SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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, 1996
-------------------------------------------
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 24, 1997 was approximately
$150,465,527. As of February 24, 1997, there were 6,228,236.418
shares of common stock, $.01 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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
PART I
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 specializes in the
ownership, management, acquisition, and development of
apartment communities in the Northeast. 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 68.2%
general partnership interest as of December 31, 1996
(89.8% at 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 was 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
as of December 31, 1996, owned and managed 28 communities
with 7,176 apartment units and one community containing 202
manufactured home sites (the "Owned Properties"). The
Operating Partnership also holds general partnership
interests in an additional 3,738 apartment units and it and
the Management Companies manage 662 apartment units for
affiliates, 992 apartment units for third parties 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 concentrated in the
following market areas:
MANAGING FEE MANAGED
GENERAL FOR FEE MANAGED
MARKET AREA TOTAL OWNED PARTNER AFFILIATES FOR OTHERS
Buffalo, NY 2,223 2,067 156 - -
Rochester, NY 4,064 1,953 1,339 439 333
Syracuse, NY 3,115 1,584 1,271 199 61
Hudson Valley, NY 726 584 142 - -
Albany, NY 764 - 254 - 510
Watertown, NY 688 - 576 24 88
Columbus, OH 604 604 - - -
Bethlehem, PA 384 384 - - -
TOTAL 12,568 Units 7,176 Units 3,738 Units 662 Units 992 Units
Page 1
The Company's mission is to provide investors with
dependable, above average returns and to be the first choice
of renters in its chosen markets. The Company's strategy
for accomplishing its mission is to: (i) acquire,
reposition and operate multi-family apartment properties in
the Company's target markets; (ii) continue the development
and redevelopment of apartment communities utilizing various
forms of government assistance programs; and (iii) maintain
its focus on customer satisfaction by serving the Company's
residents with integrity and respect and providing value and
service that exceeds expectations.
Structure
The Company was formed in November 1993 as a Maryland
corporation and is the general partner of the Operating
Partnership. On December 31, 1996, it owned a 68.2%
general partner interest in the Operating Partnership. The
limited partner interests (the "Units") in the Operating
Partnership are owned by the officers of the Company and
certain individuals who acquired Units in the Operating
Partnership as partial consideration for their interests in
entities purchased by the Operating Partnership. In
addition, on December 30, 1996, the State of Michigan
Retirement Systems acquired an 18.5% Class A limited
partnership interest in the Operating Partnership.
The Operating Partnership is a New York limited partnership
formed in December, 1993. Holders of Units in the Operating
Partnership may redeem a Unit for one share of the Company's
common stock or cash equal to the fair market value at the
time of the redemption, at the option of the Company. The
Company currently anticipates that it will issue shares of
common stock rather than pay cash in connection with such
redemptions. The Class A limited partnership interest issued
to the State of Michigan Retirement Systems has some
features, such as a preferred return and anti-dilution
rights, that are distinct from the features of the other
Units. 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 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
700 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) continuing to
utilize its written "Pledge" of customer satisfaction that
is the foundation on which the Company is building its name-
brand recognition; (ii) reinforcing its decentralized
company orientation by encouraging employees' personal
improvement and by providing extensive training; (iii)
readily adopting new technology so that the time spent on
administration can be decreased and the time spent
attracting and serving residents
Page 2
can be increased; (iv) enhancing the quality of living for
the Company's residents by improving the quality of service
and physical amenities available at each community every
year; and (v) engaging in aggressive cost controls and
taking advantage of volume discounts, thus benefiting from
economies of scale while constantly improving the level of
customer service.
Acquisition and Development Strategies
The Company's strategy is to make acquisitions in geographic
regions that have similar climates, easy access to the
Company's headquarters, enough apartments available for acquisition
to achieve a critical mass and minimal investment ownership by
other apartment REITs. Targeted markets also possess other
characteristics similar to the Company's existing markets,
including a limited amount of new construction, acquisition
opportunities below replacement costs, a mature housing
stock and a stable or growing job market. The Company
expects that its growth will be primarily in select
metropolitan areas within the Northeastern United States.
The Company may also acquire equity ownership in other public or
private entities that own portfolios of apartment communities.
Those acquisitions may be part of a strategy to acquire all
of the equity ownership in those other entities or some or all
of their apartment portfolio.
In addition, the Company intends to continue to develop and
re-develop apartment communities utilizing various
government programs. These activities are expected to
generate development fees, ongoing management and incentive
management fees and participation in residual value for the
Company. They also increase the Company's volume purchasing
abilities and provide a pipeline for future acquisitions and
re-development opportunities.
Financing and Capital Strategies
The Company intends to adhere to the following financing
policies: (i) maintaining a ratio of debt-to-total market
capitalization (total debt of the Company as a percentage of
the market value of outstanding common stock and Units plus
total debt) of approximately 50% or less; (ii) utilizing
primarily fixed rate debt; (iii) varying debt maturities to
avoid significant exposure to interest rate changes upon
refinancing; and (iv) maintaining a line of credit so that
it can respond quickly to acquisition opportunities.
On December 31, 1996, the Company's debt was $105.2 million
and the debt to total capitalization ratio was 34% based on
the year-end closing price of the Company's stock at $22.50.
The weighted average interest rate on the Company's mortgage
debt as of December 31, 1996 was 7.7% and the weighted
average maturity was 8 years. Debt maturities are
staggered. As of December 31, 1996, the Company had an
unsecured line of credit of $25 million for acquisition and
other corporate purposes with an interest rate of LIBOR plus
1.75%. As of December 31, 1996, there were no borrowings
under the line of credit. As of March 5, 1997, the line of
credit had been increased to $35 million with $11.7 million
available. The major use of the line of credit since
December 31, 1996 was to acquire the Lake Grove Apartments.
The Company also intends to continue to structure creative
private equity transactions to raise capital with limited
transaction costs. On December 30, 1996, $35 million was
raised through the private sale of a Class A limited
partnership interest to the State of Michigan Retirement
Systems.
Page 3
In addition, in 1996 approximately $14.7 million was raised
through the sale of newly issued stock under the Company's
Dividend Reinvestment, Stock Purchase, Resident Stock
Purchase and Employee Stock Purchase Plan (the "Stock
Purchase Plan"). This $14.7 million includes approximately
$4 million from the sale of stock to the Company's officers
and directors in transactions where the Company loaned 50%
of the stock purchase price. The Stock Purchase Plan
provides a 3% discount from the current market price for
existing shareholders and has provided a steady source of
capital to fund the Company's continued growth.
In addition, management expects to continue to fund a
significant portion of its continued growth by taking
advantage of its UPREIT structure and using Units as
currency in acquisition transactions. The Company utilized
approximately $10 million worth of Units as partial
consideration in acquisition transactions during 1996.
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
and its focus on attracting senior residents 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 1996 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 faced little 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 states within the Northeastern quadrant.
Regulation
Many laws and governmental regulations are applicable to the
Properties and changes in the laws and regulations, or their
interpretation by agencies and the courts, occur frequently.
Under the Americans with Disabilities Act of 1990 (the
"ADA"), all places of public accommodation are required to
meet certain federal requirements related to access and use
by disabled persons. In addition, the Fair Housing
Amendments Act of 1988 (the "FHAA") requires apartment
communities first occupied after March 13, 1990 to be
accessible to the handicapped. Non-compliance with the ADA
or the FHAA could result in the imposition of fines or an
award of damages to private litigants. Management
believes that the owned Properties are substantially in compliance
with present ADA and FHAA requirements.
Under various laws and regulations relating to the
protection of the environment, an owner of real estate may
be held liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in its
property. These laws often impose
liability without regard to whether the owner was
responsible for, or even knew of, the presence of such
substances. The presence of such substances may adversely
affect the owner's ability to rent or sell the property or
use the property as collateral. Independent environmental
consultants have conducted "Phase I" environmental audits
(which involve visual inspection but not soil or groundwater
analysis) on substantially all of the Owned Properties.
Phase I audit reports did not reveal any environmental
liability that would have an
Page 4
adverse effect on the Company.
In addition, the Company is not aware of any environmental
liability that management believes would have a material
adverse effect on the Company. There is no assurance that
Phase I reports would reveal all environmental liabilities
or that environmental conditions not known to the Company
may exist now or in the future which would result in
liability to the Company for remediation or fines, either
under existing laws and regulations or future changes to
such requirements.
Under the Federal Fair Housing Act and state fair housing
laws, discrimination on the basis of certain protected
classes is prohibited. Violation of these laws can result
in 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 subject the Company to legal
actions and the possible imposition of damage awards.
Item 2. Properties
As of December 31, 1996, the Owned Properties consisted of
28 multifamily residential properties containing 7,176
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 two additional communities having 472 units, in
1995 it purchased three communities having 1,061 apartment
units and in 1996 purchased ten additional communities
having 1,652 apartment units. From the time of the IPO to
December 31, 1996, this represents a 234% increase in the
number of apartment units owned by Home Properties. In
addition, on February 3, 1997, the Operating Partnership
acquired Lake Grove Apartments, a 368 unit apartment
community located in Lake Grove, Long Island, New York.
The Owned Properties are located in established markets and
are well-maintained and well-leased. Average economic
occupancy at the Owned Properties held throughout 1995 and
1996 was 94.3% for 1996. 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. The turnover at the Owned Properties owned
as of December 31, 1996 was approximately 37.9% for 1996,
which is significantly below the national average for garden
apartments.
Management believes the Company was able to increase
occupancies and achieve rental rate growth in excess of
inflationary levels in 1996 due to physical upgrades made to
the Owned Properties, increased marketing efforts and
repositioning activities undertaken at its recent
acquisitions.
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, 1996.
Page 5
Community Characteristics
(Communities Wholly Owned and Managed by Home Properties)
December
Average (1) (2) (3) Average Mthly
Age Apt % Mature Average % % Resident Rent Rate/
# of in Year Size Residents Occupancy Turnover Occup Apt
Community Regional Area Apts Years Acq (Sq Ft) 1996 1996 1995 1996 1995 1996 1995
CORE PORTFOLIO (4)
Garden Village Buffalo, NY 315 25 1994 850 73% 96.2% 98.0% 28.6% 17.1% $574 $554
Raintree Island Buffalo, NY 504 25 1985 704 40% 94.1% 95.1% 37.7% 33.3% 572 557
Williamstowne Buffalo, NY 528 25 1985 708 99% 97.3% 96.9% 15.7% 16.5% 585 567
Retirement Village
1600 Elmwood Rochester, NY 210 37 1983 891 19% 93.0% 93.9% 51.9% 38.1% 739 705
Brook Hill Rochester, NY 192 25 1994 999 20% 94.8% 96.5% 44.3% 35.9% 731 697
Finger Lakes Manor Rochester, NY 153 26 1983 924 65% 92.4% 89.3% 35.9% 36.6% 665 659
Newcastle Rochester, NY 197 22 1982 873 40% 92.8% 87.6% 46.7% 44.2% 651 611
Apartments
Northgate Manor Rochester, NY 224 34 1994 800 42% 92.6% 89.3% 26.8% 33.9% 568 554
Perinton Manor Rochester, NY 224 27 1982 928 66% 94.2% 93.6% 24.6% 29.9% 690 677
Riverton Knolls Rochester, NY 240 23 1983 911 11% 93.2% 88.0% 75.0% 61.3% 678 651
Spanish Gardens Rochester, NY 220 23 1994 1030 34% 92.8% 88.0% 25.5% 40.9% 582 585
Springcreek Rochester, NY 82 24 1984 913 95% 94.4% 96.8% 39.0% 35.4% 527 515
The Meadows Rochester, NY 113 26 1984 890 52% 93.0% 95.8% 28.3% 30.0% 587 572
Conifer Village Syracuse, NY 199 18 1994 499 97% 99.9% 100.0% 17.6% 17.1% 563 547
Fairview Heights Syracuse, NY 210 33 1985 798 13% 92.0% 92.7% 51.4% 57.0% 705 676
Village Green Syracuse, NY 248 8 1994 908 16% 90.6% 87.8% 52.4% 70.0% 598 575
Wedgewood Village Columbus, OH 604 39 1986 710 51% 95.5% 94.7% 44.7% 43.3% 417 406
Total/Weighted
Average 4,463 27 811 51% 94.3% 93.5% 37.2% 36.6% 593 574
1995 Acquisitions
Idylwood Buffalo, NY 720 27 1995 700 13% 93.5% 88.5% 45.7% 45.0% 524 513
Harborside Manor Syracuse, NY 281 24 1994 823 17% 92.6% 90.3% 38.8% 40.0% 540 527
Pearl Street (5) Syracuse, NY 60 26 1995 855 21% 93.5% 95.1% 5.0% N/A 449 425
Total/Weighted
Average 1,061 26 741 15% 93.3% 89.3% 41.6% 43.6% 524 512
1996 Acquisitions
Valley Park South Bethlehem, PA 384 24 1996 987 28% 92.6% N/A N/A N/A 701 N/A
Carriage Hill Hudson Valley, NY 140 24 1996 845 20% 92.6% N/A N/A N/A 719 N/A
Cornwall Park Hudson Valley, NY 75 30 1996 1320 26% 92.0% N/A N/A N/A 821 N/A
Lakeshore Villas Hudson Valley, NY 152 22 1996 956 13% 90.8% N/A N/A N/A 603 N/A
Sunset Gardens Hudson Valley, NY 217 26 1996 662 53% 87.2% N/A N/A N/A 562 N/A
Hamlet Court Rochester, NY 98 26 1996 696 64% 95.9% N/A 13.3% N/A 589 N/A
Candlewood Gardens Syracuse, NY 126 26 1995 855 39% 96.0% N/A 43.7% N/A 446 N/A
Conifer Court Syracuse, NY 20 34 1996 720 6% 90.6% N/A 35.0% N/A 531 N/A
The Fairways at Syracuse, NY 200 11 1996 908 15% 78.7% N/A N/A N/A 589 N/A
Village Green (6)
Westminster Place Syracuse, NY 240 25 1996 913 12% 93.3% N/A 41.7% N/A 575 N/A
Total/Weighted
Average 1,652 23 894 28% 90.4% N/A 36.2% N/A 621 N/A
TOTAL/WEIGHTED
AVERAGE 7,176 26 819 40% 93.7% 92.8% 37.9% 37.9% $589 $562
(1)"% Mature Residents" is the percentage of residents 55 years
or older as of December 31, 1996.
