UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HOME PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
16-1455126
(I.R.S. Employer Identification 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)
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
(Names, addresses, including zip codes, and telephone numbers, including
area codes, of agents for service)
Copies to:
Deborah J. McLean, Esq.
Nixon Peabody LLP
1300 Clinton Square
Rochester, New York 14604
(585) 263-1307
Facsimile (866) 947-0724
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Approximate date of commencement of proposed sale to public: From time to time
after the effective date of this Registration Statement.
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
====================================================================================================================================
Proposed
Proposed Maximum Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration Fee
Securities to be Registered be Registered (1)(2) Per Unit or Share(1) Offering Price (1) (1)
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Common Stock, $.01 par value per share - - - -
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Preferred Stock, $.01 par value per share - - - -
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Debt Securities - - - -
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Total (1) $42,595.56
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(1) An unspecified aggregate initial offering price or number of the securities
of each identified class is being registered as may from time to time be offered
at unspecified prices. The securities registered also include such unspecified
amounts and numbers of common stock, preferred stock and debt securities as may
be issued upon conversion of or exchange for preferred stock or debt securities
that provide for conversion or exchange or pursuant to the antidilution
provisions of any such securities and as may be issued in exchange for units of
limited partnership. Separate consideration may or may not be received for
securities that are issuable on exercise, conversion or exchange of other
securities or that are issued in units. In accordance with Rules 456(b) and
457(r) under the Securities Act, Home Properties, Inc. is deferring payment of
all of the registration fee, except for $42,595.56 that has already been paid
with respect to $144,391,732 aggregate initial offering price of securities that
were previously registered pursuant to Registration Statement No. 333-52601,
which was filed on May 14, 1998, and were not sold thereunder. Pursuant to Rule
457(p) under the Securities Act, such unutilized filing fee may be applied to
the filing fee payable pursuant to this registration statement.
(2) Any securities registered hereunder may be sold separately or as units
comprised of more than one type of securities registered hereunder.
PROSPECTUS
Common Stock
Preferred Stock
Debt Securities
We may offer and sell the securities listed above from time to time, together or
separately, in one or more classes or series, in amounts, at prices and on terms
that we will determine at the time of offering. We will provide the specific
terms of any securities we actually offer for sale in supplements to this
prospectus. Certain of our shares of common stock may also be offered and sold
from time by selling security holders on terms described in the applicable
prospectus supplement.
This prospectus describes some of the general terms that may apply to the
securities we or our selling securities holders may offer or sell from time to
time. We will provide prospectus supplements and other materials at later dates
which will contain the specific terms of that issuance of our securities. You
should read this prospectus and the accompanying prospectus supplement carefully
before you purchase any of our securities. THIS PROSPECTUS MAY NOT BE USED TO
SELL SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
We may offer and sell the securities directly to you, through agents we select,
or through underwriters or dealers we select. If we use agents, underwriters or
dealers to sell the securities, we will name them and describe their
compensation in a prospectus supplement. The net proceeds we expect to receive
from such sales will be set forth in the prospectus supplement.
If this prospectus is used by selling securities holders, they may offer or sell
the shares of common stock they own in the same manner as our sales or as
described in the applicable prospectus supplement. We will not receive any
proceeds from the sale of our common stock by selling securities holders.
Our common stock is listed on the New York Stock Exchange under the symbol
"HME ".
________________
Investing in our securities involves various risks. See "Risk Factors"
beginning on page 1.
________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
________________
The date of the prospectus is April 4, 2007.
TABLE OF CONTENTS
Page
HOME PROPERTIES...............................................................1
RISK FACTORS..................................................................1
ABOUT THIS PROSPECTUS.........................................................1
WHERE YOU CAN FIND MORE INFORMATION...........................................2
USE OF PROCEEDS...............................................................3
RATIO OF EARNINGS TO FIXED CHARGES............................................3
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS.....4
DESCRIPTION OF CAPITAL STOCK..................................................4
DESCRIPTION OF DEBT SECURITIES...............................................12
FEDERAL INCOME TAX CONSIDERATIONS............................................19
OTHER TAX CONSEQUENCES.......................................................35
PLAN OF DISTRIBUTION.........................................................35
EXPERTS......................................................................37
LEGAL MATTERS................................................................37
References to "Home Properties," "we" or "us" in this prospectus mean,
unless the context otherwise requires, Home Properties, Inc., a Maryland
corporation, Home Properties, L.P., a New York limited partnership (the
"Operating Partnership"), and their subsidiaries.
HOME PROPERTIES
Home Properties is a self-administered and self-managed real estate
investment trust, a REIT. We own, operate, acquire, develop and rehabilitate
apartment communities. Our properties are regionally focused primarily in select
Northeast, Mid-Atlantic and southeast Florida markets of the United States. We
were formed in November 1993.
We conduct our business through Home Properties, L.P., which we refer to as
the Operating Partnership, a New York limited partnership, and a management
company, Home Properties Residential Services, Inc., a Maryland corporation. We
held a 71.4% partnership interest as of December 31, 2006. (We calculated our
interest as a percentage of our outstanding shares of common stock divided by
the total number of outstanding shares of common stock and limited partnership
units in the Operating Partnership).
As of December 31, 2006, we operated 127 communities with 31,136 apartment
units. Of these, 36,954 units in 123 communities are owned outright and 868
units in one community are managed and partially owned by us as general partner,
and 1,314 units in three communities are managed for other owners.
Our principal executive offices are located at 850 Clinton Square,
Rochester, New York 14604. Our telephone number is (585) 246-4900.
RISK FACTORS
Our business is subject to uncertainties and risks. Please carefully
consider the risk factors described in our periodic reports filed with the
Securities and Exchange Commission, including the risk factors incorporated by
reference from our most recent annual report on Form 10-K, as updated by our
quarterly reports on Form 10-Q, as well as other information we include or
incorporate by reference in this prospectus. See "Where You Can Find More
Information" below. The prospectus supplement with respect to any securities
issued under this prospectus may also disclose additional risk factors.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. The risk
factors we describe contain or refer to certain forward-looking statements. You
should review the explanation of the limitations of forward-looking statements
contained in the "Special Note Regarding Forward-Looking Statements."
