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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13136
HOME PROPERTIES OF NEW YORK, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 16-1455126
-------- ----------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
850 Clinton Square, Rochester, New York 14604
(Address of principal executive offices) (Zip Code)
(585) 546-4900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former
year, if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class of Common Stock Outstanding at July 31, 2002
--------------------- ----------------------------
$.01 par value 26,256,205
HOME PROPERTIES OF NEW YORK, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2002 (Unaudited) and December 31, 2001 3
Consolidated Statements of Operations (Unaudited) -
Six months ended June 30, 2002 and 2001 4
Consolidated Statements of Operations (Unaudited) -
Three months ended June 30, 2002 and 2001 5
Consolidated Statements of Comprehensive Income (Unaudited) -
Six months ended June 30, 2002 and 2001 6
Consolidated Statements of Comprehensive Income (Unaudited) -
Three months ended June 30, 2002 and 2001 7
Consolidated Statements of Cash Flows (Unaudited) -
Six months ended June 30, 2002 and 2001 8
Notes to Consolidated Financial Statements (Unaudited) 9-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2002 2001
---- ----
(Unaudited) (Note 1)
ASSETS
Real estate:
Land $ 350,844 $ 287,473
Buildings, improvements and equipment 2,029,406 1,847,605
--------- -----------
2,380,250 2,135,078
Less: accumulated depreciation ( 225,029) ( 201,564)
------------ ------------
Real estate, net 2,155,221 1,933,514
Cash and cash equivalents 12,739 10,719
Cash in escrows 48,075 39,230
Accounts receivable 9,304 8,423
Prepaid expenses 11,048 17,640
Investment in and advances to affiliates 36,934 42,870
Deferred charges 6,740 5,279
Other assets 6,664 6,114
-------------- --------------
Total assets $2,286,725 $2,063,789
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $1,105,041 $ 960,358
Line of credit 58,000 32,500
Accounts payable 19,570 21,838
Accrued interest payable 6,102 5,782
Accrued expenses and other liabilities 12,019 13,180
Security deposits 22,406 18,948
------------ ------------
Total liabilities 1,223,138 1,052,606
---------- ----------
Commitments and contingencies
Minority interest 338,381 341,854
----------- ------------
8.36% Series B convertible cumulative preferred stock, liquidation preference of
$25.00 per share; no shares and 2,000,000 shares issued and outstanding
at June 30, 2002 and December 31, 2001, respectively, net of issuance costs - 48,733
----------------- -------------
Stockholders' equity:
Convertible cumulative preferred stock, $.01 par value; 10,000,000 shares
authorized; 1,150,000 shares issued and outstanding 114,000 114,000
Cumulative redeemable preferred stock, $.01 par value; 2,400,000 shares
issued and outstanding at June 30, 2002. No shares issued or outstanding
at December 31, 2001 60,000 -
Common stock, $.01 par value; 80,000,000 shares authorized; 26,208,927 and
24,010,855 shares issued and outstanding at June 30, 2002 and December
31, 2001, respectively 262 240
Excess stock, $.01 par value; 10,000,000 shares authorized; no shares
issued or outstanding - -
Additional paid-in capital 623,473 572,273
Accumulated other comprehensive income (620) (532)
Distributions in excess of accumulated earnings (66,228) (57,768)
Officer and director notes for stock purchases (5,681) (7,617)
--------------- ---------------
Total stockholders' equity 725,206 620,596
------------ ------------
Total liabilities and stockholders' equity $2,286,725 $2,063,789
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2002 2001
---- ----
Revenues:
Rental income $ 182,949 $ 165,571
Property other income 6,146 6,160
Interest and dividend income 795 2,017
Other income 581 926
------------- -------------
Total revenues 190,471 174,674
---------- ----------
Expenses:
Operating and maintenance 81,653 78,117
General and administrative 5,921 4,968
Interest 37,042 31,491
Depreciation and amortization 31,672 30,454
----------- -----------
Total expenses 156,288 145,030
---------- ----------
Income before gain (loss) on disposition of property, minority interest and
discontinued operations 34,183 29,644
Gain (loss) on disposition of property (402) 13,648
-------------- -----------
Income before minority interest and discontinued operations 33,781 43,292
Minority interest 8,299 14,368
------------ -----------
Income before discontinued operations 25,482 28,924
Discontinued operations
Income from operations, net of $266 in 2002 and $379 in 2001,
allocated to minority interest 424 526
Gain on disposition of property, net of $1,672 allocated to minority
interest 2,664 -
------------ -------------
Net income 28,570 29,450
Preferred dividends (7,234) (8,994)
Premium on Series B preferred stock repurchase (5,025) -
------------ -------------
Net income available to common shareholders $ 16,311 $ 20,456
========= ==========
Per share data:
Basic earnings per share data:
Income before discontinued operations $.52 $.92
Discontinued operations .12 .02
----- -----
Net income available to common shareholders $.64 $.94
==== ====
Diluted earnings per share data:
Income before discontinued operations $.51 $.92
Discontinued operations .12 .02
----- -----
Net income available to common shareholders $.63 $.94
==== ====
Weighted average number of shares outstanding
- Basic 25,451,169 21,796,234
========== ==========
- Diluted 25,773,934 21,868,273
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2002 2001
---- ----
Revenues:
Rental income $ 94,352 $ 83,588
Property other income 3,566 3,242
Interest and dividend income 422 839
Other income 293 616
-------------- --------------
Total revenues 98,633 88,285
------------ ------------
Expenses:
Operating and maintenance 39,451 35,834
General and administrative 2,822 2,636
Interest 18,973 15,961
Depreciation and amortization 16,727 15,790
------------ ------------
Total expenses 77,973 70,221
------------ ------------
Income before gain (loss) on disposition of property, minority interest and
discontinued operations 20,660 18,064
Gain (loss) on disposition of property 13,648
------------ ------------
(26)
Income before minority interest and discontinued operations 20,634 31,712
Minority interest 4,466 11,397
------------- ------------
Income before discontinued operations 16,168 20,315
Discontinued operations
Income from operations, net of $111 in 2002 and $218 in 2001,
allocated to minority interest 181 303
Gain on disposition of property, net of $1,672 allocated to minority
interest 2,729 -
------------- ----------------
Net income 19,078 20,618
Preferred dividends (3,852) (4,497)
Premium on Series B preferred stock repurchase (5,025) -
------------- ----------------
Net income available to common shareholders $ 10,201 $ 16,121
========== ==========
Per share data:
Basic earnings per share data:
Income before discontinued operations $.28 $.73
Discontinued operations .11 .01
----- -----
Net income available to common shareholders $.39 $.74
==== ====
Diluted earnings per share data:
Income before discontinued operations $.28 $.70
Discontinued operations .11 .01
----- -----
Net income available to common shareholders $.39 $.71
==== ====
Weighted average number of shares outstanding
- Basic 26,053,314 21,774,074
========== ==========
- Diluted 26,449,554 28,979,900
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS)
2002 2001
---- ----
Net income $28,570 $29,450
Other comprehensive income:
Cumulative effect of accounting change - (339)
Change in fair value of hedge instruments (88) (48)
---------- ------------
Other comprehensive loss, net of minority interest (88) (387)
---------- -----------
Comprehensive income $28,482 $29,063
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS)
2002 2001
---- ----
Net income $19,078 $20,618
Other comprehensive income:
Change in fair value of hedge instruments (281) 64
---------- -----------
Other comprehensive (loss) income, net of minority interest (281) 64
---------- -----------
Comprehensive income $18,797 $20,682
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
HOME PROPERTIES OF NEW YORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS)
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 28,570 $ 29,450
--------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in income of affiliates 503 48
Income allocated to minority interest 10,237 14,747
Depreciation and amortization 32,465 31,518
Gain on disposition of property (3,934) (13,648)
Changes in assets and liabilities:
Other assets 5,092 9,269
Accounts payable and accrued liabilities 215 (1,958)
----------- -----------
Total adjustments 44,578 39,976
--------- ---------
Net cash provided by operating activities 73,148 69,426
--------- ---------
Cash flows from investing activities:
Purchase of properties, net of mortgage notes assumed and UPREIT Units
issued (166,865) (42,757)
Additions to properties (53,087) (53,821)
Proceeds from sale of properties 40,173 38,195
Advances to affiliates (4,621) (7,120)
Payments on advances to affiliates 10,055 8,775
--------- ----------
Net cash used in investing activities (174,345) (56,728)
--------- ----------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net of issuance costs of $1,902 58,098 -
Proceeds from sale of common stock, net of issuance costs of $1,484
in 2002 and $81 in 2001 39,292 26,725
Repurchase of Series B preferred stock (29,392) -
Purchase of treasury stock - (20,621)
Purchase of UPREIT Units - (11,899)
Proceeds from mortgage notes payable 104,330 65,636
Payments on mortgage notes payable (29,554) (44,811)
Proceeds from line of credit 78,000 32,000
Payments on line of credit (52,500) -
Payments of deferred loan costs (1,949) (486)
Additions to cash escrows, net (8,845) (13,700)
Repayment of officer loans 1,963 -
Dividends and distributions paid (56,226) (51,674)
---------- ----------
Net cash provided by (used in) financing activities 103,217 (18,830)
-------- ----------
Net increase (decrease) in cash 2,020 (6,132)
Cash and cash equivalents:
Beginning of period 10,719 10,449
--------- ---------
End of period $ 12,739 $ 4,317
======== =========
Supplemental disclosure of non-cash investing and financing activities:
Mortgage loans assumed associated with property acquisitions $ 69,907 $ 30,250
Conversion of preferred to common stock 24,367 -
Exchange of UPREIT Units/partnership interest for common shares 1,025 816
Fair value of hedge instruments 1,054 666
Issuance of UPREIT Units associated with property and other acquisitions - 19,112
Notes issued in exchange for officer and director stock purchases - 1,965
Increase in real estate associated with the purchase of minority interest
UPREIT Units - 1,666
Transfer of notes receivable due from affiliates in exchange for additional
equity in affiliates - 23,699
The accompanying notes are an integral part of these consolidated financial
statements.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. Unaudited Interim Financial Statements
The interim consolidated financial statements of Home Properties of New
York, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial
information and the applicable rules and regulations of the Securities
and Exchange Commission. Accordingly, certain disclosures accompanying
annual financial statements prepared in accordance with generally
accepted accounting principles are omitted. The year-end balance sheet
data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting
solely of normal recurring adjustments, necessary for the fair
presentation of the consolidated financial statements for the interim
periods have been included. The current period's results of operations
are not necessarily indicative of results which ultimately may be
achieved for the year. The interim consolidated financial statements
and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form
10-K for the year ended December 31, 2001.
