10-Q

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

     (X)  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
          ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

     ( )  TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

                         COMMISSION FILE NUMBER: 1-13136
                         -------------------------------

- --------------------------------------------------------------------------------

                              HOME PROPERTIES, INC.
                              ---------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

        MARYLAND                                         16-1455126
        --------                                         ----------
(State of incorporation)                    (I.R.S. Employer Identification No.)

- --------------------------------------------------------------------------------

                  850 Clinton Square, Rochester, New York 14604
                  ---------------------------------------------
               (Address of principal executive offices)(Zip Code)

- --------------------------------------------------------------------------------

                                 (585) 546-4900
                                 --------------
              (Registrant's telephone number, including area code)

- --------------------------------------------------------------------------------

                                       N/A
                                       ---
              (Former name, former address and former fiscal year,
                         if changed since last report)

     Indicate  by check mark  whether the  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 the
filing requirements for at least the past 90 days.

                               Yes   X     No
                                   -----     -----


     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                               Yes   X     No
                                   -----     -----

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).

                               Yes         No  X
                                   -----     -----

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12, 13 or  15(d)of  the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                               Yes         No
                                   -----     -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     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, 2005
- ---------------------                           -------------------------------
    $.01 par value                                        31,816,027

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                              HOME PROPERTIES, INC.

                                TABLE OF CONTENTS


                                                                           PAGE

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets -
             September 30, 2005 (Unaudited) and December 31, 2004             4

         Consolidated Statements of Operations (Unaudited) -
             Nine months ended September 30, 2005 and 2004                    5

         Consolidated Statements of Operations (Unaudited) -
             Three months ended September 30, 2005 and 2004                   6

         Consolidated Statements of Comprehensive Income (Unaudited) -
             Nine months ended September 30, 2005 and 2004                    7

         Consolidated Statements of Comprehensive Income (Unaudited) -
             Three months ended September 30, 2005 and 2004                   8

         Consolidated Statements of Cash Flows (Unaudited) -
             Nine months ended September 30, 2005 and 2004                    9

         Notes to Consolidated Financial Statements (Unaudited)           10-22

Item 2.  Management's Discussion and Analysis of
             Financial Condition and Results of Operations                23-37

Item 3.  Quantitative and Qualitative Disclosures About Market Risk          38

Item 4.  Controls and Procedures                                             39

PART II.  OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds         40

Item 6.  Exhibits                                                            40

         Signatures                                                          41


                         PART I - FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                              HOME PROPERTIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                                                                      2005               2004
                                                                                      ----               ----
                                                                               (Unaudited)           (Note 1)
ASSETS
Real estate:
  Land                                                                             416,538       $    402,620
  Construction in progress                                                           1,738              1,627
  Buildings, improvements and equipment                                          2,817,939          2,640,943
  Real estate held for sale or disposal, net                                        21,173             78,711
                                                                                ----------         ----------
                                                                                 3,257,388          3,123,901
  Less:  accumulated depreciation                                                 (478,645)          (405,919)
                                                                                ----------         ----------
         Real estate, net                                                        2,778,743          2,717,982

Cash and cash equivalents                                                            5,264              7,925
Cash in escrows                                                                     37,587             43,883
Accounts receivable                                                                  6,009              6,664
Prepaid expenses                                                                    21,550             18,224
Deferred charges                                                                    11,060             13,778
Other assets                                                                         8,591              8,340
                                                                                ----------         ----------
         Total assets                                                           $2,868,804         $2,816,796
                                                                                ==========         ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable                                                          $1,768,554         $1,644,722
Line of credit                                                                      94,000             58,000
Accounts payable                                                                    18,718             24,600
Accrued interest payable                                                             8,738              8,876
Accrued expenses and other liabilities                                              22,830             26,750
Security deposits                                                                   23,447             22,651
                                                                                ----------         ----------
         Total liabilities                                                       1,936,287          1,785,599
                                                                                ----------         ----------

Commitments and contingencies
Minority interest                                                                  287,170            310,775
                                                                                ----------         ----------
Stockholders' equity:
   Cumulative redeemable preferred stock, $.01 par value; 2,400,000 shares
     issued and outstanding at September 30, 2005 and December 31, 2004             60,000             60,000
   Convertible cumulative preferred stock, $.01 par value; 10,000,000 shares
     authorized; 250,000 shares issued and outstanding at December  31, 2004             -             25,000
   Common stock, $.01 par value; 80,000,000 shares authorized; 32,391,306 and
     32,625,413 shares issued and outstanding at September 30, 2005 and
     December 31, 2004, respectively                                                   324                326
   Excess stock, $.01 par value; 10,000,000 shares authorized; no shares
     issued or outstanding                                                               -                  -
   Additional paid-in capital                                                      795,522            807,212
   Accumulated other comprehensive income (loss)                                       126               (362)
   Distributions in excess of accumulated earnings                                (210,625)          (171,754)
                                                                                ----------         ----------
         Total stockholders' equity                                                645,347            720,422
                                                                                ----------         ----------
         Total liabilities and stockholders' equity                             $2,868,804         $2,816,796
                                                                                ==========         ==========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                             HOME PROPERTIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
           (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                                                                      2005             2004
                                                                                      ----             ----
Revenues:
   Rental income                                                                  $345,149         $323,922
   Property other income                                                            18,871           15,357
   Interest income                                                                     233              449
   Other income                                                                      1,503            1,968
                                                                                  --------         --------
         Total revenues                                                            365,756          341,696
                                                                                  --------         --------

Expenses:
   Operating and maintenance                                                       165,065          152,267
   General and administrative                                                       14,443           14,496
   Interest                                                                         77,175           66,615
   Depreciation and amortization                                                    74,263           66,073
   Impairment of assets held as general partner                                          -            1,116
                                                                                  --------         --------
         Total expenses                                                            330,946          300,567
                                                                                  --------         --------
         Income from operations                                                     34,810           41,129
  Equity in losses of unconsolidated affiliates                                          -             (538)
                                                                                  --------         --------
         Income before minority interest and discontinued operations                34,810           40,591
  Minority interest                                                                 (9,842)         (11,240)
                                                                                  --------         --------
         Income from continuing operations                                          24,968           29,351
                                                                                  --------         --------
  Discontinued operations:
    Loss from operations, net of ($2,379) in 2005 and ($201) in 2004 allocated
      to minority interest                                                          (4,808)            (614)
    Gain (loss) on disposition of property, net of $3,041 in 2005 and ($2,949)
      in 2004 allocated to minority interest                                         6,290           (6,305)
                                                                                  --------         --------
         Discontinued operations                                                     1,482           (6,919)
                                                                                  --------         --------
         Income before loss on disposition of property and business and
           cumulative effect of change in accounting principle                      26,450           22,432
  Loss on disposition of property and business, net of ($33) in 2004 allocated
    to minority interest                                                                 -              (67)
                                                                                  --------         --------
         Income before cumulative effect of change in accounting principle          26,450           22,365
  Cumulative effect of change in accounting principle, net of ($159) in 2004
    allocated to minority interest                                                       -             (321)
                                                                                  --------         --------
         Net income                                                                 26,450           22,044
  Preferred dividends                                                               (4,929)          (5,695)
                                                                                  --------         --------
         Net income available to common shareholders                              $ 21,521         $ 16,349
                                                                                  ========         ========
  Basic earnings per share data:
    Income from continuing operations                                               $  .62           $  .72
    Discontinued operations                                                            .05          (   .21)
    Cumulative effect of change in accounting principle                                  -          (   .01)
                                                                                    ------           ------
         Net income available to common shareholders                                $  .67           $  .50
                                                                                    ======           ======

  Diluted earnings per share data:
    Income from continuing operations                                               $  .62           $  .71
    Discontinued operations                                                            .04          (   .21)
    Cumulative effect of change in accounting principle                                  -          (   .01)
                                                                                    ------           ------
         Net income available to common shareholders                                $  .66           $  .49
                                                                                    ======           ======

  Weighted average number of shares outstanding:
    Basic                                                                       32,072,307       32,840,672
                                                                                ==========       ==========
    Diluted                                                                     32,481,218       33,280,680
                                                                                ==========       ==========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                              HOME PROPERTIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
           (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                                                                   2005             2004
                                                                                   ----             ----
Revenues:
   Rental income                                                               $117,581         $110,731
   Property other income                                                          7,626            5,484
   Interest and dividend income                                                      92              150
   Other income                                                                     476              805
                                                                               --------         --------
Total revenues                                                                  125,775          117,170
                                                                               --------         --------

Expenses:
   Operating and maintenance                                                     54,161           50,102
   General and administrative                                                     4,894            4,879
   Interest                                                                      27,059           23,016
   Depreciation and amortization                                                 25,639           22,999
                                                                               --------         --------
Total expenses                                                                  111,753          100,996
                                                                               --------         --------
         Income from operations                                                  14,022           16,174
Equity in earnings (losses) of unconsolidated affiliates                              -               25
                                                                               --------         --------
         Income before minority interest and discontinued operations             14,022           16,199
Minority interest in operating partnership                                       (4,133)          (4,562)
                                                                               --------         --------
         Income from continuing operations                                        9,889           11,637
                                                                               --------         --------
Discontinued operations:
   Income from operations, net of $216 in 2005 and $49 in 2004
       allocated to minority interest                                               447              104
   Gain (loss) on disposition of property, net of $3,081 in 2005 and ($3,195)
       in 2004 allocated to minority interest                                     6,367           (6,816)
                                                                               --------         --------
         Discontinued operations                                                  6,814           (6,712)
                                                                               --------         --------
         Net income                                                              16,703            4,925
Preferred dividends                                                              (1,350)          (1,898)
                                                                               --------         --------
         Net income available to common shareholders                           $ 15,353         $  3,027
                                                                               ========         ========

Basic earnings per share data:
   Income from continuing operations                                           $  .26           $  .29
   Discontinued operations                                                        .21          (   .20)
                                                                               ------           ------
         Net income available to common shareholders                           $  .47           $  .09
                                                                               ======           ======

Diluted earnings per share data:
   Income from continuing operations                                           $  .26           $  .29
   Discontinued operations                                                        .21          (   .20)
                                                                               ------           ------
         Net income available to common shareholders                           $  .47           $  .09
                                                                               ======           ======

Weighted average number of shares outstanding:
   Basic                                                                   32,518,949       33,293,905
                                                                           ==========       ==========
   Diluted                                                                 32,950,121       33,737,974
                                                                           ==========       ==========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                              HOME PROPERTIES, INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
                            (UNAUDITED, IN THOUSANDS)

                                                            2005          2004
                                                            ----          ----

Net income                                               $26,450       $22,044
Other comprehensive income (net of minority interest):
     Change in fair value of hedge instruments               488            (2)
                                                         -------       -------
Comprehensive income                                     $26,938       $22,042
                                                         =======       =======

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                              HOME PROPERTIES, INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
                            (UNAUDITED, IN THOUSANDS)

                                                            2005          2004
                                                            ----          ----

Net income                                               $16,703        $4,925

Other comprehensive income (net of minority interest):
     Change in fair value of hedge instruments               216          (225)
                                                         -------        ------
Comprehensive income                                     $16,919        $4,700
                                                         =======        ======

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                              HOME PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
                            (UNAUDITED, IN THOUSANDS)
                                                                                                    2005        2004
                                                                                                    ----        ----
Cash flows from operating activities:
Net income                                                                                      $ 26,450   $  22,044
                                                                                                --------    --------
    Adjustments to reconcile net income to net cash provided by operating activities:
    Equity in losses of unconsolidated affiliates                                                      -         538
    Income allocated to minority interest                                                         10,504       7,898
    Depreciation and amortization                                                                 75,781      72,524
    Impairment of assets held as General Partner                                                     400       1,116
    Impairment of real property                                                                    7,325       1,100
    Gain on disposition of property and business                                                 (10,302)       (562)
    Loss from early extinguishment of debt                                                             -         102
    Issuance  of  restricted   stock,   compensation  cost  of  stock  options  and  deferred
        compensation                                                                               1,982       1,908
    Cumulative effect of change in accounting principle                                                -         480
    Changes in assets and liabilities:
       Other assets                                                                               (3,003)      2,628
       Accounts payable and accrued liabilities                                                   (8,518)     15,592
                                                                                                --------    --------
    Total adjustments                                                                             74,169     103,324
                                                                                                --------    --------
    Net cash provided by operating activities                                                    100,619     125,368
                                                                                                --------    --------
Cash flows from investing activities:
    Purchase of properties  and other assets,  net of mortgage notes assumed and UPREIT Units
        issued                                                                                   (99,139)   (153,535)
    Additions to properties                                                                      (72,980)    (74,138)
    Proceeds from sale of properties and business, net                                             5,574      24,927
    Proceeds from sale of affordable properties, net                                                   -       1,387
    Advances to affiliates                                                                             -        (820)