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement filed by us with the
Securities and Exchange Commission, or SEC. You should read this prospectus
together with the applicable prospective supplement and 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, no selling shareholder has, and no underwriter has
authorized anyone else to provide you with different or additional information.
We or any selling securities holders 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 SEC 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, warranties 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.
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 of 1933, and Section 21E of the Securities Exchange Act of 1934.
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:
o general economic and local real estate conditions and the weather,
o other conditions that might affect operating expenses,
o timely completion of repositioning activities and development within
anticipated budgets,
o the actual pace of future acquisitions, sales and developments, and
o 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. You 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 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 into, this prospectus are made only as of the date of
this prospectus, or the documents from which they are incorporated, and we
undertake no obligation to update these forward looking statements to reflect
new information, future events, or other matters.
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
100 F Street, N.E., Washington D.C. 20549. You may 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. We will also file and
distribute a prospectus supplement with respect to any securities we, or a
selling securities holder, may sell under the registration statement. This
prospectus must be read with the applicable prospectus supplement.
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") (other than, in each case, documents or information
deemed to have been furnished and not filed in accordance with SEC rules):
o Our annual report on Form 10-K for the year ended December 31, 2006;
o Current Reports on Form 8-K filed February 16, 2007 and March 15,
2007;
o Our definitive proxy statement dated April 2, 2007 and filed with the
SEC on March 27, 2007; and
o The description of the common stock set forth in our registration
statement on Form 8-A, dated June 8, 1994 including all amendments and
reports filed for the purpose of updating that description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at: Home Properties, Inc., Attention: Shareholder Services, 850
Clinton Square, Rochester, New York 14604; telephone number (585) 546-4900.
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement, we intend to use the
net proceeds from the sale of the securities offered by this prospectus and any
accompanying prospectus supplement for general corporate purposes, which may
include the repayment of indebtedness, working capital, capital expenditures,
acquisitions and the repurchase of shares of our equity securities. Pending use
for these purposes, we may invest proceeds from the sale of the securities in
short-term marketable securities. The precise amount and timing of sales of any
securities will be dependent on market conditions and the availability and cost
of other funds to us.
If selling securities holders make offers and sales pursuant to this
prospectus and an applicable prospectus supplement, we will not receive any of
the proceeds of that offering. We will incur certain expenses in connection with
the registration with the SEC of the securities to be sold by the selling
securities holders and preparation of the applicable prospectus supplement
pursuant to the terms of certain agreements we made with those securities
holders at the time they acquired their securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
each of the periods indicated. For purposes of calculating this ratio, earnings
consist of income (loss) before income taxes, plus fixed charges, less
capitalized interest. Fixed charges include interest expense (including the
amortization of debt issuance costs), the portion of rent expense representative
of the interest factor, and capitalized interest.
Year Ended December 31,
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2002 2003 2004 2005 2006
---- ---- ---- ---- ----
1.56x 1.44x 1.37x 1.29x 1.32x
Additional information regarding the calculation of the ratio of earnings
to fixed charges is contained in the "Statement of calculation of the ratio of
earnings to fixed charges" filed as Exhibit 12.1 to the registration statement
of which this prospectus forms a part. See "Where you can find more information"
above.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our ratio of earnings to combined fixed
charges and preferred stock dividends for each of the periods indicated is as
follows:
Year Ended December 31,
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2002 2003 2004 2005 2006
---- ---- ---- ---- ----
1.31x 1.27x 1.27x 1.22x 1.26x
The ratios of earnings to combined fixed charges and preferred stock
dividends were computed by dividing earnings by combined fixed charges and
preferred stock dividends. For this purpose, earnings consist of pre-tax income
from continuing operations before adjustment for minority interests in
consolidated subsidiaries plus fixed charges less capitalized interest. Fixed
charges consist of interest expense (including the amortization of debt issuance
costs) , the portion of rent expense representative of the interest factor, and
capitalized interest.
During the five year period covered by the table above, the following series of
our preferred stock of were outstanding until their redemption, as noted below:
o 2,000,000 shares of 8.36% Series B convertible cumulative preferred
stock were issued in September 1999, of which 1,000,000 were converted
into 839,771 shares of common stock in February 2002. The remaining
1,000,000 were repurchased by the Company in May 2002 at an amount
equivalent to 839,772 shares of common stock (as if the preferred
shares had been converted);
o 600,000 shares of 8.75% Series C convertible cumulative preferred
stock were issued in May and June of 2000, all of which were converted
into 1,983,471 shares of common stock in during 2003;
o 250,000 shares of 8.78% Series D convertible cumulative preferred
stock were issued in June 2000, all of which were converted into
833,333 shares of common stock in May 2005;
o 300,000 shares of 8.55% Series E convertible cumulative preferred
stock were issued in December 2000, of which 63,200 were converted
into 200,000 shares of common stock in August 2002; in May 2003 and
August 2003, 36,800 and 200,000 were converted into 116,456 and
632,911 shares of common stock, respectively; and,
o 2,400,000 shares of 9.00% Series F cumulative redeemable preferred
stock were issued in March 2002, all of which were redeemed in March
2007.
Additional information regarding the calculation of the ratio of earnings
to combined fixed charges and preferred stock dividends is contained in the
"Statement of calculation of the ratio of earnings to combined fixed charges and
preferred stock dividends" filed as Exhibit 12.2 to the registration statement
of which this prospectus forms a part. See "Where you can find more information"
above.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Home Properties consists of:
o 80 million shares of common stock, $0.01 par value, of which
33,198,569 shares were outstanding on March 31, 2007;
o 10 million shares of preferred stock, $0.01 par value, none of which
were outstanding as of March 31, 2007.
o 10 million shares of "excess stock," $0.01 par value, none of which
were outstanding on March 31, 2007.
For more detail about our Articles of Amendment and Restatement of Articles
of Incorporation (sometimes 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
General
All of the shares of common stock offered by this prospectus will be duly
authorized, fully paid, and nonassessable when issued. Holders of the common
stock have no conversion, redemption, sinking fund or preemptive rights;
however, shares of common stock in excess of certain ownership limits
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.
Distributions
Subject to the right of holders of Preferred Stock outstanding from time to
time to receive preferential distributions, holders of shares of common stock
are entitled to receive distributions in the form of dividends if and when
declared by our Board of Directors out of funds legally available for that
purpose, and, upon liquidation of Home Properties, 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 our 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.
