As filed with the Securities and Exchange Commission on May 9, 2006
Registration No. 333-____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
HOME PROPERTIES, INC.
(Exact name of registrant as specified in charter)
Maryland 16-1455126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Clinton Square
Rochester, New York 14604
(585) 546-4900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Ann M. McCormick, Esq.
Executive Vice President, Secretary and General Counsel
Home Properties, Inc.
850 Clinton Square
Rochester, New York 14604
(585) 546-4900
Facsimile (585) 232-3147
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Gregg A. Noel, Esq.
Deborah McLean Quinn, Esq. Jennifer A. Bensch, Esq.
Nixon Peabody LLP Skadden, Arps, Slate, Meagher & Flom LLP
1300 Clinton Square 300 South Grand Avenue, Suite 3400
Rochester, New York 14604 Los Angeles, California 90071
(585) 263-1307 (213) 687-5000
Facsimile (866) 947-0724 Facsimile (213) 687-5600
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act of 1933 registration statement number of the earlier
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. |_|
If this Form is a registration statement pursuant to General Instruction I.D. or
a post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. |X|
If this Form is a post-effective amendment to a registration statement filed
pursuant to General Instruction I.D. filed to register additional securities or
additional classes of securities pursuant to Rule 413(b) under the Securities
Act, check the following box. |_|
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Amount Class of Amount Maximum Maximum Amount of
of Securities to be Offering Price Aggregate Registration
Registered Registered Per Share (1) Offering Price Fee
-------------- ---------- ------------- -------------- -------------
Common Stock
par value $.01 2,969,914 shares $49.81 $147,931,416.34 $15,828.66
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 and based upon the average of
the high and low prices reported on the New York Stock Exchange on May 3, 2006
of $49.81.
The information in this preliminary prospectus is not complete and may be
changed. This preliminary prospectus is not an offer to sell these securities
and we are not soliciting offers to buy these securities in any jurisdiction
where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS Subject to completion May 9, 2006
2,969,914 Shares
Common Stock
The selling stockholders named herein are selling 2,969,914 shares of our
common stock. We will not receive any proceeds from the sale of our shares by
the selling stockholders.
Our common stock is listed on the New York Stock Exchange under the symbol
"HME ". The last closing price of our common stock on May 8, 2006, was $52.54
per share.
Investing in our common stock involves a high degree of risk as described
in the "Risk Factors" sections of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Per Share Total
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Public Offering Price $ $
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Underwriting Discounts and Commissions $ $
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Proceeds, before expenses to the selling stockholders $ $
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The underwriter is offering our common stack as described in
"Underwriting." The common stock will be ready for delivery on or about May __,
2006.
__________
UBS Investment Bank
__________
The date of this prospectus is May __, 2006
TABLE OF CONTENTS
Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................5
HOME PROPERTIES..................................................2
RISK FACTORS.....................................................2
THE OFFERING.....................................................2
USE OF PROCEEDS..................................................3
SELLING STOCKHOLDERS.............................................3
DESCRIPTION OF CAPITAL STOCK.....................................4
FEDERAL INCOME TAX CONSIDERATIONS...............................11
OTHER TAX CONSEQUENCES..........................................26
UNDERWRITING....................................................26
WHERE YOU CAN FIND MORE INFORMATION.............................28
EXPERTS.........................................................28
LEGAL MATTERS...................................................29
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, or incorporates by reference, statements
that may be deemed to be "forward-looking" within the meaning of Section 27A of
the Securities Act, and Section 21E of the Exchange Act. Some examples of
forward-looking statements include statements related to future capital
expenditures, financing sources and availability and the effects of
environmental and other regulations. Although we believe expectations reflected
in such forward-looking statements are based on reasonable assumptions, we can
give no assurance that our expectations will be achieved. Factors that may cause
actual results to differ include general economic and local real estate
conditions and the weather, and other conditions that might affect operating
expenses, and 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 in this
prospectus or incorporated herein by reference that are not statements of
historical fact should be considered to be forward-looking statements. Some of
the words used to identify forward-looking statements include "believes",
"anticipates", "plans", "expects", "seeks", "estimates", and similar
expressions. 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 our control
and could materially affect our actual results, performance or achievements.
Additional factors which may cause our actual results to vary from our
expectations are described under "Risk Factors". Our actual results could differ
materially from those set forth in the forward-looking statements. The
forward-looking statements made in, or incorporated by reference in to this
prospectus are made only as of the date of this prospectus and we under take no
obligation to update these forward looking statements to reflect new
information, future events, or other matters.
This prospectus is part of a registration statement filed by us
with the Securities and Exchange Commission. You should read this prospectus
together with the additional information described under the heading "Where You
Can Find More Information." You should rely only on the information incorporated
by reference or provided in this prospectus. We have not, and the underwriter
has not, authorized anyone else to provide you with different or additional
information. We are not, and the underwriter is not, making an offer of the
shares in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information in this prospectus is accurate
as of any date other than the date on the front of this prospectus. Other
information filed by us with the Securities and Exchange Commission is
incorporated into this prospectus by reference. You should assume that the
reports and documents incorporated by reference are accurate only as of their
respective dates. Our business, financial condition, results of operations, risk
factors and forward-looking information may have changed since these dates.
Documents which are exhibits to or incorporated by reference into this
prospectus and the reports incorporated by reference may contain
representations, warrantees and agreements. Those representations, warranties
and agreements were made solely for the benefit of the parties to those
documents and may be subject to qualifications and limitations, and are not a
representation, warranty or agreement for your benefit.
The following information should be read in conjunction with the more
detailed information included elsewhere in this prospectus or incorporated
herein by reference. References to "Home Properties," "we" or "us" in this
prospectus mean, except as the context otherwise requires, Home Properties,
Inc., a Maryland corporation, Home Properties, L.P., a New York limited
partnership (the "Operating Partnership"), Home Properties I, LLC, a New York
limited liability company, Home Properties Trust, a Maryland trust, HP
Management, Inc., a Maryland corporation, Home Properties Resident Services,
Inc., a Maryland corporation, and all other subsidiaries of Home Properties on a
consolidated basis.
HOME PROPERTIES
We are a self-administered and self-managed real estate investment
trust, a REIT. We own, operate, acquire and rehabilitate apartment communities
in select Northeast, Midwest, Mid-Atlantic and Southeast Florida markets.
Currently, Home Properties operates 156 communities containing 46,911 apartment
units. Of these, 43,342 units in 151 communities are owned directly by us; 868
units are partially owned and managed by us as general partner, and 2,701 units
are managed for other owners.
We were incorporated in November 1993 as a Maryland corporation. We are the
general partner of Home Properties, L.P., a New York limited partnership,
through which we own, acquire and operate most of our market rate apartments. We
frequently refer to Home Properties, L.P. as the "Operating Partnership".
Certain of our activities, such as residential property management for others,
development activities and construction, development and redevelopment services
are carried on through two wholly-owned subsidiaries: Home Properties Management
Inc. and Home Properties Resident Services, Inc.
Our principal executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Our telephone number is (585) 246-4900.
RISK FACTORS
Please carefully consider the risk factors described in our periodic
reports filed with the Securities and Exchange Commission (the "SEC"), which are
incorporated by reference in this prospectus, as well as other information we
include or incorporate by reference in this prospectus. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations.
THE OFFERING
Common stock offered by selling stockholders 2,969,914 shares
Common stock to be outstanding after completion
of this offering 34,507,465 shares*
Use of proceeds We will not receive
any proceeds from this offering
NYSE Symbol HME
*The number of shares of common stock outstanding after this offering is
based on 31,537,550 shares outstanding on May 5, 2006 and excludes:
- 2,262,211 shares issuable upon exercise of outstanding stock options
under out stock benefit plan;
- 452,000 shares underlying stock options approved for issuance under
out stock benefit plan;
- 26,661 shares reserved for issuance under our retirement savings
plan; and
- up to 16,596,111 shares which may be issued in exchange for Units of
limited partnership interest in the Operating Partnership.
USE OF PROCEEDS
The selling stockholders will receive all of the net proceeds from the sale
of the shares of common stock offered hereby. We will not receive any proceeds
from the offering.
SELLING STOCKHOLDERS
The selling stockholders listed below, hold units of limited partnership
interest in the Operating Partnership ("Units"). On April 24, 2006, the selling
stockholders exercised their purchase right under the terms of the Operating
Partnership's partnership agreement that requires us, at our option, to purchase
the Units for cash or shares of our common stock on a one-for-one basis. We have
decided to purchase all the Units by issuing an aggregate of 2,969,914 shares of
our common stock. The selling stockholders have exercised their right under a
registration rights agreement dated October 29, 1997 with us to cause us to file
the registration statement, of which this prospectus forms a part, registering
such shares for resale under the Securities Act. Pursuant to the terms of the
registration rights agreement, we are bearing all costs of this registration,
but the underwriting discounts and commissions will be paid by the selling
stockholders from the proceeds of the sale of the shares. We will not receive
any proceeds from the sale of the shares offered hereby.
The following table sets forth certain information regarding the number of
shares of common stock which we will issue to the selling stockholders and which
are registered for resale under the registration statement of which this
prospectus forms a part. The selling stockholders do not beneficially own any
shares of our common stock other than the shares listed below. The selling
stockholders intend to sell all the shares listed below and after the completion
of this offering they will not own any shares of our common stock. Other
partners of the Operating Partnership may sell shares of common stock they
acquire in exchange for their Units under separate registration statements filed
with the SEC covering such shares.
None of the affiliates of the selling stockholders are officers or
directors of the Company.
Number of Shares
Registered for Sale
Name in Offering
B&L Realty Investments Limited Partnership 33,560
Berger/Lewiston Associates Limited Partnership 1,076,594
Big Beaver-Rochester Properties Limited Partnership 528,348
Century Realty Investment Company Limited 99,195
Partnership
Greentrees Apartments Limited Partnership 275,905
Kingsley-Moravian Company Limited Partnership 376,288
Stephenson-Madison Heights Company Limited 104,541
Partnership
Southpointe Square Apartments Limited Partnership 155,623
Woodland Garden Apartments Limited Partnership 319,860
Total 2,969,914
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Home Properties consists of:
- 80 million shares of common stock, $0.01 par value, of which
31,537,550 shares were outstanding on May 5, 2006;
- 10 million shares of preferred stock, $0.01 par value, 3,000,000
shares of which have been designated Series F Cumulative Redeemable
Preferred Stock (the "Series F preferred stock"), 2,400,000 of which were
outstanding as of March 31, 2006.
- 10 million shares of "excess stock," $0.01 par value, of which no
shares were outstanding on March 31, 2006.
For more detail about our Articles of Amendment and Restatement of Articles of
Incorporation, and the Articles Supplementary thereto relating to the Series F
preferred stock (sometimes collectively referred to as our "Articles of
Incorporation" or "charter") and bylaws you should refer to the charter and
bylaws, which have been filed as exhibits to other reports incorporated by
reference into this prospectus. In addition, for a discussion of limitations on
the ownership of our capital stock, you should refer to the section entitled
"Restrictions on Transfer; Ownership Limits" in this prospectus.