(2)"Average % Occupancy" is the economic occupancy. For the
core portfolio this is a twelve month average. For
communities acquired during 1995 or 1996, this is the average
occupancy from the date of acquisition.
(3)"% Resident Turnover" reflects, on an annual basis, the
number of move-outs divided by the total number of apartment
units.
(4)Core Portfolio = Properties owned prior to 1995.
(5)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.
(6)For most other reporting purposes, The Fairways at Village
Green is included within the description of Village Green
Apartments, which is located immediately adjacent to it and
with which it is jointly operated.
Page 6
Property Development
Management believes that new construction of market-rate
multi-family apartments is not economically feasible in most
of its markets. Therefore, Home Properties' development and
redevelopment activities are expected to be focused on
government-assisted multifamily residential housing.
Management believes that the Company's expertise in the full
continuum of government-assisted and market rate housing
provides the Company with the flexibility to react to
changing economic conditions and the opportunity to flourish
through all phases of economic cycles.
In 1980, traditional government-assisted housing programs
which provided direct rental subsidies (Section 8) began to
be phased out. In 1986, however, the Low-Income Housing Tax
Credit Program (LIHTC) was introduced. It provides an
indirect federal subsidy for the production of low-income
housing. The program is administered by each state. The
LIHTC offsets income tax liabilities dollar for dollar
because it is a tax credit and not a tax deduction.
In exchange for receiving the credit, the project owner must
agree to rent to income qualified individuals at reduced
rental rates. Theoretically, the credit is designed to
provide the additional return that is necessary to
compensate project owners for the reduced rental income.
Since the Company does not directly benefit from tax
credits, its transactions are structured with the Operating
Partnership serving as a one percent managing general
partner. Limited partners contribute substantial equity in
exchange for tax credits. The key benefits that Home
Properties receives are: (i) development fee income; (ii)
receipt of 75% to 90% of the project cash flow as incentive
management fees; (iii) control of the real estate as the
managing general partner; (iv) property management fees; and
(v) participation in future equity build-up. With respect to
existing projects, none of these benefits would be impacted
retroactively if the LIHTC program were modified or eliminated.
Through it predecessors, the Company has been developing
affordable housing for over 20 years. Management
anticipates that this experience, coupled with the financial
and property management strengths of the Company, will
enable the Company to remain a regional leader in the
affordable housing arena. As the only public REIT that
serves as a sponsor for LIHTC partnerships, management plans
to continue to focus on this very important sector of the
housing market.
In 1996, Home Properties developed or re-developed 775 units
in seven apartment communities financed in part through the
LIHTC Program. The Company also previously 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 December 31, 1996, the Managed Properties consist of:
(i) 3,738 apartment units where Home Properties is the
general partner of the entity that owns the property; (ii)
1,654 apartment units, 662 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 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
Page 7
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; and (ix) 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 992 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
At December 31, 1996, 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 1996.
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 8
Item X. Executive Officers and Key Employees
The following table sets forth the six executive officers
and certain of the key employees of the Company, together
with their respective ages (as of February 28, 1997),
positions and offices.
Name Age Position
Norman P. Leenhouts 61 Chairman, Co-Chief Executive
Officer and Director of Home
Properties, Chairman and
Director of HP Management and
Director of Conifer Realty
Nelson B. Leenhouts 61 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 57 Executive Vice President and
Director of Home Properties and
President, Chief Executive
Officer and Director of Conifer
Realty
Amy L. Tait 38 Executive Vice President and
Director of Home Properties and
Director of HP Management
David P. Gardner 41 Vice President, Chief Financial
Officer and Treasurer of Home
Properties, Conifer Realty and
HP Management
Ann M. McCormick 40 Vice President, General Counsel
and Secretary of Home Properties
and HP Management
William E. Beach 50 Vice President, Commercial
Property Management of Home
Properties and HP Management
Lawrence R. Brattain 45 Vice President, Residential
Property Management of Home
Properties and Conifer Realty
C. Terence Butwid 52 Vice President, Development of
Home Properties and Executive
Vice President of Conifer Realty
Kathleen M. Dunham 51 Vice President, Residential
Property Management of Home
Properties and Conifer Realty
Johanna A. Falk 32 Vice President, Marketing of
Home Properties
John H. Fennessey 58 Vice President, Development of
Home Properties and Conifer
Realty
Page 9
Name Age Position
Timothy A. Florczak 41 Vice President, Residential
Property Management of Home
Properties
Thomas L. Fountain 38 Vice President, Commercial
Property Management of Home
Properties and Conifer Realty
Timothy Fournier 36 Vice President, Development of
Home Properties and Executive
Vice President of Conifer Realty
Robert J. Luken 32 Vice President and Controller of
Home Properties
Paul O'Leary 44 Vice President, Residential
Property Management of Home
Properties
John Oster 47 Vice President, Development of
Home Properties and Conifer
Realty
Dale C. Prunoske 45 Vice President, Development of
Home Properties and Conifer
Realty
Richard J. Struzzi 43 Vice President, Development of
Home Properties and HP
Management
Robert C. Tait 39 Vice President, Commercial
Property Management of Home
Properties and HP Management
Laurie L. Willard 40 Vice President, Residential
Property Marketing of Home
Properties
Information regarding Richard Crossed, Nelson and Norman
Leenhouts and Amy Tait is set forth below under "Board of
Directors" in Item 10.
David P. Gardner has served as Vice President and Chief
Financial Officer of the Company, HP Management and Conifer
Realty since their inception. Mr. Gardner joined Home
Leasing Corporation in 1984 as Vice President and
Controller. In 1989, he was named Treasurer of Home
Leasing and Chief Financial Officer in December, 1993.
From 1977 until joining Home Leasing, Mr. Gardner was an
accountant at Cortland L. Brovitz & Co. Mr. Gardner is a
graduate of the Rochester Institute of Technology and is a
Certified Public Accountant.
Ann M. McCormick has served as Vice President, General
Counsel and Secretary of the Company and HP Management
since their inception. 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.
Page 10
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.
Johanna A. Falk has served as a Vice President of the
Company since 1997. She joined the Company in 1995 as an
investor relations specialist. Prior to joining the
Company, Mrs. Falk was employed as a marketing manager at
Bausch & Lomb Incorporated and Champion Products, Inc. and as
a financial analyst at Kidder Peabody. She is a graduate
of Cornell University and holds a Masters Degree in
Business Administration from the Wharton School of The
University of Pennsylvania.
John H. Fennessey has served as Vice President of the
Company and Conifer Realty since 1996. He 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.
Page 11
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.
Robert J. Luken has served as Controller of the Company
since 1996 and as a Vice President since 1997. Prior to
joining the Company, he was the Controller of Bell Corp. of
Rochester and an Audit Supervisor for Coopers & Lybrand.
Mr. Luken is a graduate of St. John Fisher College and is a
Certified Public Accountant.
Paul O'Leary has served as a Vice President of the Company
since its inception. He joined Home Leasing in 1974 and
has served as Vice President of Home Leasing since 1978.
Mr. O'Leary is a graduate of Syracuse University and is a
Certified Property Manager (CPM) as designated by the
Institute of Real Estate Management.
John Oster has served as Vice President of the Company and
Conifer Realty since 1996. He 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.
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 12
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 for the previous
two years the quarterly high
and low sales prices per share reported on the NYSE, as
well as all distributions paid.
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
First Quarter $20-5/8 $17-1/8 $.42
Second Quarter $21 $19-1/4 $.42
Third Quarter $20-5/8 $19-3/8 $.42
Fourth Quarter $22-5/8 $19-7/8 $.43
1997
January 1, 1997
to February 24, 1997 $25-1/4 $22 $.43
Page 13
Item 6. Selected Financial Data
The following table sets forth selected financial and
operating data on a historical basis for the Company and the
Original Properties and should be read in conjunction with
the financial statements appearing elsewhere in this Form 10-K.
COMPANY ORIGINAL PROPERTIES
--------------------------- ---------------------------
8/4/94 1/1/94
Through Through
1996 1995 12/31/94 8/3/94 1993 1992
(in thousands, except per share and property data)
Revenues:
Rental Income $42,214 $31,705 $10,995 $11,526 $19,189 $18,748
Other Income 3,456 2,596 948 494 783 743
Property management income (1) - 834 1,448 1,358
------- ------- ------- ------- ------- -------
TOTAL REVENUES 45,670 34,301 11,943 12,854 21,420 20,849
------- ------- ------- ------- ------- -------
Expenses:
Operating and maintenance 21,859 15,911 5,267 6,329 10,035 9,886
Property management (1) - - - 625 1,139 1,047
General & administrative 1,482 1,200 400 407 680 663
Interest 9,208 6,432 1,444 3,126 5,113 5,300
Depreciation & amortization 8,077 6,258 2,191 1,584 2,656 2,729
------- ------- ------- ------- ------- -------
TOTAL EXPENSES 40,626 29,801 9,302 12,071 19,623 19,625
------- ------- ------- ------- ------- -------
Income before minority interest and
extraordinary item 5,044 4,500 2,641 783 1,797 1,224
Minority interest 897 455 256 - - -
------- ------- ------- ------- ------- -------
Income before extraordinary item 4,147 4,045 2,385 783 1,797 1,224
Extraordinary item, prepayment
penalties, net of allocation to - (1,249) (2,498) - - -
minority interest ------- ------- ------- ------- ------- -------
Net income (loss) $4,147 $2,796 $(113) $783 $1,797 $1,224
======= ======= ======= ======= ======= =======
Net income (loss) per common share $ .74 $ .52 $ (.02) N/A N/A N/A
======= ======= =======
Cash dividends declared per common
share $ 1.69 $ 1.66 $ .26 N/A N/A N/A
======= ======= =======
Balance Sheet Data:
Real estate, before accumulated $261,773 $198,203 $162,991 $77,371 $76,646 $75,296
depreciation
Total assets 248,631 181,462 148,709 60,014 59,490 60,732
Total debt 105,176 91,119 52,816 57,952 58,583 59,622
Stockholders' equity/Owners' 83,030 75,780 81,941 (2,741) (2,591) (2,546)
(deficit)
Other Data:
Funds from Operations (2) $13,384 $11,025 $4,822 $2,348 $4,402 $3,892
Cash available for distribution (3) $11,022 $ 9,348 $4,369 $1,885 $3,608 $3,098
Net cash provided by (used in)
operating activities $14,241 $9,811 $3,151 $2,527 $4,188 $4,153
Net cash provided by (used in)
investing activities $(25,641) $(21,348) $(71,110) $(1,168) $(1,350) $(690)
Net cash provided by (used in)
financing activities $12,111 $10,714 $68,315 $(1,689) $(2,881) $(2,819)
Weighted average number of shares
outstanding 5,601,027 5,408,474 5,408,230 N/A N/A N/A
Total communities
owned, at end of period 28 20 19 12 12 12
Total apartment units owned,
at end of period 7,176 5,650 4,744 3,065 3,065 3,065
Page 14
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.
(2) Management considers Funds from Operations to be an
appropriate measure of the performance of an equity REIT.
Effective January 1, 1996, the Company has adopted NAREIT's
revised White Paper definition of calculating funds from
operations (New FFO). All prior periods presented have been
restated to conform to New FFO. "Funds from Operations" is generally
defined by NAREIT as net income (loss) before gains (losses)
from the sale of property plus real estate depreciation,
including adjustments for unconsolidated partnerships and
joint ventures. Funds from Operations does not represent
cash generated from operating activities in accordance with
GAAP and is not necessarily indicative of cash available to
fund cash needs. Funds from Operations should not be
considered as an alternative to net income as an indication
of the Company's performance or to cash flow as a measure of
liquidity. Funds from Operations does not actually
represent the cash made available to investors in the
periods presented.
Funds from Operations is calculated as follows:
8/4/94 1/1/94
Through Through
1996 1995 12/31/94 8/3/94 1993 1992
Net income (loss) $4,147 $2,796 ($113) $783 $1,797 $1,224
Depreciation - real property* 8,332 6,525 2,181 1,565 2,605 2,668
Loss on sale of property 8 - - - - -
Minority interest 897 455 256 - - -
Extraordinary item (prepayment
penalties) - 1,249 2,498 - - -
------- ------- ------- ------- ------- ------
Funds from Operations $13,384 $11,025 $4,822 $2,348 $4,402 $3,892
======= ======= ======= ======= ======= ======
Weighted average shares/units 6,813.2 6,015.1 5,983.6 N/A N/A N/A
*Includes amounts passed through from unconsolidated investments.
The FFO presentation above may not be comparable to other
similarly titled measures of FFO of other REITs.
Quarterly information on Funds from Operations for the two most
recent years is as follows:
1995 1st 2nd 3rd 4th Total
Funds from
Operations before
minority interest $2,326 $2,555 $2,991 $3,153 $11,025
Weighted Average
Shares/Units 5,998.6 6,020.5 6,020.5 6,020.6 6,015.1
1996
Funds from
Operations before
minority interest $2,749 $3,078 $3,647 $3,910 $13,384
Weighted Average
Shares/Units 6,612.8 6,617.6 6,849.4 7,168.4 6,813.2
(3) Cash Available for Distribution is defined as Funds from
Operations less an annual reserve for anticipated
recurring, non-revenue generating capitalized costs of $350
($300 for 1992-1995) per apartment unit, $94 per
manufactured home site and $.25 per square foot for the
35,000 square foot ancillary convenient shopping area at
Wedgewood. It is the Company's policy to fund its
investing activities and financing activities with the
proceeds of its Line of Credit or new debt.