Voting Rights
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.
Restrictions on Ownership
In order for us to maintain our status as a REIT under the Code, there are
restrictions on the concentration of ownership of our capital stock. See the
description under "Excess Stock - Ownership Limits" below.
Preferred Stock
General
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.
Terms
We will include in the prospectus supplement relating to any offering of a
series of preferred stock the specific terms of that series, including:
o its title and stated value;
o the number of shares of preferred stock offered, the liquidation
preference per share, if applicable, and the offering price;
o the applicable dividend rate or amount, period and payment date or
method of calculation thereof;
o the date from which dividends on that series preferred stock shall
accumulate, if applicable;
o any procedures for auction and remarketing;
o any provision for a sinking fund;
o any applicable provision for redemption of that series of preferred
stock;
o the terms of any preference of the offered series of preferred stock
over other capital stock in the payment of distributions or upon our
liquidation;
o the terms and conditions of conversion into common stock or any other
of securities, including the conversion price or rate or manner of
calculation thereof;
o the relative ranking and preference as to dividend rights and rights
upon our liquidation, dissolution or the winding up of our affairs;
o any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with such series of preferred stock as to
dividend rights and rights upon our liquidation, dissolution or the
winding up of our affairs;
o any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as
a REIT; and
o any other specific terms, preferences, rights, limitations or
restrictions.
Excess Stock
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
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 shares of our 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%, referred to as
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. Certain holders are accepted from the Ownership Limit in our charter.
Others may be accepted by action of our Board of Directors.
Our Board of Directors may increase or decrease the Ownership 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 as a result of a decrease. The Board of Directors may waive the
Ownership 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 prior sales of our
certain series of our Preferred Stock, none of which are currently outstanding.
Any transfer of our outstanding capital stock that would:
o cause any holder, directly or by attribution, to own capital stock
having a value in excess of the Ownership Limit,
o result in shares of capital stock other than Excess Stock, if any, to
be owned by fewer than 100 persons,
o result in our being closely held within the meaning of section 856(h)
of the Code, or
o 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 capital stock.
Conversion to Excess Shares
Outstanding stock owned by or attributable to a stockholder or shares
purportedly transferred to a holder which cause such holder or any other holder
to own shares of capital stock in excess of the Ownership Limit automatically
convert into shares of Excess Stock. Upon issuance, Excess Stock is transferred
by operation of law to a separate trust, with Home Properties acting as trustee,
for the exclusive benefit of the person to whom such outstanding stock may be
ultimately transferred without violating the Ownership 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 is not entitled to vote, is not considered for purposes of any stockholder
vote or the determination of a quorum for such vote and is not entitled to
participate in dividends or other distributions. Any record owner or purported
transferee of stock which has converted into Excess Stock who receives a
distribution prior to our discovery that such stock has been converted into
Excess Stock must repay such dividend or distribution upon demand.
Repurchase Right with Respect to Excess Stock
While Excess Stock is held in trust, we will have the right to purchase it
from the trust for the lesser of:
o 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
o 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.
Effect of Liquidation
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.
Other Terms of Excess Stock
Our Articles of Incorporation contain other terms relating to Excess Stock,
which are incorporated herein by reference.
Antitakover Effect of Ownership Limits
The ownership and transfer limitations contained in our Articles of
Incorporation in order to permit us to preserve our REIT status, 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 ownership restrictions. The
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.
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 our board of
directors will set the number of directors, 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, 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, and until their respective successors are duly elected and
qualified. Holders of shares of our common stock 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 are able to elect all of the members
of our board of directors. 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.
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 is 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.
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:
o 80% of the votes entitled to be cast by holders of the then
outstanding shares of common stock; and
o 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 exclude 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.
Unsolicited Takeovers
The MGCL permits a Maryland corporation with a class of equity securities
registered under the Securities and Exchange Act of 1934 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 adopted, amended, altered or repealed by the board of directors.
Dissolution of Our Company
The dissolution of Home Properties 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 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.
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of debt securities sets forth
certain general terms and provisions of any future issues of debt securities to
which any prospectus supplement may relate. This prospectus and a prospectus
supplement relating thereto will also cover the offer and resale of shares of
common stock by the holders of our $200 million of 4.125% Exchangeable Senior
Notes due November 1, 2026. The Operating Partnership issued these notes on
October 24, 2006 pursuant to an Indenture, between Home Properties, the
Operating Partnership and Wells Fargo Bank, N.A., as trustee. Subject to the
terms of the Indenture, holders may exchange the notes at certain times and upon
the occurrence of certain events for cash in the principal amount and, at the
option of the Operating Partnership, cash or shares of Home Properties common
stock for the exchange value in excess of the principal amount of the notes. We
agreed to register on or before April 22, 2007 the shares of common stock which,
at the option of the Operating Partnership, may be issued upon exchange of the
notes for all or a portion of their exchange value in excess of the principal
amount. We will file a prospectus supplement to provide certain information
about the noteholders before that date. The particular terms of other debt
securities offered by any prospectus supplement and the extent, if any, to which
such general provisions may apply to the debt securities so offered will be
described in a prospectus supplement relating to such debt securities.
Indenture for Future Debt Securities
Future series of debt securities are to be issued in one or more series
under an Indenture, a copy of which is incorporated by reference and is an
exhibit to the registration statement of which this prospectus forms a part, as
amended or supplemented by one or more supplemental indentures (the
"Indenture"), to be entered into between the Company and a financial institution
as Trustee (the "Trustee"). The statements herein relating to the debt
securities and the Indenture are summaries and are subject to the detailed
provisions of the applicable Indenture. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Indenture, including the definitions therein of certain terms capitalized in
this Prospectus.
The Indenture, under which we will issue future series of debt securities,
does not limit the aggregate amount of debt securities which may be issued
thereunder, nor does it limit the incurrence or issuance of other secured or
unsecured debt of the Company.
General Obligations
The debt securities will be our unsecured general obligations and will rank
with all of our other unsecured and unsubordinated obligations as described in
the applicable prospectus supplement. The Indenture provides that the debt
securities may be issued from time to time in one or more series. We will
authorize the issuance and provide for the terms of any series of debt
securities pursuant to a supplemental indenture.