    Payments on advances to affiliates                                                                 -         149
                                                                                                --------    --------
    Net cash used in investing activities                                                       (166,545)   (202,030)
                                                                                                --------    --------
Cash flows from financing activities:
    Proceeds from sale of common stock, net                                                        6,117      28,341
    Repurchase of common stock                                                                   (61,330)     (2,189)
    Proceeds from mortgage notes payable                                                         237,952     126,674
    Payments of mortgage notes payable                                                           (61,209)    (45,251)
    Payment of prepayment penalty in connection with the early extinguishment of debt                  -        (102)
    Proceeds from line of credit                                                                 258,200     201,500
    Payments on line of credit                                                                  (222,200)   (131,000)
    Payments of deferred loan costs                                                               (2,530)     (1,914)
    Withdrawals from (additions to) cash escrows, net                                              2,634      (1,371)
    Repayment of officer loans                                                                         -         237
    Dividends and distributions paid                                                             (94,369)    (95,949)
                                                                                                --------    --------
    Net cash provided by financing activities                                                     63,265      78,976
                                                                                                --------    --------
Net (decrease) increase in cash and cash equivalents                                              (2,661)      2,314
Cash and cash equivalents:
    Beginning of year                                                                              7,925       5,103
    Cash assumed in connection with FIN 46R consolidation
                                                                                                       -         850
                                                                                                --------    --------
       End of year                                                                             $   5,264   $   8,267
                                                                                               =========   =========

Supplemental disclosure of non-cash operating, investing and financing activities:
- ----------------------------------------------------------------------------------
Mortgage loans assumed associated with property acquisitions                                   $   7,916    $ 90,569
Exchange of UPREIT Units/partnership interest for common shares                                    3,442      14,015
Fair value of hedge instruments                                                                      (67)      1,012
Issuance of UPREIT Units associated with property and other acquisitions                          12,611      12,105
Increase in real estate associated with the purchase of UPREIT Units                               2,856      12,470
Compensation cost of stock options issued                                                            646         684
Net real estate disposed in connection with FIN 46R consolidation                                (50,467)    (69,743)
Other assets disposed in connection with FIN 46R consolidation                                    (6,940)     (3,054)
Mortgage debt disposed in connection with FIN 46R consolidation                                  (59,339)    (48,611)
Other liabilities disposed in connection with FIN 46R consolidation                               (1,187)     (2,759)
Net real estate assumed in connection with FIN 46R consolidation                                       -     152,319
Other assets assumed in connection with FIN 46R consolidation                                          -      11,916
Mortgage debt assumed in connection with FIN 46R consolidation                                         -     129,149
Other liabilities assumed in connection with FIN 46R consolidation                                     -       5,363

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1.   Unaudited Interim Financial Statements
- --   --------------------------------------

The interim  consolidated  financial  statements of Home  Properties,  Inc. (the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim  financial  information and
the applicable rules and regulations of the Securities and Exchange  Commission.
Accordingly,   certain   disclosures   that  would  accompany  annual  financial
statements prepared in accordance with accounting  principles generally accepted
in the United States of America are omitted. The year-end balance sheet data was
derived from audited financial statements,  but does not include all disclosures
required by  accounting  principles  generally  accepted in the United States of
America.  In the opinion of management,  all adjustments,  consisting  solely of
normal  recurring  adjustments,  necessary  for  the  fair  presentation  of the
consolidated  financial  statements for the interim  periods have been included.
The current  period's  results of operations are not  necessarily  indicative of
results which ultimately may be achieved for the year. The interim  consolidated
financial  statements and notes thereto  should be read in conjunction  with the
consolidated  financial  statements and notes thereto  included in the Company's
Form 10-K for the year ended December 31, 2004.

2.   Organization and Basis of Presentation
- --   --------------------------------------

Organization
- ------------

The Company is engaged primarily in the ownership, management,  acquisition, and
rehabilitation  of  residential   apartment  communities  in  the  Northeastern,
Mid-Atlantic,  Midwestern and Southeast Florida regions of the United States. As
of September  30, 2005,  the Company  operated 159  apartment  communities  with
46,316  apartment  units.  Of this  total,  the Company  owned 154  communities,
consisting of 42,747 apartment units ("Owned  Communities"),  managed as general
partner 868 apartment units and fee managed 2,701  apartments for affiliates and
third parties.

Basis of Presentation
- ---------------------

The accompanying  consolidated  financial statements include the accounts of the
Company and its 67.4% (68.3% at September 30, 2004) partnership interest in Home
Properties,   L.P.  (the  "Operating  Partnership").   Such  interest  has  been
calculated as the percentage of  outstanding  common shares divided by the total
outstanding  common  shares and Operating  Partnership  Units  ("UPREIT  Units")
outstanding.  The remaining 32.6% (31.7% at September 30,  2004) is reflected as
Minority Interest in these consolidated financial statements. The Company owns a
1.0% general partner interest in the Operating  Partnership and the remainder as
a limited partner through its wholly owned  subsidiary,  Home Properties I, LLC,
which owns 100% of the limited partner,  Home Properties  Trust. Home Properties
Trust was formed in  September  1997 as a Maryland  real  estate  trust and as a
qualified REIT  subsidiary  ("QRS") and owns the Company's  share of the limited
partner  interests in the Operating  Partnership.  For financing  purposes,  the
Company has formed a limited  liability  company  (the "LLC") and a  partnership
(the  "Financing   Partnership"),   which  beneficially  own  certain  apartment
communities encumbered by mortgage indebtedness.  The LLC is wholly owned by the
Operating Partnership. The Financing Partnership is owned 99.9% by the Operating
Partnership and 0.1% by the QRS.

The accompanying  consolidated  financial statements include the accounts of two
wholly owned subsidiaries,  Home Properties Management, Inc. and Home Properties
Resident   Services,   Inc.  (the  "Management   Companies").   All  significant
inter-company   balances  and   transactions   have  been  eliminated  in  these
consolidated financial statements.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

2.   Organization and Basis of Presentation (continued)
- --   --------------------------------------------------

Through March 30, 2004,  the Company  accounted  for its  investment as managing
general partner ("GP") in unconsolidated affordable housing limited partnerships
("LP") using the equity  method of  accounting.  Effective  March 31, 2004,  the
Company adopted FASB Interpretation No. 46R,  Consolidation of Variable Interest
Entities ("FIN 46R"). This  interpretation  addresses  consolidation by business
enterprises of variable interest entities in which the equity investment at risk
is not  sufficient  to permit  the  entity to  finance  its  activities  without
additional  subordinated  financial  support from other  parties or in which the
equity  investors do not have the  characteristics  of a  controlling  financial
interest.  This  interpretation  requires  a  variable  interest  entity  to  be
consolidated  by a company if that  company is subject to a majority of the risk
of loss from the variable interest entity's  activities or entitled to receive a
majority of the  entity's  residual  returns or both.  The  interpretation  also
requires  disclosures  about variable  interest entities that the company is not
required to consolidate but in which it has a significant variable interest.

As of March  31,  2004,  the  Company  was the  general  partner  in 41  limited
partnerships in Upstate New York,  Pennsylvania,  Ohio and Maryland. The Company
had made a determination that all 41 limited partnerships were Variable Interest
Entities  ("VIEs").  The Company had further  determined that it was the primary
beneficiary  in 34  of  the  VIEs  and  therefore  consolidated  these  entities
effective March 31, 2004. Beginning with the second quarter of 2004, the Company
consolidated  the results of operations of the VIEs.  During 2004 and 2005,  the
Company sold most of these consolidated VIEs with only one partnership remaining
as of September 30, 2005.  The results of  operations  for the VIEs owned during
the three- and  nine-month  periods  ending  September  30, 2005 are included in
discontinued  operations.  The one remaining  property is classified as held for
sale. As of September 30, 2005, the Company intends to sell the property.

As of  March  31,  2004,  the  Company  determined  that it was not the  primary
beneficiary in seven  partnerships  syndicated under U.S.  Department of Housing
and Urban Development  subsidy programs,  none of which remained as of September
30, 2005.  These  investments were accounted for under the equity method through
their  sale.  The  Company  recorded  its  allocable  share  of  the  respective
partnership's income or loss based on the terms of the agreements. To the extent
it was  determined  that the LPs could not absorb their share of the losses,  if
any,  the GP  recorded  the LPs  share  of such  losses.  The  Company  absorbed
such losses to the extent the Company had outstanding  loans or advances and the
limited partner had no remaining  capital account.  All seven  partnerships have
been sold as of September 30, 2005.

Reclassifications
- -----------------

Certain  reclassifications  have  been made to the 2004  consolidated  financial
statements to conform to the 2005 presentation.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

3.   Adoption of New Accounting Policies
- --   -----------------------------------

In December 2004, the FASB issued  Statement of Financial  Accounting  Standards
No. 123R Share Based Payment ("SFAS No.  123R").  The statement is a revision of
SFAS No. 123 Accounting for  Stock-Based  Compensation.  SFAS No 123R supersedes
APB Opinion No. 25  Accounting  for Stock  Issued to  Employees  and its related
implementation  guidance. SFAS 123R requires that entities recognize the cost of
employee services received in exchange for awards of equity  instruments  (i.e.,
stock options) based on the grant-date fair value of those awards. The Statement
is effective for the first fiscal year beginning after June 15, 2005. On January
1, 2003,  the Company  adopted the  provisions  of SFAS No. 148  Accounting  for
Stock-Based  Compensation - Transition and Disclosure,  an Amendment to SFAS No.
123.  Effective on that date, the Company began  recognizing  compensation  cost
related to stock option  grants.  Based upon the Company's  adoption of SFAS No.
148,  the Company  does not expect the  application  of SFAS No. 123R  beginning
January  1,  2006  to  have a  material  impact  on  the  Company's  results  of
operations, financial position or liquidity.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

4.   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,   restricted  stock,  phantom  shares  under  the  Company's  incentive
compensation  plan,  warrants and the conversion of any  cumulative  convertible
preferred  stock.  The  exchange of an UPREIT 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.  Income  from  continuing
operations is the same for both the basic and diluted calculation.

The  reconciliation of the basic and diluted earnings per share for the nine and
three months ended September 30, 2005 and 2004 is as follows:

                                                                    Nine Months                   Three Months
                                                                    -----------                   ------------
                                                                2005           2004           2005           2004
                                                                ----           ----           ----           ----

Income from continuing operations                            $24,968        $29,351         $9,889        $11,637
Add: Loss on disposal of property                                  -            (67)             -              -
Less: Preferred dividends                                     (4,929)        (5,695)        (1,350)        (1,898)
                                                             -------        -------        -------         ------
Basic and Diluted - Income from continuing operations
    applicable to common shareholders                         20,039         23,589          8,539          9,739
Less: Cumulative effect of change in accounting
    principle                                                      -           (321)             -              -
Discontinued operations                                        1,482         (6,919)         6,814         (6,712)
                                                             -------        -------        -------         ------
Net income available to common shareholders                  $21,521        $16,349        $15,353         $3,027
                                                             =======        =======        =======         ======

Basic weighted average number of shares outstanding       32,072,307     32,840,672     32,518,949     33,293,905
Effect of dilutive stock options                             351,765        360,045        381,652        371,308
Effect of restricted shares                                   57,146         79,963         49,520         72,761
                                                          ----------     ----------     ----------     ----------
Diluted weighted average number of shares
    outstanding                                           32,481,218     33,280,680     32,950,121     33,737,974
                                                          ==========     ==========     ==========     ==========

Basic earnings per share
    Income from continuing operations                            $.62           $.72           $.26           $.29
    Discontinued operations                                       .05           (.21)           .21           (.20)
    Cumulative effect of change in accounting
       principle                                                    -           (.01)             -              -
                                                                 ----           ----           ----           ----
Net Income available to common shareholders                      $.67           $.50           $.47           $.09
                                                                 ====           ====           ====           ====

Diluted earnings per share
    Income from continuing operations                            $.62           $.71           $.26           $.29
    Discontinued operations                                       .04           (.21)           .21           (.20)
    Cumulative effect of change in accounting
         principle                                                  -           (.01)             -              -
                                                                 ----           ----           ----           ----
Net Income available to common shareholders                      $.66           $.49           $.47           $.09
                                                                 ====           ====           ====           ====

Unexercised  stock options to purchase  542,800  shares of the Company's  common
stock for the  nine-month  period ended  September 30, 2005 were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the Company's stock during this period. For the
three-month  period  ended  September  30,  2005 and the nine-  and  three-month
periods  ended  September  30, 2004,  no  unexercised  stock options to purchase
shares of the  Company's  common  stock were  excluded  in the  computations  of
diluted EPS as the options'  exercise  prices were less than the average  market
price of the Company's stock during each period.



