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SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| (X) |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934 |
For
the fiscal year ended December 31, 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
(State or other jurisdiction
of incorporation or organization) |
|
16-1455126
(I.R.S. Employer
Identification Number) |
850 CLINTON SQUARE
ROCHESTER, NEW YORK
14604
(Address of principal
executive offices)
Registrant’s
telephone number, including area code: (585) 546-4900
Securities registered pursuant to
Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value |
|
Name of Each Exchange on
Which Registered
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. ___
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).
YES X No
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 June 30, 2002, was approximately $972,723,021.
As of February 21, 2003, there were
27,562,407 shares of common stock, $.01 par value outstanding.
DOCUMENTS INCORPORATED
BY REFERENCE
The proxy statement to be issued in
connection with the Company’s 2003 Annual Meeting of Stockholders is incorporated by
reference into Items 11, 12 and 13 of Part III of this Report.
TABLE OF CONTENTS
Page
|
|
|
| PART I |
|
|
| Item 1 |
Business |
3 |
| Item 2 |
Properties |
11 |
| Item 3 |
Legal Proceedings |
21 |
| Item 4 |
Submission of Matters to a Vote of Security Holders |
21 |
| Item 4A |
Executive Officers and Key Employees |
21 |
| PART II |
| Item 5 |
Market of the Registrant's Common Equity and Related Shareholder Matters |
26 |
| Item 6 |
Selected Financial and Operating Information |
27 |
| Item 7 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
29 |
| Item 7A |
Quantitative and Qualitative Disclosures About Market Risk |
48 |
| Item 8 |
Financial Statements and Supplementary Data |
49 |
| Item 9 |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
49 |
| PART III |
| Item 10 |
Directors and Executive Officers of the Registrant |
50 |
| Item 11 |
Executive Compensation |
53 |
| Item 12 |
Security Ownership of Certain Beneficial Owners and Management |
53 |
| Item 13 |
Certain Relationships and Related Transactions |
53 |
| Item 14 |
Controls and Procedures |
53 |
| PART IV |
| Item 15 |
Exhibits, Financial Statement Schedules and Reports on Form 8-K |
54 |
PART I
Item 1. Business
| |
Home
Properties of New York, Inc. (“Home Properties” or the “Company”) is
a self-administered and self-managed real estate investment trust (“REIT”) that
owns, operates, acquires, and rehabilitates apartment communities. The Company’s
properties are regionally focused in the Northeastern, Mid-Atlantic and Midwestern United
States. It was formed in November 1993, to continue and expand the operations of Home
Leasing Corporation (“Home Leasing”). The Company completed an initial public
offering of 5,408,000 shares of common stock (the “IPO”) on August 4, 1994. |
| |
The
Company conducts its business through Home Properties of New York, L.P. (the “Operating
Partnership”), a New York limited partnership in which the Company held a 62.6%
partnership interest as of December 31, 2002 (60.0% at December 31, 2001) (such interest
has been calculated as the percentage of outstanding common shares divided by the total
outstanding common shares and Operating Partnership Units outstanding) and two management
companies (together, the “Management Companies”) –Home Properties
Management, Inc. (“HP Management”) and Home Properties Resident Services,
Inc. (“HPRS”) (formerly Conifer Realty Corporation), both of which are Maryland
corporations. |
| |
Home
Properties, through its affiliates described above, as of December 31, 2002, operated 296
communities with 51,841 apartment units. Of these, 41,776 units in 152 communities are
owned outright (the “Owned Properties”), 8,072 units in 134 communities are
managed and partially owned by the Company as general partner, and 1,993 units in 10
communities are managed for other owners (collectively, the “Managed Properties”). |
| |
The
Owned Properties and the Managed Properties (collectively, the “Properties”)
are concentrated in the following market areas: |
| |
Apts. |
Apts. Managed As |
Apts. |
Apt. |
| Market Area |
Owned |
General Partner |
Fee Managed |
Totals |
| Suburban Washington, D.C |
6,596 |
-- |
-- |
6,596 |
| Philadelphia, PA |
6,124 |
-- |
-- |
6,124 |
| Detroit, MI |
5,694 |
-- |
108 |
5,802 |
| Baltimore, MD |
5,692 |
82 |
1,422 |
7,196 |
| Long Island, NY |
3,409 |
-- |
-- |
3,409 |
| Northern New Jersey |
2,520 |
352 |
-- |
2,872 |
| Rochester, NY |
2,412 |
1,691 |
402 |
4,505 |
| Chicago, IL |
2,242 |
-- |
-- |
2,242 |
| Buffalo, NY |
1,644 |
156 |
-- |
1,800 |
| Syracuse, NY |
1,366 |
1,486 |
-- |
2,852 |
| Albany/Hudson Valley, NY |
908 |
777 |
61 |
1,746 |
| South Bend, IN |
706 |
168 |
-- |
874 |
| Boston, MA |
696 |
-- |
-- |
696 |
| Portland, ME |
595 |
-- |
-- |
595 |
| Hamden, CT |
498 |
-- |
-- |
498 |
| Dover, DE |
432 |
-- |
-- |
432 |
| Columbus, OH |
242 |
948 |
-- |
1,190 |
| Western PA |
-- |
2,412 |
-- |
2,412 |
|
| Total # of Units |
41,776 |
8,072 |
1,993 |
51,841 |
|
| Total Number of Communities |
152 |
134* |
10 |
296 |
*Excluding
two properties where the Company does not manage but is the General Partner.
| |
The
Company’s mission is to maximize shareholder value by acquiring, rehabilitating, and
managing apartment communities while enhancing the quality of life for its residents,
improving the broader communities in which the Company operates, providing employees with
opportunities for growth and accomplishment, and demonstrating personal integrity and
dedication at all times. Our primary, long-term vision is to be a dominant owner and
manager of market-rate apartments with 150 units or more located in selected suburban
markets of metropolitan areas with substantial barriers to new development. The
metropolitan areas we have selected include Boston, New York City, Philadelphia,
Baltimore, Washington, D.C., Detroit and Chicago. We also expect to maintain or grow
existing portfolios in other markets as economic/market conditions permit. |
| |
The
Company’s business strategies include: (i) aggressively managing and improving its
communities to achieve increased net operating income; (ii) acquiring additional
apartment communities with attractive returns at prices significantly below replacement
costs; (iii) disposing of properties that have reached their potential, are less
efficient to operate, or are located in markets where growth has slowed down to a pace
below the markets targeted for acquisition; and (iv) maintaining a conservative capital
structure with cost effective access to the capital markets. |
| |
The
Company was formed in November 1993 as a Maryland corporation and is the general partner
of the Operating Partnership. On December 31, 2002, it owned a 65.4% interest in the
Operating Partnership (such interest has been calculated as the percentage of outstanding
common and preferred shares owned by the Company divided by the total outstanding common
shares, preferred shares, and Operating Partnership Units outstanding) – one percent
as sole general partner and the remainder as a limited partner through its wholly owned
subsidiary, Home Properties I, LLC, which owns 100% of the limited partner, Home
Properties Trust. A portion of the limited partner interests held by Home Properties
Trust as of December 31, 2002 consisted of all of the Series C, D, E, and F Limited
Partnership Units (3,486,800 units, or 7.5% of the total). Those preferred interests in
the Operating Partnership have rights and preferences that mirror the rights and
preferences of the holders of the related series of preferred shares in the Company,
which are held by Teachers Insurance and Annuity Association of America, affiliates of
AEW Capital Management and Pacific Life Insurance Company, and The Equitable Life
Assurance Society of the United States. The remaining units (26,560,643 or 56.9% of the
total) held by Home Properties Trust have basically the same rights as the other limited
partner interests (the “Units”) in the Operating Partnership. Those other Units
are owned by certain individuals and entities who received Units in the Operating
Partnership as consideration for their interests in entities owning apartment communities
purchased by the Operating Partnership, including certain officers of the Company. |
| |
The
Operating Partnership is a New York limited partnership formed in December 1993. Holders
of Units in the Operating Partnership may redeem a Unit for one share of the Company’s
common stock or cash equal to the fair market value at the time of the redemption, at the
option of the Company. Management expects that it will continue to utilize Units as a
form of consideration for a significant portion of its acquisition properties. |
| |
Both
of the Management Companies are Maryland corporations and, effective January 1, 2001,
both converted to taxable REIT subsidiaries under the Tax Relief Extension Act of 1999.
HP Management was formed in January 1994 and HPRS was formed in December 1995. As of
December 31, 2002, the Operating Partnership held 95% of the economic interest in HP
Management and 99% of the economic interest in HPRS through non-voting common stock.
Nelson and Norman Leenhouts (the “Leenhoutses”) hold the remaining five percent
and one percent interest, respectively, through the ownership of voting common stock. 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. The Operating Partnership intends to acquire all
of the shares held by the Leenhoutses in the first quarter of 2003. Thereafter, the
Management Companies will be wholly owned subsidiaries of the Company. |
| |
In
September 1997, Home Properties Trust (“QRS”) was formed as a Maryland real
estate trust and as a qualified REIT subsidiary, with 100% of its shares being owned by
the Company. The QRS has been admitted as a limited partner of the Operating Partnership
and the Company transferred all but one percent of its interest in the Operating
Partnership to the QRS. Effective December 30, 2002, the Company transferred 100% of its
ownership in the QRS to a newly formed entity, Home Properties I, LLC. Home Properties
I, LLC is a wholly owned subsidiary of the Company. |
| |
The
Company currently has approximately 2,000 employees and its executive offices are located
at 850 Clinton Square, Rochester, New York 14604. Its telephone number is (585)
546-4900. |
| |
The
Company will continue to focus on enhancing the investment returns of its Properties by:
(i) acquiring apartment communities at prices below new construction costs and
repositioning those properties for long-term growth; (ii) recycling assets by disposing
of properties that have reached their potential or are less efficient to operate due to
size or remote location; (iii) reinforcing its decentralized company philosophy by
encouraging employees’ personal improvement and by providing extensive training;
(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; (v)
readily adopting new technology so that the time and cost spent on administration can be
minimized while the time spent attracting and serving residents can be maximized; (vi)
continuing to utilize its written “Pledge” of customer satisfaction that is the
foundation on which the Company has built its name-brand recognition; and (vii) 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 Sale Strategies |
| |
The
Company’s core strategy is to grow primarily through acquisitions in the suburbs of
major metropolitan markets that have significant barriers to new construction, easy
access to the Company’s headquarters, and enough apartments available for
acquisition to achieve a critical mass. Targeted markets also possess other
characteristics, including acquisition opportunities below replacement costs, a mature
housing stock and stable or moderate job growth. The Company expects that its growth will
be focused within suburban sub-markets of select metropolitan areas within the Northeast,
Mid-Atlantic and Midwestern regions of the United States, where it has already
established a presence. The seven major metropolitan areas the Company will focus on
include Boston, New York City, Philadelphia, Baltimore, Washington, D.C., Detroit and
Chicago. The Company expects to maintain or grow existing portfolios in other markets as
economic/market conditions permit. Continued geographic specialization is expected to
have a greater impact on operating efficiencies versus widespread accumulation of
properties. The Company will continue to pursue the acquisition of individual properties
as well as multi-property portfolios. It may also consider strategic investments in other
apartment companies. |
| |
During
2002, the Company acquired 21 communities with a total of 4,492 units for an aggregate
consideration of approximately $430 million, or an average of approximately $95,700 per
unit. The weighted average expected first year capitalization rate for the acquired
communities was 8.0%. Capitalization rate (“cap rate”) is defined as the rate
of interest used to convert the first year expected net operating income less a 3.0%
management fee into a single present value. The acquisitions were concentrated in Long
Island (New York City area), Boston, and Washington, D.C. |
| |
During
2002, the Company completed the sale of 12 communities with a total of 1,724 units for an
aggregate consideration of approximately $87.1 million. The properties sold were either
in slower growth markets or less efficient to operate due to their remote locations
and/or smaller size. The Company recycled the proceeds from those properties that were
expected to produce an unleveraged internal rate of return (“IRR”) from 7% to
10% with the purchase of properties expected to produce an unleveraged IRR of at least
11%. IRR is defined as the discount rate at which the present value of the future cash
flows of the |
| |
investment
is equal to the cost of the investment. Several of the properties sold were originally
acquired through UPREIT transactions, where operating partnership units, or OP units, are
issued to sellers, which help sellers defer taxes. As a result, Section 1031 exchanges
were used to defer taxable gains of the UPREIT investor. |
| |
In
January 2003, the Company sold two communities with a total of 552 units in Indiana and
Ohio for an aggregate consideration of approximately $20.6 million, or an average of
$37,400 per unit. The expected weighted average first year cap rate on these sales is
8.8% (before a reserve for capital expenditures). |
| |
In
February 2003, the Company acquired its second property in the Boston region with 280
units in Stoughton, MA. The total purchase price of $34 million, including closing costs,
equates to approximately $121,400 per unit and was funded through the use of the Company’s
line of credit. The expected first year cap rate for this community is 7.7%. |
| |
The
Company will continue to contemplate the sale of several of its mature communities. The
Company has identified numerous communities for potential sale during 2003. The total
estimated fair market value of these communities is in excess of $100 million. The
communities are spread over several markets and are generally less efficient to operate
due to their remote locations and/or their small size. The Company will not sell these
properties, however, unless it achieves targeted prices at levels which would allow it to
reinvest the proceeds at higher returns by making acquisitions with repositioning
potential. Several of these properties were originally acquired through UPREIT
transactions. Therefore, sales will have to be matched with suitable acquisitions using
tax deferred exchanges. Although the Company does not know which properties will be sold,
the Company has anticipated closing on sales of $100 million in its budget for 2003. |
| |
Financing
and Capital Strategies |
| |
The
Company intends to adhere to the following financing policies: (i) maintaining a ratio of
debt-to-total market capitalization (total debt of the Company as a percentage of the
market value of outstanding diluted common stock (including the common stock equivalents
of the convertible preferred 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, 2002, the Company’s debt was approximately $1.3 billion and the
debt-to-total market capitalization ratio was 44.1% based on the year-end closing price
of the Company’s stock of $34.45. The weighted average interest rate on the Company’s
mortgage debt as of December 31, 2002 was 6.45% and the weighted average maturity
was approximately eight years. Debt maturities are staggered, ranging from May 2003,
through June 2036. As of December 31, 2002, the Company had an unsecured line of
credit facility from M&T Bank of $115 million. This facility is available for
acquisition and other corporate purposes and bears an interest rate at 1.15% over the
one-month LIBOR rate. As of December 31, 2002, there was $35 million in outstanding
borrowings on the line of credit. |
| |
Management
expects to continue to fund a portion of its continued growth by taking advantage of its
UPREIT structure and using Units as currency in acquisition transactions. The Company
issued approximately $12 million worth of Units as partial consideration in acquisition
transactions during 2002 and $19 million worth of Units during 2001. During 2000, $59
million worth of Units were issued. It is difficult to predict the level of demand from
sellers for this type of transaction. |
| |
The
Company also intends to continue to pursue other equity transactions to raise capital
with limited transaction costs. During 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
approximately $21.8 million. Also in 2002, the Company issued 2,400,000 |
| |
shares
of its 9.00% Series F Cumulative Redeemable Preferred Stock ("Series F Preferred
Shares"). This offering generated net proceeds of approximately $58 million. |
| |
In
2000, an aggregate of $115 million of Series C, D and E Convertible Cumulative Preferred
Stock (“Series C Preferred”, “Series D Preferred” and “Series E
Preferred”) was issued in four private sales to an affiliate of Prudential Real
Estate Investors, Teachers Insurance and Annuity Association of America, an affiliate of
AEW Capital Management, Pacific Life Insurance Company, and The Equitable Life Assurance
Society of the United States. |
| |
The
Company raised approximately $27 million in 2002 under its Dividend Reinvestment and
Direct Stock Purchase Plan (the “Dividend Reinvestment Plan”). Effective April
10, 2001, the Dividend Reinvestment Plan was amended to reduce the discount from the
current market price from 3% to 2%. The maximum amount that can be invested without the
Company’s prior approval was reduced from $5,000 to $1,000. These changes were
implemented to minimize amounts raised under the Dividend Reinvestment Plan at a time
when the Company’s common stock was trading below the Company’s estimate of net
asset value, and/or the Company did not have an appetite for additional equity. |
| |
In
2002, the Company also announced a 2,000,000 share increase in management’s
authorization to buy back the Company’s outstanding common stock. Shares may be
repurchased through the open market or in privately-negotiated transactions. The Company’s
strategy is to opportunistically repurchase shares at a discount to its underlying net
asset value, thereby continuing to build value for long-term shareholders. In 2002, the
Company did not repurchase any of its outstanding common stock or UPREIT Units. At
December 31, 2002 the Company had authorization to repurchase 3,135,800 shares of common
stock and UPREIT Units under the stock repurchase program. |
| |
Corporate
Governance Initiatives |
| |
During
2002, the Company’s Board of Directors approved several new initiatives to further
increase the transparency of financial reporting and to strengthen corporate governance.
The Company has never adopted a shareholders rights plan (poison pill) or a staggered
Board. The Company believes this clearly demonstrates that shareholders’ interests
are paramount to the Company. |
| |
In
addition to the requirements set forth in the recently enacted Sarbanes-Oxley Act (the
“2002 Act”) and the recommendations approved by the New York Stock Exchange on
August 1, 2002, the Company’s Board of Directors approved the following policies: |
| |
* |
|
Beginning
in 2003, stock options will be issued pursuant to a new plan to be submitted for
shareholder approval. The new plan will include a provision that options will not vest
automatically upon an employee’s retirement but, instead, will continue to vest as
scheduled. Re-pricing of options will be prohibited. Directors and executive officers
will be required to hold stock issued in connection with a stock option exercise for a
minimum of one year and will not be permitted to receive cash on an option exercise. |
| |
* |
|
All
Directors and executive officers must file binding trading plans with the Company at
least 30 days in advance of selling any shares of Home Properties. A plan can be filed or
amended only in the absence of any inside information and only during a trading window. |
| |
* |
|
In
the event of a downward restatement of earnings which is required as a result of material
non-compliance due to misconduct, executive officers will be required to repay the
portion of their bonus that constituted an overpayment. (This is in addition to the
return of all bonus and stock sale profits by the CEO’s and CFO as required by the
2002 Act.) |
| |
* |
|
Beginning
in 2003, the Company will adopt the fair value method of accounting for stock options.
The Company is studying the transition methods available under SFAS 148, “Accounting
for Stock Based Compensation — An Amendment of FAS 123” and has not yet
determined what method will be used. |
| |
The
Company competes with other multifamily owners and operators and other real estate
companies in seeking properties for acquisition and in attracting potential residents.
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 gives it a competitive
advantage. The Company also believes that the moderate level of new construction of
multifamily properties in its markets in 2002, that generally require higher rental
rates, will not have a material adverse effect on its turnover rates, occupancies or
ability to increase rents and minimize operating expenses. During the past two years, the
Company has encountered competition as it seeks attractive properties in broader
geographic areas. Given the perceived depth of available opportunities, this increased
level of competition has not prevented the Company from being able to meet its growth
expectations. |
| |
From
the IPO through 2000, the markets in which Home Properties operates could be
characterized as stable, with moderate levels of job growth. During 2001 and continuing
through 2002, many regions of the United States have experienced varying degrees of
economic recession resulting in negative job growth for both the country as a whole and
the Company’s markets. |
| |
New
construction in the Company’s markets is low, relative to the existing multifamily
housing stock and compared to other regions of the country. Most of the existing housing
stock in the Company’s markets was built before 1980. Zoning restrictions, a
scarcity of land and high construction costs make new development difficult to justify in
many of the Company’s markets. In 2002, Home Properties’ markets represented
19% of the total estimated existing U.S. multifamily housing stock, but only 13% of the
country’s estimated net new supply of multifamily housing units. |
| |
In
2001 and continuing through 2002, the recession reversed historical trends, with the net
increase in the multifamily rental housing stock exceeding the estimated number of new
units needed to satisfy increased demand. |
| |
In
2000, net new multifamily supply as a percent of net new multifamily demand in the Home
Properties markets was approximately 49%, compared to a national average of 98%. In 2001
and 2002, both the national and the Company’s markets have resulted in an estimated
oversupply. The 2002 demand (oversupply) for the Company’s markets relative to
estimated net new multifamily supply still compares favorably to national averages. |
| |
The
third to the last column in the Multifamily Supply and Demand table on page 10 shows the
net new multifamily supply as percent of existing multifamily housing stock. In the
Company’s markets, net new supply only represents 0.5% of the existing multifamily
housing stock. This compares to the national average net new multifamily supply estimates
at 1.1% of the multifamily housing stock. |
| |
The
information on the Market Demographics table on page 9 was compiled by the Company from
the sources indicated on the table. The methods used includes estimates and, while the
Company feels that the estimates are reasonable, there can be no assurance that the
estimates are accurate. There can also be no assurance that the historical information
included on the table will be consistent with future trends. |
Market Demographics
December December 2002
Job Job Multifamily
Growth Growth 2002 Units as a % 2002
% of 2002 Trailing Trailing December Median of Total Multifamily
MSA Market Area Owned Number of 12 Months 12 Months Unemployment Home Housing Units Housing
Units Households % Change Actual Rate Value Stock (4) Stock (5)
- ----------------------------------------------------------------------------------------------------------------------------------
Northern VA/DC 15.8% 1,907,117 (1.1%) (31,300) 6.1% 216,423 28.1% 564,182
Eastern PA (1) 14.7% 2,175,325 (0.6%) (15,000) 5.3% 144,320 14.7% 343,001
Baltimore, MD 13.6% 997,096 (0.0%) (200) 4.1% 143,314 17.8% 190,463
Detroit, MI 13.6% 1,707,591 (1.8%) (39,000) 5.4% 117,256 15.5% 279,795
Downstate NY (3) 10.3% 1,556,642 (0.2%) (4,500) 3.7% 284,761 14.1% 232,658
Northern NJ (2) 6.0% 2,095,306 (0.3%) (9,100) 4.9% 247,532 17.6% 391,173
Rochester, NY 5.8% 421,111 (1.2%) (6,700) 5.6% 107,159 12.9% 58,295
Chicago, IL 5.4% 3,006,188 (1.4%) (57,400) 6.5% 172,333 26.6% 841,265
Buffalo, NY 3.9% 465,665 (0.4%) (2,200) 5.8% 93,249 10.7% 54,580
Syracuse, NY 3.3% 281,720 (0.3%) (1,100) 5.3% 92,053 14.0% 43,719
South Bend, IN 1.7% 101,252 (1.2%) (1,600) 4.7% 82,390 11.9% 12,790
Boston, MA 1.7% 2,347,382 (1.4%) (29,300) 4.4% 233,706 20.5% 503,342
Portland, ME 1.4% 110,975 (0.2%) (300) 4.5% 179,865 12.9% 16,256
Hamden, CT 1.2% 651,074 (0.1%) (200) 4.2% 301,898 17.1% 117,495
Delaware 1.0% 225,840 (1.9%) (6,300) 3.6% 146,800 16.7% 40,123
Columbus, OH 0.6% 626,048 (0.3%) (2,500) 4.0% 120,659 18.4% 122,914
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Home Properties Markets 100.0% 18,676,332 (0.9%) (206,700) 4.7% 192,388 19.2% 3,812,051
---------
- ------------------------------- --------------------------------------------------------------------------------------------
United States 107,753,800 (0.2%) (246,000) 6.0% 121,300 16.7% 19,819,603
(1)
Eastern Pennsylvania is defined for this report as Philadelphia, PA MSA &
Allentown-Bethlehem-Easton MSA.
(2)
Northern New Jersey is defined for this report as Middlesex-Somerset-Hunterdon
MSA, Bergen-Passaic MSA, Monmouth-Ocean MSA, & Newark MSA.
(3) Downstate New
York is defined for this report as the Hudson Valley Region of Dutchess Co MSA,
Newburgh NY-PA MSA, Putnam & Ulster Counties; Long
Island, NY (Nassau-Suffolk MSA); Westchester County MSA; & Rockland County MSA.
(4)
Based on Claritas 2002 estimates calculated from the 2000 U.S. Census figures.
Sources: Bureau of Labor Statistics
(BLS); Claritas, Inc.; US Census Bureau — Manufacturing & Construction Div.; New
York State Department of Labor, Div. Of Research and Statistics. Data collected is data
available as of February 13, 2002 and in some cases may be preliminary. BLS is the
principal fact-finding agency for the Federal Government in the broad field of labor
economics and statistics. Claritas Inc. is a leading provider of precision marketing
solutions and related products/services. U.S. Census Bureau’s parent federal agency
is the U.S. Dept. of Commerce, which promotes American business and trade.
(5) 2002
Multifamily Housing Stock is from Claritas estimates based on the 2000 U.S. Census.
Multifamily Supply and Demand
Estimated Estimated
Estimated Net New Net New
Estimated Estimated 2002 Multifamily Multifamily
2002 Estimated 2002 New Supply as a Supply as a Expected
New 2002 Net New Multifamily % of New % of New Expected Excess
MSA Market Area Supply of Multifamily Multifamily Household Multifamily Multifamily Excess Revenue
Multifamily(6) Obsolescence (7) Supply (8) Demand (9) Demand Stock Demand (10) Growth (11)
- -------------------------------------------------------------------------------------------------------------------------------------------------
Northern VA/DC 9,983 2,821 7,162 (5,877) (121.9%) 1.3% (13,039) (2.3%)
Eastern PA (1) 1,861 1,715 146 (1,474) (9.9%) 0.0% (1,620) (0.5%)
Baltimore, MD 1,601 952 648 (24) (2735.1%) 0.3% (672) (0.1%)
Detroit, MI 2,651 1,399 1,252 (4,027) (31.1%) 0.4% (5,280) (1.9%)
Downstate NY (3) 2,439 1,163 1,275 (422) (302.3%) 0.5% (1,697) (0.7%)
Northern NJ (2) 2,927 1,956 971 (1,066) (91.1%) 0.2% (2,037) (0.5%)
Rochester, NY 269 291 (23) (576) 3.9% (0.0%) (553) (0.9%)
Chicago, IL 9,302 4,206 5,096 (10,166) (50.1%) 0.6% (15,262) (1.8%)
Buffalo, NY 444 273 171 (158) (108.3%) 0.3% (328) (0.6%)
Syracuse, NY 231 219 12 (103) (11.9%) 0.0% (115) (0.3%)
South Bend, IN 372 64 308 (127) (243.0%) 2.4% (435) (3.4%)
Boston, MA 1,776 2,517 (741) (4,012) 18.5% (0.1%) (3,270) (0.1%)
Portland, ME 194 81 113 (26) (435.8%) 0.7% (138) (0.9%)
Hamden, CT 88 587 (499) (23) 2192.1% (0.4%) 476 0.4%
Delaware 322 201 121 (702) (17.3%) 0.3% (824) (2.1%)
Columbus, OH 5,179 615 4,565 (306) (1490.7%) 3.7% (4,871) (4.0%)
- -------------------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------------------------
Home Properties Markets 39,639 19,060 20,577 (29,443) (69.9%) 0.5% (50,022) (1.3%)
- -------------------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------------------------
United States 317,129 99,098 218,031 (27,462) (793.9%) 1.1% (245,493) (1.2%)
(1)-(5)
see footnotes prior page
(6)
Estimated 2002 New Supply of Multifamily = Multifamily permits (2002 figures
U.S. Census Bureau, Mfg. & Constr. Div., 5+ permits only) adjusted by the average
% of permits resulting in a construction start (estimated at 95%).
(7) Estimated 2002
Multifamily Obsolescence = 0.5% of Estimated 2002 multifamily housing stock.
(8)
Estimated 2002 Net New Multifamily Supply = Estimated 2002 New Supply of
Multifamily — Estimated 2002 multifamily obsolescence.
(9) 2002 New
Multifamily Household Demand = Trailing 12 month job growth (Nonfarm, not
seasonally adjusted payroll employment figures) (12/31/01-12/31/02)
multiplied by the expected % of new household formations resulting from new jobs
(66.7%) and the % of multifamily households in each market
(based on Claritas estimates).
(10)
Expected Excess Demand = Estimated 2002 New Multifamily Household Demand —
Estimated 2002 Net New Multifamily Supply.
(11) Expected Excess Revenue Growth =
Expected Excess Demand divided by 2002 Multifamily Housing Stock.
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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 Properties are substantially in compliance with present ADA and FHAA
requirements. |
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Under
various laws and regulations relating to the protection of the environment, an owner of
real estate may be held liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in its property. These laws often impose
liability without regard to whether the owner was responsible for, or even knew of, the
presence of such substances. The presence of such substances may adversely affect the
owner’s ability to rent or sell the property or use the property as collateral.