2. Organization and Basis of Presentation
Organization
The Company is engaged primarily in the ownership, management,
acquisition, rehabilitation and development of residential apartment
communities in the Northeastern, Mid-Atlantic and Midwestern United
States. As of June 30, 2002, the Company operated 290 apartment
communities with 50,537 apartments. Of this total, the Company owned
145 communities consisting of 40,408 apartments, managed as general
partner 8,061 apartments, and fee managed 2,068 apartments for
affiliates and third parties. The Company also fee manages 2.2 million
square feet of office and retail properties.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its 62.2% (57.7% at June 30, 2001) partnership
interest in the Operating Partnership. Such interest has been
calculated as the percentage of outstanding common shares divided by
the total outstanding common shares and Operating Partnership Units
outstanding. The remaining 37.8% (42.3% at June 30, 2001) is reflected
as Minority Interest in these consolidated financial statements. For
financing purposes, the Company has formed a limited liability company
(the "LLC") and a partnership (the "Financing Partnership") which
beneficially own certain apartment communities encumbered by mortgage
indebtedness. The LLC is wholly owned by the Operating Partnership. The
Financing Partnership is owned 99.9% by the Operating Partnership and
.1% by Home Properties Trust, a wholly owned qualified REIT subsidiary
("QRS") of the Company. Investments in entities where the Company has
the ability to exercise significant influence over but does not have
financial and operating control are accounted for using the equity
method. All significant intercompany balances and transactions have
been eliminated in these consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the 2001 consolidated
financial statements to conform to the 2002 presentation.
Change in Accounting Estimate
During the first quarter of 2002, the Company completed a comprehensive
review of its real estate related useful lives for certain of its asset
classes. As a result of this review, the Company changed its estimate
of the remaining useful lives for its buildings and apartment
improvements.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. Organization and Basis of Presentation (continued)
Effective January 1, 2002, the estimated useful life of all buildings
has been extended to 40 years and the estimated useful life of
apartment improvements has been changed from 10 years to 20 years.
Certain buildings had previously been depreciated over useful lives
ranging from 30 to 40 years. As a result of the change, income before
discontinued operations for the three and six-month periods ended June
30, 2002 increased approximately $1.6 and $3.2 million, respectively or
$.06 and $.13 per diluted share, respectively. The Company believes the
change reflects more appropriate remaining useful lives of the assets
based upon the nature of the expenditures and is consistent with
prevailing industry practice.
New Accounting Standards
In April 2002, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 145 -- "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
which eliminates the requirement to report gains and losses from
extinguishment of debt as extraordinary unless they meet the criteria
of APB Opinion 30. This Statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. The new standard becomes effective for the Company for the
year ending December 31, 2003. The Company does not expect this
pronouncement to have a material impact on the Company's financial
position, results of operations, or cash flows.
In June 2002, the FASB issued SFAS No. 146 - "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires
the recognition of a liability for costs associated with an exit or
disposal activity to be recorded at fair value when incurred. The
company's commitment to a plan, by itself does not create a present
obligation that meets the definition of a liability. The new standard
becomes effective for exit and disposal activities initiated after
December 31, 2002. The Company does not expect this pronouncement to
have a material impact on the Company's financial position, results of
operations, or cash flows.
3. Earnings Per Common Share
Basic earnings per share ("EPS") is computed as net income available to
common shareholders divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through
stock-based compensation including stock options, warrants and the
conversion of any cumulative convertible preferred stock. The exchange
of an Operating Partnership Unit for common stock will have no effect
on diluted EPS as Unitholders and stockholders effectively share
equally in the net income of the Operating Partnership. Net income
available to common shareholders is the same for both the basic and
diluted calculation for the six and three-month periods ended June 30,
2002 and the six-month period ended June 30, 2001. Net income available
to common shareholders has been adjusted to reflect the dividends
related to the convertible preferred stock that is considered dilutive
for the three-month period ended June 30, 2001.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. Earnings Per Common Share (continued)
The reconciliation of the basic weighted average shares outstanding and
diluted weighted average shares outstanding for the six and
three-months ended June 30, 2002 and 2001 is as follows:
Six Months Three Months
---------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Basic weighted average number of shares
Outstanding 25,451,169 21,796,234 26,053,314 21,774,074
Effect of dilutive stock options 322,765 72,039 396,240 93,445
Effect of convertible cumulative
---
preferred stock 7,112,381
-------------- ------------------------------ ---------
- - -
- - -- -
Diluted weighted average number
of shares outstanding 25,773,934 21,868,273 26,499,554 28,979,900
========== ========== ========== ==========
Unexercised stock options and warrants to purchase 2,401,648 shares
(net of 63,000 anti-dilutive shares) of the Company's common stock are
dilutive and included in diluted weighted average number of shares
outstanding as of June 30, 2002. Unexercised stock options and warrants
to purchase 1,173,960 shares of the Company's common stock were not
included in the computations of diluted EPS because the options'
exercise prices were greater than the average market price of the
Company's stock during the six and three-months periods ended June 30
2001. For the six and three-months periods ended June 30, 2002 (as
applicable and on a weighted average basis), the 1,945,580 and
1,448,343, respectively, of the Series B, C, D and E Convertible
Cumulative Preferred Stock (4,444,277 and 4,274,497 common stock
equivalents, respectively) have an antidilutive effect and are not
included in the computation of diluted EPS. In addition, for the six
month period ended June 30, 2001, the 4,816,667 shares of the Series A,
B, C, D, and E Convertible Cumulative Preferred Stock (7,112,381 common
stock equivalents) on an as-converted basis have an antidilutive effect
and are not included in the computation of diluted EPS.
4. Preferred Stock and Stockholders' Equity
On May 24, 2002, the Company repurchased the 1.0 million shares
outstanding of its Series B Convertible Cumulative Preferred Stock at
an amount equivalent to 839,772 common shares (as if the preferred
shares had been converted). The Company repurchased the shares for
$29,392, equal to the $35.00 common stock trading price when the
transaction was consummated. A premium of $5,025 was incurred on the
repurchase and has been reflected as a charge to net income available
to common shareholders in the consolidated statement of operations.
On February 4, 2002, 1.0 million of the Series B Convertible Cumulative
Preferred Shares were converted into 839,771 shares of common stock.
The conversion had no effect on the reported results of operations.