Page 15
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.
Certain capitalized terms, as used herein, are defined in
the Notes to the Consolidated and Combined Financial
Statements.
Results of Operations
Comparison of year ended December 31, 1996 to year ended
December 31, 1995.
The Company owned 18 properties consisting of 4,463
apartment units acquired prior to January 1, 1995 where
comparable operating results are available for the years
presented (the "Core Properties"). For the year ending
December 31, 1996, the Core Properties showed an increase
in rental revenues of 4.2% and a net operating income
increase of 3.3% over the 1995 year-end period. Property
level operating expense increases were 5.3%, primarily
attributable to significant increased utility costs
associated with severe winter weather during the first two
quarters of 1996. Average economic occupancy for the Core
Properties increased to 94.3% from 93.5%, with average
monthly rental rates increasing 3.3% to $583.
During 1996, the Company acquired a total of 1,652
apartment units in ten new communities (the "1996
Communities"). In addition, the Company experienced full
year results for the 1,061 apartment units in three new
apartment communities (the "1995 Communities") acquired
during 1995. The inclusion of these acquired communities
generally accounted for the significant changes in
operating results for the year ended December 31, 1996.
For the year ended December 31, 1996, operating income
increased by $544,000 when compared to the year ended
December 31, 1995. The increase was primarily attributable
to the following factors: an increase in rental income of
$10,509,000, and an increase in other income of $860,000.
These changes were partially offset by an increase in
operating and maintenance expense of $5,948,000, an
increase in general and administrative expense of $282,000,
an increase in interest expense of $2,776,000 and an
increase in depreciation and amortization of $1,819,000.
Of the $10,509,000 increase in rental income, $4,106,000 is
attributable to the 1995 Communities and $5,176,000 is
attributable to the 1996 Communities. The balance is a
4.2% increase from the Core Properties due primarily to an
increase of 3.3% in weighted average rental rates, plus an
increase in occupancy from 93.5% to 94.3%.
Page 16
Other income increased in 1996 by $897,000. Of this
increase, $322,000 is from development fee income from
eight apartment communities developed under the Low Income
Housing Tax Credit Program where the Company is a general
partner. In addition, other significant components include
$179,000 from increased interest income, $168,000 from
increased management fees from residential properties and
$107,000 from the increase of the net results from the
Management Companies.
Of the $5,948,000 increase in operating and maintenance
expenses, $2,370,000 is attributable to the 1995
Communities and $2,821,000 is attributable to the 1996
Communities. The balance for the Core Properties, or
$757,000, represents a 5.3% increase over 1995. The major
area of increase in the Core Properties occurred in utilities,
personnel and snow removal costs due to the severe Winter
weather and a cooler Spring experienced in 1996 compared to
an unusually mild 1995.
The operating expense ratio (the ratio of operating and
maintenance expense compared to rental and property other
income) for the Core Properties was 48.6% and 48.2% for
1996 and 1995 respectively. 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
markets of typically including heating expenses in base
rent.
General and administrative expenses increased in 1996 by
$282,000, or 24% from $1,200,000 in 1995 to $1,482,000 in
1996. These increases are primarily due to increased
corporate personnel. However, general and administrative
expenses as a percentage of total revenues decreased from
3.5% in 1995 to 3.2% in 1996 as a result of increased
efficiencies from the economies of scale
Interest expense increased in 1996 by $2,776,000 as a
result of the acquisition of the 1996 Communities and full
year interest expense for the 1995 Communities. The 1995
Communities, costing in excess of $25,000,000, were
acquired substantially with assumed or new debt. The 1996
Communities, costing in excess of $54,000,000, were
acquired with $44,000,000 of assumed new debt, in addition
to the use of Operating Partnership Units ("UPREIT" units).
Amortization relating to interest rate reduction agreements
of $335,000 was included in interest expense during 1996
and 1995. In addition, amortization from deferred charges
relating to the financing of properties totaling $255,000
and $321,000 was included in interest expense for 1996 and
1995, respectively.
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 (the "1995
Communities"). In addition, the Company experienced full
year results for the 1,398 apartment units in six new
apartment communities (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 $1,154,000.
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 $1,862,000 and an
increase in depreciation and amortization of $2,483,000.
Page 17
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 1995 paydowns totaled $39,080,000 from six debt
instruments, and were financed by three new borrowings in
excess of $40,000,000. The 1994 paydowns totaled
$29,796,000 from seven debt instruments and were financed
from the proceeds of the IPO.
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%
Other income increased in 1995 by $930,000. Of this
increase, $430,000 is from development fee income from four
apartment communities developed under the Low Income
Housing Tax Credit Program where the Company is a general
partner. In addition, $382,000 is from increased interest
income, $86,000 is from increased management fees from
residential properties and $32,000 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.
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 general partnerships) increased by
61%.
Interest expense increased in 1995 by $1,862,000 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 and $137,000 was included in interest expense
during 1995 and 1994, respectively. In addition,
amortization from deferred charges relating to the
financing of properties totaling $321,000 and $161,000 was
included in interest expense for 1995 and 1994,
respectively.
Page 18
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 may also engage in
transactions whereby it acquires equity ownership in other
public or private companies that own portfolios of
apartment communities. Those transactions may be part of a
strategy to acquire all of the equity ownership in those
other companies.
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 issuance of UPREIT
units, proceeds from the Dividend Reinvestment Plan, property
debt financing, or issuing additional common shares or shares
of the Company's preferred stock. As of February 28, 1997,
the Company's Form S-3 Registration Statement has been
declared effective relating to the issuance of up to $100 million
of shares of common stock or other securities.
On December 30, 1996, capital was raised in a private
placement through the sale of a $35,000,000 Class A Limited
Partnership Interest to a state pension fund. The
interest, which can be converted into 1,666,667 shares of
common stock, will receive a preferred return equal to the
greater of: (a) 9.25% on the original investment during
the first two years declining to 9.0% thereafter; or (b)
the actual dividends paid to common shareholders on
1,666,667 shares. Any unconverted interest can be redeemed
without premium by the Company after ten years. Proceeds
of the transaction, which are anticipated to be used to
fund future acquisitions, were used to repay floating rate
debt on an interim basis.
Another source of capital results from the issuance of
UPREIT units for property acquisitions. The Company
successfully completed acquisitions during 1996 using
UPREIT units totaling approximately $10,000,000.
In November, 1995, the Company established a Dividend
Reinvestment Plan. The Plan provides the stockholders of
the Company an opportunity to automatically invest their
cash dividends at a discount of 3% from the market price.
In addition, eligible participants may make monthly
payments or other voluntary cash investments in shares of
common stock. During 1996, over $14,700,000 was raised
through this program, including over $4,100,000 from
officers and directors financed by a Company loan of
$2,061,000 and bank loans guaranteed by the Company which
total $1,874,000 at December 31, 1996.
The Company has an unsecured line of credit of $25 million,
all available at December 31, 1996. Borrowings under the
line bear interest at 1.75% over the one-month LIBOR rate.
The line of credit expires on August 22, 1997. The Company
intends to either renew the line for another year or
establish a new or additional line with a different
institution. As of March 5, 1997, the line of credit has
been increased to $35 million, with $11.7 million
available. The major use of the line since December 31, 1996, was
to acquire Lake Grove Apartments.
Page 19
As of December 31, 1996, the weighted average rate of
interest on the Company's mortgage debt is 7.7% and the
weighted average maturity of such indebtedness is 8 years.
Floating rate debt has been reduced at year end to only 3%
of outstanding debt at December 31, 1996. This limits the
exposure to changes in interest rates, minimizing the
effect on results of operations and financial condition.
Floating rate debt represented 21% of outstanding debt on
March 5, 1997.
The Company's net cash provided by operating activities
increased from $9,811,000 for the year ended December 31,
1995 to $14,241,000 for the year ended December 31, 1996.
The increase was principally due to the acquisition of the
1995 and 1996 Communities, offset by the prepayment
penalties incurred in 1995 accounted for as extraordinary
items.
Net cash used in investing activities increased from
$21,348,000 in 1995 to $25,641,000 in 1996, resulting from
a higher level of acquisitions in 1996 (1,652 apartment
units) than in 1995 (1,061 apartment units).
The Company's net cash provided by financing activities
increased from $10,714,000 in 1995 to $12,111,000 in 1996.
The major source of financing in 1995 was debt related,
with $21,363,000 of net debt proceeds utilized to fund
property acquisitions and additions. In 1996, sales of
shares and UPREIT unit proceeds of $59,795,000 were used to
repay debt by $21,792,000 and fund property acquisitions
and additions.
Capital Improvements.
Total capital improvement expenditures increased from
$8,179,000 in 1995 to $8,843,000 in 1996. Of the
$8,843,000 expenditures, $1,387,000 is attributable to the
1996 Communities and $1,621,000 is attributable to the 1995
Communities. The balance of $5,835,000 is allocated
between the Core Properties of $4,928,000 and $907,000 for
land acquired for development.
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 $350
per unit is spent on capital replacements in a normal year
to maintain the condition of its properties.
In 1996, $3,300,000 in capital expenditures for the Core
Properties was 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; continued additions of new windows and
exterior siding to one community; energy conservation
measures; and the modernization of numerous kitchens and
bathrooms. In addition, over $2,300,000 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
was provided by the line of credit and other credit
facilities.
During 1997, the Company expects to continue to fund
similar non-recurring, revenue enhancing upgrades as well
as rehabilitations to acquisition properties in addition to
normal capital replacements.
Page 20
Recent Accounting Developments
The Company will adopt the provisions of Statement of Accounting
Standards No. 128, "Earnings Per Share" for the year ended
December 31, 1997. Management does not anticipate the adoption
of this statement to have a material impact on the financial
statements.
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.
Page 21
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Board of Directors (the "Board") currently consists of
eleven members. Effective with the consummation of the
transaction with the State of Michigan Retirement System,
the Board increased its number from 10 to 11 and elected
Alan J. Gosule as a director to serve until the 1997
Shareholders' Meeting. The terms for all of the directors
of Home Properties expire at that Shareholders' Meeting.
The information sets forth, as of February 28, 1997, 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. 81 1994
William Balderston, III 69 1994
Richard J. Crossed 57 1996
Alan L. Gosule 56 1996
Leonard F. Helbig, III 51 1994
Roger W. Kober 63 1994
Nelson B. Leenhouts 61 1993
Norman Leenhouts 61 1993
Clifford W. Smith, Jr. 50 1994
Paul L. Smith 61 1994
Amy L. Tait 38 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 1992, he was an
Executive Vice President of The Chase Manhattan Bank, N.A.
From 1986 to 1991, he was President and Chief Executive
Officer of Chase Lincoln First Bank, N.A., which was merged
into The Chase Manhattan Bank, N.A. He is a 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.
Page 22
Alan L. Gosule, 56, has been a director of the Company since
December, 1996. Mr. Gosule has been a partner in the law
firm of Roger & Wells, New York, New York, since August,
1991 and prior to that time was a partner in the law firm of
Gaston & Snow. He serves as Chairman of the Rogers & Wells
Tax Department and Real Estate Securities practice group.
Mr. Gosule is a graduate of Boston University and its Law
School and received a LL.M. from Georgetown University. Mr.
Gosule also serves on the Boards of Directors of 15 funds of
the Northstar Mutual Funds, the Simpson Housing Limited
Partnership and F.C. Putnam Investment Management Company.
Rogers & Wells acted as counsel to Coopers & Lybrand, LLP in
its capacity as advisor to the State Treasurer of the State
of Michigan in connection with its investment of retirement
funds in the Operating Partnership and Mr. Gosule was the
nominee of the State Treasurer under the terms of the
investment agreements described above.
Leonard F. Helbig, III has been a director of the Company
since August, 1994. Mr. Helbig has served as Executive
Managing Director of the Asset 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 Association and the International Council of Shopping
Centers. Mr. Helbig is a graduate of LaSalle University and
holds the MAI designation of the American Institute of Real
Estate Appraisers.
Roger W. Kober has been a director of the Company since
August, 1994. Mr. Kober is the Chairman of the Board 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 Chase Upstate Advisory
Council, 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 Chairman of the Board of Trustees
of Roberts Wesleyan College and as a trustee of 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
Page 23
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.
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 a member of the Board of Trustees of the
George Eastman House. Mr. Smith also serves on the Boards
of Directors of Performance Technologies, Inc. and BioWorks,
Inc. 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, 1996, all Section 16(a)
filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were
satisfied except as follows. Amy Tait's Form 4 for August,
1996 with respect to her acquisition of shares of Common
Stock and options under the Company's Executive and Director
Stock Purchase Program did not reflect the acquisition of
shares and options under the same Program by her husband,
Robert Tait, a Vice President of the Company. The Form 4
was subsequently amended to reflect this omission. Burton
August's interest in 4,246 Units in the Operating
Partnership received in connection with the Conifer
Transaction were reported in last year's proxy statement and
Report on Form 10-K, but was not reflected on a Form 4 for
January, 1996. A Form 4 reflecting these interests was
subsequently filed.
Page 24
Item 11. Executive Compensation
The following table sets forth the cash compensation paid
during 1994, 1995 and 1996 to the Company's Co-Chief Executive
Officers and other most highly compensated executive officers.
Except for the Co-Chief Executive Officers, no executive
officer's annual salary and bonus exceeded $100,000 on an
annualized basis during the fiscal years ending December 31,
1994 and 1995.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards Shares
Underlying
Name and Principal Position Year Salary Bonus Options
Norman P. Leenhouts 1994(1) $ 50,000 $14,556 88,000 sh.
Chairman and Co-Chief Executive Officer 1995 132,000 0 0
1996 145,200 59,702 7,338 sh.(4)
Nelson B. Leenhouts 1994(1) 50,000 14,556 88,000 sh.
