10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-13136 HOME PROPERTIES OF NEW YORK, INC. (Exact name of registrant as specified in its charter) MARYLAND 16-1455126 (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 850 CLINTON SQUARE, ROCHESTER, NEW YORK 14604 (Address of principal executive offices) (Zip Code) (716) 546-4900 (Registrant's telephone number, including area code) N/A (Former name, former address and former year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CLASS OF COMMON STOCK OUTSTANDING AT OCTOBER 31, 2000 $.01 par value 21,419,745 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOME PROPERTIES OF NEW YORK, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2000 1999 ASSETS (Unaudited) (Note 1) Real estate: Land $230,014 $194,468 Buildings, improvements and equipment 1,507,766 1,286,285 1,737,780 1,480,753 Less: accumulated depreciation (139,226) (101,904) Real estate, net 1,598,554 1,378,849 Cash and cash equivalents 46,816 4,742 Cash in escrows 33,975 28,281 Accounts receivable 8,188 6,842 Prepaid expenses 13,892 9,423 Deposits 4,598 897 Investment in and advances to affiliates 55,905 63,450 Deferred charges 3,631 2,610 Other assets 9,971 8,523 Total assets $1,775,530 $1,503,617 LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $765,803 $618,901 Line of Credit - 50,800 Accounts payable 18,223 11,765 Accrued interest payable 4,433 3,839 Accrued expenses and other liabilities 5,498 6,391 Security deposits 17,563 14,918 Total liabilities 811,520 706,614 Minority interest 369,105 299,880 8.36% Series B convertible cumulative preferred stock, liquidation preference of $25.00 per share; 2,000,000 shares issued and outstanding, net of issuance costs 48,733 48,733 Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized: 9.0% Series A convertible cumulative preferred stock, liquidation preference of $21.00 per share; 1,666,667 shares 35,000 35,000 issued and outstanding 8.75% Series C convertible cumulative preferred stock, preference of $100 per share; 600,000 shares issued and outstanding liquidation 59,500 - 8.775% Series D convertible cumulative preferred stock, liquidation preference of $100 per share; 250,000 shares 25,000 - issued and outstanding Common stock, $.01 par value; 80,000,000 shares authorized; 21,268,029 and 19,598,464 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively 212 196 Excess stock, $.01 par value; 10,000,000 shares authorized; no shares issued - - Additional paid-in capital 484,117 461,345 Distributions in excess of accumulated earnings ( 48,040) ( 38,294) Officer and director notes for stock purchases ( 9,617) ( 9,857) Total stockholders' equity 546,172 448,390 Total liabilities and stockholders' equity $1,775,530 $1,503,617
The accompanying notes are an integral part of these condensed consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2000 1999 Revenues: Rental income $218,039 $151,523 Property other income 8,080 4,507 Interest and dividend income 6,035 5,349 Other income 381 2,220 Total revenues 232,535 163,599 Expenses: Operating and maintenance 92,862 67,360 General and administrative 9,799 7,291 Interest 41,522 27,358 Depreciation and amortization 37,795 25,527 Loss on available-for-sale securities - 2,123 Non-recurring acquisition expense - 6,225 Total expenses 181,978 135,884 Income before gain (loss) on disposition of property, minority interest and extraordinary item 50,557 27,715 Gain (loss) on disposition of property (417) 457 Income before minority interest and extraordinary item 50,140 28,172 Minority interest 19,219 10,866 Income before extraordinary item 30,921 17,306 Extraordinary item, prepayment penalties, net of $78 allocated to minority interest - (96) Net income 30,921 17,210 Preferred dividends (8,252) - Net income available to common shareholders $22,669 $17,210 Basic earnings per share data: Income before extraordinary item $1.11 $.94 Extraordinary item - (.01) Net income $1.11 $.93 Diluted earnings per share data: Income before extraordinary item $1.10 $.93 Extraordinary item - - Net income $1.10 $.93 Weighted average number of shares outstanding: Basic 20,412,401 18,458,819 Diluted 20,539,321 18,566,521
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2000 1999 Revenues: Rental income $76,303 $62,150 Property other income 2,999 1,819 Interest and dividend income 2,400 1,537 Other income 305 672 Total revenues 82,007 66,178 Expenses: Operating and maintenance 31,250 26,398 General and administrative 3,479 2,964 Interest 14,132 11,681 Depreciation and amortization 13,188 9,667 Non-recurring acquisition expense - 6,225 Total expenses 62,049 56,935 Income before gain on disposition of property, 19,958 9,243 minority interest and extraordinary item Gain on disposition of property 45 - Income before minority interest and extraordinary item 20,003 9,243 Minority interest 7,658 4,137 Income before extraordinary item 12,345 5,106 Extraordinary item, prepayment penalties, net of $78 allocated to minority interest - (96) Net income 12,345 5,010 Preferred dividends (3,790) - Net income available for common shareholders $8,555 $5,010 Basic earnings per share data: Income before extraordinary item $.41 $.27 Extraordinary item - (.01) Net income $.41 $.26 Diluted earnings per share data: Income before extraordinary item $.40 $.27 Extraordinary item - (.01) Net income $.40 $.26 Weighted average number of shares outstanding: Basic 20,994,835 19,047,696 Diluted 21,174,053 19,192,769