On February 28, 2002, the Company closed on two common equity offerings
totaling 704,602 shares of the Company's common stock, at a weighted
average price of $30.99 per share, resulting in net proceeds to the
Company of $21.8 million.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. Preferred Stock and Stockholders' Equity (continued)
On March 18, 2002, the Company issued 2,400,000 shares of its 9.00%
Series F Cumulative Redeemable Preferred Stock ("Series F Preferred
Shares"), with a $25.00 liquidation preference per share. This offering
generated net proceeds of approximately $58 million. The net proceeds
were used to fund the Series B preferred stock repurchase, property
acquisitions, and property upgrades. The Series F Preferred Shares are
redeemable by the Company at anytime on or after March 25, 2007 at a
redemption price of $25.00 per share, plus any accumulated, accrued and
unpaid dividends. Each Series F Preferred share will receive an annual
dividend equal to 9.00% of the liquidation preference per share
(equivalent to a fixed annual amount of $2.25 per share).
5. Other Income
Other income for the six and three-months ended June 30, 2002 and 2001
is summarized as follows:
Six Months Three Months
---------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Management fees $969 $983 $473 $508
Other 115 (9) 62 -
Management Companies (503) (48) (242) 108
----- ---- ----- ----
$581 $926 $293 $616
==== ==== ==== ====
Certain property management, leasing and development activities are
performed by Home Properties Management, Inc. and Home Properties
Resident Services, Inc. (the "Management Companies"). Both are Maryland
corporations and, effective January 1, 2001, have elected to convert to
taxable REIT subsidiaries under the Tax Relief Extension Act of 1999.
Effective March 1, 2001, the Company recapitalized Home Properties
Resident Services, Inc. by contributing $23.7 million of loans due from
affiliated partnerships to equity. Simultaneous with the
recapitalization, the Company increased its effective economic interest
from 95% to 99% diluting the economic interest held by certain of the
Company's inside directors. The Operating Partnership owns non-voting
common stock in the Management Companies which entitles the Operating
Partnership to receive 95% and 99% of the economic interest in Home
Properties Management, Inc. and Home Properties Resident Services,
respectively.
The Company's share of income from the Management Companies for the six
and three months ended June 30, 2002 and 2001 is summarized as follows:
Six Months Three Months
---------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Management fees $1,417 $1,692 $751 $868
Interest income 377 758 187 480
Miscellaneous 33 13 16 12
General and administrative (1,742) (1,396) (925) (739)
Interest expense (386) (839) (173) (382)
Other expense (199) (284) (100) (130)
------- ------ ------- ------
Net (loss) income ($500) ($56) ($244) $109
------ ------ ------ ----
Company's share ($503) ($48) ($242) $108
====== ====== ====== ====
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. Other Income (continued)
The general and administrative expenses reflected above represent an
allocation of direct and indirect costs incurred by the Company
estimated by management to be associated with the operations of the
Management Companies.
6. Segment Reporting
The Company is engaged in the ownership and management of market rate
apartment communities. Each apartment community is considered a
separate operating segment. Each segment on a stand-alone basis is less
than 10% of the revenues, profit or loss, and assets of the combined
reported operating segments. The operating segments are aggregated and
segregated as Core and Non-core properties.
Non-segment revenue to reconcile total revenue consists of
unconsolidated management and interest income. Non-segment assets to
reconcile to total assets include cash and cash equivalents, cash in
escrows, accounts receivable, prepaid expenses, investments in and
advances to affiliates, deferred charges and other assets.
Core properties consist of all apartment communities which have been
owned more than one full calendar year. Therefore, the Core Properties
represent communities owned as of January 1, 2001. Non-core properties
consist of apartment communities acquired during 2001 and 2002, such
that full year comparable operating results are not available.
The accounting policies of the segments are the same as those described
in Notes 1 and 2 of the Company's Form 10-K.
The Company assesses and measures segment operating results based on a
performance measure referred to as Funds from Operations ("FFO"). FFO
is generally defined as net income (loss), before gains (losses) from
the sale of property, extraordinary items, plus real estate
depreciation including adjustments for unconsolidated partnerships and
joint ventures. This presentation excludes the dividends on the Series
F Preferred Stock and assumes the conversion of dilutive common stock
equivalents and convertible preferred stock. FFO for both the three and
six-month periods ended June 30, 2002 adjusts for the add back of the
premium on the Series B preferred stock repurchase. FFO is not a
measure of operating results or cash flows from operating activities as
measured by generally accepted accounting principles and it is not
indicative of cash available to fund cash needs and should not be
considered an alternative to cash flows as a measure of liquidity. All
REITs may not be using the same definition for FFO. During 2002, the
Company reclassified certain property related operating expenses from
General and Administrative to Operating and Maintenance which would
impact the segment contribution of FFO. This reclassification is also
reflected in the 2001 presentation.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. Segment Reporting (continued)
The revenues, profit (loss), and assets for each of the reportable
segments are summarized as follows as of and for the six and
three-month periods ended June 30, 2002, and 2001.
Six Months Three Months
---------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues
Apartments owned
Core properties $167,507 $160,426 $ 84,699 $ 81,109
Non-core properties 21,588 11,305 13,219 5,721
Reconciling items 1,376 2,943 715 1,455
----------- ----------- ----------- ----------
Total Revenue $190,471 $174,674 $ 98,633 $ 88,285
======== ======== ======== ========
Profit (loss)
Funds from operations:
Apartments owned
Core properties $ 94,098 $ 87,631 $ 49,932 $ 47,148
Non-core properties 13,344 5,983 8,535 3,848
Reconciling items 1,376 2,943 715 1,455
----------- ----------- ----------- ----------
Segment contribution to FFO $108,818 $ 96,557 $ 59,182 $ 52,451
General & administrative expenses (5,921) (4,968) (2,822) (2,636)
Interest expense (37,042) (31,491) (18,973) (15,961)
Depreciation of unconsolidated affiliates 437 203 65 99
Non-real estate depreciation/amortization (403) (311) (190) (161)
Redeemable preferred dividend (1,455) - (1,350) -
Income from discontinued operations before minority
interest, depreciation and gain on disposition of
property 1,027 1,661 366 906
-------- -------- --------- ---------
Funds from Operations 65,461 61,651 36,278 34,698
Depreciation - apartments owned (31,606) (30,899) (16,611) (16,014)
Depreciation of unconsolidated affiliates (437) (203) (65) (99)
Redeemable preferred dividend 1,455 - 1,350 -
Gain (loss) on disposition of properties (402) 13,648 (26) 13,648
Income from discontinued operations before minority )
interest and gain on disposition of property (690 (905) (292) (521)
Minority interest (8,299) (14,368) (4,466) (11,397)
--------- -------- -------- --------
Income before discontinued operations $ 25,482 $ 28,924 $ 16,168 $ 20,315
========= ========= ========= =========
Assets - As of June 30, 2002 and December 31, 2001 Apartments owned:
- Core $1,692,838 $1,712,745
- Non-core 462,383 220,769
Reconciling items 131,504 130,275
------------ ------------
Total Assets $2,286,725 $2,063,789
========== ==========
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. Pro Forma Condensed Financial Information
The Company acquired twelve apartment communities ("2002 Acquired
Communities") with 2,384 units in four transactions during the
six-month period ended June 30, 2002. The total purchase price
(including closing costs) of $232.6 million equates to approximately
$98 per unit. Consideration for the communities included $82.9 million
of cash on hand, $69.9 million of assumed debt, $58 million from the
Company's line of credit and $21.8 million of cash raised through
common and preferred equity offerings.
In addition, during the first two quarters, the Company sold ten
apartment communities ("2002 Disposed Properties") having 983 units in
seven unrelated transactions as part of its strategic disposition
program. The total sales price of $42.3 million equates to $43 per
unit. A gain on sale of approximately $4.3 million, prior to the
allocation of minority interest, has been recorded in relation to these
sales and is reflected in discontinued operations.
The following proforma information was prepared as if (i) the 2002
transactions related to the acquisition of the "2002 Acquired
Communities" had occurred on January 1, 2001, (ii) the 2001
transactions related to the acquisition of four apartment communities
in four separate transactions had occurred on January 1, 2001, (iii)
the disposition of the "2002 Disposed Properties" had occurred on
January 1, 2001, (iv) the 2001 transactions related to the disposition
of four apartment communities in two separate transactions had occurred
on January 1, 2001 and (v) the 2002 Series F Preferred Share offering
and the two common equity offerings had occurred on January 1, 2001.
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 2001, nor does it
purport to represent the results of operations for future periods.
Adjustments to the proforma condensed combined statement of operations
for the six-months ended June 30, 2002 and 2001, consist principally of
providing net operating activity and recording interest, depreciation
and amortization from January 1, 2001 to the acquisition date.