Common Stock
All of the shares of common stock offered by this prospectus will be duly
authorized, fully paid, and nonassessable when issued in exchange for the Units
in the Operating Partnership held by the selling stockholders. Holders of the
common stock have no conversion, redemption, sinking fund or preemptive rights;
however, shares of common stock automatically convert into shares of Excess
Stock as defined below. Under the Maryland General Corporation Law ("MGCL"),
stockholders are generally not liable for our debts or obligations, and the
holders of shares will not be liable for further calls or assessments by us.
Subject to the provisions of our Articles of Incorporation regarding Excess
Stock described below, all shares of common stock have equal dividend,
distribution, liquidation and other rights and will have no preference or
exchange rights.
Subject to the right of holders of Preferred Stock to receive preferential
distributions, the holders of the shares of common stock will be entitled to
receive distributions in the form of dividends if and when declared by our Board
of Directors out of funds legally available therefor, and, upon liquidation of
us, each outstanding share of common stock will be entitled to participate pro
rata in the assets remaining after payment of, or adequate provision for, all of
our known debts and liabilities, including debts and liabilities arising out of
its status as general partner of the Operating Partnership, and any liquidation
preference of issued and outstanding Preferred Stock. We intend to continue
paying quarterly distributions.
The holder of each outstanding share of common stock is entitled to one
vote on all matters presented to stockholders for a vote, subject to the
provisions of our Articles of Incorporation regarding Excess Stock described
below. As described below, our Board of Directors has, and may in the future,
grant holders of one or more series of Preferred Stock the right to vote with
respect to certain matters when it fixes the attributes of such series of
Preferred Stock. Pursuant to the MGCL, we cannot dissolve, amend our charter,
merge with or into another entity, sell all or substantially all our assets,
engage in a share exchange or engage in similar transactions unless such action
is approved by stockholders holding a majority of the outstanding shares
entitled to vote on such matter. In addition, the Second Amended and Restated
Partnership Agreement of the Operating Partnership, as amended, requires that
any merger or sale of all or substantially all of the assets of Operating
Partnership be approved by partners holding a majority of the outstanding Units,
excluding Operating Partnership Units held by us, directly or indirectly. Our
Articles of Incorporation provide that our Bylaws may be amended by our Board of
Directors.
The holder of each outstanding share of common stock is entitled to one
vote in the election of directors who serve for terms of one year. Holders of
the shares of common stock will have no right to cumulative voting for the
election of directors. Consequently, at each annual meeting of stockholders, the
holders of a majority of the shares entitled to vote in the election of
directors will be able to elect all of the directors, subject to certain rights
of the holders of preferred stock, described below. Directors may be removed
only for cause and only with the affirmative vote of the holders of a majority
of the shares entitled to vote in the election of directors.
Preferred Stock
We may issue shares of preferred stock from time to time, in one or more
series, as authorized by our Board of Directors. The Board of Directors will fix
the attributes of any preferred stock that it authorizes for issuance. Because
the Board of Directors has the power to establish the preferences and rights of
each series of preferred stock, it may afford the holders of any series of
preferred stock preferences, powers and rights, voting or otherwise, senior to
the rights of holders of shares of common stock. The issuance of preferred stock
could have the effect of delaying or preventing a change in control of Home
Properties.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Home Properties, then, before any distribution or payment shall
be made to the holders of any shares of common stock, any Excess Stock or any
other class or series of capital stock of Home Properties ranking junior to any
outstanding preferred stock in the distribution of assets upon any liquidation,
dissolution or winding up of Home Properties, the holders of shares of each
series of preferred stock will be entitled to receive out of assets of Home
Properties legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share, plus an
amount equal to all dividends accrued and unpaid thereon (which does not include
any accumulation in respect of unpaid dividends for prior dividend periods if
such shares of preferred stock do not have cumulative dividends). After payment
of the full amount of the liquidating distributions to which they are entitled,
the holders of shares of preferred stock will have no right or claim to any of
the remaining assets of Home Properties. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the available
assets of Home Properties are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of preferred stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of
Home Properties ranking on a parity with such shares of preferred stock in the
distribution of assets, then the holders of such shares of preferred stock and
all other such classes or series of capital stock shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
Series F Cumulative Redeemable Preferred Stock
On March 22, 2002, Home Properties issued 2,400,000 shares of its Series F
preferred stock. The Articles Supplementary to the charter establishing the
Series F preferred stock authorize an aggregate 3,000,000 shares of Series F
preferred stock and set forth the rights, privileges and preferences of that
stock. The Series F preferred stock is entitled to a liquidation preference
equal to $25 per share plus all accumulated accrued and unpaid dividends whether
or not declared to the date of liquidation.
Dividends on the Series F preferred stock accrue quarterly in arrears and
are equal to 9.00% of the liquidation preference (or $2.25 per share) each year.
The holders of the Series F preferred stock, together with the holders of other
classes of preferred stock, have the right to elect two directors to the Board
of Directors of Home Properties in the event that the preferred dividends are in
arrears for six quarters (whether consecutive or not).
Pursuant to certain covenants, if we fail to limit our ratio of earnings
before interest, taxes, depreciation and amortization (EBITDA) to fixed charges
(consisting of total interest expense and dividends on our preferred stock), to
less than 1.75 to 1.0 for six consecutive quarters the holders of the Series F
preferred stock will be entitled to elect two directors to our Board of
Directors if not already increased by reason of similar provisions (including
those relating to the failure to pay dividends), until we again complete a
quarter in compliance with the ratio.
The Series F preferred stock is redeemable at our option on or after
March 25, 2007 at $25 per share, plus accrued dividends. The Series F preferred
stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption.
The Series F preferred stock is not convertible into or exchangeable for
any of our other property or securities, except that shares of the Series F
preferred stock may be exchanged for shares of our excess stock to preserve our
status as a REIT for federal income tax purposes.
Restrictions on Transfer; Ownership Limits
Our charter contains certain restrictions on the number of shares of
capital stock that stockholders may own. For us to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), no more than 50% in
value of our outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code, to include
certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year. The capital stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because we expect
to continue to qualify as a REIT, our charter contains restrictions on the
ownership and transfer of shares of our capital stock intended to ensure
compliance with these requirements. Subject to certain exceptions specified in
the charter, no holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 8.0% (the "Ownership Limit") of the value of
the issued and outstanding shares of our capital stock. Certain entities, such
as qualified pension plans, are treated as if their beneficial owners were the
holders of the common stock held by such entities.
Stockholders ("Existing Holders") whose holdings exceeded the Ownership
Limit immediately after our initial public offering of our common stock,
assuming that all Units of the Operating Partnership are counted as shares of
common stock, are permitted to continue to hold the number of shares they held
on such date and may acquire additional shares of capital stock upon (i) the
exchange of Units for Shares, (ii) the exercise of stock options or receipt of
grants of shares of capital stock pursuant to a stock benefit plan, (iii) the
acquisition of shares of capital stock pursuant to a dividend reinvestment plan,
(iv) the transfer of shares of capital stock from another Existing Holder or the
estate of an Existing Holder by devise, gift or otherwise, or (v) the
foreclosure on a pledge of shares of capital stock; provided, no such
acquisition may cause any Existing Holder to own, directly or by attribution,
more than 17.5% (the "Existing Holder Limit") of the issued and outstanding
Shares, subject to certain additional restrictions.
Our Board of Directors may increase or decrease the Ownership Limit and
Existing Holder Limit from time to time, but may not do so to the extent that
after giving effect to such increase or decrease: (i) five beneficial owners of
Shares could beneficially own in the aggregate more than 49.5% of the aggregate
value of our outstanding capital or (ii) any beneficial owner of capital stock
would violate the Ownership Limit or Existing Holder Limit as a result of a
decrease. The Board of Directors may waive the Ownership Limit or the Existing
Holder Limit with respect to a holder if such holder provides evidence
acceptable to the Board of Directors that such holder's ownership will not
jeopardize our status as a REIT. Waivers of the Ownership Limit have been
granted to certain institutional investors in connection with the sale of our
Preferred Stock.
Any transfer of our outstanding capital stock ("Outstanding Stock") that
would: (i) cause any holder, directly or by attribution, to own capital stock
having a value in excess of the Ownership Limit or Existing Holder Limit,
(ii) result in shares of capital stock other than Excess Stock, if any, to be
owned by fewer than 100 persons, (iii) result in our being closely held within
the meaning of section 856(h) of the Code, or (iv) otherwise prevent us from
satisfying any criteria necessary for us to qualify as a REIT, is null and void,
and the purported transferee acquires no rights to such Outstanding Stock.
Outstanding Stock owned by or attributable to a stockholder or shares of
Outstanding Stock purportedly transferred to a stockholder which cause such
stockholder or any other stockholder to own shares of capital stock in excess of
the Ownership Limit or Existing Holder Limit will automatically convert into
shares of Excess Stock. Such Excess Stock will be transferred by operation of
law to a separate trust, with Home Properties acting as trustee, for the
exclusive benefit of the person or persons to whom such Outstanding Stock may be
ultimately transferred without violating the Ownership Limit or Existing Holder
Limit. Excess Stock is not treasury stock, but rather constitutes a separate
class of issued and outstanding stock of Home Properties. While the Excess Stock
is held in trust, it will not be entitled to vote, will not be considered for
purposes of any stockholder vote or the determination of a quorum for such vote
and will not be entitled to participate in dividends or other distributions. Any
record owner or purported transferee of Outstanding Stock which has converted
into Excess Stock (the "Excess Holder") who receives a dividend or distribution
prior to the discovery by us that such Outstanding Stock has been converted into
Excess Stock must repay such dividend or distribution upon demand. While Excess
Stock is held in trust, we will have the right to purchase it from the trust for
the lesser of: (i) the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding Stock
on the date of conversion if no consideration was given for the Outstanding
Stock) or (ii) the market price of shares of capital stock equivalent to the
Outstanding Stock which converted into Excess Stock (as determined in the manner
set forth in the Articles of Incorporation) on the date we exercise our option
to purchase. We must exercise this right within the 90-day period beginning on
the date on which we receive written notice of the transfer or other event
resulting in the conversion of Outstanding Stock into Excess Stock. Upon our
liquidation, distributions will be made with respect to such Excess Stock as if
it consisted of the Outstanding Stock from which it was converted.
Any Excess Holder, with respect to each trust created upon the conversion
of Outstanding Stock into Excess Stock, may designate any individual as a
beneficiary of such trust; provided, such person would be permitted to own the
Outstanding Stock which converted into the Excess Stock held by the trust under
the Ownership Limit or Existing Holder Limit and the consideration paid to such
Excess Holder in exchange for designating such person as the beneficiary is not
in excess of the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding Stock
on the date of conversion if no consideration was given for the Outstanding
Stock). Our redemption right must have expired or been waived prior to such
designation. Immediately upon the designation of a permitted beneficiary, the
Excess Stock, if any, will automatically convert into shares of the Outstanding
Stock from which it was converted and we as trustee of the trust will transfer
such shares, if any, and any proceeds from redemption or liquidation without
interest to the beneficiary.