General Terms
The prospectus supplement relating to a particular series of debt
securities which we are offering will describe the terms of such debt
securities, including, where applicable:
(1) the specific designation of such debt securities;
(2) any limit upon the aggregate principal amount of such debt securities;
(3) the date or dates on which the principal of and premium, if any, on
such debt securities will mature or the method of determining such
date or dates;
(4) the rate or rates (which may be fixed, variable or zero) at which such
debt securities will bear interest, if any, or the method of
calculating such rate or rates;
(5) the date or dates from which interest, if any, will accrue or the
method by which such date or dates will be determined;
(6) the date or dates on which interest, if any, will be payable and the
record date or dates therefor;
(7) the place or places where principal of, premium, if any, and interest,
if any, on such debt securities may be redeemed, in whole or in part,
at the option of the Company;
(8) the obligation, if any, of the Company to redeem or purchase such debt
securities pursuant to any sinking fund or analogous provisions or
upon the happening of a specified event and the period or periods
within which, the price or prices at which and the other terms and
conditions upon which, such debt securities shall be redeemed or
purchased, in whole or in part, pursuant to such obligations;
(9) the denominations in which such debt securities are authorized to be
issued;
(10) the currency or currency unit for which debt securities may be
purchased or in which debt securities may be denominated and/or the
currency or currencies (including currency unit or units) in which
principal of, premium, if any, and interest, if any, on such debt
securities will be payable and whether the Company or the holders of
any such debt securities may elect to receive payments in respect of
such debt securities in a currency or currency unit other than that in
which such debt securities are stated to be payable;
(11) if the amount of payments of principal of and premium, if any, or any
interest, if any, on such debt securities may be determined with
reference to an index based on a currency or currencies other than
that in which such debt securities are stated to be payable, the
manner in which such amount shall be determined;
(12) if the amount of payments of principal of and premium, if any, or
interest, if any, on such debt securities may be determined with
reference to changes in the prices of particular securities or
commodities or otherwise by application of a formula, the manner in
which such amount shall be determined;
(13) if other than the entire principal amount thereof, the portion of the
principal amount of such debt securities which will be payable upon
declaration of the acceleration of the maturity thereof or the method
by which such portion shall be determined;
(14) if the debt securities are convertible into any other securities
including any class of out equity securities;
(15) the person to whom any interest on any such debt security shall be
payable if other than the person in whose name such debt security is
registered on the applicable record date;
(16) any addition to, or modification or deletion of, any Event of Default
or any covenant of the Company specified in the Indenture with respect
to such debt securities;
(17) the application, if any, of such means of defeasance as may be
specified for such debt securities; and
(18) any other special terms pertaining to such debt securities. Unless
otherwise specified in the applicable prospectus supplement, the debt
securities will not be listed on any securities exchange.
Unless otherwise specified in the applicable prospectus supplement, debt
securities will be issued only in fully registered form without coupons. Unless
the prospectus supplement relating thereto specifies otherwise, debt securities
will be denominated in U.S. dollars and will be issued only in denominations of
U.S. $1,000 and any integral multiple thereof.
Debt securities may be sold at a substantial discount below their stated
principal amount and may bear no interest or interest at a rate which at the
time of issuance is below market rates. Certain federal income tax consequences
and special considerations applicable to any such debt securities will be
described in the applicable prospectus supplement.
If the amount of payments of principal of and premium, if any, or any
interest on debt securities of any series is determined with reference to any
type of index or formula or changes in prices of particular securities or
commodities, the federal income tax consequences, specific terms and other
information with respect to such debt securities and such index or formula and
securities or commodities will be described in the applicable prospectus
supplement.
If the principal of and premium, if any, or any interest on debt securities
of any series are payable in a foreign or composite currency, the restrictions,
elections, federal income tax consequences, specific terms and other information
with respect to such debt securities and such currency will be described in the
applicable prospectus supplement.
Change of Control Provisions
The prospectus supplement with respect to any particular series of debt
securities being offered thereby which provide for optional redemption,
prepayment or conversion of such debt securities on the occurrence of certain
event, such as a change of control of the Company, will provide:
(1) a description of any other securities into which the debt securities
may be converted at the option of the holder or us and a discussion of
any rights the holder of the debt securities or any other securities
into which the debt securities may be converted to have such
securities registered for resale or issuance upon conversion or listed
on any national securities exchange;
(2) a discussion of the effects that such provisions may have in deterring
certain mergers, tender offers or other takeover attempts, as well as
any possible adverse effect on the market price of the Company's
securities or the ability to obtain additional financing in the
future;
(3) a statement the Company will comply with any applicable provisions of
the requirements of Rule 14e-1 under the Securities Exchange Act of
1934 and any other applicable securities laws in connection with any
optional redemption, prepayment or conversion provisions and any
related offers by the Company (including, if such debt securities are
convertible, Rule 13e-4);
(4) disclosure of any cross-defaults in other indebtedness which may
result as a consequence of the occurrence of certain events so that
the payments on such debt securities would be effectively
subordinated;
(5) disclosure of effect of any failure to repurchase under the applicable
Indenture, including in the event of a change of control of the
Company;
(6) disclosure of any risk that sufficient funds may not be available at
the time of any event resulting in a repurchase obligation; and
(7) discussion of any definition of "change of control" contained in the
applicable Indenture.
Payment, Registration, Transfer and Exchange
Unless otherwise provided in the applicable prospectus supplement, payments
in respect of the debt securities will be made in the designated currency at our
office or agency maintained for that purpose we designate from time to time,
except that, at our option, interest payments, if any, on debt securities in
registered form may be made by checks mailed to the holders of debt securities
entitled thereto at their registered addresses. Unless otherwise indicated in an
applicable prospectus supplement, payment of any installment of interest on debt
securities in registered form will be made to the person in whose name such debt
security is registered at the close of business on the regular record date for
such interest.
Unless otherwise provided in the applicable prospectus supplement, debt
securities in registered form will be transferable or exchangeable at the agency
of the Company maintained for such purpose as designated by the Company from
time to time, debt securities may be transferred or exchanged without service
charge, other than any tax or other governmental charge imposed in connection
therewith.