For the Six-Months Ended
June 30,
2002 2001
---- ----
Total revenues $198,208 $191,288
Net Income 25,081 23,176
Net income available to common shareholders 16,602 11,482
Per common share data:
Net income available to common shareholders
Basic $0.65 $0.51
Diluted $0.64 $0.51
Weighted average number of shares outstanding:
Basic 25,676,953 22,500,836
Diluted 25,999,718 22,572,875
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. Derivative Financial Instruments
The Company has four interest rate swaps that effectively convert
variable rate debt to fixed rate debt. As of June 30, 2002, the
aggregate fair value of the Company's interest rate swaps was $1,054
prior to the allocation of minority interest and is included in accrued
expenses and other liabilities in the consolidated balance sheets. For
the six and three-months ending June 30, 2002, as the critical terms of
the interest rate swaps and the hedged items are the same, no
ineffectiveness was recorded in the consolidated statements of
operations. All components of the interest rate swaps were included in
the assessment of hedge effectiveness. The fair value of the interest
rate swaps is based upon the estimate of amounts the Company would
receive or pay to terminate the contract at the reporting date and is
estimated using interest rate market pricing models.
9. Disposition of Property and Discontinued Operations
The Company adopted the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" effective January 1, 2002.
This standard addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. It also retains the basic
provisions for presenting discontinued operations in the income
statement but broadened the scope to include a component of an entity
rather than a segment of a business. Pursuant to the definition of a
component of an entity in the SFAS, assuming no significant continuing
involvement, the sale of an apartment community is now considered a
discontinued operation. In addition, apartment communities classified
as held for sale are also considered a discontinued operation. The
Company generally considers assets to be held for sale when all
significant contingencies surrounding the closing have been resolved
which often corresponds with the actual closing date.
Included in discontinued operations for the six and three-months
periods ended June 30, 2002 are ten apartment community dispositions.
The operations of these ten properties have been reflected on a
comparative basis for the six and three-months periods ended June 30,
2001. For purposes of the discontinued operations presentation, the
Company only includes interest expense associated with specific
mortgage indebtedness of the properties that are sold or classified as
held for sale. As of June 30, 2002, there were no properties classified
as held for sale.
During the first two quarters, the Company sold ten apartment
communities having 983 units in seven unrelated transactions as part of
its strategic disposition program. The total sales price of $42.3
million equates to $43 per unit. A gain on sale of approximately $4.3
million, prior to the allocation of minority interest, has been
recorded in relation to these sales and is reflected in discontinued
operations.
In connection with the Company's strategic asset disposition program,
management is constantly reevaluating the performance of its portfolio
on a property-by-property basis. The Company from time to time
determines that it is in the best interest of the Company to dispose of
assets that have reached their potential or are less efficient to
operate due to their size or remote location and reinvest such proceeds
in higher performing assets located in targeted geographic markets. It
is possible that the Company will sell such properties at a loss.
HOME PROPERTIES OF NEW YORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. Disposition of Property and Discontinued Operations (continued)
---------------------------------------------------------------
The operating results of discontinued operations are summarized as
follows as of and for the six and three-months periods ended June 30,
2002, and 2001.
Six Months Three
Months
2002 2001 2002 2001
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Revenues:
Rental Income $1,848 $3,576 $ 529 $1,800
Property other income 59 116 26 67
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Total Revenues 1,907 3,692 555 1,867
Operating and Maintenance 714 1,759 36 808
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Net Operating Income 1,193 1,933 519 1,059
Interest expense 166 272 153 153
Depreciation and amortization 337 756 74 385
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Income from discontinued operations before
minority interest and gain on disposition
of property 690 905 292 521
Minority interest 266 379 111 218
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Income from discontinued operations before
gain on disposition of property 424 526 181 303
Gain on disposition of property, net of
minority interest 2,664 - 2,729 -
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Income from discontinued operations $3,088 $ 526 $2,910 $ 303
=========== ============ ============ ===========
10. Contingency
The Company had recently undergone a state tax audit whereby the state
has assessed taxes of $469 for the 1998 and 1999 tax years under audit.
If the state's position is applied to all tax periods through June 30,
2002, the assessment would be approximately $1.4 million. The Company
believes that the assessment and the state's underlying position for
the tax periods 1998 through 2000 are neither supportable by the law
nor consistent with previously provided interpretative guidance from
the office of the State Secretary of Revenue. The Company has filed an
appeal to the Commonwealth Court in the state for the 1998 and 1999 tax
years. There have been no further proceedings to date and the Company
intends to vigorously contest the assessments. The Company has been
advised that it has meritorious positions for its previous tax filings
for the years 1998, 1999, and 2000. However, the Company has accrued
approximately $590 as of June 30, 2002 for estimated costs associated
with this matter.
HOME PROPERTIES OF NEW YORK, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
Forward-Looking Statements
This discussion contains forward-looking statements. Although the Company
believes expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Factors that may cause actual results to differ include general
economic and local real estate conditions, the weather and other conditions that
might affect operating expenses, the timely completion of repositioning
activities within anticipated budgets, the actual pace of future acquisitions
and continued access to capital to fund growth.
Liquidity and Capital Resources
The Company's principal liquidity demands are expected to be distributions to
the common and preferred stockholders and Operating Partnership Unitholders,
capital improvements and repairs and maintenance for the properties, acquisition
of additional properties, property development and debt repayments.
The Company intends to meet its short-term liquidity requirements through net
cash flows provided by operating activities and its unsecured line of credit.
The Company considers its ability to generate cash to 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.
As of June 30, 2002, the Company had an unsecured line of credit from M & T Bank
of $100 million with an outstanding balance of $58 million. Borrowings under the
line of credit bear interest at 1.25% over the one-month LIBOR rate.
Accordingly, increases in interest rates will increase the Company's interest
expense and as a result will effect the Company's results of operations and
financial condition. The line of credit expires on September 1, 2002. The
Company is evaluating alternatives to replace or extend the line of credit after
September 1, 2002.
To the extent that the Company does not satisfy its long-term liquidity
requirements through net cash flows provided by operating activities and its
credit facility, it intends to satisfy such requirements through the issuance of
UPREIT units, proceeds from the Dividend Reinvestment Plan ("DRIP"), proceeds
from the sale of properties, long term secured or unsecured indebtedness, or the
issuance of additional equity securities. As of June 30, 2002, the Company owned
18 properties with 3,564 apartment units, which were unencumbered by debt.
In May, 1998, the Company's Form S-3 Registration Statement was declared
effective relating to the issuance of up to $400 million of shares of common
stock and other securities. The available balance on the shelf at June 30, 2002
is $144.4 million.
On September 30, 1999, the Company completed the sale of $50 million of Series B
Preferred Stock in a private transaction with GE Capital. The Series B Preferred
Stock carried an annual dividend rate equal to the greater of 8.36% or the
actual dividend paid on the Company's common shares into which the preferred
shares could be converted. The stock had a liquidation preference of $25.00 per
share, a conversion price of $29.77 per share, and a five-year, no-call
provision. On February 4, 2002, 1.0 million of the Series B Preferred Stock were
converted into 839,771 shares of common stock. The conversion had no effect on
the reported results of operations. On May 24, 2002 the Company repurchased the
remaining 1.0 million shares outstanding of its Series B Convertible Cumulative
Preferred Stock at an amount equivalent to 839,772 common shares (as if the
preferred shares had been converted). The Company repurchased the shares for
$29,392, equal to the $35.00 common stock trading price when the transaction was
consummated. A premium of $5,025 was incurred on the repurchase and has been
reflected as a charge to net income available to common shareholders' in the
consolidated statement of operations.
In May and June, 2000, the Company completed the sale of $60 million of Series C
Preferred Stock in a private transaction with affiliates of Prudential Real
Estate Investors ("Prudential"), Teachers Insurance and Annuity Association of
America ("Teachers"), affiliates of AEW Capital Management and Pacific Life
Insurance Company. The Series C Preferred Stock carries an annual dividend rate
equal to the greater of 8.75% or the actual dividend paid on the Company's
common shares into which the preferred shares can be converted. The stock has a
conversion price of $30.25 per share and a five-year, no-call provision. As part
of the Series C Preferred Stock transaction, the Company also issued 240,000
warrants to purchase common shares at a price of $30.25 per share, expiring in
five years.
In June, 2000, the Company completed the sale of $25 million of Series D
Preferred Stock in a private transaction with The Equitable Life Assurance
Society of the United States. The Series D Preferred Stock carries an annual
dividend rate equal to the greater of 8.775% or the actual dividend paid on the
Company's common shares into which the preferred shares can be converted. The
stock has a conversion price of $30 per share and a five-year, no-call
provision.
In December, 2000, the Company completed the sale of $30 million of Series E
Preferred Stock in a private transaction, again with affiliates of Prudential
and Teachers. The Series E Preferred Stock carries an annual dividend rate equal
to the greater of 8.55% or the actual dividend paid on the Company's common
shares into which the preferred shares can be converted. The stock has a
conversion price of $31.60 per share and a five-year, no-call provision. In
addition, as part of the Series E Preferred Stock transaction, the Company
issued warrants to purchase 285,000 common shares at a price of $31.60 per
share, expiring in five years.