                              HOME PROPERTIES, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

4.   Earnings Per Common Share (continued)
- --   -------------------------------------

For the nine-month period ended September 30, 2005 and the nine- and three-month
periods ended  September  30, 2004 the 833,333  common stock  equivalents  on an
as-converted basis of the Series D Convertible  Cumulative  Preferred Stock have
an antidilutive effect and are not included in the computation of diluted EPS to
the extent they were not  converted.  On May 26, 2005,  the Series D Convertible
Cumulative Preferred Stock were converted and the common shares issued upon such
conversion  were  included  in  outstanding  common  shares  from  the  date  of
conversion.

5.   Other income
- --   ------------

Other income for the nine- and three-month  periods ended September 30, 2005 and
2004 includes management and other real-estate service fees.

6.   Variable interest entities
- --   --------------------------

Effective  March 31, 2004,  the Company  adopted FASB  Interpretation  No. 46R -
Consolidation of Variable Interest  Entities,  an interpretation of ARB No. 51 -
Consolidated Financial Statements. The interpretation addresses consolidation by
businesses of special purpose entities (variable interest entities,  "VIE"). The
Company  had  made  a  determination  that  all  41  of  the  remaining  limited
partnerships as of that date were VIEs.

The  Company  determined  that it was  not  the  primary  beneficiary  in  seven
partnerships  syndicated under U.S.  Department of Housing and Urban Development
subsidy  programs,  all of which have been sold as of September  30,  2005.  The
Company  purchased the general  partnership  interests in these  partnerships in
January,  1996. These  partnerships were set up to provide low income housing to
residents  through  subsidized  rents and below market debt governed by HUD. The
Company as general partner and managing agent managed the day-to-day  operations
of the partnerships for a fee (5% of rents  collected).  The Company's  economic
benefit from these partnerships was the management fee. There was no exposure to
the Company of loss as a result of its involvement with these  partnerships.  No
management  fees were  recognized  on these  partnerships  during the three- and
nine-month periods ended September 30, 2005. The management fees earned on these
partnerships  were $45 and $118 for the  three-  and  nine-month  periods  ended
September 30, 2004. The assets and liabilities of the seven partnerships totaled
$8,300 and $14,100 at September 30, 2004, respectively.

The Company had further determined that it was the primary  beneficiary in 34 of
the VIEs and therefore  consolidated  these entities  effective  March 31, 2004.
Beginning with the second quarter of 2004, the Company  consolidated the results
of operations of the VIEs. The results of operations of three of the original 34
VIEs for the  three-  and  nine-month  periods  ending  September  30,  2005 are
included  in  discontinued  operations  as all of the  VIEs are held for sale as
described below.

The Company was the general partner in these 34 VIEs syndicated using low income
housing tax credits  under  Section 42 of the Internal  Revenue Code. As general
partner, the Company managed the day-to-day operations of these partnerships for
a  management  fee. In  addition,  the Company  has  certain  operating  deficit
guarantees  and tax credit  guarantees to its limited  partners (as discussed in
Note 11). The Company is responsible  to fund  operating  deficits to the extent
there are any and can receive  operating  incentive awards when cash flows reach
certain levels. The effect on the consolidated balance sheet as of September 30,
2005 is an  increase  in  "Total  assets"  of  $21,900,  an  increase  in "Total
liabilities" of $17,900,  and an increase in "Minority  interest" of $3,900.  Of
the $17,900 increase in "Total  liabilities,"  $17,000  represents  non-recourse
mortgage debt.  In connection with the adoption of FIN 46R, the Company recorded
a $321 charge, net of minority interest,  for a cumulative effect of a change in
accounting  principle during the first quarter of 2004. This charge was a result
of the negative capital accounts of minority interest partners that was absorbed
by the Company.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

6.   Variable interest entities (continued)
- --   --------------------------------------

During the first quarter of 2004, the Company  recorded an impairment  charge of
$1,600  to  reduce  the  value  of  the  assets  associated  with  the  VIEs  to
management's  estimate of fair market value. The impairment charge is classified
in the financial statements as "Impairment of assets held as general partner" of
$1,116 and "Equity in earnings (losses) of unconsolidated affiliates" of $484. A
portion of the total $1,116 charge, or $171, represents monies loaned to certain
affordable  properties  during  the  first  quarter  of 2004  to fund  operating
shortfalls,  which were not  anticipated  to be recovered  from  projected  sale
proceeds. The remaining balance of $945 pertains to an additional net impairment
charge taken to reduce the assets to estimated  fair market value.  Of the total
impairment charge recorded of $1,600 for the three-month  period ended March 31,
2004, $655 related to cash advances to fund operating shortfalls.

In addition, on September 30, 2005, two VIEs were disposed of through a transfer
of  deed in lieu  of  foreclosure.  The  Company  had  repurchased  the  limited
partner's  interests  in  satisfaction  of any tax  credit  guarantees  or other
obligations to that partner in January,  2005 for $5,700. In connection with the
Company's decision to dispose of the property, the Company performed a valuation
analysis  on the  underlying  real  estate,  and as a result,  recorded a $7,300
impairment  of real  estate  during the first  quarter of 2005 to adjust the net
book value of the property to the Company's  estimate of fair market value.  The
mortgage note was sold in March, 2005. Finally, on September, 30, 2005, the deed
was  transferred to the mortgage  holder in lieu of  foreclosure  resulting in a
gain on sale of real estate of $7,700.

Effective  September 30, 2005, the Company has closed on the sale of all but one
of the 41 VIEs.  The Company is actively  seeking  buyers for the one  remaining
VIE. The Company performed a valuation analysis on the underlying real estate of
the one remaining  VIE, and as a result,  recorded an impairment  charge of $400
for the three month  period ended March 31, 2005 to adjust the net book value of
the property to the Company's estimate of fair market value.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

7.   Segment Reporting
- --   -----------------

The Company is engaged in the ownership and management of primarily  market rate
apartment  communities.  Each  apartment  community  is  considered  a  separate
operating  segment.  Each segment on a stand alone basis is less than 10% of the
revenues, profit or loss, and assets of the combined reported operating segments
and meets the  majority of the  aggregation  criteria  under SFAS No.  131.  The
operating   segments  are   aggregated  and  segregated  as  Core  and  Non-core
properties.

Non-segment  revenue to  reconcile  to total  revenue  consists of interest  and
dividend  income and other  income.  Non-segment  assets to  reconcile  to total
assets include cash and cash equivalents,  cash in escrows, accounts receivable,
prepaid  expenses,  investments in and advances to affiliates,  deferred charges
and other assets.

Core properties consist of all apartment  communities which have been owned more
than  one  full  calendar  year.   Therefore,   the  Core  Properties  represent
communities  owned  as of  January  1,  2004.  Non-core  properties  consist  of
apartment  communities  acquired  during  2004 and  2005,  such  that  full year
comparable operating results are not available.

The accounting policies of the segments are the same as those described in Notes
1 and 2 of the Company's Form 10-K for the year ended December 31, 2004.

The  Company  assesses  and  measures  segment  operating  results  based  on  a
performance measure referred to as Funds from Operations ("FFO"). FFO is defined
as net income  (computed in accordance with GAAP) excluding gains or losses from
the sales of property and business or non-cash  real estate  impairment  charge,
minority interest in the Operating  Partnership,  extraordinary items, plus real
estate depreciation,  less dividends from non-convertible  preferred shares. FFO
is not a measure of operating results or cash flows from operating activities as
measured by generally accepted accounting principles and it is not indicative of
cash available to fund cash needs and should not be considered an alternative to
cash flows as a measure of liquidity.  Other  companies may calculate  similarly
titled performance measures in a different manner.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

7.   Segment Reporting (continued)
- --   -----------------------------

The revenues,  profit (loss), and assets for each of the reportable segments are
summarized as of and for the nine- and  three-month  periods ended September 30,
2005, and 2004 as follows:

                                                                    Nine Months                 Three Months
                                                                    -----------                 ------------
                                                                 2005          2004          2005           2004
                                                                 ----          ----          ----           ----
Revenues
- --------
Apartments owned
    Core properties                                          $335,500      $327,284      $114,316       $109,904
    Non-core properties                                        28,520        11,992        10,891          6,311
Reconciling items                                               1,736         2,420           568            955
                                                             --------      --------      --------       --------
Total Revenue                                                $365,756      $341,696      $125,775       $117,170
                                                             ========      ========      ========       ========
Profit (loss)
- -------------
Funds from operations:
Apartments owned
    Core properties                                          $183,141      $179,900       $65,025        $62,339
    Non-core properties                                        15,814         7,109         6,021          3,774
Reconciling items                                               1,736         2,420           568            955
                                                             --------      --------      --------       --------
Segment contribution to FFO                                   200,691       189,429        71,614         67,068
General and administrative expenses                           (14,443)      (14,496)       (4,894)        (4,879)
Interest expense                                              (77,175)      (66,615)      (27,059)       (23,016)
Depreciation of unconsolidated affiliates                           -           556             -              -
Non-real estate depreciation/amortization                      (2,436)       (2,606)         (841)          (928)
FAS 141 acquisition rent / intangibles                            605           835           199            325
Equity in earnings (losses) of unconsolidated affiliates            -          (538)            -             25
Impairment of assets held as General Partner                        -        (1,116)            -              -
Impairment of affordable assets not in FFO                          -           945             -              -
Loss on sale of business                                            -           (17)            -              -
Gain (loss) on disposition of discontinued operations,
    before minority interest                                    7,325        (9,917)        7,325        ( 9,917)
Income (loss) from discontinued operations before
    minority interest and depreciation                         (7,094)        2,449           663            982
Redeemable preferred dividend - Series F                       (4,050)       (4,050)       (1,350)        (1,350)
                                                             --------      --------      --------       --------
Funds from Operations - Diluted                               103,423        94,859        45,657         28,310
Depreciation - apartments owned                               (71,919)      (66,731)      (24,798)       (22,900)
Depreciation of unconsolidated affiliates                           -          (556)            -              -
FAS 141 acquisition rent/intangibles                             (605)         (835)         (199)          (325)
Redeemable preferred dividend                                   4,050         4,050         1,350          1,350
Impairment of affordable assets not in FFO                          -          (945)            -              -
Loss (income) from discontinued operations before
    minority interest and loss on disposition of property       7,186           832          (663)          (153)
Gain (loss) on disposition of discontinued operations,
    before minority interest                                   (7,325)        9,917        (7,325)         9,917
Minority interest in operating partnership                     (9,842)      (11,240)       (4,133)        (4,562)
                                                             --------      --------      --------       --------

Income from continuing operations                            $ 24,968      $ 29,351      $  9,889       $ 11,637
                                                             ========      ========      ========       ========

Assets - As of September 30, 2005 and December 31, 2004
- -------------------------------------------------------
Apartments owned:
    - Core                                                                              $2,362,557    $2,368,691
    - Non-core                                                                             416,186       349,291
Reconciling items                                                                           90,061        98,814
                                                                                        ----------    ----------
Total Assets                                                                            $2,868,804    $2,816,796
                                                                                        ==========    ==========

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

8.   Pro Forma Condensed Financial Information
- --   -----------------------------------------

The Company acquired five apartment  communities  ("2005 Acquired  Communities")
with a combined 1,038 apartment units in five unrelated  transactions during the
nine-month  period ended  September 30, 2005. The total combined  purchase price
(including  closing costs) of $119,900 equates to  approximately  $115 per unit.
Consideration for the communities was funded through the assumption or placement
of new debt of $51,500, $55,800 from the Company's line of credit and $12,600 of
UPREIT Units.