Independent environmental consultants have conducted “Phase I”environmental
audits (which involve visual inspection but not soil or groundwater analysis) on
substantially all of the Owned Properties. Phase I audit reports did not reveal any
environmental liability that would have a material adverse effect on the Company. In
addition, the Company is not aware of any environmental liability that management
believes would have a material adverse effect on the Company. There is no assurance that
Phase I reports would reveal all environmental liabilities or that environmental
conditions not known to the Company may exist now or in the future which would result in
liability to the Company for remediation or fines, either under existing laws and
regulations or future changes to such requirements. |
| |
Under
the Federal Fair Housing Act and state fair housing laws, discrimination on the basis of
certain protected classes is prohibited. Violation of these laws can result in
significant damage awards to victims. The Company has a strong policy against any kind of
discriminatory behavior and trains its employees to avoid discrimination or the
appearance of discrimination. There is no assurance, however, that an employee will not
violate the Company’s policy against discrimination and thus violate fair housing
laws. This could subject the Company to legal actions and the possible imposition of
damage awards. |
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Company
Web Site and Access to Filed Reports |
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The
Company maintains an Internet Web site at homeproperties.com. The Company provides access
to its reports filed with the Securities and Exchange Commission (“SEC”)
through this Web site. These reports are available as soon as reasonably practicable
after the reports are filed electronically with the SEC. In addition, paper copies of
annual and periodic reports filed with the SEC may be obtained by contacting the Company’s
headquarters at the address located within the SEC filings or under Investors, Financial
Information, on the aforementioned Web site. |
Item 2. Properties
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As
of December 31, 2002, the Owned Properties consisted of 152 multifamily residential
properties containing 41,776 apartment units. At the time of the IPO (August 4, 1994),
Home Properties owned 11 communities containing 3,065 units and simultaneously with
the closing of the IPO acquired an additional four communities containing 926 units. From
the time just prior to the IPO to December 31, 2002, the Company experienced a compounded
annualized growth rate of 36% in the number of apartment units it owned. In 2002, Home
Properties acquired 4,492 apartment units in 21 communities for a total purchase price of
approximately $430 million. Also in 2002, the Company sold 12 communities with a total of
1,724 units for total consideration of $87.1 million. |
| |
The
Owned Properties are generally located in established markets in suburban neighborhoods
and are well maintained and well leased. Average economic occupancy at the Owned
Properties was 92% for 2002. The Owned Properties are typically two and three story
garden style apartment buildings in landscaped settings and a majority are of brick or
other masonry construction. The Company believes that its strategic focus on appealing to
middle income and senior residents and the quality of the services it provides to such
residents results in lower turnover. Average turnover at the Owned Properties was
approximately 46% for 2002, which is significantly below the national average of 60% for
garden-style apartments. |
| |
Resident
leases are generally for a one year term. Security deposits equal to one month’s
rent are generally required. |
| |
Certain
of the Owned Properties secure mortgage loans. See Schedule III contained herein (F-39 to
F-43). |
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The
table on the following pages illustrates certain of the important characteristics of the
Owned Properties as of December 31, 2002. |
Communities Wholly Owned
and Managed by Home Properties
(2) (3) (4) 2002 2001 12/31/02
# Age Average 2002 2002 % 2002 2001 Avg. Mo. Avg. Mo. Total
Of In Year Apt Size % Mature Resident Avg. % Avg. % Rent Rate Rent Rate Cost
Regional Area Apts Years Acq (Sq Ft) Residents Turnover Occupancy Occupancy Per Apt. Per Apt. (000)
- ----------------- -----------------------------------------------------------------------------------------------------
Core Communities (1)
CT-Hamden Apple Hill Apartments 498 30 1998 789 25% 51% 93% 95% $991 $899 $29,892
DE HP of Newark 432 34 1999 856 5% 45% 90% 84% 707 674 25,305
IL-Chicago Blackhawk 371 41 2000 860 15% 56% 93% 97% 838 795 20,781
IL-Chicago Colonies Apartments 672 28 1998 656 15% 55% 93% 94% 681 640 31,375
IL-Chicago Colony Apartments 783 29 1999 704 10% 55% 91% 94% 850 832 48,107
IL-Chicago Cypress Place 192 32 2000 855 20% 39% 94% 96% 890 840 12,070
IN-South Bend Candlewood Apartments 310 17 1998 1,000 14% 52% 92% 91% 691 681 15,309
IN-South Bend Maple Lane 396 19 1999 950 5% 68% 89% 84% 655 652 20,358
MD-Baltimore Bonnie Ridge 966 36 1999 1,023 9% 45% 93% 94% 944 883 61,301
MD-Baltimore Canterbury Apartments 618 24 1999 933 2% 45% 96% 96% 729 679 27,753
MD-Baltimore Carriage House Apartments 50 36 1998 786 17% 42% 88% 92% 613 583 1,463
MD-Baltimore Country Village Apartments 344 31 1998 868 3% 56% 91% 91% 737 712 17,566
MD-Baltimore Falcon Crest 396 33 1999 993 2% 55% 92% 94% 801 737 17,618
MD-Baltimore Gateway Village 132 13 1999 965 3% 48% 95% 96% 985 887 8,280
MD-Baltimore Morningside Heights Apartments 1,050 37 1998 870 6% 45% 89% 94% 729 669 49,039
MD-Baltimore Owings Run 504 7 1999 1,142 3% 56% 89% 95% 964 924 38,887
MD-Baltimore Selford Townhomes 102 15 1999 1,115 5% 44% 92% 93% 1,009 922 6,736
MD-Baltimore Shakespeare Park 82 19 1999 833 95% 12% 99% 99% 608 610 4,111
MD-Baltimore Timbercroft Townhomes 284 30 1999 990 3% 15% 99% 99% 654 650 9,363
MD-Baltimore Village Square 370 34 1999 1,045 2% 45% 97% 97% 862 778 18,153
ME-Portland Mill Co. Gardens 96 51 1998 550 19% 59% 97% 98% 632 597 2,766
ME-Portland Redbank Village 500 58 1998 836 100% 37% 93% 95% 702 655 20,551
MI-Detroit Bayberry 120 35 2000 950 12% 49% 93% 94% 791 765 6,859
MI-Detroit Canterbury Square 336 30 1997 789 2% 49% 91% 94% 751 746 16,498
MI-Detroit Carriage Hill Apartments 168 36 1998 783 56% 44% 94% 95% 769 761 8,096
MI-Detroit Carriage Park Apartments 256 35 1998 777 19% 46% 94% 96% 732 707 12,057
MI-Detroit Charter Square 494 31 1997 914 2% 54% 90% 93% 846 825 28,274
MI-Detroit Cherry Hill Club Apartments 164 30 1998 878 8% 41% 93% 93% 647 619 6,839
MI-Detroit Cherry Hill Village Apartments 224 36 1998 742 25% 50% 91% 92% 715 694 9,822
MI-Detroit Deerfield Woods 144 26 2000 800 35% 39% 96% 96% 788 752 7,153
MI-Detroit Fordham Green 146 26 1997 869 0% 52% 94% 94% 860 833 7,992
MI-Detroit Golfview Manor 44 43 1997 662 12% 30% 97% 95% 561 532 878
MI-Detroit Greentrees Apartments 288 31 1997 863 0% 53% 91% 94% 661 644 12,300
MI-Detroit Hampton Court 182 30 2000 972 5% 65% 90% 89% 653 610 8,132
MI-Detroit Kingsley Apartments 328 32 1997 792 5% 44% 90% 91% 687 681 16,435
MI-Detroit Lakes Apartments 434 15 1999 948 2% 57% 87% 89% 901 912 28,389
MI-Detroit Macomb Manor 217 33 2000 867 15% 36% 95% 97% 676 648 9,679
MI-Detroit Oak Park Manor 298 47 1997 887 4% 46% 92% 94% 793 727 13,378
MI-Detroit Parkview Gardens 483 48 1997 731 4% 39% 94% 94% 620 592 11,288
MI-Detroit Scotsdale Apartments 376 27 1997 790 9% 40% 93% 97% 695 672 15,762
MI-Detroit Southpointe Square 224 31 1997 776 20% 54% 90% 93% 645 627 7,446
MI-Detroit Springwells Park 303 61 1999 1,014 25% 54% 88% 93% 999 957 21,736
MI-Detroit Stephenson House 128 35 1997 668 6% 70% 90% 92% 678 662 3,986
MI-Detroit Woodland Gardens 337 36 1997 719 5% 55% 90% 94% 762 735 15,850
NJ-Northern East Hill Gardens 33 44 1998 695 42% 27% 96% 93% 1,204 1059 2,523
NJ-Northern Lakeview Apartments 106 33 1998 492 26% 33% 97% 98% 995 916 7,007
NJ-Northern Oak Manor Apartments 77 46 1998 775 27% 34% 96% 97% 1,476 1,332 6,341
NJ-Northern Pleasant View Gardens
Apartments 1,142 34 1998 745 18% 36% 92% 94% 933 884 65,562
NJ-Northern Pleasure Bay Apartments 270 31 1998 667 28% 21% 97% 95% 799 735 11,076
NJ-Northern Royal Gardens 550 34 1997 800 10% 25% 97% 97% 956 902 28,704
NJ-Northern Wayne Village 275 37 1998 725 35% 25% 96% 96% 1,023 940 18,522
NJ-Northern Windsor Realty 67 49 1998 675 16% 36% 96% 95% 955 884 4,785
NY-Alb/Hudson
Valley Carriage Hill 140 29 1996 845 35% 66% 95% 97% 1,074 939 6,676
NY-Alb/Hudson
Valley Cornwall Park 75 35 1996 1,320 7% 72% 95% 94% 1,540 1,388 6,867
NY-Alb/Hudson
Valley Lakeshore Villas 152 27 1996 956 0% 58% 95% 95% 896 814 7,278
NY-Alb/Hudson
Valley Patricia Apartments 100 28 1998 770 20% 30% 97% 96% 1,144 1025 6,597
NY-Alb/Hudson
Valley Sunset Gardens 217 31 1996 662 0% 55% 97% 95% 772 707 8,001
NY-Buffalo Emerson Square 96 32 1997 650 38% 34% 98% 98% 624 593 3,400
NY-Buffalo Idylwood 720 32 1995 700 7% 63% 90% 95% 644 619 24,862
NY-Buffalo Paradise Lane at Raintree 324 30 1997 676 12% 49% 91% 96% 663 629 11,615
NY-Buffalo Raintree Island 504 30 1985 704 22% 52% 92% 97% 687 649 18,258
NY-Long Island Bayview/Colonial 160 35 2000 882 25% 34% 95% 93% 994 872 12,177
NY-Long Island Coventry Village 94 27 1998 718 18% 33% 98% 97% 1,168 1092 5,012
NY-Long Island Eastwinds 96 36 2000 888 15% 46% 92% 88% 999 887 7,539
NY-Long Island Lake Grove 368 32 1997 879 40% 40% 97% 97% 1,218 1120 28,611
NY-Long Island Maple Tree 84 51 2000 937 25% 23% 96% 91% 1,031 945 6,102
NY-Long Island Mid-Island Estates 232 37 1997 690 16% 31% 97% 97% 1,029 956 13,530
NY-Long Island Rider Apartments 24 41 2000 817 25% 25% 98% 95% 1,015 924 1,729
NY-Long Island South Bay Manor 61 42 2000 849 10% 44% 88% 77% 1,269 1,083 6,277
NY-Long Island Terry Apartments 65 26 2000 722 55% 40% 93% 95% 983 903 4,409
NY-Rochester 1600 East Avenue 164 43 1997 800 57% 80% 69% 75% 1,349 1,334 14,296
NY-Rochester 1600 Elmwood 210 42 1983 891 16% 39% 94% 93% 879 856 13,154
NY-Rochester Brook Hill 192 30 1994 999 26% 49% 89% 95% 881 860 12,161
NY-Rochester Newcastle Apartments 197 27 1982 873 36% 47% 88% 92% 755 743 11,427
NY-Rochester Northgate, Manor 224 39 1994 800 17% 38% 88% 85% 677 675 11,090
NY-Rochester Perinton Manor 224 32 1982 928 38% 46% 92% 94% 811 791 12,535
NY-Rochester Pines of Perinton 508 25 1998 818 14% 26% 97% 97% 522 522 10,231
NY-Rochester Riverton Knolls 240 28 1983 911 3% 63% 81% 86% 855 848 14,262
NY-Rochester Spanish Gardens 220 28 1994 1,030 37% 38% 87% 93% 686 665 12,897
NY-Rochester The Meadows 113 31 1984 890 45% 44% 95% 97% 700 667 5,643
NY-Rochester Woodgate Place 120 29 1997 1,100 10% 77% 93% 96% 795 757 5,867
NY-Syracuse Candlewood Gardens 126 31 1996 855 22% 49% 92% 95% 567 540 3,845
NY-Syracuse Fairview Heights 210 38 1965 798 0% 108% 92% 94% 874 813 11,329
NY-Syracuse Harborside Manor 281 29 1995 823 7% 43% 94% 94% 645 620 9,785
NY-Syracuse Pearl Street 60 31 1995 855 3% 42% 92% 86% 557 534 1,799
NY-Syracuse Village Green 448 16 1994 908 6% 54% 86% 89% 672 654 18,649
NY-Syracuse Westminster Place 240 30 1996 913 0% 47% 95% 95% 643 611 8,672
OH-Columbus Weston Gardens 242 29 1998 804 31% 70% 81% 85% 549 546 7,594
PA-Philadelphia Arbor Crossing 134 33 1999 667 20% 39% 94% 95% 741 701 6,431
PA-Philadelphia Beechwood Gardens 160 35 1998 775 25% 46% 97% 93% 725 683 5,512
PA-Philadelphia Cedar Glen Apartments 110 35 1998 726 0% 53% 92% 92% 584 521 4,142
PA-Philadelphia Chesterfield Apartments 247 29 1997 812 10% 53% 96% 94% 801 765 13,015
PA-Philadelphia Curren Terrace 318 31 1997 782 27% 47% 91% 93% 845 800 17,592
PA-Philadelphia Executive House 100 37 1997 696 41% 46% 96% 97% 864 832 6,371
PA-Philadelphia Glen Brook 173 39 1999 689 12% 43% 94% 97% 711 676 7,316
PA-Philadelphia Glen Manor 174 26 1997 667 22% 47% 92% 95% 699 671 7,110
PA-Philadelphia Hill Brook Place 274 34 1999 709 11% 48% 96% 97% 759 699 13,755
PA-Philadelphia Home Properties of Bryn Mawr 316 51 2000 900 39% 56% 88% 91% 1,004 936 28,901
PA-Philadelphia Home Properties of Castle Club 158 35 2000 974 31% 35% 98% 98% 784 741 11,294
PA-Philadelphia Home Properties of Devon 629 39 2000 1299 15% 51% 89% 92% 1055 996 52,994
PA-Philadelphia Home Properties of Golf Club 399 33 2000 821 15% 58% 89% 91% 963 897 33,899
PA-Philadelphia Home Properties of Trexler
Park 249 28 2000 1000 20% 76% 88% 91% 950 906 19,469
PA-Philadelphia New Orleans Park 308 31 1997 693 20% 43% 94% 93% 739 704 16,070
PA-Philadelphia Racquet Club East Apartments 467 31 1998 850 20% 40% 96% 96% 885 846 28,649
PA-Philadelphia Racquet Club South 103 33 1999 821 25% 41% 96% 95% 777 728 5,517
PA-Philadelphia Ridley Brook 244 40 1999 731 25% 40% 97% 98% 755 715 11,638
PA-Philadelphia Sherry Lake Apartments 298 37 1998 811 62% 49% 96% 96% 1,022 954 21,322
PA-Philadelphia The Landings 384 29 1996 987 15% 68% 91% 94% 910 859 24,114
PA-Philadelphia Valley View Apartments 176 29 1997 769 15% 77% 91% 94% 759 724 9,256
PA-Philadelphia Village Square 128 29 1997 795 17% 53% 91% 92% 833 797 6,905
PA-Philadelphia William Henry 363 31 2000 900 25% 43% 88% 88% 1,017 950 33,810
VA-Suburban DC Braddock Lee Apartments 254 47 1998 758 21% 38% 95% 95% 1,036 950 16,564
VA-Suburban DC East Meadow 150 31 2000 1035 9% 59% 93% 96% 1,169 1,148 13,420
VA-Suburban DC Elmwood Terrace 504 29 2000 1038 30% 61% 92% 91% 763 709 22,507
VA-Suburban DC Manor, The 198 28 1999 844 4% 61% 91% 95% 893 860 9,399
VA-Suburban DC Orleans Village 851 34 2000 1040 5% 46% 91% 96% 1,133 1,035 75,526
VA-Suburban DC Park Shirlington Apartments 294 47 1998 758 20% 42% 95% 97% 1,076 979 19,295
VA-Suburban DC Pavilion Apartments 432 34 1999 951 37% 31% 90% 91% 1,321 1,224 46,929
VA-Suburban DC Seminary Hill 296 42 1999 884 8% 48% 92% 94% 1,088 999 16,391
VA-Suburban DC Seminary Towers 548 38 1999 875 45% 39% 91% 94% 1,094 1015 32,804
VA-Suburban DC Tamarron Apartments 132 15 1999 1,097 0% 38% 98% 97% 1,006 933 10,267
Core Communities 1,912,513
Total/Weighted Avg 34,464 33 858 17% 48% 92% 94% $843 $796 $
(1)
“Core Communities” represents the 34,464 apartment units owned
consistently throughout 2001 and 2002.
(2) “Mature Residents” is the
percentage of residents aged 55 years or older as of December 31, 2002.
(3)
“Resident Turnover” reflects, on an annual basis, the number of
moveouts; divided by the total number of apartment units.
(4) “Average %
Occupancy” is the average economic occupancy for the 12 months ended
December 31, 2001 and 2002. For communities acquired during 2001 and 2002, this
is the average occupancy from the date of acquisition.
Communities Wholly Owned
and Managed by Home Properties
(2) (3) (4) 2002 2001 12/31/02
# Age Average 2002 2002 % 2002 2001 Avg. Mo. Avg. Mo. Total
Of In Year Apt Size % Mature Resident Avg. % Avg. % Rent Rate Rent Rate Cost
Regional Area Apts Years Acq (Sq Ft) Residents Turnover Occupancy Occupancy Per Apt. Per Apt. (000)
- ----------------- -----------------------------------------------------------------------------------------------------
2001 Acquisition Communities
IL-Chicago Courtyards 224 31 2001 673 5% 62% 91% 95% $810 $798 $13,973
MD-Baltimore Fenland Field 234 32 2001 934 5% 45% 94% 95% 897 851 15,477
MD-Baltimore Mill Town Village Apartments 384 29 2001 812 9% 41% 90% 86% 669 579 20,851
MD-Baltimore The Manor 435 33 2001 1017 5% 41% 95% 97% 1,044 1,004 37,937
MD-Baltimore Woodholme Manor 176 33 2001 825 9% 33% 94% 95% 594 552 7,053
NY-Long Island Devonshire Hills 297 34 2001 803 55% 60% 90% 94% 1,642 1,610 49,727
NY-Long Island Southern Meadows 452 31 2001 810 20% 49% 96% 97% 1,231 1,146 42,133
VA-Suburban DC Virginia Village 344 35 2001 1028 12% 56% 91% 89% 1,096 1,053 29,908
VA-Suburban DC Wellington Lakes 160 31 2001 675 3% 76% 90% 95% 708 679 7,661
VA-Suburban DC Wellington Woods 114 30 2001 688 4% 54% 95% 98% 715 691 5,429
2001 Total/Weighted Average 2,820 32 856 14% 50% 93% 94% $1,001 $950 $230,149
(1)
“Core Communities” represents the 34,464 apartment units owned
consistently throughout 2001 and 2002.
(2) “Mature Residents” is the
percentage of residents aged 55 years or older as of December 31, 2002.
(3)
“Resident Turnover” reflects, on an annual basis, the number of
moveouts; divided by the total number of apartment units.
(4)
“Average % Occupancy” is the average economic occupancy for the 12
months ended December 31, 2001 and 2002. For communities acquired during 2001
and 2002, this is the average occupancy
from the date of acquisition.
Communities Wholly Owned
and Managed by Home Properties
(2) (3) (4)
# Age Average 2002 2002 2002 2001 2002 2001 12/31/2002
pt Size Resident verage % Avg Mo,
Of In Year A % Mature % Average % A Avg Mo Rent Rent Total Cost
Sq Ft) ccupancy Rate per Rate per
Regional Area Apts Years Acq ( Residents Tumover O Occupancy Apt Apt (000)
- ----------------- ------------------------------------------------------------------------------------------------------
2002 Acquisition Communities
MA-Boston Gardencrest Apartments 696 54 2002 847 18% 96% N/A $1,060 N/A $86,835
NY-Alb/Hudson
Valley Sherwood Consolidation 224 33 2002 813 16% 19% 96% N/A 794 N/A 14,085
NY-Long Island Cambridge Village Associates 82 35 2002 747 30% 19% 97% N/A 1,190 N/A 5,978
NY-Long Island Hawthorne Consolidation 434 34 2002 729 45% 35% 85% N/A 1,146 N/A 35,029
NY-Long Island Heritage Square 80 53 2002 703 30% 28% 97% N/A 1,169 N/A 6,946
NY-Long Island Holiday/Muncy Consolidation 143 23 2002 566 100% 12% 98% N/A 894 N/A 9,817
NY-Long Island Stratford Greens Associates 359 28 2002 725 10% 36% 93% N/A 1,222 N/A 47,141
NY-Long Island Westwood Village Apartments 242 33 2002 829 58% 30% 96% N/A 1,651 N/A 32,071
NY-Long Island Woodmont Village Apartments 96 34 2002 704 30% 38% 95% N/A 1,082 N/A 8,933
NY-Long Island Yorkshire Village Apartments 40 33 2002 779 50% 24% 95% N/A 1,259 N/A 3,373
PA-Philadelphia Green Acres 212 42 2002 926 46% 44% 94% N/A 755 N/A 10,718
VA-Suburban DC Brittany Place 591 34 2002 920 0% 39% 97% N/A 931 N/A 44,760
VA-Suburban DC Cider Mill 864 24 2002 834 4% 32% 91% N/A 989 N/A 81,738
VA-Suburban DC The Sycamores 185 24 2002 876 6% 13% 93% N/A 1,142 N/A 20,352
VA-Suburban DC West Springfield Terrace 244 24 2002 1,019 20% 52% 94% N/A 1,183 N/A 34,210
2002 Total/Weighted Average 4,492 34 828 26% 31% 94% N/A $1,098 N/A $441,986
Owned Portfolio 2,584,648
Total/Weighted Avg 41,776 33 855 18% 46% 92% 94% $877 $808 $
(1)
“Core Communities” represents the 34,464 apartment units owned
consistently throughout 2001 and 2002.
(2) “Mature Residents” is the
percentage of residents aged 55 years or older as of December 31, 2002.
(3)
“Resident Turnover” reflects, on an annual basis, the number of
moveouts; divided by the total number of apartment units.
(4)
“Average % Occupancy” is the average economic occupancy for the 12
months ended December 31, 2001 and 2002. For communities acquired during 2001
and 2002, this is the average occupancy from the date of acquisition.
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Management
believes that new construction of market rate multifamily apartments is not economically
feasible in most of its markets. Therefore, Home Properties’ prior development and
redevelopment activities were limited to government-assisted multifamily housing. In
1996, the Operating Partnership acquired substantially all of the assets of C.O.F., Inc.
(formerly Conifer Realty, Inc.) and Conifer Development, Inc. (collectively, “Conifer”),
a developer and manager of government-assisted multifamily housing. |
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Effective
December 31, 2000, the Company sold its affordable housing development operations to
Conifer, LLC. Conifer, LLC is led by Richard J. Crossed, a former Executive Vice
President and former director of the Company. The Company retained property management
operations for 8,325 apartment units in 136 existing affordable communities. |
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In
December 2002, the Company, including its equity affiliates (the Management Companies),
determined that it would market for sale virtually all of the assets associated with its
interests in various affordable property limited partnerships. Such assets include the
equity interest in the affordable housing partnerships, loans, advances and management
contracts. As a result, the Company, including its equity affiliates, recorded impairment
charges aggregating $14.2 million in the fourth quarter of 2002. Such charges principally
relate to reducing recorded amounts relating to the previously mentioned assets to
estimated fair value. |
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The
Company has retained the ability to develop new market rate communities, but does not
plan to focus on this activity. Rather, it plans to engage in development activity only
on a very selective basis. |
| |
As
of December 31, 2002, the Managed Properties consist of: (i) 8,072 apartment units where
Home Properties is the general partner of the entity that owns the property; and
(ii) 1,993 apartment units managed for others. In addition, as of December 31, 2002, the
Operating Partnership and the Management Companies also engaged in the following property
management activities: (i) commercial properties managed for an affiliate which contain
approximately 2.2 million square feet of gross leasable area; (ii) a master planned
community managed for an affiliate known as Gananda; (iii) a 140-lot Planned Unit
Development managed for an affiliate known as College Greene; (iv) a 400-lot Planned Unit
Development managed for a third party known as Riverton; and (v) a 178 single family
Planned Unit Development and 163 government assisted apartment units to be developed for
an affiliate and known as Old Brookside. Management fees are based on a percentage of
rental revenues or costs and, in certain cases, revenues from sales. |
| |
The
Company may pursue the management of additional properties not owned by the Company, but
will only do so when such additional properties can be effectively and efficiently
managed in conjunction with other properties owned or managed by Home Properties. |
| |
The
table on the following pages details managed multifamily communities broken down by
market area. |
Managed Communities by Market Area
# of
Community Name City Apts.
UPSTATE NEW YORK
Buffalo, NY Area
Linda Lane Apartments Cheektowaga 156
Rochester, NY Area
Abraham Lincoln Rochester 69
Ambassador Apartments Rochester 54
Chevy Place Rochester 77
College Greene Senior Apartments N. Chili 110
East Court Apartments Rochester 85
Ellis Hollow Ithaca 100
Evergreen Hills Macedon 232
Fort Hill Canandaigua 57
Geneva Garden Apartments Geneva 53
Highland Park Dundee 91
Huntington Park Apartments Rochester 75
Jefferson Park Fairport 69
Lima Manor Apartments Lima 32
Linderman Creek Ithaca 56
Monica Place Rochester 21
Nichols Schoolhouse Apartments Nichols 13
Sandy Creek Albion 24
Springside Meadows Apartments West Henrietta 54
St. Bernard's Park Rochester 59
St. Bernard's Park II Rochester 88
St. Michael's Senior Housing Rochester 28
Village Square Painted Post 75
Walnut Hill Dundee 59
Washington Park Castile 24
YWCA Rochester 86
Syracuse, NY Area
Candlelight Lane Apartments Liverpool 244
Canton Manor Apartments Canton 30
Champion Apartments West Carthage 32
Champion Apartments II West Carthage 32
Church Street Apartments Port Byron 39
Circle Drive Apartments I Sidney 32
Circle Drive Apartments II Sidney 24
Hunters Run Dexter 40
LaFarge Senior Housing Lafargeville 24
Ledges Evans Mills 100
Lenox Landing Syracuse 32
Macartovin Utica 66
Mayrose Apartments Oneonta 32
Meadowview I Central Square 60
Meadowview II Central Square 46
Meadowview III Central Square 24
Northcliffe Apartments Cortland 58
Norwich Senior Housing Norwich 32
Oak Square Apartments Oneonta 30
Penet Square Apartments Lafargeville 24
Pontiac Terrace Apartments Oswego 70
Read Memorial Senior Apartments Hancock 28
Schoolhouse Apartments Waterville 56
Schoolhouse Gardens Groton 28
Sherburne Senior Housing Sherburne 29
Wedgewood Apartments Kirkville 70
Wedgewood II Senior Apartments Kirkville 24
Windsor Place Apartments N. Syracuse 180
Albany/Hudson Valley NY Area
Adam Lawrence Apts Corinth 40
Albert Carriere Apartments Rouses Point 56
Apple Meadow Village Hudson 48
Apple Meadow Village II Hudson 10
Black Brook Senior Housing Au Sable Forks 24
Bonnie View Terrace Apts Wilmington 24
Cynthia Meadows Greenwich 36
Albany/Hudson Valley NY Area (Continued)
Greencourt Apartments Mt. Vernon 76
Hillside Terrace Poughkeepsie 64
Lakeside Manor Apartments Schroon Lake 24
Louis Apartments Coxsackie 24
Maple Ridge Senior Housing Malone 40
Peppertree Apartments Coxsackie 24
Peppertree Park Coxsackie 24
Riverwood Apartments I Stillwater 24
Riverwood Apartments II Stillwater 24
Roderick Rock Senior Housing Rouses Point 24
South 15th Apartments Mt. Vernon 66
Terrace View Apartments Yonkers 48
Trinity Senior Apartments Yonkers 45
Webster Manor Apts Malone 32
Other New York State Areas
Managed Out of the Erie, PA Office
Arcade Manor Arcade 24
Belmont Village Court Belmont 24
Blairview Apartments Blairsville 42
Bolivar Manor Bolivar 24
Canisteo Manor Canisteo 24
Carrollton Heights Limestone 18
Cattaraugus Manor Cattaraugus 24
Little Valley Estates Little Valley 24
Maple Apartments Alfred 24
Maple Leaf Apartments Franklinville 24
Portville Manor Portville 24
Portville Square Portville 24
Yorkshire Corners Delevan 24
WESTERN PENNSYLVANIA
Erie, PA Area
Arlington Manor Greenville 48
Brandy Spring Apartments Mercer 40
Bridgeview Apartments Emlenton 36
Connellsville Heights Connellsville 36
Creekside Apartments Leechburg 30
Derry Round House Derry 26
Freedom Apartments Ford City 28
Green Meadow Apartments Pittsburgh 1,072
Greenwood Apartments Mt. Pleasant 36
Harrison City Commons Harrison City 38
Independence Apartments Mt. Pleasant 28
Lake City Apartments Lake City 44
Lake Street Apartments Girard 32
Liberty Apartments Brookville 28
Lincoln Woods Apartments Warren 44
Little Creek (Isabella Estates) Saxonburg 26
Mercer Manor Mercer 26
Millwood Arms Ford City 28
Oswayo Apartments Shinglehouse 18
Parkview Apartments Brookway 24
Rivercourt Apartments Tionesta 18
Rose Square Connellsville 11
Scottdale Plaza Apartments Scottdale 22
Seneca Woods Apartments Seneca 40
Sheffield Country Manor Sheffield 24
Silver Maples Apartments Ulysses 24
Summit Manor Cresson 24
Taylor Terrace W. Pittsburgh 30
Tionesta Manor Tionesta 36
Tower View Apartments Tower City 25
Townview Apartments St. Mary's 36
Tremont Station Tremont 24
Washington Street Apartments Conneautville 30
Woodside Apartments Grove City 32
Wright Village Sandy Lake 24
INDIANA
Dunedin Apartments South Bend 168
NORTHERN/CENTRAL OHIO
Briggs/Wedgewood Apartments Columbus 868
Sunset West Apartments Conneaut 40
Villas of Geneva Geneva 40
NEW JERSEY
Leland Gardens Plainfield 256
Millstream Apartments Washington
Township 96
BALTIMORE, MD
Morningside Seniors Owings Mills 82
Total Communities Managed
as General Partner 8,072
Communities Fee Managed
Community Name City # of
Apts.
UPSTATE NEW YORK
Rochester, NY Area
Eastgate Homes Elmira 101
Fight Village Rochester 246
Hudson Housing Rochester 55
Albany, NY Area
Council Meadows Burnt Hills 25
Green Meadow Apts Chester 36
BALTIMORE, MD
Annapolis Roads Apartments Annapolis 282
Chesapeake Bay Apartments Annapolis 108
Dunfield Townhomes Baltimore 312
Fox Hall Baltimore 720
DETROIT, MI
Woodward Heights Apartments Royal Oak 108
Total Communities Fee Managed 1,993
| |
Supplemental
Property Information |
| |
At
December 31, 2002, 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 2002. |
Item 3. Legal Proceedings
| |
The
Company is a party to certain legal proceedings. All such proceedings, taken together,
are not expected to have a material adverse effect on the Company’s liquidity,
financial position or results of operations. The Company is also subject to a variety of
legal actions for personal injury or property damage arising in the ordinary course of
its business, most of which are covered by liability insurance. While the resolution of
these matters cannot be predicted with certainty, management believes that the final
outcome of such legal proceedings and claims will not have a material adverse effect on
the Company’s liquidity, financial position or results of operations. |
Item 4. Submission of Matters to
Vote of Security Holders
Item 4A. Executive Officers and
Key Employees
| |
The
following table sets forth, as of February 21, 2003, the nine executive officers and
certain of the key employees of the Company, together with their respective ages,
positions and offices. |
Name Age Position
Norman P. Leenhouts 67 Chairman, Co-Chief Executive Officer and Director of
Home Properties, Chairman and Director of HP Management and
Chairman and Director of HPRS
Nelson B. Leenhouts 67 President, Co-Chief Executive Officer and Director of
Home Properties, President, Chief Executive Officer and Director
of HP Management and Director and President of HPRS
Edward J. Pettinella 51 Executive Vice President and Director of Home Properties, HP
Management and HPRS
David P. Gardner 47 Senior Vice President and Chief Financial Officer of
Home Properties, HP Management and HPRS
Ann M. McCormick 46 Senior Vice President, General Counsel and Secretary of
Home Properties, HP Management and HPRS
Scott A. Doyle 41 Senior Vice President, Residential Property Management of
Home Properties, HP Management and HPRS
Johanna A. Falk 38 Senior Vice President and Chief Administrative Officer of Home
Properties, Senior Vice President of HP Management and HPRS
John E. Smith 52 Senior Vice President, Acquisitions of Home Properties, HP
Management and HPRS
Robert J. Luken 38 Vice President, Treasurer and Chief Financial Analyst of
Home Properties, HP Management and HPRS
Name Age Position
William E. Beach 56 Vice President, Commercial Property Management of Home Properties,
HP Management and HPRS
William L. Brown 59 Vice President, Construction and Engineering of Home Properties,
HP Management and HPRS
Charis W. Copin 53 Vice President, Investor Relations of Home Properties, HP
Management and HPRS
Timothy A. Florczak 47 Vice President, Education of Home Properties, HP Management and
HPRS
Mildred R. Hemstetter 67 Vice President, Residential Property Management of
Home Properties, HP Management and HPRS
Marianne Holman 49 Vice President, Residential Property Management of
Home Properties, HP Management and HPRS
Gerald B. Korn 56 Vice President, Mortgage Finance of Home Properties, HP Management
and HPRS
Laurie Leenhouts 46 Vice President, Residential Property Design of Home Properties, HP
Management and HPRS
Paul O'Leary 51 Vice President, Acquisitions and Due Diligence of Home Properties,
HP Management and HPRS
Bernard J. Quinn 46 Vice President, Residential Property Management of
Home Properties, HP Management and HPRS
James E. Quinn, Jr. 47 Vice President, Residential Property Management of
Home Properties, HP Management and HPRS
Alan Regan 39 Vice President, Affordable Housing of Home Properties, HP
Management and HPRS
Janine M. Schue 40 Vice President, Human Resources of Home Properties, HP Management
and HPRS
Joseph M. Stafford 31 Vice President and Controller of Home Properties
Richard J. Struzzi 49 Vice President, Development of Home Properties, HP Management and
HPRS
Kathleen K. Suher 35 Vice President, Assistant Counsel of Home Properties, HP
Management and HPRS
Robert C. Tait 45 Vice President, Commercial Property Management of Home Properties,
HP Management and HPRS
Marilyn Thomas 52 Vice President, Residential Property Management of
Home Properties, HP Resident Services and HPRS
Linda Vicari 40 Vice President, Residential Property Management of
Home Properties, HP Management and HPRS
| |
Information
regarding Nelson and Norman Leenhouts and Edward Pettinella is set forth below under
“Board of Directors” in Item 10. |
| |
David
P. Gardner has served as Senior Vice President of the Company since 2000, Chief Financial
Officer of the Company since its inception, and Vice President and Chief Financial
Officer of HP Management and HPRS since their inception. Since May 2002, he has served HP
Management and HPRS as Senior Vice President. 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 Senior Vice President since 2000, and Vice President and
General Counsel and Secretary of the Company and HP Management since their inception. She
has also served as Secretary and General Counsel of HPRS since 1998 and as Vice President
since 2000. Since May 2002, she has served HP Management and HPRS as Senior Vice
President. 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 Peabody LLP. Mrs. McCormick is a graduate of Colgate
University and holds a Juris Doctor from Cornell University. |
| |
Scott
A. Doyle has served as Senior Vice President since 2000, and Vice President of the
Company since 1997. He has also served as Vice President of HPRS since 2000. Since May
2002, he has served HP Management and HPRS as Senior Vice President. He joined Home
Properties in 1996 as a Regional Property Manager. Mr. Doyle has been in property
management for 20 years and is a Certified Property Manager (CPM) as designated by the
Institute of Real Estate Management. Prior to joining Home Properties he worked with
CMH Properties, Inc., Rivercrest Realty Associates and Arcadia Management Company. Mr.
Doyle is a graduate of S.U.N.Y. at Plattsburgh, New York. |
| |
Johanna
A. Falk has served as Senior Vice President since 2000, Chief Administrative Officer
since February 2003, and Vice President of the Company since 1997. She has also served as
Vice President of HPRS since 2000. Since May 2002, she has served HP Management and HPRS
as Senior Vice President. She joined the Company in 1995 as an investor relations
specialist, was responsible for the Information Systems Department through 2002, and was
promoted to Chief Administrative Officer in February 2003. 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
E. Smith joined Home Properties as Vice President of Acquisitions in 1997 and was elected
Senior Vice President in 2001. Since May 2002, he has served HP Management and HPRS as
Senior Vice President. Prior to joining the Company, Mr. Smith was general manager for
Direct Response Marketing, Inc. and Executive Vice President for The Equity Network, Inc.
Mr. Smith was Director of Investment Properties at Hunt Commercial Real Estate for
20 years. He has been a Certified Commercial Investment Member (CCIM) since 1982, a New
York State Certified Instructor and has taught commercial real estate courses in four
states. |
| |
Robert
J. Luken has served as Chief Financial Analyst since February 2002, Treasurer of the
Company since 2000 and as Vice President since 1997. Since 2001, he had also served as
Vice President and Controller of HPRS and HP Management. He joined the Company in 1996,
serving as its Controller. Prior to joining the Company, he was the Controller of Bell
Corp. of Rochester and an Audit Supervisor for PricewaterhouseCoopers LLP. Mr. Luken
is a graduate of St. John Fisher College and is a Certified Public Accountant. Mr. Luken
serves on the Finance Committee of the Ronald McDonald House Charities in Rochester, New
York. |
| |
William
E. Beach has served as Vice President of the Company and HP Management since their
inception. Since May 2002, Mr. Beach has also served as a Vice President of HPRS. He
joined Home Leasing in 1972 as 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. |
| |
William
L. Brown has served as Vice President of the Company since 2000. Since May 2002, Mr.
Brown has also served as Vice President of HP Management and HPRS. He joined the Company
in 1998 when the Company acquired the multi-family assets owned by the Siegel
Organization in Baltimore, Maryland. Mr. Brown had served as an Executive Vice President
of the Siegel Organization since 1970. He is a graduate of the University of Baltimore. |
| |
Charis
W. Copin has served as Vice President of the Company since 2001. Since May 2002, Ms.
Copin has also served as Vice President of HP Management and HPRS. She joined Home
Properties in 2001 as Director of Investor Relations. Prior to joining the Company, she
was Director of Investor Relations at PSC Inc. since 1996. She had previously held
various senior management positions in Marketing, Corporate and Investor Relations, and
Strategic Planning at RCSB Financial, Inc., the holding company for Rochester Community
Savings Bank. Ms. Copin holds an MBA from the Rochester Institute of Technology and a BA
from St. Lawrence University. She also serves on the Board of Directors of Fairport
Savings Bank and on the Board of Trustees of Geva Theatre Center. |
| |
Timothy
A. Florczak has served as Vice President of the Company since its inception. Since May
2002, Mr. Florczak has also served as Vice President of HP Management and HPRS. 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. |
| |
Mildred
R. Hemstetter has served as Vice President of the Company since 2001. Since May 2002, Ms. Hemstetter
has also served as Vice President of HP Management and HPRS. Prior to joining Home Properties
in 1999, she had served as Vice President of Property Management for The Macks-Fidler
Organization in Baltimore, Maryland for 40 years. Ms. Hemstetter is the Regional Leader
for the Mid-Atlantic, Baltimore Region. She also serves on the Maryland Multi-Housing
Association Executive Board, is a Senior Registered Apartment Manager, and a HUD
Certified Assisted Housing Manager. |
| |
Marianne
C. Holman has served as Vice President of the Company since 2001. Since May 2002, Ms. Holman
has also served as Vice President of HP Management and HPRS. She joined the Company in
1999 and served as a Property Manager for the Detroit Region until January 2001, when she
was promoted to Regional Leader. Ms. Holman has been in property management for 19 years.
In her career, she has worked for private and public property management companies,
including Equity Residential. Ms. Holman is a licensed Michigan real estate broker,
a Certified Property Manager (CPM), as designated by the Institute of Real Estate
Management, and is the President of the Detroit Metropolitan Apartment Association. |
| |
Gerald
B. Korn has served as Vice President and been employed at the Company since 1998. Since
May 2002, Mr. Korn has also served as Vice President of HP Management and HPRS. From 1984
until 1998, he was employed by Rochester Community Savings Bank in various capacities,
including as Senior Vice President in charge of the bank’s national commercial real
estate portfolio. Prior to 1984, Mr. Korn was employed for 11 years as a FDIC Bank
Examiner. Mr. Korn is a graduate of the Rochester Institute of Technology. |
| |
Laurie
A. Leenhouts has served as Vice President of the Company since its inception and has been
Vice President of HP Management since 1998. Since May 2002, Ms. Leenhouts has also
served as Vice President of HPRS. She joined Home Leasing in 1987 and has served as
Vice President since 1992. Ms. Leenhouts is a graduate of the University of Rochester.