On February 28, 2002, the Company closed on two common equity offerings totaling
704,602 shares of the Company's common stock, at a weighted average price of
$30.99 per share, resulting in net proceeds to the Company of $21.8 million.
In March, 2002, the Company issued 2,400,000 shares of its 9.00% Series F
Cumulative Redeemable Preferred Stock ("Series F Preferred Shares"), with a
$25.00 liquidation preference per share. This offering generated net proceeds of
approximately $58 million. The net proceeds were used to fund the Series B
preferred stock repurchase, property acquisitions, and property upgrades. The
Series F Preferred Shares are redeemable by the Company at anytime on or after
March 25, 2007 at a redemption price of $25.00 per share, plus any accumulated,
accrued and unpaid dividends. Each Series F Preferred share will receive an
annual dividend equal to 9.00% of the liquidation preference per share
(equivalent to a fixed annual amount of $2.25 per share).
The issuance of UPREIT Units for property acquisitions continues to be a
significant source of capital. During 2001, 520 apartment units in two separate
transactions were acquired for a total cost of $33 million using UPREIT Units
valued at approximately $19 million, with the balance paid in cash or assumed
debt.
During 2001, $32 million of common stock was issued under the Company's DRIP. An
additional $14.2 million has been raised through the DRIP program during the
first six months of 2002.
The DRIP was amended, effective April 10, 2001, in order to reduce management's
perceived dilution from issuing new shares at or below the underlying net asset
value. The discount on reinvested dividends and optional cash purchases was
reduced from 3% to 2%. The maximum monthly investment (without receiving
approval from the Company) was reduced from $5 thousand to $1 thousand. As
expected, these changes significantly reduced participation in the plan.
Management will continue to monitor the relationship between the Company's stock
price and estimated net asset value. During times when this difference is small,
management has the flexibility to issue waivers to DRIP participants to provide
for investments in excess of the $1 thousand maximum monthly investment. In
connection with the announcement of the February, 2002 dividend, the Company
announced such waivers will be considered beginning with the March 2002 optional
cash purchase, as management believes the stock is trading at or above its
estimate of net asset value. For the three-month period ended March 31, 2002,
the Company granted 53 waivers for purchases aggregating a total of $3.9
million. No waivers were granted during the second quarter.
The Company's Board of Directors approved a stock repurchase program under which
the Company may repurchase up to 1.0 million shares of its outstanding common
stock. The Board's action did not establish a target price or a specific
timetable for repurchase. On October 24, 2000, the Board approved a 1,000,000
share increase in management's authorization to buy back outstanding common
stock. On May 1, 2001, the Board approved an additional 1,000,000-share increase
in management's authorization to buy back the Company's outstanding common
stock. During 2001, the Company repurchased 754,000 shares and 436,700 UPREIT
Units at a cost of $20.6 million and $11.9 million, respectively. During the
first six months of 2002, no shares or UPREIT Units were repurchased by the
Company. Authorization to repurchase 1,135,800 shares of common stock and UPREIT
Units remains at June 30, 2002.
As of June 30, 2002, the weighted average rate of interest on mortgage debt is
7.28% and the weighted average maturity is approximately 9 years. Approximately
99.4% of the debt is fixed rate. This limits the exposure to changes in interest
rates, minimizing the effect on results of operations and financial condition.
Off-Balance Sheet Investments
The Company has investments in and advances to approximately 132 limited
partnerships where the Company acts as the managing general partner. The Company
accounts for these investments on the equity method of accounting, recording its
share of the net income or loss based upon the terms of the partnership
agreement. To the extent that it is determined that the limited partners cannot
absorb their share of the losses, if any, the general partner will record the
limited partners share of such losses.
The Company has guaranteed the low income housing tax credits to the limited
partners for a period of five years in 42 partnerships totaling approximately
$48.5 million. Such guarantee requires the Company to operate the properties in
compliance with Internal Revenue Code Section 42 for 15 years. In addition,
acting as the general partner in certain partnerships, the Company is obligated
to advance funds to meet partnership operating deficits. However, such funding
requirements in some partnerships cease after a five-year period. Should
operating deficits continue to occur, the Company would determine on an
individual partnership basis if it is in the best interest of the Company to
continue to fund these deficits.
These partnerships are funded with non-recourse financing. The Company's
proportionate share of non-recourse financing was $6.6 million at June 30, 2002.
The Company has guaranteed a total of $603 of debt associated with two of these
partnerships. In addition, the Company, including the Management Companies, has
provided loans and advances to certain of the partnerships aggregating $23.2
million at June 30, 2002. The Company assesses the financial status and cash
flow of each of the partnerships at each balance sheet date in order to assess
recoverability of its investment in and advances to these affiliates.
The Company believes the properties operations conform to the applicable
requirements as set forth above and do not anticipate any payment on the
guarantees described above.
Acquisitions and Dispositions
During the second quarter of 2002, the Company acquired six communities with a
total of 1,353 apartment units. Five of these communities, comprising 657 units,
represented the purchase of the remaining communities in the 11-property Holiday
Portfolio on Long Island, New York. The remaining 696 units represented the
acquisition of the Company's first property in suburban Boston, Massachusetts.
Total consideration for the six communities was $132.3 million, including
closing costs, or an average of $97,800 per unit. The weighted average first
year cap rate on the acquisitions closed in the second quarter of 2002 is 7.6%.
Also during the second quarter of 2002, the Company sold four communities with a
total of 644 units located in Upstate New York, Maryland, and Pennsylvania for
total consideration of $28.4 million or an average of $44,100 per unit. A gain
on sale of approximately $4.4 million, prior to the allocation of minority
interest, was reported in the second quarter and is reflected in discontinued
operations. The weighted average first year cap rate on these sales is 9.6%.
In connection with the Company's strategic asset disposition program, management
is constantly reevaluating the performance of its portfolio on a
property-by-property basis. The Company from time to time determines that it is
in the best interest of the Company to dispose of assets that have reached their
potential or are less efficient to operate due to their size or remote location
and reinvest such proceeds in higher performing assets located in targeted
geographic markets. It is possible that the Company will sell such properties at
a loss.
Capital Improvements
The Company has a policy to capitalize costs related to the acquisition,
development, rehabilitation, construction and improvement of properties. Capital
improvements are costs that increase the value and extend the useful life of an
asset. Ordinary repair and maintenance costs that do not extend the useful life
of the asset are expensed as incurred. Costs incurred on a lease turnover due to
normal wear and tear by the resident are expensed on the turn. Recurring capital
improvements typically include: appliances, carpeting and flooring, HVAC
equipment, kitchen/ bath cabinets, new roofs, site improvements and various
exterior building improvements. Non- recurring upgrades include, among other
items: community centers, new windows, and kitchen/ bath apartment upgrades. The
Company capitalizes interest and certain internal personnel costs related to the
communities under rehabilitation and construction.
The Company estimates that on an annual basis $525 per unit is spent on
recurring capital expenditures. During the three and six month periods ended
June 30, 2002, approximately $131 and $262 per unit was estimated to be spent on
recurring capital expenditures, respectively. The table below summarizes the
actual total capital improvements incurred by major categories for the three and
six-month periods ended June 30, 2002 and 2001 and an estimate of the breakdown
of total capital improvements by major categories between recurring and
non-recurring, revenue generating capital improvements for the three and
six-month periods ended June 30, 2002 as follows:
For the three-month period ended
June 30
(in thousands, except
per unit data)
2002 2001
-------------------------------------------------------------- -----------------------
--------------------------------------------------------------
Recurring Non-Recurring Total Total
Capital Capital
Cap Ex Per Unit(a) Cap Ex Per ImprovemenPer Unit(a) ImprovementsPer Unit(a)
Unit(a)
New Buildings $ $ 1,547 $39 $1,547 $ 39 $ 1,074 $ 30
Major building
improvements 902 22 4,338 110 5,240 132 6,375 179
Roof replacements 345 9 1,475 37 1,820 46 877 25
Site improvements 331 8 3,603 91 3,934 99 3,329 93
Apartment upgrades 651 16 7,522 190 8,173 206 10,064 282
Appliances 541 14 520 13 1,061 27 1,220 34
Carpeting/Flooring 1,698 43 1,029 26 2,727 69 2,537 71
HVAC/Mechanicals 500 13 2,830 71 3,330 84 2,826 79
Miscellaneous 222 6 929 23 1,151 29 783 22
---- -- ---- --- ------ --- --- --
Totals $5,190 $131 $23,793 $600 $ 28,983 $ 731 $28,085 $815
(a) Calculated using the weighted average number of units outstanding,
including 35,204 core units, 2001 acquisition units of 2,820 and
2002 acquisition units of 1,638 for the three-months ended June
30, 2002 and 35,204 core units and 2001 acquisition units of 2,820
for the three-months ended June 30, 2001.