The  following  proforma  information  was prepared as if the 2005  transactions
related to the  acquisition  of the 2005  Acquired  Communities  had occurred on
January 1, 2004. The proforma financial information is based upon the historical
consolidated  financial  statements  and is not  necessarily  indicative  of the
consolidated  results which actually would have occurred if the transactions had
been  consummated  on  January 1, 2004,  nor does it  purport to  represent  the
results of operations for future periods.  Adjustments to the proforma condensed
combined  statement of operations  for the nine- and  three-month  periods ended
September  30, 2005 and 2004,  consist  principally  of providing  net operating
activity and recording  interest,  depreciation and amortization from January 1,
2004 to the acquisition date as appropriate.

                                                              For the Nine Months        For the Three Months
                                                              Ended September 30,        Ended September 30,
                                                              -------------------        -------------------
                                                                2005         2004          2005         2004
                                                                ----         ----          ----         ----

Total revenues                                              $370,382     $360,347      $126,204     $121,287
Net income available to common shareholders before
    cumulative effect of change in accounting principle       20,316       22,452         8,591        9,859
Net income available to common shareholders                   20,316       22,131         8,591        9,859

Per common share data:

Net income available to common shareholders before
    cumulative effect of change in accounting principle
    Basic                                                      $0.63        $0.68         $0.26        $0.30
    Diluted                                                    $0.63        $0.67         $0.26        $0.29

Net income available to common shareholders
    Basic                                                      $0.63        $0.67         $0.26        $0.30
    Diluted                                                    $0.63        $0.66         $0.26        $0.29

Weighted average numbers of shares outstanding:
    Basic                                                 32,072,307   32,840,672    32,518,949   33,293,905
    Diluted                                               32,481,218   33,280,680    32,950,121   33,737,974

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

9.   Derivative Financial Instruments
- --   --------------------------------

The Company enters into financial derivative instruments only for the purpose of
minimizing risk and, thereby, protecting income. Derivative instruments utilized
as part of the  Company's  risk  management  strategy may include  interest rate
swaps and caps.  All  derivatives  are  recognized  on the balance sheet at fair
value. The Company does not employ leveraged derivative instruments, nor does it
enter into derivative instruments for trading or speculative purposes.

The  Company  has  four  interest  rate  swaps  and one  interest  rate cap that
effectively  convert  variable rate debt to fixed rate debt. As of September 30,
2005,  the  aggregate  fair value of the  Company's  interest rate swaps was $67
prior to the allocation of minority interest and is included in accrued expenses
and other  liabilities in the  consolidated  balance  sheets.  For the three-and
nine-months  ending  September 30, 2005,  as the critical  terms of the interest
rate swaps and the hedged items are the same, no ineffectiveness was recorded in
the consolidated  statements of operations.  All components of the interest rate
swaps were included in the assessment of hedge effectiveness.  The fair value of
the interest  rate swaps is based upon the estimate of amounts the Company would
receive or pay to terminate the contract at the reporting  date and is estimated
using interest rate market pricing models.

10.  Disposition of Property and Discontinued Operations
- ---  ---------------------------------------------------

In connection with the Company's strategic asset disposition program, management
is   constantly   reevaluating   the   performance   of  its   portfolio   on  a
property-by-property basis.  The Company from time to time determines that it is
in the best interest of the Company to dispose of assets that have reached their
potential or are less efficient to operate due to their size or remote  location
and  reinvest  such  proceeds in higher  performing  assets  located in targeted
geographic  markets.  It is possible that the Company will sell such  properties
at a loss.  In addition,  it is possible  that for assets held for use,  certain
holding period  assumptions made by the Company may change which could result in
the Company's recording of an impairment charge.

Included in discontinued  operations are the operating results,  net of minority
interest,  of six apartment  community  dispositions  (one sold in 2005 and five
sold in 2004), for the three- and nine-months ended September 30, 2004. Included
in discontinued  operations for the three- and  nine-months  ended September 30,
2005 is one property sold in 2005. In addition, discontinued operations includes
the  operating  results,  net of  minority  interest,  of  three  VIEs  for  the
three-months  ended September 30, 2005 and five VIEs for the  nine-months  ended
September 30, 2005. One remaining VIE is held for sale as of September 30, 2005.
Assets and  liabilities  for the one VIE of  approximately  $21,900 and $17,900,
respectively,  are  included  in  the  Consolidated  Balance  Sheet  and  relate
primarily to real estate and mortgage notes, respectively.  Included in mortgage
notes payable is  approximately  $17,000 related to the one VIE. For purposes of
the discontinued  operations  presentation,  the Company only includes  interest
expense  associated with specific  mortgage  indebtedness of the properties that
are sold or classified as held for sale.

The  operating  results  of  the  components  of  discontinued   operations  are
summarized as follows:

                                                                        For the Nine Months     For the Three Months
                                                                            September 30,           September 30,
                                                                            -------------           -------------
                                                                          2005         2004        2005        2004
                                                                          ----         ----        ----        ----
Revenues
    Rental income                                                      $ 6,618      $22,146      $1,982      $8,763
    Property other income                                                  267        1,031          76         608
    Other income (loss)                                                   (165)        (259)        (52)       (259)
                                                                       -------      -------       -----       -----
Total revenues                                                           6,720       22,918       2,006       9,112
                                                                       -------      -------       -----       -----
Expenses
    Operating and maintenance                                            5,385       13,860         961       5,647
    Interest expense                                                       682        5,046         382       2,084
    Depreciation and amortization                                           92        5,151           -         837
    Impairment of real property                                          7,725        1,100           -           -
                                                                       -------      -------       -----       -----
Total expenses                                                          13,884       25,157       1,343       8,568
                                                                       -------      -------       -----       -----
Income (loss) from discontinued operations before minority interest
    and gain (loss) on disposition of property                          (7,164)      (2,239)        663         544
Minority interest in limited partnership                                   (23)       1,424           -        (391)
Minority interest in operating partnership                               2,379          201        (216)        (49)
                                                                       -------      -------       -----       -----
Income (loss) from discontinued operations                             $(4,808)     $  (614)      $ 447       $ 104
                                                                       =======      =======       =====       =====

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11.  Commitments and Contingencies
- ---  -----------------------------

Contingencies
- -------------

The Company is not a party to any legal proceedings which are expected to have a
material  adverse  effect on the  Company's  liquidity,  financial  position  or
results of operations.  The Company is subject to a variety of legal actions for
personal  injury  or  property  damage  arising  in the  ordinary  course of its
business, most of which are covered by liability insurance. While the resolution
of these matters cannot be predicted with  certainty,  management  believes that
the final outcome of such legal  proceedings and claims will not have a material
adverse  effect on the  Company's  liquidity,  financial  position or results of
operations.

In 2001,  the Company  underwent a state capital stock tax audit.  The state had
assessed  taxes of $469 for the 1998 and  1999 tax  years  under  audit.  If the
state's  position is applied to all tax years  through  December 31,  2001,  the
assessment would be $1,300. At the time, the Company believed the assessment and
the  state's  underlying  position  were  neither  supportable  by the  law  nor
consistent with previously provided  interpretative  guidance from the office of
the State  Secretary of Revenue.  After two  subsequent  enactments by the state
legislation  during 2002  affecting the  pertinent tax statute,  the Company was
advised by outside tax counsel  that its filing  position for  1998-2001  should
prevail.  During December 2003, the state's  governor signed  legislation  which
included the REIT tax provisions. Based upon this, Company's tax counsel expects
that the  outstanding  litigation  should now be able to be resolved.  Effective
January 1, 2003, the Company reorganized the ownership of Home Properties Trust,
which should subject the Company to a much lower level of tax going forward.  In
September  2004,  the  Company  settled the 1998 year under audit for a total of
$39, including  interest.  During the first quarter of 2005, the Company filed a
protest with the Pennsylvania  State  Commonwealth Court concerning the 1999 tax
year. Settlement  discussions have occurred during the third quarter of 2005 for
the open years 1999-2001. Based on these discussions,  the Company believes that
the likelihood of settling all three open years has  increased,  and has accrued
$160.

During  April,  2004,  the Company  finalized  negotiations  with New York State
settling a sales and use tax audit  covering the period June 1, 1999 through May
31,  2002.  The total cost to the  Company as a result of the audit  amounted to
$861.  This was included in the first quarter 2004 results and allocated $448 to
expense and $413 capitalized to real estate assets for improvements.

As a result of this  audit,  during the  second  quarter  of 2004,  the  Company
examined  its sales  and use tax  compliance  in the  other  states in which the
Company operates.  Based upon its internal  analysis,  the Company estimated its
liability as of June 30, 2004 in those states where it found  non-compliance and
recorded at June 30, 2004 a liability of $1,712. This was included in the second
quarter  results  and  allocated  $761 to expense and $951  capitalized  to real
estate assets for  improvements.  The liability  recorded  relates to the period
beginning on the later of: (i) the date the Company first purchased  property in
the  applicable  state;  or (ii) January 1, 1997 and ending on June 30, 2004. In
addition,  the Company increased the liability for sales tax exposure by $68 for
the six-month  period ended  December 31,  2004. The Company has filed Voluntary
Disclosure  Agreements  ("VDAs")  with the four states where it had  significant
financial exposure. During the first six months of 2005, the Company signed VDAs
with these  states  which have  agreed to limit the VDA  filing  period  back to
January 1, 2001, and has satisfied all financial obligations under the VDAs. For
the three- and six-month  periods ended June 30, 2005,  the Company has recorded
adjustments to the liability for both the effects of signing the VDAs as well as
for the results of the  Company's  additional  testing for the first six months.
The net impact of these adjustments resulted in a decrease in real estate assets
of $175,  interest  expense  of $115 and  operating  expenses  of $108 for a net
decrease to the accrued liability of $398. During the third quarter of 2005, the
Company  finalized  negotiations  with New York State settling a sales tax audit
covering the period June 1, 2002 through  November 30, 2004.  The settlement was
not materially  different  from what had been accrued.  The result of the recent
payments on the VDAs and this New York State audit is that the sales tax accrual
which had been over  $1,712 (as  referenced  above)  has been  reduced to $16 at
September 30, 2005.

                              HOME PROPERTIES, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11.  Commitments and Contingencies (continued)
- ---  -----------------------------------------

Guarantees
- ----------

As of September 30, 2005, the Company,  through its general partnership interest
in an affordable  property  limited  partnership,  has guaranteed the Low Income
Housing Tax Credits to limited partners  totaling  approximately  $3,000.  As of
September 30, 2005, there were no known conditions that would make such payments
necessary  relating to these  guarantees.  In addition,  the Company,  acting as
general  partner in this  partnership,  is  obligated  to advance  funds to meet
partnership operating deficits.

12.  Related Party Transactions
- ---  --------------------------

On January 1, 2004, the Company sold certain  assets of its commercial  property
management  division to Home  Leasing  LLC,  which is owned by Nelson and Norman
Leenhouts.  This division managed approximately 2.2 million square feet of gross
leasable area, as well as certain planned  communities.  The initial amount paid
was $82. In  addition,  the Company is entitled to receive a  percentage  of the
management fee received by Home Leasing in connection with the management of one
of the commercial  properties for a period not to exceed 36 months. The expected
monthly fee as outlined in the contract is  approximately  $3.4 or $40 per year.
If Home Leasing continues to manage the property for three years, the Company is
expected to receive total additional deferred purchase price of $135. Additional
deferred  purchase  price of $30 was  recognized  during the nine  months  ended
September 30, 2005. The cumulative  gain  recognized on the sale of these assets
through  September 30, 2005 amounted to $54. If the  management of this property
is  retained  for the  entire  three  years the  Company  expects  to receive an
additional $50 for the period October 1, 2005 through  January 1, 2007. The gain
on sale would then be approximately $104.