If the restrictions on ownership and transfer, conversion provisions or
trust arrangements in our Articles of Incorporation are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
Excess Holder of any Outstanding Stock that would have converted into shares of
Excess Stock if the conversion provisions of the Articles of Incorporation were
enforceable and valid shall be deemed to have acted as an agent on behalf of us
in acquiring such Outstanding Stock and to hold such Outstanding Stock on behalf
of us unless we waive our right to this remedy.
The foregoing ownership and transfer limitations may have the effect of
precluding acquisition of control of Home Properties without the consent of our
Board of Directors. All certificates representing shares of capital stock will
bear a legend referring to the restrictions described above. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines, and the stockholders concur, that it is no longer in our
best interests to attempt to qualify, or to continue to qualify, as a REIT.
Approval of the limited partners of the Operating Partnership to terminate REIT
status is also required.
Ownership Reports
Every owner of more than 5% of our issued and outstanding shares of capital
stock must file a written notice with us containing the information specified in
the Articles of Incorporation no later than January 31 of each year. In
addition, each stockholder shall, upon demand, be required to disclose to us in
writing such information as we may request in order to determine the effect of
such stockholder's direct, indirect and attributed ownership of shares of
capital stock on our status as a REIT or to comply with any requirements of any
taxing authority or other governmental agency.
Certain Provisions of Maryland Law and of Our Charter and Bylaws
The following is a summary of certain provisions of Maryland law and of our
charter and bylaws. Copies of our charter and bylaws are incorporated by
reference into the exhibits to the registration statement of which this
prospectus is a part. See "Where you can find more information."
The Board of Directors
Our Articles of Incorporation and bylaws provide that the number of
directors of our company may be established by our board of directors but may
not be fewer than the minimum number permitted under the MGCL (generally, one)
nor more than 12. Except any vacancy among directors elected separately by a
separate class of shares, any vacancy may be filled, at any regular meeting or
at any special meeting called for that purpose, only by a majority of the
remaining directors, even if the remaining directors do not constitute a quorum,
and any director elected to fill a vacancy will serve for the remainder of the
full term of the directorship in which such vacancy occurred.
Pursuant to our charter, each member of our board of directors will serve
one year terms, with each current director serving until the 2006 annual meeting
of stockholders and until their respective successors are duly elected and
qualified. Holders of shares of our common stock will have no right to
cumulative voting in the election of directors and directors are elected by a
plurality of votes cast in the election of directors. Consequently, at each
annual meeting of stockholders at which our board of directors is elected, the
holders of a majority of the shares of our common stock will be able to elect
all of the members of our board of directors. Moreover, our charter permits our
stockholders to remove a director but only for cause and then only upon the
affirmative vote of a majority of the shares of our common stock entitled to
vote on any such proposal.
Termination of REIT Status
Our board of directors, under our Articles of Incorporation, is prohibited
from taking any action to terminate our REIT status or to amend the provisions
of our Articles of Incorporation regarding excess stock unless such action is
approved by the board of directors, presented to an annual or special meeting of
stockholders and approved by vote of a majority of votes entitled to be cast.
Business Combinations
Maryland law prohibits "business combinations" between a corporation and an
interested stockholder or an affiliate of an interested stockholder for five
years after the most recent date on which the interested stockholder becomes an
interested stockholder. These business combinations include a merger,
consolidation, statutory share exchange, or, in circumstances specified in the
statute, certain transfers of assets, certain stock issuances and transfers,
liquidation plans and reclassifications involving interested stockholders and
their affiliates. Maryland law defines an interested stockholder as:
o any person who beneficially owns 10% or more of the voting power of
our voting stock; or
o an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation.
A person is not an interested stockholder if the board of directors
approves in advance the transaction by which the person otherwise would have
become an interested stockholder. However, in approving the transaction, the
board of directors may provide that its approval is subject to compliance, at or
after the time of approval, with any terms and conditions determined by the
board of directors.
After the five year prohibition, any business combination between a
corporation and an interested stockholder generally must be recommended by the
board of directors and approved by the affirmative vote of at least:
- 80% of the votes entitled to be cast by holders of the then
outstanding shares of common stock; and
- two-thirds of the votes entitled to be cast by holders of the common
stock other than shares held by the interested stockholder with whom
or with whose affiliate the business combination is to be effected or
shares held by an affiliate or associate of the interested
stockholder.
These super-majority vote requirements do not apply if the common
stockholders receive a minimum price, as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares.
The statute permits various exemptions from its provisions, including
business combinations that are approved by the board of directors before the
time that the interested stockholder becomes an interested stockholder.
Our Articles of Incorporation excluded business combinations between the
corporation and our founders, Norman and Nelson Leenhouts and their affiliates
from these provisions of the MGCL and, consequently, the five-year prohibition
and the super-majority vote requirements will not apply to business combinations
between us and the founders or their affiliates. We believe that our ownership
restrictions will substantially reduce the risk that a stockholder would become
an "interested stockholder" within the meaning of the Maryland business
combination statute.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved at a special meeting by the affirmative vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock in a corporation in
respect of which any of the following persons is entitled to exercise or direct
the exercise of the voting power of shares of stock of the corporation in the
election of directors: (i) a person who makes or proposes to make a control
share acquisition, (ii) an officer of the corporation or (iii) an employee of
the corporation who is also a director of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-tenth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject to
certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel our board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
Our Articles of Incorporation contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of our
stock and, consequently, the a control share acquisition statute is inapplicable
to us unless the acquisition would violate the Ownership Limit or unless we
later amend our Articles of Incorporation to modify or eliminate the exemption.
Unsolicited Takeovers
The MGCL Subtitle 8 of Title 3 permits a Maryland corporation with a class
of equity securities registered under the Exchange Act and at least three
independent directors to elect to be subject, by provision in its charter or
bylaws or a resolution of its board of directors, and notwithstanding any
contrary provision in the charter or bylaws, to any or all of the following five
provisions:
- a classified board;
- a two-thirds vote requirement for removing a director;
- a requirement that the number of directors be fixed only by vote of
the directors;
- a requirement that a vacancy on the board be filled only by the
remaining directors and for the remainder of the full term of the
class of directors in which the vacancy occurred; and
- a majority requirement for the calling by stockholders of a special
meeting of stockholders.
Through provisions in our charter and bylaws unrelated to Subtitle 8, we
already (a) vest in the board the exclusive power to fix the number of members
of the board of directors and (b) require, unless called by our chairman of the
board, our president, the board, the request of holders of 25% outstanding
shares to call a special meeting. We have not elected to be subject to the
provisions of Subtitle 8 relating to the filling of vacancies on the board.
Amendment to Our Articles of Incorporation and Bylaws
Our charter may be amended only if declared advisable by the board of
directors and approved by the affirmative vote of the holders of at least a
majority of all of the votes entitled to be cast on the matter. Our bylaws may
only be adapted, amended, altered or repealed by the board of directors.
Dissolution of Our Company
The dissolution of our company must be declared advisable by the board of
directors and approved by the affirmative vote of the holders of not less than a
majority of all of the votes entitled to be cast on the matter.
Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
The business combination provisions of the MGCL, the provisions of our
charter regarding the restrictions on ownership and transfer of our stock and
the provisions of our bylaws setting the number of members of the board of
directors could delay, defer or prevent a transaction or a change of control of
our company that might involve a premium price for holders of our common stock
or otherwise be in their best interest. Likewise, if our board of directors
resolves to avail any of the provisions of Subtitle 8 of Title 3 of the MGCL not
currently applicable to us or if the provision in the Articles of Incorporation
opting out of the control share acquisition provisions of the MGCL were
rescinded, these provisions of the MGCL could have similar effects.
Indemnification and Limitation of Directors' and Officers' Liability
As Maryland law permits, our Articles of Incorporation contain a provision
limiting the liability of our directors and officers to us for money damages to
the fullest extent permitted under Maryland law. Maryland law permits full
limitation of the liability of directors or officers for money damage except for
liability resulting from (i) actual receipt of an improper benefit or profit in
money, property or services or (ii) active and deliberate dishonesty established
by a final judgment and material to the cause of action.
The MGCL requires a corporation to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made, or threatened to be made, a party by reason of his or
her service in that capacity. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that:
- an act or omission of the director or officer was material to the
matter giving rise to the proceeding and was committed in bad faith;
or was the result of active and deliberate dishonesty;
- the director or officer actually received an improper personal benefit
in money, property or services; or
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
However, under the MGCL, a Maryland corporation may not indemnify for an
adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses.
In addition, the MGCL permits a corporation to, and our bylaws require us
to, advance reasonable expenses to a director or officer upon the corporation's
receipt of:
- a written affirmation by the director or officer of his or her good
faith belief that he or she has met the standard of conduct necessary
for indemnification by the corporation; and
- a written undertaking by the director or officer or on the director's
or officer's behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the director or
officer did not meet the standard of conduct.
We entered into indemnification agreements with each of our executive
officers and directors whereby we indemnify such executive officers and
directors to the fullest extent permitted by Maryland law against all expenses
and liabilities, subject to limited exceptions. These indemnification agreements
also provide that upon an application for indemnity by an executive officer or
director to a court of appropriate jurisdiction, such court may order us to
indemnify such executive officer or director.
Insofar as the foregoing provisions permit indemnification of directors,
officers or persons controlling us for liability arising under the Securities
Act, the Securities and Exchange Commission has indicated that this
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax consequences regarding
Home Properties and the common stock we are registering is based on current law,
is for general information only and is not tax advice. The information in this
section is based on the Code as currently in effect, current, temporary and
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of the
IRS, including its practices and policies as expressed in private letter rulings
which are not binding on the IRS except with respect to the particular taxpayers
who requested and received such rulings, and court decisions, all as of the date
of this prospectus. There is no assurance that future legislation, Treasury
Regulations, administrative interpretations and practices or court decisions
will not adversely affect existing interpretations. Any change could apply
retroactively to transactions preceding the date of the change.
We have not requested, and do not plan to request, any rulings from the IRS
concerning our tax treatment and the statements in this prospectus are not
binding on the IRS or a court. Thus, we can provide no assurance that these
statements will not be challenged by the IRS or sustained by a court if
challenged by the IRS. The tax treatment to holders of common stock will vary
depending on a holder's particular situation and this discussion does not
purport to deal with all aspects of taxation that may be relevant to a holder of
common stock in light of his or her personal investments or tax circumstances,
or to stockholders subject to special treatment under the federal income tax
laws except to the extent discussed under the headings "Taxation of Tax-Exempt
Stockholders" and "Taxation of Non-U.S. Stockholders." Stockholders subject to
special treatment include, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, stockholders holding
securities as part of a conversion transaction or hedge or hedging transaction
or as a position in a straddle for tax purposes, foreign corporations and
persons who are not citizens or residents of the United States.
