Nelson and Norman Leenhouts (the "Leenhoutses") holding the remaining
one percent interest
Page 4
in HP Management and the Leenhoutses and Richard
J. Crossed, the former President of Conifer, holding the remaining one
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.
Including the former employees of Conifer and certain contract
employees, the Company currently has approximately 600 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) differentiating itself from its competitors
with its absolute focus on customer satisfaction, evidenced by its
written "pledge" that includes a money-back guarantee; (ii) continuing
its decentralized company orientation with a special commitment to
training, standardized procedures and excellence in information at the
site levels, aided by a recently installed information technology
system that moves greater responsibility to the sites; (iii) striving
for a leadership position for its market rate communities by providing
the highest quality living experience for residents while charging
premium rents; (iv) continuing its marketing focus on senior
households as seniors move less frequently and represent the fastest
growing segment of the multifamily market; (v) seeking the highest
possible revenue per unit, in part by investing in upgrades that
provide sound return and also by benefitting from increased purchasing
power and ecomonies of scale.
Acquisition and Development Strategies
The Company will seek to increase shareholder values and dividends per
share by: (i) focusing on market areas, that may include markets
surrounding New York State, where it can own a concentration of
multifamily units and use its local knowledge and relationships to
take advantage of additional acquisition opportunities; (ii) acquiring
multifamily residential properties at purchase prices that provide
attractive initial yields, have significant cash flow growth potential
and are generally capable of improved performance through the
Company's management capabilities; and (iii) developing and
redeveloping multifamily residential properties, primarily of a
government-assisted nature, where Conifer's experience and expertise
can result in relatively predictable development fees to the Company,
as well as an on-going stabilized cash flow.
Page 5
Financing 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
common stock and units plus total debt) of approximately 50% or less;
(ii) varying debt maturities and maintaining predominately fixed rate
debt; and (iii) utilizing the most appropriate sources of capital for
future acquisition and development and capital improvements, which may
include the Company's line ofcredit, undistributed cash, issuance of
equity securities (including preferred stock or units) for cash or
properties, bank or other institutional borrowings (collateralized and
uncollateralized) or issuance of debt securities. Management expects
to fund an increasing portion of its continued growth by taking
advantage of its UPREIT structure and exchanging Units in the
Operating Partnership (exchangeable for Company stock) for
acquisitions. The Company has, to date, used its Units as full or
partial consideration in five transactions.
On December 31, 1995, the Company's debt was $91.1 million and the
debt to total capitalization ratio was 46.9% based on the year-end
closing price of the Company's stock at $17.125. Ninety-five percent
of the debt is fixed rate with a weighted average interest rate of
7.6% and a weighted average maturity of 9.2 years. Debt maturities are
staggered. The Company has an unsecured line of credit of $15 million
for acquisition and other corporate purposes with an interest rate of
LIBOR plus 1.90%. As of December 31, 1995, $4.5 million was
outstanding under the line of credit.
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 minimal increase in new construction of multifamily
properties in its markets in 1995 will not have a material adverse
effect on its turnover rates or ability to increase rents and minimize
operating expenses. To date, the Company has not faced competition in
acquiring properties from other REIT's or other operators from outside
the region, although the Company may encounter competition from others
as it seeks attractive properties in New York State and other nearby
states.
Page 6
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. Although management believes that the Properties are
substantially in compliance with present requirements, the Company may
incur additional costs in complying with the ADA with respect to the
Owned Properties. The Company believes that the Owned Properties that
are subject to the FHAA are in compliance with such laws.
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 adverse
effect on the Company nor is the Company aware of any environmental
liability that management believes would have a material adverse
effect on the Company. There is no assurance that Phase I reports
would reveal all environmental liabilities or that environmental
conditions not known to the Company may exist now or in the future
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 the award of
significant damage award 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
Page 7
subject the Company to legal actions and the possible imposition
of damage awards.
Approximately 11% of the apartment units owned by the Company are
entitled to the benefits of Housing Assistance Payments ("HAP")
contracts with the U.S. Department of Housing and Urban Development
("HUD"). Under the HAP contracts, HUD pays to the Company on a monthly
basis the difference between the rent agreed to by HUD and the rent
paid by the resident. Rental rates are adjusted annually with HUD
approval. HAP contracts relating to the subsidized units expire as
follows: (i) 404 units at the Wedgewood community expire on June 16,
1996; (ii) 66 units at Wedgewood expire on December 1, 1997; and (iii)
198 units at Conifer Village expire on May 21, 2004. The Company
anticipates that HUD may make some modifications to its housing
subsidy programs. It is expected that the existing contracts will be
extended for one year while HUD considers other possible modifications
to the programs. Management believes that any such modifications will
have limited effect, if any, on the Company as more than twenty
percent of the units at the Wedgewood community are already rented at
market rents which are the same as the subsidized rent.
Item 2. Properties
The Owned Properties consist of 23 multifamily residential properties
containing 6,008 apartment units, one manufactured home community
containing 202 home sites and a 35,000 square foot ancillary shopping
center located adjacent to a multifamily property. At the time of the
IPO, Home Properties owned 11 multifamily properties containing 3,065
apartment units. Simultaneous with the closing of the IPO, it acquired
an additional four properties containing 926 units. In 1994, Home
Properties purchased three additional communities having 753 units and
in 1995 it purchased three more communities having 906 apartment
units. With the completion of the Conifer Transaction, the Company
acquired 358 market rate apartment units located in three multifamily
communities. From the time of the IPO to date, this represents a 196%
increase in the number of apartment units owned by Home Properties.
The Owned Properties are located in established markets and are well
maintained and well-leased. Average economic occupancy at the Owned
Properties held throughout 1994 and 1995 was 93.5% for 1995. The Owned
Properties are generally 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 mature residents and the quality of the services it
provides to such residents result in low turnover.
Page 8
The turnover at the
Owned Properties owned as of December 31, 1995 was approximately 36%
for 1995, which management believes is less than 60% of the national
average for garden apartments.
Management believes the Owned Properties provide the opportunity for
increased cash flows and appreciation in value through increases in
rents while maintaining high occupancy and expense controls.
Management has extensive experience in the operation, management and
financing of multifamily residential properties. The Company's
original management team averages over 14 years of active involvement
in the day-to-day management and operation of the Company's
multifamily residential properties and has an average of 18 years of
experience in the multifamily residential property business. The
Conifer Transaction added even more strength and depth to Home
Properties' management team. Conifer's top ten executives, who all
joined Home Properties, have an average of 16 years of real estate
experience and 11 years with Conifer. Further, with the addition of
Conifer, insider ownership of the Operating Partnership increased from
9% to 16%.
Resident leases are generally for one year terms and security deposits
equal to one month's rent are generally required.
The table on the next page illustrates certain of the important
characteristics of the Owned Properties as of December 31, 1995.
Page 9
Avg. % Dec Avg Mthly
Apt. Mature Average % % Resident Rental Rate Per
# of Age in Year Size Res.(1) Occupancy(2) Turnover(3) Occupied Apt.
Community Regional Area Units Years Acq. (SF) 1995 1995 1994 1995 1994 1995 1994
CORE PORTFOLIO (4)
Raintree Island Buffalo, NY 504 24 1985 704 40.4% 95.1% 96.0% 33.3% 33.1% $557 $537
Williamstowne Village Buffalo, NY 528 24 1985 708 99.8% 96.9% 96.1% 16.5% 19.7% $567 $547
1600 Elmwood Rochester, NY 210 36 1983 891 32.0% 93.9% 91.6% 38.1% 33.8% $705 $684
Finger Lakes Manor Rochester, NY 153 25 1983 924 69.0% 89.3% 95.5% 36.6% 28.8% $659 $638
Meadows Rochester, NY 113 25 1984 890 40.1% 95.8% 93.1% 30.0% 46.0% $572 $559
Newcastle Rochester, NY 197 21 1982 873 36.1% 87.6% 94.1% 44.2% 41.1% $611 $561(5)
Perinton Manor Rochester, NY 224 26 1982 928 54.1% 93.6% 94.7% 29.9% 27.7% $677 $652
Riverton Knolls Rochester, NY 240 22 1983 911 5.3% 88.0% 93.9% 61.3% 58.8% $651 $640
Springcreek Rochester, NY 82 23 1984 913 72.2% 96.8% 99.2% 35.4% 25.6% $515 $494
Fairview Heights Syracuse, NY 210 32 1985 798 6.1% 92.7% 94.3% 57.0% 62.4% $676 $655
Wedgewood Village Columbus, OH 604 38 1986 710 51.9% 94.7% 94.0% 43.3% 38.9% $406 $402
Total/Weighted Average 3,065 28 792 50.5% 93.5% 94.7% 37.1% 36.2% $571 $553
1994 ACQUISITIONS
Garden Village Buffalo, NY 315 24 1994 850 66.0% 98.0% 97.8% 17.1% N/A $554 $512
Brook Hill Rochester, NY 192 24 1994 999 23.1% 96.5% 97.8% 35.9% N/A $697 $660
Northgate Manor Rochester, NY 224 33 1994 800 31.2% 89.3% 90.7% 33.9% N/A $554 $550
Spanish Gardens Rochester, NY 220 22 1994 1,030 25.1% 88.0% 90.9% 40.9% N/A $585 $563
Conifer Village Syracuse, NY 199 17 1994 499 99.5% 100.0% 100.0% 0.0% N/A $547 $547
Harborside Manor(6) Syracuse,NY 281 23 1994 823 20.5% 90.3% 90.5% 40.0% N/A $527 $504
Village Green Syracuse, NY 248 7 1994 908 7.4% 87.8% 86.1% 70.0% N/A $575 $516(5)
Total/Weighted Average 1,679 21 846 39.5% 92.8% 93.3% 34.2% N/A $572 $544
1995 ACQUISITIONS
Idylwood Buffalo, NY 720 26 1995 700 9.3% 88.5% N/A 45.0% N/A $513 N/A
Candlewood Gardens(7) Syracuse, NY 126 25 1995 855 62.1% 91.1% N/A N/A N/A $432 N/A
Pearl Street(8) Syracuse, NY 60 25 1995 855 28.5% 95.1% N/A N/A N/A $425 N/A
Total/Weighted Average 906 26 732 18.4% 89.3% N/A 45.0% N/A $496 N/A
TOTAL/WEIGHTED AVERAGE 5,650(9) 26 799 42.4% 92.7% 94.2% 36.0% 36.2% $559 $550
Notes:
(1) "% Mature Residents" is the percentage of residents 55 years or older
as of December 31, 1995.
(2) "Average % Occupancy" is the economic occupancy. For the core
portfolio this is a twelve month average. For communities acquired
during 1994 or 1995, this is the average occupancy from the date of
acquisition.
(3) "% Resident Turnover" reflects, on an annual basis, the number move
outs divided by the total number of apartment units.
(4) Core Portfolio = Properties owned prior to 1994.
(5) During 1995, rent increased to include heat costs in base rents.
(6) Operation of Harborside commenced October 1, 1994, subject to an
operating and management agreement. The final closing occured March 29,
1995.
(7) Operation of Candlewood Gardens commenced December 4, 1995, subject to
a net lease agreement. The final closing occurred January 5,1996.
(8) For most other reporting purposes, Pearl Street is included within the
description of Harborside Manor, which is located immediately adjacent
to it and with which it is jointly operated.
(9) The above does not include the following:
* Waterfalls Village, a 202 site-manufactured home community in
Buffalo, NY.
* A 35,000 square foot ancillary convenience shopping area at
Wedgewood Village.
* 358 units which the Company acquired and assumed management of on
1/1/96.
Page 10
Property Development
Home Properties' development and redevelopment activities are expected
to be focused on government-assisted multifamily residential housing.
This will enable the Company to take advantage of Conifer's position
as the market leader in the development and management of government-
assisted housing throughout New York State, excluding New York City
and Long Island. Since its founding in 1975, Conifer has developed 68
multifamily properties.
A primary source of support for the development and redevelopment of
governmentassisted multifamily properties is the Low Income Housing
Tax Credit Program (LIHTC). As part of the Tax Reform Act of 1986, the
LIHTC Program was extended on a permanent basis in 1993 after several
years of annual extensions. It is possible that the Program may not be
continued on a permanent basis and may sunset in 1997. If the LIHTC
Program is sunset in 1997, management believes that it will be
extended on an annual basis similar to the 1987-1993 period because it
is the only large scale rental housing production program currently
available to meet the needs of low and moderate income households. In
addition, management believes that there will continue to be a need
for subsidized housing and thus that various forms of government
subsidy programs will be available, although their format may change.