She is the daughter of Norman Leenhouts. |
| |
Paul
O’Leary has served as Vice President of the Company since its inception. Since May
2002, Mr. O’Leary has also served as Vice President of HP Management and HPRS.
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. |
| |
Bernard
J. Quinn has served as Vice President of the Company since 2000. Since May 2002, Mr.
Quinn has also served as Vice President of HP Management and HPRS. He joined the Company
in 1997 and served as a Property Manager in the Philadelphia region until 2000 when he
was appointed Regional Leader of the New Jersey region. Prior to joining the Company, Mr. Quinn
was employed by Mill Creek Realty in Philadelphia. Mr. Quinn has a Pennsylvania real
estate license and is a graduate of Villanova University. He serves on the Board of
Directors as Treasurer of the New Jersey Apartment Association. |
| |
James
E. Quinn, Jr. has served as Vice President of the Company since 1998. He has also served
as Vice President of HPRS since 2000 and Vice President of HP Management since May
2002. He joined the Company in 1997 as the regional leader for the Philadelphia region.
Mr. Quinn also serves as the regional leader for the Boston Region. Prior to joining the
Company, Mr. Quinn was Vice President of Mill Creek Realty Group. Mr. Quinn is a licensed
Pennsylvania real estate broker and is a graduate of Drexel University. Mr. Quinn serves
as the Vice President of the Apartment Association of Greater Philadelphia and on the
Board of Directors of the Rental Housing Association of the Greater Boston Real Estate
Board. |
| |
Alan
Regan has served as Vice President of the Company since 2001. Since May 2002, Mr. Regan
has also served as Vice President of HP Management and HPRS. He joined the Company in
2000 as Director of Affordable Housing. Prior to joining Home Properties, Mr. Regan was
the Chief Operating Officer with Landsman Development Corporation. Mr. Regan is a
graduate of Fredonia State College. |
| |
Janine
M. Schue has served as Vice President of the Company since February 2002, after joining
the Company in October of 2001. Since May 2002, Ms. Schue has also served as Vice
President of HP Management and HPRS. Prior to joining the Company, she was employed by
NetSetGo as Vice President of Human Resources and prior to that by Wegmans Food Markets,
Inc. as Director of Human Resources. Ms. Schue is a graduate of the State University of
New York at Albany and holds a Masters of Education. |
| |
Joseph
M. Stafford has served as Controller since joining the Company in February 2002 and as
Vice President since February 2003. Prior to joining the Company, he was an Audit Manager
for PricewaterhouseCoopers LLP. Mr. Stafford is a graduate of Syracuse University and is
a Certified Public Accountant. |
| |
Richard
J. Struzzi has served as Vice President of the Company and HP Management since their
inception. He has also served as Vice President of HPRS since December 2000. 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. |
| |
Kathleen
K. Suher joined the Company as in-house counsel in 1998 and was named Vice President
in 2001. Since May 2002, Mrs. Suher has also served as Vice President of HP Management
and HPRS. Prior to joining Home Properties, she was an associate with the law firm of
Nixon Peabody LLP, specializing in real estate. Mrs. Suher is a graduate of the
University of Rochester and holds a Juris Doctor from Syracuse University College of Law. |
| |
Robert
C. Tait has served as Vice President of the Company and HP Management since their
inception. Since May 2002, Mr. Tait has also served as Vice President of HPRS. He joined
Home Leasing in 1989 and served as Vice President of Home Leasing since 1992. Prior to
joining Home Leasing, he was a manufacturing/industrial engineer with Moscom Corp. Mr.
Tait is a graduate of Princeton University, holds a Masters Degree in Business
Administration from Boston University and holds the Real Property Administrator Degree
from the Building Owners and Managers International Institute. Married to Director Amy L.
Tait, he is the son-in-law of Norman Leenhouts. |
| |
Marilyn
Thomas has served as Vice President of the Company and HPRS since 1999. Since May 2002,
Mrs. Thomas has also served as Vice President of HP Management. She joined the Company in
1998. Prior to joining Home Properties, Mrs. Thomas was Vice President at Patterson-Erie
Corporation for 15 years, working in the affordable housing, market rate apartment and
development areas. Mrs. Thomas is a licensed Pennsylvania real estate broker and has been
a Certified Property Manager since 1988. |
| |
Linda
Vicari has served as Vice President of the Company since February 2002. Since May 2002,
Ms. Vicari has also served as Vice President of HP Management and HPRS. She joined the
Company in November 2000 as a Regional Leader for the Pittsburgh/Ohio Region. Ms. Vicari
holds a Bachelors degree in Business Management and Economics from the State University
of New York at Fredonia. She is a Certified Property Manager (CPM) and is the Charity
Liaison of the Executive Council for the Pittsburgh Chapter of the Institute of Real
Estate Management. Ms. Vicari has worked in the residential property management
industry for 21 years, serving areas spanning ten states. |
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. |
High Low Distribution
2001
First Quarter $28.63 $25.89 $.57
Second Quarter $30.21 $27.50 $.57
Third Quarter $32.26 $29.00 $.57
Fourth Quarter $33.42 $29.63 $.60
2002
First Quarter $34.45 $31.40 $.60
Second Quarter $37.94 $33.79 $.60
Third Quarter $37.91 $31.25 $.60
Fourth Quarter $34.55 $28.28 $.61
| |
As
of February 21, 2003, the Company had approximately 6,400 shareholders of record,
27,562,407 common shares (plus 15,966,018 UPREIT Units convertible into 15,966,018 common
shares and Preferred Stock convertible into 3,235,592 common shares) were outstanding,
and the closing price was $31.50. It is the Company’s policy to pay dividends. The
Company has historically paid dividends on a quarterly basis in the months of February,
May, August and November. The Credit Agreement relating to the Company’s $115
million line of credit provides that the Company may not pay any distribution if a
distribution, when added to other distributions paid during the three immediately
preceding fiscal quarters, exceeds the greater of: (i) 90% of funds from operations, and
110% of cash available for distribution; and (ii) the amounts required to maintain the
Company’s status as a REIT. |
Item 6. Selected Financial and Operating Information
| |
The
following table sets forth selected financial and operating data on a historical basis
for the Company and should be read in conjunction with the financial statements appearing
elsewhere in this Form 10-K (amounts in thousands, except per share data). |
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Revenues:
Rental Income $378,133 $333,923 $284,142 $206,583 $131,385
Other Income 17,429 18,117 21,582 16,435 11,685
-------- -------- -------- -------- --------
TOTAL REVENUES 395,562 352,040 305,724 223,018 143,070
-------- -------- -------- -------- --------
Expenses:
Operating and maintenance 165,087 147,026 128,269 95,738 63,556
General & administrative 12,649 10,542 6,485 5,241 3,276
Interest 77,314 65,699 56,150 39,056 23,711
Depreciation & amortization 66,388 61,917 49,698 35,392 22,086
Impairment of assets held as General Partner 3,183 - - - -
Loss on available-for-sale securities - - - 2,123 -
Non-recurring acquisition expense - - - 6,225 -
-------- -------- -------- -------- --------
TOTAL EXPENSES 324,621 285,184 240,602 183,775 112,629
-------- -------- -------- -------- --------
Income from operations 70,941 66,856 65,122 39,243 30,441
Gain (loss) on disposition of property and
business ( 356) 26,241 ( 1,386) 457 -
Equity in earnings (losses) of unconsolidated
affiliates ( 17,493) 123 ( 1,747) 201 (146)
-------- -------- -------- -------- --------
Income before minority interest, discontinued
operations and extraordinary item 53,092 93,220 61,989 39,901 30,295
Minority interest 12,703 31,574 23,505 15,819 11,835
-------- -------- -------- -------- --------
Income from continuing operations 40,389 61,646 38,484 24,082 18,460
Discontinued operations, net of minority
interest 6,609 2,928 2,972 2,296 1,188
-------- -------- -------- -------- --------
Income before extraordinary item 46,998 64,574 41,456 26,378 19,648
Extraordinary item, prepayment penalties, net
of minority interest ( 2,059) (68) - (96) (960)
-------- -------- -------- -------- --------
Net Income 44,939 64,506 41,456 26,282 18,688
Preferred dividends ( 14,744) (17,681) (12,178) (1,153) -
Premium on Series B preferred stock repurchase ( 5,025) - - - -
-------- -------- -------- -------- --------
Net income available to common shareholders $25,170 $ 46,825 $29,278 $25,129 $18,688
======= ======== ======= ======= =======
Basic earnings per share data:
Income from continuing operations $ .79 $ 1.99 $ 1.28 $ 1.23 $ 1.33
Discontinued operations .25 .13 .14 .12 .08
Extraordinary item ( .07) - - ( .01) ( .07)
-------- -------- -------- -------- --------
Net income available to common shareholders $ .97 $ 2.12 $ 1.42 $ 1.34 $ 1.34
======= ======== ======= ======= =======
Diluted earnings per share data:
Income from continuing operations $ .78 $ 1.98 $ 1.27 $ 1.23 $ 1.32
Discontinued operations .25 .13 .14 .12 .08
Extraordinary item ( .07) - - ( .01 ) ( .07)
-------- -------- -------- -------- --------
Net income available to common shareholders $ .96 $ 2.11 $ 1.41 $ 1.34 $ 1.33
======= ======== ======= ======= =======
Cash dividends declared per common share $ 2.41 $ 2.31 $ 2.16 $ 1.97 $ 1.83
======= ======== ======= ======= =======
Balance Sheet Data:
Real estate, before accumulated depreciation $2,597,278 $2,135,078 $1,895,269 $1,480,753 $940,788
Total assets 2,456,266 2,063,789 1,871,888 1,503,617 1,012,235
Total debt 1,335,807 992,858 832,783 669,701 418,942
Series B convertible cumulative preferred stock - 48,733 48,733 48,733 -
Stockholders' equity 726,242 620,596 569,528 448,390 361,956
Other Data:
Net cash provided by operating activities $143,537 $148,505 $127,218 $90,526 $60,548
Net cash used in investing activities ($294,831) ($139,106) ($178,466) ($190,892) ($297,788)
Net cash provided by (used in) financing
activities $149,357 ($ 9,129) $56,955 $71,662 $266,877
Funds from Operations (1) $121,745 $136,604 $120,854 $80,784 $55,966
Cash available for distribution (2) $100,654 $120,994 $107,300 $78,707 $49,044
Weighted average number of shares outstanding:
Basic 26,054,535 22,101,027 20,639,241 18,697,731 13,898,221
Diluted 26,335,316 22,227,521 20,755,721 18,800,907 14,022,329
Total communities owned at end of period 152 143 147 126 96
Total apartment units owned at end of period 41,776 39,007 39,041 33,807 23,680
| |
(1) |
|
Management
considers funds from operations (“FFO”) to be an appropriate
measure of performance of an equity REIT. FFO is defined as net income
excluding gains or losses from the sales of property and business,
extraordinary items, minority interest in the Operating Partnership, plus
real estate depreciation. 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. 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 previous five years is presented as follows: |
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net income available to common
shareholders $ 25,170 $ 46,825 $ 29,278 $25,129 $18,688
Convertible Preferred dividends(a) 10,589 17,681 12,178 1,153 -
Premium paid on Series B
repurchased(b) 5,025 - - - -
Depreciation from real property(c) 67,919 64,589 52,297 37,473 23,715
Impairment on General Partner
Investment(d) 1,470 - - - -
(Gain) loss from sale of property 356 ( 26,241) 1,386 ( 457) -
Minority interest 12,703 32,844 24,819 16,570 11,946
Minority interest - discontinued
operations 1,174 838 896 820 657
(Gain) loss from sale of
discontinued operations ( 4,720)
Extraordinary item 2,059 68 - 96 960
-------- -------- -------- ------- -------
FFO $121,745 $136,604 $120,854 $80,784 $55,966
======== ======== ======== ======= =======
Weighted average common
shares/units outstanding:
Basic 42,062.1 37,980.0 35,998.3 31,513.8 22,871.7
======== ======== ======== ======= =======
Diluted(a) 46,466.4 45,063.6 41,128.4 32,044.9 22,995.8
======== ======== ======== ======= =======
| |
|
(a) |
|
The
calculation of FFO assumes the conversion of dilutive common stock equivalents and
convertible preferred stock. Therefore, the convertible preferred dividends are
added to FFO, and the common stock equivalent is included in the diluted
weighted average common shares/units outstanding. |
| |
|
(b) |
|
FFO
for 2002 includes adding back the premium on the Series B preferred stock
repurchase of $5,025. |
| |
|
(c) |
|
Includes
amounts passed through from unconsolidated investments. |
| |
|
(d) |
|
FFO
for 2002 includes adding back the loss associated with the Company’s
investment in limited partnerships held as a general partner. The investment in
the limited partnership is considered real estate for purposes of FFO. |
| |
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. |
| |
(2) |
|
Cash
Available for Distribution is defined as Funds from Operations less an
annual reserve for anticipated recurring, non-revenue generating
capitalized costs of $525 ($400 used for 2001 and $375 used for 1998-2000)
per apartment unit. It is the Company’s policy to fund its investing
activities and financing activities with the proceeds of its line of
credit, new debt, by the issuance of additional Units in the Operating
Partnership, or proceeds from property dispositions. |
Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
| |
The
following discussion should be read in conjunction with consolidated financial
statements, the notes thereto, and the selected financial data appearing elsewhere in
this report. Historical results and percentage relationships set forth in the
consolidated financial statements, including trends which might appear, should not be
taken as indicative of future operations. The Company considers portions of the
information to be “forward-looking statements” within the meaning of Section
27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, both as amended, with respect to the Company’s expectations for future
periods. Forward-looking statements include, without limitation, statements related to
acquisitions (including any related pro forma financial information) future capital
expenditures, financing sources and availability and the effects of environmental and
other regulations. Although the Company believes that the expectations reflected in those
forward-looking statements are based upon 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 sales, and continued access to capital to fund growth. For this purpose,
any statements contained herein that are not statements of historical fact should be
deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”,
“anticipates”, “plans”, “expects”, “seeks”, “estimates”,
and similar expressions are intended to identify forward-looking statements. Readers
should exercise caution in interpreting and relying on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are, in some
cases, beyond the Company’s control and could materially affect the Company’s
actual results, performance or achievements. |
| |
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 December 31, 2002, the Company operated 296
apartment communities with 51,841 apartments. Of this total, the Company owned 152
communities, consisting of 41,776 apartments, managed as general partner 134 partnerships
that owned 8,072 apartments and fee managed 1,993 apartments for affiliates and third
parties. The Company also fee manages 2.2 million square feet of office and retail
properties. |
| |
Comparison
of year ended December 31, 2002 to year ended December 31, 2001. |
| |
The
Company owned 121 communities with 34,464 apartment units throughout 2001 and 2002 where
comparable operating results are available for the years presented (the “2002 Core
Properties”). For the year ending December 31, 2002, the 2002 Core Properties showed
an increase in rental revenues of 4.1% and a net operating income increase of 3.6% over
the 2001 year-end period. Property level operating expenses increased 5.1%. Average
economic occupancy for the 2002 Core Properties decreased from 93.6% to 92.0%, with
average monthly rental rates increasing 5.8% to $843 per apartment unit. |
| |
A
summary of the 2002 Core Property net operating income is as follows: |
2002 2001 % Change
---- ---- --------
Rent $320,783,000 $308,164,000 4.1%
Property Other Income 12,959,000 11,991,000 8.1%
------------ ------------ ---
Total Revenue 333,742,000 320,155,000 4.2%
Operating and Maintenance ( 143,880,000) ( 136,892,000) (5.1%)
------------ ------------ ---
Net Operating Income $189,862,000 $183,263,000 3.6%
============ ============ ===
| |
During
2002, the Company acquired a total of 4,492 apartment units in 21 newly-acquired
communities (the “2002 Acquisition Communities”). In addition, the Company
experienced a full year results for the 2,820 apartment units in 10 apartment communities
(the “2001 Acquisition Communities”) acquired during 2001. The inclusion of
these acquired communities generally accounted for the significant changes in operating
results for the year ended December 31, 2002. |
| |
During
2002, the Company also disposed of 12 properties with a total of 1,724 units, which had
partial results for 2002 (the “2002 Disposed Communities”). The results of
these disposed properties have been reflected in discontinued operations. |
| |
For
the year ended December 31, 2002, income from operations (income before gain on
disposition of property and business, equity in earnings (losses) of unconsolidated
affiliates, minority interest, discontinued operations and extraordinary item) increased
by $4,085,000 when compared to the year ended December 31, 2001. The increase was
primarily attributable to the following factors: an increase in rental income of
$44,210,000 and a decrease in all other income of $688,000. These changes were partially
offset by an increase in operating and maintenance expense of $18,061,000, an increase in
general and administrative expense of $2,107,000, an increase in interest expense of
$11,615,000, an increase in depreciation and amortization of $4,471,000 and the charge
for impairment of assets held as General Partner of $3,183,000. |
| |
Of
the $44,210,000 increase in rental income, $27,259,000 is attributable to the 2002
Acquisition Communities and $17,350,000 is attributable to the 2001 Acquisition
Communities, offset in part by a $13,018,000 reduction attributable to the 2001 Disposed
Communities. The balance of $12,619,000 relates to a 4.1% increase from the 2002 Core
Properties due primarily to an increase of 5.8% in weighted average rental rates, offset
by a decrease in average economic occupancy from 93.6% to 92.0%. |
| |
In
addition to normal inflationary rent increases, the Company was successful in achieving
above-normal increases at specific properties where rents were below the level of the
average rent charged by our direct competition. An additional component of the 5.8%
increase in weighted average rent results from the significant upgrading and
repositioning efforts discussed under the Capital Improvements section of this report.
The Company seeks a minimum 12% internal rate of return for these revenue-enhancing
upgrades. |
| |
The
decrease in average economic occupancy can be attributed to the decline in general
economic conditions during 2002. Same-store occupancies have averaged approximately 95%
for a number of years. During the second quarter of 2001, the Detroit regional market
experienced softness that was partially related to announced lay-offs in the auto
industry. A reduction in job growth leads to fewer household formations, which creates a
reduction in demand for rental housing. During the third and fourth quarters of 2001, it
became obvious that the recession was affecting all of our regions, as well as our
competitors. Occupancy levels dipped to a low of 91.6% for the month of December 2001.
From that low point in December 2001, occupancy levels increased slightly for all of
2002, averaging 92.2% |
| |
In
this recessionary economic environment, it is very difficult to project rental rate and
occupancy results. The Company has provided guidance for 2003, which, at the mid-point of
the range, anticipates same store revenue growth of 3.7%, including above-average rental
increases from the continued efforts to upgrade the properties. Occupancy levels are
expected to remain below the levels they were at during 2002, producing an expected
average for 2003 of 91.6%. |
| |
Property
other income, which consists primarily of income from operation of laundry facilities,
late charges, administrative fees, garage and carport rentals, net profits from corporate
apartments, cable revenue, pet charges, and miscellaneous charges to residents, increased
in 2002 by $1,595,000. Of this increase, $588,000 is attributable to the 2001 Acquisition
Communities, $513,000 is attributable to the 2002 Acquisition Communities and $968,000
represents an 8.1% increase attributable to the 2002 Core Properties. These increases
were offset in part by decreases attributable to the 2001 Disposed Communities of
$474,000. |
| |
Interest
and dividend income decreased in 2002 by $1,695,000, due to decreased levels of financing
to affiliates and a lower interest rate environment. |
| |
Other
income, which primarily reflects management and other real estate service fees recognized
directly by the Company, decreased $588,000 due to decreased levels of management fees
from properties directly managed by the Company. These decreased levels of management
fees are directly attributable to the decrease in property revenue and occupancy at the
managed properties as a result of the weak economy. |
| |
Of
the $18,061,000 increase in operating and maintenance expenses, $7,233,000 is
attributable to the 2001 Acquisition Communities, $10,010,000 is attributable to the 2002
Acquisition Communities and a reduction of $6,170,000 is attributable to the 2001
Disposed Communities. The balance for the 2002 Core Properties, a $6,988,000 increase in
operating expenses or 5.1%, is primarily a result of increases in real estate taxes,
personnel expense, property insurance, and repairs and maintenance costs, offset in part
by decreases in natural gas utilities and snow removal costs. The insurance expense for
the year reflects the impact of a legal settlement related to the portion of the policy
year from January 1, 2002, to October 31, 2002, and reduced the expense by $2.7 million.
See Comparison of year ended December 31, 2001, to December 31, 2000, for further
information. |
| |
Natural
gas costs for the Core Properties were down 10.3% for the twelve months, due to an
unusually mild winter in 2002 compared to 2001 where we expensed a combination of
extraordinary increases in natural gas prices as well as lower temperatures experienced
in 2001. Management believed it was in the Company’s best interest to take advantage
of lower natural gas prices and to negotiate fixed price contracts starting in the Spring
of 2001. As of December 31, 2002, the Company had fixed-price contracts covering 90%
of its natural gas exposure for the 2002/2003 heating season. The Company has fixed-price
contracts covering 75% of its natural gas exposure for the 2003/2004 heating season. Risk
is further diversified by staggering contract term expirations. For the 2002/2003 heating
season, the Company’s negotiated average price per decatherm is approximately $4.38.
If the Company were to purchase a twelve month fixed price contract today, the price per
decatherm would be $6.37. Management expects pricing to reduce once the current heating
season ends, which is the time frame new fixed contracts would be renegotiated. If rates
do not decrease, the Company would incur higher heating costs during 2004. |
| |
The
Company has provided guidance for 2003 which anticipates same store expense growth at the
mid-point of the range of 5.1%. Natural gas costs are assumed to increase 8%, personnel
expense is projected to increase 4%, and insurance costs are anticipated to increase 84%. |
| |
The
operating expense ratio (the ratio of operating and maintenance expense compared to
rental and property other income) for the 2002 Core Properties was 43.1% and 42.6% for
2002 and 2001, respectively. This 0.5% increase resulted from the 4.2% increase in total
rental and property other income achieved through ongoing efforts to upgrade and
reposition properties for maximum potential being offset by the 5.1% increase in
operating and maintenance expense. In general, the Company’s operating expense ratio
is higher than that experienced in other parts of the country due to relatively high real
estate taxes in its markets and the Company’s practice, typical in its markets, of
including heating expenses in base rent. |
| |
General
and administrative expenses increased in 2002 by $2,107,000 or 20% from $10,542,000 in
2001 to $12,649,000 in 2002. As the Company expands geographically, the increases
principally reflect increased efforts in serving residents and employees through new and
expanded initiatives, including a help desk, call center, and an education department.
Bonus expense increased $838,000 in 2002, net of amounts allocated to properties and the
Management Companies. In addition, the Company incurred $882,000 in a legal settlement.
During 2002, the Company reclassified certain property related operating expenses from
General and Administrative to Operating and Maintenance. This reclassification was made
as the Company determined that certain expenditures were more appropriately allocated to
the properties’ operations. The general and administrative expenses for 2001 reflect
this same reclassification. The percentage of general and administrative expenses
compared to total revenue was 3.2% for 2002 compared to 3.0% for 2001. |
| |
Interest
expense increased in 2002 by $11,615,000 as a result of the acquisition of the 2002
Acquisition Communities and a full year of interest expense for the 2001 Acquisition
Communities. The 2001 |
| |
Acquisition
Communities, costing in excess of $212,000,000, were financed with $68,000,000 of assumed
debt in addition to the use of UPREIT Units. The 2002 Acquisition Communities, costing in
excess of $430,000,000, were financed with $153,600,000 of assumed debt, in addition to
the use of UPREIT Units. During the first and second quarters of 2002 the Company also
closed on additional mortgage debt through Freddie Mac totaling $102,000,000. During the
fourth quarter of 2002, the Company refinanced $101,000,000 in existing mortgage debt
resulting in new borrowings of approximately $237,000,000. In addition, amortization from
deferred charges relating to the financing of properties totaled $1,014,000 and $632,000,
and was included in interest expense for 2002 and 2001, respectively. |
| |
Depreciation
and amortization expense increased $4,471,000 due to the depreciation on the 2002
Acquisition Communities, the 2001 Acquisition Communities, the additions to the Core
Properties, net of the Disposition Communities. The increase is net of the effect of the
change in accounting estimate made by management effective January 1, 2002, related to
the extension of certain depreciable lives of real estate and related assets. The change
reduced depreciation expense for the year by approximately $10,000,000 (before allocation
to minority interest). Specifically, the Company changed the useful lives of all
buildings to 40 years regardless of the date of construction. Previously, the buildings
were depreciated over 30-40 years based on the year of construction. In addition, for
major kitchen and bathroom upgrades, the Company determined that a 20-year life was more
appropriate rather than its previous life of 10 years. The Company believes that the
change in useful lives is more reflective of the economic lives of the tangible assets
and is also more comparable to its peer group. |
| |
The
Company, including its equity affiliates (the Management Companies), determined in the
fourth quarter of 2002 that it would market for sale the assets associated with its
interests in various affordable property limited partnerships. Prior to the fourth
quarter of 2002, the Company had been assessing whether to expand its holding in such
assets, including seeking out additional management opportunities, to consider the sale
of such assets, or to retain its existing portfolio of assets without further growth. The
Company ultimately concluded that it would not seek to grow its portfolio of these types
of assets. It was then determined that the existing affordable property limited
partnerships required a disproportionate effort to manage which was not justified by the
overall contribution to profit. The Company concluded that its strategic focus should be
on the direct ownership and management of market rate properties. Accordingly, the
decision to sell its assets in the affordable property limited partnerships was made. |
| |
The
Company’s assets related to the affordable property limited partnerships are
comprised of management contracts, loans, advances and receivables and general
partnership interests. An aggregate impairment charge of $14.2 million was recorded by
the Company and its equity affiliates and resulted from adjusting the recorded amount of
the assets to their estimated fair market value. The impairment charge was comprised of
the following: (i) intangible assets (i.e. management contracts) were written down
$985,000 to their estimated fair market value, (ii) loans, advances and other receivables
which had previously been assessed for impairment based upon their estimated
collectibility as determined under applicable accounting standards, are now, subsequent
to the Company’s decision to sell, required to be reflected at their estimated fair
market value and, accordingly, were written down by an aggregate of $12,363,000 and (iii)
the general partnership equity interests were written down $899,000 as certain of the
Company’s investments are now considered to have suffered an other than temporary
impairment. As the assets are held by both the Company and its equity affiliates, the
resultant impairment triggered by the decision to sell these assets is reflected in the
statement of operations within the line items as follows: |
Impairment of assets held as general partner $ 2,448,000
Equity in earnings (losses) of unconsolidated affiliates 11,799,000
-----------
$14,247,000
===========
| |
In
addition to the above impairment charge, the Company’s results of operations, prior
to the decision to sell, were impacted by losses incurred by certain of the affordable
property limited partnerships. These losses were a direct result of the weak economy and
resulting decrease in occupancy levels. Loans, advances and other receivables of
$3,256,000 ($164,000 by the Company and $3,092,000 by the equity affiliates) were written
down due both to (i) the accounting requirements of EITF 99-10, “Percentage Used to
Determine the Amount of Equity Method Losses,” which require the general partner to
record a greater |
| |
share
of the underlying investment’s losses where the investor (i.e. the Company including
its equity affiliates) also has loans outstanding and the limited partner has no capital
account and (ii) the assessment of recoverability of recorded amounts based upon the
projected performance of the properties over the respective repayment terms. In addition,
the Company recorded an other than temporary impairment of $571,000, $546,000 relating to
the expiration in December 2002, of an option to acquire one of its equity interests.
This change in circumstances was unrelated to the Company’s decision to sell its
interest. These assets are held by both the Company and its equity affiliates. The
resultant charges that would have been recognized regardless of the Company’s
decision to sell the assets is reflected in the statement of operations within the line
items as follows: |
Impairment of assets held as general partner $ 735,000
Equity in earnings (losses) of unconsolidated affiliates 3,092,000
----------
$3,827,000
==========
| |
The
summary of the impairment and other charges related to the assets associated with the
affordable property limited partnerships referenced in the previous paragraphs is as
follows (in thousands): |
Sale Impairment Other Charges Totals
--------------- ------------- ------
Assets Company1 Affiliates2 Total Company1 Affiliates2 Total Company1 Affiliates Combined
---------------------------------------------------------------------------------------------------------------
Loans, advances and
other receivables $564 $11,799 $12,363 $164 $3,092 $3,256 $728 $14,891 $15,619
Intangible assets 985 - 985 - - - 985 - 985
General partner equity 899 - 899 571 - 571 1,470 - 1,470
------ ------- ------- ---- ------ ------ ------ ------- -------
$2,448 $11,799 $14,247 $735 $3,092 $3,827 $3,183 $14,891 $18,074
====== ======= ======= ==== ====== ====== ====== ======= =======
1 Recorded by the Company in the
line item “Impairment of assets held as General Partner”
2 Recorded by the Affiliates, and
reflected by the Company in the line item “Equity in earnings (losses) of
unconsolidated affiliates"
| |
During
2002, the Company reported a loss on disposition of property and business of $356,000
relating primarily to additional expenses incurred in the first quarter of 2002 for sales
which closed in the fourth quarter of 2001. These costs represented a change in estimate
from those accrued at the time of the sale. |
| |
Equity
in earnings (losses) of unconsolidated affiliates decreased $17,616,000 from 2001 to
2002. A decrease of $2,725,000 arises from the reduction in the net contribution from
property management and other activities of the Management Companies after allocating
certain overhead and interest expense. This reflected a lower level of management fees
associated with the performance of the managed affordable properties due to the weak
economy, which negatively affected the properties’ revenue and occupancy. The
general and administrative overhead charges which increased approximately $600,000
represents an allocation of direct and indirect costs incurred by the Company estimated
by management to be associated with the activities of the Management Companies. In
addition to the above, prior to the decision to sell the assets associated with the
limited partnership interest where the Company is the general partner, charges of
$3,092,000 were recorded arising from operating losses and other charges directly
associated with the performance of the partnerships where the Management Companies have
outstanding loans, advances and other receivables. Finally, an impairment charge of
$11,799,000 was recorded in order to reduce the assets to their estimated fair value
arising from the Company’s decision to sell (see table above). |
| |
Minority
interest decreased $18,871,000 due to the decrease in income allocated to the OP Unitholders,
which is primarily attributable to the combination of losses associated with the assets
associated with the limited partnerships where the Company is a general partner and the
significant gains on disposition of real estate during 2001, which were not recurring
during 2002. |
| |
Included
in discontinued operations for the year ended December 31, 2002 are the operating
results, net of minority interest, of twelve apartment community dispositions and one
apartment community (sold in January 2003) that were sold or considered held for sale as
of December 31, 2002. The decrease in the |
| |
income
from operations component of discontinued operations principally relates to the less than
12 months of operations included in 2002 compared to 12 months in the prior year. |
| |
Extraordinary
item, net of minority interest, increased in 2002 by $1,991,000 over 2001. This was due
to prepayment penalties incurred on the Company’s refinancings which took place
during the fourth quarter of 2002. |
| |
Net
income decreased $19,567,000 or 30% primarily attributable to the combination of the
losses recorded by the equity affiliates related to the impairment and other charges
described above and the significant gains on disposition of real estate during 2001
offset in part by the results of the 2002 Acquisition Communities, the 2001 Acquisition
Communities, net of the 2001 Disposition Communities. |
| |
Comparison
of year ended December 31, 2001 to year ended December 31, 2000. |
| |
The
Company owned 99 communities with 28,887 apartment units throughout 2000 and 2001 where
comparable operating results are available for the years presented (the “2001 Core
Properties”). For the year ending December 31, 2001, the 2001 Core Properties showed
an increase in rental revenues of 6.5% and a net operating income increase of 8.1% over
the 2000 year-end period. Property level operating expenses increased 4.6%. Average
economic occupancy for the 2001 Core Properties decreased from 94.5% to 93.8%, with
average monthly rental rates increasing 7.3% to $781. |
| |
A
summary of the 2001 Core Property net operating income is as follows: |
2001 2000 % Change
---- ---- --------
Rent $254,039,000 $238,504,000 6.5%
Property Other Income 10,107,000 9,408,000 7.4%
------------ ------------ ---
Total Revenue 264,146,000 247,912,000 6.5%
Operating and Maintenance (113,029,000) ( 108,093,000) (4.6%)
------------ ------------ ---
Net Operating Income $151,117,000 $139,819,000 8.1%
============ ============ ===
| |
During
2001, the Company acquired a total of 2,820 apartment units in 10 newly acquired
communities (the “2001 Acquisition Communities”). In addition, the Company
experienced a full year results for the 5,384 apartment units in 22 apartment communities
(the “2000 Acquisition Communities”) acquired during 2000. The inclusion of
these acquired communities generally accounted for the significant changes in operating
results for the year ended December 31, 2001. |
| |
During
2001, the Company also disposed of 14 properties with a total of 2,855 units, which had
partial results for 2001 (the “2001 Disposed Communities”). |
| |
For
the year ended December 31, 2001, income from operations (income before gain on
disposition of property and business, equity in earnings (losses) of unconsolidated
affiliates, minority interest, discontinued operations and extraordinary item) increased
by $1,734,000 when compared to the year ended December 31, 2000. The increase was
primarily attributable to the following factors: an increase in rental income of
$49,781,000 and a decrease in all other income of $3,465,000. These changes were
partially offset by an increase in operating and maintenance expense of $19,022,000, an
increase in general and administrative expense of $3,792,000, an increase in interest
expense of $9,549,000, and an increase in depreciation and amortization of $12,219,000. |
| |
Of
the $49,781,000 increase in rental income, $28,937,000 is attributable to the 2000
Acquisition Communities and $14,032,000 is attributable to the 2001 Acquisition
Communities, offset in part by a $8,723,000 reduction attributable to the 2001 Disposed
Communities. The balance of $15,535,000 relates to a 6.5% increase from the 2001 Core
Properties due primarily to an increase of 7.3% in weighted average rental rates, offset
by a decrease in average economic occupancy from 94.5% to 93.8%. |
| |
Property
other income, which consists primarily of income from operation of laundry facilities,
late charges, administrative fees, garage and carport rentals, net profits from corporate
apartments, cable revenue, pet charges, and miscellaneous charges to residents, increased
in 2001 by $1,895,000. Of this increase, $984,000 is attributable to the 2000 Acquisition
Communities, $483,000 is attributable to the 2001 Acquisition Communities and $699,000
represents a 7.5% increase from the 2001 Core Properties, offset in part by a $271,000
reduction attributable to the 2001 Disposed Communities. |
| |
Interest
and dividend income decreased in 2001 by $4,730,000. Of this decrease, $3,153,000 was due
to the Company contributing loans due from affiliates to HPRS, in March 2001, described
below. Subsequent to the transfer, the interest income is reported in Equity in earnings
(losses) of unconsolidated affiliates. In addition, $1,091,000 reflected a reduction in
interest earned from decreased levels of cash reserves invested. |
| |
Other
income, which primarily reflects management and other real estate service fees recognized
directly by the Company, decreased $630,000 due to a lower level of development fees
offset by an increase in management fees from properties directly managed by the Company. |
| |
Of
the $18,757,000 increase in operating and maintenance expenses, $13,890,000 is
attributable to the 2000 Acquisition Communities, $4,714,000 is attributable to the 2001
Acquisition Communities and a reduction of $4,783,000 is attributable to the 2001
Disposed Communities. The balance for the 2001 Core Properties, a $4,936,000 increase in
operating expenses or 4.6%, is primarily a result of increases in gas utilities, office
and telephone expense, and real estate taxes, offset in part by decreases in repairs and
maintenance, incentive compensation, and property insurance. |
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Natural
gas costs for the Core Properties were up 43% for the twelve months, due to extraordinary
increases in natural gas prices as well as lower temperatures in 2001 compared to
above-average temperatures in 2000. Looking back the last ten years, the price of natural
gas has been relatively stable. Historically, at the beginning of each heating season,
rates experienced some pressures but start to stabilize at lower levels in January. The
2000/2001 heating season did not follow this same pattern. Spot prices per decatherm
spiked over $10 in December 2000 and January 2001. This unusual pattern made it more
difficult to execute economically feasible fixed price contracts. During the first
quarter of 2001, the Company experienced extremely high costs for natural gas, producing
a same-store increase in operating and maintenance costs of 15.1%. |
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Management
believed it was in the Company’s best interest to take advantage of lower natural
gas prices and to negotiate fixed price contracts starting in the Spring of 2001. As of
December 31, 2001, the Company had fixed-price contracts covering 90% of its natural
gas exposure for properties owned by the Company at December 31, 2001. |
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In
October 2001, the Company resolved a legal claim with an insurance provider and received
a total settlement of $4.9 million. This refund was allocated to insurance expense in
relation to the Company’s estimate of loss spread over the corresponding policy
term. The policy term covered November 1, 2000 to October 31, 2001 and November 1, 2001
to October 31, 2002. The amount of the settlement relating to the period from November 1,
2000 to December 31, 2001 was estimated to be $2.2 million, and that amount reduced
insurance expense in the fourth quarter of 2001. The remaining settlement of $2.7 million
related to the remaining policy period from January 1, 2001, through October 31, 2002,
was amortized on a straight-line basis over that period. |
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The
operating expense ratio (the ratio of operating and maintenance expense compared to
rental and property other income) for the 2001 Core Properties was 42.3% and 43.6% for
2001 and 2000, respectively. This 1.3% reduction is a result of the 6.5% increase in
total rental and property other income achieved through ongoing efforts to upgrade and
reposition properties for maximum potential. In general, the Company’s operating
expense ratio is higher than that experienced in other parts of the country due to
relatively high real estate taxes in its markets and the Company’s practice, typical
in its markets, of including heating expenses in base rent. |
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General
and administrative expenses increased in 2001 by $4,057,000, or 63% from $6,485,000 in
2000 to $10,542,000 in 2001. As the Company expands geographically, the increases reflect
increased efforts in serving residents and employees through new and expanded
initiatives, including a help desk, call center, and an education department. In
addition, the increase can be attributed to overhead costs, which had, historically, been
allocated to the Company’s affordable housing development business, which was sold
in 2000 and the net results of which were reported in equity in earnings (losses) in
unconsolidated affiliates. During 2002, the Company reclassified certain property related
operating expenses from General and Administrative to Operating and Maintenance. Both
2001 and 2000 reflect this same reclassification. The percentage of general and
administrative expenses compared to total revenue was 3.0% for 2001 compared to 2.1% for
2000. |
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Interest
expense increased in 2001 by $9,549,000 as a result of the acquisition of the 2001
Acquisition Communities and a full year of interest expense for the 2000 Acquisition
Communities. The 2000 Acquisition Communities, costing in excess of $322,000,000, were
financed with $163,000,000 of assumed debt in addition to the use of UPREIT Units. The
2001 Acquisition Communities, costing in excess of $212,000,000, were financed with
$68,000,000 of assumed debt, in addition to the use of UPREIT Units. During 2001, the
Company refinanced $52,000,000 in existing mortgage debt resulting in new borrowings in
excess of $131,000,000. In addition, amortization from deferred charges relating to the
financing of properties totaling $632,000 and $566,000 was included in interest expense
for 2001 and 2000, respectively. |
| |
Depreciation
and amortization expense increased $12,219,000 due to the depreciation on the 2001
Acquisition Communities, the 2000 Acquisition Communities, the additions to the Core
Properties, net of the 2001 Disposition Communities. |
| |
During
2001, the Company reported a gain on disposition of property and business of $26,241,000.