13.  Subsequent Events
- ---  -----------------

On  November  4, 2005,  the Board of  Directors  approved a dividend of $.64 per
share for the quarter  ended  September 30, 2005.  This is the  equivalent of an
annual  distribution  of $2.56 per share.  The dividend is payable  November 25,
2005 to shareholders of record on November 15, 2005.

On November 4, 2005, the Company also declared a regular  dividend of $.5625 per
share on its Series F Cumulative  Redeemable  Preferred  Stock,  for the quarter
ending  November 30, 2005.  The dividend on the  preferred  shares is payable on
November 30, 2005 to  shareholders of record on November 15, 2005. This dividend
is equivalent to an annualized rate of $2.25 per share.

During October 2005, the Company  repurchased 423,205 shares of common stock. On
November  4,  2005,  the  Board of  Directors  increased  its  authorization  by
2,000,000  shares to  repurchase  its common stock or UPREIT Units in connection
with the Company's stock repurchase program. As of November 4, 2005, the Company
has  authorization  to  repurchase  3,915,195  shares of common stock and UPREIT
Units under the stock repurchase program.

The Company owns two  properties in Southeast  Florida which  sustained  damages
from Hurricane Wilma in late October,  2005. The Company is assessing the damage
but does not  believe  that it will  have a  material  impact  on its  financial
results. The estimated losses from the hurricane will be reported in the results
of operations in the fourth quarter of 2005.

                              HOME PROPERTIES, INC.

                  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
       (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following  discussion  should be read in conjunction  with the  accompanying
consolidated financial statements and notes thereto.

Forward-Looking Statements
- --------------------------

This  discussion  contains  forward-looking  statements.  Although  the  Company
believes expectations reflected in such forward-looking  statements are based on
reasonable  assumptions,  it can give no assurance that its expectations will be
achieved.  Factors  that may cause  actual  results  to differ  include  general
economic and local real estate conditions, the weather and other conditions that
might  affect  operating  expenses,   the  timely  completion  of  repositioning
activities within anticipated  budgets,  the actual pace of future  acquisitions
and sales,  including the sale of the general partner  interest in the remaining
affordable property, 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  UPREIT   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.

During the third quarter of 2005, the Company's line of credit agreement,  which
was maturing, was renegotiated for a new three-year term which expires September
1, 2008.  The new facility was  increased  from $115 million to $140 million and
contains less restrictive covenants as well as a 30 basis point reduction in the
pricing spread over LIBOR. The Company's outstanding balance as of September 30,
2005, was $94 million. Borrowings under the line of credit bear interest at .75%
over the one-month  LIBOR rate.  Accordingly,  increases in interest  rates will
increase  the  Company's  interest  expense  and as a  result  will  affect  the
Company's results of operations and financial condition.

On November 23, 2004, the Company signed a supplemental demand note with M and T
Bank. The note had a maximum  principal  amount of $42 million.  The demand note
was entered into to fund the Company's stock repurchase  program.  In connection
with the increased  borrowing capacity of the line of credit,  this supplemental
note was terminated during the third quarter of 2005.

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  additional
long-term  secured  or  unsecured  indebtedness,   proceeds  from  the  sale  of
properties,   the  issuance  of  UPREIT   Units,   proceeds  from  the  Dividend
Reinvestment Plan ("DRIP"), or the issuance of additional equity securities.  As
of  September 30,  2005,  the Company owned 23 properties  with 4,323  apartment
units, which were unencumbered by debt.

In May  1998,  the  Company's  Form  S-3  Registration  Statement  was  declared
effective  relating  to the  issuance  of up to $400  million  of common  stock,
preferred  stock  or  other  securities.  The  available  balance  on the  shelf
registration statement at September 30, 2005 was $144.4 million.

In June 2000,  the Company  issued $25 million of Series D Preferred  Stock in a
private  transaction  with The Equitable  Life  Assurance  Society of the United
States.  The Series D Preferred  Stock carried an annual  dividend rate equal to
the greater of 8.775% or the actual dividend paid on the Company's common shares
into which the  preferred  shares can be  converted.  The stock had a conversion
price of $30 per share and a five-year, non-call provision. On May 26, 2005, all
250,000  shares of the Series D  Preferred  Stock were  converted  into  833,333
shares of common stock.  The conversion of preferred shares to common shares did
not have an effect on the reported results of operations.

In March  2002,  the  Company  issued  2,400,000  shares of its  9.00%  Series F
Cumulative  Redeemable  Preferred  Stock ("Series F Preferred  Shares"),  with a
$25.00 liquidation preference per share. This offering generated net proceeds of
approximately  $58  million.  The net  proceeds  were used to fund the  Series B
preferred stock repurchase,  property  acquisitions,  and property upgrades. The
Series F Preferred  Shares are  redeemable by the Company at anytime on or after
March 25, 2007 at a redemption price of $25.00 per share,  plus any accumulated,
accrued and unpaid  dividends.  Each Series F  Preferred  share will  receive an
annual  dividend  equal  to  9.00%  of  the  liquidation  preference  per  share
(equivalent to a fixed annual amount of $2.25 per share).

The issuance of UPREIT Units for property acquisitions  continues to be a source
of capital for the  Company.  During the first nine months of 2005,  the Company
acquired  five  communities  with  1,038  units  for a total  purchase  price of
$119,900.  The Company  issued UPREIT Units valued at  approximately  $12,600 as
part of the consideration for two of the properties,  with the balance funded by
the  assumption  of debt  and  cash.  During  2004,  the  Company  acquired  ten
communities with 2,486 units for a total purchase price of $247,500. The Company
issued UPREIT Units valued at approximately $12,100 as part of the consideration
for two of the properties, with the balance funded by the assumption of debt and
cash.

During 2004, $17,600 of common stock (net of $6,000 share repurchase) was issued
under the Company's  DRIP.  During the first nine months of 2005,  the Company's
additional  capital  raised  under the DRIP  netted to zero  after  taking  into
account share repurchases used in lieu of new stock issuance.

The  DRIP  was  amended,  effective  December  10,  2004,  in  order  to  reduce
management's  perceived  dilution  from  issuing  new  shares  at or  below  the
underlying  net asset value.  The discount on reinvested  dividends and optional
cash  purchases  was  reduced  from 2% to 0%.  The  maximum  monthly  investment
(without  receiving  approval  from the Company) is  currently  $1 thousand.  As
expected,  these  changes  significantly  reduced  participation  in  the  plan.
Management will continue to monitor the relationship between the Company's stock
price and estimated net asset value. In addition, in the fourth quarter of 2004,
the Company began meeting share demand in the program  through share  repurchase
by the transfer agent in the open market on the Company's  behalf instead of new
share issuance.  This removes essentially 100% of the dilution caused by issuing
new shares at a price less than the net asset value in an economic and efficient
manner.

On February 16, 2005,  the Board of Directors  increased  its  authorization  by
2,000,000  shares  for the  repurchase  of its common  stock or UPREIT  Units in
connection with the Company's stock repurchase program.  The shares/units may be
repurchased  through open market or  privately  negotiated  transactions  at the
discretion of Company management. The Board's action does not establish a target
stock price or a specific timetable for share repurchase. During the nine months
ended September 30, 2005, 1,661,600 shares were repurchased by the Company, with
1,300,700 and 360,900  occurring in the first and third quarters,  respectively.
At September  30, 2005 the Company had  authorization  to  repurchase  2,338,400
shares of common  stock and UPREIT  Units  under the stock  repurchase  program.
During  October 2005, the Company  repurchased  an additional  423,205 shares of
common  stock.  On  November  4,  2005,  the Board of  Directors  increased  its
authorization by 2,000,000 shares to repurchase its common stock or UPREIT Units
in connection with the Company's  stock  repurchase  program.  As of November 4,
2005, the Company has  authorization  to repurchase  3,915,195  shares of common
stock and UPREIT  Units under the stock  repurchase  program.  The Company  will
continue to monitor stock prices, the published net asset value, and acquisition
alternatives  to determine the current best use of capital between the two major
uses of capital - stock buyback and acquisitions.

As of September 30, 2005, the weighted average rate of interest on mortgage debt
is 5.9%  and  the  weighted  average  maturity  is  approximately  seven  years.
Approximately 90% 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.

Variable Interest Entities
- --------------------------

Effective  March 31, 2004,  the Company  adopted FASB  Interpretation  No. 46R -
Consolidation of Variable Interest  Entities,  an interpretation of ARB No. 51 -
Consolidated Financial Statements. The interpretation addresses consolidation by
businesses of special purpose entities (variable interest entities,  "VIE"). The
Company  had  made  a  determination  that  all  41  of  the  remaining  limited
partnerships as of that date were VIEs.

The  Company  determined  that it was  not  the  primary  beneficiary  in  seven
partnerships  syndicated under U.S.  Department of Housing and Urban Development
subsidy  programs  of which all have been sold as of  September  30,  2005.  The
Company  purchased the general  partnership  interests in these  partnerships in
January,  1996. These  partnerships were set up to provide low income housing to
residents  through  subsidized  rents and below market debt governed by HUD. The
Company as general partner and managing agent managed the day-to-day  operations
of the partnership  for a fee (5% of rents  collected).  The Company's  economic
benefit from these  partnerships was the management fee. There is no exposure to
the Company of loss as a result of its involvement with these  partnerships.  No
management  fees were  recognized  on these  partnerships  during the three- and
nine-month periods ended September 30, 2005. The management fees earned on these
partnerships  were $45 and $118 for the  three-  and  nine-month  periods  ended
September 30, 2004. The assets and liabilities of the seven partnerships totaled
$8,300 and $14,100 at September 30, 2004, respectively.

The Company had further determined that it was the primary  beneficiary in 34 of
the VIEs and therefore  consolidated  these entities  effective  March 31, 2004.
Beginning with the second quarter of 2004, the Company  consolidated the results
of operations of the VIEs.  The results of operations of the remaining  three of
the original 34 VIEs for the  three-month  period ending  September 30, 2005 are
included in  discontinued  operations as the VIEs are held for sale as described
below.

The Company was the general partner in these 34 VIEs syndicated using low income
housing tax credits  under  Section 42 of the Internal  Revenue Code. As general
partner, the Company manages the day-to-day operations of these partnerships for
a  management  fee. In  addition,  the Company  has  certain  operating  deficit
guarantees  and tax credit  guarantees to its limited  partners.  The Company is
responsible  to fund  operating  deficits  to the  extent  there are any and can
receive  operating  incentive  awards when cash flows reach certain levels.  The
effect on the consolidated balance sheet as of September 30, 2005 is an increase
in "Total assets" of $21,900, an increase in "Total liabilities" of $17,900, and
an increase in "Minority interest" of $3,900. In connection with the adoption of
FIN 46R, the Company  recorded a $321 charge,  net of minority  interest,  for a
cumulative  effect of a change in accounting  principle during the first quarter
of 2004. This charge was a result of the negative  capital  accounts of minority
interest partners that were absorbed by the Company.  Of the $17,900 increase in
total liabilities, $17,000 represent non-recourse mortgage debt.

Effective  September 30, 2005, the Company has closed on the sale of all but one
of the 41 VIEs.  The Company is actively  seeking  buyers for the one  remaining
VIE. The Company performed a valuation analysis on the underlying real estate of
the one remaining  VIE, and as a result,  recorded an impairment  charge of $400
for the three month  period ended March 31, 2005 to adjust the net book value of
the property to the Company's estimate of fair market value.

In  addition,  on September  30, 2005 two other VIEs were  disposed of through a
transfer of deed in lieu of foreclosure. The Company had repurchased the limited
partner's  interests  in  satisfaction  of any tax  credit  guarantees  or other
obligations to that partner in January,  2005 for $5,700. In connection with the
Company's decision to dispose of the property, the Company performed a valuation
analysis  on the  underlying  real  estate,  and as a result,  recorded a $7,300
impairment  of real  estate  during the first  quarter of 2005 to adjust the net
book value of the property to the Company's  estimate of fair market value.  The
mortgage note was sold in March, 2005. Finally, on September, 30, 2005, the deed
was  transferred to the mortgage  holder in lieu of  foreclosure  resulting in a
gain on sale of real estate of $7,700.