In addition, the summary below does not consider the effect of any foreign,
state, local or other tax laws that may be applicable to holders of the common
stock. If we meet the detailed requirements in the Code for qualification as a
REIT, which are summarized below, we will be treated as a REIT for federal
income tax purposes. In this case, we generally will not be subject to federal
corporate income taxes on our net income that is currently distributed to our
stockholders. This treatment substantially eliminates the "double taxation" that
generally results from investments in a corporation. Double taxation refers to
the imposition of corporate level tax on income earned by a corporation and
taxation at the shareholder level on funds distributed to a corporation's
shareholders. If we fail to qualify as a REIT in any taxable year, we would not
be allowed a deduction for dividends paid to our stockholders in computing
taxable income and would be subject to federal income tax at regular corporate
rates. Unless entitled to relief under specific statutory provisions, we would
be ineligible to be taxed as a REIT for the four succeeding tax years. As a
result, the funds available for distribution to our stockholders would be
reduced. Each prospective purchaser should consult his or her own tax advisor
regarding the specific tax consequences of the purchase, ownership and sale of
common stock, including the federal, state, local, foreign and other tax
consequences of such purchase, ownership and sale and of potential changes in
applicable tax laws.
Taxation Of Home Properties
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 1994. We believe
we have been organized and have operated in a manner which qualifies for
taxation as a REIT under the Code commencing with our taxable year ended
December 31, 1994. We intend to continue to operate in this manner. However, our
qualification and taxation as a REIT depends upon our ability to meet, through
actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership, the various qualification tests imposed under the
Code. Accordingly, there is no assurance that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT. Further,
legislative, administrative or judicial action may change, perhaps
retroactively, the anticipated income tax treatment described in this
prospectus. See "Failure to Qualify."
This discussion is not intended to be a substitute for careful tax
planning. We urge each prospective investor to consult with his or her own tax
advisor regarding the specific tax consequences applicable to him or her, in
light of his or her particular circumstances, relating to the purchase,
ownership and disposition of our common shares, including the federal, state,
local, foreign and other tax consequences of such purchase, ownership, sale and
disposition.
In the opinion of Nixon Peabody LLP, Home Properties was organized in
conformity with the requirements for qualification as a REIT, and its method of
operation has enabled it, and its proposed method of operation will enable it to
meet the requirements for qualification and taxation as a REIT under the Code.
This opinion is based on certain assumptions and is conditioned upon certain
representations made by Home Properties as to certain factual matters relating
to Home Properties' organization, manner of operation, income and assets. Nixon
Peabody LLP is not aware of any facts or circumstances that are inconsistent
with these assumptions and representations. Home Properties' qualification and
taxation as a REIT will depend upon Home Properties' satisfaction of the
requirements necessary to be classified as a REIT, discussed below, on a
continuing basis. Nixon Peabody LLP will not review compliance with these tests
on a continuing basis. Therefore, no assurance can be given that Home Properties
will satisfy such tests on a continuing basis. You should be aware that opinions
of counsel are not binding on the IRS, and no assurance can be given that the
IRS will not challenge the conclusions set forth in such opinions.
The sections of the Code that relate to the qualification and operation as
a REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and regulations promulgated under the
Code, and administrative and judicial interpretations of the Code, and these
rules and these regulations.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" that generally results from investment in a corporation. However, Home
Properties will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains; provided,
however, that properly designated undistributed capital gains will effectively
avoid taxation at the stockholder level. A REIT's "REIT taxable income" is the
otherwise taxable income of the REIT subject to certain adjustments, including a
deduction for dividends paid.
Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under some circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying income from foreclosure
property, we will be subject to tax at the highest corporate rate on this
income. Foreclosure property is defined generally as property we acquired
through foreclosure or after a default on a loan secured by the property or a
lease of the property.
Fourth, we will be subject to a 100% tax on any net income from prohibited
transactions. Prohibited transactions generally include sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than the sale or disposition of foreclosure property.
Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or 95%
test multiplied by (b) a fraction intended to reflect our profitability, if we
fail to satisfy the 75% gross income test or the 95% gross income test but have
maintained our qualification as a REIT because we satisfied other requirements.
The gross income tests are discussed below.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed (plus retained amounts on
which income tax is paid at the corporate level) if we fail to distribute during
each calendar year at least the sum of: 85% of our REIT ordinary income for the
year, 95% of our REIT capital gain net income for the year, and any
undistributed taxable income from prior periods.
Seventh, if we acquire any asset from a corporation which is or has been a
C corporation in a transaction in which the basis of the acquired asset in our
hands is determined by reference to the basis of the asset in the hands of the C
corporation, and we subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we acquired the asset,
then we will be subject to tax at the highest regular corporate tax rate on this
gain to the extent of the "built-in-gain" of the asset. The built-in- gain of an
asset equals the excess of (a) the fair market value of the asset over (b) our
adjusted basis in the asset, determined as of the date we acquired the asset
from the C corporation. A C corporation is generally a corporation subject to
full corporate-level tax.
Eighth, we will be subject to a 100% tax on amounts received through
arrangements between Home Properties, its tenants and a taxable REIT subsidiary
that are not arm's length.
Ninth, certain of our subsidiaries are subchapter C corporations, the
earnings of which could be subject to federal corporate income tax.
In addition, we and our subsidiaries may be subject to a variety of taxes,
including payroll taxes and state, local, property, and other taxes on their
assets and operations. We could also be subject to tax in situations and on
transactions not presently contemplated.
Requirements for Qualification as a REIT. The Code defines a REIT as a
corporation, trust or association that:
1. is managed by one or more trustees or directors;
2. uses transferable shares or transferable certificates to evidence
beneficial ownership;
3. would be taxable as a domestic corporation, but for Sections 856
through 860 of the Code;
4. is not a financial institution referred to in Section 582(c) of the
Code or an insurance company to which subchapter L of the Code
applies;
5. is beneficially owned by 100 or more persons;
6. during the last half of each taxable year not more than 50% in value
of its outstanding stock is owned, actually or constructively, by five
or fewer individuals, as defined in the Code to include the entities
set forth in Section 542(a)(2) of the Code; and
7. meets other tests, described below, regarding the nature of its income
and assets and the amount of its distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of twelve months, or during a proportionate part of a
taxable year of less than twelve months. Conditions (5) and (6) do not apply
until after the first taxable year for which an election made to be taxed as a
REIT. For purposes of condition (6), pension funds and some other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of pension funds. We have satisfied condition (5) and believe that we
have issued sufficient shares to satisfy condition (6). In addition, our
articles of incorporation provides for restrictions regarding ownership and
transfer of shares. These restrictions are intended to assist us in continuing
to satisfy the share ownership requirements described in (5) and (6) above.
These ownership and transfer restrictions are described in the accompanying
prospectus in "Description of Capital Stock-Restrictions on Transfer."
Primarily, though not exclusively, as a result of fluctuations in value among
the different classes of our stock, these restrictions may not ensure that we
will, in all cases, be able to satisfy the share ownership requirements
described in conditions (5) and (6) above. If we fail to satisfy these share
ownership requirements, our status as a REIT will terminate. However, if we
comply with the rules contained in applicable Treasury Regulations that require
us to ascertain the actual ownership of our shares and we do not know, or would
not have known through the exercise of reasonable diligence, that we failed to
meet the requirement described in condition (6) above, we will be treated as
having met this requirement. See "Failure to Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a calendar
taxable year.
Taxable REIT Subsidiaries. A taxable REIT subsidiary of Home Properties is
a corporation other than a REIT in which Home Properties directly or indirectly
holds stock and that has made a joint election with Home Properties to be
treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes
any corporation other than a REIT with respect to which a taxable REIT
subsidiary of Home Properties owns securities possessing more than 35% of the
total voting power or value of the outstanding securities of such corporation.
However, a taxable REIT subsidiary does not include certain health care and
lodging facilities. A taxable REIT subsidiary is subject to regular federal
income tax, and state and local income tax where applicable, as a regular "C"
corporation. In addition, a taxable REIT subsidiary of Home Properties may be
limited in its ability to deduct interest paid to Home Properties. Home
Properties jointly made the election with the following entities for them to be
treated as taxable REIT subsidiaries of Home Properties effective January 1,
2001: Home Properties Resident Services, Inc. and Home Properties Management,
Inc.
Qualified REIT Subsidiaries. If a REIT owns a corporate subsidiary that is
a "qualified REIT subsidiary," the separate existence of that subsidiary will be
disregarded for federal income tax purposes. Generally, a qualified REIT
subsidiary is a corporation, other than a taxable REIT subsidiary, all of the
capital stock of which is owned by the REIT. All assets, liabilities and items
of income, deduction and credit of the qualified REIT subsidiary will be treated
as assets, liabilities and items of income, deduction and credit of the REIT
itself. A qualified REIT subsidiary of Home Properties will not be subject to
federal corporate income taxation, although it may be subject to state and local
taxation in some states.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, IRS regulations provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership. Also, a partner
in a partnership will be deemed to be entitled to the income of the partnership
attributable to its proportionate share. The character of the assets and gross
income of the partnership retains the same character in the hands of Home
Properties for purposes of Section 856 of the Code, including satisfying the
gross income tests and the asset tests. Thus, our proportionate share of the
assets, liabilities and items of income of the Operating Partnership, including
the Operating Partnership's share of these items for any partnership or limited
liability company, are treated as our assets, liabilities and items of income
for purposes of applying the requirements described in this prospectus.
We have included a summary of the rules governing the Federal income
taxation of partnerships and their partners below in "Tax Aspects of the
Operating Partnership". We have direct control of the Operating Partnership and
will continue to operate it consistent with the requirements for qualification
as a REIT.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, each taxable year we must derive
directly or indirectly at least 75% of our gross income from investments
relating to real property or mortgages on real property, including "rents from
real property" and, in specific circumstances, interest, or from particular
types of temporary investments. Gross income from prohibited transactions is
excluded for purposes of determining if we satisfy this test. Second, each
taxable year we must derive at least 95% of our gross income from these real
property investments, dividends, interest and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing. Gross income
from prohibited transactions is excluded for purposes of determining if we
satisfy this test.
The term "interest" generally does not include any amount received or
accrued, directly or indirectly, if the determination of the amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Rents we receive will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met.
First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
Second, the Code provides that rents received from a "related party tenant"
will not qualify as "rents from real property" in satisfying the gross income
tests. A related party tenant is a tenant of Home Properties that Home
Properties, or one or more actual or constructive owners of 10% or more of Home
Properties, actually or constructively own in the aggregate 10% or more of such
tenant. For taxable years after December 31, 2000, Home Properties will be able
to lease its properties to a taxable REIT subsidiary and the rents received from
that subsidiary will not be disqualified from being "rents from real property"
by reason of Home Properties' ownership interest in the subsidiary so long as
the property is operated on behalf of the taxable REIT subsidiary by an
"eligible independent contractor."
Third, if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to personal property will not
qualify as "rents from real property."
Finally, for rents received to qualify as "rents from real property," Home
Properties is allowed only to provide services that are both "usually or
customarily rendered" in connection with the rental of real property and not
otherwise considered "rendered to the occupant." Income received from any other
services will be treated as "impermissible tenant service income" unless the
services are provided through an independent contractor that bears the expenses
of providing the services and from whom Home Properties derives no revenue or
through a taxable REIT subsidiary, subject to specified limitations. The amount
of impermissible tenant service income is deemed to be the greater of the amount
actually received by the REIT or 150% of Home Properties' direct cost of
providing the service. If the impermissible tenant service income exceeds 1% of
Home Properties' total income from income from a property, then all of the
income from that property will fail to qualify as rents from real property. If
the total amount of impermissible tenant service income from a property does not
exceed 1% of Home Properties' total income from that property, the income will
not cause the rent paid by tenants of that property to fail to qualify as rents
from real property, but the impermissible tenant service income itself will not
qualify as rents from real property.