President and Co-Chief Executive Officer 1995 132,000 0 0
1996 145,200 59,702 7,338 sh.(4)
Richard J. Crossed 1996(2) 145,200 59,702 88,000 sh.(3)
Executive Vice President 7,338 sh.(4)
Amy L. Tait 1994(1) 33,333 16,495 88,000 sh.
Executive Vice President 1995 87,917 0 0
1996 103,000 42,351 5,206 sh.(4)
________________
(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 and for Amy Tait was $80,000.
(2) Mr. Crossed was not employed by the Company in 1994 and 1995.
(3) Issued in connection with the Conifer Transaction.
(4) These options were granted under
the Company's Stock Benefit Plan in connection with the
purchase of the Company's common stock under the Executive and
Director Stock Purchase and Loan Program described below. The
options are exercisable for ten years at $20.50 per share and
vest over five years.
Option Grants in Fiscal Year 1996
The following table sets forth certain information relating
to the options granted with respect to fiscal year ended
December 31, 1996. The columns labelled "Potential
Realizable Value" are based on hypothetical 5% and 10%
growth assumptions in accordance with the rules of the
Securities and Exchange Commission. The Company cannot
predict the actual growth rate of the Common Stock.
Page 25
Option Grants In Last Fiscal Year*
Individual Grants
-------------------------------------------------
Potential
Realizable Value
Percent of at Assumed Annual
Number of Total Options Rates of Stock
Shares Granted to Price Appreciation
Underlying Employees Exercise or For Option Term
Options in Fiscal Base Price Expiration ------------------
Name Granted Year ($/sh) Date 5% 10%
Norman P. 7,338 (1) $20.50 8/12/2006 $ 94,587 $ 239,732
Leenhouts
Nelson B. 7,338 (1) $20.50 8/12/2006 $ 94,587 $ 239,732
Leenhouts
Richard J. 88,000 (2) $19.00 1/2/2006 $1,051,600 $2,664,640
Crossed 7,338 (1) $20.50 8/12/2006 $ 94,587 $ 239,732
Amy L. Tait 5,206 (1) $20.50 1/2/2006 $ 67,105 170,080
____________
* Stock appreciation rights were not granted in 1996.
(1) These stock options were granted in
connection with the purchase by the named individuals of
shares of Common Stock under the Executive and Director Stock
Purchase and Loan Program described below. An option to
purchase .25 shares of Common Stock was granted, with an
exercise price equal to fair market value on the date of
grant, for each share purchased.
(2) Issued in connection with the Conifer Transaction.
Page 26
Option Exercises and Year-End Option Values
No options were exercised in 1996. The following table sets
forth the value of options held at the end of 1996 by the
Company's named Executive Officers.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values(1)
Number of
Shares Value of Unexercised in-
Acquired Number of Shares the-
on Value Underlying Money Options at
Name Exercise Realized Unexercised Fiscal-Year-End (2)
Options at Fiscal
Year-End
Exercisable Unexercisable Exercisable Unexercisable
Norman P. Leenhouts 0 0 88,000 sh. 7,338 sh. $308,000 $14,676
Nelson B. Leenhouts 0 0 88,000 sh. 7,338 sh. $308,000 $14,676
Richard J. Crossed 0 0 88,000 sh. 7,338 sh. $308,000 $14,676
Amy L. Tait 0 0 35,200 sh. 58,006 sh. $123,200 $195,212
(1) Stock appreciation rights were not
granted in 1996.
(2) Based on the last reported sale
price of the Common Stock on the NYSE on December 31, 1996 of
$22.50 less the per Share exercise price of the options.
Employment Agreements
Norman and Nelson Leenhouts entered into employment
agreements with the Company prior to its initial public
offering 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 Co-Chief 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,
Page 27
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 also entered into and Employment
Agreement with the Company, effective January 1, 1996. The
terms of that agreement are substantially the same 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.
Incentive Compensation Plan
The Company's incentive compensation plan (the "Incentive
Plan") for officers and key employees of the Company was
amended for 1996 to provide that eligible officer and key
employees may earn a cash bonus ranging from 5% to 50% of
base salary based on increases in the Company's Funds from
Operations per Share ("FFO"). The 1996 Incentive Plan
provides for a bonus pool to be established as follows:
Growth in FFO/Share Percent of Growth
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.
Executive and Director Stock Purchase and Loan Program
In August 1996, the Board of Directors approved an Executive
and Director Stock Purchase and Loan Program. Pursuant to
the program, each officer and director of the Company was
eligible to receive loans for the purchase of Common Stock
under the Company's Dividend Reinvestment, Stock Purchase,
Resident Stock Purchase and Employee Stock Purchase Plan
("Dividend Reinvestment Plan") and receive options to
purchase Common Stock under the Company's Stock Benefit
Plan. The one-time program provided for loans up to a
formula amount for each officer based on salary and bonus
category and up to $60,000 for each independent director.
The Company loaned approximately 50% of the purchase price
and arranged loans from a commercial bank, guaranteed by the
Company, for the balance. The program also provided for the
issuance of stock options to purchase .25 shares of Common
Stock at the fair market value on the date of issuance
($20.50) for each share of Common Stock purchased. In the
aggregate, eighteen officers purchased 190,345 shares of
Common Stock and received 47,592 options to purchase Common
Stock at an exercise price of $20.50 vesting over five
years. The six independent directors purchased an aggregate
of
Page 28
18,198 shares of Common Stock and received options to
purchase 4,554 shares of Common Stock for $20.50 per share
vesting over five years. The Company loaned the directors
and officers an aggregate of $2,063,469 maturing on August
31, 2016 with simple interest at 7% and guaranteed bank
loans totaling $2,033,180 repayable from the quarterly
dividends on the stock and the proceeds of any sale of the
stock.
Compensation of Directors
In 1996, the Company paid its directors who are not
employees of the Company annual compensation of $9,000 plus
$1,000 per day for attendance (in person or by telephone) at
Board and committee meetings. Effective January 1, 1997,
the annual director fee was increased to $10,000 per year.
Directors of the Company who are employees of the Company do
not receive any compensation for their services as
directors. All directors are reimbursed for their
expenses incurred in attending directors' meetings.
Pursuant to the Company's Stock Benefit Plan, each non-
employee director (other than Mr. Gosule) was granted
options to purchase 3,000 shares of Common Stock immediately
following the annual meeting of stockholders in 1996. The
options have an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant.
The Stock Benefit Plan does not have additional options
available for awards to directors. Subject to stockholder
approval of the changes to the Stock Benefit Plan,
the Board has approved additional awards to
each director of options to purchase 3,500 shares of Common
Stock immediately following the annual meeting of
stockholders in each of 1997, 1998 and 1999 at an exercise
price equal to the fair market value of the Company's Common
Stock on the date of grant. In addition, stockholder
approval of the proposed changes to the Stock Benefit Plan
would ratify the grants of options to purchase 4,554 shares
of Common Stock in August 1996 in connection with the
Executive and Director Stock Purchase and Loan Program
described below.
Compensation Committee Interlocks and Insider Participation
in Compensation Decisions
During the fiscal year 1996, 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. Alan L.
Gosule joined the Committee at the beginning of 1997. Each
of the Compensation Committee members other than Mr. Gosule,
as well as each of the other independent directors,
participated in the Company's Executive and Director Stock
Purchase and Loan Program on August 12, 1996 and purchased
3,033 shares of Common Stock through the Company's Dividend
Reinvestment and Stock Purchase Plan for $19.788 per share
(3% below the five-day average market value as provided in
that Plan) and received options to purchase 759 shares of
Common Stock at the fair market value on that date of $20.50
per share. The purchases were financed 50% by a loan from
the Company due August 31, 2016 bearing simple interest at
7% per annum and 50% by a loan from a commercial bank
arranged by and guaranteed by the Company. Mr. August also
had an interest in the transactions consummated in January
1996 because he and members of his immediate family had
interests in a limited partnership 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, and his immediate family
members received 5,404 Units in the Operating Partnership,
as merger consideration.
Page 29
Item 12. Securities Ownership of Certain Beneficial Owners and
Management
The following table sets forth information as of
February 24, 1997 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. 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.
Number of Shares Percentage of Number of Percentage
Name and Address of Beneficially Outstanding Shares/Units of
Beneficial Owner Owned Shares(2) Owned Shares/Units
Norman P. Leenhouts 118,353(1) 1.9% 387,513(1)(3) 4.1%(4)
Nelson B. Leenhouts 117,453(1) 1.8% 386,365(1)(3) 4.1%(4)
Richard J. Crossed 118,852(5) 1.9% 313,816(5) 3.3%
Amy L. Tait 59,268(6) * 73,011(6) *
Burton S. August, Sr. 30,533(8) * 34,779(7)(8) *
William Balderston, III 13,533(7) * 13,533(7) *
Alan L. Gosule 0 * 0 *
Leonard Helbig, III 13,206(7) * 13,206(7) *
Roger W. Kober 13,220(7) * 13,220(7) *
Clifford W. Smith, Jr. 16,935(7) * 16,935(7) *
Paul L. Smith 14,033(7) * 14,033(7) *
All executive officers
and directors
as a group (13 persons) 554,571(9) 8.3%(10) 1,303,141(3)(9) 17.9%(11)
Page 30
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned Outstanding Shares
Capital Growth Management 317,000(12) 5.42%
Limited Partnership
One International Place
Boston, MA 02110
Miller Anderson & Sherrerd 512,200(13) 8.81%
One Tower Bridge
West Conshohocken, PA 19428
and
Morgan Stanley Group Inc.
1585 Broadway
New York, NY 10036
Palisade Capital Management L.L.C. 502,000(14) 8.20%
1 Bridge Plaza, Suite 695
Fort Lee, NJ 07024
State Treasurer, State of Michigan 1,666,667(15) 26.76%
Bureau of Investments
Department of Treasury
Treasury Building, Box 15128
Lansing, MI 48901
__________
* 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 Leenhouts 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) Includes 88,000 shares which may be acquired upon the exercise of
currently exercisable options. Also includes Mr. Crossed's
proportionate share of Units owned by Conifer and its affiliates.
(6) Includes 35,200 shares which may be acquired upon the exercise of
currently exercisable options. Also includes 3,246 shares owned
by Mrs. Tait's spouse as to which she disclaims beneficial
ownership. Mrs. Tait shares voting and dispositive power with
respect to 2,548 Units with her spouse.
(7) Includes 9,000 shares which may be acquired upon the exercise of
currently exercisable options.
(8) Includes 12,500 shares owned by immediate family members of Mr.
August as to which he disclaims beneficial ownership.
(9) Includes 406,000 shares which may be acquired upon the exercise
of immediately exercisable options.
(10) Assumes that all exercisable options included with respect to all
listed persons have been exercised.
(11) Assumes that all exercisable 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.
(12) Based on a report on Schedule 13G, dated February 11, 1997,
reflecting that Capital Growth Management Limited Partnership has
shared dispositive and sole voting power with respect to shares
held in client accounts, as to which Capital Growth disclaims
beneficial ownership.
(13) Based on a report on Schedule 13G, dated February 14, 1997,
filed jointly on behalf of Miller Anderson & Sherrerd and Morgan
Stanley Group Inc., reflecting that the two Investment Advisors
have shared voting and dispositive power with respect to 515,200
shares.
Page 31
(14) Based on a report in Schedule 13G, dated February 1, 1997,
reflecting that Palisade Capital Management, L.L.C. holds the
shares on behalf of clients in accounts over which Palisade has
sole voting and dispositive power.
(15) Based on a report on Form 13D, dated January 6, 1997, reflecting
that the State Treasurer, State of Michigan and the individual
members of the Michigan Department of Treasury's Bureau of
Investments, which manages the investments for four state-
sponsored retirement systems: Public School Retirement System,
State Employees' Retirement System, Michigan State Police
Retirement System and Judges' Retirement System acquired a Class
A Limited Partnership Interest in the Operating Partnership which
is convertible, at the option of the State of Michigan, into
1,666,667 shares of common stock, subject to adjustment, over
which the State Treasurer would have sole voting and dispositive
power.
Item 13. Certain Relationships and Related Transactions.
Certain directors and an executive officer of the Company
(or entities controlled by them or members of their
immediate families) had direct or indirect interests in
transactions which were consummated in connection with the
acquisition of Conifer Realty, Inc. and certain affiliates
on January 1, 1996 (the "Conifer Transaction"). The
following persons received Units in connection with the
Conifer Transaction, and certain indebtedness was or will be
repaid by the Company:
Units Indebtedness
Name Received Repaid
Burton August Sr. 4,246 0
Immediate family members of Burton S. August, Sr. 5,404 0
Richard J. Crossed 68,021 0
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. Mr. Crossed is a 2% General Partner
of a partnership comprised of his family members that owns a
39% interest in Tamarack II Associates.
In connection with the Conifer Transaction, the Company became
the general partner of St. Paul Genesee Associates, L.P.. In
May, 1996, Huntington Associates L.P., a partnership in which
the Operating Partnership serves as general partner, purchased
the property owned by St. Paul Genesee Associates at a
purchase price determined by the Board of Directors of the
Company, which was paid in cash and by a promissory note. Mr.
Crossed and Mr. August are partners of St. Paul Genesee
Associates and received or have an interest in $75,580 and
$18,965, respectively, of the cash and payments on the
promissory note received by St. Paul Genesee Associates. They
abstained from the action of the Board setting the purchase
price for the property. It is anticipated that the limited
partnership interests in Huntington Associates L.P. will be
sold in a tax credit transaction and that substantially all of
the Company's investment will be returned.
Page 32
Directors and executive officers of the Company received loans
from the Company of 50% of the purchase price of shares of
Common Stock purchased by them in connection with the
Company's Executive and Director Stock Purchase and Loan
Program described above and commercial bank loans for the
balance, guaranteed by the Company. The indebtedness to the
Company of each of the named executive officers is: each of
Messrs. Leenhouts and Crossed - $290,408 and Mrs. Tait -
$206,000.