Consolidation, Merger or Sale by the Company
Under the terms of the Indenture, Home Properties may not be consolidated
with or merge into any other corporation or transfer or lease its assets
substantially as an entirety, unless (i) the corporation formed by such
consolidation or into which we are merged or the corporation which acquires its
assets is organized in the United States and expressly assumes all of our
obligations under the debt securities and all Indentures and (ii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing. Upon any such consolidation, merger or
transfer, the successor corporation formed by such consolidation, or into which
we are merged or to which such sale is made shall succeed to, and be substituted
for Home Properties under the Indenture.
The Indenture contains no covenants or other specific provisions to afford
protection to holders of the debt securities in the event of a highly leveraged
transaction or a change in control, except to the limited extent described
above. Such covenants or provisions are not subject to waiver by our Board of
Directors without the consent of the holders of not less than a majority in
principal amount of the outstanding debt securities of each series affected by
the waiver as described under "Modification of the Indenture" below.
Events of Default, Notice and Certain Rights on Default
The Indenture provides that, if an Event of Default specified therein
occurs with respect to the debt securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding debt securities of that series, by written notice to us
(and to the Trustee for such series, if notice is given by such holders of debt
securities), may declare the principal of (or, if the debt securities of that
series are Original Issue Discount Securities, such portion of the principal
amount specified in the prospectus supplement) and accrued interest on all the
debt securities of that series to be immediately due and payable.
The Indenture provides that the Trustee will, subject to certain
exceptions, within a specified number of days after the occurrence of a Default
with respect to the debt securities of any series, give to the holders of the
debt securities of that series notice of all Defaults known to it unless such
Default shall have been cured or waived. "Default" means any event which is or
after notice or passage of time or both, would be an Event of Default.
The Indenture provides that the holders of a majority in aggregate
principal amount of the debt securities of each series affected (with each such
series voting as a class) may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee for such series, or
exercising any trust or power conferred on such Trustee.
The Indenture includes a covenant that Home Properties will file annually
with the Trustee a certificate as to our compliance with all conditions and
covenants of the Indenture.
The holders of a majority in aggregate principal amount of any series of
debt securities by notice to the Trustee may waive on behalf of the holders of
all debt securities of such series, any past Default or Event of Default with
respect to that series and its consequences, except a Default or Event of
Default in the payment of the principal of, premium, if any, or interest, if
any, on any Debt Security or a provision of the Indenture which cannot be
amended without the consent of the holder of each Outstanding Security of such
series adversely affected.
Modification of the Indenture
The Indenture contains provisions permitting us and the Trustee to enter
into one or more supplemental indentures without the consent of the holders of
any of the debt securities in order:
(i) to evidence the succession of another corporation to Home Properties'
obligations and the assumption of our covenants by our successor;
(ii) to add to our covenants or surrender any of our rights or powers;
(iii)to add additional Events of Default with respect to any series of
debt securities;
(iv) to add or change any provisions to such extent as necessary to permit
or facilitate the issuance of debt securities in book entry form or,
if allowed without penalty under applicable laws and regulations, to
permit payment in respect of debt securities in bearer form in the
United States;
(v) to change or eliminate any provision affecting debt securities not yet
issued;
(vi) to secure the debt securities;
(vii)to establish the form or terms of debt securities;
(viii)to cure any ambiguity, to correct or supplement any provision of the
Indenture which may be inconsistent with any other provision thereof,
provided that such action does not adversely affect the interests of
any holder of debt securities of any series;
(ix) to make provision with respect to the conversion rights of holders of
debt securities; or
(x) to conform to any mandatory provisions of law.
The Indenture also contains provisions permitting us and the Trustee, with
the consent of the holders of a majority in aggregate principal amount of the
outstanding debt securities affected by such supplemental indenture (with the
debt securities of each series voting as a class), to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of the Indenture or any supplemental indenture or modifying the
rights of the holders of debt securities of such series, except that no such
supplemental indenture may, without the consent of the holder of each Debt
Security so affected:
(i) change the time for payment of principal or premium, if any, or
interest on any Debt Security;
(ii) reduce the principal of, or any installment of principal of, or
premium, if any, or interest on any Debt Security, or change the
manner in which the amount of any of the foregoing is determined;
(iii)reduce the amount of premium, if any, payable upon the redemption of
any Debt Security;
(iv) reduce the amount of principal payable upon acceleration of the
maturity of any Original Issue Discount Security;
(v) reduce the percentage in principal amount of the outstanding debt
securities affected thereby, the consent of whose holders is required
for modification or amendment of the Indenture or for waiver or
compliance with certain provisions of the Indenture or for waiver of
certain defaults;
(vi) make any change which adversely affects the right to convert
convertible debt securities or decrease the conversion rate or
increase the conversion price; or
(vii)modify the provisions relating to waiver of certain defaults or any
of the foregoing provisions.
Defeasance
If so described in the prospectus supplement relating to debt securities of
a specific series, we may discharge our indebtedness and our obligations or
terminate certain of our obligations and covenants under the Indenture with
respect to the debt securities of such series by depositing funds or obligations
issued or guaranteed by the United States government with the Trustee. The
prospectus supplement will more fully describe the provisions, if any, relating
to such discharge or termination of obligations.
Conversion rights
The terms and conditions, if any, upon which any series of debt securities
are convertible into common stock, preferred stock or other securities will be
set forth in the applicable prospectus supplement. The terms will include
whether the debt securities are convertible into such securities, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at our option or the option of the holders, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of the debt securities and any
restrictions on conversion, including restrictions directed at maintaining our
status as a REIT. If we issue debt securities that are convertible into shares
of preferred stock having rights, preferences or privileges with respect to
voting, dividends, rights upon liquidation or otherwise that are on par with or
senior to any class or series of preferred stock, then the rights of holders of
such junior or parity classes or series of preferred stock may be materially
adversely affected. In addition, the conversion of any such debt securities into
common stock or preferred stock could result in the dilution of the holders of
the then-existing shares of common stock or preferred stock.
Global securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a depository identified in the applicable prospectus supplement relating to
such series. Global securities, if any, issued in the United States are expected
to be deposited with The Depository Trust Company (DTC), as depository. We may
issue global securities in either registered or bearer form and in either
temporary or permanent form. We will describe the specific terms of the
depository arrangement with respect to a series of debt securities in the
applicable prospectus supplement relating to such series. We expect that unless
the applicable prospectus supplement provides otherwise, the following
provisions will apply to depository arrangements.