We believe that Home Properties' real estate investments will continue to
give rise to income that will enable it to satisfy all of the income tests
described above. Substantially all of Home Properties' income will be derived
from its interest in the Operating Partnership, which will, for the most part,
qualify as "rents from real property" for purposes of the 75% and the 95% gross
income tests. We generally do not and do not intend to:
- charge rent for any property that is based in whole or in part on
the income or profits of any person, except by reason of being based on a
percentage of receipts or sales, as described above;
- rent any property to a related party tenant (except for leases to a
taxable REIT subsidiary);
- derive rental income attributable to personal property, other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the
lease; or
- perform services (other than services that are "usual or customary")
considered to be rendered to the occupant of the property, other than
through an independent contractor from whom we derive no revenue or through
a taxable REIT subsidiary.
Notwithstanding the foregoing, we may have taken and may continue to take the
actions set forth above to the extent these actions will not, based on the
advice of our tax counsel, jeopardize our status as a REIT.
Home Properties may receive certain types of income with respect to the
properties it owns that will not qualify for the 75% or 95% gross income test.
In addition, dividends on Home Properties' stock in any non-controlled
subsidiaries or taxable REIT subsidiaries will not qualify under the 75% gross
income test. Home Properties believes, however, that the aggregate amount of
such fees and other non-qualifying income in any taxable year will not cause
Home Properties to exceed the limits on non-qualifying income under the 75% and
95% income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under specific provisions of the Code. Generally, we may
avail ourselves of the relief provisions if: (i) our failure to meet these tests
was due to reasonable cause and not due to willful neglect, and (ii) following
our identification of the failure to meet the 75% or 95% gross income test for
any taxable year, we file a schedule with the IRS setting forth each item of our
gross income for purposes of the 75% or 95% gross income test for such taxable
year in accordance with Treasury Regulations to be issued.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because non-qualifying income that we
intentionally incur exceeds the limits on non-qualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of
circumstances, we will not qualify as a REIT. As discussed above in "Taxation of
Home Properties -General," even if these relief provisions apply, and we retain
our status as a REIT, a tax would be imposed with respect to the amount by which
we fail to satisfy the particular gross income test. We may not always be able
to maintain compliance with the gross income tests for REIT qualification
despite our periodic monitoring of our income.
Prohibited Transaction Income. Any gain realized by us on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business, including our share of any such
gain realized by the Operating Partnership, will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely effect our ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances surrounding the particular transaction.
The Operating Partnership intends to hold the properties for investment
with a view to long- term appreciation, to engage in the business of acquiring,
developing, owning, and operating its properties and to make occasional sales of
the properties as are consistent with the Operating Partnership's investment
objectives. However, the IRS may contend that one or more of these sales is
subject to the 100% penalty tax. No assurance can be given that any property we
sell will not be treated as property held for sale to customers, or that we can
comply with certain safe-harbor provisions of the Code that would prevent the
imposition of the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy six tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by
real estate assets, cash, cash items and U.S. government securities. Home
Properties' real estate assets include, for purposes of this test, its allocable
share of real estate assets held by the partnerships in which it owns an
interest and the non-corporate subsidiaries of those partnerships, as well as
stock or debt instruments held for one year or less that are purchased with the
proceeds of an offering of shares or long-term (at least five years) debt of
Home Properties.
Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset test.
Third, except for investments in REITs, qualified REIT subsidiaries and
taxable REIT subsidiaries, the value of any one issuer's securities owned by
Home Properties may not exceed 5% of the value of Home Properties' total assets.
Fourth, except for investments in REITs, qualified REIT subsidiaries and
taxable REIT subsidiaries, Home Properties may not own more than 10% of any one
issuer's outstanding voting securities.
Fifth, except for investments in REITs, qualified REIT subsidiaries,
taxable REIT subsidiaries "straight debt" having specified characteristics and
to certain other securities described below, Home Properties may not own more
than 10% of the total value of the outstanding securities of any one issuer.
Sixth, not more than 20% of the value of Home Properties' total assets may
be represented by the securities of one or more taxable REIT subsidiaries.
Certain relief provisions are available to REITs to satisfy the asset
requirements, or to maintain REIT qualification notwithstanding certain
violations of the asset and other requirements. One such provision allows a REIT
which fails one or more of the asset requirements (other than de minimis
violations of the 5% and 10% asset tests as described below) to nevertheless
maintain its REIT qualification if (a) it provides the IRS with a description of
each asset causing the failure, (b) the failure is due to reasonable cause and
not willful neglect, (c) the REIT pays a tax equal to the greater of (i) $50,000
per failure, and (ii) the product of the net income generated by the assets that
caused the failure multiplied by the highest applicable corporate tax rate
(currently 35%), and (d) the REIT either disposes of the assets causing the
failure within 6 months after the last day of the quarter in which it identifies
the failure, or otherwise satisfies the relevant asset tests within that time
frame.
In the case of de minimis violations of the 10% and 5% asset tests, a REIT
may maintain its qualification if (a) the value of the assets causing the
violation do not exceed the lesser of 1% of the REIT's total assets, and
$10,000,000, and (b) the REIT either disposes of the assets causing the failure
within 6 months after the last day of the quarter in which it identifies the
failure, or the relevant tests are otherwise satisfied within that time frame.
Certain securities will not cause a violation of the 10% value test
described above. Such securities include instruments that constitute "straight
debt," which includes securities having certain contingency features. A security
will not qualify as "straight debt" where a REIT (or a controlled taxable REIT
subsidiary of the REIT) owns other securities of the issuer of that security
which do not qualify as straight debt, unless the value of those other
securities constitute, in the aggregate, 1% or less of the total value of that
issuer's outstanding securities. In addition to straight debt, certain other
securities will not violate the 10% value test. Such securities include (a) any
loan made to an individual or an estate, (b) certain rental agreements in which
one or more payments are to be made in subsequent years (other than agreements
between a REIT and certain persons related to the REIT), (c) any obligation to
pay rents from real property, (d) securities issued by governmental entities
that are not dependent in whole or in part on the profits of (or payments made
by) a non-governmental entity, (e) any security issued by another REIT, and (f)
any debt instrument issued by a partnership if the partnership's income is of a
nature that it would satisfy the 75% gross income test described above under
"--Income Tests." In applying the 10% value test, a debt security issued by a
partnership is not taken into account to the extent, if any, of the REIT's
proportionate equity interest in that partnership.
As previously discussed, Home Properties is deemed to own its proportionate
share of the assets of a partnership in which it is a partner so that the
partnership interest, itself, is not a security for purposes of this asset test.
We believe that our holdings of assets comply, and will continue to comply,
with the foregoing REIT asset requirements, and we intend to monitor compliance
on an ongoing basis. No independent appraisals have been obtained, however, to
support our conclusions as to the value of our total assets, or the value of any
particular security or securities. We do not intend to seek an IRS ruling as to
the classification of our properties for purposes of the REIT asset tests.
Accordingly, there can be no assurance that the IRS will not contend that our
assets or our interest in other securities cause a violation of the REIT asset
requirements.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire additional securities of the
Management Companies or other securities or other property during a quarter,
including an increase in our interests in the Operating Partnership, we can cure
this failure by disposing of sufficient non-qualifying assets within 30 days
after the close of that quarter. We have maintained and will continue to
maintain adequate records of the value of our assets to ensure compliance with
the asset tests and to take such other actions within the 30 days after the
close of any quarter as may be required to cure any noncompliance. If we fail to
cure noncompliance with the asset tests within this time period, we would cease
to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends, other than capital gain dividends, to
our stockholders in an amount at least equal to:
- the sum of:
- 90% of our "REIT taxable income," computed without regard to the
dividends paid deduction and our net capital gain, and
- 90% of the after tax net income, if any, from foreclosure
property;
- minus:
- the sum of specified items of noncash income.
These distributions must be paid in the taxable year to which they relate, or in
the following taxable year if they are declared before we timely file our tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. These distributions are taxable to holders of common
stock and convertible preferred stock, other than tax-exempt entities, as
discussed below, in the year in which paid. This is so even though these
distributions relate to the prior year for purposes of our 90% distribution
requirement. The amount distributed must not be preferential (e.g., every
shareholder of the class of stock to which a distribution is made must be
treated the same as every other shareholder of that class, and no class of stock
may be treated otherwise than in accordance with its dividend rights as a
class).
To the extent that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. We have made and intend to make timely distributions
sufficient to satisfy these annual distribution requirements. We expect that our
REIT taxable income will be less than our cash flow due to the allowance of
depreciation and other non-cash charges in computing REIT taxable income.
Accordingly, we anticipate that we will generally have sufficient cash or liquid
assets to enable us to satisfy the distribution requirements described above. In
this regard, the Partnership Agreement of the Operating Partnership authorizes
Home Properties, as general partner, to take such steps as may be necessary to
cause the Operating Partnership to distribute to its partners an amount
sufficient to permit Home Properties to meet these distribution requirements.
However, from time to time, we may not have sufficient cash or other liquid
assets to meet these distribution requirements due to timing differences between
the actual receipt of income and actual payment of deductible expenses, and the
inclusion of income and deduction of expenses in arriving at our taxable income.
If these timing differences occur, in order to meet the distribution
requirements, we may need to arrange for short-term, or possibly long-term,
borrowings or need to pay dividends in the form of taxable stock dividends.
Under specific circumstances identified in the Code, we may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in our
deduction for dividends paid for the earlier year. Thus, we may be able to avoid
being taxed on amounts distributed as deficiency dividends. However, we will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year, or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year, at least the sum
of:
- 85% of our REIT ordinary income for such year,
- 95% of our REIT capital gain income for the year,
- and any undistributed taxable income from prior periods.
Any REIT taxable income and net capital gain on which this excise tax is imposed
for any year is treated as an amount distributed during that year for purposes
of calculating such tax.
Failure To Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our stockholders. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our stockholders.
In addition, if we fail to qualify as a REIT, all distributions to
stockholders will be taxable as ordinary income to the extent of our current and
accumulated earnings and profits, and subject to limitations identified in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, we
will also be ineligible to be taxed as a REIT for the four tax years following
the year during which we lost our qualification. It is not possible to state
whether in all circumstances we would be entitled to this statutory relief.
Taxation Of Taxable U.S. Stockholders
As used below, the term "U.S. stockholder" means a holder of shares of
common stock who, for United States federal income tax purposes: is a citizen or
resident of the United States; is a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any state
thereof or in the District of Columbia, unless, in the case of a partnership,
Treasury Regulations provide otherwise; is an estate the income of which is
subject to United States federal income taxation regardless of its source; or is
a trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury Regulations, some trusts
in existence on August 20, 1996, and treated as United States persons prior to
this date that elect to continue to be treated as United States persons, are
also considered U.S. stockholders.
Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
stockholders as ordinary income. These distributions will not be eligible for
the dividends-received deduction in the case of U.S. stockholders that are
corporations. To the extent that we make distributions, other than capital gain
dividends discussed below, in excess of our current and accumulated earnings and
profits, these distributions will be treated first as a tax-free return of
capital to each U.S. stockholder. This treatment will reduce the adjusted basis
which each U.S. stockholder has in his shares of stock for tax purposes by the
amount of the distribution. This reduction will not, however, reduce a holder's
adjusted basis below zero. Distributions in excess of a U.S. stockholder's
adjusted basis in his shares will be taxable as capital gain, provided that the
shares have been held as a capital asset. In addition, these distributions will
be taxable as long-term capital gain if the shares have been held for more than
one year.
Dividends that we declare in October, November, or December of any year and
that are payable to a stockholder of record on a specified date in any of these
months shall be treated as both paid by us and received by the stockholder on
December 31 of that year, provided we actually pay the dividend on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any of our net operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to U.S. stockholders as gains, to the
extent that they do not exceed our actual net capital gain for the taxable year,
from the sale or disposition of a capital asset. Capital gain dividends are
taxed to U.S. stockholders as gain from the sale or exchange of a capital asset
held for more than one year. This tax treatment applies regardless of the period
the stockholder has held its shares. If we designate any portion of a dividend
as a capital gain dividend, a U.S. stockholder will receive an IRS Form 1099-DIV
indicating the amount that will be taxable to the stockholder as capital gain.
U.S. stockholders that are corporations may, however, be required to treat up to
20% of some capital gain dividends as ordinary income.
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
stockholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make, to the extent they do not constitute
a return of capital, generally will be treated as investment income for purposes
of computing the investment interest limitation. Gain arising from the sale or
other disposition of our shares, however, will not be treated as investment
income under some circumstances.
Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a U.S. stockholder generally
would: include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its taxable
year in which the last day of our taxable year falls subject to limitations as
to the amount that is includable; be deemed to have paid the capital gains tax
imposed on us on the designated amounts included in the U.S. stockholder's
long-term capital gains; receive a credit or refund for the amount of tax deemed
paid by it; increase the adjusted basis of its common stock by the difference
between the amount of includable gains and the tax deemed to have been paid by
it; and in the case of a U.S. stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in accordance
with Treasury Regulations to be prescribed by the IRS.
Dispositions Of Common Stock
Generally, gain or loss realized by a shareholder upon the sale of common
shares (including redemptions of common shares which are treated as sales) will
be reportable as capital gain or loss. Such gain or loss will be treated as
long-term capital gain or loss if the shares have been held for more than 12
months and as short-term capital gain or loss if the shares have been held for
12 months or less. If a shareholder receives a long-term capital gain dividend
and has held the shares for six months or less, any loss incurred on the sale or
exchange of the shares is treated as a long-term capital loss to the extent of
the corresponding long-term capital gain dividend received.
If an investor recognizes a loss upon a subsequent disposition of our stock
in an amount that exceeds a prescribed threshold, it is possible that the
provisions of recently adopted Treasury regulations involving "reportable
transactions" could apply, with a resulting requirement to separately disclose
the loss generating transaction to the IRS. While these regulations are directed
towards "tax shelters," they are written quite broadly and apply to transactions
that would not typically be considered tax shelters. In addition significant
penalties are imposed by the Code for failure to comply with these requirements.
You should consult your tax advisor concerning any possible disclosure
obligation with respect to the receipt or disposition of our stock, or
transactions that might be undertaken directly or indirectly by us. Moreover,
you should be aware that we and other participants in the transactions involving
us (including their advisors) might be subject to disclosure or other
requirements pursuant to these regulations.
Backup Withholding
We report to our U.S. stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 28% with respect to dividends paid unless the holder is a corporation or
comes within other exempt categories and, when required, demonstrates this fact,
or provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. stockholder that does not
provide us with his correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, we may
be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status. See "Taxation of
Non-U.S. Stockholders."
Taxation Of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt shareholder,
except tax-exempt shareholders described below, has not held its shares as "debt
financed property" within the meaning of the Code and the shares are not
otherwise used in a trade or business, dividend income from us will not be
unrelated business taxable income to a tax-exempt shareholder. Similarly, income
from the sale of shares will not constitute unrelated business taxable income
unless a tax-exempt shareholder has held its shares as "debt financed property"
within the meaning of the Code or has used the shares in its trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under the Code
Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our shares will constitute unrelated business taxable income
unless the organization is able to properly deduct amounts set aside or placed
in reserve for certain purposes so as to offset the income generated by its
investment in our shares. These prospective investors should consult their own
tax advisors concerning these "set aside" and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act
of 1993 provides that, effective for taxable years beginning in 1994, a portion
of the dividends paid by a "pension held REIT" shall be treated as unrelated
business taxable income as to any trust which: is described in Section 401(a) of
the Code; is tax-exempt under Section 501(a) of the Code; and holds more than
10%, by value, of the interests in a REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts." A REIT is a "pension held REIT" if: it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust, rather than by
the trust itself; and either at least one such qualified trust holds more than
25%, by value, of the interests in a REIT, or one or more such qualified trusts,
each of which owns more than 10%, by value, of the interests in a REIT, holds in
the aggregate more than 50%, by value, of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of: the unrelated business taxable income earned by
Home Properties, treating Home Properties as if it were a qualified trust and
therefore subject to tax on unrelated business taxable income, to the total
gross income of Home Properties. A de minimis exception applies where the
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as unrelated business taxable
income will not apply if Home Properties is able to satisfy the "not closely
held" requirement without relying upon the "look-through" exception with respect
to qualified trusts. As a result of the limitations on the transfer and
ownership of stock contained in our articles of incorporation, we are not and do
not expect to be classified as a "pension held REIT."
Taxation Of Non-U.S. Stockholders
When we use the term "non-U.S. stockholders," we mean holders of shares of
common stock that are nonresident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts. The rules governing United
States federal income taxation of the ownership and disposition of stock by
persons that are non-U.S. stockholders are complex. No attempt is made in this
prospectus to provide more than a brief summary of these rules. Accordingly,
this discussion does not address all aspects of United States federal income tax
and does not address state, local or foreign tax consequences that may be
relevant to a non-U.S. stockholder in light of its particular circumstances. In
addition, this discussion is based on current law, which is subject to change,
and assumes that we qualify for taxation as a REIT. Prospective non- U.S.
stockholders should consult with their own tax advisers to determine the impact
of federal, state, local and foreign income tax laws with regard to an
investment in stock, including any reporting requirements.
Distributions. If we make a distribution that is not attributable to gain
from the sale or exchange of United States real property interests and is not
designated as capital gains dividends, then the distribution will be treated as
dividends of ordinary income to the extent it is made out of current or
accumulated earnings and profits. These distributions ordinarily will be subject
to withholding of United States federal income tax on a gross basis at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
However, if the dividends are treated as effectively connected with the conduct
by the non-U.S. stockholder of a United States trade or business, or if an
income tax treaty applies, as attributable to a United States permanent
establishment of the non-U.S. stockholder, the dividends will be subject to tax
on a net basis at graduated rates, in the same manner as domestic stockholders
are taxed with respect to such dividends and are generally not subject to
withholding. Such income must generally be reported on a U.S. income tax return
filed by or on behalf of the non-U.S. stockholder and any such dividends
received by a non-U.S. stockholder that is a corporation may also be subject to
an additional branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Under some treaties, lower
withholding rates generally applicable to dividends do not apply to dividends
from a REIT. Certification and disclosure requirements must be satisfied to be
exempt from withholding under the effectively connected income and permanent
establishment exemptions discussed above. Home Properties expects to withhold
U.S. income tax at the rate of 30% on any dividend distributions, not designated
as (or deemed to be) capital gain dividends, made to a non-U.S. stockholder
unless:
- a lower treaty rate applies and the non-U.S. stockholder files an
IRS Form W-8BEN evidencing eligibility for that reduced rate with Home
Properties; or
- the non-U.S. stockholder files an IRS Form W-8ECI with Home
Properties claiming that the distribution is effectively connected
income.
Distributions we make in excess of our current or accumulated earnings and
profits will not be taxable to a non-U.S. stockholder to the extent that they do
not exceed the adjusted basis of the stockholder's stock, but rather will reduce
the adjusted basis of such stock. To the extent that these distributions exceed
the adjusted basis of a non-U.S. stockholder's stock, they will give rise to
gain from the sale or exchange of his stock. The tax treatment of this gain is
described below. If our stock constitutes a "United States real property
interest" under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), Home Properties will be required to withhold at least 10% of any
distribution in excess of its current and accumulated earnings and profits.
However, a non-U.S. stockholder may seek a refund of these amounts.
Distributions to a non-U.S. stockholder that we designate at the time of
distribution as capital gains dividends, other than those arising from the
disposition of a "United States real property interest," generally will not be
subject to United States federal income taxation, unless: investment in the
stock is effectively connected with the non-U.S. stockholder's United States
trade or business, in which case the non-U.S. stockholder will be subject to the
same treatment as domestic stockholders with respect to such gain, except that a
stockholder that is a foreign corporation may also be subject to the 30% branch
profits tax, as discussed above; or the non-U.S. stockholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains.
Distributions to a non-U.S. stockholder that are attributable to gain from
our sale or exchange of United States real property interests will cause the
non- U.S. stockholder to be treated as recognizing this gain as income
effectively connected with a United States trade or business. Non-U.S.
stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders, subject to a special alternative minimum tax in the case
of nonresident alien individuals. Also, this gain may be subject to a 30% branch
profits tax in the hands of a non-U.S. stockholder that is a corporation, as
discussed above. We are required to withhold 35% of any such distribution. That
amount is creditable against the non-U.S. stockholder's United States federal
income tax liability. We or any nominee (e.g., a broker holding shares in street
name) may rely on a certificate of non-foreign status on Form W-9 or
substantially similar form to determine whether withholding is required on gains
realized from the disposition of United States real property interests. A
domestic person who holds shares of common stock on behalf of a non-U.S.
stockholder will bear the burden of withholding, provided that we have properly
designated the appropriate portion of a distribution as a capital gain dividend.
Sale of Stock. If you are a non-U.S. stockholder and you recognize gain
upon the sale or exchange of shares of stock, the gain generally will not be
subject to United States taxation unless the stock constitutes a "United States
real property interest" within the meaning of FIRPTA. If we are a "domestically
controlled REIT," then the stock will not constitute a "United States real
property interest." A "domestically-controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock is
held directly or indirectly by non-U.S. stockholders. Because our shares of
stock are publicly traded, there is no assurance that we are or will continue to
be a "domestically-controlled REIT." Notwithstanding the foregoing, if you are a
non-U.S. stockholder and you recognize gain upon the sale or exchange of shares
of stock and the gain is not subject to FIRPTA, the gain will be subject to
United States taxation if: your investment in the stock is effectively connected
with a United States trade or business, or, if an income treaty applies, is
attributable to a United States permanent establishment; or you are a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and you have a "tax home" in the United States. In
this case, a nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.