or the six-month period ended June
F 30
(in thousands, except
er unit data)
p 2002 2001
-------------------------------------------------------------- -----------------------
--------------------------------------------------------------
Recurring Non-Recurring Total Total
Capital Capital
Cap Ex Per Unit(a) Cap Ex Per ImprovemenPer Unit(a) ImprovementsPer Unit(a)
Unit(a)
New Buildings $
$ $ 3,157 $ $ $ 1,885 $
- - 81 3,157 81 $ 53
Major building
improvements 1,776 46 8,382 215 10,158 261 11,970 338
Roof replacements
679 17 1,415 36 2,094 53 1,424 40
Site improvements
650 17 4,941 127 5,591 144 4,711 133
Apartment upgrades
1,281 33 14,119 362 15,400 395 16,919 477
Appliances
1,064 27 941 24 2,005 51 2,210 62
Carpeting/Flooring
3,342 86 1,629 41 4,971 127 4,632 131
HVAC/Mechanicals
984 25 4,006 103 4,990 128 4,937 139
Miscellaneous
-------------------------------------------------------------
437 11 1,789 46 2,225 57 1,707 48
---- --- ------ --- ------ --- --- ----- --
Totals $ $ $ $ $ $ $
======= ========= ======== ========= ===================== ------------
10,213 262 23,793 1,035 50,592 1,297 $ 50,395 1,421
======= ==== ======= ====== ======= ====== - ------ -----
(a) Calculated using the weighted average number of units outstanding,
35,204 core units, 2001 acquisition units of 2,820 and 2002
acquisition units of 1,000 for the three-months ended June 30,
2002 and 35,204 core units and 2001 acquisition units of 2,820 for
the three-months ended June 30, 2001.
The schedule below summarizes the breakdown of total capital improvements
between core and non-core as follows:
For the three-month period
ended June 30,
(in thousands, except
er unit data)
p 2002 2001
-------------------------------------------------------------- ---------------------
-------------------------------------------------------------- ---------------------
Recurring Non-recurring Total Total
Capital Capital
Cap Ex Per Unit Cap Ex Per Unit ImprovementsPer Unit ImprovementsPer Unit
------ -------- ------ -------- -------------------- --------------------
$ $
Core Communities ,607 $ 9,793 $ $ $ 29,049 $
4 131 1 562 24,400 693 $ 815
2002 Acquisition
Communities 214 131 1,095 668 1,309 799 - -
2001 Acquisition
-------------------------------------------------------------
Communities 369 131 2,905 1,030 3,274 1,161 36 -
---- ---- ------ ------ ------ ------ --- -- -
Sub-total
5,190 131 23,793 600 28,983 731 29,085 815
2002 Disposed
Communities 53 131 518 1,276 571 1,406 496 1,222
2001 Disposed
Communities - - - - - - 1,515 2,971
Corporate office
-------------------------------------------------------------
expenditures (1) - - - - 637 - 315 -
- - - - ---- - --- --- -
$ $
,243 $ 4,311 $ $ $ $ 31,411 $
====== ================ ============================== -= ------ -
5 131 2 607 30,191 738 851
= ==== = ==== ======= ==== === ---
For the six-month period
ended June 30,
(in thousands, except
er unit data)
p 2002 2001
-------------------------------------------------------------- ---------------------
-------------------------------------------------------------- ---------------------
Recurring Non-recurring Total Total
Capital Capital
Cap Ex Per Unit Cap Ex Per Unit ImprovementsPer Unit ImprovementsPer Unit
------ -------- ------ -------- -------------------- --------------------
$ $
Core Communities ,213 $ 4,717 $ $ $ 50,359
9 262 3 986 43,930 1,248 $ 1,421
2002 Acquisition
Communities 262 262 1,073 1,073 1,335 1,335 - -
2001 Acquisition
-------------------------------------------------------------
Communities 738 262 4,589 1,627 5,327 1,889 36 -
---- ---- ------ ------ ------ ------ - -- -
Sub-total
10,213 262 40,379 1,035 50,592 1,297 50,395 1,421
2002 Disposed
Communities 131 262 456 908 587 1,170 811 1,617
2001 Disposed
Communities - - - - - - 2,261 3,080
Corporate office ,908
- ---------- --------------- --------- -----------
expenditures (1) - - - - 1 - 354 -
- - - - - - - - --- -
$ $ $
0,344 $ 0,835 1,033 $ $ 53,821 $
======= ================ ====== ==================== ------ -
1 262 4 53,087 1,295 $ 1,458
= ==== = ======= ====== - -----
(1) No distinction is made between recurring and non-recurring expenditures for
corporate office.
Contractual Obligations and Other Commitments
The primary obligations of the Company relate to its mortgage notes payable and
its borrowings under the line of credit. The Company's mortgage notes payable
and line of credit outstanding at June 30, 2002 and December 31, 2001 are
summarized as follows (in thousands):
December 31,
June 30, 2002 2001
------------- ------- ----
Fixed rate mortgage notes payable $1,098,886 $954,203
Variable rate mortgage notes payable 6,155 6,155
-------------- -----------
Total mortgage notes payable 1,105,041 960,358
Variable rate line of credit facility 58,000 32,500
------------- ----------
Total mortgage notes payable and line of credit facility $1,163,041 $992,858
========== ========
Mortgage notes payable are collateralized by certain apartment communities and
mature at various dates from August, 2002 through June, 2036. The weighted
average interest rate of the Company's variable rate notes and credit facility
was 3.25% and 3.27% at June 30, 2002 and December 31, 2001, respectively. The
weighted average interest rate of the Company's fixed rate notes was 7.28% and
7.27% at June 30, 2002 and December 31, 2001, respectively.
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.
As discussed in the section entitled "Off-Balance Sheet Investments," the
Company has the following guarantees or commitments relating to its equity
method partnership investments: a) guarantee for a total of $603 of debt
associated with two partnerships, b) guarantee of the low income housing tax
credits to the limited partners for a period of five years in 42 partnerships
totaling approximately $48.5 million, and c) the Company is obligated to advance
funds to meet partnership operating deficits for certain partnerships. The
Company believes the properties operations conform to the applicable
requirements as set forth above and do not anticipate any payment on these
guarantees.
Results of Operations
Comparison of six months ended June 30, 2002 to the same period in 2001
The Company had 123 apartment communities with 35,204 units which were owned
during the six-month periods being presented (the "Core Properties"). The
Company acquired an additional 22 apartment communities with 5,204 units during
2001 and 2002 (the "Acquired Communities"). In addition, the Company also
disposed of 24 properties with a total of 3,838 units during 2001 and 2002.
These dispositions, excluding the ten property dispositions that occurred during
2002, classified as discontinued operations both in 2002 and 2001, are herein
referred to as the Disposed Communities. The inclusion of these Acquired
Communities, net of Disposed Communities, generally accounted for the
significant changes in operating results for the six-months ended June 30, 2002.
A summary of the Core Properties net operating income is as follows (in
thousands):
Six Months Three Months
----------------------------------------- ---------------------------
2002 2001 % Chg 2002 2001 % Chg
---- ---- ----- ---- ---- -----
Rental income $161,416 $154,588 4.4% $81,537 $78,040 4.5%
Property other income 6,091 5,838 4.3% 3,162 3,069 3.0%
---------- ---------- ----- --------- --------- -----
Total income 167,507 160,426 4.4% 84,699 81,109 4.4%
Operating and
maintenance (73,409) (72,795) (0.8%) (34,767) (33,961) (2.4%)
---------- ---------- ------ --------- -------- ------
Net operating income $ 94,098 $ 87,631 7.4% $49,932 $47,148 5.9%
========= ========= ===== ======= ======= =====
Of the $17,378 increase in rental income, $10,550 is attributable to the
Acquired Communities, net of Disposed Communities. The balance of this increase,
which is from the Core Properties, was the result of an increase of 7.4% in
weighted average rental rates, offset by a decrease in occupancy from 94.2% to
91.6%.
Property other income, which consists primarily of income from operation of
laundry facilities, late charges, administrative fees, garage and carport
charges, net profits from corporate apartments, cable revenue, pet charges,
miscellaneous charges to residents and equity in earnings of the general
partnership interests decreased by a net amount of $14. Of this decrease $348 is
attributable to the Disposed Communities and $564 is attributable to a decrease
in earnings from the general partnership interests. These decreases were offset
by increases attributable to the Acquired Communities of $645 and $253,
representing a 4.3% increase for the Core Properties.