Home Leasing, in consideration of a portion of the Units and
cash received by it in connection with the 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. Pursuant to the Contribution Agreement, Conifer
assigned to the Company and its affiliates certain management
contracts between Conifer and entities in which it is the
general partner. As a general partner, Conifer (and
indirectly, Richard Crossed) has an ongoing interest in such
management contracts.
Page 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) 1 and 2. Financial Statements and Schedules
The financial statements and schedules listed below are
filed as part of this annual report on the pages indicated.
HOME PROPERTIES OF NEW YORK, INC. AND THE ORIGINAL PROPERTIES
Consolidated and Combined Financial Statements
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets
as of December 31, 1996 & 1995 F-3
Consolidated and Combined Statements of
Operations for the Years Ended
December 31, 1996 and 1995, for the Period
from August 4, 1994 through December 31, 1994
and for the Period from January 1, 1994 through
August 3, 1994 F-4
Consolidated and Combined Statements of
Stockholders' Equity/Owners Deficit
for the Years Ended December 31, 1996 and 1995,
for the Period from August 4, 1994 through
December 31, 1994 and for the Period from
January 1, 1994 through August 3, 1994 F-5
Consolidated and Combined Statements of
Cash Flows for the Years Ended December 31,
1996 and 1995, for the Period from August 4, 1994
through December 31, 1994 and for the Period
from January 1, 1994 through August 3, 1994 F-6
Notes to the Consolidated and Combined
Financial Statements F-7
Schedule III:
Real Estate and Accumulated Depreciation F-24
Page 34
(a) 3. Exhibits
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. (Revised 12/30/96)
4.1 Form of certificate representing Shares of Common
Stock.
4.2 Agreement of Home Properties of New York, Inc. to
file instruments defining the rights of holders of
long-term debt of it or its subsidiaries with the
Commission upon request.
4.3 Credit Agreement between Manufacturers and Traders
Trust Company, Home Properties of New York, L.P.
and Home Properties of New York, Inc.
4.4 Amendment Agreement between Manufacturers and
Traders Trust Company, Home Properties of New York,
L.P. and Home Properties of New York, Inc. amending
the Credit Agreement.
4.5 Mortgage Spreader, Consolidation and Modification
Agreement between Manufacturers and Traders Trust
Company and Home Properties of New York, L.P.,
together with form of Mortgage, Assignment of
Leases and Rents and Security Agreement
incorporated therein by reference.
4.6 Mortgage Note made by Home Properties of New York,
L.P. payable to Manufacturers and Traders Trust
Company in the principal amount of $12,298,000.
4.7 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.
4.9 Demand Grid Note, dated August 22, 1996 from the
Operating Partnership to Manufacturers and Traders
Trust Company in the maximum principal amount of
$25,000,000.
4.10 Demand Grid Note, dated March 5, 1997 from the
Operating Partnership to Manufacturers and Traders
Trust Company in the maximum principal amount of
$35,000,000.
Page 35
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.
10.4 Amendment No. Nine to the Agreement of Limited
Partnership of Home Properties of New York, L.P.
10.5 Amendment No. Ten to the Agreement of Limited
Partnership of Home Properties of New York, L.P.
10.6 Articles of Incorporation of Home Properties
Management, Inc.
10.7 By-Laws of Home Properties Management, Inc.
10.8 Articles of Incorporation of Conifer Realty
Corporation.
10.9 By-Laws of Conifer Realty Corporation.
10.10 Employment Agreement between Home Properties of New
York, L.P. and Norman P. Leenhouts.
10.11 Employment Agreement between Home Properties of New
York, L.P. and Nelson B. Leenhouts.
10.12 Employment Agreement between Home Properties of New
York, L.P. and Richard J. Crossed.
10.13 Indemnification Agreement between Home Properties
of New York, Inc. and certain officers and
directors.
10.14 Indemnification Agreement between Home Properties
of New York, Inc. and Richard J. Crossed.
10.15 Indemnification Agreement between Home Properties
of New York, Inc. and Alan L. Gosule.
10.16 Home Properties of New York, Inc. 1994 Stock
Benefit Plan.
10.17 Registration Rights Agreement among Home Properties
of New York, Inc., Home Leasing Corporation,
Leenhouts Ventures, Norman P. Leenhouts, Nelson B.
Leenhouts, Amy L. Tait, David P. Gardner, Ann M.
McCormick, William E. Beach, Paul O'Leary, Richard
J. Struzzi, Robert C. Tait, Timothy A. Florczak and
Laurie Tones.
Page 36
10.18 Lockup Agreements by Home Properties of New York,
Inc. and Conifer Realty, Inc., Conifer Development,
Inc., Richard J. Crossed, Peter J. Obourn and John
F. Fennessey.
10.19 Contribution Agreement between Home Properties of
New York, L.P. and Conifer Realty, Inc., Conifer
Development, Inc., Richard J. Crossed, Peter J.
Obourn and John H. Fennessey.
10.20 Amendment to Contribution Agreement between Home
Properties of New York, L.P. and Conifer Realty,
Inc., Conifer Development, Inc., Richard J.
Crossed, Peter J. Obourn and John H. Fennessey.
10.21 Agreement of Operating Sublease, dated October 1,
1986, among KAM, Inc., Morris Massry and Raintree
Island Associates, as amended by Letter Agreement
Supplementing Operating Sublease dated October 1,
1986.
10.22 Second Amended and Restated Incentive Compensation
Plan of Home Properties of New York, Inc.
10.23 Indemnification and Pledge Agreement between Home
Properties of New York, L.P. and Conifer Realty,
Inc., Conifer Development, Inc., Richard J.
Crossed, Peter J. Obourn and John H. Fennessey.
10.24 Form of Term Promissory Note payable to Home
Properties of New York, Inc. by officers and
directors in association with the Executive and
Director Stock Purchase and Loan Program.
10.25 Form of Pledge Security Agreement executed by
officers and directors in connection with Executive
and Director Stock Purchase and Loan Program.
10.26 Schedule of Participants, loan amounts and shares
issued in connection with the Executive and
Director Stock Purchase and Loan Program.
10.27 Guaranty by Home Properties of New York, Inc. and
Home Properties of New York, L.P. to The Chase
Manhattan Bank of the loans from The Chase
Manhattan Bank to officers and directors in
connection with the Executive and Director Stock
Purchase and Loan Program.
10.28 Subordination Agreement between Home Properties of
New York, Inc. and The Chase Manhattan Bank
relating to the Executive and Director Stock
Purchase and Loan Program.
10.29 Partnership Interest Purchase Agreement, dated as
of December 23, 1996, among Home Properties of New
York, Inc., Home Properties of New York, L.P. and
State of Michigan Retirement Systems.
Page 37
10.30 Registration Rights Agreement, dated as of December
23, 1996 between Home Properties of New York, Inc.
and State of Michigan Retirement Systems.
10.31 Lock-Up Agreement, dated December 23, 1996 between
Home Properties of New York, Inc. and State of
Michigan Retirement Systems.
10.32 Contract of Sale between Lake Grove Associates
Corp. and Home Properties of New York, L.P., dated
December 17, 1996, relating to the Lake Grove
Apartments.
11 Computation of Per Share Earnings Schedule
21 List of Subsidiaries of Home Properties of New
York, Inc.
23.1 Consent of Coopers & Lybrand, LLP
23.2 Consent of Coopers & Lybrand, LLP
23.3 Consent of Coopers & Lybrand, LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K, dated January 5, 1996 was filed on December 6, 1996
reporting on the acquisition of several properties. On February
4, 1997, the Company filed Amendment No. 1 to Form 8-K/A, that
includes the following financial statements:
* Audited statement of revenues and certain expenses of Valley
Park South Apartments for the year ended December 31, 1995.
* Audited statement of revenues and certain expenses of the
Hudson Valley Acquisition for the year ended December 31, 1995.
* Pro forma condensed consolidated balance sheet of Home
Properties of New York, Inc. as of September 30, 1996 and related
notes (unaudited).
* Pro forma consolidated statement of operations of Home
Properties of New York, Inc. for the nine months ended September
30, 1995 and for the year ended December 31, 1995 and related
notes (unaudited).
* Notes to the pro forma consolidated statement of operations
of the Company for the nine months ended September 30, 1996 and
for the year ended December 31, 1995 (unaudited).
Amendment No. 2 to Form 8-K/A, dated May 16, 1995, was filed on
November 13, 1996 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 of June 30, 1995 and related
notes (unaudited).
Page 38
* Pro Forma Consolidated and Combined Statement of Operations
for Home Properties of New York, Inc. for the six months ended
June 30, 1995 (unaudited) and for the year ended December 31,
1994 (unaudited).
* Notes to the pro forma consolidated and combined statement
for operations of Home Properties of New York, Inc. for the six
months ended June 30, 1995 and for the year ended December 31,
1994 (unaudited).
Amendment No. 3 to Form 8-K, dated January 9, 1996 was filed on
November 13, 1996 and included the following financial
statements:
* Audited statements of net assets acquired of Conifer
Corporation and Subsidiaries as of March 31, 1995 and 1994 and
the related statements of acquired operations and cash flow for
the years then ended.
* Audited combined statement of revenues and certain expenses
of the Conifer Acquisition Property for the year ended December
31, 1995.
* Pro forms condensed consolidated balance sheet of the
Company as of December 31, 1995 and related notes (unaudited).
* Pro forma consolidated statement of operations of Home
Properties of New York, Inc. for the year ended December 31, 1995
and related notes (unaudited).
A Form 8-K, dated August 6, 1996 was filed on October 8, 1996,
reporting the increase by 580,000 shares of the Company's Common
Stock available for cash purchases under the Company's Dividend
Reinvestment, Stock Purchase Resident Stock Purchase and Employee
Stock Purchase Plan. No financial statements were filed.
A Form 8-K, dated December 23, 1996 was filed on January 7, 1997,
reporting the sale of $35 million Class A limited partnership
interest in Home Properties of New York, L.P. to the State
Treasurer of the State of Michigan, Custodian of the Michigan
Public School Employees' Retirement Systems, State Employees'
Retirement System, Michigan State Police Retirement System and
Michigan Judges' Retirement System. No financial statements were
included.
(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 39
SIGNATURES
Pursuant to the requirements of Section 13 or 13(d) of the
Securities Exchange Act of 1934, Home Properties of New York,
Inc. certifies that it has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HOME PROPERTIES OF NEW YORK, INC.
By: /s/ Norman P. Leenhouts
----------------------------
Norman P. Leenhouts
Chairman of the Board, Co-Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of Home Properties of New York, Inc. and in the capacities
and on the dates indicated.
Signature Title Date
/s/ Norman P. Leenhouts Director, Chairman of the March 17, 1997
- ----------------------------
Norman P. Leenhouts Board of Directors and
Co-Chief Executive
Officer (Co-Principal
Executive Officer)
/s/ Nelson B. Leenhouts Director, President March 21, 1997
- ----------------------------
Nelson B. Leenhouts and Co-Chief Executive
Officer (Co-Principal
Executive Officer)
/s/ Richard J. Crossed Director, Executive Vice March 25, 1997
- ----------------------------
Richard J. Crossed President
/s/ Amy L. Tait Director, Executive Vice March 21, 1997
- ----------------------------
Amy L. Tait President
/s/ David P. Gardner Vice President, Chief Financial March 25, 1997
- ----------------------------
David P. Gardner Officer and Treasurer
(Principal Financial and
Accounting Officer)
Page 40
Signature Title Date
/s/ Burton S. August, Sr. Director March 21, 1997
- ----------------------------
Burton S. August, Sr.
/s/ William Balderston, III Director March 17, 1997
- ----------------------------
William Balderston, III
/s/ Alan L. Gosule Director March 21, 1997
- ----------------------------
Alan L. Gosule
/s/ Leonard F. Helbig, III Director March 13, 1997
- ----------------------------
Leonard F. Helbig, III
/s/ Roger W, Kober Director March 25, 1997
- ----------------------------
Roger W. Kober
/s/ Clifford W. Smith, Jr. Director March 19, 1997
- ----------------------------
Clifford W. Smith, Jr.
/s/ Paul L. Smith Director March 12, 1997
- ----------------------------
Paul L. Smith
Page 41
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, 1996 and 1995 F-3
Consolidated and Combined Statements of Operations
for the Years Ended December 31, 1996 and 1995, for
the Period From August 4, 1994 through December 31,
1994 and for the Period From January 1, 1994 through
August 3, 1994. F-4
Consolidated and Combined Statements of
Stockholders' Equity/Owners' Deficit
for the Years Ended December 31, 1996 and 1995, for
the Period From August 4, 1994 through December 31,
1994 and for the Period From January 1, 1994 through
August 3, 1994. F-5
Consolidated and Combined Statements of Cash Flows
for the Years Ended December 31, 1996 and 1995, for
the Period From August 4, 1994 through December 31,
1994 and for the Period From January 1, 1994 through
August 3, 1994. F-6
Notes to Consolidated and Combined Financial
Statements F-7
Schedule III:
Real Estate and Accumulated Depreciation F-24
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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years ended December 31,
1996 and 1995 and the period from August 4, 1994 through December
31, 1994, and the combined results of operations and cash flows
of the Original Properties for the period from January 1, 1994
through August 3, 1994, 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/ Cooper & Lybrand L.L.P.