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED, IN THOUSANDS)
2000 1999 Cash flows from operating activities: Net income $30,921 $17,210 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of HP Management and Conifer 1,511 ( 329) Realty Income allocated to minority interest 19,219 10,866 Extraordinary item allocated to minority interest - ( 78) Depreciation and amortization 38,213 26,113 Unrealized loss on available-for-sale securities - ( 1,607) (Gain) loss on disposition of property 417 ( 457) Changes in assets and liabilities: Other assets ( 6,482) 8,094 Accounts payable and accrued liabilities 8,804 13,036 Total adjustments 61,682 55,638 Net cash provided by operating activities 92,603 72,848 Cash flows used in investing activities: Purchase of properties, net of mortgage notes assumed and UPREIT Units issued ( 55,844) (104,890) Additions to properties ( 56,598) ( 37,300) Deposits on property ( 3,701) ( 332) Advances to affiliates ( 28,858) ( 31,665) Payments on advances to affiliates 34,892 22,331 Other 4,889 1,099 Net cash used in investing activities (105,220) (150,757) Cash flows from financing activities: Proceeds from the sale of preferred stock, net 82,666 48,741 Proceeds from sale of common stock 40,684 40,650 Purchase of treasury stock - ( 2,578) Proceeds from mortgage notes payable 84,432 32,978 Payments of mortgage notes payable ( 31,371) ( 34,581) Proceeds from line of credit 23,500 73,700 Payments on line of credit ( 74,300) ( 53,900) Additions to deferred loan costs ( 1,441) ( 522) Additions to and payments received from cash escrows ( 5,694) ( 11,838) Dividends and distributions paid ( 63,785) ( 41,010) Net cash provided by (used in) financing activities 54,691 51,640 Net increase in cash and cash equivalents 42,074 ( 26,269) Cash and cash equivalents: Beginning of period 4,742 33,446 End of period $46,816 $ 7,177 Supplemental disclosure of cash flow information: Cash paid for interest $40,508 $ 24,510
The accompanying notes are an integral part of these condensed consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. UNAUDITED INTERIM FINANCIAL STATEMENTS The interim condensed consolidated financial statements of Home Properties of New York, Inc. (the "Company") are prepared pursuant to the requirements for reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles are omitted. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the consolidated financial statements for the interim periods have been included. The current period's results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K/A, as filed with the Securities and Exchange Commission on May 22, 2000. 2. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION Home Properties of New York, Inc. (the " Company " ) was formed in November 1993, as a Maryland corporation and is engaged primarily in the ownership, management, acquisition, rehabilitation and development of residential apartment communities in the Northeastern, Mid-Atlantic and Midwestern United States. As of September 30, 2000, the Company operated 314 apartment communities with 49,024 apartments. Of this total, the Company owned 139 communities, consisting of 37,198 apartments, managed as general partner 8,225 apartments and fee managed 3,601 apartments for affiliates and third parties. The Company also fee manages 1.7 million square feet of office and retail properties. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and its 61.7% (55.0% at September 30, 1999) partnership interest in the Operating Partnership. The remaining 38.3% (45.0% at September 30, 1999) is reflected as Minority Interest in these consolidated financial statements. For financing purposes, the Company has formed a limited liability company (the "LLC") and a partnership (the "Financing Partnership") which beneficially own certain apartment communities encumbered by mortgage indebtedness. The LLC is wholly owned by the Operating Partnership. The Financing Partnership is owned 99.9% by the Operating Partnership and .1% by Home Properties Trust, a wholly owned qualified REIT subsidiary (QRS) of Home Properties of New York, Inc. All significant intercompany balances and transactions have been eliminated in these consolidated financial statements. 3. EARNINGS PER COMMON SHARE Basic earnings per share ("EPS") is computed as net income available to common shareholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options and the conversion of any cumulative convertible preferred stock. The exchange of an Operating Partnership Unit for common stock will have no effect on diluted EPS as unitholders and stockholders effectively share equally in the net income of the Operating Partnership. Net income available to common shareholders is the same for both the basic and diluted calculation. HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. EARNINGS PER COMMON SHARE CONT'D The reconciliation of the basic weighted average shares outstanding and diluted weighted average shares outstanding for the nine and three months ended September 30, 2000 and 1999 is as follows:
NINE MONTHS THREE MONTHS 2000 1999 2000 1999 Basic weighted average number of shares outstanding 20,412,401 18,458,819 20,994,835 19,047,696 Effect of dilutive stock options 126,920 107,702 179,218 145,073 Diluted weighted average number of shares outstanding 20,539,321 18,566,521 21,174,053 19,192,769
Unexercised stock options and warrants to purchase 963,740 and 713,900 shares of the Company's common stock were not included in the computations of diluted EPS because the options' exercise prices were greater than the average market price of the company's stock during the nine month period ended September 30, 2000 and 1999, respectively. For the nine month period ended September 30, 2000, the 1,666,667 shares of the 9% Series A convertible cumulative preferred stock ("Series A Preferred"), the 2,000,000 shares of 8.36% Series B convertible cumulative preferred stock ("Series B Preferred"), the 600,000 shares of 8.75% Series C convertible cumulative preferred stock ("Series C Preferred") and the 250,000 shares of 8.775% Series D convertible cumulative preferred stock ("Series D Preferred") on an as-converted basis has an antidilutive effect and is not included in the computation of diluted EPS. 4. OTHER INCOME Other income (loss) for the nine and three months ended September 30, 2000 and 1999 is summarized as follows:
NINE MONTHS THREE MONTHS 2000 1999 2000 1999 Management fees $1,308 $1,180 $442 $446 Development fees 498 601 258 210 Other 87 109 46 56 Management Companies (1,512) 330 ( 441) (40) $ 381 $2,220 $305 $672
Certain property management, leasing and development activities are performed by Home Properties Management, Inc. and Conifer Realty Corporation (the "Management Companies"). The Operating Partnership owns non-voting common stock in the Management Companies which entitles the Operating Partnership to receive 95% of the economic interest in the Management Companies. The Company's share of income from the Management Companies for the nine and three months ended September 30, 2000 and 1999 is summarized as follows:
NINE MONTHS THREE MONTHS 2000 1999 2000 1999 Management fees $2,728 $2,827 $1,042 $ 974 Development fees 3,163 3,829 1,054 1,184 Miscellaneous 66 78 23 40 General and administrative ( 5,681) (5,259) (1,921) (1,787) Interest expense ( 1,425) ( 766) ( 509) ( 324) Other expenses ( 443) ( 362) ( 154) ( 129) Net income (loss) ($1,592) $347 ( $465) ( $42) Company's share ($1,512) $330 ( $441) ( $40)
HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 5. SEGMENT REPORTING The Company is engaged in one primary business segment - the ownership and management of market rate apartment communities (segregated as Core and Non-core properties). Company management views each apartment community as a separate component of the operating segment. Non-segment revenue to reconcile total revenue consists of unconsolidated management and development fees and interest income. Non-segment assets to reconcile to total assets include cash and cash equivalents, cash in escrows, accounts receivable, prepaid expenses, deposits, investments in and advances to affiliates, deferred charges and other assets. Core properties consist of all apartment communities which have been owned more than one full calendar year. Therefore, the 2000 Core represents communities owned as of January 1, 1999. Non-core properties consist of apartment communities acquired during 1999 and 2000, such that full year comparable operating results are not available. The accounting policies of the segments are the same as those described in Note 1. The Company assesses and measures segment operating results based on a performance measure referred to as Funds from Operations ("FFO"). The National Association of Real Estate Investment Trusts defines FFO as net income (loss), before gains (losses) from the sale of property, extraordinary items, plus real estate depreciation including adjustments for unconsolidated partnerships and joint ventures. FFO is not a measure of operating results or cash flows from operating activities as measured by generally accepted accounting principles and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. SEGMENT REPORTING (CONTINUED) THE REVENUES, PROFIT (LOSS), AND ASSETS FOR THE REPORTABLE SEGMENT ARE SUMMARIZED AS FOLLOWS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000, AND 1999.