Once a global security is issued, the depository for such global security
or its nominee will credit on its book-entry registration and transfer system
the respective principal amounts of the individual debt securities represented
by such global security to the accounts of participants that have accounts with
such depository. Such accounts shall be designated by the underwriters, dealers
or agents with respect to such debt securities or by us if we offer such debt
securities directly. Ownership of beneficial interests in such global security
will be limited to participants with the depository or persons that may hold
interests through those participants.
We expect that, under procedures established by DTC, ownership of
beneficial interests in any global security for which DTC is the depository will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to beneficial interests
of participants with the depository) and records of participants (with respect
to beneficial interests of persons who hold through participants with the
depository). Neither we nor the trustee will have any responsibility or
liability for any aspect of the records of DTC or for maintaining, supervising
or reviewing any records of DTC or any of its participants relating to
beneficial ownership interests in the debt securities. The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
own, pledge or transfer beneficial interest in a global security.
Except as described below or in the applicable prospectus supplement,
owners of beneficial interest in a global security will not be entitled to have
any of the individual debt securities represented by such global security
registered in their names, will not receive or be entitled to receive physical
delivery of any such debt securities in definitive form and will not be
considered the owners or holders thereof under the applicable indenture.
Beneficial owners of debt securities evidenced by a global security will not be
considered the owners or holders thereof under the applicable indenture for any
purpose, including with respect to the giving of any direction, instructions or
approvals to the trustee under the indenture. Accordingly, each person owning a
beneficial interest in a global security with respect to which DTC is the
depository must rely on the procedures of DTC and, if such person is not a
participant with the depository, on the procedures of the participant through
which such person owns its interests, to exercise any rights of a holder under
the applicable indenture. We understand that, under existing industry practice,
if DTC requests any action of holders or if an owner of a beneficial interest in
a global security desires to give or take any action which a holder is entitled
to give or take under the applicable indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take such
action, and such participants would authorize beneficial owners through such
participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of, and any premium (or make-whole amount) and
interest on, individual debt securities represented by a global security
registered in the name of a depository or its nominee will be made to or at the
direction of the depository or its nominee, as the case may be, as the
registered owner of the global security under the applicable indenture. Under
the terms of the applicable indenture, we and the trustee may treat the persons
in whose name debt securities, including a global security, are registered as
the owners thereof for the purpose of receiving such payments. Consequently,
neither we nor the trustee have or will have any responsibility or liability for
the payment of such amounts to beneficial owners of debt securities including
principal, any premium (or make-whole amount) or interest. We believe, however,
that it is currently the policy of DTC to immediately credit the accounts of
relevant participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant global security as
shown on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in such global security held
through such participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in street name, and will be the
responsibility of such participants. Redemption notices with respect to any debt
securities represented by a global security will be sent to the depository or
its nominee. If less than all of the debt securities of any series are to be
redeemed, we expect the depository to determine the amount of the interest of
each participant in such debt securities to be redeemed to be determined by lot.
Neither we, the trustee, any paying agent nor the security registrar for such
debt securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global security for such debt securities or for maintaining any
records with respect thereto.
Neither we nor the trustee will be liable for any delay by the holders of a
global security or the depository in identifying the beneficial owners of debt
securities, and we and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of a global security or
the depository for all purposes. The rules applicable to DTC and its
participants are on file with the SEC.
If a depository for any debt securities is at any time unwilling, unable or
ineligible to continue as depository and we do not appoint a successor
depository within 90 days, we will issue individual debt securities in exchange
for the global security representing such debt securities. In addition, we may
at any time and in our sole discretion, subject to any limitations described in
the prospectus supplement relating to such debt securities, determine not to
have any of such debt securities represented by one or more global securities
and in such event will issue individual debt securities in exchange for the
global security or securities representing such debt securities. Individual debt
securities so issued will be issued in denominations of $1,000 and integral
multiples of $1,000.
The Trustee
The prospectus supplement will identify the Trustee under the applicable
Indenture. The Company may also maintain banking and other commercial
relationships with any Trustee and its affiliates in the ordinary course of
business.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material U.S. federal income tax
considerations relating to the taxation of Home Properties as a REIT and the
acquisition, ownership and disposition of our common stock. If we offer
securities other than common stock, information about any additional income tax
consequences to holders of those securities will be included in the documents
pursuant to which those securities are offered.
The following summary 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 Internal Revenue Service (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. 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 859 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, until its merger with Home
Properties Resident Services, Inc., on November 21, 2006, 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 Home
Properties Resident Services, Inc. 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.
Taxation of holders of debt securities and potential tax consequences of their
investment in the debt securities.
Stated Interest.
Holders of debt securities are required to include stated interest on the
debt securities in gross income for federal income tax purposes in accordance
with their methods of accounting for tax purposes. The following discussion
assumes that the debt securities were not issued with original issue discount.
Market Discount.
The holding and disposition of debt securities may be subject to the market
discount provisions of the Code. These rules generally provide that if a holder
of a debt instrument purchases it at a market discount and subsequently
recognizes gain on a disposition of the debt security, including a disposition
as a gift or payment on maturity, the lesser of such gain, or appreciation in
the case of a gift, and the portion of the market discount that accrued while
the debt security was held by such holder will be treated as ordinary interest
income at the time of the disposition. A purchase at a market discount under
these provisions includes a purchase after original issuance at a price below
the debt security's stated principal amount. The market discount rules also
provide that a holder who acquires a debt security at a market discount and who
does not elect to include such market discount in income on a current basis may
be required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or maintained to purchase or carry such
debt security until the holder disposes of the debt security in a taxable
transaction.
A holder of a debt security acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS. If a holder of a debt security elects to include market
discount in income in accordance with the preceding sentence, the foregoing
rules with respect to the recognition of ordinary income on a sale or particular
other dispositions of such debt security and the deferral of interest deductions
on indebtedness related to such debt security would not apply.
Amortizable bond premium.
Generally, under the Code and applicable regulations, if the tax basis of
an obligation held as a capital asset exceeds the amount payable at maturity of
the obligation, such excess may constitute amortizable bond premium. The holder
of the debt security may elect to amortize under the constant interest rate
method and deduct the amortized premium over the period from the holder's
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce the tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult his tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
Disposition.