During the first quarter of 2004, the Company  recorded an impairment  charge of
$1,600  to  reduce  the  value  of  the  assets  associated  with  the  VIEs  to
management's  estimate of fair market value. The impairment charge is classified
in the financial statements as "Impairment of assets held as general partner" of
$1,116 and "Equity in earnings (losses) of unconsolidated affiliates" of $484. A
portion of the total $1,116 charge, or $171, represents monies loaned to certain
affordable  properties  during  the  first  quarter  of 2004  to fund  operating
shortfalls,  which were not  anticipated  to be recovered  from  projected  sale
proceeds. The remaining balance of $945 pertains to an additional net impairment
charge taken to reduce the assets to estimated  fair market value.  Of the total
impairment charge recorded of $1,600 for the three-month  period ended March 31,
2004, $655 related to cash advances to fund operating shortfalls.

The Company,  through its general partnership interest in an affordable property
limited  partnership,  has  guaranteed the low income housing tax credits to the
limited partners for a period of ten years totaling  approximately  $3,000. Such
guarantee  requires  the Company to operate  the  property  in  compliance  with
Internal  Revenue  Code  Section  42 for 15 years.  In  addition,  acting as the
general  partner in this one  partnership,  the Company is  obligated to advance
funds to meet partnership operating deficits.

The  Company  believes  the  property's  operations  conform  to the  applicable
requirements as set forth above. In addition, the Company has required the buyer
of its general partner interests in the limited  partnerships to secure releases
of the Company's guarantees from the limited partners.

As indicated above, the Company is working towards a complete disposition of its
general  partner  interests  in  affordable  properties.   The  following  table
summarizes  the  effect  of the  consolidation  requirements  of FIN  46R on the
balance sheet as of September 30, 2005.

Consolidation Summary of the Balance Sheet as of September 30, 2005
(in thousands)

                                                               September 30,                           September 30,
                                                                   2005           Effect of FIN 46R        2005
                                                             (before FIN 46R)       Consolidation      (as reported)
                                                             ----------------       -------------      -------------
ASSETS
Real estate:
  Land                                                          $  416,538       $            -         $   416,538
  Construction in progress                                           1,738                    -               1,738
  Buildings, improvements and equipment                          2,817,939                    -           2,817,939
  Real estate held for sale or disposal, net                             -               21,173              21,173
                                                                ----------            ---------          ----------
                                                                 3,236,215               21,173           3,257,388
  Less:  accumulated depreciation                                 (478,645)                   -            (478,645)
                                                                ----------            ---------          ----------
         Real estate, net                                        2,757,570               21,173           2,778,743

Cash and cash equivalents                                            5,255                    9               5,264
Cash in escrows                                                     36,749                  838              37,587
Accounts receivable                                                  5,905                  104               6,009
Prepaid expenses                                                    21,437                  113              21,550
Investment in and advances to affiliates                               651                 (651)                  -
Deferred charges                                                    10,795                  265              11,060
Other assets                                                         8,591                    -               8,591
                                                                ----------            ---------          ----------
         Total assets                                           $2,846,953            $  21,851          $2,868,804
                                                                ==========           ==========          ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable                                          $1,751,511            $  17,043          $1,768,554
Line of credit                                                      94,000                    -              94,000
Accounts payable                                                    18,325                  393              18,718
Accrued interest payable                                             8,649                   89               8,738
Accrued expenses and other liabilities                              22,521                  309              22,830
Security deposits                                                   23,349                   98              23,447
                                                                ----------            ---------          ----------
         Total liabilities                                       1,918,355               17,932           1,936,287
                                                                ----------            ---------          ----------

Minority interest                                                  283,251                3,919             287,170
                                                                ----------            ---------          ----------

Stockholders' equity                                               645,347                    -             645,347
                                                                ----------            ---------          ----------
         Total liabilities and stockholders' equity             $2,846,953           $   21,851          $2,868,804
                                                                ==========           ==========          ==========

Acquisitions and Dispositions
- -----------------------------

During  the first nine  months of 2005,  the  Company  acquired  five  apartment
communities in five unrelated  transactions.  The acquisitions  consisted of one
apartment  community  in  Maryland  with a total  of 204  units,  two  apartment
communities in New Jersey with a combined 346 units, one apartment  community in
Long  Island,  NY with a total of 342  units,  and one  apartment  community  in
Pennsylvania  with a total of 146  units.  The  total  combined  purchase  price
(including  closing costs) of $119,900 equates to  approximately  $115 per unit.
Consideration for the communities was funded through the assumption or placement
of new debt of $51,500, $55,800 from the Company's line of credit and $12,400 of
UPREIT Units (fair market value of $12,600).  The UPREIT Units are  exchangeable
for shares of the  Company's  common stock on a one-for-one  basis.  For the two
acquisitions involving the issuance of UPREIT units, values of $41.25 and $39.25
per unit were used for the  purpose of  determining  the number of UPREIT  Units
issued in each acquisition.  Both per unit values were set based upon equivalent
share price when the transactions were negotiated. The combined weighted average
expected  first  year   capitalization  rate  on  these  acquisitions  is  5.8%.
Capitalization  rate ("cap  rate") is defined  as the rate of  interest  used to
convert  the first  year  expected  net  operating  income  ("NOI")  less a 3.0%
management  fee into a single  present  value.  NOI is defined by the Company as
rental income and property other income less operating and maintenance expenses.
Management  generally  considers NOI to be an  appropriate  measure of operating
performance  because  it helps  investors  to  understand  the  operations  of a
community.  In addition,  the apartment  communities  are valued and sold in the
market by using a multiple of NOI.

On  July  8,  2005,  the  Company  sold a  110-unit  property  in  Philadelphia,
Pennsylvania  for  $5,900.  A gain  on  sale  of  approximately  $1,800  (before
allocation  of minority  interest)  was  recorded  in the third  quarter of 2005
related to this sale.  The  weighted  average  first  year  capitalization  rate
projected on this disposition is 6.97%.

Contractual Obligations and Other Commitments
- ---------------------------------------------

The primary  obligations of the Company relate to its borrowings  under the line
of credit and mortgage  notes  payable.  The Company's line of credit matures in
September  2008 and had $94 million  outstanding at September 30, 2005. The $1.8
billion in mortgage notes payable have varying  maturities  ranging from 1 to 36
years.  The weighted average interest rate of the Company's fixed rate notes was
6.11% and 6.23% at September 30, 2005 and December 31, 2004,  respectively.  The
weighted average  interest rate of the Company's  variable rate notes and credit
facility  was 4.53%  and  2.98% at  September 30,  2005 and  December 31,  2004,
respectively.

The  Company  has a  non-cancelable  operating  ground  lease  for  one  of  its
properties.  The lease expires May 1,  2020,  with options to extend the term of
the lease for two successive terms of twenty-five years each. The lease provides
for contingent rental payments based on certain variable  factors.  At September
30, 2005,  future minimum rental  payments  required under the lease are $70 per
year until the lease expires.

The Company  leases its corporate  office space from an entity  affiliated  with
Nelson and Norman Leenhouts,  both co-founders and directors of the Company, and
the office space for its  regional  offices from third  parties.  The  corporate
office  space  requires an annual base rent plus a pro-rata  portion of property
improvements,  real estate  taxes,  and common area  maintenance.  The  regional
office leases require an annual base rent plus a pro-rata portion of real estate
taxes.

On December 1, 2004,  the Company  entered into a lease  agreement  with a third
party owner to manage the operations of one of its communities.  The lease has a
term of five years, but after two years, (from the 24th month to the 36th month)
the owner may require the  Company to buy the  property.  From the 36th month to
the end of the lease  term,  the  Company  has the right to require the owner to
sell the property to the Company.  It is the Company's  expectation that closing
on the  acquisition of the property will occur no later than 36 months after the
commencement  of the  lease.  The  estimated  future  acquisition  cost  is $140
million.

As discussed in the section entitled "Variable Interest  Entities," the Company,
through  its general  partnership  interest in an  affordable  property  limited
partnership,  has  guaranteed  the Low  Income  Housing  Tax  Credits to limited
partners totaling approximately $3,000. With respect to the guarantee of the low
income  housing tax  credits,  the Company  believes the  property's  operations
conform  to the  applicable  requirements  (as set  forth  above in the  seventh
paragraph of the "Variable  Interest  Entities" section) and does not anticipate
any payment on  the guarantees.  In  addition,  the  Company,  acting as general
partner in this  partnership,  is obligated to advance funds to meet partnership
operating  deficits.  The Company has required the buyers of its general partner
interests  in the  limited  partnerships  to secure  releases  of the  Company's
guarantees  from the limited  partner  and/or to indemnify  the Company  against
payment on those guarantees.

Capital Improvements
- --------------------

The  Company's  policy  is to  capitalize  costs  related  to  the  acquisition,
development, rehabilitation, construction and improvement of properties. Capital
improvements  are costs that increase the value and extend the useful life of an
asset.  Ordinary repair and maintenance costs that do not extend the useful life
of the asset are expensed as incurred. Costs incurred on a lease turnover due to
normal wear and tear by the resident are expensed on the turn. Recurring capital
improvements  typically  include:  appliances,   carpeting  and  flooring,  HVAC
equipment,  kitchen/ bath cabinets,  new roofs,  site  improvements  and various
exterior  building  improvements.   Non-recurring,  revenue  generating  capital
improvements  include,  among other items:  community centers,  new windows, and
kitchen/ bath apartment upgrades.  Revenue generating capital  improvements will
directly result in rental earnings or expense savings.  The Company  capitalizes
interest and certain internal  personnel costs related to the communities  under
rehabilitation and construction.

The  Company  estimates  that on an  annual  basis  $525  per  unit is  spent on
recurring capital  expenditures.  During the three-and  nine-month periods ended
September  30, 2005  approximately  $131 and $394 per unit was  estimated  to be
spent on recurring capital  expenditures.  The table below summarizes the actual
total capital  improvements,  (excludes  assets held for sale) incurred by major
categories  for the three-and  nine-month  periods ended  September 30, 2005 and
2004 and an estimate of the  breakdown of total  capital  improvements  by major
categories  between  recurring and  non-recurring,  revenue  generating  capital
improvements  for the three-and  nine-month  periods ended September 30, 2005 as
follows:

                                       For the three-month period ended September 30,
                                            (in thousands, except per unit data)
                                                            2005                                     2004
                                ------------------------------------------------------------------------------------
                                                         Non-                 Total                   Total
                                Recurring      Per  Recurring      Per      Capital       Per       Capital      Per
                                   Cap Ex  Unit(a)     Cap Ex  Unit(a) Improvements   Unit(a)  Improvements  Unit(a)
                                   ------  -------     ------  ------- ------------   -------  ------------  -------
New Buildings                     $     -     $  -    $ 1,374     $ 32      $ 1,374      $ 32       $   950     $ 23
Major building improvements           969       23      5,325      125        6,294       148         5,400      131
Roof replacements                     352        8      1,905       45        2,257        53           927       22
Site improvements                     352        8      2,381       56        2,733        64         2,963       72
Apartment upgrades                    703       16      5,089      120        5,792       136         7,741      188
Appliances                            597       14        662       16        1,259        30         1,208       29
Carpeting/Flooring                  1,822       43      1,408       33        3,230        76         3,257       79
HVAC/Mechanicals                      543       13      3,990       93        4,533       106         4,245      103
Miscellaneous                         256        6        582       14          838        20           681       17
                                   ------     ----    -------     ----      -------      ----       -------     ----
Totals                             $5,594     $131    $22,716     $534      $28,310      $665       $27,372     $664
                                   ======     ====    =======     ====      =======      ====       =======     ====

(a)  Calculated  using  the  weighted  average  number  of  units   outstanding,
     including  39,175  core  units,  2004  acquisition  units of 2,486 and 2005
     acquisition  units of 948 for the  three-month  period ended  September 30,
     2005 and  39,175  core  units and 2004  acquisition  units of 2,089 for the
     three-month period ended September 30, 2004.