If we are not or cease to be a "domestically-controlled REIT" whether gain
arising from the sale or exchange by a non-U.S. stockholder of shares of stock
would be subject to United States taxation under FIRPTA as a sale of a "United
States real property interest" will depend on whether the shares are "regularly
traded," as defined by applicable Treasury Regulations, on an established
securities market and on the size of the selling non-U.S. stockholder's interest
in our shares. If gain on the sale or exchange of shares of stock were subject
to taxation under FIRPTA, the non-U.S. stockholder would be subject to regular
United States income tax on this gain in the same manner as a U.S. stockholder
and the purchaser of the stock would be required to withhold and remit to the
IRS 10% of the purchase price. In addition in this case, non- U.S. stockholders
would be subject to any applicable alternative minimum tax, nonresident alien
individuals may be subject to a special alternative minimum tax and foreign
corporations may be subject to the 30% branch profits tax.
Backup Withholding Tax and Information Reporting. Backup withholding tax
generally is a withholding tax imposed at the rate of 28% on reportable
payments, as defined in Section 3406 of the Code, to persons that fail to
furnish the required information under the United States information reporting
requirements. Backup withholding tax and information reporting will generally
not apply to distributions paid to non-U.S. stockholders outside the United
States that are treated as: dividends subject to the 30%, or lower treaty rate,
withholding tax discussed above; capital gains dividends; or distributions
attributable to gain from our sale or exchange of United States real property
interests. As a general matter, backup withholding and information reporting
will not apply to a payment of the proceeds of a sale of stock by or through a
foreign office of a foreign broker. Information reporting, but not backup
withholding, will apply, however, to a payment of the proceeds of a sale of
stock by a foreign office of a broker that: is a United States person; derives
50% or more of its gross income for specific periods from the conduct of a trade
or business in the United States; or is a "controlled foreign corporation" for
United States tax purposes. Information reporting will not apply if the broker
has documentary evidence in its records that the holder is a non-U.S.
stockholder and other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of sale of stocks is subject to both backup withholding
and information reporting unless the stockholder certifies under penalties of
perjury that the stockholder is a non-U.S. stockholder, or otherwise establishes
an exemption. A non-U.S. stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
Tax Aspects Of The Operating Partnership
General. Substantially all of our investments will be held indirectly
through the Operating Partnership. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. We will include in our income our proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of our REIT taxable income. Moreover, for purposes of the REIT
asset tests, we will include our proportionate share of assets held by the
Operating Partnership. See "Taxation of Home Properties."
Entity Classification. Our interests in the Operating Partnership involve
special tax considerations, including the possibility of a challenge by the IRS
of the status of the Operating Partnership as a partnership, as opposed to an
association taxable as a corporation, for federal income tax purposes. If the
Operating Partnership were treated as an association, it would be taxable as a
corporation and therefore be subject to an entity-level tax on its income. In
such a situation, the character of our assets and items of gross income would
change and preclude us from satisfying the asset tests and possibly the income
tests (see "Taxation of Home Properties - Asset Tests" and "-Income Tests").
This, in turn, could prevent us from qualifying as a REIT unless we are eligible
for relief from the violation pursuant to relief provisions described above. See
"Taxation of Home Properties - Failure to Qualify" above for a discussion of the
effect of our failure to meet these tests for a taxable year. In addition, a
change in the Operating Partnership's status for tax purposes might be treated
as a taxable event. If so, we might incur a tax liability without any related
cash distributions.
Treasury Regulations that apply for tax period beginning on or after
January 1, 1997, provide that an "eligible entity" may elect to be taxed as a
partnership for federal income tax purposes. An eligible entity is a domestic
business entity not otherwise classified as a corporation and which has at least
two members. Unless it elects otherwise, an eligible entity in existence prior
to January 1, 1997, will have the same classification for federal income tax
purposes that it claimed under the entity classification Treasury Regulations in
effect prior to this date. In addition, an eligible entity which did not exist,
or did not claim a classification, prior to January 1, 1997, will be classified
as a partnership for federal income tax purposes unless it elects otherwise. The
Operating Partnership intends to claim classification as a partnership under
these regulations.
Even if the Operating Partnership is taxable as a partnership under these
Treasury Regulations, it could be treated as a corporation for federal income
tax purposes under the "publicly traded partnership" rules of Section 7704 of
the Code. A publicly traded partnership is a partnership whose interests trade
on an established securities market or are readily tradable on a secondary
market, or the substantial equivalent thereof. While units of the Operating
Partnership are not and will not be traded on an established trading market,
there is some risk that the IRS might treat the units held by the limited
partners of the Operating Partnership as readily tradable because, after any
applicable holding period, they may be exchanged for our common stock, which is
traded on an established market. A publicly traded partnership will be treated
as a corporation for federal income tax purposes unless at least 90% of such
partnership's gross income for a taxable year consists of "qualifying income"
under the publicly traded partnership provisions of Section 7704 of the Code.
"Qualifying income" under Section 7704 of the Code includes interest, dividends,
real property rents, gains from the disposition of real property, and certain
income or gains from the exploitation of natural resources. Therefore,
qualifying income under Section 7704 of the Code generally includes any income
that is qualifying income for purposes of the 95% gross income test applicable
to REITs. We anticipate that the Operating Partnership will satisfy the 90%
qualifying income test under Section 7704 of the Code and, thus, will not be
taxed as a corporation.
There is one significant difference, however, regarding rent received from
related party tenants. For a REIT, rent from a tenant does not qualify as rents
from real property if the REIT and/or one or more actual or constructive owners
of 10% or more of the REIT actually or constructively own 10% or more of the
tenant. See "Taxation of Home Properties - Income Tests." Under Section 7704 of
the Code, rent from a tenant is not qualifying income if a partnership and/or
one or more actual or constructive owners of 5% or more of the partnership
actually or constructively own 10% or more of the tenant.
Accordingly, we will need to monitor compliance with both the REIT rules
and the publicly traded partnership rules. The Operating Partnership has not
requested, nor does it intend to request, a ruling from the IRS that it will be
treated as a partnership for federal income tax purposes. In the opinion of
Nixon Peabody LLP, which is based on the provisions of the partnership agreement
of the Operating Partnership and on certain factual assumptions and
representations of Home Properties, the Operating Partnership has since its
formation and will continue to be taxed as a partnership rather than an
association taxable as a corporation. Nixon Peabody LLP's opinion is not binding
on the IRS or the courts.
Tax Allocations with Respect to the Properties. Under Section 704(c) of the
Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner so that the
contributing partner is charged with the "book-tax difference" associated with
the property at the time of the contribution. The book-tax difference with
respect to property that is contributed to a partnership is generally equal to
the difference between the fair market value of contributed property at the time
of contribution and the adjusted tax basis of the property at the time of
contribution. These allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed by way of contributions
of appreciated property, including some of the properties. Moreover, subsequent
to the formation of the Operating Partnership, additional persons have
contributed appreciated property to the Operating Partnership in exchange for
interests in the Operating Partnership.
The partnership agreement requires that these allocations be made in a
manner consistent with Section 704(c) of the Code. In general, limited partners
of the Operating Partnership who acquired their limited partnership interests
through a contribution of appreciated property will be allocated depreciation
deductions for tax purposes which are lower than these deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition of
any of the contributed assets which have a book-tax difference all income
attributable to the book-tax difference will generally be allocated to the
limited partners who contributed the property, and we will generally be
allocated only our share of capital gains attributable to appreciation, if any,
occurring after the time of contribution to the Operating Partnership. This will
tend to eliminate the book-tax difference over the life of the Operating
Partnership. However, the special allocation rules of Section 704(c) do not
always entirely eliminate the book-tax difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands of the Operating Partnership may
cause us to be allocated lower depreciation and other deductions. Possibly we
could be allocated an amount of taxable income in the event of a sale of these
contributed assets in excess of the economic or book income allocated to us as a
result of the sale. This may cause us to recognize taxable income in excess of
cash proceeds, which might adversely affect our ability to comply with the REIT
distribution requirements. See "Taxation of Home Properties - Annual
Distribution Requirements."
Basis in the Operating Partnership Interest. The adjusted tax basis in our
interest in the Operating Partnership generally will be equal to: the amount of
cash and the basis of any other property we contribute to the Operating
Partnership, increased by our allocable share of the Operating Partnership's
income and our allocable share of indebtedness of the Operating Partnership, and
reduced, but not below zero, by our allocable share of losses suffered by the
Operating Partnership, the amount of cash distributed to us and constructive
distributions resulting from a reduction in our share of indebtedness of the
Operating Partnership. If the allocation of our distributive share of the
Operating Partnership's loss exceeds the adjusted tax basis of our partnership
interest in the Operating Partnership, the recognition of this excess loss will
be deferred until such time and to the extent that we have adjusted tax basis in
our interest in the Operating Partnership. We will recognize taxable income to
the extent that the Operating Partnership's distributions, or any decrease in
our share of the indebtedness of the Operating Partnership, exceeds our adjusted
tax basis in the Operating Partnership. A decrease in our share of the
indebtedness of the Operating Partnership is considered a cash distribution.
Sale of Partnership Property. Generally, any gain realized by a partnership
on the sale of property held by the partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. However, under the REIT Requirements,
Home Properties' share as a partner of any gain realized by the Operating
Partnership on the sale of any property held as inventory or other property held
primarily for sale to customers in the ordinary course of a trade or business
will be treated as income from a prohibited transaction that is subject to a
100% penalty tax. See "Taxation of Home Properties." Such prohibited transaction
income will also have an adverse effect upon Home Properties' ability to satisfy
the income tests for REIT status. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction.
OTHER TAX CONSEQUENCES
State and Local Tax Considerations. We may be subject to state or local
taxation in various state or local jurisdictions, including those in which we
transact business and our stockholders may be subject to state or local taxation
in various state or local jurisdiction, including those in which they reside.
Our state and local tax treatment may not conform to the federal income tax
consequences discussed above. In addition, your state and local tax treatment
may not conform to the federal income tax consequences discussed above.
Consequently, you should consult your own tax advisors regarding the effect of
state and local tax laws on an investment in our shares.
Possible Federal Tax Developments. The rules dealing with federal income
taxation are constantly under review by the IRS, the Treasury Department and
Congress. New federal tax legislation or other provisions may be enacted into
law or new interpretations, rulings or Treasury Regulations could be adopted,
all of which could affect the taxation of Home Properties or of its
stockholders. No prediction can be made as to the likelihood of passage of any
new tax legislation or other provisions either directly or indirectly affecting
Home Properties or its stockholders. Consequently, the tax treatment described
herein may be modified prospectively or retroactively by legislative, judicial
or administrative action.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated May 9, 2006, UBS Securities LLC, acting as the sole
underwriter, has agreed to purchase from the selling stockholders, and the
selling stockholders have agreed to sell to the underwriter, 2,969,914 shares of
our common stock.
The underwriting agreement provides that the underwriter must buy all of
the shares if it buys any of them.
The shares of are offered subject to a number of conditions, including:
- receipt and acceptance of the shares by the underwriters; and
- the underwriters' right to reject orders in whole or in part.
In connection with this offering, the underwriter and securities dealers
may distribute prospectuses electronically.
We and the selling stockholders have agreed to indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
Commissions and Discounts
Shares of our common stock sold by the underwriter to the public will
initially be offered at the initial offering price set forth on the cover of
this prospectus. Any shares sold by the underwriter to securities dealers may be
sold at a discount of up to $____ per share from the initial public offering
price. Any of these securities dealers may resell any shares purchased from the
underwriter to other brokers or dealers at a discount of up to $____ per share
from the initial public offering price. If all the shares are not sold at the
initial public offering price, the underwriter may change the offering price and
the other selling terms.