In general, a holder of a debt security will recognize gain or loss upon
the sale, exchange, redemption, payment upon maturity or other taxable
disposition of the debt security. The gain or loss is measured by the difference
between (a) the amount of cash and the fair market value of property received
and (b) the holder's tax basis in the debt security as increased by any market
discount previously included in income by the holder and decreased by any
amortizable bond premium deducted over the term of the debt security. However,
the amount of cash and the fair market value received excludes cash or other
property attributable to the payment of accrued interest not previously included
in income, which amount will be taxable as ordinary income. Subject to the
market discount and amortizable bond premium rules above, any such gain or loss
will generally be long-term capital gain or loss, provided the debt security was
a capital asset in the hands of the holder and had been held for more than one
year.
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.
PLAN OF DISTRIBUTION
Sales by Home Properties
We may sell the securities being offered, from time to time:
o through agents to the public or to investors;
o to underwriters for resale to the public or to investors;
o directly to investors; or
o through a combination of any of these methods of sale.
We will describe in a prospectus supplement the terms of that particular
offering of securities, including:
o the name or names of any agents or underwriters;
o the purchase price of the securities being offered and the proceeds we
will receive from the sale;
o any over-allotment options under which underwriters may purchase
additional securities from us;
o any agency fees or underwriting discounts and other items constituting
agents' or underwriters' compensation;
o any initial public offering price;
o any discounts or concessions allowed or reallowed or paid to dealers;
and
o any securities exchanges or markets on which such securities may be
listed.
Sales by Selling Securities Holders
Selling securities holders may use this prospectus in connection with
resales of the securities. The applicable prospectus supplement will identify
the selling securities holders and the terms of the securities. Selling
securities holders may be deemed to be underwriters in connection with the
securities they resell and any profits on the sales may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended. The selling securities holders will receive all the proceeds from the
sale of the securities. We will not receive any proceeds from sales by selling
securities holders. Any prospectus supplement covering sales of securities by
selling securities holders may describe additional statements of their plan of
distribution of those securities. Any prospectus supplement covering sales of
securities by selling securities holders may describe additional elements of
such holders' plan of distribution of such securities.
Agents
We may designate agents who agree to use their reasonable efforts to
solicit purchases of our securities for the period of their appointment or to
sell our securities on a continuing basis.
Underwriters
If we use underwriters for a sale of securities, the underwriters will
acquire the securities for their own account. The underwriters may resell the
securities from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of the underwriters to purchase the
securities will be subject to the conditions set forth in the applicable
underwriting agreement. The underwriters will be obligated to purchase all the
securities of the series offered if they purchase any of the securities of that
series. From time to time, we may change any initial public offering price, and
any discounts or concessions the underwriters allow or re-allow or pay to
dealers may be changed by the underwriters. We may use underwriters with whom we
have a material relationship. We will describe the nature of any such
relationship in any prospectus supplement naming any such underwriter.
Underwriters, dealers or agents that are involved in selling the securities
may be deemed to be "underwriters" within the meaning of Section 2(a)(11) of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. We may have agreements with underwriters,
dealers or agents to indemnify them against certain liabilities, including
liabilities arising under the Securities Act, or to contribute to payments they
may be required to make.
Direct Sales
If indicated in a prospectus supplement, we may also sell securities
directly to one or more purchasers without using underwriters or agents.
Underwriters, dealers and agents that participate in the distribution of the
securities may be underwriters as defined in the Securities Act, and any
discounts or commissions they receive from us and any profit on their resale of
the securities may be treated as underwriting discounts and commissions under
the Securities Act. We will identify in the applicable prospectus supplement any
underwriters, dealers or agents and will describe their compensation. We may
have agreements with the underwriters, dealers and agents to indemnify them
against specified civil liabilities, including liabilities under the Securities
Act. Underwriters, dealers and agents may engage in transactions with or perform
services for us in the ordinary course of their businesses.
Trading Markets and Listing of Securities
Some or all of the securities that we offer through this prospectus may be
new issues of securities with no established trading market, other than our
common stock, which is listed on The New York Stock Exchange. We may elect to
list any other class or series of securities on any exchange or market, but we
are not obligated to do so. It is possible that one or more underwriters may
make a market in a class or series of securities, but the underwriters will not
be obligated to do so and may discontinue any market making at any time without
notice. We cannot give any assurance as to the liquidity of the trading market
for any of the securities.
Stabilization Activities
In order to facilitate the offering of the securities, any underwriters or
agents, as the case may be, involved in the offering of such securities may
engage in transactions that stabilize, maintain or otherwise affect the price of
such securities. Specifically, the underwriters or agents, as the case may be,
may overallot in connection with the offering, creating a short position in such
securities for their own account. In addition, to cover overallotments or to
stabilize the price of such securities, the underwriters or agents, as the case
may be, may bid for, and purchase, such securities in the open market. Finally,
in any offering of such securities through a syndicate of underwriters, the
underwriting syndicate may reclaim selling concessions allotted to an
underwriter or a dealer for distributing such securities in the offering if the
syndicate repurchases previously distributed securities in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may cause the price of the securities to be higher than it
would otherwise be. The underwriters or agents, as the case may be, may
discontinue any of these activities at any time.
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, 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. 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."
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
securities being registered hereby: (All amounts except registration fees are
estimates and will be incurred from time to time as securities are offered under
this registration statement.)
SEC Registration Fee................................. $ 42,595.56*
Legal Fees and Expenses.............................. 225,000.00
Accounting Fees and Expenses......................... 100,000.00
Trustee and Transfer Agent Fees and Expenses 25,000.00
Printing Fees and Expenses 50,000.00
Miscellaneous........................................ 50,000.00
Total................................................ $492,595.56*
*Amount applied from prior registration statement on Form S-3 (No. 333-52601;
the balance to be deferred pursuant to Rule 456(b) and calculated in connection
with the offering of securities under this Registration Statement pursuant to
Rule 457(r) under the Securities Act.
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 Form of Underwriting Agreement for Common Stock or Preferred Stock
1.2 Form of Underwriting Agreement for Debt Securities
3.1 Articles of Amendment and Restatement of Articles of Incorporation of Home
Properties of New York, Inc.
3.2 Articles of Amendment of the Articles of Incorporation of Home Properties
of New York, Inc.