This includes the disposition of 14 apartment communities with 2,855 units in six
separate transactions for a total sales price of $122,000,000. |
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Equity
in earnings (losses) of unconsolidated affiliates which reflects the net contribution
from management and development activities after allocating certain overhead and interest
expense, increased by $1,870,000 due primarily to interest income on loans from
affiliated partnerships. The general and administrative overhead represents an allocation
of direct and indirect costs incurred by the Company estimated by management to be
associated with these activities. In March 2001, HPRS was recapitalized with a
contribution of $23.7 million of loans to affiliated partnerships by the Company. This
effectively shifted a significant amount of interest income to the equity in earnings
(losses) of unconsolidated affiliates. |
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Minority
interest increased $8,069,000 due to the increase in income allocated to the OP Unitholders,
which is attributable to the 2001 Acquisition Communities, the 2000 Acquisition
Communities, net of the 2001 Disposition Communities, and the gain on disposition of
property and business. |
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Discontinued
operations for the years ended December 31, 2001 and 2000 are the operating results, net
of minority interest, of twelve apartment community dispositions and one apartment
community (sold in January 2003) that were sold in 2002 or considered held for sale as of
December 31, 2002. |
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Net
income increased $23,050,000 or 56% primarily attributed to the results of the 2001
Acquisition Communities, the 2001 Acquisition Communities, net of the 2001 Disposition
Communities, as previously discussed, and the gain on disposition of property and
business. |
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Liquidity
and Capital Resources |
| |
The
Company’s principal liquidity demands are expected to be distributions to the
preferred and common stockholders and Operating Partnership Unitholders, capital
improvements and repairs and maintenance for the properties, acquisition of additional
properties, stock repurchases and debt repayments. The Company may also engage in
transactions whereby it acquires equity ownership in other public or private companies |
| |
that
own and manage portfolios of apartment communities. Management anticipates the
acquisition of properties of approximately $250 million in 2003, although there can be no
assurance that such acquisitions will actually occur. |
| |
The
Company intends to meet its short-term liquidity requirements through net cash flows
provided by operating activities and the line of credit, as described below. The Company
considers its ability to generate cash to be adequate to meet all operating requirements
and make distributions to its stockholders in accordance with the provisions of the
Internal Revenue Code, as amended, applicable to REITs. |
| |
To
the extent that the Company does not satisfy its long-term liquidity requirements through
net cash flows provided by operating activities and the line of credit described below,
it intends to satisfy such requirements through the issuance of UPREIT Units, proceeds
from the Dividend Reinvestment Plan (“DRIP”), proceeds from the sale of
properties, property debt financing, or issuing additional common shares, shares of the
Company’s preferred stock, or other securities. As of December 31, 2002, the
Company owned 22 properties, with 3,666 apartment units, which were unencumbered by debt. |
| |
An
increase in a source of liquidity will be from the sale of properties. Since its IPO
through 2000, the Company had sold only a few small properties. During 2001, the Company
sold 14 communities for a total sales price of $122 million. During 2002 the Company sold
12 communities for a total sales price of $87.1 million. The Company was able to sell
these properties at an average capitalization rate of 9.2% and reinvest in the
acquisition of properties with more growth potential at an expected first year cap rate
of 8.0%. While the capitalization rate from dispositions was 120 basis points higher than
for acquisitions, the Company expects to realize a higher unleveraged IRR from its
acquisitions due to higher rates of revenue growth. Management has included in its
operating plan that the Company will strategically dispose of assets totaling
approximately $100 million in 2003, although there can be no assurance that such
dispositions will actually occur. |
| |
In
May 1998, the Company’s Form S-3 Registration Statement was declared effective
relating to the issuance of up to $400 million of common stock, preferred stock or other
securities. The available balance on the shelf registration statement at December 31,
2002 was $144,392,000. |
| |
In
December 1999, the Class A limited partnership interests held by the State of Michigan
Retirement Systems (originally issued in December 1996 for $35 million) were converted to
Series A Convertible Cumulative Preferred shares (“Series A Preferred Shares”)
which retained the same material rights and preferences that were associated with the
limited partnership interests. On November 28, 2001, the Series A Preferred Shares were
converted to common shares. The conversion had no effect on reported results of operations. |
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In
September 1999, the Company completed the sale of $50 million of Series B Preferred Stock
in a private transaction with GE Capital. The Series B Preferred stock carries an annual
dividend rate equal to the greater of 8.36% or the actual dividend paid on the Company’s
common shares into which the preferred shares can be converted. The stock has a
liquidation preference of $25.00 per share, a conversion price of $29.77 per share, and a
five-year, non-call provision. On February 14, 2002, 1,000,000 shares of the Series B
Preferred stock were converted to 839,771 common shares. The conversion has no effect on
the reported results of operations. On May 24, 2002 the Company repurchased the remaining
1.0 million shares outstanding at an amount equivalent to 839,772 common shares (as if
the preferred shares had been converted). The Company repurchased the shares for
$29,392,000 equal to the $35.00 common stock trading price when the transaction was
consummated. A premium of $5,025,000 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 for the year ended December 31, 2002. |
| |
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, non-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 January 2003, holders of 100,000 shares of Series C Preferred Shares elected
to convert those shares for 330,579 shares of common stock. |
| |
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, non-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,
non-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 August 20, 2002, 63,200 of the Series E Convertible Preferred
Shares were converted into 200,000 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 approximately $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). |
| |
In
2000, the Company obtained an investment grade rating from Fitch, Inc. The Company was
assigned an initial corporate credit rating of “BBB” (Triple-B), with a rating
of “BBB-” (Triple-B Minus) for Series C through E Convertible Preferred Stock. |
| |
The
issuance of UPREIT Units for property acquisitions continues to be a source of capital
for the Company. During 2002, the Company acquired an 864-unit property for a total
purchase price of $81,500,000. The Company issued UPREIT units valued at approximately
$11,500,000 million, with the balance funded by the assumption of debt and cash. During
2001, 520 apartment units in two separate transactions were acquired for a total cost of
$33,000,000, using UPREIT Units valued at approximately $19,000,000 with the balance paid
in cash or assumed debt. |
| |
In
1997, the Company’s Board of Directors approved a stock repurchase program under
which the Company may repurchase up to one million shares of its outstanding common stock
and UPREIT Units. The shares/units may be repurchased through open market or privately
negotiated transactions at the discretion of Company management. The Board’s action
did not establish a target price or a specific timetable for repurchase. At December 31,
1999, there was approval remaining to purchase 795,100 shares. In 2000, the Board of
Directors approved a 1,000,000-share increase in the stock repurchase program. During
2000, the Company repurchased 468,600 shares at a cost of $12,664,000. In 2001, the Board
of Directors approved a 1,000,000-share increase in the stock repurchase program. During
2001, the Company repurchased 754,000 shares and 436,700 UPREIT Units at a cost of
$20,600,000 and $11,900,000, respectively. On August 6, 2002 the Board of Directors
approved a 2,000,000-share increase in the stock repurchase program. During 2002, there
were no shares or UPREIT Units repurchased by the Company. At December 31, 2002 the
Company had authorization to repurchase 3,135,800 shares of common stock and UPREIT Units
under the stock repurchase program. |
| |
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 2% from the market price. In addition, eligible participants
may make monthly payments or other voluntary cash investments in shares of common stock,
typically purchased at discounts, which have varied between 2% and 3%. During 2001,
$32,000,000 of common stock was issued under this plan, with an additional $27,400,000 of
common stock issued in 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 $5,000 to $1,000. 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 $1,000 maximum monthly investment. In
February 2002, the Company announced such waivers will be considered beginning with the
March 2002 optional cash purchase, since management had believed at that time that the
stock is trading at or above its estimate of net asset value. During 2002, the Company
granted 53 waivers for purchases aggregating a total of $3,900,000. |
| |
During
the 2002, the Company extended its revolving line of credit with M&T Bank for a
period of three years, increasing the line from $100,000,000 to $115,000,000. The Company’s
outstanding balance as of December 31, 2002 was $35,000,000. Borrowings under the line of
credit bear interest at 1.15% over the one-month LIBOR rate. Accordingly, increases in
interest rates will increase the Company’s interest expense and as a result will
affect the Company’s results of operations and financial condition. The line of
credit expires on September 1, 2005. The Credit Agreement relating to this line of credit
provides for the Company to maintain certain financial ratios and measurements. One of
these covenants is that the Company may not pay any distribution if a distribution, when
added to other distributions paid during the three immediately preceding fiscal quarters,
exceeds the greater of: (i) 90% of funds from operations and 110% of cash available for
distribution; and (ii) the amount required to maintain the Company’s status as a
REIT. During the fourth quarter of 2002, the funds from operations payout ratio was 94%
when measured for the calendar year. Due to the impairment charges recorded in the fourth
quarter, the Company did not meet the required ratio. Appropriate waivers have been
granted by the participating banks. |
| |
As
of December 31, 2002, the weighted average rate of interest on the Company’s
mortgage debt was 6.45% and the weighted average maturity of such indebtedness was
approximately eight years. Mortgage debt of $1.3 billion was outstanding with 99% at
fixed rates of interest with staggered maturities. This limits the exposure to changes in
interest rates, minimizing the effect of interest rate fluctuations on the Company’s
results of operations and cash flows. |
| |
The
Company’s net cash provided by operating activities decreased from $148,505,000 for
the year ended December 31, 2001, to $143,537,000 for the year ended December 31, 2002.
The decrease was principally due to changes in Other Assets, Accounts Payable and Accrued
Liabilities. |
| |
Net
cash used in investing activities increased from $139,106,000 in 2001 to $294,831,000 in
2002. The level of properties purchased increased in 2002 to $433,043,000 from
$213,325,000, and the amount of mortgages assumed and UPREIT units issued increased
$78,163,000. Other changes included a decrease of $31,367,000 in proceeds from the sale
of properties, a decrease in property additions of $14,776,000, and an increase of
$2,421,000 from the net change in advances to affiliates. |
| |
The
Company’s net cash provided by (used in) financing activities increased from using
$9,129,000 in 2001 to providing $149,357,000 in 2002. The major source of financing in
2002 was $89,640,000 of proceeds from sales of preferred and common stock, net of the
repurchase of the Series B preferred stock and $189,368,000 in net debt proceeds, used to
fund property acquisitions and improvements. In 2001, |
| |
proceeds
from the sale of preferred stock and common stock totaled $8,423,000 and net debt
proceeds of $92,268,000 were used to fund property acquisitions and additions. |
| |
On
February 3, 2003, the Board of Directors approved a dividend of $.61 per share for the
period from October 1, 2002 to December 31, 2002. This is the equivalent of an annual
distribution of $2.44 per share. The dividend is payable February 27, 2003 to
shareholders of record on February 18, 2003. |
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Critical
Accounting Policies |
| |
The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in the accompanying
consolidated financial statements and related notes. In preparing these financial
statements, management has utilized information available including industry practice and
its own past history in forming its estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. It is possible that
the ultimate outcome as anticipated by management in formulating its estimates inherent
in these financial statements may not materialize. However, application of the accounting
policies below involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these estimates. In
addition, other companies may utilize different estimates which may impact comparability
of the Company’s results of operations to those of companies in similar businesses. |
| |
The
Operating Partnership leases its residential properties under leases with terms generally
one year or less. Rental income is recognized on a straight-line basis over the related
lease term. As a result, deferred rents receivable are created when rental income is
recognized during the concession period of certain negotiated leases and amortized over
the remaining term of the lease. 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. |
| |
Property
management fees are recognized when earned based on a contractual percentage of net
monthly cash collected on rental income. |
| |
Prior
to 2001, the Operating Partnership earned development and other fee income from
properties in the development phase. This fee income was recognized on the percentage of
completion method. |
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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. 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 extraordinary item for the year-ended December 31, 2002
increased approximately $6.2 million or $.24 on a diluted per share basis. 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.
This change has been accounted for prospectively in accordance with the provisions of
Accounting Principle Board Opinion No. 20, Accounting Changes. |
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Impairment
of Long-Lived Assets |
| |
Effective
January 1, 2002, the Company adopted the provisions of SFAS No. 144, “Accounting for
the Impairment or Disposal of Long Lived Assets.” This standard superceded SFAS No.
121, “Accounting for the Impairment of Long Lived Assets and for Long Lived Assets
to be Disposed of,” but also retained its basic provision requiring (i) recognition
of an impairment loss of the carrying amount of a long-lived asset |
| |
if
it is not recoverable from its undiscounted cash flows and (ii) measurement of an
impairment loss as the difference between the carrying amount and fair value of the asset
unless an asset is held for sale, in which case it would be stated at the lower of
carrying amount or fair value less costs to dispose. However, SFAS No. 144 also describes
a probability-weighted cash flow estimation approach to deal with situations which
alternative courses of action to recover the carrying amount of a long-lived asset are
under consideration or a range is estimated. The determination of undiscounted cash flows
requires significant estimates made by management (such as estimating future net
operating income and estimating fair value upon sale of each property owned) and
considers the expected course of action at the balance sheet date. Subsequent changes in
estimated undiscounted cash flows arising from changes in anticipated actions could
impact the determination of whether an impairment exists. |
| |
In
addition to the provisions of SFAS No. 144 described above, the 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 year ended December 31, 2002 are 12 apartment
community dispositions and one apartment community (sold in January 2003) that is
considered held for sale as of December 31, 2002. The operations of such apartment
communities have been reflected as discontinued operations in the consolidated financial
statements for each of the three years ended December 31, 2002 included herein. |
| |
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 is required to make subjective assessments as to the useful lives of its
properties and improvements for purposes of determining the amount of depreciation to
reflect on an annual basis. These assessments have a direct impact on the Company’s
net income. See “Change in Accounting Estimate” above. |
| |
Estimate
of Fair Value of Assets Associated with General Partnership Interests |
| |
The
Company uses estimates to determine the fair market value of assets associated with its
general partner investment, including notes, advances, management contracts and the
equity investment in the limited partnership. The notes and advances are assessed based
on Management’s estimated future cash flows, considering probabilities, discounted
at a risk adjusted rate. The determination of such estimates considered prior sales and
estimated values inherent in current contracts. The estimated fair value used could vary
from the actual sales price of the assets which could result in further charges or gains
recognized upon disposition. |
| |
Off-Balance
Sheet Investments |
| |
The
Company has investments in and advances to approximately 136 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. In addition, to
the extent the Company has outstanding loans or advances and the limited partner has no
remaining capital account, the Company will absorb such losses. |
| |
The
Company, through its general partnership interest in certain affordable property limited
partnerships, has guaranteed the low income housing tax credits to the limited partners
for a period of either five or ten years in 75 partnerships totaling approximately
$63,800,000. Such guarantee requires the Company to operate the properties in compliance
with Internal Revenue Code Section 42 for 15 years. The weighted average number of
compliance years remaining is approximately 10 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 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. |
| |
The
Company believes the properties operations conform to the applicable requirements as set
forth above and do not anticipate any payment on the low income housing tax credit
guarantees described above. |
| |
In
December 2002, the Company, including its equity affiliates, determined that it would
market for sale virtually all of the assets associated with its interest in various
affordable housing limited partnerships. Such assets include the equity interest in the
affordable housing partnerships, loans, advances and management contracts. The Company,
including its equity affiliates, recorded impairment charges aggregating $14.2 million in
the fourth quarter of 2002. Such charges principally relate to reducing recorded amounts
of the previously mentioned assets to their estimated fair values. In addition, in 2002,
the Company recorded charges aggregating $3.8 million principally arising from the
operating losses and other charges directly associated with the performance of these
affordable properties due to the weak economy, which negatively affected the properties’ revenue
and occupancy. |
| |
The
Company intends to sell the assets in three phases: |
| |
Phase
I consists of the Company’s interest in 37 properties containing 1,171 units, all
New York State Rural Development properties, which are under contract to be sold. The
decision to sell this first phase was made in the third quarter of 2002. A closing is
anticipated by the second quarter of 2003 at approximately book value. |
| |
Phase
II consists of the Company’s interest in 49 properties with 1,396 units, all
Pennsylvania Rural Development properties. Several offers for these properties are under
review. The Company hopes to close on this phase during the second half of 2003. |
| |
Phase
III consists of the Company’s interest in the remaining 53 properties with 4,831
units, primarily located in Upstate New York and Pennsylvania. The Company hopes to have
its assets associated with this phase under contract to be sold by the end of 2003 or
early in 2004. |
| |
The
Company plans on retaining the general partner interest in one 77-unit property located
in Rochester, New York. |
| |
Losses
anticipated in connection with the sale of the assets have been reflected in the $14.2 million
impairment charges recorded in the fourth quarter of 2002. However, as these assets do
not have a readily determinable market value, there can be no assurance that further
losses or subsequent gains will not be realized. Gains on sale, if any, will be
recognized when the sales actually occur. |
| |
These
partnerships are funded with non-recourse financing. The Company’s proportionate
share of non-recourse financing, based on its legal ownership, was only $6,700,000 out of
a total of $253,285,000 at December 31, 2002. The Company has guaranteed a total of
$600,000 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 $12,599,000 net of impairment and other charges of $12,126,000
at December 31, 2002. Prior to the Company’s decision to sell these assets, the
Company, after recording its share of the underlying investments income or loss, assessed
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.
Once the decision to dispose of such assets was made, the Company estimated the fair
value of such loans and advances from the buyer’s perspective using estimated cash
flows discounted at a risk adjusted return. |
| |
Summarized
balance sheet information relating to these partnerships is as follows (amounts are in
thousands): |
2002 2001
---- ----
Balance Sheets:
Real estate, net $266,613 $280,864
Other assets 37,764 36,579
-------- --------
Total assets $304,377 $317,443
======== ========
Mortgage notes payable $253,285 $253,798
Advances from affiliates 24,725 25,245
Other liabilities 15,125 18,140
Partners' equity 11,242 20,260
-------- --------
Total liabilities and partners' equity $304,377 $317,443
======== ========
| |
In
January 2003, the FASB issued Interpretation No. 46 – Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 – Consolidated Financial
Statements. The interpretation addresses consolidation by businesses of special purpose
entities (variable interest entities, “VIE”). Management is uncertain at this
time but is assuming it is reasonably possible that each of the limited partnerships in
which it holds the general partnership interest would be considered a VIE and the Company
would consolidate all or a certain number of the limited partnerships assets and
liabilities, all of which are summarized above. |
| |
Acquisitions
and Dispositions |
| |
In
2002 the Company acquired a total of 21 communities with a total of 4,492 units for total
consideration of approximately $430,000,000, or an average of approximately $95,700 per
unit. For the same time period, the Company sold 12 properties with a total of 1,724
units for total consideration of $87,000,000, or an average of $50,500 per unit. The
weighted average expected first year cap rate of the 2002 Acquisition Communities was
8.0% and of the 2002 Disposed Communities was 9.2%. The weighted average unleveraged
internal rate of return (IRR) during the Company’s ownership for the properties sold
was 10.59%. |
| |
In
January 2003, the Company sold two communities with a total of 552 units in Indiana and
Ohio for total consideration of $20,600,000, or an average of $37,400 per unit. The
expected weighted average first year cap rate on these sales is 8.8% (before a reserve
for capital expenditures). |
| |
In
February 2003, the Company acquired its second property in the Boston region in
Stoughton, M.A. The total purchase price of $34,000,000, including closing costs, equates
to approximately $121,400 per unit and was funded through the use of the Company’s
line of credit. The weighted average expected first year cap rate for this community is
7.7%. |
| |
Contractual
Obligations and other Commitments |
| |
The
primary obligations of the Company relate to its borrowings under the line of credit and
mortgage notes payable. The $35,000,000 outstanding under the line of credit matures in
September 2005. The $1.3 billion in mortgage notes payable have varying maturities
ranging from 1 to 33 years. The principal payments on the mortgage notes payable for the
years subsequent to December 31, 2002, are in the table below. |
| |
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. At December 31, 2002, future minimum rental payments
required under the lease are $70,000 per year until the lease expires. The Company leases
its corporate office from an affiliate. The lease requires an annual base rent plus a
pro-rata portion of property improvements, real estate taxes, and common area maintenance. |
| |
Tabular
Disclosure of Contractual Obligations: |
Payments Due by Period (in thousands)
Contractual
Obligations Total 2003 2004 2005 2006 2007 Thereafter
----------- ----- ---- ---- ---- ---- ---- ----------
Long-Term Debt $1,300,807 $25,820 $17,128 $15,317 $75,408 $174,813 $992,321
Ground Lease 1,260 70 70 70 70 70 910
Operating Lease 6,138 802 872 884 895 895 1,790
---------- ------- ------- ------- ------- -------- --------
Total $1,308,205 $26,692 $18,070 $16,271 $76,373 $175,778 $995,021
| |
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 $600,000 of debt associated with two of
partnerships, b) guarantee of the low income housing tax credits to the limited partners
for a period of either five or ten years in 75 partnerships totaling approximately
$63,800,000, and c) obligation to advance funds to meet partnership operating deficits
for a five year period for certain partnerships. With respect to the guarantee of the low
income housing tax credits, the Company believes the properties operations conform to the
applicable requirements (as set forth above in the second paragraph of the “Off
Balance Sheet Investment” section) and does not anticipate any payment on the guarantees. |
| |
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
table below is a list of the items that management considers recurring, non-revenue
enhancing capital and maintenance expenditures for a standard garden style apartment.
Included are the per unit replacement cost and the useful life that management estimates
the Company incurs on an annual basis. |
Maintenance
Capitalized Expense Total
Capitalized Expenditure Cost per Cost per
Cost per Useful Per Unit Unit Unit
Category Unit Life(1) Per Year(2) Per Year(3) Per Year
--------------------------------------------------------------------------------------------------
Appliances $1,000 18 $ 55 $ 5 $ 60
Blinds/Shades 130 6 22 6 28
Carpets/cleaning 840 6 140 97 237
Computers, equipment, misc.(4) 120 5 22 29 51
Contract repairs - - - 102 102
Exterior painting (5) 84 5 17 1 18
Flooring 250 8 31 - 31
Furnace/Air (HVAC) 765 24 32 43 75
Hot water heater 130 7 19 - 19
Interior painting - - - 138 138
Kitchen/bath cabinets 1,100 25 44 - 44
Landscaping - - - 106 106
New roof 800 23 35 - 35
Parking lot 400 15 27 - 27
Pool/ Exercise facility 100 15 7 23 30
Windows 980 36 27 - 27
Miscellaneous (6) 705 15 47 40 87
--------------------------------------------------------------------------------------------------
Total $7,404 $525 $590 $1,115
--------------------------------------------------------------------------------------------------
| |
(1) |
|
Estimated
weighted average actual physical useful life of the expenditure capitalized. |
| |
(2) |
|
This
amount is not necessarily incurred each and every year. Some years, per unit
expenditures in any category will be higher, or lower depending on the timing of certain
longer lived capital or maintenance items. |
| |
(3) |
|
These
expenses are included in the operating and maintenance line item of the
Consolidated Statement of Operations. Maintenance labor costs are not included
in the $590 per unit maintenance estimate. All personnel costs for site
supervision, leasing agents, and maintenance staff are combined and disclosed
in the Company’s same- store expense detail schedule. The annual per unit
cost of maintenance staff would add another $570 to expenses and total cost
figures provided. |
| |
(4) |
|
Includes
computers, office equipment/ furniture, and maintenance vehicles. |
| |
(5) |
|
The
level of exterior painting may be lower than other similar titled presentations
as the Company’s portfolio has a significant amount of brick exteriors. In
addition, other exposed exterior surfaces are most often covered with aluminum
or vinyl. |
| |
(6) |
|
Includes
items such as; balconies, siding, and concrete/sidewalks. |
| |
The
Company’s strategy in operating apartments is to improve every property every year
regardless of age. Another part of its strategy is to purchase older properties and rehab
and reposition them to enhance internal rates of return. This strategy results in higher
costs of capital expenditures and maintenance costs than may be reported by other
apartment companies, but the Company’s experience is that the strategy results in
higher revenue growth, higher net operating income growth and a higher rate of property
appreciation. |
| |
The
Company estimates that during 2002, approximately $525 per unit was spent on recurring
capital expenditures. The table below summarizes the breakdown of capital improvements by
major categories between recurring and non-recurring, revenue generating capital
improvements as follows: |
For the year-ended December 31,
(in thousands, except per unit data)
2002 2001
---------------------------------------------------------------------------------- ---------------------------
Recurring Non-Recurring Total Capital Total Capital
Cap Ex Per Unit(a) Cap Ex Per Unit(a) Improvement Per Unit(a) Improvements Per Unit(a)
------ ----------- ------ ----------- ----------- ----------- ------------ -----------
New Buildings $ - $ - $ 4,018 $ 102 $ 4,018 $ 102 $ 5,420 $ 151
Major building
improvements 3,591 93 17,325 439 20,916 532 27,013 754
Roof replacements 1,372 35 2,607 66 3,979 101 4,107 115
Site improvements 1,315 33 10,658 270 11,973 303 15,712 439
Apartment upgrades 2,591 66 34,141 865 36,732 931 39,474 1,102
Appliances 2,152 55 2,609 66 4,761 121 5,204 145
Carpeting/Flooring 6,756 171 5,026 127 11,782 298 10,799 302
HVAC/Mechanicals 1,990 50 10,980 278 12,970 328 10,454 292
Miscellaneous 884 22 2,905 74 3,789 96 3,612 101
------- ---- ------- ------ -------- ------ -------- ------
Totals $20,651 $525 $90,269 $2,287 $110,920 $2,812 $121,795 $3,401
======= ==== ======= ====== ======== ====== ======== ======
| |
(a) |
|
Calculated
using the weighted average number of units outstanding, including 34,464 core units, 2001
acquisition units of 2,820 and 2002 acquisition units of 2,170 for the year-ended
December 31, 2002 and 34,464 core units and 2001 acquisition units of 1,345 for the
year-ended December 31, 2001. |
| |
The
schedule below summarizes the breakdown of total capital improvements between core and
non-core as follows: |
For the year-ended December 31,
(in thousands, except per unit data)
2002 2001
---------------------------------------------------------------------------------- ------------------------
Recurring Non-Recurring Total Capital Total Capital
Cap Ex Per Unit Cap Ex Per Unit Improvement Per Unit Improvements Per Unit
------ ----------- ------ ----------- ----------- ----------- ------------ --------
Core Communities $ 18,109 525 $71,153 $ 2,065 $ 89,262 2,520 $118,684 $ 3,444
2002 Acquisition
Communities 1,140 525 7,800 3,595 8,940 4,120 - -
2001 Acquisition
Communities 1,402 525 11,316 3,984 12,718 4,509 3,111 2,313
-------- ------ ------- ------- -------- ------ -------- ------
Sub-total 20,651 525 90,269 2,287 110,920 2,812 121,795 3,401
2002 Disposed
Communities 379 525 784 1,085 1,163 1,610 1,820 1,056
2001 Disposed
Communities - - - - - - 2,266 868
Corporate office
expenditures(1) - - - - 3,609 - 4,587 -
-------- ------ ------- ------- -------- ------ -------- ------
$ 21,030 $ 525 $91,053 $ 2,264 $115,692 $2,789 $130,468 $3,136
======== ====== ======= ======= ======== ====== ======== ======
| |
(1) |
|
No
distinction is made between recurring and non- recurring expenditures for
corporate office. |
| |
Phase
I environmental audits have been completed on substantially all of the Owned Properties.
There are no recorded amounts resulting from environmental liabilities as there are no
known contingencies with respect thereto. Furthermore, no condition is known to exist
that would give rise to a material liability for site restoration or other costs that may
be incurred with respect to the sale or disposal of a property. |
| |
During
2002, there has been media attention given to the subject of mold in residential
communities. The Company has responded positively to this attention by providing to its
community management the Operation and Maintenance Plan For the Control of Moisture (“The
Plan”). The Plan, designed to analyze and manage all exposures to mold, has been
implemented at all of the Company’s communities. There have been limited cases of
mold due to the application and practice of The Plan. No condition is known to exist that
would give rise to a material liability for site restoration or other costs that may be
incurred with respect to mold. |
| |
New
Accounting Pronouncements |
| |
In
June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”The
provisions of this statement are required to be applied to all goodwill and other
intangible assets. SFAS No. 142 becomes effective beginning January 1, 2002. The Company
adopted this pronouncement for the year ended December 31, 2002, and did not have a
material impact on its results on operations, financial position or liquidity. |
| |
In
August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement
Obligations.” SFAS No. 143 requires an entity to record a liability for an
obligation associated with the retirement of an asset at the time the liability is
incurred by capitalizing the cost as part of the carrying value of the related asset and
depreciating it over the remaining useful life of that asset. The standard is effective
beginning January 1, 2003. The changes required by SFAS No. 143 are not expected to have
a material impact on the Company’s results of operations, financial position or
liquidity. |
| |
In
October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-lived Assets,” which addresses how and when to measure the
impairment on long-lived assets and how to account for long-lived assets that an entity
plans to dispose of either through sale, abandonment, exchange, or distribution to
owners. The Company adopted SFAS No. 144 as of January 1, 2002. See Notes 1 and 15 for a
discussion of the impact on the Company from the adoption of SFAS No. 144. |
| |
In
April 2002, the FASB issued 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.
Upon adoption, the Company will be reclassifying its previously reported early debt
extinguishment charges presented as an extraordinary item to inclusion within income from
operations. 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. |
| |
In
November 2002, the FASB issued Interpretation No. 45 (“FIN 45”) –Guarantor’s
Accounting and Disclosure Requirements for Guarantees, including indirect guarantees of
other (an interpretation of FASB No. 5, FASB No. 57, and FASB No. 107 and recession of
FASB Interpretation No. 34). This interpretation elaborates on the disclosures to be made
by a guarantor in its financial statements about its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaking in
issuing the guarantee. The disclosure requirements of this Interpretation are effective
for financial statements of periods ending after December 15, 2002. The initial
recognition and initial measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The Company
does not expect this interpretation to have a material impact on the Company’s
financial position, results of operations, or cash flows. |
| |
In
December 2002, the FASB issued SFAS No. 148 – Accounting for Stock-Based
Compensation – Transition and Disclosure, an Amendment of SFAS No. 123. This
statement provides alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation as well as changing certain disclosure provisions. This statement also |
| |
amends
APB Opinion No. 28, Interim Financial Reporting, to require disclosure about these
effects in interim financial information. Effective January 1, 2003, the Company will
adopt the fair value based method of accounting for stock options in accordance with SFAS
No. 123. The Company is studying the transition methods available and has not yet
determined the method to be used. |
| |
In
January 2003, the FASB issued Interpretation No. 46 – Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 – Consolidated Financial
Statements. The interpretation addresses consolidation by businesses of special purpose
entities (variable interest entities, “VIE”). This interpretation addresses
consolidation by business enterprises of variable interest entities in which the equity
investment at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties or in which the
equity investors do not have the characteristics of a controlling financial interest.