Rochester, New York
February 3, 1997
Page F-2
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1996 1995
ASSETS
Real estate:
Land $ 15,080 $ 7,065
Buildings, improvements and equipment 246,693 191,138
-------- --------
261,773 198,203
Less: accumulated depreciation ( 40,237) ( 32,258)
-------- --------
Real estate, net 221,536 165,945
Cash and cash equivalents 1,523 812
Cash in escrows 5,637 3,754
Accounts receivable 2,185 1,252
Prepaid expenses 2,496 1,936
Deposit 1,900 -
Advances to affiliates 5,898 5,097
Deferred financing costs 1,616 1,976
Other assets 5,840 690
-------- --------
Total assets $248,631 $181,462
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $104,915 $ 86,149
Notes payable 261 470
Line of Credit - 4,500
Accounts payable 2,024 1,657
Accrued interest payable 601 383
Accrued expenses and other liabilities 2,525 1,882
Security deposits 2,545 1,902
-------- --------
Total liabilities 112,871 96,943
-------- --------
Minority interest 52,730 8,739
-------- --------
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; 6,144,498 and 5,408,817 shares
issued and outstanding at December 31, 1996 and
1995, respectively 61 54
Excess stock, $.01 par value; 10,000,000
shares authorized; no shares issued - -
Additional paid-in capital 98,092 83,413
Distributions in excess of accumulated earnings ( 13,062) ( 7,687)
Officer and director notes for stock purchases ( 2,061) -
-------- --------
Total stockholders' equity 83,030 75,780
-------- --------
Total liabilities and
stockholders' equity $248,631 $181,462
======== ========
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)
Original
Home Properties of New York, Inc. Properties
---------------------------------------- ----------
Years Ended
--------------------------- 08/04/94 01/01/94
December 31, December 31, Through Through
1996 1995 12/31/94 08/03/94
Revenues:
Rental income $42,214 $31,705 $10,995 $11,526
Property other income 1,025 1,062 423 415
Other income 2,431 1,534 525 79
Property management income - - - 834
-------- -------- -------- --------
Total revenues 45,670 34,301 11,943 12,854
-------- -------- -------- --------
Expenses:
Operating and maintenance 21,859 15,911 5,267 6,329
Property management - - - 625
General and administrative 1,482 1,200 400 407
Interest 9,208 6,432 1,444 3,126
Depreciation and amortization 8,077 6,258 2,191 1,584
-------- -------- -------- --------
Total expenses 40,626 29,801 9,302 12,071
-------- -------- -------- --------
Income before minority interest and
extraordinary item 5,044 4,500 2,641 783
Minority interest 897 455 256 -
-------- -------- -------- --------
Income before extraordinary item 4,147 4,045 2,385 783
Extraordinary item, prepayment
penalties, net of $141 in 1995 and
$265 in 1994 allocated to minority
interest - ( 1,249) ( 2,498) -
-------- -------- -------- --------
Net income (loss) $ 4,147 $ 2,796 ($ 113) $ 783
======== ======== ======== ========
Per share data:
Income before extraordinary item $.74 $.75 $.44
Extraordinary item - ($.23) ($.46)
---- ---- ----
Net income (loss) $.74 $.52 ($.02)
==== ==== ====
Weighted average number of
shares outstanding 5,601,027 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
Common Stock Additional in Excess of Properties Officer/Director
---------------- Paid-In Accumulated Owners Notes for
Shares Amount Capital Earnings Deficit Stock Purchases
Balance, January 1, 1994 $ - $ - $ - ($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)
Issuance of common 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)
Issuance of common 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)
Issuance of common stock, net 735,681 7 14,679 ( 2,061)
Net income of Company 4,147
Dividends paid ( 9,522)
($1.69 per share) --------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 6,144,498 $61 $98,092 ($13,062) $ - ($ 2,061)
========= ========= ========= ========= ========= =========
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)
Original
Home Properties of New York, Inc. Properties
---------------------------------------- ----------
Years Ended
------------------------ 08/04/94 01/01/94
December 31, December 31, Through Through
1996 1995 12/31/94 08/03/94
Cash flows from operating activities:
Net income (loss) $ 4,147 $ 2,796 ($ 113) $ 783
-------- -------- -------- --------
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 and ( 142) ( 35) ( 61) -
Conifer Realty
Income allocated to minority interest 897 455 256 -
Extraordinary item allocated to minority - ( 141) ( 265) -
interest
Depreciation and amortization 8,667 6,914 2,426 1,647
Changes in assets and liabilities:
Other assets ( 1,199) ( 1,652) 325 ( 1,208)
Accounts payable and accrued 1,871 850 171 1,305
liabilities -------- -------- -------- --------
Total adjustments 10,094 7,015 3,264 1,744
-------- -------- -------- --------
Net cash provided by operating activities 14,241 9,811 3,151 2,527
-------- -------- -------- --------
Cash flows used in investing activities:
Purchase of properties, net of mortgage ( 14,026) ( 9,402) ( 68,063) -
notes assumed
Additions to properties ( 8,843) ( 8,179) ( 1,703) ( 1,168)
Deposit on property ( 1,900) - - -
Advances to affiliates ( 15,308) ( 5,683) ( 1,344) -
Payments on advances to affiliates 14,507 1,930 - -
Other ( 71) ( 14) - -
-------- -------- -------- --------
Net cash used in investing activities ( 25,641) ( 21,348) ( 71,110) ( 1,168)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 12,625 7 102,756 -
Proceeds from mortgage and other notes 4,530 45,292 22,496 -
payable
Payments of mortgage and other notes ( 21,822) ( 28,429) ( 42,300) ( 631)
payable
Proceeds from line of credit 34,030 17,677 5,550 -
Payments on line of credit ( 38,530) ( 13,177) ( 5,550) -
Payment of offering expenses - - ( 8,986) -
Payment of interest rate reduction - - ( 1,675) -
agreements
Additions to deferred loan costs ( 243) ( 882) ( 763) ( 120)
Additions to cash escrows ( 196 ( 1,687) ( 5)
1,883)
Dividends and distributions paid ( 11,537) ( 9,970) ( 1,556) -
Capital contribution to minority interest 34,941 - 30 -
Capital distributions - - - ( 933)
-------- -------- -------- --------
Net cash provided by (used in) financing 12,111 10,714 68,315 ( 1,689)
activities -------- -------- -------- --------
Net increase (decrease) in cash 711 ( 823) 356 (
330)
Cash and cash equivalents:
Beginning of period 812 1,635 1,279 1,609
-------- -------- -------- --------
End of period $ 1,523 $ 812 $ 1,635 $ 1,279
========= ========== ========= ========
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
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1 ORGANIZATION AND BASIS OF PRESENTATION
Organization
Home Properties of New York, Inc. (the " Company " ) was
formed in November 1993, as a Maryland corporation and is
engaged primarily in the ownership, management, acquisition
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.
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 $15,434. The acquisition
was funded by issuing 486,864 Operating Partnership units
(UPREIT units, valued at $17.25 per unit), the assumption of
$6,801 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. Conifer was involved in the
development and management of government-assisted housing
throughout New York State.
The acquisition has been accounted for using the purchase
method of accounting and, accordingly, the results of
operations are included from the date of acquisition
forward. The purchase price was allocated to three
communities containing 358 units valued at $10,173, general
partnership interests in 2,804 apartment units that Home
Properties will manage valued at $1,757, goodwill valued at
$3,348 and other assets valued at $156.
Page F-7
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
1 ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Basis of Presentation
The accompanying consolidated financial statements include
the accounts of the Company and its 68.2% (89.8% at December
31, 1995) 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.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate
Real estate is recorded at the lower of cost or net
realizable value. Costs related to the acquisition,
development, construction and improvement of properties are
capitalized. Interest costs are capitalized until
construction is substantially complete. When retired or
otherwise disposed of, the related cost and accumulated
depreciation are cleared from the respective accounts and
the net difference, less any amount realized from
disposition, is reflected in income. There was $63 of
interest capitalized in 1996. Ordinary repairs and
maintenance are expensed as incurred.
The Company quarterly reviews its properties in
accordance with the Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long
Lived Assets" 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.
Depreciation
Properties are depreciated using a straight-line method over
the estimated useful lives of the assets as follows:
buildings, improvements and equipment - 5-40 years; and
tenant improvements - life of related lease. Depreciation
expense charged to operations was $7,979, $6,499, $2,192 and
$1,583 for the years ended December 31, 1996 and 1995, for
the period August 4, 1994 to December 31, 1994 and for the
period January 1, 1994 to August 3, 1994.
Page F-8
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 original maturities of three
months or less. The Company estimates that the fair value
of cash equivalents approximates the carrying value due to
the relatively short maturity of these instruments.
Cash in Escrows
Cash in escrows consists of cash restricted under the terms
of various loan agreements to be used for the payment of
property taxes and insurance as well as required replacement
reserves and tenant security deposits for residential
properties.
Deferred Charges
Costs relating to the financing of properties and interest
rate reduction agreements are deferred and amortized over
the life of the related agreement. The straight-line method,
which approximates the effective interest method,
is used to amortize all financing costs. The range of the terms of
the agreements are from 1-32 years. Accumulated
amortization was $1,349 and $1,588 as of December 31, 1996
and 1995, respectively.
Goodwill
Goodwill represents the excess of the purchase price of
acquired companies over the estimated fair value of the
tangible and intangible net assets acquired. Goodwill is
being amortized on a straight-line basis over forty years.
Accumulated amortization was $85 and $0 as of December 31,
1996 and 1995, respectively.
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.
Page F-9
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
Advertising expenses are charged to operations during the
year in which they were incurred. Advertising expenses
incurred and charged to operations were approximately
$1,256, $870, $262 and $267 for the years ended December 31,
1996 and 1995, for the period August 4, 1994 to December 31,
1994 and for the period January 1, 1994 to August 3, 1994.
Revenue Recognition
The Operating Partnership leases its residential properties
under leases with terms generally one year or less. Rental
income is recognized when earned. Property other income,
which consists primarily of income from operation of laundry
facilities, administrative fees, garage and carport rentals
and miscellaneous charges to residents, is recognized when
earned.
The Operating Partnership receives development and other fee
income from properties in the development phase. This fee
income is recognized on the percentage of completion method.
Income Taxes
The Company has elected to be taxed as a real estate
investment trust ( " REIT " ) under the Internal Revenue
Code of 1986, as amended, commencing with the taxable year
ended December 31, 1994. As a result, the Company generally
will not be subject to Federal or State income taxation at
the corporate level to the extent it distributes annually at
least 95% of its REIT taxable income to its shareholders and
satisfies certain other requirements. Accordingly, no
provision has been made for federal income taxes in the
accompanying consolidated financial statements for the years
ended December 31, 1996 and 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, capital gains, or as 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 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. Fully diluted earnings (loss) per common share
are based upon the increased number of common shares that
would be outstanding assuming the exercise of common share
options. Since fully diluted earnings per common share are
not materially dilutive, such amounts are not presented.
Page F-10
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Account Reclassifications
Certain account balances at December 31, 1995 and December
31, 1994 were reclassified to conform to account
classifications used by the Company at December 31, 1996.
These changes had no effect on reported results of
operations or financial position.
3 LINE OF CREDIT
As of December 31, 1996, the Company had an unsecured line
of credit of $25,000 with no outstanding balance. The line
of credit expires on August 22, 1997. Borrowings bear
interest at 1.75% over the one-month LIBOR rate. At
December 31, 1996, the interest rate was 7.34%.
Page F-11
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
4 MORTGAGE NOTES PAYABLE
Mortgage notes, collateralized by certain properties, are as
follows:
December 31, Periodic
---------------- Interest Payment Maturity
1996 1995 Rate Terms (a) Date
Westminster $ 3,230 - (b) (b) 1997
Conifer Court 412 - 10.53% 4 1999
Perinton, Riverton & Waterfalls 12,087 $12,185 (c) 76 2000
Valley Park South 9,650 - 8.50% (i) 2000
Wedgewood Village 5,750 5,750 (d) (d) 2001
Wedgewood Shopping 500 500 (d) (d) 2001
Brook Hill 5,019 5,089 7.75% 39 2002
Garden Village 4,723 4,790 7.75% 36 2002
1600 Elmwood 5,510 5,588 7.75% 42 2002
Village Green 4,920 4,989 7.75% 38 2002
Williamstowne Village 9,980 10,084 (e) 70 2002
Fairview 4,045 4,082 (f) 29 2003
Finger Lakes 4,045 4,082 (f) 29 2003
Hamlet Court 1,832 - (g) 14 2003
Springcreek & Meadows 3,254 3,312 (h) 23 2004
Idylwood 9,468 9,539 8.625% 74 2005
Raintree Island 6,582 6,664 8.50% 54 2006
Conifer Village 3,045 3,170 7.20% (j) 2010
Fairways at Village Green 4,584 - 8.23% 37 2019
Raintree Island 1,218 1,233 8.50% 10 2020
Harborside 5,061 5,092 8.92% 40 2027
-------- --------
$104,915 $86,149
======== =======
(a) This amount represents the monthly payment of
principal and interest.
(b) Monthly payments of interest only at 1.75% above
LIBOR are due until maturity.
(c) 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.
(d) 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.
Page F-12
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -
(Continued)
4 MORTGAGE NOTES PAYABLE (Continued)
(e) 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.
(f) 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.
(g) The interest rate for the period January 1, 1996
through April 30, 1998 is 8.25%; for the period May 1,
1998 through May 1, 2003, the rate is 2.75% above the
five-year US Treasury Security, not to be lower than
7.75%.
(h) 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.
(i) Monthly payments of interest only.
(j) Monthly payments of interest only with annual
principal payments of $135 in 1997 increasing to $330
in 2010.
Principal payments on the mortgage notes payable for years
subsequent to December 31, 1996 are as follows:
1997 $ 4,326
1998 1,233
1999 1,743
2000 22,579
2001 7,205
Thereafter 67,829
-------
$104,915
========
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 $107,322 at
December 31, 1996.
The Company has incurred prepayment penalties on debt
restructurings which are accounted for as extraordinary
items in the statement of operations. Prepayment penalties
were approximately $1,390 and $2,763 for the year ended
December 31, 1995 and for the period from August 4, 1994 to
December 31, 1994, respectively. The 1995 paydowns totaled
$39,080 from six debt instruments and were financed by three
new borrowings in excess of $40,000. The 1994 paydowns
totaled $29,796 from seven debt instruments and were
financed from the proceeds of the IPO.