Interest and dividend income decreased $1,222 due to decreased levels of
financing to affiliates.
Other income, which reflects the net contribution from management and
development activities after allocating certain overhead and interest expense,
decreased by $345 due primarily to an increase in the Company's share of losses
from the Management Companies.
Of the $3,536 increase in operating and maintenance expenses, $7,874 is
attributable to the Acquired Communities offset by a decrease of $4,952
attributable to Disposed Communities. The balance, a $614 increase, is
attributable to the Core Properties and is primarily due to a reduction in
natural gas utility expenses offset by an increase in taxes related to the
accrual for the state tax contingency.
General and administrative expense increased in 2002 by $953, or 19%. General
and administrative expenses as a percentage of total revenues were 3.1% for 2002
as compared to 2.8% for 2001. The increase can be attributed to increased
acquisition related expenses as well as incentive compensation costs. During
2002, the Company reclassified certain property related operating expenses from
General and Administrative to Operating and Maintenance, on a comparative basis.
Interest expense increased $5,551 due to the increase in the amount of debt
outstanding.
Depreciation and amortization increased $1,218 due to the depreciation on the
Acquired Communities and the additions to the Core Properties. This increase is
net of the effect of the change in accounting estimate made by management in the
first quarter related to certain depreciable lives of real estate and related
assets. The change reduced the depreciation expense for the period by
approximately $5.2 million. The Company expects this change in useful lives to
increase net income by approximately $10.3 million in 2002 over 2001.
The $402 loss on disposition of property primarily relates to additional
expenses incurred in the first quarter of 2002 for a sale which closed in the
fourth quarter of 2001. These costs represent a change in estimate from those
accrued at the time of sale.
Minority interest decreased $6,069 primarily due to the decrease in the gain on
disposition of property when compared to the previous period.
The Company adopted the provisions of Statement of Financial Accounting Standard
No. 144 (SFAS), "Accounting for the Impairment or Disposal of Long-Lived Assets"
effective January 1, 2002. This standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It also retains
the basic provisions for presenting discontinued operations in the income
statement but broadened the scope to include a component of an entity rather
than a segment of a business. Pursuant to the definition of a component of an
entity in the SFAS, assuming no significant continuing involvement, the sale of
an apartment community is now considered a discontinued operation. In addition,
apartment communities classified as held for sale are also considered a
discontinued operation. The Company generally considers assets to be held for
sale when all significant contingencies surrounding the closing have been
resolved which often corresponds with the actual closing date.
Included in discontinued operations for the six-month period ended June 30, 2002
are ten apartment community dispositions. The operations of these ten properties
have been reflected on a comparative basis for the period ended June 30, 2001.
Of the $880 decrease in net income, $4,539 is attributable to an increase in
income before gain (loss) on disposition of property, minority interest and
discontinued operations offset by the lower gains on sale of property in the
second quarter of 2002 as compared to 2001 after the allocation of income to
minority interest.
Comparison of the three months ended June 30, 2002 to the same period in 2001.
Of the $10,764 increase in rental income, $7,267 is attributable to the Acquired
Communities, net of Disposed Communities. The balance of this increase, which is
from the Core Properties, was the result of an increase of 6.7% in weighted
average rental rates, offset by a decrease in occupancy from 94.2% to 92.2%.
Property other income, which consists primarily of income from operation of
laundry facilities, late charges, administrative fees, garage and carport
charges, net profits from corporate apartments, cable revenue, pet charges,
miscellaneous charges to residents and equity in earnings of the general
partnership interests increased by $324. Of this increase $375 is attributable
to the Acquired Communities, $93 represents a 3.0% increase for the Core
Properties, and $24 is attributable to an increase in earnings from the general
partnership interests. These increases were offset by a decrease attributable to
the Disposed Communities of $168.
Interest and dividend income decreased $417 due to decreased levels of financing
to affiliates.
Other income, which reflects the net contribution from management and
development activities after allocating certain overhead and interest expense,
decreased by $323 due primarily to an increase in the Company's share of losses
from the Management Companies.
Of the $3,617 increase in operating and maintenance expenses, $4,392 is
attributable to the Acquired Communities offset by an decrease of $1,581
attributable to Disposed Communities. The balance, a $806 increase, is
attributable to the Core Properties and is primarily due to an increase in taxes
related to the accrual for the state tax contingency, and personnel costs,
offset by a reduction in natural gas utility expenses.
General and administrative expense increased in 2002 by $186, or 7%. General and
administrative expenses as a percentage of total revenues were consistent over
the same periods representing 2.9% for 2002 as compared to 3.0% for 2001. During
2002, the Company reclassified certain property related operating expenses from
General and Administrative to Operating and Maintenance, on a comparative basis.
Interest expense increased $3,012 due to the increase in the amount of debt
outstanding.
Depreciation and amortization increased $937 due to the depreciation on the
Acquired Communities and the additions to the Core Properties. This increase is
net of the effect of the change in accounting estimate made by management in the
first quarter related to certain depreciable lives of real estate and related
assets. The change reduced the depreciation expense for the period by
approximately $2.6 million. The Company expects this change in useful lives to
increase net income by approximately $10.3 million in 2002 over 2001.
Minority interest decreased $6,931 primarily due to the decrease in the gain on
disposition of property when compared to the previous period.
The Company adopted the provisions of Statement of Financial Accounting Standard
No. 144 (SFAS), "Accounting for the Impairment or Disposal of Long-Lived Assets"
effective January 1, 2002. This standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. It also retains
the basic provisions for presenting discontinued operations in the income
statement but broadened the scope to include a component of an entity rather
than a segment of a business. Pursuant to the definition of a component of an
entity in the SFAS, assuming no significant continuing involvement, the sale of
an apartment community is now considered a discontinued operation. In addition,
apartment communities classified as held for sale are also considered a
discontinued operation. The Company generally considers assets to be held for
sale when all significant contingencies surrounding the closing have been
resolved which often corresponds with the actual closing date.
Included in discontinued operations for the three-month period ended June 30,
2002 are four apartment community dispositions. The operations of these four
properties have been reflected on a comparative basis for the period ended June
30, 2001.
Of the $1,540 decrease in net income, $2,596 is attributable to an increase in
income before gain (loss) on disposition of property, minority interest and
discontinued operations offset by the lower gains on sale of property in the
second quarter of 2002 as compared to 2001 after the allocation of income to
minority interest.
Funds From Operations
Management considers funds from operations ("FFO") to be an appropriate measure
of performance of an equity REIT. FFO is generally defined as net income (loss)
before gains (losses) from the sale of property and business and extraordinary
items, before minority interest in the Operating Partnership, plus real estate
depreciation. This presentation excludes the dividends on the Series F Preferred
Stock and assumes the conversion of dilutive common stock equivalents and
convertible preferred stock. FFO for both the three and six-month periods ended
June 30, 2002 adjusts for the add back of the premium on the Series B preferred
stock repurchase. Management believes that in order to facilitate a clear
understanding of the combined historical operating results of the Company, FFO
should be considered in conjunction with net income as presented in the
consolidated financial statements included elsewhere herein. FFO does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs. Cash provided by operating activities was $73,148
and $69,426 for the six-month period ended June 30, 2002 and 2001, respectively.
Cash used in investing activities was $174,345 and $56,728 for the six-month
period ended June 30, 2002 and 2001, respectively. Cash provided by and (used
in) financing activities was $103,217 and ($18,830) for the six-month period
ended June 30, 2002 and 2001, respectively. FFO should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flow as a measure of liquidity.
The calculation of FFO for the three-months ended June 30, 2002 and 2001 are presented below (in thousands):
Six-months Three-months
June 30 June 30 June 30 June 30
2002 2001 2002 2001
---- ---- ---- ----
Net income available to common shareholders $16,311 $20,456 $10,201 $16,121
Convertible preferred dividends 5,779 8,994 2,502 4,497
Series B preferred stock redemption 5,025 - 5,025 -
Minority interest 8,299 14,368 4,466 11,397
Minority interest - income from discontinued operations 266 379 111 218
Depreciation from real property 31,606 30,899 16,611 16,014
Depreciation from real property from unconsolidated entities 437 203 65 99
(Gain) loss on disposition of property 402 (13,648) 26 (13,648)
(Gain) loss on disposition of discontinued operations (2,664) - (2,729) -
---------- ------------- ---------- -
FFO $65,461 $61,651 $36,278 $34,698
======= ======= ======= =======
Weighted average common shares/units outstanding:
- Basic 41,422.5 37,522.7 42,013.0 37,461.8
- Diluted 46,384.0 44,707.1 46,664.5 44,661.2
All REITs may not be using the same definition for FFO. Accordingly, the above
presentation may not be comparable to other similarly titled measures of FFO of
other REITs.