This interpretation requires a variable interest entity to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable interest
entity’s activities or entitled to receive a majority of the entity’s residual
returns or both. The interpretation also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of this interpretation
apply immediately to variable interest entities created after January 31, 2003, and in
the first fiscal year or interim period beginning after June 15, 2003, to existing
variable interest entities. Management believes that it is reasonably possible that the
Management Companies meet the definition of a VIE and would be required to be
consolidated with the Company. Management is uncertain but is assuming it is reasonably
possible that each of the limited partnerships in which it holds the general partnership
interest would be considered a VIE, and the Company would consolidate all or a certain
number of the limited partnership’s assets and liabilities. The interpretation
becomes effective July 1, 2003. |
| |
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. |
| |
In
2001, the Company underwent a state tax audit. The state has assessed taxes of $469,000
for the 1998 and 1999 tax years under audit. If the state’s position is applied to
all tax years through December 31, 2001, the assessment would be $1.3 million. At
the time, the Company believed the assessment and the state’s underlying position
was not supportable by the law nor consistent with previously provided interpretative
guidance from the office of the State Secretary of Revenue. After two subsequent
enactments by the state legislation during 2002 affecting the pertinent tax statute, the
Company has been advised that its filing position for 1998-2001 should prevail. Based
upon this information as of December 31, 2002, the Company has recorded an accrual
of $525,000, representing only its 2002 liability. |
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk
| |
The
Company’s primary market risk exposure is interest rate risk. At December 31, 2002
and 2001, approximately 99% of the Company’s debt bore interest at fixed rates with
a weighted average maturity of approximately 8 and 10 years, respectively, and a weighted
average interest rate of approximately 6.50% |
| |
and
7.27%, respectively, including the $25.2 million and $35 million of debt at December 31,
2002 and 2001, respectively, which has been swapped to a fixed rate. The remainder of the
Company’s debt bears interest at variable rates with a weighted average maturity of
approximately 2 years and 1 year, respectively, and a weighted average interest rate of
2.83% and 3.27%, respectively, at December 31, 2002 and 2001. The Company does not intend
to utilize permanent variable rate debt to acquire properties in the future. On occasion,
the Company may assume variable rate debt or use its line of credit in connection with a
property acquisition with the intention to swap to or refinance with fixed rate debt. 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
December 31, 2002 and 2001, the interest rate risk on $25.2 million and $35 million,
respectively 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
$25.2 million and $35 million in variable rate mortgages to fixed rates of 5.91% and
8.40%, in 2002 and 2001, respectively. |
| |
At
December 31, 2002 and 2001, the fair value of the Company’s fixed rate debt,
including the $25.2 and $35 million of debt at December 31, 2002 and 2001, respectively
which was swapped to a fixed rate, amounted to a liability of $1.4 billion and $958 million
compared to its carrying amount of $1.3 billion and $960 million, respectively. The
Company estimates that a 100 basis point decrease in market interest rates at December
31, 2002 would have changed the fair value of the Company’s fixed rate debt to a
liability of $1.5 billion. |
| |
The
Company intends to continuously monitor and actively manage interest costs on its
variable rate 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 to 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 December 31, 2002, the Company had no other material exposure to market
risk. |
| |
Additional
disclosure about market risk is incorporated herein by reference from Item 7 Managements
Discussion and Analysis of financial condition and results of operations in the results
of operations section. |
Item 8. Financial Statements and
Supplemental Data
| |
The
financial statements and supplementary data are listed under Item 15(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
PART III
Item 10. Directors and Executive
Officers of the Registrant
| |
The
Board of Directors (the “Board”) currently consists of twelve members. The
terms for all of the directors of Home Properties expire at the 2003 Shareholders’ Meeting. |
| |
The
information sets forth, as of February 21, 2003, 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 |
87 |
1994 |
| William Balderston, III |
75 |
1994 |
| Alan L. Gosule |
62 |
1996 |
| Leonard F. Helbig, III |
57 |
1994 |
| Roger W. Kober |
69 |
1994 |
| Nelson B. Leenhouts |
67 |
1993 |
| Norman Leenhouts |
67 |
1993 |
| Edward J. Pettinella |
51 |
2001 |
| Albert H. Small |
77 |
1999 |
| Clifford W. Smith, Jr |
56 |
1994 |
| Paul L. Smith |
67 |
1994 |
| Amy L. Tait |
44 |
1993 |
| |
Burton
S. August, Sr. has been a director of the Company since August 1994. Mr. August was a
director from 1979 until 2003 of Monro Muffler Brake, Inc., a publicly traded company
where he also served as Vice President from 1969 until he retired in 1980. Mr. August is
Honorary Chairman of the Board of Trustees of Rochester Institute of Technology, a member
of the Executive Committee of the United Way of New York State, a director of Hillside
Children’s Center Foundation, a cabinet member of the Al Sigl Center, a member of
the Finance Committee of the United Way of Greater Rochester and the Investment Committee
of the 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 Senior Trustee of the
University of Rochester and a member of the Board of Governors of the University of
Rochester Medical Center. Mr. Balderston is also a Trustee of the Genesee Country Village
Museum, as well as a member of the Board of the Genesee Valley Conservancy. Mr.
Balderston is a graduate of Dartmouth College. |
| |
Alan
L. Gosule, has been a director of the Company since December 1996. Mr. Gosule has been a
partner in the law firm of Clifford Chance US LLP, New York, New York, since August 1991
and prior to that time was a partner in the law firm of Gaston & Snow. He serves as
Chairman of the Clifford Chance US LLP Tax Department and Real Estate Securities practice
group. Mr. Gosule is a graduate of Boston University and its Law School and received an
LL.M. from Georgetown University. Mr. Gosule also serves on the Boards of Directors of
the Simpson Housing Limited Partnership, F.L. Putnam Investment Management Company,
Colonnade Partners, and America First Mortgage Investments, Inc. Clifford Chance US LLP
acted as counsel to PricewaterhouseCoopers LLP in its capacity as advisor to the State
Treasurer of the State of Michigan in connection with its investment of retirement funds
in Home Properties of New York, L.P. (the “Operating Partnership”). Mr. Gosule
was the nominee of the State Treasurer under the terms of the investment agreements
relating to that transaction. Those retirement funds |
| |
divested
their interest in Home Properties in 2001 and no longer have the right to nominate a
board member. Mr. Gosule is expected to continue to serve as a nominee of the Board of
Directors. |
| |
Leonard
F. Helbig, III has been a director of the Company since August 1994. Since September 2002
he has served as a Director of Integra Realty Advisors in Philadelphia. Between 1980 and
2002 he was employed with Cushman & Wakefield, Inc. From 1999 until 2002 Mr. Helbig
served as President, Financial Services for Cushman & Wakefield, Inc.. Prior to that
and since 1984, Mr. Helbig was the Executive Managing Director of the Asset Services and
Financial Services Groups. He was a member of that firm’s Board of Directors and
Executive Committee. Mr. Helbig is a member of the Urban Land Institute, the Pension Real
Estate Association and the International Council of Shopping Centers. Mr. Helbig is
a graduate of LaSalle University and holds the MAI designation of the American Institute
of Real Estate Appraisers. |
| |
Roger
W. Kober has been a director of the Company since August 1994. Mr. Kober is currently a
member of the Advisory Board of Rochester Gas and Electric Corporation, an Energy East
Company. He was employed by Rochester Gas and Electric Corporation from 1965 until his
retirement on January 1, 1998. From March 1996 until January 1, 1998, Mr. Kober served as
Chairman and Chief Executive Officer of Rochester Gas and Electric Corporation. He is
also a member of the Board of Trustees of Rochester Institute of Technology. Mr. Kober is
a graduate of Clarkson College and holds a Masters Degree in Engineering from Rochester
Institute of Technology. |
| |
Nelson
B. Leenhouts has served as President, Co-Chief Executive Officer and a director of the
Company since its inception in 1993. He has also served as President and Chief Executive
Officer and a director of HP Management since its formation. He has been a director of
HPRS since its formation, President since 2000 and a Vice President prior to that. Nelson
Leenhouts was the founder, and a co-owner, together with Norman Leenhouts, of Home Leasing,
and served as President of Home Leasing from 1967. He is a director of Hauser Corporation
and a member of the Board of Directors of the National Multi Housing Council. Nelson
Leenhouts is a graduate of the University of Rochester. He is the twin brother of Norman Leenhouts. |
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Norman
P. Leenhouts has served as Chairman of the Board of Directors, Co-Chief Executive Officer
and a director of the Company since its inception in 1993. He has also served as Chairman
of the Board of HP Management since its formation. He has been a director of HPRS since
its formation and Chairman since 2000. Norman Leenhouts is a co-owner, together with
Nelson Leenhouts, of Home Leasing and served as Chairman of Home Leasing from 1971.
He is a director of Hauser Corporation and Rochester Downtown Development Corporation and
is a member of the Board of Trustees of the University of Rochester and Roberts Wesleyan
College. He is a graduate of the University of Rochester and is a certified public
accountant. He is the twin brother of Nelson Leenhouts. |
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Edward
J. Pettinella has served as Executive Vice President and a director of the Company since
February 2001 and as Executive Vice President of HP Management and HPRS since May 2002.
From 1997 until February 2001, Mr. Pettinella served as President, Charter One Bank (NY
Division) and Executive Vice President of Charter One Financial, Inc. From 1980 through
1997, Mr. Pettinella served in several managerial capacities for Rochester Community
Savings Bank, Rochester, NY, including the positions of Chief Operating Officer and Chief
Financial Officer. Mr. Pettinella serves on the Board of Directors of the United Way of
Greater Rochester, State University at Geneseo, Geneseo Foundation, Syracuse University
School of Business and the YMCA of Greater Rochester. Mr. Pettinella is a graduate of the
State University at Geneseo and holds an MBA from Syracuse University. |
| |
Albert
H. Small has been a director of the Company since July 1999. Mr. Small, who has been
active in the construction industry for 50 years, is President of Southern Engineering
Corporation. Mr. Small is a member of the Urban Land Institute, National Association of
Home Builders and currently serves on the Board of Directors of the National Symphony
Orchestra, National Advisory Board Music Associates of Aspen, Department of State
Diplomatic Rooms Endowment Fund, James Madison Council of the Library of Congress, Tudor
Place Foundation, The Life Guard of Mount Vernon, Historical Society of Washington, D.C.
and the National Archives Foundation. Mr. Small is a graduate of the University of
Virginia. In |
| |
connection
with the acquisition of a portfolio of properties located in the suburban markets
surrounding Washington, D.C., Mr. Small and others received approximately 4,086,000 of
operating partnership units in the Operating Partnership. Mr. Small was the nominee of
the former owners of that portfolio under the terms of the acquisition documents. Those
former owners no longer have the right to nominate a board member. Mr. Small is expected
to continue to serve as a nominee of the Board of Directors. |
| |
Clifford
W. Smith, Jr. has been a director of the Company since August 1994. Mr. Smith is the
Epstein Professor of Finance of the William E. Simon Graduate School of Business
Administration of the University of Rochester, where he has been on the faculty since
1974. He has written numerous books and articles on a variety of financial, capital
markets and risk management topics and has held editorial positions for a variety of
journals. Mr. Smith is a graduate of Emory University and has a PhD from the University
of North Carolina at Chapel Hill. |
| |
Paul
L. Smith has been a director of the Company since August 1994. Mr. Smith was a director,
Senior Vice President and the Chief Financial Officer of the Eastman Kodak Company from
1983 until he retired in 1993. He is currently a director of Performance Technologies,
Inc. and Constellation Brands, Inc. He is also a member of the Board of Trustees of the
George Eastman House and Ohio Wesleyan University. Mr. Smith is a graduate of Ohio
Wesleyan University and holds an MBA Degree in finance from Northwestern University. |
| |
Amy
L. Tait has served as a director of the Company since its inception in 1993. Effective
February 15, 2001, Mrs. Tait resigned her full-time position as Executive Vice
President of the Company and as a director of HP Management. She is currently the
principal of Tait Realty Advisors, LLC, and continued as a consultant in the Company
pursuant to a consulting agreement that terminated on February 15, 2002. Mrs. Tait joined
Home Leasing in 1983 and held several positions with the Company, 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, Princeton Club of
Rochester, the Al Sigl Center, and The Commission Project. Mrs. Tait is a graduate of
Princeton University and holds an MBA from the William E. Simon Graduate School of
Business Administration of the University of Rochester. She is the daughter of Norman
Leenhouts. |
| |
See
Item 4A in Part I hereof for information regarding executive officers of the Company. |
| |
Compliance
with Section 16(a) of the Securities Exchange 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, 2002, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial owners
were satisfied with the following exceptions: (1) the acquisition of 880 shares of the
Company’s common stock that are held in the individual retirement account of Leonard
F. Helbig was reported on a Form 4 filed subsequent to the due date for such filing; (2)
due to a mis-calculation of withholding obligations, the number of shares of the Company’s
stock acquired by David P. Gardner in connection with an option exercise were
under-reported by 175 shares on a timely filed Form 4, which was subsequently amended;
(3) the sale of 200 shares of the Company’s common stock held in a custodial account
directed by Norman Leenhouts for the benefit of one of his grandchildren was reported on
an amended Form 4, filed subsequent to the due date for such filing; (4) the acquisition
of 275 shares of the Company’s common stock by a trust of which Burton August is the
lifetime beneficiary was reported on a Form 4 filed subsequent to the due date for such
filing; and (5) the issuance of 2,527 shares of the Company’s common stock in the
aggregate to six of the Company’s executive officers upon settlement of phantom
stock units pursuant to the Company’s Deferred Bonus Plan were reported on a Form 4
filed subsequent to the due date for such filing. |
Item 11. Executive Compensation
| |
The
information required by this Item is incorporated herein by reference to the Company’s
proxy statement to be issued in connection with the Annual Meeting of the Stockholders of
the Company to be held on May 6, 2003 under “Executive Compensation”, which
proxy statement will be filed within 120 days after the end of the Company’s fiscal
year. |
Item 12. Securities Ownership of
Certain Beneficial Owners and Management
| |
The
information required by this Item, including Equity Compensation Plan Information, is
incorporated herein by reference to the Company’s proxy statement to be issued in
connection with the Annual Meeting of Stockholders of the Company to be held on May 6,
2003 under “Security Ownership of Certain Beneficial Owners and Management” and
under “Equity Compensation Plan Information”, which proxy statement will be
filed within 120 days after the end of the Company’s fiscal year. |
Item 13. Certain Relationships and
Related Transactions
| |
The
information required by this Item is incorporated herein by reference to the Company’s
proxy statement to be issued in connection with the Annual Meeting of Stockholders of the
Company to be held on May 6, 2003 under “Certain Relationships and Transactions”,
which proxy statement will be filed within 120 days after the end of the Company’s
fiscal year. |
Item 14. Controls and Procedures
| |
The
Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Company’s Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and that such information is
accumulated and communicated to the Company’s Co-Chief Executive Officers and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Also, the Company has
investments in certain unconsolidated entities. As the Company does not control these
entities, the disclosure controls with respect to such entities are necessarily
substantially more limited than those maintained with respect to the Company’s
consolidated subsidiaries. |
| |
The
Co-Chief Executive Officers and Chief Financial Officer have within 90 days of the filing
date of this annual report, evaluated the effectiveness of the disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934, as amended) and have determined that such disclosure controls and procedures are
adequate. There have been no significant changes in the internal controls or in other
factors that could significantly affect the internal controls since the date of
evaluation. The Company does not believe any significant deficiencies or material
weaknesses exist in its internal controls. Accordingly, no corrective actions have been
taken. |
PART IV
Item 15. Exhibits, Financial
Statement Schedules and Reports on Form 8-K
| |
(a)
1 and 2. Financial Statements and Schedule |
| |
The
financial statements and schedule listed below are filed as part of this annual
report on the pages indicated. |
HOME PROPERTIES OF NEW YORK, INC.
Consolidated Financial Statements
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets
as of December 31, 2002 and 2001 F-3
Consolidated Statements of Operations
for the Years Ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 2002, 2001 and 2000 F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and 2000 F-7
Notes to Consolidated Financial Statements F-8
Schedule III:
Real Estate and Accumulated Depreciation F-39
(a) 3. Exhibits
Exhibit
Number Exhibit
2.1 Agreement among Home Properties of New York, Inc. and Philip J. Solondz, Daniel Solondz and Julia
Weinstein, relating to Royal Gardens I, together with Amendment No. 1
2.2 Agreement among Home Properties of New York, Inc and Philip Solondz and Daniel Solondz, relating to
Royal Gardens II, together with Amendment No. 1
2.3 Purchase and Sale Agreement dated July 25, 1997 by and between Home Properties of New York, L.P. and
Louis S. and Molly S. Wolk Foundation
2.4 Purchase and Sale Agreement dated April 30, 1997 between Home Properties of New York L.P. and Briggs
Wedgewood Associates, L.P.
2.5 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and
Chesfield Partnership
Exhibit
Number Exhibit
2.6 Agreement and Plan of Merger dated July 31, 1997 between Home Properties of New York, L.P. and
Valspring Partnership
2.7 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and Exmark
Partnership
2.8 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and New
Orleans East Limited Partnership
2.9 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. Glenvwk
Partnership
2.10 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and PK
Partnership
2.11 First Amendment to Agreement and Plan of Merger, dated September 1, 1997 between Home Properties of
New York, L.P. and PK Partnership and its partners
2.12 First Amendment to Agreement and Plan of Merger, dated September 1, 1997 between Home Properties of
New York, L.P. and NOP Corp. and Norpark Partnership
2.13 Contribution Agreement dated July 31, 1997 between Home Properties of New York, L.P. and Lamar
Partnership
2.14 Agreement and Plan of Merger, dated July 31, 1997 between Home Properties of New York, L.P. and Curren
Partnership
2.15 Contribution Agreement, dated October __, 1997 between Home Properties of New York between Home
Properties of New York, L.P. and Berger/Lewiston Associates Limited Partnership; Stephenson-Madison
Heights Company Limited Partnership; Kingsley- Moravian Company Limited Partnership; Woodland Garden
Apartments Limited Partnership; B&L Realty Investments Limited Partnership; Southpointe Square
Apartments Limited Partnership; Greentrees Apartments Limited Partnership; Big Beaver-Rochester
Properties Limited Partnership; Century Realty Investment Company Limited Partnership
2.16 Agreement among Home Properties of New York, L.P. and Erie Partners, L.L.C. relating to Woodgate Place
Apartments, together with Amendment No. 1
2.17 Agreement among Home Properties of New York, L.P. and Mid-Island Limited Partnership relating to
Mid-Island Estates, together with Amendment No. 1
2.18 Purchase and Sale Agreement among Home Properties of New York, L.P. and Anthony M. Palumbo and Daniel
Palumbo
2.19 Purchase and Sale Agreements dated June 17, 1997 among Home Properties of New York, L.P. and various
individuals relating to Hill Court Apartments and Hudson Arms Apartments together with a letter
Amendment dated September 24, 1997
2.20 Contract of Sale, dated October 20, 1997 between Home Properties of New York, L.P. and Hudson
Palisades Associates relating to Cloverleaf Apartments
2.21 Contribution Agreement, dated November 17, 1997 among Home Properties of New York, L.P. and various
trusts relating to Scotsdale Apartments
2.22 Contribution Agreement, dated November 7, 1997 among Home Properties of New York, L.P. and Donald H.
Schefmeyer and Stephen W. Hall relating to Candlewood Apartments, together with Amendment No. One
dated December 3, 1997
Exhibit
Number Exhibit
2.23 Purchase and Sale Agreement dated November 26, 1997 among Home Properties of New York, L.P. and Cedar
Glen Associates
2.24 Contribution Agreement dated March 2, 1998 among Home Properties of New York, L.P., Braddock Lee
Limited Partnership and Tower Construction Group, LLC
2.25 Contribution Agreement dated March 2, 1998 among Home Properties of New York, L.P., Park Shirlington
Limited Partnership and Tower Construction Group, LLC
2.26 Contract of Sale between Lake Grove Associates Corp. and Home Properties of New York L.P., dated
December 17, 1996, relating to the Lake Grove Apartments
2.27 Form of Contribution Agreement among Home Properties of New York, L.P. and Strawberry Hill Apartment
Company LLLP, Country Village Limited Partnership, Morningside Six, LLLP, Morningside North Limited
Partnership and Morningside Heights Apartment Company Limited Partnership with schedule setting forth
material details in which documents differ from form
2.28 Form of Purchase and Sale Agreement relating to the Kaplan Portfolio with schedule setting forth
material details in which documents differ from form
2.29 Form of Contribution Agreement dated June 7, 1999, relating to the CRC Portfolio with schedule setting
forth material details in which documents differ from form
2.30 Form of Contribution Agreement relating to the Mid-Atlantic Portfolio with schedule setting forth
material details in which documents differ from form
2.31 Contribution Agreement among Home Properties of New York, L.P., Leonard Klorfine, Ridley Brook
Associates and the Greenacres Associates
2.32 Purchase and Sale Agreement among Home Properties of New York, L.P. and Chicago Colony Apartments
Associates
2.33 Contribution Agreement among Home Properties of New York, L.P., Gateside-Bryn Mawr Company, L.P.,
Willgold Company, Gateside-Trexler Company, Gateside-Five Points Company, Stafford Arms,
Gateside-Queensgate Company, Gateside Malvern Company, King Road Associates and Cottonwood Associates
2.34 Form of Contribution Agreement between Old Friends Limited Partnership and Home Properties of New
York, L.P. and Home Properties of New York, Inc., along with Amendments Number 1 and 2 thereto
2.35 Form of Contribution Agreement between Deerfield Woods Venture Limited Partnership and Home Properties
of New York, L.P.
2.36 Form of Contribution Agreement between Macomb Apartments Limited Partnership and Home Properties of
New York, L.P.
2.37 Form of Contribution Agreement between Home Properties of New York, L.P. and Elmwood Venture Limited
Partnership
2.38 Form of Sale Purchase and Escrow Agreement between Bank of America as Trustee and Home Properties of
New York, L.P.
2.39 Form of Contribution Agreement between Home Properties of New York, L.P., Home Properties of New York,
Inc. and S&S Realty, a New York General Partnership (South Bay)
2.40 Form of Contribution Agreement between Hampton Glen Apartments Limited Partnership and Home Properties
of New York, L.P.
Exhibit
Number Exhibit
2.41 Form of Contribution Agreement between Home Properties of New York, L.P. and Axtell Road Limited
Partnership
2.42 Form of Contribution Agreement between Elk Grove Terrace II and III, L.P., Elk Grove Terrace, L.P. and
Home Properties of New York, L.P.
3.1 Articles of Amendment and Restatement of Articles of Incorporation of Home Properties of New York,
Inc.
3.2 Articles of Amendment of the Articles of Incorporation of Home Properties of New York, Inc.
3.3 Articles of Amendment of the Articles of Incorporation of Home Properties of New York, Inc.
3.4 Amended and Restated Articles Supplementary of Series A Senior Convertible Preferred Stock of Home
Properties of New York, Inc.
3.5 Series B Convertible Cumulative Preferred Stock Articles Supplementary to the Amended and Restated
Articles of Incorporation of Home Properties of New York, Inc.
3.6 Series C Convertible Cumulative Preferred Stock Articles Supplementary to the Amended and Restated
Articles of Incorporation of Home Properties of New York, Inc.
3.7 Series D Convertible Cumulative Preferred Stock Articles Supplementary to the Amended and Restated
Articles of Incorporation of Home Properties of New York, Inc.
3.8 Series E Convertible Cumulative Preferred Stock Articles Supplementary to the Amended and Restated
Articles of Incorporation of Home Properties of New York, Inc.
3.9 Amended and Restated By-Laws of Home Properties of New York, Inc. (Revised 12/30/96)
3.10 Series F Cumulative Redeemable Preferred Stock Articles Supplementary to the Amended
and Restated Articles of Incorporation of Home Properties of New York, Inc.
4.1 Form of certificate representing Shares of Common Stock
4.2 Agreement of Home Properties of New York, Inc. to file instruments defining the rights of holders of
long-term debt of it or its subsidiaries with the Commission upon request
4.3 Credit Agreement between Manufacturers Traders Trust Company, Home Properties of New York, L.P. and
Home Properties of New York, Inc.
4.4 Amendment Agreement between Manufacturers and Traders Trust Company, Home Properties of New York, L.P.
and Home Properties of New York, Inc. amending the Credit Agreement
4.5 Mortgage Spreader, Consolidation and Modification Agreement between Manufacturers and Traders Trust
Company and Home Properties of New York, L.P., together with form of Mortgage, Assignment of Leases
and Rents and Security Agreement incorporated therein by reference
4.6 Mortgage Note made by Home Properties of New York, L.P. payable to Manufacturers and Traders Trust
Company in the principal amount of $12,298,000
4.7 Spreader, Consolidation, Modification and Extension Agreement between Home Properties of New York,
L.P. and John Hancock Mutual Life Insurance Company, dated as of October 26, 1995, relating to
indebtedness in the principal amount of $20,500,000
4.8 Amended and Restated Stock Benefit Plan of Home Properties of New York, Inc.
4.9 Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock
Purchase Plan
Exhibit
Number Exhibit
4.10 Amendment No. One to Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock
Purchase and Employee Stock Purchase Plan
4.11 Amendment No. Two to Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock
Purchase and Employee Stock Purchase Plan
4.12 Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock
Purchase Plan
4.13 Amendment No. Three to Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock
Purchase and Employee Stock Purchase Plan
4.14 Directors' Stock Grant Plan
4.15 Director, Officer and Employee Stock Purchase and Loan Plan
4.16 Home Properties of New York, Inc., Home Properties of New York, L.P. Executive Retention Plan
4.17 Home Properties of New York, Inc. Deferred Bonus Plan
4.18 Fourth Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and
Employee Stock Purchase Plan
4.19 Directors Deferred Compensation Plan
4.20 Agency Fee and Warrant Agreement
4.21 Form of Warrant
4.22 Agency Fee and Warrant Agreement, Amendment No.1
4.23 Home Properties of New York, Inc. Amendment Number One to the Amended and Restated Stock Benefit Plan
4.24 Fifth Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee
Stock Purchase Plan
4.25 Sixth Amended and Restated Dividend Reinvestment and Direct Stock Purchase Plan
4.26 Home Properties of New York, Inc. Amendment Number Two to the Amended and Restated Stock Benefit Plan
4.27 Amendment No. One to Home Properties of New York, Inc. Deferred Bonus Plan
4.28 Amended and Restated Director Deferred Compensation Plan
4.29 Amendment No. Two to Deferred Bonus Plan
10.1 Second Amended and Restated Agreement of Limited Partnership of Home Properties of New York, L.P.
10.2 Amendments No. One through Eight to the Second Amended and Restated Agreement of Limited Partnership
of Home Properties of New York, L.P.
10.3 Articles of Incorporation of Home Properties Management, Inc.
10.4 By-Laws of Home Properties Management, Inc.
10.5 Articles of Incorporation of Conifer Realty Corporation
10.6 Articles of Amendment to the Articles of Incorporation of Conifer Realty Corporation Changing the name
to Home Properties Resident Services, Inc.
10.7 By-Laws of Conifer Realty Corporation
Exhibit
Number Exhibit
10.8 Home Properties Trust Declaration of Trust, dated September 19, 1997
10.9 Employment Agreement between Home Properties of New York, L.P. and Norman P. Leenhouts
10.10 Amendments No. One, Two and Three to the 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 Amendments No. One, Two and Three to the Employment Agreement between Home Properties of New York,
L.P. and Nelson B. Leenhouts
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 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 Beach, Paul O'Leary, Richard J. Struzzi, Robert C. Tait, Timothy A. Florczak and
Laurie Tones
10.17 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
10.18 Form of Term Promissory Note payable to Home Properties of New York, by officers and directors in
association with the Executive and Director Stock Purchase and Loan Program
10.19 Form of Pledge Security Agreement executed by officers and directors in connection with Executive and
Director Stock Purchase and Loan Program
10.20 Schedule of Participants, loan amounts and shares issued in connection with the Executive and Director
Stock Purchase and Loan Program
10.21 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
10.22 Partnership Interest Purchase Agreement, dated as of December 23, 1996 among Home Properties of New
York, Inc., Home Properties of New York, L.P. and State of Michigan Retirement Systems
10.23 Registration Rights Agreement, dated as of December 23, 1996 between Home Properties of New York, Inc.
and State of Michigan Retirement Systems
10.24 Lock-Up Agreement, dated December 23, 1996 between Home Properties of New York, Inc. and State of
Michigan Retirement Systems
10.25 Agreement dated as of April 13, 1998 between Home Properties of New York, Inc. and the Treasurer of
the State of Michigan
10.26 Amendment No. Nine to the Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.27 Master Credit Facility Agreement by and among Home Properties of New York, Inc., Home Properties of
New York, L.P., Home Properties WMF I LLC and Home Properties of New York, L.P. and P-K Partnership
doing business as Patricia Court and Karen Court and WMF Washington Mortgage Corp., dated as of August
28, 1998
Exhibit
Number Exhibit
10.28 First Amendment to Master Credit Facility Agreement, dated as of December 11, 1998 among Home
Properties of New York, Inc., Home Properties of New York, L.P., Home Properties WMF I LLC and Home
Properties of New York, L.P. and P-K Partnership doing business as Patricia Court and Karen Court and
WMF Washington Mortgage Corp. and Fannie Mae
10.29 Second Amendment to Master Credit Facility Agreement, dated as of August 30, 1999 among Home
Properties of New York, Inc., Home Properties of New York, L.P., Home Properties WMF I LLC and Home
Properties of New York, L.P. and P-K Partnership doing business as Patricia Court and Karen Court and
WMF Washington Mortgage Corp. and Fannie Mae
10.30 Amendments Nos. Ten through Seventeen to the Second Amended and Restated Limited Partnership Agreement
10.31 Amendments Nos. Eighteen through Twenty- Five to the Second Amended and Restated Limited Partnership
Agreement
10.32 Credit Agreement, dated 8/23/99 between Home Properties of New York, L.P., the Lenders, Party hereto
and Manufacturers and Traders Trust Company as Administrative Agent
10.33 Amendment No. Twenty-Seven to the Second Amended and Restated Limited Partnership Agreement
10.34 Amendments Nos. Twenty-Six and Twenty-Eight through Thirty to the Second Amended and Restated Limited
Partnership Agreement
10.35 Registration Rights Agreement between Home Properties of New York, Inc. and GE Capital Equity
Investment, Inc., dated 9/29/99
10.36 Amendment to Partnership Interest Purchase Agreement and Exchange Agreement
10.37 2000 Stock Benefit Plan
10.38 Purchase Agreement between Home Properties of New York, Inc., The Prudential Insurance Company of
America and Teachers Insurance And Annuity Association of America
10.39 Purchase Agreement between Home Properties of New York, Inc. and The Equitable Life Assurance Society
of the United States
10.40 Purchase Agreement between Home Properties of New York, Inc. and the Pacific Life Insurance Company
and AEW Capital Management
10.41 Home Properties of New York, L.P. Amendment Number One to Executive Retention Plan
10.42 Amendments No. Thirty-One and Thirty-Two to the Second Amended and Restated Limited Partnership
Agreement
10.43 Form of Purchase and Sale Agreement between Blackhawk Apartments Limited Partnership and Home
Properties of New York, L.P.
10.44 Form of Purchase and Sale Agreement between Home Properties of New York, L.P. and Caesar Figoni
10.45 Form of Real Estate Purchase Agreement between Smith Property Holdings Orleans, LLC and Home
Properties of New York, L.P.
10.46 Purchase Agreement between Home Properties of New York, Inc., The Prudential Insurance Company of
America and Teachers Insurance and Annuity Association of America
10.47 Employment Agreement between Home Properties of New York, L.P., Home Properties of New York Inc. and
Edward J. Pettinella, and Amendment No. One, thereto
10.48 Consulting Agreement between Home Properties of New York, L.P. and Amy L. Tait
Exhibit
Number Exhibit
10.49 Amendment No. Thirty Three to the Second Amended and Restated Limited Partnership Agreement
10.50 Amendment No. Thirty Five to the Second Amended and Restated Limited Partnership Agreement
10.51 Amendment No. Forty Two to the Second Amended and Restated Limited Partnership Agreement
10.52 Amendments Nos. Thirty Four, Thirty Six through Forty One, Forty Three and Forty Four to the Second
Amended and Restated Limited Partnership Agreement
10.53 Purchase and Sale Agreement among Home Properties of New York, L.P., Conifer Realty Corporation and
Conifer Realty LLC, and Amendments Nos. One and Two thereto.
10.54 Purchase and Sale Agreement by and between Sandalwood Co-Op, Inc. and Home Properties of New York,
L.P., dated April 12, 2001
10.55 Contribution Agreement by and among Home Properties of New York, L.P. and Lincolnia Limited
Partnership, dated April 30, 2001
10.56 Purchase and Sale Agreement between Windsor at Hauppauge Limited Partnership and Home Properties of
New York, L.P., dated as of May 2001
10.57 Amendment Nos. Forty-Five through Fifty-One to the Second Amendment and Restated Limited Partnership
Agreement
10.58 Home Properties of New York, Inc. Amendment No. One to 2000 Stock Benefit Plan
10.59 Home Properties of New York, Inc. Amendment No. Two to 2000 Stock Benefit Plan
10.60 Amendment Nos. Fifty-Two to Fifty-Five to the Second Amended and Restated Limited Partnership Agreement
10.61 Amendment Nos. Fifty-Six to Fifty-Eight to the Second Amended and Restated Limited Partnership
Agreement
10.62 Amendment No. Two to Credit Agreement
11 Computation of Per Share Earnings Schedule
21 List of Subsidiaries of Home Properties of New York, Inc.
23 Consent of PricewaterhouseCoopers LLP
99.1 Additional Exhibits - Debt Summary Schedule
99.2 Additional Exhibits - Series F Preferred Stock Covenants
(b) Reports on Form 8-K
* Form 8-K was filed on October 22, 2002, date of report January 23, 2002, with respect to Item 5
disclosures reflecting the impact of the classification as discontinued operations of the
apartment communities sold on or after January 1, 2002 in certain sections of the Company's
annual report filed on Form 10-K for the year ended December 31, 2001.
* Form 8-K was filed on October 25, 2002, date of report March 1, 2002, with respect to Items 5
and 7 disclosures relating to certain real estate acquisitions and dispositions.
* Form 8-K was filed on November 7, 2002, date of report November 1, 2002, with respect to
Items 7 and 9 disclosures regarding the Registrant's press release announcing its results for
the third quarter of 2002 and the third quarter 2002 investor conference call.
* Form 8-K was filed on November 14, 2002, date of report November 14, 2002, with respect to
Items 7 and 9 disclosures regarding Regulation FD disclosures pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Form 8-K was filed on February 13, 2003, date of report February 7, 2003, with respect to Items
7 and 9 disclosures regarding the Registrant's press release announcing its results for the
fourth quarter of 2002.
* Form 8-K was filed on March 12, 2003, date of report March 12, 2003, with respect to Items 7
and 9 disclosures regarding Regulation FD disclosures pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Norman P. Leenhouts____
Norman P. Leenhouts
Director, Chairman of the Board of Directors and
Co-Chief Executive Officer
(Co-Principal Executive Officer)
Date: March 12, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, the 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 12, 2003
Norman P. Leenhouts Board of Directors and
Co-Chief Executive Officer
(Co-Principal Executive Officer)
/s/ Nelson B. Leenhouts Director, President and March 12, 2003
Nelson B. Leenhouts Co-Chief Executive Officer
(Co-Principal Executive Officer)
/s/ Edward J. Pettinella Director, Executive Vice President March 12, 2003
Edward J. Pettinella
/s/ David P. Gardner Senior Vice President, Chief Financial March 12, 2003
David P. Gardner Officer (Principal Financial and
Accounting Officer)
/s/ Robert J. Luken Vice President, Treasurer and Chief Financial March 12, 2003
Robert J. Luken Analyst
/s/ Burton S. August, Sr. Director March 12, 2003
Burton S. August, Sr.