Opportunities for the Company in this area are expected therefore to
also continue.
In 1995, Home Properties' in three separate joint ventures with
Conifer, acquired 382 additional units for redevelopment; 336 of those
units are currently being renovated, financed in part through the
LIHTC Program. The two new governmentassisted apartment communities,
containing 182 units, started by Home Properties/Conifer joint
ventures in 1994 have been completed. In addition, 106 units, the
ownership interest of which were acquired in connection with the
Conifer Transaction, are being redeveloped through the LIHTC Program.
The Company has also purchased 3 vacant sites for development of
government-assisted housing and has a number of other sites and
developed properties under option pending allocation of LIHTC funds or
the provision of other assistance through government programs.
Property Management
As of January 1, 1996, the Managed Properties consist of: (i) 3,368
apartment units where Home Properties is the general partner of the
entity that owns the property; (ii) 1,302 apartment units, 722 of
which are owned by entities that Home Leasing, Conifer or their
affiliates serve as general partner; (iii) commercial properties which
contain approximately 1.6
Page 11
million square feet of gross leasable area;
(iv) a master planned community known as Gananda, including an 18-hole
private golf course and country club; (v) a 140 lot Planned Unit
Development known as College Greene; (vi) a 202 lot Planned Unit
Development known as Riverton; (vii) a homeowners' association for a
58 unit condominium development; (viii) a nursing home which is leased
to a hospital for which the Company provides limited management
services; (ix) a commercial development in Greece, New York; and (x)
153 acres of vacant land in Old Brookside, the development of which,
if it occurs, will be managed by HP Management. All of the Managed
Properties other than 580 of the apartment units are owned or
controlled by an affiliate of Home Properties, Home Leasing or
Conifer. 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 commercial properties consist of: (i) approximately 950,000 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.
Supplemental Property Information
Other than the Idylwood and Williamstowne Village properties
(collectively, the "Material Properties"), 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 1995.
The Idylwood and Williamstowne Village properties would have accounted
for 11.5% and 10.3%, respectively, of the aggregate gross revenues of
the Company for 1995. None of the Material Properties have any
resident who occupies ten percent or more of the rental square footage
of such property. The Leases for the units at the Material Properties
are typical apartment leases having terms primarily of one year.
Certain occupancy and rental information relating to the Material
Properties is set forth in the following table:
Page 12
Idylwood (720 Units) Williamstowne (528 Units)
Weighted Weighted Weighted Weighted
Average Average Average Average
Percent Monthly Rent Percent Monthly Rent
Period End Leased Per Unit Leased Per Unit
December 31, 1995 88.5% $497 96.9% $557
December 31, 1994 N/A (1) N/A (1) 96.1% $538
December 31, 1993 N/A (1) N/A (1) 96.9% $518
December 31, 1992 N/A (1) N/A (1) 97.0% $501
December 31, 1991 N/A (1) N/A (1) 96.4% $485
(1) Reliable data is not available.
Information concerning the depreciation of each of the Material Properties
is set forth in the table below:
Idylwood Williamstowne
Approximate Basis $16,179,000 $12,900,000
Depreciation Period 27.5 Years 27.5 Years
Deprecation Method Straight-line Straight-line
Annual Depreciation Rate 3.636 3.636
Information detailing the real estate taxes relating to each of the
Material Properties is set forth in the table below:
Idylwood Williamstowne
Property Property Property Property
Period Taxes Tax Rate Taxes Tax Rate
1995 Actual $728,000 $72.79/$1,000 $427,000 $42.69/$1,000
1994 Actual $719,000 $71.90/$1,000 $522,000 $52.21/$1,000
1993 Actual $700,000 $70.00/$1,000 $486,000 $48.60/$1,000
Page 13
General Competitive Conditions
The Material Properties are located in suburbs of Buffalo, New York.
Buffalo accounts for 30% of the Company's owned properties based on
number of units with the Material Properties representing 22%. The
Material Properties are located 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 (for Williamstowne) and
improve (for Idylwood) its historic occupancy levels.
In addition, Buffalo is experiencing the least amount of new apartment
construction of the markets the Company operates in. Therefore, new
construction will not have a material adverse effect on its turnover
rates or ability to increase rents and minimize operating expenses.
Item 3. Legal Proceedings
The Company is a party to a variety of legal proceedings arising in
the ordinary course of business. All such proceedings, taken together,
are not expected to have a material adverse effect on the Company.
Most of such proceedings are covered by liability insurance. To
management's knowledge, no material litigation is threatened against
the Company.
Item 4. Submission of Matters to Vote of Security Holders
None.
Page 14
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, positions and offices.
Name Age Position
Norman P. Leenhouts 60 Chairman, Co-Chief Executive Officer and
Director of Home Properties, Chairman
and Director of HP Management and
Director of Conifer Realty
Nelson B. Leenhouts 60 President, Co-Chief Executive Officer
and Director of Home Properties,
President, Chief Executive Officer and
Director of HP Management and Director
of Conifer Realty
Richard J. Crossed 56 Executive Vice President and Director of
Home Properties and President, Chief
Executive Officer and Director of
Conifer Realty
Amy L. Tait 37 Executive Vice President and Director of
Home Properties and Director of HP
Management
David P. Gardner 40 Vice President, Chief Financial Officer
and Treasurer of Home Properties,
Conifer Realty and HP Management
Ann M. McCormick 39 Vice President, General Counsel and
Secretary of Home Properties and HP
Management
William E. Beach 49 Vice President, Commercial Property
Management of Home Properties and HP
Management
Lawrence R. Brattain 44 Vice President, Residential Property
Management of Home Properties and
Conifer Realty
Page 15
Name Age Position
C. Terence Butwid 51 Vice President, Development of Home
Properties and Executive Vice President
of Conifer Realty
Kathleen M. Dunham 50 Vice President, Residential Property
Management of Home Properties and
Conifer Realty
John H. Fennessey 57 Vice President, Development of Home
Properties and Conifer Realty
Timothy A. Florczak 40 Vice President, Residential Property
Management of Home Properties
Thomas L. Fountain 37 Vice President, Commercial Property
Management of Home Properties and
Conifer Realty
Timothy Fournier 35 Vice President, Development of Home
Properties and Executive Vice President
of Conifer Realty
Peter J. Obourn 54 Vice President and Associate General
Counsel of Home Properties and General
Counsel and Secretary of Conifer Realty
Paul O'Leary 43 Vice President, Residential Property
Management of Home Properties
John Oster 46 Vice President, Development of Home
Properties and Conifer Realty
Dale C. Prunoske 44 Vice President, Development of Home
Properties and Conifer Realty
Richard J. Struzzi 42 Vice President, Development of
Properties and HP Management
Robert C. Tait 38 Vice President, Commercial Property
Management of Home Properties and HP
Management
Laurie L. Willard 39 Vice President, Residential Property
Marketing of Home Properties
Page 16
Information regarding Richard Crossed, Nelson and Norman Leenhouts and
Amy Tait is set forth above under "Board of Directors".
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. 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.
Lawrence R. Brattain has served as Vice President of the Company and
Conifer Realty since 1996. He joined Conifer in 1990 as a Vice
President. Mr. Brattain is a graduate of Assumption College and is a
Certified Property Manager 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 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.
Kathleen M. Dunham has served as Vice President of the Company and
Conifer Realty since 1996. She joined Conifer in 1980 and was named
Vice President in 1990. Ms. Dunham is a Certified Property Manager
(CPM) candidate with the Institute of Real Estate Management.
Page 17
John H. Fennessey has served as Vice President of the Company and
Conifer Realty since 1996. 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).
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.
Thomas L. Fountain, Jr. has served as a Vice President of the Company
and Conifer Realty since 1996. 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 joined
Conifer in 1986 as Vice President of Finance. Prior to joining
Conifer, Mr. Fournier was an accountant at Coopers & Lybrand. Mr.
Fournier is a graduate of New Hampshire College and is a Certified
Public Accountant.
Peter J. Obourn has served as a Vice President and Associate General
Counsel of the Company and as General Counsel and Secretary of Conifer
Realty since 1996. He joined Conifer in 1975 as a founder, Secretary
and General Counsel. Prior to joining Conifer, Mr. Obourn was a real
estate development professional with the New York State Urban
Development Corporation. He is a graduate of Williams College and
holds a Juris Doctor from Cornell University Law School.
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 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.
Page 18
Dale C. Prunoske has served as a Vice President of the Company and
Conifer Realty since 1996. He joined Conifer in 1994 as a Vice
President. Prior to joining Conifer, he worked for Continuing
Development Services. He is a graduate of and holds a Master of Public
Administration Degree from the State University of New York at
Brockport.
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 and holds
a Masters Degree in Business Administration from Boston University.
Married to Amy L. Tait, he is the son-in-law of Norman Leenhouts.
Laurie L. Willard has served as a Vice President of the Company since
its inception. She joined Home Leasing in 1987 and has served as a
Vice President since 1992. Mrs. Willard is a graduate of the
University of Rochester. She is the daughter of Norman Leenhouts.
Page 19
PART II
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 the quarterly high and low sales prices per share
reported on the NYSE, as well as all distributions paid to date.
1994 High Low Distributions Paid
Third Quarter $19-1/8 $18 $0
Fourth Quarter $19-7/8 $17-7/8 .26(1)
1995
First Quarter $20 $17 .4125
Second Quarter $19 $16-3/4 .4125
Third Quarter $18-1/2 $16-7/8 .4125
Fourth Quarter $17-3/4 $16-1/2 .42
1996
January 1, 1996 $19-1/8 $17-1/8 .42
to February 26, 1996
(1) Partial Quarter from July 28, 1994 to September 30, 1994. Distribution
was equivalent to full quarterly distribution of $.4125, and was paid on
November 21, 1994.
Page 20
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 10K.
COMPANY ORIGINAL PROPERTIES
8/4/94 1/1/94
Through Through
1995 12/31/94 8/3/94 1993 1992 1991
(in thousands, except per share and property date)
Revenues:
Rental Income $ 31,705 $ 10,995 $11,526 $19,189 $18,748 $18,022
Other Income 2,561 887 494 783 743 751
Property management income(1) - - 834 1,448 1,358 975
Equity in income from
operations of HP Management 35 61 - - - -
TOTAL REVENUES 34,301 11,943 12,854 21,420 20,849 19,748
Expenses:
Operating and maintenance 15,911 5,267 6,329 10,035 9,886 9,317
Property management (1) - - 625 1,139 1,047 1,084
General & administrative 1,200 400 407 680 663 771
Interest 6,432 1,444 3,126 5,113 5,300 5,661
Depreciation & amortization 6,258 2,191 1,584 2,656 2,729 2,682
TOTAL EXPENSES 29,801 9,302 12,071 19,623 19,625 19,515
Income before minority interest
and extraordinary item 4,500 2,641 783 1,797 1,224 223
Minority interest 455 256 - - - -
Income before extraordinary item 4,045 2,385 783 1,797 1,224 223
Extraordinary item, prepayment
penalties, net of allocation to
minority interest (1,249) (2,498) - - - -
Net income (loss) $ 2,796 $ ( 113) $ 783 $ 1,797 $ 1,224 $ 223
Net income (loss) per
common share .52 (.02) N/A N/A N/A N/A
Cash dividends declared per
common share $ 1.66 $ .26 N/A N/A N/A N/A
Balance Sheet Data:
Real estate, before
accumulated depreciation $ 198,203 $ 162,991 $77,371 $76,646 $75,296 $75,123
Total assets 181,462 148,709 60,014 59,490 60,732 62,270
Total debt 91,119 52,816 57,953 58,583 59,622 60,661
Stockholders' equity/
Owners' (deficit) 75,780 81,941 (2,741) (2,591) (2,546) (1,990)
Other Data:
Funds from Operations (2) $ 11,762 $ 5,077 $ 2,432 $ 4,529 $ 4,033 $ 2,985
Cash available for
distribution (3) $ 10,085 $ 4,624 $ 1,969 $ 3,735 $ 3,239 $ 2,191
Net cash provided by (used in)
operating activities $ 9,993 $ 1,464 $ 2,522 $ 4,188 $ 4,153 $ 2,681
Net cash provided by (used in)
investing activities $ (21,334) $ (71,110) $(1,168) $(1,350) $ (690) $ (687)
Net cash provided by (used in)
financing activities $ 10,518 $ 70,002) $(1,684) $(2,881) $(2,819) $(1,781)
Weighted average number of
shares outstanding 5,408,474 5,408,230 N/A N/A N/A N/A
Total communities, at
end of period 20 19 12 12 12 12
Total apartment units, at end
of period 5,650 4,744 3,065 3,065 3,065 3,065
Page 21
Item 6. Selected Financial Data (continued)
(1) Property management income and expense represents the management
activities of Home Leasing Corporation prior to the formation of HP
Management. After August 4, 1994, the Company is accounting for the
investment in HP Management using the equity method.