NINE MONTHS THREE MONTHS 2000 1999 2000 1999 REVENUES Apartments owned Core properties $144,684 $136,132 $ 49,195 $46,095 Non-core properties 81,435 19,898 30,107 17,874 Reconciling items 6,416 7,569 2,705 2,209 Total Revenue $232,535 $163,599 $ 82,007 $66,178 PROFIT (LOSS) Funds from operations: Apartments owned Core properties 83,122 76,838 29,229 26,867 Non-core properties 50,135 11,832 18,823 10,704 Reconciling items 6,416 7,569 2,705 2,209 Segment contribution to FFO 139,673 96,239 50,757 39,780 General & administrative expenses ( 9,799) ( 7,291) ( 3,479) ( 2,964) Interest expense (41,522) (27,358) (14,132) (11,681) Unconsolidated depreciation 340 368 99 147 Non-real estate depreciation/amort. ( 390) ( 229) ( 139) ( 93) Funds from Operations 88,302 61,729 33,106 25,189 Depreciation - apartments owned (37,405) (25,298) (13,049) ( 9,574) Loss on available-for-sale securities - ( 2,123) - - Non-recurring acquisition expense - ( 6,225) - ( 6,225) Unconsolidated depreciation ( 340) ( 368) ( 99) ( 147) Gain (Loss) on disposition of properties ( 417) 457 45 - Minority interest in earnings (19,219) (10,866) ( 7,658) ( 4,137) Extraordinary items, net of minority - ( 96) - ( 96) interest Net Income $30,921 $17,210 $12,345 $ 5,010 ASSETS - As of September 30, 2000 and 1999 Apartments owned $1,598,554 $1,340,979 Reconciling items 176,976 130,700 Total Assets $1,775,530 $1,471,679
HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 6. PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Statement of Operations FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Home Properties Pro Forma Company HISTORICAL ADJUSTMENT PRO FORMA Revenue: Rental income $218,039 $ 9,108 $227,147 Property other income 8,080 296 8,376 Interest and dividend income 6,035 - 6,035 Other income 381 - 381 Total Revenues 232,535 9,404 241,939 Expenses: Operating and Maintenance 92,862 3,806 96,668 General and administrative 9,799 282 10,081 Interest 41,522 2,369 43,891 Depreciation and amortization 37,795 1,554 39,349 Total Expenses 181,978 8,011 189,989 Income before loss on disposition of property and minority interest 50,557 $1,393 51,950 Loss on disposition of property ( 417) ( 417) Income before minority interest 50,140 51,533 Minority Interest 19,219 20,436 Net income 30,921 31,097 Preferred dividends (8,252) ( 8,252) Net income available to common shareholders $22,669 $22,845 Net income per common share - Basic $1.12 - Diluted $1.11 Weighted average number of shares outstanding - Basic 20,412,401 - Diluted 20,539,321
The pro forma information was prepared as if the transactions related to the acquisition of the Old Friends Apartments (on February 1, 2000, 51 units for $2,000), the Gateside Portfolio (on March 15, 2000, 2,113 units for $135,200), the Detroit Communities (on March 22, 2000, 360 units for $14,400), Elmwood Terrace Apartments (on June 30, 2000, 504 units for $20,600), East Meadows Apartments (on August 1, 2000, 150 units for $13,000), Southbay Manor (on September 11, 2000, 61 units for $3,000), Bayberry Apartments (on September 30, 2000, 120 units for $5,700) and Hampton Court Apartments (on September 30, 2000, 182 units for $6,000) had occurred on January 1, 2000. Adjustments to the pro forma combined statements of operations for the nine months ended September 30, 2000, consist principally of providing net property operating activity and recording interest, depreciation and amortization from January 1, 2000 to the acquisition date. HOME PROPERTIES OF NEW YORK, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion is based primarily on the consolidated financial statements of Home Properties of New York, Inc. as of September 30, 2000 and 1999 and for the nine and three month periods then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. FORWARD-LOOKING STATEMENTS This discussion contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic and local real estate conditions, other conditions that might affect operating expenses, the timely completion of repositioning and current development activities within anticipated budgets, the actual pace of future acquisitions and developments and continued access to capital to fund growth. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity demands are expected to be distributions to the common and preferred stockholders and Operating Partnership unitholders, capital improvements and repairs and maintenance for the properties, acquisition of additional properties, property development and debt repayments. The Company intends to meet its short-term liquidity requirements through net cash flows provided by operating activities and its unsecured line of credit. The Company considers its ability to generate cash to be adequate to meet all operating requirements and make distributions to its stockholders in accordance with the provisions of the Internal Revenue Code, as amended, applicable to REITs. As of September 30, 2000 the Company had an unsecured line of credit from M & T Bank of $100 million with no balance outstanding. Borrowings