Page F-13
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
5 NOTES PAYABLE
Notes payable consist of the following:
December 31,
---------------- Interest
1996 1995 Rate
Financial institution $ 72 $107 2.5%
Seller financing 189 363 7.5%
---- ----
$261 $470
==== ====
Principal payments on the notes payable are approximately
$211 annually.
6 MINORITY INTEREST
The changes in minority interest for the two years ended
December 31, 1996 are as follows:
1996 1995
Balance, beginning of year $ 8,739 $8,978
Issuance of UPREIT Units associated with
property acquisitions 10,168 453
Proceeds from private placement, net of
associated costs 34,941 -
Net income 897 314
Distributions ( 2,015) (1,006)
------- -------
$52,730 $8,739
======= =======
7 STOCKHOLDERS' EQUITY
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. During 1996, over
$12 million net was raised through this program.
Page F-14
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
7 STOCKHOLDERS' EQUITY (Continued)
Officer and Director Notes for Stock Purchases
On August 12, 1996, eighteen officers and the six
independent directors purchased an aggregate of 208,543
shares of common stock through the Dividend Reinvestment
Plan at the price of $19.79. The purchases were financed
50% from a bank loan and 50% by the Company. The Company
loans bear interest at 7% per annum and mature in August,
2016. The Company loans are nonrecourse, subordinate to the
above-referenced bank loans, and are collateralized by
pledges of the 208,543 common shares. The loans will be
repaid from the regular quarterly dividends paid on the
shares of common stock pledged, after the corresponding bank
loans are paid in full. The Company has guaranteed the bank
loans which total $1,874 at December 31, 1996.
Dividends
Stockholders are taxed on dividends and must report such
dividends as either ordinary income, capital gains, or as return of
capital. The appropriate amount of each per common share is
as follows:
Ordinary Income Return of Capital
1994 5.785% 94.215%
1995 46.2% 53.8%
1996 51.1% 48.9%
Operating Partnership Units/Interests
Units in the Operating Partnership ("UPREIT Units") are
exchangeable on a one-for-one basis into common shares. On
December 30, 1996, $35 million was raised in a private
placement through the sale of a Class A Limited Partnership
Interest to a state pension fund. The interest, which can
be converted into 1,666,667 shares of common stock, will
receive a preferred return equal to the greater of: (a)
9.25% on the original investment during the first two years
declining to 9.0% thereafter, or (b) the actual dividends
paid to common shareholders on 1,666,667 shares. Any
unconverted interest can be redeemed without premium by the
Company after ten years. Proceeds of the transaction, which
are anticipated to be used to fund future acquisitions, were
used to repay floating rate debt on an interim basis.
At December 31, 1996, 6,144,498 common shares and 2,869,686
convertible units/interests were outstanding, for a total of
9,014,184.
Page F-15
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
8 MANAGEMENT COMPANIES
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 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.
The property management, leasing and development activities
for properties affiliated with the Conifer acquisition which
occurred on January 1, 1996 are performed by Conifer Realty
Corp. ("Conifer Realty"). 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 entitles 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.
HP Management and Conifer Realty (the "Management
Companies") receive development, construction and other fee
income from properties in the development phase. This fee
income is recognized on the percentage of completion method.
The Management Companies are accounted for under the equity
method.
The Management Companies provide property management and
administrative services to certain real estate and other
entities. In consideration for these services, the
Management Companies receive monthly management fees
generally based on a percentage of revenues or costs
incurred. Management fees are recognized as revenue when
they are earned.
The Company's share of income from the Management Companies
was $142, $35 and $61 for the years ended December 31, 1996
and 1995 and for the period August 4, 1994 to December 31,
1994. Summarized combined financial information of the
Management Companies at and for the years ended December 31,
1996 and 1995 and for the period August 4, 1994 to December
31, 1994 follows:
1996 1995 1994
Management fees $2,942 $1,043 $431
Development and construction
management fees 1,971 320 170
General and administrative (4,448) (1,226) (499)
Other expenses ( 322) ( 101) ( 40)
------ ------ ----
Net income $ 143 $ 36 $ 62
====== ====== ====
Total assets $3,279 $ 646 $406
====== ====== ====
Total liabilities $2,762 $ 430 $226
====== ====== ====
Page F-16
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -
(Continued)
9 TRANSACTIONS WITH AFFILIATES
The Company and the Management Companies recognized
management and development fee revenue, interest income and
other miscellaneous income from affiliated entities of
$6,170, $2,291, $821 and $813 for the years ended December
31, 1996 and 1995, for the period August 4, 1994 to December
31, 1994, and for the period January 1, 1994 to August 3,
1994, respectively.
The Company leases its corporate office space from HLC. The
lease requires an annual base rent of $172 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 $349, $237, $96 and $134 for the years ended
December 31, 1996 and 1995, for the period August 4, 1994 to
December 31, 1994, and for the period January 1, 1994 to
August 3, 1994, respectively.
From time to time, the Company advances funds as needed to
the Management Companies which totaled $2,451 and $422 at
December 31, 1996 and 1995, respectively, and bear interest
at 1% over prime.
10 COMMITMENTS AND CONTINGENCIES
Ground Lease
The Company has a non-cancelable operating ground lease for
one of its properties. The lease expires May 1, 2020, with
options to extend the term of the lease for two successive
terms of twenty-five years each. The lease provides for
contingent rental payments based on certain variable
factors. The lease also requires the lessee to pay real
estate taxes, insurance and certain other operating expenses
applicable to the leased property. Ground lease expense was
$174, $169, $70 and $97 including contingent rents of $104,
$99, $40 and $57 for the years ended December 31, 1996 and
1995, for the period August 4, 1994 to December 31, 1994,
and for the period January 1, 1994 to August 3, 1994,
respectively. At December 31, 1996, future minimum rental
payments required under the lease are $70 per year until the
lease expires.
401(K) Savings Plan
The Company participates in a contributory savings plan.
Under the plan, the Company will match 75% of the first 4%
of participant contributions. Expenses under this plan for
the periods presented were not material.
Page F-17
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
10 COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreements
The Operating Partnership entered into five-year employment
agreements with two executives on August 4, 1994. The
executives have a base salary of $145 through December 31,
1996, and for each subsequent year the base salary shall be
10% in excess of the base salary for the preceding year.
The Operating Partnership has also entered into an
employment agreement with one other executive effective
January 1, 1996. The terms of that agreement are
substantially the same in all respects as described above.
The executives are also entitled to receive incentive
compensation pursuant to the Company's Incentive
Compensation Plan as it may be revised by the Compensation
Committee from time to time.
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. The Company accrued $495 based on the
formula for 1996.
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.
Debt Covenants
Certain loan agreements of the Company contain restrictions
which, among other things, require maintenance of certain
financial ratios and limit the payment of dividends. At
December 31, 1996, the Company was in compliance with these
covenants.
Guarantees
The Company has guaranteed temporary construction financing
totalling $13,479 associated with five entities and a total
of $3,692 of additional debt associated with six entities
where the Company is the general partner. In addition,
the Company, has guaranteed the Low Income Housing Tax Credit
to limited partners in thirty-two partnerships totalling
approximately $23,000. As of December 31, 1996, there were no
known conditions that would make certain such payments
necessary.
Page F-18
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
11 STOCK BENEFIT PLAN
The Company has adopted the 1994 Stock Benefit Plan as
Amended (the " Plan " ). Plan participants include
officers, non-employee directors, and key employees of the
Company. The Company has reserved 946,000 shares for
issuance to officers and employees and 54,000 shares for
issuance to non-employee directors. No options have 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. Certain officers' options
(264,000) and directors' options (54,000) 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).
During 1996, 144,000 options were granted with an exercise
price greater than the fair market value of the stock at the
date of the grant. The weighted average fair value of these
options was $0.78. 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, 1996. At December 31, 1996, 302,222
common shares were available for future grant of options or
awards under the Plan.
Details of stock option activity during 1996, 1995 and 1994
are as follows:
Number Option Price
of Shares Per Share
Options outstanding at August 4, 1994 - $ -
Granted, 1994 429,532 19.00
-------
Options outstanding at December 31, 1994 429,532 19.00
(194,000 shares exercisable)
Granted 1995 18,000 17.875
Cancelled 1995 ( 2,000) 19.00
-------
Options outstanding at December 31, 1995 445,532 17.875-19.00
(258,527 shares exercisable)
Granted, 1996 180,000 19.00
Granted, 1996 21,000 19.375
Granted, 1996 52,146 20.50
Cancelled, 1996 ( 900) 19.00
-------
Options outstanding at December 31, 1996 697,778 $17.875-$20.50
=======
(411,053 shares exercisable)
Page F-19
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
11 STOCK BENEFIT PLAN (Continued)
The following table summarizes information about options
outstanding at December 31, 1996:
Weighted
Average Weighted Weighted
Remaining Average Average
Year Number Contractual Fair Value Number Exercise
Granted Outstanding Life of Options Exercisable Price
1994 426,632 7 N/A 287,053 $19.000
1995 18,000 3 $1.39 18,000 17.875
1996 253,146 9 $1.01 106,000 19.060
------- - ------- -------
Totals 697,778 8 411,053 $18.970
======= = ======= =======
The Company has adopted the disclosure only provisions of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock option plan. Had
compensation for the Company's stock option plan been
determined based on the fair value at the date of grant for
awards in 1996 and 1995, the Company's proforma net income
and proforma earnings per share would have been $4,031 and
$2,771, and $.72 and $.51, respectively. The fair value of
each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following
assumptions used for grants in 1996 and 1995: dividend
yield of 9.315%; expected volatility of 18.97%; forfeiture
rate of 5%; and expected lives of 7.5 years for options with
a lifetime of ten years, and five years for options with a
lifetime of five years. The interest rate used in the
option-pricing model is based on a risk free interest rate
ranging from 5.25% to 6.87%.
Page F-20
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
12 PROPERTY ACQUISITIONS
Subsequent to the IPO in August, 1994 and through December
31, 1996, the Company has acquired the communities listed
below.
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
Conifer Court 1/1/96 1963 20 703
Hamlet Court 1/1/96 1971 98 2,702
Westminster 1/1/96 1972 240 6,623
Village Green (Fairways) 3/5/96 1986 200 5,246
Carriage Hill 7/16/96 1973 140 4,396
Cornwall Park 7/16/96 1967 75 3,386
Lakeshore Villa 7/16/96 1975 152 4,421
Sunset Gardens 7/16/96 1968-71 217 5,357
Valley Park South 11/22/96 1971-73 384 18,914
(1) Operation of Harborside commenced October 1, 1994
subject to an operating and management agreement. The
acquisition was accounted for on the equity method
until the final closing date of March 29, 1995.
(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. This acquisition was
accounted for on the equity method until the final
closing date of January 5, 1996.
Page F-21
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Conti
nued)
12 PROPERTY ACQUISITIONS (Continued)
Proforma Financial Information (Unaudited)
The following unaudited proforma information was prepared as
if the 1996 transactions related to the Conifer acquisition
and the subsequent acquisitions of seven separate apartment
communities 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 transactions had been consummated at
the beginning of 1995, nor does it purport to represent the
results of operations for future periods.
For the years ended December 31,
1996 1995
Total revenues $50,660 $45,112
Income before extraordinary item 3,744 3,363
Net income 3,744 2,225
Per share data $.67 $.62
Income before extraordinary item $.67 $.41
Weighted average numbers of shares 5,601,027 5,408,474
outstanding
13 SUPPLEMENTAL CASH FLOW DISCLOSURES
Original
Home Properties of New York, Inc. Properties
-------------------------------- ----------
Years Ended
---------------------- 08/04/94 01/01/94
December 31, December 31, Through Through
1996 1995 12/31/94 08/03/94
Cash paid for interest $8,441 $5,739 $1,268 $3,054
Mortgage loans assumed associated
with property acquisitions 35,849 14,694 14,700 -
Issuance of UPREIT Units associated with
property and other acquisitions 10,168 453 250 -
Raintree capitalized lease affecting
real estate and leasehold liability - 1,719 - -
Shares issued in exchange for
officer and director notes 2,061 - - -
Page F-22
HOME PROPERTIES OF NEW YORK, INC.
AND THE ORIGINAL PROPERTIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
14 SUBSEQUENT EVENT
On February 3, 1997, the Operating Partnership acquired Lake Grove
Apartments, a 368-unit apartment community located in Lake Grove,
Long Island, New York for $19,000. The Company borrowed $17,500
from its line of credit to fund the purchase plus closing costs,
net of a $1,900 deposit which had been made at December 31, 1996.
The remaining available balance on the line of credit after this
borrowing is $7,500.