Covenants
In connection with the issuance of the Series F Preferred Stock, the Company is
required to maintain for each fiscal quarterly period a fixed charge coverage
ratio, as defined in the Series F Cumulative Redeemable Preferred Stock Article
Supplementary, of 1.75 to 1.0. The fixed charge coverage ratio and the
components thereof do not represent a measure of cash generated from operating
activities in accordance with generally accepted accounting principles and are
not necessarily indicative of cash available to fund cash needs. Further, this
ratio should not be considered as an alternative measure to net income as an
indication of the Company's performance or of cash flow as a measure of
liquidity. The calculation of the fixed charge coverage ratio for the two most
recent quarters since the issuance of the Series F Preferred Stock are presented
below (in thousands):
Three-months
June 30 March 31
2002 2002
---- ----
EBITDA
Total revenues $98,633 $92,397
Net operating income from discontinued operations 519 382
Operating and maintenance (39,451) (42,469)
General and administrative (2,822) (3,099)
--------- ---------
$56,879 $47,211
Fixed Charges
Interest expense $18,973 $18,026
Interest expense on discontinued operations 153 56
Preferred dividends 3,852 3,382
Capitalized interest 269 230
--------- ---------
$23,247 $21,694
Times Coverage ratio: 2.45 2.18
Economic Conditions
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.
Historically, real estate has been subject to a wide range of cyclical economic
conditions, which affect various real estate sectors and geographic regions with
differing intensities and at different times. In 2001 and continuing into 2002
many regions of the United States have experienced varying degrees of economic
recession and certain recessionary trends, such as the cost of obtaining
sufficient property and liability insurance coverage, short-term interest rates,
and a temporary reduction in occupancy. In light of this, we will continue to
review our business strategy however, we believe that given our property type
and the geographic regions in which we are located, we do not anticipate any
changes in our strategy or material effects in financial performance.
Declaration of Dividend
On August 5, 2002, the Company declared a dividend of $.60 per share for the
period from April 1, 2002 to June 30, 2002. This is the equivalent of an annual
distribution of $2.40 per share. The dividend is payable August 29, 2002 to
shareholders of record on August 19, 2002.
On August 5, 2002 the Company also declared a regular dividend of $0.5625 per
share on its Series F Cumulative Redeemable Preferred Stock, for the quarter
ending August 31, 2002. The dividend on the preferred shares is payable on
September 3, 2002, to shareholders of record on August 19, 2002. This dividend
is equivalent to an annualized rate of $2.25 per share.
On June 12, 2002, the Company declared a dividend of $0.38125 per share on its
Series F Cumulative Redeemable Preferred Stock, payable on June 28, 2002, to
shareholders of record on June 18, 2002. This dividend represents payment for
the 61-day stub period from April 1, 2002 through May 31, 2002 and is equivalent
to an annualized rate of $2.25 per share.
Subsequent Events
On August 6, 2002 the Board of Directors increased its authorization to
2,000,000 shares to repurchase its common stock or UPREIT units in connection
with the Company's stock repurchase program. The shares/units may be repurchased
through open market or privately negotiated transactions at the discretion of
Company management. The Board's action does not establish a target stock price
or a specific timetable for share repurchase.
On August 9, 2002 the Company sold Carriage Hill Apartments located in Richmond,
Virginia. The total sales price of $41.6 million equated to $63 per unit. Total
gain on sale of this transaction is expected to be approximately $5 million.
Contingency
The Company had recently undergone a state tax audit whereby the state has
assessed taxes of $469 for the 1998 and 1999 tax years under audit. If the
state's position is applied to all tax periods through June 30, 2002, the
assessment would be approximately $1.4 million. The Company believes that the
assessment and the state's underlying position for the tax periods 1998 through
2000 are neither supportable by the law nor consistent with previously provided
interpretative guidance from the office of the State Secretary of Revenue. The
Company has filed an appeal to the Commonwealth Court in the state for the 1998
and 1999 tax years. There have been no further proceedings to date and the
Company intends to vigorously contest the assessments. The Company has been
advised that it has meritorious positions for its previous tax filings for the
years 1998, 1999, and 2000. However, the Company has accrued approximately $590
as of June 30, 2002 for estimated costs associated with this matter.
New Accounting Standards
In April 2002, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 145 -- "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections" which eliminates the
requirement to report gains and losses from extinguishment of debt as
extraordinary unless they meet the criteria of APB Opinion 30. This Statement
also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The new standard becomes effective for the Company for the
year ending December 31, 2003. The Company does not expect this pronouncement to
have a material impact on the Company's financial position, results of
operations, or cash flows.
In June 2002, the FASB issued SFAS No. 146 - "Accounting for Costs Associated
with Exit or Disposal Activities." This statement requires the recognition of a
liability for costs associated with an exit or disposal activity to be recorded
at fair value when incurred. The company's commitment to a plan, by itself does
not create a present obligation that meets the definition of a liability. The
new standard becomes effective for exit and disposal activities initiated after
December 31, 2002. The Company does not expect this pronouncement to have a
material impact on the Company's financial position, results of operations, or
cash flows.
HOME PROPERTIES OF NEW YORK, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. At June 30,
2002 and December 31, 2001, approximately 99% and 96%, respectively, of the
Company's debt bore interest at fixed rates with a weighted average maturity of
approximately 9 and 10 years, respectively, and a weighted average interest rate
of approximately 7.28% and 7.27%, respectively. The remainder of the Company's
debt bears interest at variable rates with a weighted average maturity of
approximately 1 year and a weighted average interest rate of 3.10% and 3.27%,
respectively, at June 30, 2002 and December 31, 2001. The Company does not
intend to utilize variable rate debt to acquire properties in the future. On
occasion, the Company may assume variable rate debt in connection with a
property acquisition. The Company believes, however, that in no event would
increases in interest expense as a result of inflation significantly impact the
Company's distributable cash flow.
At June 30, 2002 and December 31, 2001, the interest rate risk on $35 million of
such variable rate debt has been mitigated through the use of interest rate swap
agreements (the "Swaps") with major financial institutions. The Company is
exposed to credit risk in the event of non-performance by the counter-parties to
the Swaps. The Company believes it mitigates its credit risk by entering into
these Swaps with major financial institutions. The Swaps effectively convert an
aggregate of $35 million in variable rate mortgages to fixed rates of 5.91%,
7.66%, 8.22% and 8.40%.
At June 30, 2002 and December 31, 2001, the fair value of the Company's fixed
rate debt, including the $35 million which was swapped to a fixed rate, amounted
to a liability of $1.12 billion and $958 million compared to its carrying amount
of $1.09 billion and $960 million, respectively. The Company estimates that a
100 basis point decrease in market interest rates at June 30, 2002 would have
changed the fair value of the Company's fixed rate debt to a liability of $1.19
billion.
The Company intends to continuously monitor and actively manage interest costs
on its debt portfolio and may enter into swap positions based upon market
fluctuations. In addition, the Company believes that it has the ability to
obtain funds through additional equity offerings or the issuance of UPREIT
Units. Accordingly, the cost of obtaining such interest rate protection
agreements in relation the Company's access to capital markets will continue to
be evaluated. The Company has not, and does not plan to, enter into any
derivative financial instruments for trading or speculative purposes. As of June
30, 2002, the Company had no other material exposure to market risk.
PART II - OTHER INFORMATION
HOME PROPERTIES OF NEW YORK, INC.
Item 6. Exhibits and Reports or Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
- Form 8-K was filed on August 13, 2002, date of report August
9, 2002, with respect to Items 7 and 9 disclosures regarding
the Registrant's press release announcing its results for the
second quarter of 2002 and the second quarter 2002 investor
conference call.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME PROPERTIES OF NEW YORK, INC.
---------------------------------
(Registrant)
Date: August 14, 2002
--------------------------------------------
By: /s/ Norman P. Leenhouts
-----------------------------------------------------
Norman P. Leenhouts
Chairman and
Co-Chief Executive Officer
Date: August 14, 2002
--------------------------------------------
By: /s/ David P. Gardner
-----------------------------------------------------
David P. Gardner
Senior Vice President and
Chief Financial Officer
31 of 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME PROPERTIES OF NEW YORK, INC.
---------------------------------
(Registrant)
Date: August 14, 2002
--------------------------------------------
By: /s/ Norman P. Leenhouts
-----------------------------------------------------
Norman P. Leenhouts
Chairman and
Co-Chief Executive Officer
Date: August 14, 2002
--------------------------------------------
By: /s/ David P. Gardner
-----------------------------------------------------
David P. Gardner
Senior Vice President and
Chief Financial Officer