(2) 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 plus certain non-cash items, primarily
depreciation and amortization. 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:
8/4/94 1/1/94
Through Through
1995 12/31/94 8/3/94 1993 1992 1991
Net income (loss) $ 2,796 ($113) $ 783 $1,797 $1,224 $ 233
Depreciation -
real property* 6,525 2,181 1,565 2,605 2,668 2,618
Depreciation non-real
property* 75 20 21 51 61 64
Amortization - deferred
financing costs 327 98 63 76 80 70
Amortization - rate
reduction agreements 335 137 - - - -
Minority interest 455 256 - - - -
Extraordinary item
(prepayment penalties) 1,249 2,498 - - - -
Funds from Operations $11,762 $5,077 $2,432 $4,529 $4,033 $2,985
*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.
Effective January 1, 1996, the Company has adopted NAREIT's revised White
Paper definition of calculating funds from operations (New FFO). For
comparative purposes, the presentation below calculates New FFO by
excluding an addback for amortization and depreciation from non-real
property.
8/4/94 1/1/94
Through Through
1995 12/31/94 8/3/94 1993 1992 1991
Funds from Operations
(as presented above) $11,762 $5,077 $2,432 $4,529 $4,033 $2,985
Depreciation - non-real
property (75) (20) (21) (51) (61) (64)
Amortization - deferred
financing costs (327) (98) (63) (76) (80) (70)
Amortization - rate
reduction agreements (335) (137) - - - -
New FFO $11,025 $4,822 $2,348 $4,402 $3,892 $2,851
(3) Cash Available for Distribution is defined as Funds from Operations
less an annual reserve for anticipated recurring, non-revenue
generating capitalized costs of $300 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. These costs
averaged $260 per apartment unit over the past five years. 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.
Page 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following discussion is based primarily on the Consolidated and
Combined Financial Statements of Home Properties of New York, Inc. and
the Original Properties. This should be read in conjunction with the
financial statements appearing elsewhere in this report.
The Company is engaged primarily in the ownership, management,
acquisition and development of residential apartment communities. On
August 4, 1994, the Company completed an initial public offering of
5,408,000 shares of common stock (the "IPO") and engaged in formation
transactions designed to enable the Company to continue and expand the
multifamily residential operations of Home Leasing Corporation and to
purchase the Acquired Communities.
Results of Operations
Comparison of year ended December 31, 1995 to year ended December 31,
1994.
During 1995, the Company acquired a total of 1,061 apartment units in
three new communities (Idylwood, Harborside Manor and Pearl Street, the
"1995 Communities"). In addition, the Company experienced full year
results for the 1,398 apartment units in six new apartment communities
(Garden Village, Brook Hill, Northgate Manor, Spanish Gardens, Conifer
Village and Village Green, the "1994 Communities") acquired from August
4, 1994 to December 31, 1994. The inclusion of these acquired
communities generally accounted for the significant changes in
operating results for the year ended December 31, 1995.
For the year ended December 31, 1995, operating income increased by
$1,076,000 when compared to the year ended December 31, 1994. The
increase was primarily attributable to the following factors: an
increase in rental income of $9,184,000, and an increase in other
income of $1,180,000. These changes were partially offset by an
increase in operating and maintenance expense of $4,315,000, an
increase in general and administrative expense of $393,000, an
increase in interest expense of $1,696,000 and an increase in
depreciation and amortization of $2,649,000.
For the year ended December 31, 1995 and 1994, the Company incurred
prepayment penalties of $1,390,000 and $2,763,000 on the paydown of
certain debt instruments. These penalties have been accounted for as
extraordinary items. The specific debt paid down and the source of
the funds used were as follows:
Page 23
For the year ended December 31, 1995:
Principal
Balance
Property Mortgaged Paid Penalty Total Uses
Garden Village $ 6,472 $ 287 $ 6,759 (1)
Line of Credit 7,675 213 7,888 (1)
Village Green 2,015 88 2,103 (1)
Village Green 3,721 147 3,868 (1)
Williamstowne 9,647 514 10,161 (2)
Idylwood 9,550 141 9,691 (3)
------- ------ -------
$39,080 $1,390 $40,470
(1) The total principal and penalties were refinanced with debt from
John Hancock and working capital of $327.
(2) The total principal and penalty was refinanced with debt from
Manufacturers and Traders Trust Company.
(3) The total principal and penalty was refinanced with debt from
J P Morgan.
For the year ended December 31, 1994:
Principal
Balance
Property Mortgaged Paid Penalty Total Uses
Fairview $ 4,258 $ 116 $ 4,374
Finger Lakes 2,102 19 2,121
2,100 2,100
Newcastle 5,333 190 5,523
1600 Elmwood 4,851 1,207 6,058
Williamstowne 10,030 1,224 11,254
Wedgewood 1,000 7 1,007
Perinton 122 122
------- ------ -------
$29,796 $2,763 $32,559 (1)
(1) The total principal plus penalty of $32,559 in 1994 was paid from the
proceeds of the initial public offering.
Page 24
Of the $9,184,000 increase in rental income, $6,178,000 is attributable
to the 1994 Communities and $2,655,000 is attributable to the 1995
Communities. The balance of this increase, which is from the Original
Properties, was due primarily to an increase of 2.9% in weighted
average rental rates, offset by a decrease in occupancy from 94.7% to
93.5% 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
1995 by $224,000. Of this increase, $150,000 is attributable to the
acquired communities. The balance represents the change to the Original
Properties, in addition to the net results for properties accounted for
on the equity method.
Other income increased in 1995 by $956,000. Of this increase, $430,000
is from development fee income from four joint ventures, $382,000 is
from increased interest income, $86,000 is from increased management
fees from residential properties and $58,000 is from other
miscellaneous increases. Of the large increase in interest income,
$230,000 is from a construction loan outstanding to College Greene
Rental Associates, L.P. This advance was repaid in February, 1996.
Of the $4,315,000 increase in operating and maintenance expenses,
$3,101,000 is attributable to the 1994 Communities and $1,529,000 is
attributable to the 1995 Communities. The balance for the Original
Properties, or ($315,000), represents a 3.0% decrease over 1994. The
two main areas of savings were in real estate taxes ($236,000) and
utilities ($69,000). The tax savings were a result of management's
successful efforts in getting assessments reduced at various
properties. The utility savings were from a combination of an unusually
severe winter experienced in the first quarter of 1994 compared to an
extraordinarily mild winter in the first quarter of 1995.
The operating expense ratio (the ratio of operating and maintenance
expense compared to rental and property other income) for the Original
Properties was 48.7%, 50.8% and 50.5% for 1995, 1994 and 1993
respectively. This ratio was 46.9% and 41.8% for the 1994 Communities
for 1995 and 1994 respectively. The change from 1994 to 1995 was the
result of increased personnel, maintenance and advertising costs
incurred as management repositioned these properties. Compared to last
year at this time, our current staffing, the occupancy levels, the
resident profiles and the physical condition of these properties is
significantly improved. 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 New York State and the practice
in its market of typically including heating expenses in base rent.
Page 25
General and administrative expenses increased in 1995 by $393,000, or
49% from $807,000 in 1994 to $1,200,000 in 1995. Of this increase,
$131,000 was due primarily to costs associated with becoming a public
company for a full year versus five months in 1994. The balance,
representing a 32% increase, was due primarily to increased payroll and
payroll expense of $165,000 (mostly from new positions), increased
travel of $29,000 and increased legal and accounting of $33,000. These
increases occurred during a period when the weighted average portfolio
of apartment units owned (including joint ventures) increased by 61%.
Interest expense increased in 1995 by $1,696,000 as a result of the
acquisition of the 1995 Communities and full year interest expense for
the 1994 Communities. The 1995 Communities, costing in excess of
$25,000,000, were acquired substantially with assumed or new debt.
Amortization relating to interest rate reduction agreements of $335,000
was included in interest expense during 1995.
Comparison of year ended December 31, 1994 to year ended December 31,
1993.
Including the IPO formation transactions, the Company acquired six
apartment communities (the "1994 Communities") through December 31,
1994. The 1994 Communities are presented in the Consolidated and
Combined Financial Statements of the Company from the dates of their
acquisition. The inclusion of these 1994 Communities generally
accounted for the significant changes in operating results for the year
ended December 31, 1994.
For the year ended December 31, 1994, operating income increased by
$1,627,000 when compared to the year ended December 31, 1993. The
increase was primarily attributable to the following factors: an
increase in rental income of $3,332,000, an increase in other income of
$598,000 and a decrease in interest expense of $628,000. These changes
were partially offset by an increase in operating and maintenance
expense of $1,561,000, an increase in general and administrative
expense of $127,000 and an increase in depreciation and amortization of
$1,204,000.
Of the $3,332,000 increase in rental income, $2,719,000 is attributable
to the 1994 Communities. The balance of this increase, which is from
the Original Properties, was due primarily to an increase of 3.4% in
weighted average rental rates, offset by a slight decrease in occupancy
from 94.9% to 94.7%.
Other income increased in 1994 by $428,000. Of this increase, $264,000
is from development fee income from two joint ventures, $74,000 is from
increased interest income, $42,000 is from increased management fees
from residential properties and $48,000 is from other miscellaneous
increases.
Page 26
Of the $1,561,000 increase in operating and maintenance expenses,
$1,164,000 is attributable to the 1994 Communities. The balance for the
Original Properties represents a 4.0% increase over 1993. Increased
expenses included extraordinary heating and snow removal costs
experienced in the first quarter of 1994, increased advertising costs
which allowed the Company to rebuild and sustain higher occupancy
levels after the unusually severe winter weather improved, and
increased repair and maintenance costs incurred as the standards for
physical quality and service excellence were raised at several of the
communities.
General and administrative expenses increased in 1994 by $127,000. Of
this increase, $82,000 was due primarily to costs associated with
becoming a public company effective August 4, 1994.
Interest expense decreased in 1994 by $628,000 as a result of the IPO
transactions which included prepaying approximately $29.6 million of
mortgage indebtedness, reduced interest rates on $21.9 million of
remaining debt, and adding $3.3 million of mortgage debt assumed as
well as $2.6 million drawn on the line of credit at the IPO closing.
During the fourth quarter of 1994, $18.6 million of indebtedness was
added related to the new 1994 Communities and other corporate uses.
These fourth quarter transactions added $142,000 in interest expense.
The Company entered into interest rate reduction agreements during 1994
on three loan facilities. Amortization relating to these agreements of
$137,000 was included in interest expense during 1994.
Liquidity and Capital Resources
The Company's principal liquidity demands are expected to be
distributions to stockholders, capital improvements and repairs and
maintenance for the properties, acquisition of additional properties,
property development and debt repayments.
The Company has an unsecured line of credit of $15 million, with an
available balance of $10.5 million at December 31, 1995. Borrowings
under the line bear interest at 1.9% over the one-month LIBOR rate. The
line of credit expires on August 22, 1996. The Company intends on
either renewing the line for another year or establishing a new line
with a different institution.
In October of 1995, the Company completed three refinancing
transactions which reduced the weighted average rate of interest on its
mortgage debt from 8.1% to 7.6% and extended the weighted average
maturity of such indebtedness from 7.1 years to 8.8 years. The line of
credit is now the only form of variable rate debt, representing 5% of
outstanding debt at December 31, 1995. This limits the exposure to
changes in interest rates, minimizing the effect on results of
operations and financial condition.