/s/ William Balderston, III Director March 12, 2003
William Balderston, III
/s/ Alan L. Gosule Director March 12, 2003
Alan L. Gosule
/s/ Leonard F. Helbig, III Director March 12, 2003
Leonard F. Helbig, III
Signature Title Date
/s/ Roger W. Kober Director March 12, 2003
Roger W. Kober
/s/ Albert H. Small Director March 12, 2003
Albert H. Small
/s/ Clifford W. Smith, Jr. Director March 12, 2003
Clifford W. Smith, Jr.
/s/ Paul L. Smith Director March 12, 2003
Paul L. Smith
/s/ Amy L. Tait Director March 12, 2003
Amy L. Tait
CERTIFICATION OF CHIEF
EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14
PROMULGATED BY
THE SECURITIES AND
EXCHANGE COMMISSION
(Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, Norman Leenhouts, certify that:
| 1. |
|
I
have reviewed this annual report on Form 10-K of Home Properties of New York,
Inc.; |
| 2. |
|
Based
on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
annual report; |
| 3. |
|
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report; |
| 4. |
|
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have: |
| |
a) |
|
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared; |
| |
b) |
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
as of a date within 90 days prior to the filing date of this annual report (the
“Evaluation Date”); and |
| |
c) |
|
presented
in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. |
|
The
registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons
performing the equivalent function): |
| |
a) |
|
all
significant deficiencies in the design or operation of internal controls which
could adversely affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls; and |
| |
b) |
|
any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls; and |
| 6. |
|
The
registrant’s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses. |
By: /s/ Norman Leenhouts
-------------------------------
Norman Leenhouts
Chairman of the Board of Directors and
Co-Chief Executive Officer
March 12, 2003
CERTIFICATION OF CHIEF
EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14
PROMULGATED BY
THE SECURITIES AND
EXCHANGE COMMISSION
(Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, Nelson Leenhouts,
certify that:
| 1. |
|
I
have reviewed this annual report on Form 10-K of Home Properties of New York,
Inc.; |
| 2. |
|
Based
on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
annual report; |
| 3. |
|
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report; |
| 4. |
|
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have: |
| |
a) |
|
designed
such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this annual report is being prepared; |
| |
b) |
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
as of a date within 90 days prior to the filing date of this annual report (the
“Evaluation Date”); and |
| |
c) |
|
presented
in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. |
|
The
registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons
performing the equivalent function): |
| |
a) |
|
all
significant deficiencies in the design or operation of internal controls which
could adversely affect the registrant’s ability to record, process,
summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls; and |
| |
b) |
|
any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls; and |
| 6. |
|
The
registrant’s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses. |
By: /s/ Nelson Leenhouts
-------------------------------
Nelson Leenhouts
President and
Co-Chief Executive Officer
March 12, 2003
CERTIFICATION OF CHIEF
EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14
PROMULGATED BY
THE SECURITIES AND
EXCHANGE COMMISSION
(Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, David P. Gardner, certify that:
| 1. |
|
I
have reviewed this annual report on Form 10-K of Home Properties of New York,
Inc.; |
| 2. |
|
Based
on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
annual report; |
| 3. |
|
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report; |
| 4. |
|
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have: |
| |
a) |
|
designed
such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this annual report is being prepared; |
| |
b) |
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
as of a date within 90 days prior to the filing date of this annual report (the
“Evaluation Date”); and |
| |
c) |
|
presented
in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. |
|
The
registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons
performing the equivalent function): |
| |
a) |
|
all
significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant’s ability to record,
process, summarize and report financial data and have identified for the
registrant’s auditors any material weaknesses in internal controls;
and |
| |
b) |
|
any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal controls; and |
| 6. |
|
The
registrant’s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses. |
By: /s/ David P. Gardner
-------------------------------
David P. Gardner
Senior Vice President and
Chief Financial Officer
March 12, 2003
HOME PROPERTIES OF NEW YORK, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets
as of December 31, 2002 and 2001 F-3
Consolidated Statements of Operations
for the Years Ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Comprehensive Income
for the Years Ended December 31, 2002, 2001 and 2000 F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and 2000 F-7
Notes to Consolidated Financial Statements F-8
Schedule III:
Real Estate and Accumulated Depreciation F-39
All other schedules are omitted because they are not applicable or the required information is shown in the
financial statements or notes thereto.
Report of Independent Accountants
To the Board of Directors and
Shareholders of
Home Properties of New York, Inc.:
In our opinion, the consolidated
financial statements listed in the index appearing under Item 15(a)(1) and (2) on page 54
present fairly, in all material respects, the financial position of Home Properties of
New York, Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 15(a)(1) and (2) on page 54 presents fairly, in
all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company’s 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 of these statements in
accordance with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes 1 and 15 to the
consolidated financial statements, in 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets.”
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
February
21, 2003
HOME PROPERTIES OF NEW
YORK, INC.
CONSOLIDATED BALANCE
SHEETS
DECEMBER 31, 2002 and
2001
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
2002 2001
---- ----
ASSETS
Real estate:
Land $ 376,998 $ 287,473
Buildings, improvements and equipment 2,220,280 1,847,605
---------- ----------
2,597,278 2,135,078
Less: accumulated depreciation (257,284) ( 201,564)
---------- ----------
Real estate, net 2,339,994 1,933,514
Cash and cash equivalents 8,782 10,719
Cash in escrows 45,735 39,230
Accounts receivable 7,576 8,423
Prepaid expenses 19,046 17,640
Investment in and advances to affiliates 19,475 42,870
Deferred charges 9,093 5,279
Other assets 6,565 6,114
---------- ----------
Total assets $2,456,266 $2,063,789
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $1,300,807 $ 960,358
Line of credit 35,000 32,500
Accounts payable 19,880 21,838
Accrued interest payable 6,612 5,782
Accrued expenses and other liabilities 12,412 13,180
Security deposits 22,252 18,948
---------- ----------
Total liabilities 1,396,963 1,052,606
Commitments and contingencies
Minority interest 333,061 341,854
---------- ----------
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 December 31, 2002 and 2001, respectively, net of issuance costs - 48,733
---------- ----------
Stockholders' equity:
Cumulative redeemable preferred stock, $.01 par value; 2,400,000 shares
issued and outstanding at December 31, 2002. No shares issued or
outstanding at December 31, 2001 60,000 -
Convertible cumulative preferred stock, $.01 par value; 10,000,000 shares
authorized; 1,086,800 and 1,150,000 shares issued and outstanding at
December 31, 2002 and 2001, respectively 107,680 114,000
Common stock, $.01 par value; 80,000,000 shares authorized; 27,027,003 and
24,010,855 shares issued and outstanding at December 31, 2002 and 2001,
respectively 270 240
Excess stock, $.01 par value; 10,000,000 shares authorized; no shares
issued or outstanding - -
Additional paid-in capital 649,489 572,273
Accumulated other comprehensive (loss) (972) (532)
Distributions in excess of accumulated earnings (89,452) (57,768)
Officer and director notes for stock purchases (773) (7,617)
---------- ----------
Total stockholders' equity 726,242 620,596
---------- ----------
Total liabilities and stockholders' equity $2,456,266 $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 YEARS ENDED
DECEMBER 31, 2002, 2001, AND 2000
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
2002 2001 2000
---- ---- ----
Revenues:
Rental income $378,133 $333,923 $284,142
Property other income 14,487 12,892 10,997
Interest and dividend income 1,315 3,010 7,740
Other income 1,627 2,215 2,845
-------- -------- --------
Total Revenues 395,562 352,040 305,724
-------- -------- --------
Expenses:
Operating and maintenance 165,087 147,026 128,269
General and administrative 12,649 10,542 6,485
Interest 77,314 65,699 56,150
Depreciation and amortization 66,388 61,917 49,698
Impairment of assets held as General Partner 3,183 - -
-------- -------- --------
Total Expenses 324,621 285,184 240,602
-------- -------- --------
Income from operations 70,941 66,856 65,122
Gain (loss) on disposition of property and business ( 356) 26,241 ( 1,386)
Equity in earnings (losses) of unconsolidated affiliates ( 17,493) 123 ( 1,747)
-------- -------- --------
Income before minority interest, discontinued operations and
extraordinary item 53,092 93,220 61,989
Minority interest 12,703 31,574 23,505
-------- -------- --------
Income from continuing operations 40,389 61,646 38,484
Discontinued operations
Income from operations, net of $1,174, $2,108, $2,210 in
2002, 2001 and 2000 allocated to minority interest,
respectively 1,889 2,928 2,972
Gain on disposition of property, net of $2,870 allocated to
minority interest 4,720 - -
-------- -------- --------
Income before extraordinary item 46,998 64,574 41,456
Extraordinary item, prepayment penalties, net of $1,216 in 2002
and $48 in 2001 allocated to minority interest ( 2,059) ( 68) -
-------- -------- --------
Net income 44,939 64,506 41,456
Preferred dividends ( 14,744) ( 17,681) ( 12,178)
Premium on Series B preferred stock repurchase ( 5,025) - -
-------- -------- --------
Net income available to common shareholders $ 25,170 $ 46,825 $ 29,278
======== ======== ========
Basic earnings per share data:
Income from continuing operations $ .79 $ 1.99 $ 1.28
Discontinued operations .25 .13 .14
Extraordinary item ( .07) - -
-------- -------- --------
Net income available to common shareholders $ .97 $ 2.12 $ 1.42
======== ======== ========
Diluted earnings per share data:
Income from continuing operations $ .78 $ 1.98 $ 1.27
Discontinued operations .25 .13 .14
Extraordinary item ( .07) - -
-------- -------- --------
Net income available to common shareholders $ .96 $ 2.11 $ 1.41
======== ======== ========
Weighted average number of shares outstanding:
Basic 26,054,535 22,101,027 20,639,241
======== ======== ========
Diluted 26,335,316 22,227,521 20,755,721
======== ======== ========
The accompanying notes are an
integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW
YORK, INC.
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
Officer/
Preferred Distributions Accumulated Director
Stock at Common Stock Additional in Excess of Other Notes for
Liquidation ------------- Paid-In Accumulated Comprehensive Stock
Preference Share Amount Capital Earnings Income Purchase
---------- ----- ------ ------- -------- ------ --------
Balance, January 1, 2000 $35,000 19,598,464 $196 $461,345 ($ 38,294) $ - ($9,857)
Issuance of common stock, net 2,108,275 21 55,914
Issuance of preferred stock, net 114,000 ( 1,706)
Payments on notes for stock purchase 375
Interest receivable on notes for stock
purchase ( 142)
Net income 41,456
Conversion of UPREIT Units for stock 327,542 3 7,385
Purchase and retirement of treasury
stock ( 468,600) ( 4) ( 12,660)
Adjustment of minority interest ( 26,825)
Preferred dividends ( 12,179)
Dividends paid ($2.16 per share) ( 44,500)
-------- ---------- ---- -------- ------- ----- -------
Balance, December 31, 2000 149,000 21,565,681 216 483,453 (53,517) - (9,624)
Issuance of common stock, net 1,448,815 14 38,920
Conversion of preferred stock for
common stock (35,000) 1,666,667 17 34,983
Payments on notes for stock purchase 1,812
Interest receivable on notes for stock
purchase 195
Net income 64,506
Change in fair value of hedge
instruments,
net of minority interest (532)
Conversion of UPREIT Units for stock 83,692 1 1,909
Purchase and retirement of treasury
stock (754,000) ( 8) (20,613)
Adjustment of minority interest 33,621
Preferred dividends ( 17,681)
Dividends paid ($2.31 per share) ( 51,076)
-------- ---------- ---- -------- ------- ----- -------
Balance, December 31, 2001 114,000 24,010,855 240 572,273 (57,768) (532) (7,617)
Issuance of common stock, net 1,770,150 18 54,065
Issuance of preferred stock, net 60,000 (1,902)
Conversion of Series E preferred stock
for common stock (6,320) 200,000 2 6,318
Conversion of Series B preferred stock
for common stock 839,771 8 24,359
Premium on Series B
preferred stock repurchase (5,025)
Payments on notes for stock purchase 6,425
Interest receivable on notes for stock
purchase 419
Net income 44,939
Change in fair value of hedge
instruments,
net of minority interest (440)
Conversion of UPREIT Units for stock 206,227 2 6,609
Adjustment of minority interest (7,208)
Preferred dividends ( 14,744)
Dividends paid ($2.41 per share) ( 61,879)
-------- ---------- ---- -------- ------- ----- -------
Balance, December 31, 2002 $167,680 27,027,003 $270 $649,489 $89,452 ($972) ($ 773)
======== ========== ==== ======== ======= ===== =======
The accompanying notes are an
integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW
YORK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS)
2002 2001 2000
Net income $44,939 $64,506 $41,456
------- ------- -------
Other comprehensive income (loss):
Cumulative effect of accounting change (Note 11) - ( 339) -
Change in fair value of hedged instruments ( 440) ( 193) -
------- ------- -------
Other comprehensive loss, net of minority interest ( 440) ( 532) -
------- ------- -------
Net comprehensive income $44,499 $63,974 $41,456
======= ======= =======
The accompanying notes are an
integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW
YORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000
(IN THOUSANDS)
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income $ 44,939 $ 64,506 $ 41,456
-------- -------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in (earnings) losses of unconsolidated affiliates 17,493 ( 123) 1,747
Income allocated to minority interest 15,531 33,634 25,715
Depreciation and amortization 68,799 65,521 52,995
Impairment of assets held as General Partner 3,183 - -
(Gain) loss on disposition of property and business ( 7,234) ( 26,241) 1,386
Extraordinary item - prepayment penalties 3,275 116 -
Changes in assets and liabilities:
Other assets ( 3,160) 1,564 ( 8,468)
Accounts payable and accrued liabilities 711 9,528 12,387
-------- -------- --------
Total adjustments 98,598 83,999 85,762
-------- -------- --------
Net cash provided by operating activities 143,537 148,505 127,218
-------- -------- --------
Cash flows used in investing activities:
Purchase of properties and other assets, net of mortgage
notes assumed and UPREIT Units issued (267,940) (126,385) (106,438)
Additions to properties (115,692) (130,468) ( 92,603)
Advances to affiliates ( 11,398) ( 15,257) ( 33,482)
Payments on advances to affiliates 16,120 17,558 42,311
Proceeds from sale of properties and business, net 84,079 115,446 11,746
-------- -------- --------
Net cash used in investing activities (294,831) (139,106) (178,466)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net 58,098 - 112,294
Proceeds from sale of common stock, net 60,934 40,943 56,168
Repurchase of Series B preferred stock ( 29,392) - -
Purchase of treasury stock - ( 20,621) ( 12,664)
Purchase of UPREIT Units - ( 11,899) -
Proceeds from mortgage notes payable 346,525 132,397 84,432
Payments of mortgage notes payable (159,657) ( 72,629) ( 33,517)
Extraordinary item - prepayment penalties ( 3,275) ( 116) -
Proceeds from line of credit 281,000 171,500 97,000
Payments on line of credit (278,500) (139,000) (147,800)
Payments of deferred loan costs ( 4,866) ( 2,086) ( 1,781)
Additions to cash escrows, net ( 6,505) ( 2,554) ( 8,395)
Dividends and distributions paid (115,005) (105,064) ( 88,782)
-------- -------- --------
Net cash provided by (used in) financing activities 149,357 ( 9,129) 56,955
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ( 1,937) 270 5,707
Cash and cash equivalents:
Beginning of year 10,719 10,449 4,742
-------- -------- --------
End of year $ 8,782 $ 10,719 $ 10,449
======== ======== ========
The accompanying notes are an
integral part of these consolidated financial statements.
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
1 ORGANIZATION AND BASIS OF
PRESENTATION
| |
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 rehabilitation of residential apartment communities in the Northeastern,
Mid-Atlantic and Midwestern United States. The Company conducts its business through Home
Properties of New York, L.P. (the “Operating Partnership”), a New York limited
partnership. As of December 31, 2002, the Company operated 296 apartment communities with
51,841 apartments. Of this total, the Company owned 152 communities, consisting of 41,776
apartments, managed as general partner 134 partnerships that owned 8,072 apartments, and
fee managed 1,993 apartments for affiliates and third parties. The Company also fee
managed 2.2 million square feet of office and retail properties. |
| |
The
accompanying consolidated financial statements include the accounts of the Company and
its 62.6% (60.0% at December 31, 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 (“UPREIT Units”)
outstanding. The remaining 37.4% (40.0% at December 31, 2001) is reflected as Minority
Interest in these consolidated financial statements. The Company owns a 1.0% general
partner interest in the Operating Partnership and the remainder as a limited partner
through its wholly owned subsidiary, Home Properties I, LLC, which owns 100% of the
limited partner, Home Properties Trust. Home Properties Trust was formed in September
1997, as a Maryland real estate trust and as a qualified REIT subsidiary (“QRS”)
and owns the Company’s share of the limited partner interests in the Operating
Partnership. 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 0.1% by the QRS. |
| |
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. |
| |
The
Company accounts for its investment as managing general partner (“GP”) in
unconsolidated affordable housing limited partnerships (“LP”) using the equity
method of accounting. As managing GP of the LP, the Company has the ability to exercise
significant influence over operating and financial policies. This influence is evident in
the terms of the respective partnership agreements, participation in policy-making
processes, and the employment of its management personnel. However, the Company does not
have a controlling interest in the respective LPs. The limited partners have significant
rights, such as the right to replace the general partner (for cause) and the right to
approve the sale or refinancing of the assets of the respective partnership in accordance
with the partnership agreement. |
| |
The
Company records its allocable share of the respective partnership’s income or loss
based on the terms of the agreement. To the extent it is determined that the LPs cannot
absorb their share of the losses, if any, the GP will record the LPs share of such
losses. In addition to the extent the Company has outstanding loans or advances and the
limited partner has no remaining capital account, the Company will absorb such losses. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
1 ORGANIZATION AND BASIS OF
PRESENTATION (CONTINUED)
| |
Certain
reclassifications have been made to the 2001 and 2000 consolidated financial statements
to conform to the 2002 presentation. |
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
| |
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. 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 extraordinary item for the year-ended December 31, 2002
increased approximately $6.2 million or $.24 on a diluted per share basis. 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.
This change has been accounted for prospectively in accordance with the provisions of
Accounting Principle Board Opinion No. 20, Accounting Changes. |
| |
Real
estate is recorded at cost. Costs related to the acquisition, development, construction
and improvement of properties are capitalized. Recurring capital replacements typically
include carpeting and tile, appliances, HVAC equipment, new roofs, site improvements and
various exterior building improvements. Non-recurring upgrades include, among other
items, community centers, new appliances, new windows, kitchens and bathrooms. Interest
costs are capitalized until construction is substantially complete. There was $960, $520,
and $260 of interest capitalized in 2002, 2001 and 2000, respectively. Salaries and
related costs capitalized for the years ended December 31, 2002, 2001 and 2000 were
$1,446, $1,341, and $910, respectively. When retired or otherwise disposed of, the
related asset cost and accumulated depreciation are cleared from the respective accounts
and the net difference, less any amount realized from disposition, is reflected in
income. Ordinary repairs and maintenance that do not extend the life of the asset are
expensed as incurred. |
| |
Effective
January 1, 2002, the Company adopted the provisions of SFAS No. 144, “Accounting for
the Impairment or Disposal of Long Lived Assets.” This standard superceded SFAS No.
121, “Accounting for the Impairment of Long Lived Assets and for Long Lived Assets
to be Disposed of,” but also retained its basic provision requiring (i) recognition
of an impairment loss of the carrying amount of a long-lived asset if it is not
recoverable from its undiscounted cash flows and (ii) measurement of an impairment loss
as the difference between the carrying amount and fair value of the asset unless an asset
is held for sale, in which case it would be stated at the lower of carrying amount or
fair value less costs to dispose. However, SFAS No. 144 also describes a
probability-weighted cash flow estimation approach to deal with situations which
alternative courses of action to recover the carrying amount of a long-lived asset are
under consideration or a range is estimated. The determination of undiscounted cash flows
requires significant estimates made by management and considers the expected course of
action at the balance sheet date. Subsequent changes in estimated undiscounted cash flows
arising from changes in anticipated actions could impact the determination of whether an
impairment exists. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| |
Management
reviews its long-lived assets used in operations for impairment when there is an event or
change in circumstances that indicates an impairment in value. An asset is considered
impaired when the undiscounted future cash flows are not sufficient to recover the asset’s
carrying value. If such impairment is present, an impairment loss is recognized based on
the excess of the carrying amount of the asset over its fair value. The Company records
impairment losses and reduces the carrying amounts of assets held for sale when the
carrying amounts exceed the estimated selling proceeds less the costs to sell. |
| |
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. As discussed in the change in accounting
estimate section of this note, effective January 1, 2002, the Company changed the
estimated useful lives of certain assets. Depreciation expense charged to operations was
$66,251, $61,593, and $49,307 from continuing operations and $1,359, $2,973, and $2,732
from discontinued operations for the years ended December 31, 2002, 2001 and 2000,
respectively. |
| |
Cash
and Cash Equivalents |
| |
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 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. |
| |
Costs
relating to the financing of properties are deferred and amortized over the life of the
related financing agreement. The straight-line method, which approximates the effective
interest method, is used to amortize all financing costs; such amortization is reflected
as interest expense in the consolidated statement of operations. The range in the terms
of the agreements are from 1-18 years. Accumulated amortization was $2,451 and $1,548, as
of December 31, 2002 and 2001, respectively. |
| |
Intangible
assets of $3,562 and $4,492 at December 31, 2002 and 2001, respectively, included in
Other Assets, consist primarily of property management contracts obtained through the
acquisition of real estate management businesses, which are amortized on the
straight-line basis over their estimated useful lives of 40 years. Subsequent to 2002,
the Company does not anticipate significant amortization expense as the intangibles are
expected to be sold (see Notes 3 and 4). Accumulated amortization was $801 and $888 as of
December 31, 2002 and 2001, respectively. Amortization expense was $135, $204, and $109
for the years ended December 31, 2002, 2001 and 2000, respectively. The carrying value of
intangible assets is periodically reviewed by the Company and impairments are recognized
when the expected future operating cash flows derived from such intangible assets is less
than their carrying value. In connection with the Company’s decision to sell the
assets associated with its general partnership interest in certain affordable properties
(see Note 3), the Company wrote-down $985 (included in the line item Impairment of assets
held as General Partner on the Consolidated Statements of Operations) of the intangible
balance as of December 31, 2002, in order to reflect the recorded assets at their
estimated fair value. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
| |
The
Operating Partnership leases its residential properties under leases with terms generally
one year or less. Rental income is recognized on a straight-line basis over the related
lease term. As a result, deferred rents receivable are created when rental income is
recognized during the concession period of certain negotiated leases and amortized over
the remaining term of the lease. 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. |
| |
Property
management fees are recognized when earned based on a contractual percentage of net
monthly cash collected on rental income. |
| |
Prior
to 2001, the Operating Partnership earned development and other fee income from
properties in the development phase. This fee income was recognized on the percentage of
completion method. |
| |
Gains
on Real Estate Sales |
| |
Gains
from sales of operating properties are recognized using the full accrual method in
accordance with the provisions of Statement of Financial Accounting Standards No. 66,
Accounting for Real Estate Sales, provided that various criteria relating to the terms of
sale and any subsequent involvement by the Company with the properties sold are met. |
| |
Advertising
expenses are charged to operations during the year in which they were incurred.
Advertising expenses incurred and charged to operations were approximately $6,129,
$5,393, and $4,988 from continuing operations and $112, $331, and $352 from discontinued
operations for the years ended December 31, 2002, 2001 and 2000, respectively. |
| |
In
October 2001, the Company resolved a legal claim with an insurance provider and received a
total settlement of $4.9 million. This refund was allocated to insurance expense in
relation to the Company’s estimate of loss spread over the corresponding policy term.
The policy term covered November 1, 2000 to October 31, 2001 and November 1, 2001 to
October 31, 2002. The amount of the settlement relating to the period from November 1,
2000 to December 31, 2001 was estimated to be $2.2 million, and that amount reduced
insurance expense in the fourth quarter of 2001. The remaining settlement of $2.7 million
related to the remaining policy period from January 1, 2001, through October 31, 2002, and
was amortized on a straight-line basis over that period. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
| |
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 90% (95% in years prior to 2001) of its REIT taxable income to its
shareholders and satisfies certain other requirements. For the years ended December 31,
2002, 2001 and 2000, the Company distributed in excess of 100% of its taxable income;
accordingly, no provision has been made for federal income taxes in the accompanying
consolidated financial statements. Stockholders are taxed on dividends and must report
such dividends as either ordinary income, capital gains, or as return of capital. |
| |
The
tax basis of assets is less than the amounts reported in the accompanying consolidated
financial statements by approximately $401 million and $202 million at December 31, 2002
and 2001, respectively. |
| |
The
following table reconciles net income to taxable income for the years ended December 31,
2002, 2001 and 2000: |
2002 2001 2000
---- ---- ----
Net income $44,939 $64,506 $41,456
Add back: Net (income) loss of Taxable REIT
Subsidiaries included above ( 10,627) ( 20) 1,092
------- ------- -------
Net income from REIT operations 55,566 64,486 42,548
Add: Book depreciation and amortization 39,214 38,034 29,201
Less: Tax depreciation and amortization ( 44,307) (39,193) (31,946)
Book/tax difference on gains/losses from capital
transactions ( 4,237) ( 4,729) -
Other book/tax differences, net ( 6,171) ( 1,596) 524
------- ------- -------
Adjusted taxable income subject to 90% (95% in 2000)
dividend requirement $40,065 $57,002 $40,327
======= ======= =======
| |
The
Company made actual distributions in excess of 100% of the taxable income before capital
gains. All adjustments to net income from REIT operations are net of amounts attributable
to minority interest and taxable REIT subsidiaries. |
| |
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 (using the treasury
stock method) and the conversion of any cumulative convertible preferred stock. The
exchange of an Operating Partnership Unit for common stock will have no effect on diluted
EPS as unitholders and stockholders effectively share equally in the net income of the
Operating Partnership. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 2 |
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| |
Earnings
Per Share (Continued) |
| |
Income
from continuing operations is the same for both the basic and diluted calculation. The
reconciliation of the basic and diluted earnings per share for the years ended December 31,
2002, 2001 and 2000, is as follows: |
2002 2001 2000
---- ---- ----
Income from continuing operations $40,389 $61,646 $38,484
Less: Preferred dividends ( 14,744) ( 17,681) (12,178)
Less: Premium on Series B preferred stock repurchase ( 5,025) - -
---------- ---------- ----------
Basic and Diluted - Income from continuing operations
applicable to common shareholders $20,620 $43,965 $26,306
========== ========== ==========
Basic weighted average number of shares
Outstanding 26,054,535 22,101,027 20,639,241
Effect of dilutive stock options 280,781 126,494 116,480
---------- ---------- ----------
Diluted weighted average number of shares
Outstanding 26,335,316 22,227,521 20,755,721
========== ========== ==========
Basic earnings per share data:
Income from continuing operations $ .79 $ 1.99 $ 1.28
Discontinued operations .25 .13 .14
Extraordinary item ( .07) - -
---------- ---------- ----------
Net Income available to common shareholders $ .97 $ 2.12 $ 1.42
========== ========== ==========
Diluted earnings per share data:
Income from continuing operations $ .78 $ 1.98 $ 1.27
Discontinued operations .25 .13 .14
Extraordinary item ( .07) - -
---------- ---------- ----------
Net Income available to common shareholders $ .96 $ 2.11 $ 1.41
========== ========== ==========
| |
Unexercised
stock options to purchase 669,090, 1,732,656, and 1,270,300 (including warrants of
525,000 issued with the Series C and E Preferred Stock issuance for 2001 and 2000) shares
of the Company’s common stock were not included in the computations of diluted EPS
because the options’ exercise prices were greater than the average market price of
the Company’s stock during the years ended December 31, 2002, 2001 and 2000,
respectively. For the year ended December 31, 2002, the 4,123,533 common stock
equivalents on an as-converted basis of the Series B, C, D and E Convertible Cumulative
Preferred Stock has an antidilutive effect and is not included in the computation of
diluted EPS. For the years ended December 31, 2001 and 2000, there were 7,112,381 common
stock equivalents on an as-converted basis of certain convertible preferred stock that
had an antidilutive effect and were not included in the computation of diluted EPS. To
the extent the preferred stock was converted, the common shares would be included in
outstanding shares from the date of conversion. |
| |
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. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
| |
Stock
Based Employee Compensation |
| |
The
Company uses the intrinsic value method in accordance with the Accounting Principle Board
Opinion No. 25 (“APB No. 25”) to account for stock-based employee compensation
arrangements. Under this method, the Company does not recognize compensation cost for
stock options when the option exercise price equals or exceeds the market value on the
date of grant. Restricted stock grants are recognized as compensation expense over the
vesting period based upon the market value on the date of grant. Had the Company
determined compensation cost based upon the fair value of the stock option grants under
SFAS No. 123, “Accounting for Stock-Based Compensation,” the fair values of the
options granted at the grant dates would be recognized as compensation expense over the
vesting periods, and the Company’s net income and earnings per share at December 31
would have been as follows: |
2002 2001 2000
---- ---- ----
Net income, as reported $44,939 $64,506 $41,456
Total stock compensation cost recognized 241 96 -
Total stock compensation cost had SFAS 123 been adopted (1,143) (930) (489)
Minority interest for net stock compensation cost 343 349 209
------- ------- -------
Proforma net income had SFAS 123 been adopted $44,380 $64,021 $41,176
======= ======= =======
Per share data:
Basic - as reported $ 0.97 $ 2.12 $ 1.42
======= ======= =======
Basic - proforma $ 0.94 $ 2.10 1.40
======= ======= =======
Diluted - as reported $ 0.96 $ 2.11 $ 1.41
======= ======= =======
Diluted - proforma $ 0.93 $ 2.08 $ 1.40
======= ======= =======
| |
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 2002, 2001, and
2000: dividend yields ranging from 8.40% to 9.40%; expected volatility of 19.17%; and
expected lives of 7.5 years for the 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 4.29% to 6.87%. |
| |
New
Accounting Pronouncements |
| |
In
June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”The
provisions of this statement are required to be applied to all goodwill and other
intangible assets. SFAS No. 142 becomes effective beginning January 1, 2002. The Company
adopted this pronouncement for the year ended December 31, 2002, and did not have a
material impact on its results on operations, financial position or liquidity. |
| |
In
August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement
Obligations.” SFAS No. 143 requires an entity to record a liability for an
obligation associated with the retirement of an asset at the time the liability is
incurred by capitalizing the cost as part of the carrying value of the related asset and
depreciating it over the remaining useful life of that asset. The standard is effective
beginning January 1, 2003. The changes required by SFAS No. 143 are not expected to have
a material impact on the Company’s results of operations, financial position or
liquidity. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
| |
New
Accounting Pronouncements (Continued) |
| |
In
October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-lived Assets,” which addresses how and when to measure the
impairment on long-lived assets and how to account for long-lived assets that an entity
plans to dispose of either through sale, abandonment, exchange, or distribution to
owners. The Company adopted SFAS No. 144 as of January 1, 2002. See Notes 1 and 15 for a
discussion of the impact on the Company from the adoption of SFAS No. 144. |
| |
In
April 2002, the FASB issued 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.
Upon adoption, the Company will be reclassifying its previously reported early debt
extinguishment charges presented as an extraordinary item to inclusion within income from
operations. 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. |
| |
In
November 2002, the FASB issued Interpretation No. 45 (“FIN 45”) –Guarantor’s
Accounting and Disclosure Requirements for Guarantees, including indirect guarantees of
other (an interpretation of FASB No. 5, FASB No. 57, and FASB No. 107 and recession of
FASB Interpretation No. 34). This interpretation elaborates on the disclosures to be made
by a guarantor in its financial statements about its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaking in
issuing the guarantee. The disclosure requirements of this Interpretation are effective
for financial statements of periods ending after December 15, 2002. The initial
recognition and initial measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The Company
does not expect this interpretation to have a material impact on the Company’s
financial position, results of operations, or cash flows. |
| |
In
December 2002, the FASB issued SFAS No. 148 – Accounting for Stock-Based
Compensation – Transition and Disclosure, an Amendment of SFAS No. 123. This
statement provides alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation as well as changing certain disclosure provisions. This statement also
amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about these
effects in interim financial information. Effective January 1, 2003, the Company will
adopt the fair value based method of accounting for stock options in accordance with SFAS
No. 123. The Company is studying the transition methods available and has not yet
determined the method to be used. The Company has, however, adopted the disclosure
provisions of SFAS No. 148. See the Company’s policy on Stock Based Compensation
included within this footnote. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
| |
New
Accounting Pronouncements (Continued) |
| |
In
January 2003, the FASB issued Interpretation No. 46 – Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 – Consolidated Financial
Statements. The interpretation addresses consolidation by businesses of special purpose
entities (variable interest entities, “VIE”). This interpretation addresses
consolidation by business enterprises of variable interest entities in which the equity
investment at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties or in which the
equity investors do not have the characteristics of a controlling financial interest.