                                      For the nine-month period ended September 30,
                                           (in thousands, except per unit data)
                                                           2005                                      2004
                              -------------------------------------------------------------------------------------
                                                    Non-                 Total                   Total
                               Recurring   Per    Recurring    Per       Capital       Per       Capital      Per
                                  Cap Ex   Unit(a)  Cap Ex   Unit(a)   Improvements  Unit(a)  Improvements  Unit(a)
                                  ------   -------   ------   ------- ------------   -------  ------------  -------
New Buildings                   $      -  $    -   $ 3,686   $  87        $ 3,686    $  87       $  2,169   $  54
Major building improvements        2,884      68    10,704     253         13,588      321         14,101     348
Roof replacements                  1,046      25     3,167      75          4,213      100          2,278      56
Site improvements                  1,046      25     4,609     109          5,655      134          6,923     171
Apartment upgrades                 2,092      50    13,503     320         15,595      370         20,583     509
Appliances                         1,775      42     1,405      33          3,180       75          3,129      77
Carpeting/Flooring                 5,420     128     2,629      62          8,049      190          7,749     191
HVAC/Mechanicals                   1,616      38     8,835     209         10,451      247         10,379     256
Miscellaneous                        761      18     1,962      46          2,723       64          2,533      63
                                 -------    ----   -------  ------        -------   ------        -------  ------
Totals                           $16,640    $394   $50,500  $1,194        $67,140   $1,588        $69,844  $1,725
                                 =======    ====   =======  ======        =======   ======        =======  ======

(a)  Calculated  using  the  weighted  average  number  of  units   outstanding,
     including  39,175  core  units,  2004  acquisition  units of 2,486 and 2005
     acquisition units of 597 for the nine-month period ended September 30, 2005
     and  39,175  core  units  and  2004  acquisition  units  of  1,295  for the
     nine-month period ended September 30, 2004.

The  schedule  below  summarizes  the  breakdown of total  capital  improvements
(excludes assets held for sale) between core and non-core as follows:

                                       For the three-month period ended September 30,
                                            (in thousands, except per unit data)
                                                            2005                                     2004
                                ------------------------------------------------------------------------------------
                                                         Non-                 Total                   Total
                                 Recurring    Per   Recurring    Per        Capital     Per         Capital    Per
                                    Cap Ex   Unit     Caup Ex    Unit   Improvements    Unit    Improvements   Unit
                                    ------   ----     -------    ----   ------------    ----    ------------   ----
Core Communities                    $5,144   $131     $19,309    $493      $24,453      $624       $26,381     $673
2005 Acquisition Communities           124    131         696     734          820       865             -        -
2004 Acquisition Communities           326    131       2,711   1,091        3,037     1,222           991      474
                                    ------   ----     -------    ----      -------      ----       -------     ----
Sub-total                            5,594    131      22,716     534       28,310       665        27,372      664
2005 Disposed Communities                1    131          23   2,737           24     2,868            90      818
2004 Disposed Communities                -      -           -       -            -         -           656      568
Corporate office expenditures(1)         -      -           -       -        2,420         -         1,092        -
                                    ------   ----     -------    ----      -------      ----       -------     ----
                                    $5,595   $131     $22,739    $534      $30,754      $665       $29,210     $661
                                    ======   ====     =======    ====      =======      ====       =======     ====


                                       For the nine-month period ended September 30,
                                            (in thousands, except per unit data)
                                                            2005                                     2004
                                ------------------------------------------------------------------------------------
                                                        Non-                 Total                   Total
                                 Recurring    Per  Recurring     Per       Capital      Per        Capital     Per
                                    Cap Ex   Unit     Cap Ex    Unit  Improvements     Unit   Improvements    Unit
                                    ------   ----     ------    ----  ------------     ----   ------------    ----
Core Communities                   $15,426   $394    $45,266  $1,155       $60,692   $1,549        $67,984  $1,735
2005 Acquisition Communities           235    394        920    1,541        1,155    1,935             -       -
2004 Acquisition Communities           979    394      4,314    1,735        5,293    2,129          1,860   1,436
                                   -------   ----    -------  ------       -------  ------         -------  ------
Sub-total                           16,640    394     50,500    1,194       67,140    1,588         69,844   1,725

2005 Disposed Communities               30    394         60     794            90    1,188            150   1,364
2004 Disposed Communities                -      -          -       -             -        -          1,986   1,357
Corporate office expenditures(1)         -      -          -       -         5,750        -          2,158       -
                                   -------   ----    -------  ------       -------   ------        -------  ------
                                   $16,670   $394    $50,560  $1,194       $72,980   $1,588        $74,138  $1,712
                                   =======   ====    =======  ======       =======   ======        =======  ======

(1)  No distinction is made between recurring and non-recurring expenditures for
     corporate  office.   Corporate  office  expenditures  includes  principally
     computer hardware, software and office furniture and fixtures.

Results of Operations
- ---------------------

Summary of Core Properties
- --------------------------

The Company had 138  apartment  communities  with 39,175  units which were owned
during the  nine-month  periods being  presented  (the "Core  Properties").  The
Company has  acquired/developed an additional sixteen apartment communities with
3,572 units during 2005 and 2004 (the "Acquired Communities").  The Company also
disposed of six properties with a total of 1,756 units during 2005 and 2004 (the
"Disposition Communities").  The Disposition Communities have been classified as
discontinued operations. Finally, beginning with the second quarter of 2004, the
results  of  operations  for both  the  three-  and  nine-month  periods  ending
September 30, 2004,  include the results of operations of the affordable limited
partnerships  ("Affordable  LPs") that have been consolidated in accordance with
FIN 46R for the first time.  The  Affordable  LPs also have been  classified  as
discontinued  operations.  The inclusion of the Acquired  Communities  generally
accounted  for the  significant  changes in operating  results for the three-and
nine-months ended September 30, 2005.

A summary of the net  operating  income from Core  Properties  is as follows (in
thousands):

                                                Nine Months                               Three Months
                                                -----------                               ------------
                                     2005       2004   $ Change  % Change         2005       2004  $ Change  % Chg
                                     ----       ----   --------  --------         ----       ----  --------  -----
Rental income                    $317,674   $312,278     $5,396      1.7%     $107,170   $104,576    $2,594   2.5%
Property other income              17,826     15,006      2,820     18.8%        7,146      5,328     1,818  34.1%
                                 --------   --------      -----      ---       -------    -------     -----   ---
Total income                      335,500    327,284      8,216      2.5%      114,316    109,904     4,412   4.0%
Operating and Maintenance       (152,359)  (147,384)    (4,975)    ( 3.4%)    (49,291)   (47,565)  ( 1,726)  (3.6%)
                                 --------   --------     ------      ---       -------    -------     -----   ---
Net operating income             $183,141   $179,900     $3,241      1.8%      $65,025    $62,339    $2,686   4.3%
                                 ========   ========     ======      ===       =======    =======    ======   ===

A summary of the net operating  income from continuing  operations is as follows
(in thousands):

                                                Nine Months                               Three Months
                                                -----------                               ------------
                                     2005       2004   $ Change   % Change        2005       2004  $ Change  % Chg
                                     ----       ----   --------   --------        ----       ----  --------  -----
Rental income                    $345,149   $323,922    $21,227      6.6%     $117,581   $110,731    $6,850   6.2%
Property other income              18,871     15,357      3,514     22.9%        7,626      5,484     2,142  39.1%
                                 --------   --------    -------      ---       -------    -------    ------   ---
Total income                      364,020    339,279     24,741      7.3%      125,207    116,215     8,992   7.7%
Operating and Maintenance        (165,065)  (152,267)  ( 12,798)    (8.4%)    ( 54,161)   (50,102)   (4,059) (8.1%)
                                 --------   --------    -------      ---       -------    -------    ------   ---
Net operating income             $198,955   $187,012    $11,943      6.4%      $71,046    $66,113    $4,933   7.5%
                                 ========   ========    =======      ===       =======    =======    ======   ===

Comparison of nine-months ended September 30, 2005 to the same period in 2004
- -----------------------------------------------------------------------------

Of the  $21,227  increase  in rental  income,  $15,831  is  attributable  to the
Acquired Communities.  The balance of this increase, or $5,396 which is from the
Core  Properties,  was the result of an  increase  of 2.2% in  weighted  average
rental rates, offset with a decrease in occupancy from 93.4% to 93.0%. Occupancy
is defined as total possible rental income,  net of vacancy and bad debt expense
as a percentage of total possible rental income. Total possible rental income is
determined  by valuing  occupied  units at  contract  rates and vacant  units at
market rents.

Property  other income,  which  consists  primarily of income from  operation of
laundry  facilities,  late  charges,  administrative  fees,  garage and  carport
charges,  net profits from corporate  apartments,  cable  revenue,  pet charges,
utility recovery charges,  and miscellaneous  charges to residents  increased by
$3,514. Of this increase,  $694 is attributable to the Acquired  Communities and
$2,820  represents a 18.8%  increase from the Core  Properties.  Included in the
Core  increase is $1,533 which  represents  increased  water and sewer  recovery
charges compared to 2004.

Other  income  decreased  $465  due  primarily  to a  decrease  in the  level of
management  fee  activity  as a  result  of the sale of the  affordable  limited
partnerships.

Of the  $12,798  increase  in  operating  and  maintenance  expenses,  $7,823 is
attributable to the Acquired  Communities.  The balance,  a $4,975 increase,  is
attributable to the Core Properties and is primarily due to increases in natural
gas heating costs,  personnel costs, and real estate taxes. These increases were
offset in part by savings in repairs and  maintenance  and  insurance  expenses.
Natural  gas  heating  costs  were up $1,710 or 12.7%  over  2004.  We have seen
significant  increases  in the  cost of  natural  gas per  decatherm.  Personnel
expenses  were up $2,034,  or 6.0%.  Contributing  to this was normal  operating
payroll  increases  of $1,225,  or 3.8% and an increase in site level  incentive
compensation of $809. Real estate taxes were up $1,999,  or 6.1%. Of this, $204,
or 0.6% is from a prepaid tax  adjustment  needed to bring our balance  sheet to
the  proper  amount.  The  balance is a 5.5%  increase  in normal  increases  in
assessed  values and tax rates.  The  decrease  in repairs and  maintenance  was
$1,007 or 4.3% compared to a year ago. The nine-month period in 2004 included an
$805  additional  tax  payment for the NYS sales tax audit.  Property  insurance
decreased  $869,  or 15.5%,  for the period  primarily  due to a decrease in our
property  and  general  liability  premiums,  and losses to date which have been
projected using actuarial assumptions.

The cost of supplying  heat to our residents will be going up  substantially  in
the fourth  quarter of 2005 and into 2006 based on the  increase  in natural gas
costs.  The price  increase per  decatherm  was  exacerbated  by the  hurricanes
affecting  Gulf  Coast  production  in the fall of  2005.  In  response  to this
increased  cost,  the Company has been searching for ways to recover some or all
of this marginal  increase from our residents by  instituting  utility  recovery
programs. The water and sewer recovery program has been under way since March of
2005. The amount of  reimbursement  has been growing steadily as the program has
been  rolled  out upon lease  renewals.  The  increased  income is  included  in
property other income and was discussed above. Starting in September,  2005, the
Company is also instituting energy recovery programs to specifically address our
higher  natural gas costs.  This  program  will start out small,  but as we have
experienced  with the water and sewer  program,  we expect quick growth over the
next few  quarters.  For the fourth  quarter of 2005,  our  expectation  is that
increased  energy  costs  (over what was  expected  just three  months ago) will
exceed these reimbursements by about three cents per share as measured for Funds
from Operations, or FFO. For all of 2006, the income from both recovery programs
is expected  to exceed the  marginal  increase  in the  heating  cost line item,
although there will be timing  differences,  as a significant portion of heating
costs are  incurred in the first  quarter,  while the  reimbursements  will grow
during the year.

General  and  administrative  expense  decreased  in 2005 by  $53.  General  and
administrative  expenses as a percentage of total revenues were 3.9% for 2005 as
compared to 4.2% for 2004.  The  decrease  is the result of a  reduction  in the
level of corporate  incentive  compensation  accrued in 2005,  mostly  offset by
increased  expenses relating to compliance with the internal controls review and
improvements  in response to Section 404 of the  Sarbanes  Oxley Act of 2002 and
applicable  regulations of the U.S. Securities and Exchange Commission and audit
work completed in the first quarter of 2005.