Page 27
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 continue
to be adequate to meet all operating requirements and make
distributions to its stockholders in accordance with the provisions of
the Internal Revenue Code, as amended, 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, it intends to satisfy such requirements through
the use of UPREIT units, proceeds from the Dividend Reinvestment Plan,
or issuing additional common shares or shares of the Company's
preferred stock. The Company has successfully completed acquisitions
using equity contributions in the form of partnership units totalling
approximately $11 million, and expects to continue to fund its growth
through its UPREIT structure.
Capital Improvements.
Total capital improvement expenditures increased from $2,871,000 in
1994 to $8,179,000 in 1995. Of the $5,308,000 increase, $1,567,000 is
attributable to the 1995 Communities and $2,791,000 is attributable to
the 1994 Communities. The balance of $950,000 is allocated between the
Original Properties of $799,000 and $115,000 for corporate expenditures
on computer hardware.
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 approximately $300 per unit is
spent on capital replacements in a normal year to maintain the
condition of its properties.
In 1995, an additional $3,575,000 in capital expenditures were incurred
to fund non-recurring, revenue enhancing upgrades, including the
following: construction of two new community centers; conversion of one
property from radiant to gas heat; the addition of new windows and
exterior siding to an entire community; construction of new garages;
and the modernization of numerous kitchens and bathrooms. In
addition, over $2,000,000 in substantial rehabilitations was incurred
on acquisition properties 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 were provided by the
line of credit and other credit facilities.
Page 28
Recent Accounting Developments
In March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets" ("FAS 121"). FAS 121 established
accounting standards for the impairment of long lived assets and is
effective for fiscal years beginning after December 15, 1995. The
Company intends to adopt this statement prospectively. The impact of
this new standard is not expected to have a material impact on the
Company's financial condition or results of operations.
In October, 1995, the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock Based Compensation" ("FAS 123"). FAS 123 established financial
accounting and reporting standards for stock-based employee
compensation plans. The Company has not yet decided which method to
adopt as permitted under FAS 123.
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 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. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant Directors
The Board of Directors (the "Board") currently consists of ten
members. Effective with the consummation of the Conifer Transaction,
the Board increased its number from 9 to 10 and elected Richard J.
Crossed as a director to serve until the 1996 Shareholders' Meeting.
The terms for all of the directors of Home Properties expire at that
Shareholders' Meeting.
Page 29
The information sets forth, as of February 26, 1996, 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.
Year First
Name of Director Age Elected Director
Burton S. August, Sr. 80 1994
William Balderston, III 68 1994
Richard J. Crossed 56 1996
Leonard F. Helbig, III 50 1994
Roger W. Kober 62 1994
Nelson B. Leenhouts 60 1993
Norman Leenhouts 60 1993
Clifford W. Smith, Jr. 49 1994
Paul L. Smith 60 1994
Amy L. Tait 37 1993
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 also a trustee
emeritus of Rochester Institute of Technology, a trustee of Strong
Museum and a trustee of the Otetiana Council Boy Scouts of America.
William Balderston, III has been a director of the Company since
August, 1994. From 1991 to the end of 1993, 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
director of Bausch & Lomb Incorporated and Rochester Gas and Electric
Corporation, as well as a Trustee of the University of Rochester. Mr.
Balderston is a graduate of Dartmouth College.
Richard J. Crossed has served as a director of the Company and as a
director, President and Chief Executive Officer of Conifer Realty
since January 1, 1996. He has 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.
Leonard F. Helbig, III has been a director of the Company since
August, 1994. Mr. Helbig has served as Executive Managing Director of
the Financial Services Group and a Director of Cushman & Wakefield
since 1984. He joined Cushman & Wakefield in 1980 and is also a member
of that firm's Executive and National Management Committees. Mr.
Helbig is a member of the Urban Land Institute, the Pension Real
Estate
Page 30
Association and the International Council of Shopping Centers.
Mr. Helbig is a graduate of LaSalle University and holds MAI and SRPA
appraisal qualifications of the American Institute of Real Estate
Appraisers.
Roger W. Kober has been a director of the Company since August, 1994.
Mr. Kober is the Chairman of the Board, President and Chief Executive
Officer of Rochester Gas and Electric Corporation where he has been
employed since 1965. He is also a member of the Board of Trustees of
Rochester Institute of Technology and a director of the Association of
Edison Illuminating Companies, the Edison Electric Institute, the
Chase Upstate Advisory Council, Genesee Hospital, the Greater
Rochester Metro Chamber of Commerce, the United Way of Greater
Rochester, Inc. and other civic and professional organizations. 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 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. 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. 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
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 was 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. He also
serves as a trustee of Roberts Wesleyan College and the University of
Rochester. He is a graduate of the University of Rochester and is a
certified public accountant. He is the twin brother of Nelson
Leenhouts.
Clifford W. Smith, Jr. has been a director of the Company since
August, 1994. Mr. Smith has been the Clarey Professor of Finance of
the William E. Simon Graduate School of Business Administration of the
University of Rochester since 1988. He has written numerous books,
monographs, articles and papers on a variety of financial, capital
markets, risk management and accounting topics and has held a variety
of editorial positions on a number of journals. Mr. Smith is a
graduate of Emory University and holds a Doctor of Economics from the
University of North Carolina at Chapel Hill.
Page 31
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 Rochester General
Hospital and GeVa Theatre and is Chairman of the Board of Trustees of
the George Eastman House. 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 and GeVa Theatre. Mrs. Tait is a graduate of
Princeton University and holds a Masters Degree in Business
Administration 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, 1995, except as described in the next sentence, all Section 16(a)
filing requirements applicable to its executive officers, directors
and greater than 10% beneficial owners were satisfied. A filing on
Form 4 with respect to the acquisition by director Paul L. Smith of
1,000 shares of the Company's Common Stock was filed during the month
following that acquisition, but not by the tenth day of that month.
Page 32
Item 11. Executive Compensation
The Company was formed in 1993 but did not pay any compensation to its
executive officers during 1993. The following table sets forth the
cash compensation paid during 1994 and 1995 to the Company's Co-Chief
Executive Officers. Except for the Co-Chief Executive Officers, no
executive officer or other employee's annual salary and bonus exceeded
$100,000 on an annualized basis during the fiscal years ending
December 31, 1994 and December 31, 1995.
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation Shares
Underlying
Name Year Salary Earned Bonus Options
Norman P. Leenhouts 1994(1) $ 50,000 $14,556 88,000
Chairman & Co-CEO 1995 132,000 0 0
Nelson B. Leenhouts 1994(1) $ 50,000 $14,566 88,000
President & Co-CEO 1995 132,000 0 0
(1) Amounts reported reflect actual base salary earned during the Company's
period of operations from August 4, 1994 through December 31, 1994.
The annual base salary of each of Norman and Nelson Leenhouts for 1994
was $120,000.
Option Grants in Fiscal Year 1995
No stock options or stock appreciation rights were granted with respect
to fiscal year ended December 31, 1995 to the Company's Co-Chief
Executive Officers.
Option Exercises
No options were exercised in 1995. The following table sets forth the
value of options held at the end of 1995 by the Company's Co-Chief
Executive Officers.
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Values(1)
Number of Shares Value of Unexercised
Number of Underlying Unexercised in the Money Options
Shares Options at Fiscal Year-End at Fiscal-Year End(2)
Acquired On Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Norman P.
Leenhouts 0 0 88,000 0 0 0
Nelson B.
Leenhouts 0 0 88,000 0 0 0
(1) Stock Appreciation Rights were not granted in 1995.
(2) Based on the last reported sale price of the Common
Stock on the NYSE on December 29, 1995 of $17.125 less the per
Share exercise price of $19.00.
Page 33
Employment Agreements
Each of Norman and Nelson Leenhouts entered into an employment
agreement with the Company providing for an initial term of five years
commencing August 4, 1994. The agreements provide for the employment
of Norman P. Leenhouts as Chairman of the Board and Co-Chief Executive
Officer of the Company at an annual base salary of $120,000 and Nelson
B. Leenhouts as President and CoChief Executive Officer of the Company
and President and Chief Executive Officer of HP Management at an
annual base salary of $120,000. The base salaries under each
employment agreement automatically increase by 10% each year starting
January 1, 1995. Although their employment agreements provide for a
specific formula for the payment of incentive compensation to each of
Norman and Nelson Leenhouts, they have voluntarily agreed to waive
application of that formula and instead receive incentive compensation
pursuant to the Company's Incentive Compensation Plan as it may be
revised by the Compensation Committee from time to time. The
employment agreements also provide that if employment is terminated by
the Company or not renewed without cause, or terminated by the
executive for good reason at any time, then the executive is entitled
to receive a severance payment equal to the executive's annual base
salary and incentive compensation for the preceding year multiplied by
two or the number of years remaining of the initial term, whichever is
greater.
Pursuant to their respective employment agreements with the Company,
Norman and Nelson Leenhouts are each subject to a covenant not to
compete with the Company during the term of his employment and, if
either is terminated by the Company for cause or resigns without good
reason, for two years thereafter. The covenants prohibit Norman and
Nelson Leenhouts from participating in the management, operation or
control of any multifamily residential business which is competitive
with the business of the Company, except that they, individually and
through Home Leasing and its affiliates, may continue to own and
develop the properties managed by HP Management. The Leenhoutses have
also agreed that any commercial property which may be developed by
them will be managed by HP Management subject to the approval of the
outside members of the Board of Directors.
Richard J. Crossed has also entered in an Employment Agreement with
the Company, effective January 1, 1996. The terms of that agreement
are substantially the same in all respects as the employment
agreements entered into by Norman and Nelson Leenhouts as described
above. The initial term is for five years and identical termination
provisions are provided. In his employment agreement, Mr. Crossed has
agreed not to compete with the Company during the term of his
employment and, if he is terminated by the Company for cause or
resigns without good reason, for three years thereafter. Subject to
shareholder approval as to the increase in the number of shares
available for issuance pursuant to the Company's Stock Purchase Plan,
Mr. Crossed's employment agreement also provides for the issuance to
him of immediately exercisable options to purchase 88,000 shares of
common stock of the Company at $19.00 per share pursuant to the Plan.
Page 34
Incentive Compensation Plan
The Company's incentive compensation plan (the "Incentive Plan") for
officers and key employees of the Company was amended for 1995 to
provide that eligible officers and key employees may earn a cash bonus
ranging from 0% to 125% of base salary based on increases in the
Company's Funds from Operations per Share ("FFO") over $1.95.
Depending on the level of each employee's responsibility within the
Company, cash bonuses for attaining the increases ranged from 3/4% to
10% of base compensation for each 1% increase in FFO, a portion of
which was payable in the discretion of the Compensation Committee of
the Board of Directors. Norman and Nelson Leenhoutses' bonus was
based on 10% of base compensation for each 1% increase in FFO. No
cash bonuses were payable under the Incentive Plan unless the increase
in FFO, after giving effect to the bonuses, was equal to or greater
than 4%. While a small bonus pool was available under the Plan for
1995, management voluntarily waived payment of any bonuses.
For 1996, the Incentive Plan has been further revised to provide that
eligible officers and key employees are entitled to receive incentive
compensation ranging from 5% to 50% of their base salary based on the
Company's growth in FFO. The 1996 Incentive Plan provides for a bonus
pool to be established as follows:
Percent of Growth
Growth in FFO/Share Contributed to Bonus Pool
First 2% 0%
Next 1% 20%
Next 1% 30%
Next 1% 40%
Growth over 5% 50%
A factor is applied to each eligible participant's salary,
ranging from 1% to 10%, to determine the split of the bonus pool. The
factor applied to the salaries of Norman and Nelson Leenhouts, Richard
Crossed and Amy Tait is 10%, with the maximum bonus payable to them
being 50% of their base salary.
Compensation of Directors
In 1995, the Company paid its directors who are not
employees of the Company annual compensation of $8,000 plus $1,000 per
day for attendance (in person or by telephone) at Board and committee
meetings. Effective January 1, 1996, the annual director stipend was
increased to $9,000 per year. Directors of the Company who are
employees of the Company will not receive any compensation for their
services as directors. In addition, all directors will be reimbursed
for their expenses incurred in attending directors' meetings.