This interpretation requires a variable interest entity to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable interest
entity’s activities or entitled to receive a majority of the entity’s residual
returns or both. The interpretation also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of this interpretation
apply immediately to variable interest entities created after January 31, 2003, and in
the first fiscal year or interim period beginning after June 15, 2003, to existing
variable interest entities. Management believes that it is reasonably possible that the
Management Companies (see Note 4) meet the definition of a VIE and would be required to
be consolidated with the Company. Management is uncertain but is assuming it is
reasonably possible that each of the limited partnerships in which it holds the general
partnership interest (see Note 3) would be considered a VIE, and the Company would
consolidate all or a certain number of the limited partnership’s assets and
liabilities. The interpretation becomes effective July 1, 2003. |
3 INVESTMENT IN AND ADVANCES
TO AFFILIATES
| |
The
Company has investments in and advances to approximately 136 limited partnerships where
the Company acts as the managing general partner. In addition, there are investments in
other affiliated entities (see Note 4). The following is summarized financial information
for the investment in and advances to affiliates carried under the equity method of
accounting, excluding the Management Companies discussed in Note 4, as of December 31,
2002 and 2001 and for each of the three years ended December 31, 2002. |
2002 2001
---- ----
Balance Sheets:
Real estate, net $266,613 $280,864
Other assets 37,764 36,579
-------- --------
Total assets $304,377 $317,443
======== ========
Mortgage notes payable $253,285 $253,798
Advances from affiliates 24,725 25,245
Other liabilities 15,125 18,140
Partners' equity 11,242 20,260
-------- --------
Total liabilities and partners' equity $304,377 $317,443
======== ========
| |
The
Company’s proportionate share of mortgage notes payable was $6,700 at December 31,
2002. The mortgage notes payable are all non-recourse to the affiliated partnership and
the Company. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
3 INVESTMENT IN AND ADVANCES
TO AFFILIATES (CONTINUED)
2002 2001 2000
---- ---- ----
Operations:
Gross revenues $47,468 $46,972 $44,053
Operating expenses ( 29,994) ( 29,704) ( 26,627)
Mortgage interest expense ( 11,914) ( 11,529) ( 12,198)
Depreciation and amortization ( 13,503) ( 13,606) ( 12,964)
--------- --------- ---------
Net loss ($ 7,943) ($ 7,867) ( $ 7,736)
========= ========= = =======
Company's share [included in equity in earnings (losses)
of unconsolidated affiliates]* ($ 1,171) $ 62 $ 45
========= ===== =====
| |
*In
addition to the amounts presented above, the Company recorded additional losses related
to the accounting requirements of EITF 99-10 described in the following paragraphs. |
| |
Reconciliation
of interests in the underlying net assets to the Company’s carrying value of
investments in and advances to affiliates: |
2002 2001
---- ----
Partners' equity, as above $11,242 $20,260
Equity of other partners 9,236 16,446
------- -------
Company's share of investments in limited partnerships 2,006 3,814
Less - impairment charge ( 899) -
------- -------
Company's investment in limited partnerships 1,107 3,814
Company's investment in Management Companies (see Note 4) 5,996 22,477
Company's advances to Management Companies 12,372 16,579
------- -------
Carrying amount of investments in and advances to affiliates $19,475 $42,870
======= =======
| |
The
Company, including its equity affiliates (Management Companies – Note 4), determined
in the fourth quarter of 2002 that it would market for sale the assets associated with
its interests in various affordable property limited partnerships. Prior to the fourth
quarter of 2002, the Company had been assessing whether to expand its holding in such
assets, including seeking out additional management opportunities, to consider the sale
of such assets, or to retain its existing portfolio of assets without further growth. The
Company ultimately concluded that it would not seek to grow its portfolio of these types
of assets. It was then determined that the existing affordable property limited
partnerships required a disproportionate effort to manage which was not justified by
their overall contribution to profit. The Company concluded that its strategic focus
should be on the direct ownership and management of market rate properties. Accordingly,
the decision to sell its assets in the affordable property limited partnerships was made. |
| |
The
Company’s assets related to the limited partnerships are comprised of management
contracts, loans, advances and receivables and general partnership interests. An
aggregate impairment charge of $14.2 million was recorded by the Company and its equity
affiliates and resulted from adjusting the recorded amount of the assets to their
estimated fair market value. The impairment charge was comprised of the following: (i)
intangible assets (i.e. management contracts) were written down $985,000 to their
estimated fair market value, (ii) loans, advances and other receivables which had
previously been assessed for impairment based upon their estimated collectibility as
determined under applicable accounting standards, are now, subsequent to the Company’s
decision to sell, required to be reflected at their estimated fair market value and,
accordingly, were written down by an aggregate of $12,363,000 and (iii) the general
partnership equity interests were written down $899,000 as certain of the Company’s
investments are now |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
3 INVESTMENT IN AND ADVANCES
TO AFFILIATES (CONTINUED)
| |
considered
to have suffered an other than temporary impairment. As the assets are held by both the
Company and its equity affiliates, the resultant impairment trigged by the decision to
sell these assets is reflected in the statement of operations within the line items as
follows: |
Impairment of assets held as general partner $ 2,448,000
Equity in earnings (losses) of unconsolidated affiliates (Note 4) 11,799,000
-----------
$14,247,000
===========
| |
In
addition to the above impairment charge, the Company’s results of operations, prior
to the decision to sell, were impacted by losses incurred by certain of the affordable
property limited partnerships. These losses were a direct result of the weak economy and
resulting decrease in occupancy levels. Loans, advances and other receivables of
$3,256,000 ($164,000 by the Company and $3,092,000 by the equity affiliates) were written
down due both to (i) the accounting requirements of EITF 99-10, “Percentage Used to
Determine the Amount of Equity Method Losses,” which require the general partner to
record a greater share of the underlying investment’s losses where the investor
(i.e. the Company including its equity affiliates) also has loans outstanding and the
limited partner has no capital account and (ii) the assessment of recoverability of
recorded amounts based upon the projected performance of the properties over the
respective repayment terms. In addition, the Company recorded an other than temporary
impairment of $571,000, $546,000 relating to the expiration in December 2002, of an
option to acquire one of its equity interests. This change in circumstances was unrelated
to the Company’s decision to sell its interest. These assets are held by both the
Company and its equity affiliates. The resultant charges that would have been recognized
regardless of the Company’s decision to sell the assets is reflected in the
consolidated statement of operations within the line items as follows: |
Impairment of assets held as general partner $ 735,000
Equity in earnings (losses) of unconsolidated affiliates 3,092,000
----------
$3,827,000
==========
| |
The
summary of the impairment and other charges related to the assets associated with the
affordable property limited partnerships referenced in the previous paragraphs is as
follows (in thousands): |
Sale Impairment Other Charges Totals
------------------------------ ------------------------------ --------------------------------
Assets Company1 Affiliates2 Total Company1 Affiliates2 Total Company1 Affiliates Combined
------ -------- ----------- ----- -------- ----------- ----- -------- ---------- --------
Loans, advances and other
receivables $ 564 $11,799 $12,363 $164 $3,092 $3,256 $ 728 $14,891 $15,619
Intangible assets 985 - 985 - - - 985 - 985
General partner equity 899 - 899 571 - 571 1,470 - 1,470
------ ------- ------- ---- ------ ------ ------ ------- -------
$2,448 $11,799 $14,247 $735 $3,092 $3,827 $3,183 $14,891 $18,074
====== ======= ======= ==== ====== ====== ====== ======= =======
| |
1 |
|
Recorded
by the Company in the line item “Impairment of assets held as General Partner” |
| |
2 |
|
Recorded
by the Affiliates, and reflected by the Company in the line item “Equity in earnings
(losses) of unconsolidated affiliates" |
| |
In
January 2003, the FASB issued Interpretation No. 46 – Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 – Consolidated Financial
Statements. The interpretation addresses consolidation by businesses of special purpose
entities (variable interest entities, “VIE”). Management is uncertain at this
time but is assuming it is reasonably possible that the limited partnerships in which it
holds an equity investment (as GP) are VIE’s and that it is the primary beneficiary.
This would require the Company to consolidate all or a certain number of the limited
partnerships assets and liabilities. The interpretation becomes effective in the third
quarter of 2003. The summarized financial information for all such limited partnerships
is presented in the table above. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
4 MANAGEMENT COMPANIES
| |
Certain
property management, leasing and development activities are performed by Home Properties
Management, Inc. and Home Properties Resident Services, Inc. (formerly Conifer Realty
Corp.) (together the “Management Companies”). Both are Maryland corporations
and, effective January 1, 2001, elected to convert to taxable REIT subsidiaries under the
Tax Relief Extension Act of 1999. The Operating Partnership owns non-voting common stock
in the Management Companies which entitles it to receive 95% and 99% of the economic
interest in Home Properties Management, Inc. and Home Properties Resident Services,
respectively. Effective March 1, 2001, the Company recapitalized Home Properties
Resident Services, Inc. by contributing to capital $23.7 million of loans due from
affiliated partnerships. 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 officers and inside directors. The Operating Partnership
intends on acquiring all of the shares held by the Company’s Co-Chief Executive
Officers in the first quarter of 2003. These entities will become wholly owned by the
Company. The Company’s share of income from the Management Companies, included in
Equity in earnings (losses) of unconsolidated affiliates in the consolidated statement of
operations, for the twelve months ended December 31, 2002, 2001 and 2000, is summarized
as follows: |
2002 2001 2000
---- ---- ----
Management fees $ 2,864 $ 3,397 $ 3,716
Development and construction management fees - - 3,991
Interest income 867 1,627 -
General and administrative ( 3,850) ( 3,244) ( 7,364)
Interest expense ( 734) ( 1,390) ( 1,937)
Other expenses ( 767) ( 330) ( 292)
Impairment and other charges (14,891) - -
-------- ----- --------
Net income (loss) ($16,511) $ 60 ($ 1,886)
======== ===== ========
Equity in earnings (losses) of unconsolidated affiliates ($16,322) $ 61 ($ 1,792)
======== ===== ========
Equity in earnings (losses) of unconsolidated affiliates,
after minority interest ($10,188) $ 36 ($ 1,028)
======== ===== ========
Total assets $18,468 $38,602 $21,965
======== ===== ========
Total liabilities $12,741 $16,296 $23,526
======== ===== ========
| |
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. |
| |
As
discussed in Note 3, the impairment and other charges of $14,891 is a result of the
Company’s decision to sell the assets associated with the affordable property
limited partnerships ($11,799), and the result of operating losses directly associated
with the performance of certain limited partnerships due to the weak economy ($3,092). |
| |
Included
in the total assets of the Management Companies are deferred tax assets of $6,721 and
$785, as of December 31, 2002 and 2001, respectively. The Management Companies do not
believe it is more likely than not that these deferred assets will be used, and
accordingly has recorded an allowance reserve of $6,515 and $360 for the years ended
December 31, 2002 and 2001, respectively. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 4 |
|
MANAGEMENT
COMPANIES (CONTINUED) |
| |
Included
in assets of the Management Companies are notes and other receivables due from affiliated
partnerships (Note 3) of approximately $12,599 and $25,000, net of allowances of $840 at
December 31, 2001. The interest rates of the notes receivable include both fixed and
variable rate terms. The variable rate loans are at one percent over the Prime rate of
interest. The fixed rate agreements range from 8.47% to 13% per annum. The maturity dates
for these notes receivable range from 2003 to 2032. |
| |
In
January 2003, the FASB issued interpretation No. 46 – Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 – Consolidated Financial
Statements. The interpretation addresses consolidation by businesses of special purpose
entities (variable interest entities “VIE’s”). Management believes that it
is reasonably possible that the Management Companies (described above) meet the
definition of a VIE and that the Company is the primary beneficiary, and accordingly it
is reasonably possible that the accounts of the Management Companies would be required to
be consolidated with the Company. The interpretation becomes effective in the third
quarter of 2003. The summarized financial information for the Management Companies is
presented in the table on the previous page. |
| |
The
Company’s mortgage notes payable are summarized as follows: |
2002 2001
---- ----
Fixed rate mortgage notes payable $1,279,752 $954,203
Variable rate mortgage notes payable 21,055 6,155
---------- --------
Total mortgage notes payable $1,300,807 $960,358
========== ========
| |
Mortgage
notes payable are collateralized by certain apartment communities and mature at various
dates from May 2003, through June 2036. The weighted average interest rate of the Company’s
variable rate notes and credit facility was 2.83% and 3.27% at December 31, 2002 and
2001, respectively. The weighted average interest rate of the Company’s fixed rate
notes was 6.50% and 7.27% at December 31, 2002 and 2001, respectively. |
| |
Principal
payments on the mortgage notes payable for years subsequent to December 31, 2002 are as follows: |
2003 $25,820
2004 17,128
2005 15,317
2006 75,408
2007 174,813
Thereafter 992,321
----------
$1,300,807
==========
| |
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 $1,383,655 and
$958,452, at December 31, 2002 and 2001, respectively. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 5 |
|
MORTGAGE
NOTES PAYABLE (Continued) |
| |
The
Company has incurred prepayment penalties on debt restructurings which are accounted for
as extraordinary items in the accompanying statements of operations. Prepayment
penalties, before minority interest, were approximately $3,275, $116, and $0 for the
years ended December 31, 2002, 2001 and 2000, respectively. The 2002 repayments on
thirteen debt instruments totaled $101,341 and were refinanced by sixteen new borrowings
in excess of $236,000. The 2001 repayments on eight debt instruments totaled $51,969 and
were refinanced by eleven new borrowings in excess of $131,370. The 2000 repayments on
two debt instruments totaled $25,067 and were refinanced by two new borrowings in excess
of $39,000. |
| |
As
of December 31, 2002, the Company had an unsecured line of credit from M&T Bank of
$115 million with $35 million outstanding. Borrowings under the line of credit bear
interest at 1.15% 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,
2005. The LIBOR interest rate was 1.38% at December 31, 2002. The Credit Agreement
relating to this line of credit provides for the Company to maintain certain financial
ratios and measurements. One of these covenants is that the Company may not pay any
distribution if a distribution, when added to other distributions paid during the three
immediately preceding fiscal quarters, exceeds the greater of : (i) 90% of funds from
operations, and 110% of cash available for distribution; and (ii) the amount required to
maintain the Company’s status as a REIT. During the fourth quarter of 2002, the
funds from operations payout ratio was 94% when measured for the calendar year. Due to
impairment charges recorded in the fourth quarter, (see Note 3) the Company did not meet
the required ratio. Waivers have been granted by the participating banks. |
| |
Minority
interest in the Company relates to the interest in the Operating Partnership not owned by
Home Properties of New York, Inc. Holders of UPREIT Units 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
changes in minority interest for the three years ended December 31 are as follows: |
2002 2001 2000
---- ---- ----
Balance, beginning of year $341,854 $371,544 $299,880
Issuance of UPREIT Units associated with
property acquisitions 11,522 19,133 58,616
Adjustment between minority interest and
stockholders' equity 7,208 ( 33,621) 26,825
Exchange of UPREIT Units for Common Shares ( 4,411) ( 1,910) ( 7,387)
Repurchase of UPREIT Units - ( 10,233) -
Net income 15,531 33,634 25,714
Accumulated other comprehensive loss ( 260) ( 388) -
Distributions ( 38,383) ( 36,305) ( 32,104)
-------- -------- --------
Balance, end of year $333,061 $341,854 $371,544
======== ======== ========
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 8 |
|
PREFERRED
STOCK AND STOCKHOLDERS' EQUITY |
| |
On
December 22, 1999, the holder of the Class A limited partnership interests converted its
ownership to 9% Series A convertible cumulative preferred stock (“Series A Preferred
Shares”), liquidation preference of $21.00 per Common Share, total shares
outstanding of 1,666,667. The conversion to preferred stock occurred at the Company’s
request and permits the Operating Partnership to continue to use favorable tax
depreciation methods. The Series A Preferred Shares were convertible at any time by the
holder on a one-for-one basis into Common Shares. On November 28, 2001, the Series A
Preferred Shares were converted to common shares. The conversion had no effect on
reported results of operations. |
| |
On
September 30, 1999, the Company privately placed 2,000,000 of its 8.36% Series B
convertible cumulative preferred stock (“Series B Preferred Shares”), $25
liquidation preference per share. This offering generated net proceeds of approximately
$48.7 million after offering costs of $1.3 million. The net proceeds were used to pay
down Company borrowings. The Series B Preferred Shares are convertible at any time by the
holder into Common Shares at a conversion price of $29.77 per Common Share, equivalent to
a conversion ratio of .8398 Common Shares for each Series B Preferred Share (equivalent
to 1,679,543 Common Shares assuming 100% converted). The Series B Preferred Shares are
non-callable for five years. Each Series B Preferred Share will receive the greater of a
quarterly distribution of $0.5225 per share or the dividend paid on a share of common
stock on an as converted basis. The Company had determined that the Series B Preferred
Shares contained certain contingent provisions that could cause such shares to be
redeemable at the option of the holder and has presented this class of preferred stock
outside of stockholders’ equity. 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 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. As of December 31, 2002, there were no Series B preferred shares
outstanding. |
| |
In
May and June of 2000, the Company privately placed 600,000 of its 8.75% Series C
convertible cumulative preferred stock (“Series C Preferred Shares”), $100 liquidation
preference per share. This offering generated net proceeds of approximately $60 million.
The net proceeds were used to fund acquisitions and property upgrades. The Series C
Preferred shares are convertible at any time by the holder into Common Shares at a
conversion price of $30.25 per Common Share, equivalent to a conversion ratio of 3.3058
Common Shares for each Series C Preferred share (equivalent to 1,983,471 Common shares
assuming 100% converted). The Series C Preferred shares are non-callable for five years.
Each Series C Preferred share will receive the greater of a quarterly distribution of
$2.1875 per share or the dividend paid on a share of common stock on an as-converted
basis. The Company also issued 240,000 additional warrants to purchase common shares at a
price of $30.25 per share, expiring in 2005. In January 2003, holders of 100,000 shares
of Series C Preferred Shares elected to convert those shares for 330,579 shares of common
stock. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 8 |
|
PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) |
| |
Preferred
Stock (Continued) |
| |
In
June 2000, the Company privately placed 250,000 of its 8.78% Series D convertible
cumulative preferred stock (“Series D Preferred Shares”), $100 liquidation
preference per share. This offering generated net proceeds of approximately $25 million.
The net proceeds were used to fund Company acquisitions and property upgrades. The Series
D Preferred Shares are convertible at any time by the holder into Common Shares at a
conversion price of $30.00 per Common Share, equivalent to a conversion ratio of 3.333
Common Shares for each Series D Preferred share (equivalent to 833,333 Common Shares
assuming 100% converted). The Series D Preferred shares are non-callable for five years.
Each Series D Preferred share will receive the greater of a quarterly distribution of
$2.195 per share or the dividend paid on a share of common stock on an as-converted basis. |
| |
In
December 2000, the Company privately placed 300,000 of its 8.55% Series E convertible
cumulative preferred stock (“Series E Preferred Shares”), $100 liquidation
preference per share. This offering generated net proceeds of approximately $30 million.
The net proceeds were used to pay down Company borrowings. The Series E Preferred Shares
are convertible at any time by the holder into Common Shares at a conversion price of
$31.60 per Common Share, equivalent to a conversion ratio of 3.1646 Common Shares for
each Series E Preferred Share (equivalent to 949,367 Common Shares assuming 100%
converted). The Series E Preferred Shares are non-callable for five years. Each Series E
Preferred Share will receive the greater of a quarterly distribution of $2.1375 per share
or the dividend paid on a share of common stock on an as-converted basis. In addition,
the Company issued warrants to purchase 285,000 common shares at a price of $31.60 per
share, expiring in 2005. On August 20, 2002, 63,200 of the Series E Convertible Preferred
Shares were converted into 200,000 shares of common stock. The conversion had no effect
on the reported results of operations. |
| |
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). |
| |
In
1997, the Company’s Board of Directors approved a stock repurchase program under
which the Company may repurchase up to one million shares of its outstanding common stock
and UPREIT Units. The Board’s action did not establish a target price or a specific
timetable for repurchase. At December 31, 1999, there was approval remaining to purchase
795,100 shares. In 2000, the Board of Directors approved a 1,000,000-share increase in
the stock repurchase program. During 2000, the Company repurchased 468,600 shares at a
cost of $12,664,000. In 2001, the Board of Directors approved a 1,000,000-share increase
in the stock repurchase program. During 2001, the Company repurchased 754,000 shares and
436,700 UPREIT Units at a cost of $20,600,000 and $11,900,000, respectively. During 2002,
the Board of Directors approved a 2,000,000-share increase in the stock repurchase
program. During 2002, there were no shares or UPREIT Units repurchased by the Company. At
December 31, 2002 the Company had authorization to repurchase 3,135,800 shares of common
stock and UPREIT Units under the stock repurchase program. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 8 |
|
PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) |
| |
In
February 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 approximately $21.8 million. |
| |
Dividend
Reinvestment Plan |
| |
The
Company has a Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee
Stock Purchase Plan (the “DRIP” ). The DRIP provides the stockholders,
employees and residents of the Company an opportunity to automatically invest their cash
dividends at a discount of 2% from the market price. In addition, eligible participants
may make monthly or other voluntary cash investments, also typically at a discount, which
has varied between 2% and 3% from the market price, in shares of common stock. In
response to a perceived dilution from issuing new shares at or below the underlying net
asset value, effective April 10, 2001, the DRIP was amended to reduce the share purchase
discount from the current market price from 3% to 2%. The maximum amount that can be
invested without the Company’s prior permission was also reduced from $5,000 to
$1,000. A total of $27 million, $32 million, and $57 million was raised through this
program during 2002, 2001 and 2000, respectively. |
| |
Officer/Director
Notes for Stock Purchases and Stock Purchase and Loan Plan |
| |
On
August 12, 1996, eighteen officers and the six independent directors purchased an
aggregate of 208,543 shares of Common Stock through the DRIP at the price of $19.79. The
purchases were financed 50% from a bank loan and 50% by a recourse loan from the Company.
The Company loans bear interest at 7% per annum and mature in August 2016. The Company
loans are subordinate to the above-referenced bank loans, and are collateralized by
pledges of the 208,543 Common Shares. The loans are paid from the regular quarterly
dividends paid on the shares of common stock pledged, after the corresponding bank loans
are paid in full. During 2002 certain key officers and directors repaid their loans in
full in connection with the Company’s recently issued Corporate Governance policies. |
| |
On
November 10, 1997, twenty-one officers and five of the independent directors purchased an
aggregate of 169,682 shares of common stock through the DRIP at the price of $26.66. The
purchases were financed 50% from a bank loan and 50% by a recourse loan from the Company.
The Company loans bear interest at 6.7% per annum and mature in November 2017. The
Company loans are subordinate to the above-referenced bank loans, and are collateralized
by pledges of the 169,682 common shares. The loans are expected to be repaid from the
regular quarterly dividends paid on the shares of common stock pledged, after the
corresponding bank loans are paid in full. During 2002 certain key officers and directors
repaid their loans in full in connection with the Company’s recently issued
Corporate Governance policies. |
| |
In
May 1998, the Company adopted the Director, Officer and Employee Stock Purchase and Loan
Plan (the “Stock Purchase Plan”). The program provides for the sale and
issuance, from time to time as determined by the Board of Directors, of up to 500,000
shares of the Company’s Common Stock to the directors, officers and key employees of
the Company for consideration of not less than 97% of the market price of the Common
Stock. The Stock Purchase Plan also allows the Company to loan, on a recourse basis, the
participants up to 100% of the purchase price (50% for non-employee directors). |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 8 |
|
PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) |
| |
Officer/Director
Notes for Stock Purchases and Stock Purchase and Loan Plan (Continued) |
| |
On
August 12, 1998, thirty officers/key employees and the six independent directors
purchased an aggregate of 238,239 shares of common stock through the Stock Purchase Plan
at the price of $24.11. The purchases for the officers/key employees were financed 100%
by a recourse loan from the Company (50% for non-employee directors). The loans bear
interest at 7.13% per annum and mature on the earlier of the maturity of the 1996 and
1997 phases of the loan program or August 2018. The loans are collateralized by pledges
of the common stock and are expected to be repaid from the regular quarterly dividends
paid on the shares. During 2002 certain key officers and directors repaid their loans in
full in connection with the Company’s recently issued Corporate Governance policies. |
| |
On
February 1, 2001, one officer purchased an aggregate of 75,000 shares of common stock
through the Stock Purchase Plan at the price of $26.20. The purchases were financed by a
recourse loan from the Company. The loan is collateralized by pledges of the common
stock, bears interest at 8% per annum and matures on February 15, 2021. The loan was
repaid in full on January 25, 2002. |
| |
At
December 31, 2002, there are outstanding loans aggregating $773 under the officer and
director share purchase program. On August 5, 2002, the Board of Directors of the Company
prohibited any further loans to officers and directors in accordance with the
Sarbanes-Oxley Act of 2002. |
| |
Stockholders
are taxed on dividends and must report such dividends as either ordinary income, capital
gains, or as return of capital. The Company has declared a $2.41 distribution per common
share (CUSIP 437306103) and a $1.55 distribution per preferred share (CUSIP 437306509)
during its most recent fiscal year. Pursuant to Internal Revenue Code Section 857 (b) (3)
(C), for the years ended December 31, 2002, 2001 and 2000, the Company designates the
taxable composition of the following cash distributions to holders of common and
preferred shares in the amounts set forth in the tables below and on the next page: |
Common Distribution Type
------ ----------------------------------------------------
Ordinary 20% Unrecaptured
Declaration Record Payable Distributions Taxable Return of Long-Term Sec. 1250
Dates Dates Dates Per Share Dividend Capital Capital Gain Gain
-------------- ------------- ------------ ------------- ------------ ------------- ------------ ------------
2/4/2002 2/15/2002 2/26/2002 $0.60 62.28% 37.17% 0.00% 0.55%
5/7/2002 5/20/2002 5/30/2002 $0.60 62.28% 37.17% 0.00% 0.55%
8/5/2002 8/19/2002 8/29/2002 $0.60 62.28% 37.17% 0.00% 0.55%
10/29/2002 11/15/2002 11/27/2002 $0.61 62.28% 37.17% 0.00% 0.55%
----- ----- ----- ---- ----
TOTALS $2.41 62.28% 37.17% 0.00% 0.55%
===== ===== ===== ==== ====
| |
The
appropriate amount of each common share for 2001 and 2000 is as follows: |
Distribution Type
----------------------------------------------------
Ordinary 20% Unrecaptured
Distributions Taxable Return of Long-Term Sec. 1250
Year Per Share Dividend Capital Capital Gain Gain
-------------- ------------- ------------ ------------- ------------ ------------- ------------ ------------
2001 $2.31 78.50% 6.80% 5.30% 9.40%
2000 $2.16 91.00% 9.00% 0.00% 0.00%
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 8 |
|
PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (CONTINUED) |
Dividends (Continued)
Series F Preferred Distribution Type
----------------------------------------------------
Ordinary 20% Unrecaptured
Declaration Record Payable Distributions Taxable Return of Long-Term Sec. 1250
Dates Dates Dates Per Share Dividend Capital Capital Gain Gain
-------------- ------------- ------------ ------------- ------------ ------------- ------------ ------------
5/8/2002 5/20/2002 5/31/2002 $0.04375 99.11% 0.00% 0.00% 0.89%
6/12/2002 6/18/2002 6/28/2002 $0.38125 99.11% 0.00% 0.00% 0.89%
8/5/2002 8/19/2002 9/3/2002 $0.56250 99.11% 0.00% 0.00% 0.89%
10/29/2002 11/15/2002 12/2/2002 $0.56250 99.11% 0.00% 0.00% 0.89%
-------- ----- ---- ---- ----
TOTALS $1.55000 99.11% 0.00% 0.00% 0.89%
======== ===== ==== ==== ====
| |
Total
Shares/Units Outstanding |
| |
At
December 31, 2002, 27,027,003 common shares, 3,566,171 convertible preferred shares
(assuming a conversion of the Preferred Shares to Common Shares) and 16,122,254 UPREIT
Units were outstanding for a total of 46,715,428 common share equivalents. |
| |
In
addition, 2,400,000 shares of Series F cumulative redeemable preferred shares were
outstanding as of December 31, 2002. |
| |
The
Company has adopted the 1994 Stock Benefit Plan, as amended (the “Plan”). Plan
participants include officers, non-employee directors, and key employees of the Company.
The Company has reserved 1,596,000 shares for issuance to officers and employees and
154,000 shares for issuance to non-employee directors. Options granted to officers and
employees of the Company vest 20% for each year of service until 100% vested on the fifth
anniversary. Certain officers’ options (264,000) and directors’ options
(149,100) vest immediately upon grant. The exercise price per share for stock options may
not be less than 100% of the fair market value of a share of common stock on the date the
stock option is granted (110% of the fair market value in the case of incentive stock
options granted to employees who hold more than 10% of the voting power of the Company’s
common stock). Options granted to directors and employees who hold more than 10% of the
voting power of the Company expire after five years from the date of grant. |
| |
All
other options expire after ten years from the date of grant. The Plan also allows for the
grant of stock appreciation rights and restricted stock awards. At December 31, 2002,
374,193 and 346 common shares were available for future grant of options or awards under
the Plan for officers and employees and non-employee directors, respectively. |
| |
On
February 1, 2000, the Company adopted the 2000 Stock Benefit Plan (the “2000 Plan”).
Plan participants have been expanded to include directors, officers, regional managers
and on-site property managers. It is expected that all future awards of stock options and
restricted stock will be granted under the 2000 Plan. The 2000 Plan limits the number of
shares issuable under the plan to 2,755,000, of which 205,000 are to be available for
issuance to the non-employee directors. At December 31, 2002, 749,412 and 41,240 common
shares were available for future grant of options or awards under the 2000 plan for
officers and employees and non-employee directors, respectively. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 9 |
|
STOCK
BENEFIT PLAN (Continued) |
| |
Details
of stock option activity during 2002, 2001 and 2000 are as follows: |
Weighted Average
Number Exercise Price
of Options Per Option
---------- ----------
Options outstanding at January 1, 2000 1,265,433 $24.50
(448,820 shares exercisable)
Granted, 2000 752,720 $31.27
Exercised, 2000 ( 150,008) $19.38
Cancelled, 2000 ( 71,480) $28.32
---------
Options outstanding at December 31, 2000 1,796,665 $26.34
(519,434 shares exercisable)
Granted, 2001 857,430 $29.60
Exercised, 2001 ( 187,698) $22.59
Cancelled, 2001 ( 361,295) $28.78
---------
Options outstanding at December 31, 2001 2,105,102 $28.69
(764,819 shares exercisable)
Granted, 2002 682,590 $34.77
Exercised, 2002 ( 185,255) $23.92
Cancelled, 2002 ( 175,084) $30.16
---------
Options outstanding at December 31, 2002 2,427,353 $30.66
=========
(921,781 shares exercisable)
| |
The
following table summarizes information about options outstanding at December 31, 2002: |
Weighted Weighted
Average Average Weighted
Remaining Fair Value Average Exercise
Year Number Contractual of Options on Exercise Number Price Range
Granted Outstanding Life Grant Date Price Exercisable Per Option
------- ----------- ---- ---------- ----- ----------- ----------
1994 13,580 2 N/A $19.000 13,580 $19.00
1996 19,179 3 $1.02 19.808 19,179 $19.00-$20.50
1997 61,223 4 $1.56 26.462 61,223 $22.75-$26.50
1998 80,520 5 $1.37 25.806 59,700 $25.125-$27.06
1999 331,529 6 $1.57 26.995 193,809 $25.688-$27.25
2000 495,490 8 $1.88 31.084 227,668 $28.313-$31.375
2001 757,342 9 $1.64 28.644 283,622 $27.01-$31.60
2002 668,490 10 $2.07 36.030 63,000 $32.20-$34.65
------- -- ----- ------ ------ ------ ------
Totals 2,327,353 7 $28.750 921,781 $19.00-$34.65
========= == ======= ======= =============
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 9 |
|
STOCK
BENEFIT PLAN (Continued) |
| |
In
2002 and 2001, the Company granted 22,550 and 20,600 shares of restricted stock. The
restricted stock outstanding at December 31, 2002, was 40,950 shares. The restricted
stock was granted to key employees of the Company and vests 100% on the fifth anniversary
of the date of grant. The restricted shares were granted at a weighted average price of
$27.14 to $33.20 per share, respectively. Total compensation cost recorded for the years
ended December 31, 2002 and 2001 for the restricted share grants was $240,700 and
$95,600, respectively. |
| |
Beginning
in 2003 the Company will adopt the fair value method of recording stock compensation
awards. The Company is studying the transition methods available under SFAS 148 “Accounting
for Stock Based Compensation – An Amendment of SFAS 123” and has not yet
determined the method that will be adopted. |
| |
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 interest and dividend income and other
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. |
| |
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 and business,
extraordinary items, plus real estate depreciation including adjustments for
unconsolidated partnerships and joint ventures less dividends from non-convertible
preferred shares. 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. Other companies may calculate
similarly titled performance measures in a different manner. |
| |
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 prior period
presentations. |
HOME
PROPERTIES OF NEW YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 10 |
|
SEGMENT
REPORTING (Continued) |
| |
The
revenues, profit (loss), and assets for each of the reportable segments are summarized as
follows for the years ended December 31, 2002, 2001 and 2000. |
2002 2001 2000
---- ---- ----
Revenues
--------
Apartments owned
Core properties $ 333,742 $ 320,155 $ 295,139
Non-core properties 58,878 26,660 -
Reconciling items 2,942 5,225 10,585
--------- --------- ---------
Total Revenue $ 395,562 $ 352,040 $ 305,724
========= ========= =========
Profit (loss)
-------------
Funds from operations:
Apartments owned
Core properties $ 189,862 $ 183,263 $ 166,870
Non-core properties 37,671 16,526 -
Reconciling items 2,942 5,225 10,585
--------- --------- ---------
Segment contribution to FFO 230,475 205,014 177,455
General & administrative expenses ( 12,649) ( 10,542) ( 6,485)
Interest expense ( 77,314) ( 65,699) ( 56,150)
Depreciation of unconsolidated affiliates 1,346 338 383
Non-real estate depreciation/amortization ( 1,174) ( 639) ( 516)
Redeemable preferred dividend ( 4,155) - -
Equity in earnings (losses) of unconsolidated
affiliates ( 17,493) 123 ( 1,747)
Impairment of assets held as General Partner ( 3,183) - -
Impairment of affordable assets not in FFO 1,470 - -
Income from discontinued operations before
minority interest and depreciation 4,422 8,009 7,914
--------- --------- ---------
Funds from Operations 121,745 136,604 120,854
Depreciation - apartments owned ( 66,573) ( 64,251) ( 51,914)
Depreciation of unconsolidated affiliates ( 1,346) ( 338) ( 383)
Redeemable preferred dividend 4,155 - -
Impairment of affordable assets not in FFO ( 1,470) - -
Gain (loss) on disposition of properties and
business ( 356) 26,241 ( 1,386)
Minority interest in earnings ( 12,703) ( 31,574) ( 23,505)
Income from discontinued operations before
minority interest ( 3,063) ( 5,036) ( 5,182)
--------- --------- ---------
Income from continuing operations $ 40,389 $ 61,646 $ 38,484
========= ========= =========
Assets
------
Apartments owned
Core properties $1,715,819 $1,351,724
Non-core properties 683,302 581,790
Reconciling items 57,145 130,275
--------- ---------
Total Assets $2,456,266 $2,063,789
========= =========
Real Estate Capital Expenditures
--------------------------------
New property acquisitions $433,043 $213,325
Additions to properties
Core properties 89,262 85,001
Non-core properties 26,430 45,467
Increase in real estate associated with the
purchase of UPREIT Units 2,200 1,666
--------- ---------
Total Real Estate Capital Expenditures $550,935 $345,459
========= =========
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 11 |
|
DERIVATIVE
FINANCIAL INSTRUMENTS |
| |
The
Company has entered into interest rate swaps to minimize significant unplanned
fluctuations in earnings that are caused by interest rate volatility. The Company does
not utilize these arrangements for trading or speculative purposes. The principal risk to
the Company through its interest rate hedging strategy is the potential inability of the
financial institutions from which the interest rate protection was purchased to cover all
of their obligations. To mitigate this exposure, the Company purchases its interest rate
swaps from either the institution that holds the debt or from institutions with a minimum
A- credit rating. |
| |
All
derivatives, which have historically been limited to interest rates swaps designated as
cash flow hedges, are recognized on the balance sheet at their fair value. On the date
that the Company enters into an interest rate swap, it designates the derivative as a
hedge of the variability of cash flows that are to be received or paid in connection with
a recognized liability. To the extent effective, subsequent changes in the fair value of
a derivative designated as a cash flow hedge are recorded in other comprehensive income,
until earnings are affected by the variability of cash flows of the hedged transaction.
Any hedge ineffectiveness will be reported in interest expense in the consolidated
statement of operations. |
| |
The
Company formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking various
hedge transactions. The Company formally assesses (both at the hedge’s inception and
on an ongoing basis) whether the derivatives that are used in hedging transactions have
been highly effective in offsetting changes in the cash flows of the hedged items and
whether those derivatives may be expected to remain highly effective in future periods.