under the line of credit bear interest at 1.25% over the one-month LIBOR rate. Accordingly, increases in interest rates will increase the Company's interest expense and as a result will effect the Company's results of operations and financial condition. The unsecured credit facility was extended two years to September, 2002, with no material changes to the financial terms. To the extent that the Company does not satisfy its long-term liquidity requirements through net cash flows provided by operating activities and its credit facility, it intends to satisfy such requirements through the issuance of UPREIT units, proceeds from the Dividend Reinvestment Plan ("DRIP"), long term secured or unsecured indebtedness, or the issuance of additional equity securities. As of September 30, 2000, the Company owned twenty-six properties with 4,266 apartment units, which were unencumbered by debt. In May, 1998, the Company's Form S-3 Registration Statement was declared effective relating to the issuance of up to $414 million of shares of common stock or other securities. During 1998, $125.6 million of common shares were issued from this and a previous shelf registration in various public and private offerings. There was no activity during 1999. During the first nine months of 2000, $60 million of preferred shares and $7.3 million of warrants were issued from this shelf registration in various private offerings. The available balance on the shelf at September 30, 2000 is $266.4 million. On September 30, 1999, the Company completed the sale of $50 million of Series B preferred in a private transaction with GE Capital. On December 22, 1999, the Class A limited partnership interests held by the State of Michigan Retirement Systems (originally issued in December, 1996 for $35 million) were converted to Series A Preferred. During the second quarter of 2000, the Company completed the sale of $65 million of Series C Preferred through a private transaction with affiliates of Prudential Real Estate Investors, Teachers Insurance and Annuity of America, AEW Capital Management, and the Pacific Life Insurance Company. In addition, the Company issued warrants to purchase 240,000 common shares at a price of $30.25 per share, expiring in five years. In addition, the Company completed the sale of $25 million of Series D Preferred through a private transaction with The Equitable Life Assurance Society of the United States. The issuance of UPREIT Units for property acquisitions continues to be a significant source of capital. During 1999, 8,147 apartment units in four separate transactions were acquired for a total cost of $389 million using UPREIT Units valued at approximately $149 million, with the balance paid in cash or assumed debt. During the first nine months of 2000, 3,391 apartment units in six separate transactions were acquired for a total cost of $187.7 million using UPREIT Units valued at approximately $57 million, with the balance paid in cash or assumed debt. During 1999, over $49 million of common stock was issued under the Company's DRIP. An additional $40.4 million has been raised through the DRIP program during the first nine months of 2000. The Company's Board of Directors approved a stock repurchase program under which the Company may repurchase up to one million shares of its outstanding common stock. The Board's action did not establish a target price or a specific timetable for repurchase. During 1999, the Company repurchased 125,300 shares at a cost of $3.0 million, with remaining authorization to buy back up to 795,100 shares of common stock. No additional shares were repurchased during the first nine months of 2000. On October 24, 2000, the board approved a 1,000,000 share increase in management's authorization to buy back outstanding common stock. With the release of third quarter earnings, the Company included a supplemental schedule computing net asset value per share. With the stock trading during late October and early November in the $26-$27 range, the Company intends to pursue opportunities to repurchase shares at a discount to the underlying net asset value. As of September 30, 2000, the weighted average rate of interest on mortgage debt is 7.4% and the weighted average maturity is approximately 11 years. Approximately 99% of the debt is fixed rate. This limits the exposure to changes in interest rates, minimizing the effect on results of operations and financial condition. The following table sets forth information regarding the mortgage indebtedness at June 30, 2000.