Pursuant to the Company's Stock Benefit Plan, each director who is not
an employee of the Company was automatically granted options to
purchase 3,000 shares of Common Stock upon such director's initial
election to the Board of Directors and will be granted an additional
3,000 shares immediately following the annual meeting of stockholders
in each of 1995 and 1996. The exercise price for the additional
options is equal to the fair market value of the Company's Common
Stock on the date of grant. The options granted in 1995 have an
option price of $17.875 per share.
Page 35
Compensation Committee Interlocks and Insider Participation
in Compensation Decisions
During the fiscal year 1995, the Compensation Committee was
comprised of Burton S. August, Sr., William Balderston, III and
Clifford W. Smith, Jr. None of them have ever been an officer of the
Company or any of its subsidiaries; however, Mr. August had an
interest in a transaction consummated in January, 1996 because he and
members of his immediate family had interests in a limited partnership
that merged into the Operating Partnership as part of the Conifer
Transaction. In connection with such merger, Mr. August received
4,246 Units in the Operating Partnership as merger consideration for
limited partnership interests and his immediate family members
received 5,404 Units in the Operating Partnership as merger
consideration.
Page 36
Item 12. Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of February 26, 1996
regarding the beneficial ownership of shares of Common Stock by: (i)
directors, nominees and certain executive officers of Home Properties; and
(ii) directors, nominees and executive officers of Home Properties as a
group, and (iii) each person known by the Company to be the beneficial
owner of more than a 5% interest in the Company. The table also includes
information relating to the number and percentage of shares of Common Stock
and partnership units of the Operating Partnership ("Units") beneficially
owned by the persons included in (i) and (ii) above (such Units are
exchangeable into shares, or cash at the election of the independent
directors of the Company, beginning on August 4, 1995). In preparing this
table, the Company has relied on information supplied by its officers,
directors, nominees and certain stockholders, and upon information
contained in filings with the SEC.
Name and Address of Number of Percentage of Number of Percentage of
Beneficial Owner Shares Outstanding Shares/Units Shares/Units
Beneficially Shares Owned
Owned
Norman P. Leenhouts 89,001(1) 1.6%(2) 358,161(1)(3) 6.2%(4)
850 Clinton Square
Rochester, NY 14604
Nelson B. Leenhouts 88,101(1) 1.6%(2) 357,013(1)(3) 6.2%(4)
850 Clinton Square
Rochester, NY 14604
Richard J. Crossed 1,500(5) * 193,872(6) 3.5%(4)
850 Clinton Square
Rochester, NY 14604
Amy L. Tait 20,402(7) * 34,215 *
850 Clinton Square
Rochester, NY 14604
Burton S. August, Sr. 24,500(8)(9) * 34,150 *
William Balderston, III 7,500(8) * 7,500(8) *
Leonard Helbig, III 7,000(8) * 7,000(8) *
Roger W. Kober 7,000(8) * 7,000(8) *
Clifford W. Smith, Jr. 10,500(8) * 10,500(8) *
Paul L. Smith 8,000(8) * 8,000(8) *
All executive officers
and directors as a
group (12 persons) 269,506(10) 4.8%(11) 1,029,221(3)(6)(7)(10) 15.0%(12)
Page 37
Name and Address of Beneficial Owner Number of Shares Percentage of
Beneficially Owned Outstanding Shares
FMR Corp. 409,300(13) 7.57%
82 Devonshire Street
Boston, MA 02109
Wellington Management Co. 529,300 (14) 9.79%
75 State Street
Boston, MA 02109
Vanguard/Wellsley Income Funds, Inc. 529,300(14) 9.79%
Valley Forge, PA 19482
Miller Anderson & Sherrerd, LLP 518,400(15) 9.59%
One Tower Bridge
West Conshohocken, PA 19428
The Chase Manhattan Corporation 283,400(16) 5.268%
One Chase Manhattan Plaza
New York, NY 10081
* Less than 1%.
(1) Includes 88,000 shares which may be acquired upon the exercise of
currently exercisable options by each of Norman and Nelson Leenhouts.
(2) Assumes that all options included with respect to the person have been
exercised. The total number of shares outstanding used in calculating
the percentage assumes that none of the options held by any other
person have been exercised.
(3) Includes Units owned by Home Leasing and Leenhouts Ventures. Norman
Leenhouts and Nelson Leenhouts are each directors, officers and 50%
stockholders of Home Leasing and each owns 50% of Leenhouts Ventures.
Includes 50,000 Units owned by the respective spouses of each of
Norman and Nelson as to which they disclaim beneficial ownership.
(4) Assumes that all options included with respect to the person have been
exercised and all Units included with respect to the person have been
exchanged for shares of Common Stock. The total number of shares
outstanding used in calculating the percentage assumes that none of
the options held by any other person have been exercised and that none
of the Units held by any other person have been exchanged for shares.
(5) Does not include 88,000 shares which will be exercisable pursuant to
options to be granted to Mr. Crossed upon the approval by the
shareholders of an increase in the number of shares that can be issued
under the Company's Stock Plan. This matter will be submitted to the
shareholders at the Annual Meeting to be held on May 7, 1996.
(6) Includes Mr. Crossed's proportionate share of Units owned by Conifer
and its affiliates.
(7) Includes 17,600 shares which may be acquired upon the exercise of
currently exercisable options by Mrs. Tait. Amounts also include 1
share, 70 Units and 2,800 shares which may be acquired upon exercise
of currently exercisable options, all of which are owned by Mrs.
Tait's spouse and as to which she disclaims beneficial ownership.
Mrs. Tait shares voting and dispositive power with respect to 2,548
Units with her spouse.
(8) Includes 6,000 shares which may be acquired upon the exercise of
immediately exercisable options.
(9) Includes 12,500 shares owned by Mr. August's spouse as to which he
disclaims beneficial ownership. Units includes 5,404 Units owned by
immediate family members of Mr. August as to which he disclaims
beneficial ownership.
Page 38
(10) Includes 238,400 shares which may be acquired upon the exercise of
immediately exercisable options.
(11) Assumes that all options included with respect to all listed persons
have been exercised.
(12) Assumes that all options included with respect to all listed persons
have been exercised and that all Units included with respect to all
listed persons have been exchanged for shares of Common Stock.
(13) Based on a report on Schedule 13G, dated February 14, 1996, filed
jointly on behalf of FMR Corp., Edward C. Johnson 3d and Fidelity
Management and Research Company and reflecting sole voting power with
respect to 9,300 shares and sole dispositive power with respect to
409,300 shares.
(14) Based on a report on Schedule 13G, dated February 9, 1996, reflecting
that Wellington Management Company has shared dispositive power with
respect to these shares. A report on Schedule 13G, dated February 14,
1996 filed by Vanguard/Wellsley Income Fund, Inc. indicates that
Vanguard/Wellsley Income Fund, Inc. has sole voting power and shared
dispositive power with respect to these shares.
(15) Based on a report on Schedule 13G, dated February 12, 1995, reflecting
that Miller Anderson & Sherrerd has sole voting power with respect to
505,400 shares and sole dispositive power with respect to 518,400
shares.
(16) Based on a report on Schedule 13G, dated February 14, 1996, reflecting
that The Chase Manhattan Bank, N.A has sole voting power with respect
to 38,500 shares and shared dispositive power with respect to 283,400
shares.
Page 39
Item 13. Certain Relationships and Related Transactions
Certain directors and an executive officer of the Company (or entities
controlled by them) had direct and indirect interests in certain
transactions associated with the Conifer Transaction. In particular, the
following persons received Units in connection with the Conifer Transaction
and certain indebtedness to such persons was or will be repaid by the
Company.
Name Units Received Indebtedness Repaid
Burton S. August, Sr. 4,246 0
Immediate family members of 5,404 0
Burton S. August, Sr.
Richard J. Crossed 68,021 0(1)
Conifer Development, Inc.(1) 20,738 $1,433,190
C.O.F., Inc. (2) 285,403 0
Tamarack II Associates (3) 2,027 0
(1) Richard J. Crossed owns a 40.6% interest in Conifer Development, Inc.
(2) Formerly Conifer Realty, Inc. Richard J. Crossed owns a 40.6%
interest in C.O.F., Inc.
(3) Conifer Development, Inc. owns a 5% interest in Tamarack II
Associates.
Home Leasing, in connection with the initial formation of the Company,
assigned to HP Management certain management contracts between it and
certain entities of which it is a general partner. As a general partner of
those entities, Home Leasing Corporation (and, indirectly, Norman and
Nelson Leenhouts) has an ongoing interest in such management contracts.
Conifer, in connection with the Conifer Transactions, assigned to the
Company and Conifer Realty certain management contracts between it and
certain entities of which it is the general partner. As a general partner,
Conifer (and indirectly, Richard J. Crossed) has an ongoing interest in
such management agreements. Also, in connection with the Conifer
Transaction, certain guarantees given by Conifer and Richard J. Crossed, in
the approximate amount of $4.7 million, were or are to be replaced or
supplemented by guarantees by the Company.
Page 40
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 3. 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. AND THE ORIGINAL PROPERTIES
Consolidated and Combined Financial Statements
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets
as of December 31, 1995 & 1994 F-3
Consolidated and Combined Statements of
Operations for the Year Ended
December 31, 1995, for the Period from
August 4, 1994 through December 31, 1994,
for the Period from January 1, 1994 through
August 3, 1994 and for the Year Ended
December 31, 1993 F-4
Consolidated and Combined Statements of
Stockholders' Equity/Owners Deficit
for the Year Ended December 31, 1995, for
the Period from August 4, 1994 through
December 31, 1994, for the Period from
January 1, 1994 through August 3, 1994 and
for the Year Ended December 31, 1993 F-5
Consolidated and Combined Statements of
Cash Flows for the Year Ended December 31,
1995, for the Period from August 4, 1994
through December 31, 1994, for the Period
from January 1, 1994 through August 3, 1994
and for the Year Ended December 31, 1993 F-6
Notes to the Consolidated and Combined
Financial Statements F-7
Schedule III:
Real Estate and Accumulated Depreciation F-21
Page 41
Exhibit Exhibit
Number
3.1 Articles of Incorporation of Home Properties of New York, Inc.
3.2 Articles of Amendment and Restatement of Articles of Incorporation of
Home Properties of New York, Inc.
3.3 Amended and Restated By-Laws of Home Properties of New York, Inc.
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 longterm 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 Demand Grid Note, dated August 22, 1995, from the Operating
Partnership to Manufacturers and Traders Trust Company in the maximum
principal amount of $15,000,000.
4.8 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.
10.1 Agreement of Limited Partnership of Home Properties of New York, L.P.
10.2 Amended and Restated Agreement of Limited Partnership of Home
Properties of New York, L.P.
10.3 Amendments No. One through Eight to the Agreement of Limited
Partnership of Home Properties of New York, L.P.
Page 42
10.4 Articles of Incorporation of Home Properties Management, Inc.
10.5 By-Laws of Home Properties Management, Inc.
10.6 Articles of Incorporation of Conifer Realty Corporation.
10.7 By-Laws of Conifer Realty Corporation.
10.8 Employment Agreement between Home Properties of New York, L.P. and
Norman P. Leenhouts.
10.9 Employment Agreement between Home Properties of New York, L.P. and
Nelson B. Leenhouts.
10.10 Employment Agreement between Home Properties of New York, L.P.
and Richard J. Crossed.
10.11 Indemnification Agreement between Home Properties of New York,
Inc. and certain officers and directors.
10.12 Indemnification Agreement between Home Properties of New York,
Inc. and Richard J. Crossed.
10.13 Home Properties of New York, Inc. 1994 Stock Benefit Plan.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
Page 43
10.19 First Amended and Restated Incentive Compensation Plan of Home
Properties of New York, Inc.
10.20 Second Amended and Restated Incentive Compensation Plan of Home
Properties of New York, Inc.
10.21 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.
21 List of Subsidiaries of Home Properties of New York, Inc.
23 Consent of Coopers & Lybrand, LLP
A report was filed on Form 8-K, dated September 14, 1995 reporting the
execution of the Contribution Agreement relating to the Conifer
Transaction. A subsequent Form 8-K, dated January 9, 1996 was filed to
report the closing of the Conifer Transaction as well as the acquisition of
two vacant parcels of land. Simultaneously with the filing of the report on
Form 10-K, the Company in filing a report on Form 8-K/A, dated March 14,
1995, that includes the following financial statements:
* Audited statements of net assets acquired of Conifer Corporation and
Subsidiaires as of March 31, 1995 and 1994 and the related statements of
acquired operations for the years then ended.