3.3 Articles of Amendment of the Articles of Incorporation of Home Properties
of New York, Inc.
3.4 Articles of Amendment of the Articles of Incorporation of Home Properties
of New York, Inc.
3.5 Amended and Restated By-Laws of Home Properties of New York, Inc. (Revised
12/30/96)
3.6 Amendment Number One to Home Properties of New York, Inc. Amended and
Restated By-laws
4.1 Form of Indenture for Debt Securities
4.2 Form of Certificate representing Shares of Common Stock
4.3 Form of Debt Security
5.1 Opinion of Nixon Peabody LLP as to legality of Common Stock*
8.1 Opinion of Nixon Peabody LLP regarding tax matters*
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges*
12.2 Statement of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends*
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)
25 Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture
Act of 1939, as amended, of the trustee under the Indenture
* 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:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) 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;
(c) 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;
provided, however, that paragraphs (a), (b) and (c) above do not apply
if the Registration Statement is on Form S-3 and the information
required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of 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.
5. 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.
6. That, for the purpose of determining liability of the Registrant under
the Securities Act of 1933 to any purchaser in the initial distribution of the
securities, the undersigned Registrant undertakes that in a primary offering of
securities of the undersigned Registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned Registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(a) Any preliminary prospectus or prospectus of the undersigned Registrant
relating to the offering required to be filed pursuant to Rule 424;
(b) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned Registrant or used or referred to by the
undersigned Registrant;
(c) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of an
undersigned Registrant; and
(d) Any other communication that is an offer in the offering made by the
undersigned Registrant to the purchaser.
7. To file an application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of Section 310 of the Trust Indenture
Act of 1939 in accordance with the rules and regulation prescribed by the
Securities and Exchange Commission under Section 305(b)(2) of the Securities
Trust Indenture Act of 1939.
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 April 4, 2007.
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 April 4, 2007
Edward J. Pettinella Officer
(Principal Executive Officer)
/s/ David P. Gardner Executive Vice President, Chief April 4, 2007
David P. Gardner Financial Officer
(Principal Financial Officer)
/s/ Robert J. Luken Senior Vice President, Chief April 4, 2007
Robert J. Luken Accounting Officer
(Principal Accounting Officer)
/s/ Norman P. Leenhouts Director April 4, 2007
Norman P. Leenhouts
/s/ Nelson B. Leenhouts Director April 4, 2007
Nelson B. Leenhouts
/s/ William Balderston, III Director April 4, 2007
William Balderston, III
/s/ Josh E. Fidler Director April 4, 2007
Josh E. Fidler
/s/ Alan L. Gosule Director April 4, 2007
Alan L. Gosule
/s/ Leonard F. Helbig, III Director April 4, 2007
Leonard F. Helbig, III
/s/ Roger W. Kober Director April 4, 2007
Roger W. Kober
/s/ Clifford W. Smith, Jr. Director April 4, 2007
Clifford W. Smith, Jr.
/s/ Paul L. Smith Director April 4, 2007
Paul L. Smith
/s/ Thomas S. Summer Director April 4, 2007
Thomas S. Summer
/s/ Amy L. Tait Director April 4, 2007
Amy L. Tait
EXHIBIT INDEX
Home Properties, Inc.
Registration Statement on Form S-3
NUMBER DESCRIPTION LOCATION
1.1 Form of Underwriting Agreement for Common Stock or Preferred Stock To be filed, if necessary,
by a post-effective
amendment to this
registration statement or
as an exhibit to a document
incorporated by reference
herein.
1.2 Form of Underwriting Agreement for Debt Securities To be filed, if necessary,
by a post-effective
amendment to this
registration statement or
as an exhibit to a document
incorporated by reference
herein.
3.1 Articles of Amendment and Restatement of Articles of Incorporated by reference
Incorporation of Home Properties of New York, Inc. to Home Properties of New
York, Registration
Statement on Form S-11,
File No. 33-78862.
3.2 Articles of Amendment of the Articles of Incorporation of Home Incorporated by reference
Properties of New York, Inc. to the Home Properties of
New York, Inc.
Registration Statement on
Form S-3, File No.
333-52601 filed May 14,
1998.
3.3 Articles of Amendment of the Articles of Incorporation of Home Incorporated by reference
Properties of New York, Inc. to Form 8-K filed July 2,
1999.
3.4 Articles of Amendment of the Articles of Incorporation of Home Incorporated by reference
Properties of New York, Inc. to the Form 10-Q filed by
Home Properties, Inc. for
the quarter ended March 31,
2004.
3.5 Amended and Restated By-Laws of Home Properties of New York, Incorporated by reference
Inc. (Revised 12/30/96) to the Form 8-K filed by
Home Properties of New
York, Inc. dated December
23, 1996.
3.6 Amendment Number One to Home Properties of New York, Inc. Amended Incorporated by reference
and Restated By-laws to the Form 10-Q filed by
Home Properties, Inc. for
the quarter ended March 31,
2004.
4.1 Form of Indenture for Debt Securities Previously filed with the
SEC as an exhibit to and
incorporated by reference
from Form S-3, File No.
333-02674, which was filed
on September 6, 1996.
4.2 Form of certificate representing Shares of Common Stock Incorporated by reference
to the Form 10-K filed by
Home Properties of New
York, Inc. for the period
ended December 31, 1994).
4.3 Form of Debt Security To be filed, if necessary,
by a post-effective
amendment to this
registration statement or
as an exhibit to a document
incorporated by reference
herein.
5.1 Opinion of Nixon Peabody LLP regarding the legality of the Common Included herein
Stock being registered
8.1 Opinion of Nixon Peabody LLP regarding tax matters. Included herein
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges Included herein
12.2 Statement of Computation of Ratio of Earnings to Combined Fixed Included herein
Charges and Preferred Stock Dividends
23.1 Consent of Nixon Peabody LLP Included with Exhibits 5.1
and 8.1
23.2 Consent of PricewaterhouseCoopers LLP Included herein
24 Power of Attorney Included on signature page
25 Statement of Eligibility of Trustee on Form T-1 under the Trust To be filed, if necessary,
Indenture Act of 1939, as amended, of the trustee under the by a post-effective
Indenture amendment to this
registration statement or
as an exhibit to a document
incorporated by reference
herein.