Should it be determined that a derivative is not (or has ceased to be) highly effective
as a hedge, the Company will discontinue hedge accounting prospectively. |
| |
The
Company has three interest rate swaps that effectively convert variable rate debt to
fixed rate debt. The notional amount amortizes in conjunction with the principal payments
of the hedged items. The terms as follows: |
Original
Notional Amount Fixed Interest Rate Variable Interest Rate Maturity Date
--------------- ------------------- ---------------------- -------------
$17,600,000 5.91% LIBOR + 1.60% June 24, 2004
$3,000,000 8.22% LIBOR + 1.40% June 25, 2007
$4,625,000 8.40% LIBOR + 1.40% June 25, 2007
| |
On
January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133
(SFAS 133), Accounting for Derivative Instruments and Hedging Activities. At that
time, the Company designated all of its interest rate swaps as cash flow hedges in
accordance with the requirements of SFAS 133. The aggregate fair value of the
derivatives on January 1, 2001 was $583, prior to the allocation of minority interest,
and was recorded as a liability on the consolidated balance sheet with an offset to other
comprehensive income representing the cumulative effect of the transition adjustment
pursuant to the provisions of Accounting Principles Board Opinion No. 20, Accounting
Changes. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 11 |
|
DERIVATIVE
FINANCIAL INSTRUMENTS (Continued) |
| |
As
of December 31, 2002, the aggregate fair value of the Company’s interest rate swaps
was $1,618, prior to the allocation of minority interest, and is included in accrued
expenses and other liabilities in the consolidated balance sheets. For the twelve months
ending December 31, 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 Company expects that within the next twelve months it will
reclassify as a charge to earnings $847, prior to the allocation of minority interest, of
the amount recorded in accumulated other comprehensive loss. 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. |
| 12 |
|
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 $5,783,
$8,174, and $15,088 for the years ended December 31, 2002, 2001 and 2000, respectively.
The Company had accounts receivable outstanding due from affiliated entities of $1,357
and $2,629 at December 31, 2002 and 2001, respectively. |
| |
A
director and former officer of the Company provided consulting services to the Company
during 2002 and 2001 for fees approximating $54 and $271, respectively. |
| |
In
1997, certain officers and inside directors of the Company entered into a lease
termination agreement with the Company. The agreement provided for a contingent
termination fee based on the performance of the underlying property. In 2001 and 2002,
amounts of $350 and $312, respectively, became payable to the Company under the terms of
the agreement. This amount was classified in Other Property Income in the Consolidated
Statement of Operations. |
| |
The
Company leases its corporate office space from an affiliate. The lease requires an annual
base rent of $802 for the year ended 2003 and $872 for the year ended 2004. 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 $1,296, $956, and $712 for the
years ended December 31, 2002, 2001 and 2000, respectively. |
| |
From
time to time, the Company advances funds as needed to the Management Companies which
totaled $12,372 and $15,954 at December 31, 2002 and 2001, respectively, and bear
interest at 1% over prime (4.25% at December 31, 2002). |
| 13 |
|
COMMITMENTS
AND CONTINGENCIES |
| |
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 $210, $211, and $201 including contingent rents of $140, $141, and $131
for the years ended December 31, 2002, 2001 and 2000, respectively. At December 31,
2002, future minimum rental payments required under the lease are $70 per year until the
lease expires. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 13 |
|
COMMITMENTS
AND CONTINGENCIES (Continued) |
| |
The
Company sponsors a contributory savings plan. Under the plan, the Company will match 75%
of the first 4% of participant contributions. The matching expense under this plan was
$638, $893, and $512 for the years ended December 31, 2002, 2001 and 2000, respectively. |
| |
Incentive
Compensation Plan |
| |
The
Incentive Compensation Plan provides that eligible officers and key employees may earn a
cash bonus based on the percentage growth in the Company’s FFO per share/unit
(computed based on the diluted shares/units outstanding) as compared against the industry
average growth. The bonus expense charged to operations (including that portion allocated
to the Management Companies) was $2,764, $725, and $103 for the years ended December 31,
2002, 2001 and 2000, respectively. |
| |
The
Company is party to certain legal proceedings. All such proceedings, taken together, are
not expected to have a material adverse effect on the Company. The Company is also
subject to a variety of legal actions for personal injury or property damage arising in
the ordinary course of its business, most of which are covered by liability insurance.
While the resolution of these matters cannot be predicted with certainty, management
believes that the final outcome of such legal proceedings and claims will not have a
material adverse effect on the Company’s liquidity, financial position or results of
operations. |
| |
In
2001, the Company underwent a state tax audit. The state has assessed taxes of $469,000
for the 1998 and 1999 tax years under audit. If the state’s position is applied to
all tax years through December 31, 2001, the assessment would be $1.3 million. At
the time, the Company believed the assessment and the state’s underlying position
was not supportable by the law nor consistent with previously provided interpretative
guidance from the office of the State Secretary of Revenue. After two subsequent
enactments by the state legislation during 2002 affecting the pertinent tax statute, the
Company has been advised that its filing position for 1998-2001 should prevail. Based
upon this information as of December 31, 2002, the Company has recorded an accrual
of $525,000, representing only its 2002 liability. |
| |
In
connection with various UPREIT transactions, the Company has agreed to maintain certain
levels of nonrecourse debt associated with the contributed properties acquired. In
addition, the Company is restricted in its ability to sell certain contributed properties
(48% of the owned portfolio) for a period of time except through a tax deferred Internal
Revenue Code Section 1031 like-kind exchange. |
| |
The
line of credit loan agreement contains restrictions which, among other things, require
maintenance of certain financial ratios and limit the payment of dividends (See Note 6). |
| |
The
Company has guaranteed a total of $600 of debt associated with two entities where the
Company is the general partner. All other mortgage notes payable of affiliates are
non-recourse debt to the limited partnerships and the Company. In addition, the Company,
through its general partnership interests in certain affordable property limited
partnerships, has guaranteed the Low Income Housing Tax Credits to limited partners in 75
partnerships totaling approximately $63,800. As of December 31, 2002, there were no known
conditions that would make such payments necessary, and no amounts have been recorded. In
addition, the Company, acting as general partner in certain partnerships, is obligated to
advance funds to meet partnership operating deficits. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 13 |
|
COMMITMENTS
AND CONTINGENCIES (Continued) |
| |
Effective
February 2, 1999, the Executive Retention Plan provides for severance benefits and other
compensation to be received by certain employees in the event of a change in control of
the Company and a subsequent termination of their employment without cause or voluntarily
with good cause. |
| |
For
the years ended December 31, 2002, 2001 and 2000, the Company has acquired the
communities listed below: |
Cost of
Market Date Year Number Cost of Acquisition
Community Area Acquired Constructed of Units Acquis. Per Unit
--------- ---- -------- ----------- -------- ------- --------
Old Friends Baltimore 02/01/00 1887 51 $ 2,138 $ 39
6 Property Portfolio Philadelphia 03/15/00 1940-75 2,113 $141,195 $ 64
2 Property Portfolio Detroit 03/22/00 1969-74 360 $ 14,394 $ 40
Elmwood Terrace Baltimore 06/30/00 1972 504 $ 20,605 $ 41
East Meadow Northern VA 08/01/00 1971 150 $ 13,053 $ 87
Southbay Manor Long Island 09/11/00 1959 61 $ 3,054 $ 49
Hampton Court Detroit 09/29/00 1972 182 $ 5,889 $ 33
Bayberry Detroit 09/29/00 1967 120 $ 5,840 $ 47
Blackhawk Chicago 10/20/00 1971 371 $ 17,542 $ 47
5 Property Portfolio Long Island 11/01/00 1955-75 429 $ 26,968 $ 62
Orleans Village Northern VA 11/16/00 1967 851 $ 67,404 $ 79
Cypress Place Chicago 12/27/00 1969 192 $ 10,075 $ 53
Woodholme Manor Baltimore 03/30/01 1969 176 $ 5,805 $ 33
Virginia Village Northern VA 05/31/01 1967 344 $ 27,044 $ 79
Mill Towne Village Baltimore 05/31/01 1973 384 $ 17,558 $ 46
Southern Meadows Long Island 06/29/01 1971 452 $ 40,866 $ 90
Devonshire Hills Long Island 07/16/01 1968 297 $ 47,049 $ 158
Fenland Field Baltimore 08/01/01 1970 234 $ 14,540 $ 62
Courtyard Village Chicago 08/29/01 1971 224 $ 12,887 $ 58
Manor Baltimore 08/31/01 1969 435 $ 36,384 $ 84
2 Property Portfolio Northern VA 10/24/01 1971-72 274 $ 11,076 $ 40
11 Property Portfolio Long Island 3/1-5/31/02 1949-79 1,688 $152,794 $ 87
Gardencrest Boston 6/28/02 1948 696 $ 85,885 $ 123
Brittany Place Northern VA 8/22/02 1968 591 $ 44,336 $ 70
Cider Mill Northern VA 9/27/02 1978 864 $ 81,490 $ 85
5 Property Portfolio Hudson Valley 10/11/02 1969 224 $ 13,990 $ 57
W. Springfield Terrace Northern VA 11/18/02 1978 244 $ 34,198 $ 140
The Sycamores Northern VA 12/16/02 1978 185 $ 20,350 $ 110
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 15 |
|
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.
Properties classified in this manner through December 31, 2002, as discussed below, were
reclassified as such in the accompanying Consolidated Statements of Operations for each
of the three years ended December 31, 2002. |
| |
Included
in discontinued operations for the year ended December 31, 2002 are the operating
results, net of minority interest, of twelve apartment community dispositions and one
apartment community (sold in January 2003) that is considered held for sale as of
December 31, 2002. For purposes of the discontinued operations presentation, the Company
only includes interest expense associated with specific mortgage indebtedness of the
properties that are considered discontinued operations. |
| |
Assets
and liabilities for the one apartment community held for sale at December 31, 2002 of
approximately $6,400 and $186, respectively, are included in the Consolidated Balance
Sheet and relate primarily to real estate and general trade liabilities, respectively.
This apartment community was previously classified in the Company’s Core Properties
Segment. |
| |
The
operating results of discontinued operations are summarized as follows for the years
ended December 31, 2002, 2001 and 2000: |
2002 2001 2000
---- ---- ----
Revenues:
Rental Income $7,170 $14,991 $14,718
Property other income 176 369 353
------ ------ ------
Total Revenues 7,346 15,360 15,071
------ ------ ------
Operating and Maintenance 2,690 6,604 6,515
Interest expense 234 747 642
Depreciation and amortization 1,359 2,973 2,732
------ ------ ------
Total Expenses 4,283 10,324 9,889
------ ------ ------
Income from discontinued operations before minority interest 3,063 5,036 5,182
Minority interest 1,174 2,108 2,210
------ ------ ------
Income from discontinued operations $1,889 $2,928 $2,972
====== ====== ======
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 16 |
|
PROFORMA
CONDENSED FINANCIAL INFORMATION |
| |
The
Company acquired 21 apartment communities (“2002 Acquired Communities”) with
4,492 units in seven unrelated transactions during the twelve-month period ended December
31, 2002. The total purchase price (including closing costs) of $433 million equates to
approximately $96 per apartment unit. Consideration for the communities included $89.2
million of cash on hand, $153.6 million of assumed debt, $156.9 million from the Company’s
line of credit, $21.8 million of cash raised through common and preferred equity
offerings and $11.5 million in UPREIT Units in the Company. |
| |
In
addition, during 2002, the Company sold twelve apartment communities (“2002 Disposed
Properties”) having 1,724 units in eight unrelated transactions as part of its
strategic disposition program. The total sales price of $87.1 million equates to $51 per
apartment unit. A gain on sale of approximately $7.6 million, prior to the
allocation of minority interest, has been recorded in relation to these sales and is
reflected in discontinued operations. |
| |
The
following unaudited proforma information was prepared as if the (i) the 2002 transactions
related to the acquisition of the “2002 Acquired Communities” occurred on
January 1, 2001, (ii) the 2001 transactions related to the acquisitions of ten apartment
communities in nine separate transactions occurred on January 1, 2000, (iii) the
disposition of the “2002 Disposed Properties” occurred on January 1, 2001, (iv)
the 2001 transactions related to the disposition of fourteen apartment communities in six
separate transactions occurred on January 1, 2000, (v) the 2002 Series F Preferred Share
offering and the two common equity offerings occurred on January 1, 2001 and (vi) the
$115 million Series B, C, D and E Preferred stock offerings occurred on January 1,
2000. 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 January 1, 2000
or 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 twelve
months ended December 31, 2002, 2001, and 2000 consist principally of providing net
operating activity and recording interest, depreciation and amortization from January 1,
2000 or 2001 to the acquisition date as appropriate. |
For the years ended
December 31,
(unaudited)
2002 2001 2000
---- ---- ----
Total revenues $420,825 $407,235 $351,868
Income before extraordinary item 44,846 40,992 62,290
Net income available to common shareholders 21,773 28,643 44,301
Per common share data:
Income before extraordinary item:
Basic $0.91 $1.26 $2.15
Diluted $0.90 $1.25 $2.13
Net income available to common shareholders:
Basic $0.83 $1.26 $2.15
Diluted $0.82 $1.25 $2.13
Weighted average numbers of shares outstanding:
Basic 26,166,499 22,805,629 20,639,241
========== ========== ==========
Diluted 26,447,280 22,932,123 20,755,721
========== ========== ==========
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 17 |
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES |
| |
Supplemental
cash flow information including non cash financing and investing activities for the years
ended December 31, 2002, 2001 and 2000 are as follows: |
2002 2001 2000
---- ---- ----
Cash paid for interest $76,326 $65,268 $54,829
Mortgage loans assumed associated with property acquisitions 153,581 67,807 162,967
Issuance of UPREIT Units associated with property and other
acquisitions 11,522 19,133 58,616
Increase in real estate associated with the purchase of
UPREIT Units 2,200 1,666 -
Exchange of UPREIT Units for common shares 4,411 1,910 7,388
Fair value of hedge instruments 1,618 920 -
Notes issued in exchange for officer and director stock
purchases - 1,965 -
Transfer of notes receivable due from affiliates in exchange
for additional equity in the Management Companies - 23,699 -
| 18 |
|
GAIN
(LOSS) ON DISPOSITION OF PROPERTY AND BUSINESS |
| |
During
2002, the Company disposed of twelve apartment communities with 1,724 units in eight
unrelated transactions. The total sales price of $87 million equates to $50,500 per unit.
The total gain on sale of these transactions amounted to approximately $7.6 million. |
| |
During
2001, the Company disposed of fourteen apartment communities with 2,855 units in six
unrelated transactions and two general partnership interests. The total sales price of
$122 million equates to $43,000 per unit. The total gain on sale of these transactions
amounted to approximately $26 million. |
| |
During
2000, the Company disposed of one apartment community with 150 units and one general
partnership interest, in two separate transactions for a total loss on disposition of
$462. In addition, effective December 31, 2000, the Company sold its affordable housing
development business to the management of that business. The selling price was
approximately $6.7 million and a loss on sale of $924 was recorded. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| 19 |
|
QUARTERLY
FINANCIAL STATEMENT INFORMATION (UNAUDITED) |
| |
Quarterly
financial information for the years ended December 31, 2002 and 2001 are as follows: |
2002
----
First Second Third Fourth
----- ------ ----- ------
Revenues $90,751 $96,912 $102,184 $105,715
Adjustment for discontinued operations 1,646 1,721 170 -
------ ------ ------- -------
Revenues as reported on Form 10-Q 92,397 98,633 102,354 105,715
Income before extraordinary item 9,525 19,078 16,856 1,539
Net Income (loss) 9,525 19,078 16,856 (520)
Per share data:
Basic earnings per share data:
Income before extraordinary item $0.25 $0.39 $0.49 $(0.08)
Net income $0.25 $0.39 $0.49 $(0.16)
Diluted earnings per share data:
Income before extraordinary item $0.24 $0.39 $0.49 $(0.08)
Net income $0.24 $0.39 $0.49 $0.16
2001
----
First Second Third Fourth
----- ------ ----- ------
Revenues $84,608 $86,202 $90,560 $90,670
Adjustment for discontinued operations 2,304 2,083 489 -
------ ------ ------- -------
Revenues as reported on Form 10-Q 86,912 88,285 91,049 90,670
Income before extraordinary item 8,832 20,618 19,295 15,829
Net Income 8,832 20,618 19,295 15,761
Per share data:
Basic earnings per share data:
Income before extraordinary item $0.20 $0.74 $0.67 $0.51
Net income $0.20 $0.74 $0.67 $0.51
Diluted earnings per share data:
Income before extraordinary item $0.20 $0.71 $0.66 $0.50
Net income $0.20 $0.71 $0.66 $0.50
| |
Full
year per share data does not equal the sum of the quarterly data due to the impact of the
convertible securities on the quarterly results and not the year to date amounts. The
quarterly reports for the years ended December 31, 2002 and 2001 have been reclassified
to reflect discontinued operations in accordance with SFAS No. 144. |
HOME PROPERTIES OF NEW
YORK, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
| |
On
January 9, 2003, holders of 100,000 shares of Series C Preferred Shares elected to
convert those shares for 330,579 shares of common stock. The conversion will have no
effect on the results of operations of the Company. |
| |
During
January 2003, the Company sold two apartment communities with 552 units in two unrelated
transactions. The total sales price of $20.6 million equates to $37.4 per unit. |
| |
On
February 12, 2003, the Company acquired its second property in its Boston region in
Stoughton, MA. The total purchase price of $34 million, including closing costs, equates
to approximately $120 per unit and was funded through the use of the Company’s line
of credit. |
HOME PROPERTIES OF NEW YORK, INC. SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(IN THOUSANDS)
Initial Cost Costs Total Cost Total Cost,
Buildings, Capitalized Buildings, Net of
Encum- Improvements Adjust- Subsequent to Improvements Accumulated Accumulated Year of
Community brances Land & Equipment ments(a) Acquisition Land & Equipment Total(b) Depreciation Depreciation Acquisition
--------- ------- ---- --------------- -------- ----------- ---- --------------- -------- ------------ ------------ -----------
1600 East $1,000 $8,527 $4,769 $1,000 $13,296 $14,296 $2,283 $12,013 1997
1600 Elmwood 299 5,698 3,339 3,818 299 12,855 13,154 6,115 7,039 1983
Apple Hill 25,897 3,486 20,347 6,059 3,486 26,406 29,892 3,802 26,090 1998
Arbor Crossing 1,072 4,329 1,030 1,072 5,359 6,431 568 5,863 1999
Bayberry Place 3,900 1,440 4,400 1,019 1,440 5,419 6,859 336 6,523 2000
Bayview/Colonial 5,809 1,600 8,471 2,107 1,600 10,577 12,177 647 11,531 2000
Beechwood 560 3,442 1,510 560 4,952 5,512 724 4,788 1998
Blackhawk 14,160 2,968 14,568 3,245 2,968 17,813 20,781 1,103 19,678 2000
Bonnie Ridge 17,793 4,830 42,769 13,702 4,830 56,471 61,301 5,628 55,673 1999
Braddock Lee 9,549 3,810 8,842 3,912 3,810 12,754 16,564 2,122 14,442 1998
Brittany Place 20,613 4,728 39,608 424 4,728 40,032 44,760 431 44,329 2002
Brook Hill 330 7,920 3,911 330 11,831 12,161 3,028 9,133 1994
Cambridge Village 3,427 2,460 3,188 330 2,460 3,518 5,978 76 5,902 2002
Candlewd, IN 7,336 1,550 11,956 1,803 1,550 13,759 15,309 1,953 13,357 1998
Candlewood 2,823 387 2,592 866 387 3,458 3,845 777 3,068 1996
Canterbury -MD 15,000 4,944 21,384 1,425 4,944 22,809 27,753 2,187 25,567 1999
Canterbury Square 6,242 2,352 10,791 3,355 2,352 14,146 16,498 2,400 14,098 1997
Carriage Hill - MI 3,585 840 5,974 1,281 840 7,256 8,096 1,060 7,036 1998
Carriage Hill - NY 5,974 570 3,827 2,279 570 6,106 6,676 1,298 5,378 1996
Carriage House 585 250 860 353 250 1,213 1,463 194 1,269 1998
Carriage Park 5,169 1,280 8,184 2,593 1,280 10,777 12,057 1,659 10,399 1998
Castle Club 6,955 948 8,909 1,438 948 10,346 11,294 788 10,507 2000
Cedar Glen 715 2,018 1,410 715 3,427 4,142 513 3,629 1998
Charter Square 10,543 3,952 18,247 6,074 3,952 24,322 28,274 3,899 24,374 1997
Cherry Hill Club 2,818 492 4,096 2,251 492 6,347 6,839 989 5,851 1998
Cherry Hill Village 5,350 1,120 6,835 1,867 1,120 8,702 9,822 1,196 8,625 1998
Chesterfield 6,709 1,482 8,206 3,327 1,482 11,533 13,015 1,871 11,144 1997
Cider Mill 48,488 15,552 65,938 248 15,552 66,186 81,738 574 81,163 2002
Cornwall Pk. 5,775 439 2,947 3,481 439 6,428 6,867 1,291 5,576 1996
Country Village 6,379 2,236 11,149 4,181 2,236 15,330 17,566 2,182 15,384 1998
Courtyards Village 5,220 3,360 9,824 789 3,360 10,613 13,973 409 13,564 2001
Coventry Vlge. 784 2,328 1,901 784 4,228 5,012 621 4,391 1998
Curren Ter. 8,931 1,908 10,957 4,727 1,908 15,684 17,592 2,536 15,056 1997
Cypress Place 6,417 2,304 7,861 1,905 2,304 9,766 12,070 582 11,488 2000
Deerfield Woods 3,278 864 4,877 1,412 864 6,289 7,153 456 6,697 2000
Devonshire Hills 24,616 14,850 32,934 1,944 14,850 34,877 49,727 1,449 48,279 2001
East Hill 231 1,560 731 231 2,292 2,523 324 2,198 1998
East Meadow 7,140 2,250 10,803 367 2,250 11,170 13,420 685 12,735 2000
East Winds 960 5,079 1,500 960 6,579 7,539 404 7,136 2000
Elmwood Terrace 22,375 6,048 14,680 1,779 6,048 16,459 22,507 1,151 21,356 2000
Emerson Sq. 2,282 384 2,019 996 384 3,016 3,400 653 2,746 1997
Executive 2,806 600 3,420 2,351 600 5,771 6,371 978 5,394 1997
Fairview 7,680 580 5,305 2,828 2,616 580 10,749 11,329 4,961 6,368 1985
Falcon Crest 13,101 2,772 11,116 3,730 2,772 14,846 17,618 1,693 15,925 1999
Fenland Field 12,675 3,510 11,050 917 3,510 11,967 15,477 476 15,001 2001
Fordham Green 2,889 802 5,280 1,910 802 7,190 7,992 1,097 6,895 1997
Gardencrest 5,628 24,360 61,525 950 24,360 62,475 86,835 943 85,892 2002
Apartments
Gateway Village 7,251 1,320 6,621 339 1,320 6,960 8,280 665 7,616 1999
Glen Brook 1,414 4,816 1,086 1,414 5,902 7,316 602 6,714 1999
Glen Manor 6,176 1,044 4,564 1,503 1,044 6,066 7,110 854 6,257 1997
Golf Club 16,458 3,990 21,236 8,673 3,990 29,909 33,899 2,284 31,615 2000
Golfview Manor 310 110 542 227 110 768 878 141 737 1997
Green Acres 5,888 1,696 8,418 604 1,696 9,022 10,718 202 10,516 2002
Greentrees 4,636 1,152 8,608 2,539 1,152 11,148 12,300 1,725 10,575 1997
Hampton Court 3,455 1,252 4,615 2,265 1,252 6,880 8,132 416 7,717 2000
Harborside 7,518 250 6,113 3,422 250 9,535 9,785 2,648 7,138 1995
Hawthorne 11,334 8,940 23,447 2,642 8,940 26,090 35,030 516 34,513 2002
Consolidation
Heritage Square 3,235 2,000 4,805 140 2,000 4,946 6,946 96 6,850 2002
Hill Brook Place 11,900 2,192 9,118 2,446 2,192 11,563 13,755 1,036 12,719 1999
Holiday/Muncy 3,855 3,575 6,109 132 3,575 6,242 9,817 98 9,719 2002
Consolidation
Home Properties of 12,915 3,160 17,907 7,835 3,160 25,741 28,901 2,021 26,880 2000
Bryn Mawr
Home Properties of 28,892 6,280 35,545 11,168 6,280 46,714 52,994 3,657 49,337 2000
Devon
Home Properties of 17,400 2,592 12,713 10,000 2,592 22,713 25,305 2,148 23,157 1999
Newark
Idylwood 8,893 700 16,927 7,235 700 24,162 24,862 6,160 18,702 1995
Kingsley 6,322 1,640 11,671 3,124 1,640 14,795 16,435 2,425 14,009 1997
Lake Grove 27,368 7,360 11,952 9,299 7,360 21,251 28,611 3,757 24,854 1997
Lakeshore 5,163 573 3,849 2,856 573 6,705 7,278 1,285 5,993 1996
Lakeview 3,954 636 4,552 1,818 636 6,371 7,007 963 6,044 1998
Macomb Manor 3,866 1,296 7,357 1,026 1,296 8,383 9,679 652 9,027 2000
Maple Lane 11,797 2,547 14,975 2,835 2,547 17,811 20,358 1,739 18,618 1999
Maple Tree 840 4,445 817 840 5,262 6,102 329 5,773 2000
Mid-Island 6,675 4,160 6,567 2,803 4,160 9,370 13,530 1,804 11,726 1997
Mill Company 1,911 384 1,671 712 384 2,382 2,766 371 2,396 1982
Mill Towne Village 8,530 3,840 13,747 3,264 3,840 17,011 20,851 766 20,085 2001
Morningside 18,369 6,147 28,699 14,193 6,147 42,892 49,039 6,386 42,653 1998
New Orleans 7,311 1,848 8,886 5,336 1,848 14,222 16,070 2,234 13,836 1997
Newcastle 6,000 197 4,007 3,684 3,539 197 11,230 11,427 5,064 6,363 1982
Northgate 289 6,987 3,815 289 10,802 11,090 3,027 8,064 1994
Oak Manor 4,878 616 4,111 1,614 616 5,725 6,341 881 5,460 1998
Oak Park Manor 4,930 1,192 9,188 2,998 1,192 12,186 13,378 1,959 11,419 1997
Orleans Village 43,745 8,510 58,912 8,104 8,510 67,016 75,526 4,060 71,466 2000
Owings Run 31,873 5,537 32,622 728 5,537 33,350 38,887 3,076 35,811 1999
Paradise 8,960 972 7,134 3,510 972 10,643 11,615 2,264 9,351 1997
Park Shirlington 12,023 4,410 10,180 4,705 4,410 14,885 19,295 2,467 16,828 1998
Parkview Garden 8,000 1,208 7,201 2,880 1,208 10,081 11,288 1,739 9,549 1997
Patricia 5,476 600 4,196 1,801 600 5,997 6,597 821 5,776 1998
Pavilion 30,459 5,184 25,314 16,431 5,184 41,745 46,929 3,598 43,330 1999
Pearl Street 1,130 49 1,189 561 49 1,750 1,799 424 1,375 1995
Perinton 9,500 224 6,120 3,629 2,562 224 12,311 12,535 5,516 7,019 1982
Pines of Perinton 7,989 1,524 7,164 1,543 1,524 8,707 10,231 1,268 8,963 1998
Pleasant View 43,534 5,710 47,816 12,036 5,710 59,852 65,562 8,893 56,669 1998
Pleasure Bay 5,985 1,620 6,234 3,222 1,620 9,456 11,076 1,223 9,853 1998
Racquet Club 22,490 1,868 23,107 3,674 1,868 26,781 28,649 3,535 25,113 1998
Racquet Club South 2,959 309 3,891 1,317 309 5,208 5,517 662 4,855 1999
Raintree 7,015 - 6,654 3,217 8,387 - 18,258 18,258 6,823 11,436 1985
Redbank Vlge. 11,615 2,000 14,030 4,521 2,000 18,551 20,551 2,635 17,916 1998
Rider Terrace 240 1,270 219 240 1,489 1,729 88 1,641 2000
Ridley Brook 10,318 1,952 7,719 1,967 1,952 9,686 11,638 950 10,688 1999
Riverton 5,980 240 6,640 2,523 4,859 240 14,022 14,262 6,323 7,938 1983
Royal Garden 32,460 5,500 14,067 9,137 5,500 23,204 28,704 4,293 24,411 1997
Scotsdale 9,917 1,692 11,920 2,151 1,692 14,070 15,762 2,175 13,588 1997
Selford Townhomes 3,960 1,224 4,200 1,312 1,224 5,512 6,736 540 6,196 1999
Seminary Hill 9,900 2,960 10,194 3,238 2,960 13,431 16,391 1,255 15,136 1999
Seminary Towers 21,238 5,480 19,348 7,976 5,480 27,324 32,804 2,602 30,202 1999
Shakespeare Park 2,502 492 3,433 186 492 3,619 4,111 344 3,768 1999
Sherry Lake 20,700 2,397 15,618 3,308 2,397 18,926 21,322 2,484 18,839 1998
Sherwood 8,454 3,255 10,735 94 3,255 10,829 14,084 48 14,036 2002
Consolidation
South Bay 1,098 1,958 3,221 1,098 5,179 6,277 318 5,959 2000
Southern Meadows 20,171 9,040 31,874 1,218 9,040 33,093 42,133 1,348 40,785 2001
Southpointe Sq. 2,615 896 4,610 1,940 896 6,550 7,446 1,094 6,352 1997
Spanish Gard. 5,600 398 9,263 3,237 398 12,500 12,897 3,265 9,632 1994
Springwells Park 10,824 1,515 16,840 3,381 1,515 20,221 21,736 2,045 19,690 1999
Stephenson House 1,447 640 2,407 938 640 3,346 3,986 581 3,405 1997
Stratford Greens 16,573 12,565 33,779 797 12,565 34,576 47,141 737 46,404 2002
Sunset Gard. 6,074 696 4,663 2,642 696 7,305 8,001 1,441 6,559 1996
Tamarron 5,200 1,320 8,474 473 1,320 8,947 10,267 837 9,430 1999
Terry Apartments 1,890 650 3,439 320 650 3,759 4,409 222 4,187 2000
The Colony 7,830 34,121 6,156 7,830 40,277 48,107 3,612 44,495 1999
Apartments
The Lakes 2,821 23,086 2,482 2,821 25,568 28,389 2,238 26,151 1999
The Landings 13,334 2,459 16,753 4,902 2,459 21,655 24,114 3,637 20,478 1996
The Manor Apts. (MD) 19,896 8,700 27,703 1,534 8,700 29,237 37,937 1,174 36,763 2001
The Manor Apts. (VA) 5,600 1,386 5,738 2,275 1,386 8,013 9,399 1,081 8,317 1999
The Meadows 3,466 208 2,776 1,216 1,443 208 5,435 5,643 2,377 3,266 1984
The New Colonies 22,037 1,680 21,350 8,345 1,680 29,695 31,375 4,351 27,024 1998
The Sycamores 4,625 15,725 3 4,625 15,727 20,352 34 20,318 2002
Timbercroft 7,275 1,704 6,826 834 1,704 7,659 9,363 732 8,631 1999
Trexler Park 10,140 2,490 13,802 3,177 2,490 16,979 19,469 1,292 18,176 2000
Valley View 4,143 1,056 4,960 3,240 1,056 8,200 9,256 1,312 7,944 1997
Village Green 7,470 1,103 13,223 4,323 1,103 17,546 18,649 4,535 14,1141994-1996
Village Square-MD 22,095 2,590 13,306 2,257 2,590 15,563 18,153 1,486 16,666 1999
Village Square-PA 3,535 768 3,582 2,555 768 6,137 6,905 1,032 5,874 1997
Virginia Village 9,416 5,160 21,918 2,829 5,160 24,748 29,908 1,241 28,667 2001
Wayne Vlge. 10,938 1,925 12,895 3,702 1,925 16,597 18,522 2,506 16,016 1998
Wellington Lakes 7,817 1,600 4,868 1,194 1,600 6,061 7,661 211 7,451 2001
Wellington Woods 1,140 3,468 821 1,140 4,289 5,429 145 5,284 2001
West Springfield 2,440 31,758 11 2,440 31,770 34,210 136 34,074 2002
Terrace
Westminster 6,771 861 5,763 2,049 861 7,811 8,672 1,717 6,956 1996
Weston 847 3,171 3,576 847 6,747 7,594 1,328 6,266 1996
Westwood Village 17,867 7,260 22,757 2,054 7,260 24,811 32,071 522 31,549 2002
William Henry 24,000 4,666 22,220 6,923 4,666 29,144 33,810 2,108 31,702 2000
Windsor Rlty. 2,146 402 3,300 1,083 402 4,383 4,785 638 4,148 1998
Woodgate 3,283 480 3,797 1,590 480 5,387 5,867 991 4,876 1997
Woodholme Manor 3,889 1,232 4,599 1,222 1,232 5,821 7,053 311 6,742 2001
Woodland Garden 5,938 2,022 10,480 3,348 2,022 13,828 15,850 2,270 13,580 1997
Woodmont Village 3,993 2,880 5,699 353 2,880 6,053 8,933 129 8,804 2002
Yorkshire Village 1,617 1,200 2,016 157 1,200 2,173 3,373 46 3,326 2002
Other Assets 2,460 12,626 12,626 12,626 2,074 10,552 Various
---------- -------- ---------- ------- -------- -------- ---------- ---------- -------- ----------
$1,300,807 $376,998 $1,747,286 $20,436 $452,558 $376,998 $2,220,280 $2,597,278 $257,284 $2,339,994
========== ======== ========== ======= ======== ======== ========== ========== ======== ==========
| |
(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 $2,196,000. |
| |
(c) |
|
The
$2,460,000 in the Other Asset Encumbrances consists of a letter of credit of $1,578,000
for Springwood Gardens and a note payable of $881,661. |
SCHEDULE III
HOME PROPERTIES OF NEW
YORK, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATIONS
DECEMBER 31, 2002
(IN THOUSANDS)
| |
Depreciation
and amortization of the Company's investments in buildings and improvements
reflected in the consolidated statements of operations are calculated over the estimated
useful lives of the assets as follows: |
Buildings and improvements 5-40 years
Tenant improvements Life of related lease
| |
The
changes in total real estate assets for the three years ended December 31, 2002, are as
follows: |
2002 2001 2000
---- ---- ----
Balance, beginning of year $2,135,078 $1,895,269 $1,480,753
New property acquisition 433,043 213,325 328,021
Additions 115,692 130,468 92,603
Increase in real estate associated with
the purchase of UPREIT Units 2,200 1,666 -
Disposals, retirements and impairments (88,735) (105,650) ( 6,108)
---------- ---------- ----------
Balance, end of year $2,597,278 $2,135,078 $1,895,269
========== ========== ==========
| |
The
changes in accumulated depreciation for the three years ended December 31, 2002, are as
follows: |
2002 2001 2000
---- ---- ----
Balance, beginning of year $201,564 $153,324 $101,904
Depreciation for the year 67,610 64,684 52,221
Disposals and retirements (11,890) (16,444) ( 801)
-------- -------- --------
Balance, end of year $257,284 $201,564 $153,324
======== ======== ========