* Audited combined statement of revenues and certain expenses of the
Conifer Acquisition Proprty for the year ended December 31, 1995.
* Pro forma condensed consolidated balance sheet of the Company as of
December 31, 1995 and related notes (unaudited).
* Pro forma consolidated statement of operations of the Company for the
year ended December 31, 1995 and related notes (unaudited).
A Form 8-K/A, dated November 10, 1995, was filed and included the following
financial statements:
* Audited Statement of Revenues and Certain Expenses for Idylwood
Apartments for the year ended December 31, 1994.
* Pro Forma Condensed Consolidated Balance Sheet for Home Properties of New
York, Inc. (as if the Company had purchased the Idylwood Apartments on
6/30/95) as of June 30, 1995 (unaudited).
* Pro Forma Consolidated and Combined Statement of Operations for Home
Properties of New York, Inc. (as if the Company had purchased the Idylwood
Apartments on 1/1/94) for the six months ended June 30, 1995 (unaudited)
and for the year ended December 31, 1994 (unaudited).
Page 44
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
See Index to Financial Statements attached hereto on page F-1 of
this Form 10-K.
Page 45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOME PROPERTIES OF NEW YORK, INC.
(Registrant)
Date: November 13, 1996
By: /s/ Norman P. Leenhouts
Norman P. Leenhouts
Chairman of the Board
Co-Chief Executive Officer and Director
Page 46
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of
December 31, 1995 and 1994 F-3
Consolidated and Combined Statements of Operations
for the Year Ended December 31, 1995, for the
Period From August 4, 1994 through December 31,
1994, for the Period From January 1, 1994 through
August 3, 1994 and for the Year Ended December 31,
1993 F-4
Consolidated and Combined Statements of
Stockholders' Equity/Owners' Deficit
for the Year Ended December 31, 1995, for the
Period From August 4, 1994 through December 31,
1994, for the Period From January 1, 1994 through
August 3, 1994 and for the Year Ended December 31,
1993 F-5
Consolidated and Combined Statements of Cash Flows
for the Year Ended December 31, 1995, for the
Period From August 4, 1994 through December 31,
1994, for the Period From January 1, 1994 through
August 3, 1994 and for the Year Ended December 31, 1993 F-6
Notes to Consolidated and Combined Financial Statements F-7
Schedule III:
Real Estate and Accumulated Depreciation F-21
Page F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Home Properties of New York, Inc.
We have audited the accompanying consolidated and combined financial
statements and the financial statement schedule of Home Properties of New
York, Inc. and the Original Properties listed in Item 14(a) of this Form 10-
K. These financial statements and the financial statement schedule are the
responsibility of the Home Properties of New York, Inc. and the Original
Properties' management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Home
Properties of New York, Inc. as of December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for the year
ended December 31, 1995 and the period from August 4, 1994 through December
31, 1994, and the combined results of operations and cash flows of the
Original Properties for the period from January 1, 1994 through August 3,
1994 and the year ended December 31, 1993, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ Coopers & Lybrand, L.L.P.
Rochester, New York
February 1, 1996
Page F-2
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 and 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1995 1994
ASSETS
Real estate:
Land $ 7,065 $ 6,041
Buildings, improvements and equipment 191,138 156,950
198,203 162,991
Less: accumulated depreciation ( 32,258) ( 25,759)
Real estate, net 165,945 137,232
Cash and cash equivalents 812 1,635
Cash in escrows 3,754 3,950
Advances to affiliates 5,097 1,344
Deferred charges and other assets 5,854 4,548
Total assets $181,462 $148,709
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 86,149 $ 52,643
Notes payable 470 173
Line of Credit 4,500 -
Accounts payable 1,657 1,649
Accrued interest payable 383 340
Accrued expenses and other liabilities 1,882 1,509
Security deposits 1,902 1,476
Total liabilities 96,943 57,790
Minority interest 8,739 8,978
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued - -
Common stock, $.01 par value; 30,000,000
shares authorized; 5,408,817 shares issued
and outstanding 54 54
Excess stock, $.01 par value; 10,000,000
shares authorized; no shares issued - -
Additional paid-in capital 83,413 83,406
Distributions in excess of accumulated earnings ( 7,687) ( 1,519)
Total stockholders' equity 75,780 81,941
Total liabilities and
stockholders' equity $181,462 $148,709
The accompanying notes are an integral part of these consolidated and
combined financial statements.
Page F-3
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Home Properties of NY, Inc. Original Properties
Year Ended 08/04/94 01/01/94 Year Ended
December 31 Through Through December 31
1995 12/31/94 08/03/94 1993
Revenues:
Rental income $ 31,705 $ 10,995 $11,526 $19,189
Property other income 1,062 423 415 668
Other income 1,499 464 79 115
Property management income - - 834 1,448
Equity in income from operations of
HP Management 35 61 - -
Total revenues 34,301 11,943 12,854 21,420
Expenses:
Operating and maintenance 15,911 5,267 6,329 10,035
Property management - - 625 1,139
General and administrative 1,200 400 407 680
Interest 6,432 1,444 3,126 5,113
Depreciation and amortization 6,258 2,191 1,584 2,656
Total expenses 29,801 9,302 12,071 19,623
Income before minority interest and
extraordinary item 4,500 2,641 783 1,797
Minority interest 455 256 - -
Income before extraordinary item 4,045 2,385 783 1,797
Extraordinary item, prepayment
penalties, net of $141 in 1995 and
$265 in 1994 allocated to minority
interest ( 1,249) ( 2,498) - -
Net income (loss) $ 2,796 ($ 113) $ 783 $ 1,797
Per share data:
Income before extraordinary item $.75 $.44
Extraordinary item ($.23) ($.46)
Net income (loss) $.52 ($.02)
Weighted average number of
shares outstanding 5,408,474 5,408,230
The accompanying notes are an integral part of these consolidated and
combined financial statements.
Page F-4
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
CONSOLIDATED AND COMBINED STATEMENTS OF
STOCKHOLDERS' EQUITY/OWNERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Distributions Original
Additional in Excess of Properties
Common Stock Paid-In Accumulated Owners'
Shares Amount Capital Earnings Deficit
Balance, January 1, 1993 $ - $ - $ - ($2,546)
Distributions ( 1,842)
Net income 1,797
Balance, December 31, 1993 ( 2,591)
Distributions ( 933)
Net income 783
Balance, August 3, 1994 ( 2,741)
Reclassification of Original
Properties deficit in
connection with formation
of the Company ( 2,741) 2,741
Initial capitalization of the
Company and gross proceeds
from the initial public
offering of stock 5,408,200 54 102,698
Offering and organization costs ( 8,986)
Acquisition of non-controlled
interest in entities included
in Original Properties 1,288
Adjustment for minority interest's
ownership of Operating Partnership
at date of initial public offering ( 8,857)
Proceeds from issuance of additional
stock 234 4
Net loss of Company ( 113)
Dividends paid ($.26 per share) ( 1,406)
Balance,
December 31, 1994 5,408,434 54 83,406 ( 1,519)
Proceeds from issuance of
additional stock 383 7
Net income of Company 2,796
Dividends paid
($1.66 per share) ( 8,964)
Balance,
December 31, 1995 5,408,817 $54 $ 83,413 ($ 7,687) $ -
The accompanying notes are an integral part of these consolidated and
combined financial statements.
Page F-5
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Home Properties Original Properties
of NY, Inc.
Year Ended 08/04/94 01/01/94 Year Ended
December 31 Through Through December 31
1995 12/31/94 08/03/94 1993
Cash flows from operating activities:
Net income (loss) $ 2,796 ($ 113) $ 783 $1,797
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Extraordinary item - deferred
loan costs 624 412 - -
Equity in income of HP
Management ( 35) ( 61) - -
Income allocated to
minority interest 455 256 - -
Extraordinary item allocated
to minority interest ( 141) ( 265) - -
Depreciation and amortization 6,914 2,426 1,647 2,732
Changes in assets and liabilities:
Cash in escrows 196 ( 1,687) ( 5) ( 166)
Deferred charges and
other assets ( 1,666) 325 (1,208) ( 17)
Accounts payable and
accrued liabilities 850 171 1,305 ( 158)
Total adjustments 7,197 1,577 1,739 2,391
Net cash provided by
operating activities 9,993 1,464 2,522 4,188
Cash flows used in investing activities:
Purchase of properties, net of
mortgage notes assumed ( 9,402) (68,063) - -
Additions to properties ( 8,179) ( 1,703) (1,168) (1,350)
Advances to affiliates ( 5,683) ( 1,344) - -
Payments on advances to
affiliates 1,930 - - -
Net cash used in investing
activities (21,334) (71,110) (1,168) (1,350)
Cash flows from financing activities:
Proceeds from sale of common stock 7 102,756 - -
Proceeds from mortgage and other
notes payable 45,292 22,496 - 13
Payments of mortgage and other
notes payable (28,429) (42,300) ( 631) (1,052)
Proceeds from line of credit 17,677 5,550 - -
Payments on line of credit (13,177) ( 5,550) - -
Dividends and distributions paid( 9,970) ( 1,556) - -
Payment of offering expenses - ( 8,986) - -
Payment of interest rate reduction
agreements - ( 1,675) - -
Additions to deferred loan costs( 882) ( 763) ( 120) -
Capital contribution to
minority interest - 30 - -
Capital distributions - ( -) ( 933) (1,842)
Net cash provided by (used in)
financing activities 10,518 70,002 (1,684) (2,881)
Net increase (decrease) in cash ( 823) 356 ( 330) ( 43)
Cash and cash equivalents:
Beginning of period 1,635 1,279 1,609 1,652
End of period $ 812 $ 1,635 $1,279 $1,609
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,739 $ 1,268 $3,054 $5,086
The accompanying notes are an integral part of these consolidated and
combined financial statements.
Page F-6
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(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 and development of residential
apartment communities. On August 4, 1994, the Company completed an
initial public offering ( " IPO " ) of 5,408,000 shares of common
stock. Net proceeds from the IPO of approximately $94,000 were
contributed to Home Properties of New York, L.P. (the " Operating
Partnership " ) in exchange for units representing a 90.4% general
partnership interest in the Operating Partnership. The Operating
Partnership acquired all of the assets and assumed all of the
liabilities of the Original Properties and in connection therewith,
(i) issued 575,375 units, representing a 9.6% minority interest in the
Operating Partnership, to insiders of Home Leasing Corporation
( " HLC" ); (ii) paid $30,600 in cash to the partners of the Original
Properties; (iii) prepaid approximately $29,600 of the approximately
$58,000 of mortgage indebtedness on the Original Properties; and (iv)
acquired four residential properties (the " Acquisition Properties " )
from unaffiliated sellers for approximately $32,400 in cash and the
assumption of approximately $3,300 in existing mortgage indebtedness.
The Original Properties is not a legal entity but rather a combination
of twelve entities which were wholly owned by HLC and its affiliates
that were reorganized to combine HLC's interest in certain investment
properties and property management operations. The entities owned 100%
of each property.
The property management, leasing and development
activities for properties affiliated with HLC, which were not combined
with the Original Properties, and certain other properties not
affiliated with HLC, are performed by Home Properties Management, Inc.
(" HP Management "). HP Management is accounted for under the equity
method. HP Management issued non-voting common stock to the Operating
Partnership in exchange for management contracts for commercial and
development managed properties and certain other assets. This exchange
entitles the Operating Partnership to receive 99% of the economic
interest of HP Management. The remaining 1% economic interest and
voting stock were issued to the owners of HLC.
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its 89.8% general partnership interest in
the Operating Partnership. In addition, the combined financial
statements of the Original Properties present the historical financial
statements of the partnerships and assets acquired by the Operating
Partnership on a combined basis.
All significant intercompany balances and transactions have been
eliminated in these consolidated and combined financial statements.