PRINCIPAL INTEREST BALANCE AS OF RATE % AS OF MATURITY SEPT. 30, 2000 COMMUNITIES LOCATION SEPTEMBER 30, 2000 DATE (000'S) FIXED RATE: Philadelphia (2 properties) Philadelphia, PA 8.5000 11/01/01 4,622 Royal Gardens Piscataway, NJ 7.6600 08/01/02 11,164 The Colony Mount Prospect, IL 7.6000 08/01/02 15,952 Bayberry Place Detroit, MI 9.7500 10/01/02 2,526 New York (4 properties) Upstate, NY 7.7500 11/01/02 18,927 Broadlawn Bryn Mawr, PA 8.1700 08/01/03 11,854 Curren Terrace Norristown, PA 8.3550 10/01/03 9,332 Elmwood Terrace Frederick, MD 8.2500 11/01/03 4,648 Racquet Club Levittown, PA 7.6250 11/01/03 11,830 Rolling Park Baltimore, MD 7.8750 11/01/03 2,754 Sherry Lake Conshohocken, PA 7.8750 01/01/04 6,312 Glen Manor Glenolden, PA 8.1250 05/01/04 3,601 Colonies Steger, IL 8.8750 05/01/04 12,122 William Henry Malvern, PA 7.6400 10/01/05 14,228 Idylwood Cheektowaga, NY 8.6250 11/01/05 9,147 Carriage Hill Dearborn, MI 7.3600 01/01/06 3,782 Carriage Park Dearborn, MI 7.4800 01/01/06 5,449 Cherry Hill Village Dearborn, MI 7.9900 01/01/06 4,439 Castle Club Morrisville, PA 9.5500 03/01/05 3,719 Mid-Island* Bay-Shore, NY 7.5000 05/01/06 6,675 Newcastle* Rochester, NY 7.9000 07/31/06 6,000 Country Village Bel Air, MD 8.3850 08/01/06 6,555 Hampton Court Detroit, MI 8.8750 09/01/06 3,601 Raintree Tonawanda, NY 8.5000 11/01/06 6,212 Woodgate Spencerport, NY 7.8650 01/01/07 3,377 Strawberry Hill Baltimore, MD 8.2550 05/01/07 2,039 Seminary Towers Alexandria, VA 8.3100 07/01/07 4,957 Pavilion Rockville, MD 7.4500 01/01/08 3,894 Maple Lane South Bend, IN 7.2050 01/01/08 5,912 Valley Park South Bethlehem, PA 6.9300 01/01/08 9,879 Hamlet Court Rochester, NY 7.1100 02/01/08 1,744 Candlewood Apartments Mishawaka, IN 7.0200 02/01/08 7,678 Detroit (10 properties) Detroit, MI 7.5100 06/01/08 47,921 Canterbury Baltimore, MD 7.6700 06/01/08 2,167 Sherwood Gardens Levittown, PA 6.9800 07/01/08 3,037 Golf Club West Chester, PA 6.5850 12/01/08 16,959 Mansion House Bryn Mawr, PA 7.5000 01/01/09 683 Philadelphia (4 properties) Philadelphia, PA 8.0000 07/28/09 15,750 Old Friends Baltimore, MD 6.7300 08/01/09 2,388 Multi-Property (7) Various 7.5750 05/01/10 45,400 Conifer Village Baldwinsville, NY 7.2000 06/01/10 2,445 Philadelphia (2 properties) Philadelphia, PA 7.5000 10/01/10 39,032 Ridgeway Lansdowne, PA 8.3750 11/01/10 1,121 Multi-Property (3) Various 7.2500 01/01/11 32,978 Multi-Property (7) Various 6.1600 01/01/11 58,881 Timbercroft Owings Mills, MD 8.5000 05/01/11 912 Timbercroft Owings Mills, MD 8.0000 02/01/12 1,226 Village Square Glen Burnie, MD 7.0000 11/01/12 1,013 Baltimore (2 properties) Baltimore, MD 6.9900 05/01/13 19,828
PRINCIPAL INTEREST BALANCE AS OF RATE % AS OF MATURITY SEPT. 30, 2000 COMMUNITIES LOCATION SEPTEMBER 30, 2000 DATE (000'S) Multi-Property (22) Various 6.4750 08/31/13 100,000 Deerfield Woods Dearborn, MI 7.0000 01/01/14 3,428 Springwells Dearborn, MI 8.0000 07/01/15 11,404 Pines of Perinton Fairport, NY 8.5000 05/01/18 8,517 Canterbury Baltimore, MD 8.2500 06/01/18 6,693 Pavilion Rockville, MD 8.0000 11/01/18 8,769 Bonnie Ridge Baltimore, MD 6.6000 12/15/18 19,106 Timbercroft Owings Mills, MD 8.3750 06/01/19 5,744 Canterbury Baltimore, MD 7.5000 09/01/19 3,660 Fairways at Village Green Tonawanda, NY 8.2300 10/01/19 4,284 Raintree Island Tonawanda, NY 8.5000 04/30/20 1,145 Chestnut Crossing Newark, DE 9.3400 07/01/20 9,852 Macomb Manor Dearborn, MI 8.6300 06/01/21 4,040 Village Square Glen Burnie, MD 8.1250 08/01/21 6,518 Doub Meadow Hagerstown, MD 7.5000 10/01/21 2,877 Canterbury Baltimore, MD 7.5000 11/01/21 2,552 Shakespeare Park Randallstown, MD 7.5000 01/01/24 2,603 Gateway Village Jessup, MD 8.0000 05/01/30 6,370 Owings Run Owings Mills, MD 8.0000 10/01/35 17,603 Owings Run Owings Mills, MD 8.0000 06/01/36 14,671 756,508 VARIABLE RATE: Springcreek/Meadows Dansville, NY 10.0000 08/01/04 3,050 Maple Lane South Bend, IN 5.8000 07/27/07 6,245 $765,803
* The interest rate on these mortgages will convert to a variable rate on various dates between 2001 and 2003 and continue until maturity. RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE SAME PERIOD IN 1999 The Company had 95 apartment communities with 23,530 units which were owned during both of the nine and three month periods being presented (the "Core Properties"). The Company has acquired an additional 44 apartment communities with 13,668 units during 1999 and 2000 (the "Acquired Communities"). The inclusion of these Acquired Communities generally accounted for the significant changes in operating results for the nine and three months ended September 30, 2000. A summary of the Core Property net operating income is as follows:
NINE MONTHS Three Months 2000 1999 % CHG 2000 1999 % CHG Rent $139,460,000 $132,044,000 5.6% $47,351,000 $44,676,000 6.0% Property other income 5,224,000 4,088,000 27.8% 1,844,000 1,419,000 30.0% Total income 144,684,000 136,132,000 6.3% 49,195,000 46,095,000 6.7% Operating and Maintenance ( 61,562,000) ( 59,294,000) (3.8%) (19,966,000) (19,228,000) (3.8%) Net operating income $ 83,122,000 $76,838,000 8.2% $29,229,000 $26,867,000 8.8%