Sales of shares made outside of the United States may be made by affiliates
of the underwriter.
Upon execution of the underwriting agreement, the underwriter will be
obligated to purchase the shares at the price and upon the terms stated therein,
and, as a result, will thereafter bear any risk associated with changing the
offering price to the public or other selling terms.
The following table shows the per share and total underwriting discounts
and commissions the selling stockholders will pay to the underwriter:
Underwriting
Discounts
Per share ....................... $
Total ........................... $
The total expenses of the offering payable by the Company will be approximately
$175,100.
No Sales of Similar Securities
We, each of our directors and certain officers have agreed with the
underwriter not to, without the prior written approval of UBS Securities LLC,
subject to certain permitted exceptions, offer, sell, contract to sell or
otherwise dispose of or hedge shares or securities convertible into or
exercisable or exchangeable for our shares. These restrictions will be in effect
for a period of (i) 45 days in the case of the Company, and (ii) 10 days in the
case of our directors and officers, in each case after the date of this
prospectus. At any time and without public notice, UBS Securities LLC may
release us or any of directors and officers from this lock-up agreement.
The 45-day lock-up period applicable to the Company may be extended for up
to 37 additional days under certain circumstances where we announce or
pre-announce earnings or material news or a material event within approximately
18 days prior to, or approximately 16 days after, the termination of the 45-day
period.
New York Stock Exchange Listing
Our shares are listed on the New York Stock Exchange under the symbol
"HME ".
Price Stabilization, Short Positions
In connection with this offering, the underwriter may engage in activities
that stabilize, maintain or otherwise affect the price of our shares including:
- stabilizing transactions;
- short sales;
- purchases to cover positions created by short sales;
- imposition of penalty bids; and
- syndicate covering transactions.
Stabilizing transactions consist of bids or purchases made for the purpose
of preventing or retarding a decline in the market price of our shares while
this offering is in progress. These transactions may also include making short
sales of our shares, which involves the sale by the underwriter of a greater
number of shares than it is required to purchase in this offering, and
purchasing shares on the open market to cover positions created by short sales.
Short sales may be "naked" shorts.
Naked short sales are sales in excess of total shares offered by the
selling stockholders under this prospectus. The underwriter must close out any
naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriter is concerned there may
be downward pressure on the price of shares in the open market after pricing
that could adversely affect investors who purchase in this offering.
As a result of these activities, the price of our shares may be higher than
the price that otherwise might exist in the open market. If these activities are
commenced, they may be discontinued by the underwriters at any time. The
underwriter may carry out these transactions on the New York Stock Exchange, in
the over-the-counter market or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy reports, statements or other
information at the SEC's public reference facilities in Washington D.C., at 450
Fifth Street, N.W., Washington D.C. 20544 and at the SEC's regional offices in
New York, 233 Broadway, New York, New York 10279 and Chicago, 175 W. Jackson
Boulevard, Suite 900, Chicago, Illinois 60604. Please call the SEC at
1-800-SEC-0330 for further information on the public reference facilities. Our
SEC filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at http://www.sec.gov. You
can also review copies of our SEC filings at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-3 to register
the securities. This prospectus is part of that registration statement and, as
permitted by the SEC's rules, does not contain all the information set forth in
the registration statement. For further information you may refer to the
registration statement and to the exhibits and schedules filed as part of the
registration statement. You can review and copy the registration statement and
its exhibits and schedules at the public reference facilities maintained by the
SEC as described above. The registration statement, including its exhibits and
schedules, is also available on the SEC's web site.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information that we file with
the SEC later will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"):
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2005;
- Our Current Report of Form 8-K, filed on March 27, 2006;
- Our proxy statement for the 2006 Annual Meeting of Stockholders;
- Our Current Report on Form 8-K, filed on April 13, 2006;
- The description of our common stock contained in our registration
statement on Form 8-A filed under Section 12 of the Exchange Act,
including all amendments and reports filed for the purpose of updating
that description; and
- Our Quarterly Report on Form 10-Q, filed on May 8, 2006.
You may request a copy of these filings, at no cost, by writing or
telephoning us at: Home Properties, Inc., Attention: Ann M. McCormick,
Secretary, 850 Clinton Square, Rochester, New York 14604; telephone number (585)
546-4900.
EXPERTS
The financial statements and management's assessment of the effectiveness
of internal control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting) incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 2005 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
The audited historical financial statements of Peppertree Farm and Cinnamon
Run included in Home Properties Inc.'s Current Report on Form 8-K dated
April 13, 2006 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by Nixon
Peabody LLP, Rochester, New York. Certain partners of Nixon Peabody LLP own
Units equal to less than 1% of the equity of Home Properties on a fully diluted
basis. Nixon Peabody LLP has also provided an opinion with respect to certain
tax matters which form the basis of the discussion under the heading "Federal
Income Tax Considerations." Certain matters will be passed upon for the
underwriters by their counsel, Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table is an itemized listing of expenses to be incurred by Home
Properties in connection with the registration and distribution of the shares of
common stock being registered hereby:
SEC Registration Fee ........................... $15,828.66
NYSE Listing Fee ........................... 14,256.00*
Legal Fees and Expenses .................... 40,000.00*
Accounting Fees and Expenses ............... 100,000.00*
Miscellaneous .............................. 5,000.00*
---------------
Total ................................ $ 175,084.66*
*Estimate
Item 15. Indemnification of Directors and Officers
Our officers and directors are and will be indemnified under Maryland law,
our Articles of Incorporation and the Partnership Agreement ("Operating
Partnership Agreement") of Home Properties, L.P., a New York limited partnership
of which we are the general partner, against certain liabilities. The Articles
of Incorporation require us to indemnify our directors and officers to the
fullest extent permitted from time to time by the laws of Maryland. The Bylaws
contain provisions which implement the indemnification provisions of the
Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that the act
or omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. No amendment of our Articles of Incorporation shall
limit or eliminate the right to indemnification provided with respect to acts or
omissions occurring prior to such amendment or repeal. Maryland law permits us
to provide indemnification to an officer to the same extent as a director,
although additional indemnification may be provided if such officer is not also
a director.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions. The MGCL does not however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent that
(1) it is proved that the person actually received an improper benefit or profit
in money, property or services (to the extent such benefit or profit was
received) or (2) a judgment or other final adjudication adverse to such person
is entered in a proceeding based on a finding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Our Articles of
Incorporation contain a provision consistent with the MGCL. No amendment of the
Articles of Incorporation shall limit or eliminate the limitation of liability
with respect to acts or omissions occurring prior to such amendment or repeal.
The Operating Partnership Agreement also provides for indemnification of us
and our officers and directors to the same extent indemnification is provided to
officers and directors of Home Properties in its Articles of Incorporation, and
limits the liability of us and our officers and directors to the Operating
Partnership and its partners to the same extent liability of officers and
directors of Home Properties to Home Properties and its stockholders is limited
under our Articles of Incorporation.
We have entered into indemnification agreements with each of our directors
and certain of our officers. The indemnification agreements require, among other
things, that we indemnify our directors and those officers to the fullest extent
permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. We also must indemnify and advance all
expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements, and cover directors and officers under our
directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Articles of Incorporation and the Bylaws and the
Operating Partnership Agreement of the Operating Partnership, it provides
greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or by the stockholders to eliminate the rights
it provides. We have purchased insurance under a policy that insures both us and
our officers and directors against exposure and liability normally insured
against under such policies, including exposure on the indemnities described
above.
Item 16. Exhibits
1.1 Underwriting Agreement among UBS Investment Bank, Home Properties, Inc. and
the Selling Stockholders *
5.1 Opinion of Nixon Peabody LLP as to legality of Common Stock**
8.1 Opinion of Nixon Peabody LLP as to certain tax matters**
23.1 Consent of Nixon Peabody LLP (included as part of Exhibits 5.1 and 8.1)
23.2 Consent of PricewaterhouseCoopers LLP**
24 Power of Attorney (included on signature page)
* To be filed as an exhibit to a Current Report on Form 8-K and incorporated
herein by reference.
** Included with this filing.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for the purpose of determining liability under the Securities Act
of 1933 to any purchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the
registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information required by
section 10(a) of the Securities Act of 1933 shall be deemed to be part
of and included in the registration statement as of the earlier of the
date such form of prospectus is first used after effectiveness or the
date of the first contract of sale of securities in the offering
described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of
the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such
effective date.
That, for purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rochester, New York, on May 9, 2006.
HOME PROPERTIES, INC.
By: /s/ Edward J. Pettinella
Edward J. Pettinella
President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Edward J. Pettinella,
David P. Gardner and Ann M. McCormick, and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to the Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto such attorney-in-fact and agents, and each of them, full power and
authority to do and person each and every act and thing requisite or necessary
that he might do in person, hereby ratifying and confirming all that each said
attorneys-in-fact and agents of any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Edward J. Pettinella Director, President, Chief Executive May 9, 2006
Edward J. Pettinella Officer
(Principal Executive Officer)
/s/ David P. Gardner Executive Vice President, Chief May 9, 2006
David P. Gardner Financial Officer
(Principal Financial Officer)
/s/ Robert J. Luken Senior Vice President, Chief May 9, 2006
Robert J. Luken Accounting Officer
(Principal Accounting Officer)
/s/ Norman P. Leenhouts Director May 9, 2006
Norman P. Leenhouts
/s/ Nelson B. Leenhouts Director May 9, 2006
Nelson B. Leenhouts
/s/ William Balderston, III Director May 9,2006
William Balderston, III
/s/ Josh E. Fidler Director May 9, 2006
Josh E. Fidler
/s/ Alan L. Gosule Director May 9, 2006
Alan L. Gosule
/s/ Leonard F. Helbig, III Director May 9, 2006
Leonard F. Helbig, III
/s/ Roger W. Kober Director May 9, 2006
Roger W. Kober
/s/ Clifford W. Smith, Jr. Director May 9, 2006
Clifford W. Smith, Jr.
/s/ Paul L. Smith Director May 9, 2006
Paul L. Smith
/s/ Thomas S. Summer Director May 9, 2006
Thomas S. Summer
/s/ Amy L. Tait Director May 9, 2006
Amy L. Tait
EXHIBIT INDEX
Home Properties, Inc.
(the "Company")
Registration Statement on Form S-3 No. 333-127658
NUMBER DESCRIPTION LOCATION
1.1 Underwriting Agreement among UBS Investment Bank, Home *
Properties, Inc. and the Selling Stockholders
5.1 Opinion of Nixon Peabody LLP regarding the legality **
of the Common Stock being registered
8.1 Opinion of Nixon Peabody LLP regarding certain tax matters **
23.1 Consent of Nixon Peabody LLP Included with
Exhibits 5.1
and 8.1
23.2 Consent of PricewaterhouseCoopers LLP **
24 Power of Attorney Included on
signature page
* To be filed as an exhibit to a Current Report on Form 8-K and incorporated herein by reference.
** Filed herewith.