Page F-7
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
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. There was no
interest capitalized in any of the periods presented. Ordinary repairs
and maintenance are expensed as incurred. The Company periodically
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.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long Lived Assets" ("FAS 121"). FAS 121 established
accounting standards for the impairment of long lived assets and is
effective for fiscal years beginning after December 15, 1995. The
Company intends to adopt this statement prospectively. The impact of
this new standard is not expected to have a material impact on the
Company's financial condition or results of operations.
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.
Cash and Cash Equivalents
For purposes of the consolidated and combined statements of cash
flows, cash and cash equivalents include all cash and highly liquid
investments purchased with 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 are deferred and
amortized over the life of the related agreement. The straight-line
method is used to amortize all financing costs. The range of the terms
of the agreements are from 3-32 years. Costs related to interest rate
reduction agreements on long-term debt are amortized using the
interest method over the life of the related agreements.
Page F-8
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Joint Ventures
Investments in real estate joint ventures are accounted for under the
equity method.
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 $870, $262, $267 and $331 for the
year ended December 31, 1995, for the period August 4, 1994 to
December 31, 1994, for the period January 1, 1994 to August 3, 1994,
and for the year ended December 31, 1993, respectively.
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, are recognized when earned.
The Operating Partnership and HP Management receive development,
construction and other fee income from joint ventures and other
properties in the development phase. Each entity's share of the fee
income is recognized on the percentage of completion method.
HP Management provides property management and administrative services
to certain real estate and other entities affiliated with HLC which
were not combined with the Original Properties, and to properties not
affiliated with HLC. In consideration for these services, HP
Management receives monthly management fees generally based on a
percentage of revenues or costs incurred. Management fees are
recognized as revenue when they are earned.
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 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
Page F-9
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
provision has been made for federal income taxes in the accompanying
consolidated financial statements for the year ended December 31, 1995
and for the period from August 4, 1994 to December 31, 1994.
Stockholders are taxed on dividends and must report such dividends as
either ordinary income, gains, or as return of capital. The
appropriate amount of each per common share for the 1995 dividend is:
$.766-ordinary income; and $.892 return of capital.
Prior to the formation of the Company, each partner of the Original
Properties was taxed individually on such partner's share of
partnership income or loss, thus no provision for federal and state
income taxes was provided in the combined financial statements for the
year ended December 31, 1993 or for the period from January 1, 1994 to
August 3, 1994.
Earnings Per Common Share
Earnings (loss) per common share amounts are based on the weighted
average number of common shares and common equivalent shares
outstanding during the period presented. The exchange of an Operating
Partnership unit for common stock will have no effect on earnings
(loss) per common share as unitholders and stockholders effectively
share equally in the net income (loss) of the Operating Partnership.
3 DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
December 31,
1995 1994
Deferred financing and interest
rate reduction agreements $ 3,564 $ 2,686
Less: accumulated amortization ( 1,588) ( 315)
1,976 2,371
Prepaid expenses 1,936 1,371
Other assets 1,942 806
$ 5,854 $ 4,548
4 LINE OF CREDIT
As of December 31, 1995, the Company had an unsecured line of credit
of $15,000, with an available balance of $10,500. The line of credit
expires on August 22, 1996. Borrowings bear interest at 1.9% over the
one-month LIBOR rate. At December 31, 1995, the interest rate was
7.93%.
Page F-10
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
5 MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following:
Periodic Final
December 31, Interest Payment Maturity
1995 1994 Rate Terms(b) Date
Brook Hill $ 5,089 - 7.75% 39 2002
Conifer Village 3,170 $ 3,285 7.20% (c) 2010
Fairview 4,082 - (d) 29 2003
Finger Lakes 4,082 - (d) 29 2003
Garden Village 4,790 - 7.75% 36 2002
Harborside 5,092 - 8.92% 40 2027
Idylwood 9,539 - 8.625% 74 2005
Northgate Manor - 5,592 6.75% - -
Raintree Island (a) 7,897 6,405 various 64 2020
1600 Elmwood 5,588 - 7.75% 42 2002
Springcreek & Meadows 3,312 3,367 (e) 23 2004
Village Green 4,989 - 7.75% 38 2002
Village Green 11 - 2,027 9.00% - -
Village Green 12 - 3,741 9.25% - -
Wedgewood Village 5,750 5,750 (f) (f) 2001
Wedgewood Shopping 500 500 (f) (f) 2001
Williamstowne Village 10,084 - (g) 70 2002
Williamstowne Village - 9,700 9.13% - -
Perinton, Riverton
& Waterfalls 12,185 12,276 (h) 76 2000
$86,149 $52,643
(a) In 1986, Raintree entered into a
sale/leaseback transaction for substantially all of the real
estate and related assets of the project. Raintree received
$2,000 in cash and the buyer assumed approximately $6,500 in
mortgage debts resulting in a gain of approximately $1,400.
The gain has been deferred and is being amortized over the
33-year lease term. The carrying amount represents the
remaining leasehold liability. In 1995, the terms of the
lease were changed, resulting in a non-cash transaction
increasing investment in real estate and the leasehold
liability by $1,719.
(b) This amount represents the monthly payment of
principal and interest.
(c) Monthly payments of interest only with annual
principal payments of $125 in 1996 increasing to $330 in
2010.
(d) The interest rate for the period May 17, 1995
through April 30, 2000 is 7.71%; and, for the period May 1,
2000 until maturity, the rate is .5% above prime.
Page F-11
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
5 MORTGAGE NOTES PAYABLE (Continued)
(e) The interest rate for the period August 4, 1994
through July 31, 1997 is 6.75%; for the period August 1,
1997 through July 31, 2000, the rate is 1.75% above the
three-year US Treasury bond yield; and, for the period
August 1, 2000 through July 31, 2004, the rate is .5% over
prime.
(f) The interest rate for the period August 4, 1994,
through July 31, 1999, is 6%; and, for the period August 1,
1999, until maturity, the rate is fixed at 2% over the five-
year US Treasury bill yield with a minimum of 7.5%. Monthly
payments of interest only, with a $100 principal payment due
in August 1998, and $150 payment due in August 1999, to be
allocated between the apartments and shopping center.
(g) The interest rate for the period October 27, 1995
through October 31, 2000 is 7.37%; and, for the period
November 1, 2000 until maturity, the rate is .5% above
prime.
(h) The interest rate for the period August 4, 1994,
through August 31, 1999, is 6.75%; and, for the period
September 1, 1999, through maturity, the rate is .5% over
prime.
Principal payments on the mortgage notes payable for years subsequent
to December 31, 1995, are as follows:
1996 $ 943
1997 997
1998 1,132
1999 1,252
2000 12,824
Thereafter 69,001
$86,149
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 $87,922
at December 31, 1995.
The Company has incurred prepayment penalties on debt restructuring
and are accounted for as extraordinary items in the statement of
operations. Prepayment penalties were approximately $1,390 and $2,763
for the years ended December 31, 1995 and for the period from August 4,
1994 to December 31, 1994, respectively. The specific debt restructured
and the source of the funds used in the restructuring was as follows:
Page F-12
For the year ended December 31, 1995:
Principal
Balance
Property Mortgaged Paid Penalty Total Uses
Garden Village $ 6,472 $ 287 $ 6,759 (1)
Line of Credit 7,675 213 7,888 (1)
Village Green (11) 2,015 88 2,103 (1)
Village Green (12) 3,721 147 3,868 (1)
Williamstowne 9,647 514 10,161 (2)
Idylwood 9,550 141 9,691 (3)
------- ------ -------
$39,080 $1,390 $40,470
(1) The total principal and penalties were refinanced with debt from
John Hancock and working capital of $327.
(2) The total principal and penalty was refinanced with debt from
Manufacturers and Traders Trust Company.
(3) The total principal and penalty was refinanced with debt from
J P Morgan.
For the year ended December 31, 1994:
Principal
Balance
Property Mortgaged Paid Penalty Total Uses
Fairview $ 4,258 $ 116 $ 4,374
Finger Lakes 2,102 19 2,121
2,100 2,100
Newcastle 5,333 190 5,523
1600 Elmwood 4,851 1,207 6,058
Williamstowne 10,030 1,224 11,254
Wedgewood 1,000 7 1,007
Perinton 122 122
------- ------ -------
$29,796 $2,763 $32,559 (1)
(1) The total principal plus penalty of $32,559 in 1994 was paid from the
proceeds of the initial public offering.
Page F-13
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
6 NOTES PAYABLE
Notes payable consist of the following:
December 31, Interest
1995 1994 Rate
Financial institution $107 $173 2.5%
Seller financing 363 - 7.5%
$470 $173
Principal payments on the notes payable are approximately $211
annually.
7 TRANSACTIONS WITH AFFILIATES
HP Management provides property management and administrative services
to certain real estate and other entities affiliated with HLC which
were not combined with the Original Properties and to properties not
affiliated with HLC. The Company and HP Management recognized
management and development fee revenue from entities affiliated with
HLC which are not combined with the Original Properties of $2,017,
$821, $813 and $1,228 for the year ended December 31, 1995, for the
period August 4, 1994 to December 31, 1994, the period January 1, 1994
to August 3, 1994, and for the year ended December 31, 1993,
respectively.
The Company leases its corporate office space from an affiliate. The
lease requires an annual base rent of $138 through the August, 2000
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 $237, $96, $134 and $225 for the
year ended December 31, 1995, for the period August 4, 1994 to
December 31, 1994, the period January 1, 1994 to August 3, 1994, and
for the year ended December 31, 1993, respectively.
The Company has an advance to HP Management in the amount of $422 at
December 31, 1995. The advance has no definite payment terms.
The Company has transactions with its real estate joint ventures which
are described in Note 11.
Page F-14
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
8 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. 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
$169, $70, $97 and $161 including contingent rents of $99, $40, $57
and $91 for the year ended December 31, 1995, for the period August 4,
1994 to December 31, 1994, the period January 1, 1994 to August 3,
1994, and for the year ended December 31, 1993, respectively. At
December 31, 1995, 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 25% of the first 4% of participant
contributions. Expenses under this plan for the periods presented were
not material. Effective January 1996, the Company match will increase
to 75% of the first 4% of participant contributions.
Employment Agreements
The Operating Partnership entered into employment agreements with two
executives that will expire August 4, 1999. The executives have a base
salary of $120 through December 31, 1994, and for each subsequent year
the base salary shall be 10% in excess of the base salary for the
preceding year. The executives are also entitled to receive incentive
compensation based on increases in funds from operations per share up
to 50% of their base compensation for such year.
Incentive Compensation Plan
Effective January 1, 1996, the Incentive Compensation Plan provides
that eligible officers and key employees may earn a cash bonus based
on increases in funds from operations. No cash bonuses will be payable
under the Incentive Compensation Plan unless the increase in funds
from operations per share, after giving effect to the bonuses, is
equal to or greater than 2%. The Company accrued $100 under the prior
formula in 1994 relative to results for the period from August 4, 1994
to December 31, 1994. No bonus was accrued for 1995.
Page F-15
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
8 COMMITMENTS AND CONTINGENCIES (Continued)
Contingencies
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. These matters are generally
covered by 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.
Guarantees
The Company has guaranteed temporary construction financing totalling
$6,111 associated with two joint ventures.
9 STOCK BENEFIT PLAN
The Company has adopted the 1994 Stock Benefit Plan (the " Plan " ).
Plan participants include officers, non-employee directors, and key
employees of the Company. The Company has reserved 446,000 shares for
issuance to officers and employees and 54,000 shares for issuance to
non-employee directors. Options totalling 445,532 and 430,000 were
outstanding at an exercise price of $19 per share at December 31,
1995 and 1994, respectively. No options had been exercised. Options
granted to officers and employees of the Company vest 20% for each
year of service until 100% vested on the fifth anniversary of the
consummation of the IPO. The chief executive officers' options
(176,000) and directors' options (36,000) 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, 1995.
10 DIVIDEND REINVESTMENT PLAN
In November, 1995, the Company adopted the Dividend Reinvestment,
Stock Purchase, Resident Stock Purchase and Employee Stock Purchase
Plan (the " 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 or other voluntary cash investments in
shares of common stock.
Page F-16
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
11. INVESTMENTS IN JOINT VENTURES
The Operating Partnership has a .5% general partner interest in the
College Greene joint venture. The joint venture completed construction
in 1995 of an apartment community located near Rochester, New York.