Of the $66,516,000 increase in rental income, $59,100,000 is attributable to the Acquired Communities. The balance of this increase, which is from the Core Properties, was the result of an increase of 5.6% in weighted average rental rates, less a decrease in occupancy from 94.7 to 94.6%. Of the $3,573,000 increase in property other income, $2,437,000 is attributable to the Acquired Communities, with $1,136,000 representing a 27.8% increase for the Core Properties. This increase reflects increased laundry, furniture/corporate/cable rental activity, application fees, late charges and interest income on escrow deposits. Interest and dividend income increased $686,000, with interest income from increased levels of financing to affiliates partially offset by a reduction of $714,000 in dividend income from an investment in available-for-sale securities. Other income decreased by $1,839,000 due primarily to a decreased level of development activity. The decreased development fees are attributable to reserves recorded for advances, construction overruns and a reduction in the success rate of receiving tax credit allocations for New York State development projects. After six months of numerous meetings and discussions with various interested parties, the Company has reached an agreement in principle to sell its affordable development operations, including a development pipeline in excess of 30 properties, to a management ream led by employee-director Richard Crossed at an amount which approximates book value. Mr. Crossed will resign as an officer and director to devote his full time to the new company. The financial impact of this sale to 2001 could be an additional $.02 per share dilution. Additional detail on this transaction will be available after a contract is signed. However, there can be no assurances that the deal will be consummated. Of the $25,502,000 increase in operating and maintenance expenses, $23,234,000 is attributable to the Acquired Communities. The balance for the Core Properties represents a 3.8% increase over 1999. The major areas of increase in the Core Properties occurred in personnel expense and real estate taxes. The Company includes heat in the monthly rent at approximately 70% of the units. All of these properties use natural gas, except for two which use heating oil. The Company estimates that increased natural gas prices could reduce earnings by $.02 per share in the fourth quarter of 2000 and $.06 per share in 2001, which should show up largely in the first quarter of next year. If higher utility costs persist, the Company plans to pass this cost on to residents in the form of further rent increases as leases are renewed. General and administrative expense increased in 2000 by $2,508,000, or 34%. General and administrative expenses as a percentage of total revenues was 4.2% for 2000 and 4.5% for 1999. During the second quarter of 2000, the Company sold, at a loss of $417,000, a 150-unit community located in Pittsburgh, Pennsylvania. COMPARISON OF THREE MONTHS ENDED SEPTEMBER, 2000 TO THE SAME PERIOD IN 1999 Of the $14,153,000 increase in rental income, $11,478,000 is attributable to the Acquired Communities. The balance of this increase, which is from the Core Properties, was the result of an increase of 5.6% in weighted average rental rates, plus an increase in occupancy from 94.6% to 94.9%. Of the $1,180,000 increase in property other income, $755,000 is attributable to the Acquired Communities, with $425,000 representing a 30.0% increase for the Core Properties. This increase reflects increased laundry, furniture/corporate/cable revenue, application fees, late charges and interest income on escrow deposits. Interest and dividend income increased $863,000, primarily attributable to an increase in construction loans and advances made to affiliated tax credit development partnerships of $480,000 in addition to $383,000 increased earnings from invested cash reserves. Leverage remained relatively constant at 37% of total market capitalization during the quarter, below the Company's target of 40%. In addition, the quarter started and ended with over $40 million of cash on hand. Both of these factors contributed to expected short-term dilution to earnings for the quarter of $.01 per share. Expected activity from acquisitions in the fourth quarter will utilize the cash on hand and bring leverage back towards 40% by year end. Of the $4,852,000 increase in operating and maintenance expenses, $4,114,000 is attributable to the Acquired Communities. The balance for the Core Properties represents a 3.8% increase over 1999. The major areas of increase occurred in personnel, advertising, real estate taxes, utilities and office and telephone. These expense increases were offset in part by savings in repairs and maintenance. FUNDS FROM OPERATIONS Management considers funds from operations ("FFO") to be an appropriate measure of performance of an equity REIT. Effective January 1, 2000 the National Association of Real Estate Investment Trusts ("NAREIT") clarified the White Paper definition of FFO as income (loss) before gains (losses) from the sale of property and extraordinary items, before minority interest in the Operating Partnership, plus real estate depreciation. Management believes that in order to facilitate a clear understanding of the combined historical operating results of the Company, FFO should be considered in conjunction with net income as presented in the consolidated financial statements included elsewhere herein. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indication of the Company's performance or to cash flow as a measure of liquidity. For the nine months ended September 30, 1999, the Company's previously reported FFO excluded a nonrecurring loss on available-for-sale securities of $2,123 and a non-recurring acquisition expense of $6,225,000 in conformance with the NAREIT definition of FFO calculations then in place ("Original Definition"). The Company has adopted NAREIT's new FFO calculation, pursuant to NAREIT's White Paper dated October 1999, which modifies the FFO calculation to include certain nonrecurring charges ("Clarified Definition"). Although both FFO calculations are presented in the table below, the Company believes the comparison of FFO using the Original Definition represents the best guide to investors of comparable operations and growth between years. The calculation of FFO for the previous six quarters are presented below:
Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 2000 2000 2000 1999 1999 1999 Net income available to common Shareholders $8,555 $7,559 $6,554 $7,931 $5,010 $6,191 Preferred dividends 3,790 2,534 1,928 1,141 - - Minority interest 7,658 6,401 5,160 6,524 4,137 3,386 Extraordinary item - - - - 96 - Non-recurring acquisition expense - - - - 6,225 - Depreciation from real property 13,049 12,734 11,622 11,717 9,574 8,247 Depreciation from real property from unconsolidated entities 99 98 143 90 147 153 (Gain) Loss from sale of (45) 462 - - - 1,650* property FFO (original definition) 33,106 29,788 $25,407 $27,403 $25,189 $19,627 Non-recurring acquisition expense - - - - (6,225) - Loss on available-for-sale securities - - - - - ( 2,123) FFO (clarified definition) 33,106 $29,788 $25,407 $27,403 $18,964 $17,504 Weighted average common shares/units outstanding: Basic 36,820.1 35,846.3 34,123.2 35,116.1 34,485.9 28,530.2 Diluted 43,162.4 40,249.9 37,586.7 36,904.1 34,630.9 28,634.8
* Includes the loss from disposition of property investment separately disclosed as loss on available-for-sale securities. All REITs may not be using the strict White Paper definition for new FFO. Accordingly, the above presentation may not be comparable to other similarly titled measures of FFO of other REITs. RECENT ACCOUNTING PRONOUNCEMENTS The Company is evaluating the time period over which it recognizes revenue relating to development fees earned relative to its affordable housing activities in connection with Staff Accounting Bulletin 101. An adjustment, if any, is not expected to have a material effect on reported results of operations or financial position. INFLATION Substantially all of the leases at the communities are for a term of one year or less, which enables the Company to seek increased rents upon renewal of existing leases or commencement of new leases. These short-term leases minimize the potential adverse effect of inflation on rental income, although residents may leave without penalty at the end of their lease terms and may do so if rents are increased significantly. DECLARATION OF DIVIDEND On October 24, 2000, the Board of Directors approved a dividend of $.57 per share for the period from July 1, 2000 to September 30, 2000. This is the equivalent of an annual distribution of $2.28 per share. The dividend is payable November 22, 2000 to shareholders of record on November 14, 2000. SUBSEQUENT EVENTS On October 25, 2000, the Company acquired 371 apartment units in one community located in suburban Chicago, Illinois. The total purchase price of $17.5 million was paid by assuming $10.7 million of debt with the balance of $6.8 million coming from cash on hand. On November 1, 2000, the Company acquired 429 units in five communities located in the town of Patchogue on Long Island. The total purchase price of $26.5 million was paid from cash on hand. HOME PROPERTIES OF NEW YORK, INC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RATE RISK See Note 4 -- Mortgage Notes Payable in the Consolidated Financial Statements concerning interest rate risk as contained in the Company's Form 10-K/A, as filed with the Securities and Exchange Commission on May 22, 2000. PART II - OTHER INFORMATION HOME PROPERTIES OF NEW YORK, INC. ITEM 6. EXHIBITS AND REPORTS OR FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: - Form 8K was filed on October 26, 2000, date of report October 26, 2000, with respect to Items 7 and 9 disclosures regarding the Registrant's Press Release announcing its results for the third quarter of 2000 and its third quarter 2000 investor conference call. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOME PROPERTIES OF NEW YORK, INC. (Registrant) Date: NOVEMBER 9, 2000 By: /s/ David P. Gardner --------------------------------------------- David P. Gardner Vice President Chief Financial Officer and Treasurer Date: NOVEMBER 9, 2000 By: /S/ DAVID P. GARDNER --------------------------------------------- David P. Gardner Vice President Chief Financial Officer and Treasurer