15 QUARTERLY FINANCIAL STATEMENT INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31,
1996 and 1995 are as follows:
1996
----------------------------------------
First Second Third Fourth
Revenues $10,540 $10,706 $11,816 $12,608
Income before minority interest
and extraordinary item 810 1,122 1,626 1,486
Minority interest 147 194 285 271
Extraordinary item, net of minority interest N/A N/A N/A N/A
Net income 663 928 1,341 1,215
Earnings per share:
Net income .12 .17 .24 .21
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 (loss) 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
Page F-23
SCHEDULE III
HOME PROPERTIES OF NEW YORK, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
Total
Initial Cost Total Cost Cost,
-------------------------- Costs ----------------------- Net of
Buildings, Capitalized Buildings Accumu- Accumu-
Improve- Subsequent Improve- lated lated Year of
Encum- ments & Adjustments to ments & Total Deprecia- Deprecia- Acquisi-
brances Land Equipment (a) Acquisition Land Equipment (b) tion tion tion
Brook Hill $ 5,019 $ 330 $ 7,920 $ 948 $ 330 $ 8,868 $ 9,198 $ 660 $ 8,538 1994
Apartments
Candlewood 387 2,592 33 387 2,625 3,012 85 2,927 1996
Apartments
Carriage 570 3,826 451 570 4,277 4,847 64 4,783 1996
Hill
Apartments
Conifer 412 91 612 9 91 621 712 22 690 1996
Court
Apartments
Conifer 3,045 358 8,555 26 358 8,581 8,939 628 8,311 1994
Village
Apartments
Cornwall 439 2,947 236 439 3,183 3,622 54 3,568 1996
Park
Townhouses
Fairview 4,045 580 5,305 $ 2,828 958 580 9,091 9,671 2,766 6,905 1985
Heights &
Fairview
Manor
Finger Lakes 4,045 200 4,536 1,882 759 200 7,177 7,377 2,076 5,301 1983
Manor
Apartments
Garden 4,723 354 8,546 789 354 9,335 9,689 823 8,866 1994
Village
Apartments
Hamlet Court 1,832 351 2,351 35 351 2,386 2,737 76 2,661 1996
Apartments
Harborside 5,061 250 6,113 1,187 250 7,300 7,550 455 7,095 1995
Manor
Idylwood 9,468 700 16,927 2,719 700 19,646 20,346 1,074 19,272 1995
Apartments
Lakeshore 573 3,848 83 573 3,931 4,504 62 4,442 1996
Villa
Apartments
Meadows 2,017 208 2,776 1,216 713 208 4,705 4,913 1,492 3,421 1984
Apartments
Newcastle 197 4,007 3,684 1,734 197 9,425 9,622 2,674 6,948 1982
Apartments
Northgate 290 6,987 1,182 290 8,169 8,459 616 7,843 1994
Manor
Apartments
Pearl Street 49 1,189 43 49 1,232 1,281 66 1,215 1995
Perinton 5,614 224 6,120 3,629 1,045 224 10,794 11,018 3,168 7,850 1982
Manor
Apartments
Raintree 7,800 6,654 3,217 4,410 14,281 14,281 3,199 11,082 1985
Island
Apartments
Riverton 5,116 240 6,640 2,523 1,769 240 10,932 11,172 3,857 7,315 1983
Knolls
Apartments &
Townhouses
1600 Elmwood 5,510 303 5,698 3,339 1,739 299 10,780 11,079 3,802 7,277 1983
Avenue
Apartments
Spanish 373 9,263 971 398 10,209 10,607 762 9,845 1994
Gardens
Apartments
Springcreek 1,237 128 1,702 745 413 128 2,860 2,988 915 2,073 1984
Apartments
Sunset 696 4,661 114 696 4,775 5,471 76 5,395 1996
Gardens
Apartments
Valley Park 9,650 2,459 16,454 6 2,459 16,460 18,919 83 18,836 1996
South
Apartments
Village 9,504 1,043 13,283 1,487 1,043 14,770 15,813 765 15,048 1994-
Green 1996
Apartments
Waterfalls
Village
Manufactured 1,357 409 1,995 1,206 195 409 3,396 3,805 887 2,918 1987
Home
Community
Wedgewood 500 100 504 15 184 100 703 803 262 541 1986
Shopping
Center
Wedgewood 5,750 1,000 9,327 2,297 1,354 1,000 12,978 13,978 3,447 10,531 1986
Village
Apartments
Westminster 3,230 860 5,763 150 860 5,913 6,773 191 6,582 1996
Apartments
Williamstowne 9,980 390 9,748 5,115 2,007 390 16,870 17,260 4,895 12,365 1985
Village
Apartments
Other Assets 907 125 295 907 420 1,327 235 1,092
-------- ------- -------- ------- ------- ------- -------- -------- ------- --------
$104,915 $15,059 $186,849 $31,821 $28,044 $15,080 $246,693 $261,773 $40,237 $221,536
======== ======= ======== ======= ======= ======= ======== ======== ======= ========
(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 $258,839.
Page F-24
SCHEDULE III (CONTINUED)
HOME PROPERTIES OF NEW YORK, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(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, 1996, are as follows:
1996 1995 1994
Balance, beginning of year $198,203 $162,991 $ 76,646
New property acquisition 54,727 26,956 52,057
Adjustments - - 31,821
Additions 8,843 8,256 2,871
Disposals and retirements - - ( 404)
-------- -------- --------
Balance, end of year $261,773 $198,203 $162,991
======== ======== ========
The changes in accumulated depreciation for the three
years ended December 31, 1996, are as follows:
1996 1995 1994
Balance, beginning of year $32,258 $25,759 $22,268
Depreciation for the year 7,979 6,499 3,775
Disposals and retirements - - ( 284)
------- ------- -------
Balance, end of year $40,237 $32,258 $25,759
======= ======= =======
Page F-25
HOME PROPERTIES OF NEW YORK, INC.
FORM 10-K
For Fiscal Year Ended December 31, 1996
Exhibit Index
Exhibit
Number Exhibit Location
3.1 Articles of Incorporated by
Incorporation of Home reference to Home
Properties of New York, Properties of New York,
Inc. Inc. Registration on
Form S-11, File No. 33-
78862 (the "S-11
Registration
Statement").
3.2 Articles of Amendment Incorporated by
and Restatement of reference to S-11
Articles of Registration Statement.
Incorporation of Home
Properties of New York,
Inc.
3.3 Amended and Restated By- Incorporated by
Laws of Home Properties reference to the Form 8-
of New York, Inc. K filed by Home
(Revised 12/30/96) Properties of New York,
Inc. dated December 23,
1996 (the "12/23/96 8-
K").
4.1 Form of certificate Incorporated by
representing Shares of reference to the Form 10-
Common Stock. K filed by Home
Properties of New York,
Inc. for the period
ended 12/31/94 (the
"12/31/94 10-K").
4.2 Agreement of Home Incorporated by
Properties of New York, reference to 12/31/94 10-
Inc. to file instruments K.
defining the rights of
holders of long-term
debt of it or its
subsidiaries with the
Commission upon request.
4.3 Credit Agreement between Incorporated by
Manufacturers and reference to the Form 10-
Traders Trust Company, Q filed by Home
Home Properties of New Properties of New York,
York, L.P. and Home Inc. for the quarterly
Properties of New York, period ended 6/30/94
Inc. (the "6/30/94 10-Q").
4.4 Amendment Agreement Incorporated by
between Manufacturers reference to the
and Traders Trust 12/31/94 10-K.
Company, Home Properties
of New York, L.P. and
Home Properties of New
York, Inc. amending the
Credit Agreement.
Page 1
4.5 Mortgage Spreader, Incorporated by
Consolidation and reference to the 6/30/94
Modification Agreement 10-Q.
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 Incorporated by
Home Properties of New reference to the 6/30/94
York, L.P. payable to 10-Q.
Manufacturers and
Traders Trust Company in
the principal amount of
$12,298,000.
4.7 Demand Grid Note, dated Incorporated by
August 22, 1995, from reference to the Form 10-
Home Properties of New K filed by Home
York, L.P. to Properties of New York,
Manufacturers and Inc. for the period
Traders Trust Company in ended 12/31/95 (the
the maximum principal "12/31/95 10-K").
amount of $15,000,000.
4.8 Spreader, Consolidation, Incorporated by
Modification and reference to the
Extension Agreement 12/31/95 10-K.
between Home Properties
of New York, L.P. and
John Hancock Mutual Life
Insurance Company, dated
as of October 26, 1995,
relating to indebtedness
in the principal amount
of $20,500,000.
4.9 Demand Grid Note, dated Pages _____ to _______.
August 22, 1996 from the
Operating Partnership to
Manufacturers and
Traders Trust Company in
the maximum principal
amount of $25,000,000.
4.10 Demand Grid Note, dated Pages _____ to _______.
March 5, 1997 from the
Operating Partnership to
Manufacturers and
Traders Trust Company in
the maximum principal
amount of $35,000,000.
10.1 Agreement of Limited Incorporated by
Partnership of Home reference to S-11
Properties of New York, Registration Statement.
L.P.
Page 2
10.2 Amended and Restated Incorporated by
Agreement of Limited reference to 6/30/94 10-
Partnership of Home Q.
Properties of New York,
L.P.
10.3 Amendments No. One Incorporated by
through Eight to the reference to 12/31/95 10-
Agreement of Limited K.
Partnership of Home
Properties of New York,
L.P.
10.4 Amendment No. Nine to Incorporated by
the Agreement of Limited reference to 12/23/96 8-
Partnership of Home K.
Properties of New York,
L.P.
10.5 Amendment No. Ten to the Pages _____ to ______.
Agreement of Limited
Partnership of Home
Properties of New York,
L.P.
10.6 Articles of Incorporated by
Incorporation of Home reference to S-11
Properties Management, Registration Statement.
Inc.
10.7 By-Laws of Home Incorporated by
Properties Management, reference to S-11
Inc. Registration Statement.
10.8 Articles of Incorporated by
Incorporation of Conifer reference to 12/31/95 10-
Realty Corporation. K.
10.9 By-Laws of Conifer Incorporated by
Realty Corporation. reference to 12/31/95 10-
K.
10.10 Employment Agreement Incorporated by
between Home Properties reference to 6/30/94 10-
of New York, L.P. and Q.
Norman P. Leenhouts.
10.11 Employment Agreement Incorporated by
between Home Properties reference to the 6/30/94
of New York, L.P. and 10-Q.
Nelson B. Leenhouts.
10.12 Employment Agreement Incorporated by
between Home Properties reference to 12/31/95 10-
of New York, L.P. and K.
Richard J. Crossed.
10.13 Indemnification Incorporated by
Agreement between Home reference to the 6/30/94
Properties of New York, 10-Q.
Inc. and certain
officers and directors.
Page 3
10.14 Indemnification Incorporated by
Agreement between Home reference to 12/31/95 10-
Properties of New York, K.
Inc. and Richard J.
Crossed.
10.15 Indemnification Pages ______ to _______.
Agreement between Home
Properties of New York,
Inc. and Alan L. Gosule.
10.16 Home Properties of New Incorporated by
York, Inc. 1994 Stock reference to S-11
Benefit Plan. Registration Statement.
10.17 Registration Rights Incorporated by
Agreement among Home reference to the 6/30/94
Properties of New York, 10-Q.
Inc., Home Leasing
Corporation, Leenhouts
Ventures, Norman P.
Leenhouts, Nelson B.
Leenhouts, Amy L. Tait,
David P. Gardner, Ann M.
McCormick, William E.
Beach, Paul O'Leary,
Richard J. Struzzi,
Robert C. Tait, Timothy
A. Florczak and Laurie
Tones.
10.18 Lockup Agreements by Incorporated by
Home Properties of New reference to 12/31/95 10-
York, Inc. and Conifer K.
Realty, Inc., Conifer
Development, Inc.,
Richard J. Crossed,
Peter J. Obourn and John
F. Fennessey.
10.19 Contribution Agreement Incorporated by
between Home Properties reference to the Form 8-
of New York, L.P. and K filed by Home
Conifer Realty, Inc., Properties of New York,
Conifer Development, Inc., dated September
Inc., Richard J. 14, 1995.
Crossed, Peter J. Obourn
and John H. Fennessey.
10.20 Amendment to Incorporated by
Contribution Agreement reference to the Form 8-
between Home Properties K filed by Home
of New York, L.P. and Properties of New York,
Conifer Realty, Inc., Inc., dated January 9,
Conifer Development, 1996.
Inc., Richard J.
Crossed, Peter J. Obourn
and John H. Fennessey.
Page 4
10.21 Agreement of Operating Incorporated by
Sublease, dated October reference to S-11
1, 1986, among KAM, Registration Statement.
Inc., Morris Massry and
Raintree Island
Associates, as amended
by Letter Agreement
Supplementing Operating
Sublease dated October
1, 1986.
10.22 Second Amended and Incorporated by
Restated Incentive reference to 12/31/95 10-
Compensation Plan of K.
Home Properties of New
York, Inc.
10.23 Indemnification and Incorporated by
Pledge Agreement between reference to 12/31/95 10-
Home Properties of New K.
York, L.P. and Conifer
Realty, Inc., Conifer
Development, Inc.,
Richard J. Crossed,
Peter J. Obourn and John
H. Fennessey.
10.24 Form of Term Promissory Pages _____ to _______.
Note payable to Home
Properties of New York,
Inc. by officers and
directors in association
with the Executive and
Director Stock Purchase
and Loan Program.
10.25 Form of Pledge Security Pages _____ to _______.
Agreement executed by
officers and directors
in connection with
Executive and Director
Stock Purchase and Loan
Program.
10.26 Schedule of Pages _____ to _______.
Participants, loan
amounts and shares
issued in connection
with the Executive and
Director Stock Purchase
and Loan Program.
10.27 Guaranty by Home Pages _____ to _______.
Properties of New York,
Inc. and Home Properties
of New York, L.P. to The
Chase Manhattan Bank of
the loans from The Chase
Manhattan Bank to
officers and directors
in connection with the
Executive and Director
Stock Purchase and Loan
Program.
Page 5
10.28 Subordination Agreement Pages _____ to _______.
between Home Properties
of New York, Inc. and
The Chase Manhattan Bank
relating to the
Executive and Director
Stock Purchase and Loan
Program.
10.29 Partnership Interest Incorporated by
Purchase Agreement, reference to 12/23/96 8-
dated as of December 23, K.
1996, among Home
Properties of New York,
Inc., Home Properties of
New York, L.P. and State
of Michigan Retirement
Systems.
10.30 Registration Rights Incorporated by
Agreement, dated as of reference to 12/23/96 8-
December 23, 1996 K.
between Home Properties
of New York, Inc. and
State of Michigan
Retirement Systems.
10.31 Lock-Up Agreement, dated Incorporated by
December 23, 1996 reference to 12/23/96 8-
between Home Properties K.
of New York, Inc. and
State of Michigan
Retirement Systems.
10.32 Contract of Sale between Pages ______ to
Lake Grove Associates ________.
Corp. and Home
Properties of New York,
L.P., dated December 17,
1996, relating to the
Lake Grove Apartments.
11 Computation of Per Share Page ______
Earnings Schedule
21 List of Subsidiaries of Page ______
Home Properties of New
York, Inc.
23 Consent of Coopers & Page ______
Lybrand
27 Financial Data Schedule Page ______
Page 6