The Operating Partnership and HP Management recognized approximately
$379 and $146 in development fee income from the joint venture during
1995 and for the period from August 4, 1994 to December 31, 1994,
respectively. On December 21, 1994, the Operating Partnership entered
into a construction loan agreement with the joint venture to fund up
to $3,000 for development expenses. The loan is collateralized by the
real property, and any buildings and improvements located on the
property. The loan is guaranteed by an unrelated general partner and
three individual unrelated guarantors. The construction loan balance
was $2,898 at December 31, 1995, and bears interest at 1.5% over the
prime rate. Interest income on this loan was $233 and $3 during 1995
and for the period from August 4, 1994 to December 31, 1994,
respectively. Arrangements to replace this loan with permanent
financing from an independent source were being pursued at year end
with an expected closing to take place during the first quarter of
1996. The Operating Partnership's investment in the joint venture is
not material at December 31, 1995.
The Operating Partnership also has a .5% general partner interest in
Evergreen Hills joint venture. The joint venture substantially
completed the construction and leasing phase during 1994 for this
apartment community located near Rochester, New York. The Operating
Partnership and HP Management recognized approximately $43 and $239 of
development fee income from the joint venture during 1995 and for the
period from August 4, 1994 to December 31, 1994, respectively. The
Operating Partnership's investment in the joint venture is not
material at December 31, 1995.
During 1995, the Operating Partnership acquired interests in three
additional joint ventures for properties eligible forhousing
rehabilitation tax credits: Linda Lane Associates, Windsor Place
Associates and Candlelight Lane Associates. In each case, the
Operating Partnership has a .5% general partner interest and a 49.5%
limited partner interest. The Operating Partnership and HP Management
recognized approximately $475 in development fee income from these
joint ventures during 1995. Advances made during the construction
rehabilitation phase totalled $1,777 at December 31, 1995. The
advances bear interest at the prime rate and are expected to be repaid
from a combination of permanent financing and sale of tax credits to
limited partners in a subsequent offering. Interest income on these
advances was $41 during 1995.
Page F-17
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
12 ACQUISITIONS
Subsequent to the IPO in August, 1994 and through December 31, 1995,
the Company has acquired the communities listed below. The
acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the acquired assets are included in the
statement of operations from their respective dates of acquisition.
Date Year Number Cost of
Community Acquired Constructed of Units Acquisitions
Harborside (1) 10/1/94 1972 281 $ 6,363
Northgate Manor 11/3/94 1962 224 7,277
Village Green 12/19/94 1988 248 9,080
Idylwood (2) 1/6/95 1969 720 17,627
Pearl Street 5/16/95 1969 60 1,238
Candlewood (3) 12/4/95 1969 126 2,950
(1) Operation of Harborside commenced October 1, 1994 subject to an
operating and management agreement. The acquisition was accounted for
on the equity method due to the significant influence and control the
Operating Partnership had over the property until the final closing
date of March 29, 1995. According to the operating agreement, the
Operating Partnership was responsible for the collection of all
revenue and the payment of all expenses and debt service and was
entitled to receive or fund the net cash flow from the property.
(2) The acquisition of Idylwood occurred in stages, with 44% being
acquired on January 6, 1995 and the balance on September 7, 1995. The
56% acquired in September was subject to a lease entitling the
Operating Partnership to all items of income and expense effective
January 1, 1995. The acquisition was accounted for on the equity
method until the final closing date in September, 1995.
(3) Operation of Candlewood commenced December 4, 1995 subject to a net
lease agreement. The acquisition was accounted for on the equity
method due to the significant influence and control the Operating
Partnership had over the property until the final closing date of
January 5, 1996. The net lease agreement granted the Operating
Partnership control over the property, as well as all items of income
or expense and cash flow generated from the property. The equity in
income (loss) of Harborside, Idylwood and Candlewood prior to the
final acquisition is included in property other income in the
statement of operations.
Page F-18
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
13 PROFORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited proforma information was prepared as if the
transactions related to the IPO, the Company's formation and the
subsequent acquisitions of Harborside and Idylwood had occurred on
January 1, 1994. The proforma financial information is based upon the
historical consolidated and combined 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 1994, nor does it purport to represent the results of
operations for future periods.
For the years ended December 31,
1995 1994
(in thousands, except share and per share data)
Total revenues $37,114 $33,293
Income before extraordinary item 3,760 3,623
Net income 2,511 1,141
Per share data (A):
Income before extraordinary item .70 .67
Net income .46 .21
(A) Based upon 5,408,474 common shares outstanding
The Company completed an acquisition of Pearl Street Apartments, a 60
unit community in Liverpool, New York on May 17, 1995. The proforma
results for the years ended December 31, 1995 and 1994 would not have
been materially different if the property had been acquired on January 1,
1994. Therefore, no proforma adjustments are reflected for this
acquisition.
14 SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company acquired three properties from unaffiliated sellers
between August 4 and December 31, 1994, subject to the assumption of
approximately $14,700 of mortgage notes payable.
The Company acquired two properties from unaffiliated sellers during
1995 subject to the assumption of approximately $14,694 of mortgage
notes payable.
Units in the Operating Partnership amounting to $453 and $250 were
issued to certain former owners in exchange for a portion of those
owners' interests in the property acquired. These units are included
in the minority interest at December 31, 1995 and 1994 respectively.
Page F-19
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
15 SUBSEQUENT EVENT
On January 1, 1996, the Operating Partnership acquired the operations
of Conifer Realty, Inc. and Conifer Development, Inc. (" Conifer " )
and purchased certain of Conifer's assets for a total acquisition
price of $15.4 million. The acquisition was funded by issuing 486,864
Operating Partnership units (valued at $17.25 per unit), the
assumption of $6.8 million of existing mortgage debt and $235 in cash
paid to outside partners. Additional consideration will be paid in
UPREIT units if development fee income exceeds target levels over the
next five years.
The purchase price is allocated to three communities containing 358
units valued at $10.2 million, general partnership interests in 2,804
apartment units that Home Properties will manage valued at $1.8
million, goodwill valued at $3.3 million and other assets valued at
$100.
The acquisition will be accounted for using the purchase method of
accounting and, accordingly, the results of operations will be
included from the date of acquisition forward.
The property management, leasing and development activities for
properties affiliated with this acquisition will be performed by
Conifer Realty Corp. (" Conifer Realty " ). Conifer Realty, a newly
formed entity, will be accounted for under the equity method of
accounting. Conifer Realty 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 entitled the operating Partnership to
receive 99% of the economic interest of Conifer Realty. The remaining
1% economic interest and voting stock were issued to the owners of HLC
and Conifer.
The following unaudited proforma information was prepared as if the
acquisition had occurred on January 1, 1995. 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 acquisition had been
consummated at the beginning of 1995, nor does it purport to represent
the results of operations for future periods. In thousands, except
share and per share data.
For the year ended
December 31, 1995
(unaudited)
Revenues $36,551
Income before extraordinary item 3,852
Net income 2,697
Per share data (A):
Income before extraordinary item $.71
Net income .50
(A) Based upon 5,408,474 common shares outstanding.
Page F-20
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
16 QUARTERLY FINANCIAL STATEMENT INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1995 and
1994 are as follows:
1995
First Second Third Fourth
Revenues $7,561 $8,180 $8,809 $9,751
Income before minority interest
and extraordinary item 851 1,030 1,245 1,374
Minority interest (84) (105) (126) (140)
Extraordinary item,
net of minority interest N/A N/A N/A (1,249)
Net income 767 925 1,119 (15)
Earnings per share:
Income before extraordinary item .14 .17 .21 .23
Extraordinary item N/A N/A N/A (.23)
Net income .14 .17 .21 0
1994(1)
First Second Third Fourth
Revenues $5,330 $5,495 $6,550 $7,422
Income before minority interest
and extraordinary item 196 411 1,308 1,509
Minority interest N/A N/A (156) 147
Extraordinary item,
net of minority interest N/A N/A (2,498) N/A
Net income (loss) 196 411 (1,299) 1,362
Earnings per share:
Income before extraordinary item N/A N/A .19 .25
Extraordinary item N/A N/A (.46) N/A
Net income (loss) N/A N/A (.27) .25
(1) Reflects the consolidated and combined results of operations of
Home Properties of New York, Inc. and the Original Properties for the
year ended December 31, 1994.
Page F-21
SCHEDULE III
HOME PROPERTIES OF NEW YORK, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
Initial Cost Total Cost
------------------------ Costs -------------------------- Total Cost
Buildings, Capitalized Buildings Net of
Improvements Subsequent Improvements Accum. Accum. Year of
Encumbrances Land & Equip. Adjust(a) to Acquis. Land & Equip. Total(b) Deprec. Deprec. Acquis.
Brook Hill Apartments $ 5,089 $ 330 $ 7,920 $ 716 $ 330 $ 8,636 $ 8,966 $ 370 $ 8,596 1994
Conifer Village Apartments 3,170 358 8,555 14 358 8,569 8,927 368 8,559 1994
Fairview Heights
and Fairview Manor 4,082 580 5,305 $ 2,828 795 580 8,928 9,508 2,400 7,108 1985
Finger Lakes Manor Apts. 4,082 200 4,536 1,882 545 200 6,963 7,163 1,833 5,330 1983
Garden Village Apartments 4,790 354 8,546 623 354 9,169 9,523 468 9,055 1994
Harborside Manor 5,092 250 6,113 779 250 6,892 7,142 186 6,956 1995
Idylwood Apartments 9,539 700 16,927 1,538 700 18,465 19,165 402 18,763 1995
Meadows Apartments 2,053 208 2,776 1,216 515 208 4,507 4,715 1,326 3,389 1984
Newcastle Apartments 197 4,007 3,684 1,317 197 9,008 9,205 2,319 6,886 1982
Northgate Manor Apartments 290 6,987 886 290 7,873 8,163 311 7,852 1994
Pearl Street 49 1,189 11 49 1,200 1,249 26 1,223 1995
Perinton Manor Apartments 5,660 224 6,120 3,629 537 224 10,286 10,510 2,766 7,744 1982
Raintree Island Apartments 7,897 6,654 3,217 3,901 13,772 13,772 2,691 11,081 1985
Riverton Knolls Apartments
and Townhouse Properties 5,158 240 6,640 2,523 1,530 240 10,693 10,933 3,440 7,493 1983
1600 Elmwood Avenue Apts. 5,588 303 5,698 3,339 1,384 299 10,425 10,724 3,354 7,370 1983
Spanish Gardens Apartments 37 9,263 452 398 9,690 10,088 426 9,662 1994
Springcreek Apartments 1,259 128 1,702 745 336 128 2,783 2,911 813 2,098 1984
Village Green Apartments 4,989 362 8,718 849 362 9,567 9,929 314 9,615 1994
Waterfalls Village
Manufactured
Home Community 1,367 409 1,995 1,206 126 408 3,328 3,736 736 3,000 1987
Wedgewood Shopping Center 500 100 504 15 177 100 696 796 235 561 1986
Wedgewood Village Apts. 5,750 1,000 9,327 2,297 1,079 1,000 12,703 13,703 2,990 10,713 1986
Williamstowne Village Apts. 10,084 390 9,748 5,115 1,737 390 16,600 16,990 4,286 12,704 1985
Other Assets 125 260 385 385 198 187
Total $86,149 $7,045 $139,230 $31,821 $20,107 $7,065 $191,138 $198,203 $32,258 $165,945
(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 $201,000.
Page F-22
SCHEDULE III (CONTINUED)
HOME PROPERTIES OF NEW YORK, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
Depreciation and amortization of the Company's investments in
buildings and improvements reflected in the consolidated and combined
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, 1995, are as follows:
1995 1994 1993
-------- -------- -------
Balance -- beginning of year $162,991 $ 76,646 $75,296
New property acquisition 26,956 52,057 -
Adjustments - 31,821 -
Additions 8,256 2,871 1,350
Disposals and retirements - ( 404) -
Balance, end of year $198,203 $162,991 $76,646
The changes in accumulated depreciation for the three years ended
December 31, 1995, are as follows:
1995 1994 1993
Balance, beginning of year $ 25,759 $ 22,268 $19,612
Depreciation for the year 6,499 3,775 2,656
Disposals and retirements - ( 284) -
Balance, end of year $ 32,258 $ 25,759 $22,268
Page F-23