Interest  expense  increased  in 2005 by  $10,560  as a result of the  increased
borrowings in connection with acquisition of the 2005 Acquisition Communities, a
full nine months of interest  expense for the 2004  Acquisition  Communities and
additional  mortgage debt and  refinanced  mortgage  debt incurred  during 2004.
Interest  expense  was  reduced  in the  second  quarter  of 2005 by $393  while
interest  expense  in the first  quarter  of 2004 was  reduced  by $996 when two
mortgage  loans were paid off early at amounts less than the amounts  carried on
the Company's balance sheet. Finally, $233 in interest relative to the sales tax
liability recorded and described above is included in 2004.

Depreciation and amortization  expense  increased $8,190 due to the depreciation
on the Acquisition Communities and the capital additions to the Core Properties.

The Company has sold  virtually  all of the assets  associated  with its general
partner  interests in the affordable  properties in order to focus solely on the
direct ownership and management of market rate apartment communities. The assets
included principally loans, advances and management contracts.  During the first
nine months of 2004, the Company recorded  impairment charges of $1,116. Of this
total,  $171  represented  advances made to certain of the Affordable LPs, which
the  Company  believed  would  not be  repaid  upon the sale of the  loans.  The
remaining  $945 pertains to an  additional  net  impairment  charge taken on the
remaining  properties  owned by the  Affordable LPs to reduce the assets to fair
market  value.  In  connection  with  FIN  46R,  the  Company  was  required  to
consolidate the majority of the Affordable LPs  results of operations  beginning
April 1, 2004.  The results of operations of the  Affordable LPs are included in
discontinued operations for both the nine-month periods ended September 30, 2005
and 2004.

The equity in earnings (losses) of unconsolidated  affiliates was a loss of $538
for the nine months ended September 30, 2004 primarily the result of the general
partner recording a greater share of the underlying  investment's  losses due to
the  loans  and  advances  to  certain  of  the  affordable   property   limited
partnerships where the limited partner had no capital account.  This is pursuant
to the accounting requirements of EITF 99-10,  "Percentage Used to Determine the
Amount of Equity Method  Losses."  Included and  classified in this account were
$484 of advances  made  during the first three  months of 2004 which the Company
believes will not be repaid upon sale.

Minority  interest  decreased  $1,398 due to a general  decrease  in income from
operations.

Included in  discontinued  operations for the nine-month  period ended September
30, 2005, are the results of operations of one apartment  community sold and one
held for sale that in connection  with FIN 46R were required to be  consolidated
beginning April 1, 2004. As all significant  contingencies  surrounding the sale
of the properties  have been resolved,  the Company has considered  these assets
held for sale and has  reported  them in  discontinued  operations  (see further
detail supplied under "Variable Interest Entities" section).

In  connection  with  the  adoption  of FIN 46R,  the  Company  recorded  a $321
cumulative  effect  charge  of a change  in  accounting  principle  in the first
quarter of 2004.  This  charge was the result of  negative  capital  accounts of
minority interest partners that were absorbed by the Company.

Comparison of the  three-months  ended  September 30, 2005 to the same period in
- --------------------------------------------------------------------------------
2004
- ----

Of the $6,850 increase in rental income,  $4,256 is attributable to the Acquired
Communities.  The  balance of this  increase,  or $2,594  which is from the Core
Properties,  was the result of an increase of 0.8% in  weighted  average  rental
rates,  plus an increase in occupancy from 92.8% to 93.6%.  Occupancy is defined
as total  possible  rental  income,  net of  vacancy  and bad debt  expense as a
percentage of total  possible  rental income.  Total  possible  rental income is
determined  by valuing  occupied  units at  contract  rates and vacant  units at
market rents.

Property  other income,  which  consists  primarily of income from  operation of
laundry  facilities,  late  charges,  administrative  fees,  garage and  carport
charges,  net profits from corporate  apartments,  cable  revenue,  pet charges,
utility recovery charges,  and miscellaneous  charges to residents  increased by
$2,142. Of this increase,  $324 is attributable to the Acquired  Communities and
$1,818  represents a 34.1%  increase from the Core  Properties.  Included in the
Core properties  increase is $1,041 which  represents  increased water and sewer
recovery charges compared to 2004.

Other  income  decreased  $329  due  primarily  to a  decrease  in the  level of
management  fee  activity  as a  result  of the sale of the  affordable  limited
partnerships.

Of the  $4,059  increase  in  operating  and  maintenance  expenses,  $2,333  is
attributable to the Acquired  Communities.  The balance,  a $1,726 increase,  is
attributable  to the  Core  Properties  and is  primarily  due to  increases  in
electricity costs,  personnel costs, and real estate taxes. These increases were
offset in part by a reduction in property  insurance.  Electricity costs were up
$298, or 13.2% due to a much hotter summer compared to normal which  contributed
to higher  electricity  usage.  Personnel  expenses  increased  $301,  with $378
resulting from increased site level incentive compensation  reflecting improving
rent and  occupancies  compared to a year ago. The 4.5%  variance in real estate
taxes results from normal  increases in assessed values and tax rates.  Property
insurance  decreased for the period  primarily due to a decrease in our property
and general  liability  premiums,  and losses to date which have been  projected
using actuarial assumptions.

General  and  administrative  expense  increased  in 2005 by  $15.  General  and
administrative  expenses as a percentage of total revenues were 3.9% for 2005 as
compared to 4.2% for 2004.

Interest  expense  increased  in 2005 by  $4,043  as a result  of the  increased
borrowings in connection with acquisition of the 2005 Acquisition Communities, a
full  quarter of  interest  expense  for the 2004  Acquisition  Communities  and
additional  mortgage debt and  refinanced  mortgage debt which took place during
2004.

Depreciation and amortization  expense  increased $2,640 due to the depreciation
on the Acquisition Communities and the capital additions to the Core Properties.

Minority  interest  decreased  $429 due to a general  decrease  in  income  from
operations,  offset by the increase in the  minority  interest  percentage  from
31.9% to 32.6%.

Included in discontinued  operations for the three-month  period ended September
30, 2005 are the  results of  operations  of one  apartment  community  sold and
properties  owned by the remaining  Affordable LPs that, in connection  with FIN
46R,  were  required  to  be  consolidated   beginning  April 1,  2004.  As  all
significant contingencies surrounding the sale of the affordable properties have
been  resolved  the Company has  considered  these assets held for sale and have
reported them in discontinued operations.

Funds From Operations
- ---------------------

Pursuant to the revised  definition of Funds From Operations  ("FFO") adopted by
the Board of  Governors of the National  Association  of Real Estate  Investment
Trusts  ("NAREIT"),  FFO is defined as net income  (computed in accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP"))  excluding gains or losses from sales of property,  minority interest,
extraordinary items and cumulative effect of change in accounting principle plus
depreciation  from  real  property  including   adjustments  for  unconsolidated
partnerships  and joint ventures less dividends from  non-convertible  preferred
shares. NAREIT has recently changed guidance on the interpretation of impairment
charges recorded against the value of real estate.  The previous  interpretation
was that  impairment  charges in real  estate  would be an add back to arrive at
FFO, similar to a loss on sale of real estate. The Company is following this new
interpretation  effective April 1, 2004 on a go-forward basis. The change is not
suggested  to be  retroactive  to any  prior  period  reported.  Because  of the
limitations of the FFO definition as published by NAREIT as set forth above, the
Company has made certain interpretations in applying the definition. The Company
believes all adjustments not  specifically  provided for are consistent with the
definition.

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.  Management  believes that by excluding
gains or losses  related to  dispositions  of property and excluding real estate
depreciation (which can vary among owners of similar assets in similar condition
based on historical cost accounting and useful life estimates), FFO can help one
compare the operating  performance of a company's real estate between periods or
as compared to different  companies.  FFO does not represent cash generated from
operating  activities in accordance with GAAP and is not necessarily  indicative
of cash available to fund cash needs. FFO does not include the cost incurred for
capital improvements  (including  capitalized interest) reflected as an increase
to real estate  assets.  The  Company's  total capital  improvements  include an
annual reserve for anticipated  recurring,  non-revenue  generating  capitalized
costs of $525 per  apartment  unit.  Please refer to the  "Capital  Improvement"
section  above in MD and A. Cash provided by operating  activities  was $100,619
and $125,368 for the  nine-month  periods  ended and $36,615 and $40,208 for the
three-month periods ended September 30, 2005 and 2004,  respectively.  Cash used
in investing  activities  was $166,545 and $202,030 for the  nine-month  periods
ended and $104,758 and $97,223 for the  three-month  periods ended September 30,
2005 and 2004,  respectively.  Cash provided by financing activities was $63,265
and $78,976  for the  nine-month  periods  ended and $63,334 and $58,594 for the
three-month periods ended September 30, 2005 and 2004, respectively.  FFO should
not be  considered  as an  alternative  to net  income as an  indication  of the
Company's performance or to cash flow as a measure of liquidity.

The calculation of FFO and reconciliation to GAAP net income available to common
shareholders for the nine-and three-months ended September 30, 2005 and 2004 are
presented below (in thousands):

                                                            Nine Months               Three Months
                                                            -----------               ------------
                                                         2005         2004         2005         2004
                                                         ----         ----         ----         ----
Net income available to common shareholders          $ 21,521      $16,349      $15,353      $ 3,027
Minority interest                                       9,842       11,240        4,133        4,562
Minority interest - income (loss) from
     discontinued operations                           (2,379)        (201)         216           49
Minority interest - gain (loss) from disposition of
     discontinued operations                            2,389       (3,195)       2,389       (3,195)
Depreciation and amortization from real property       72,524       67,566       24,997       23,225
Depreciation from real property from                        -          556
     unconsolidated entities                                                          -            -
Impairment on General Partner real estate                   -          945
     investment                                                                       -            -
Loss on disposition of property                             -           50            -            -
(Gain) loss on disposition of discontinued
     operations, net of minority interest              (1,353)        (417)      (1,431)          94
Cumulative effect of change in accounting
     principle, net of minority interest                    -          321            -            -
                                                     --------      -------      -------      -------
FFO - Basic                                          $102,544      $93,214      $45,657      $27,762

Convertible preferred dividends                           879            -            -            -
                                                     --------      -------      -------      -------
FFO - Diluted                                        $103,423      $93,214      $45,657      $27,762
                                                     ========      =======      =======      =======

Weighted average common shares/units
     outstanding(1):
         - Basic                                     47,828.7     48,660.3     48,255.2     48,894.6
                                                     ========     ========     ========     ========
         - Diluted                                   48,680.2     49,100.3     48,686.3     49,338.6
                                                     ========     ========     ========     ========

(1)  The calculation assumes the conversion of dilutive common stock equivalents
     including  convertible  preferred  stock for the  nine-month  period  ended
     September 30, 2005 and the conversion of all UPREIT units to common shares.
     The convertible preferred stock had an anti-dilutive effect; therefore, the
     convertible  preferred  dividends  are not  included in FFO diluted for the
     three and nine months ended September 30, 2004.

All REITs may not be using the same definition for FFO.  Accordingly,  the above
presentation  may not be comparable to other similarly titled measures of FFO of
other REITs.

Covenants
- ---------

Series F Preferred Stock
- ------------------------

In connection with the issuance of the Series F Preferred  Stock, the Company is
required to maintain for each fiscal  quarterly  period a fixed charge  coverage
ratio, as defined in the Series F Cumulative  Redeemable Preferred Stock Article
Supplementary,  of at least 1.75 to 1.0. The fixed charge coverage ratio and the
components  thereof do not represent a measure of cash  generated from operating
activities in accordance with generally accepted  accounting  principles and are
not necessarily  indicative of cash available to fund cash needs.  Further, this
ratio should not be  considered  as an  alternative  measure to net income as an
indication  of the  Company's  performance  or of  cash  flow  as a  measure  of
liquidity. The Company has been in compliance with the covenant since the Series
F Preferred Stock was issued. If the Company fails to be in compliance with this
covenant for six or more consecutive fiscal quarters,  the holders of the Series
F  Preferred  Stock would be  entitled  to elect two  directors  to the board of
directors of the Company. The calculation of the fixed charge coverage ratio for
the four most recent quarters since the issuance of the Series F Preferred Stock
is  presented  below (in  thousands).  Net  operating  income from  discontinued
operations  in the  following  calculation  is  defined as total  revenues  from
discontinued operations less operating and maintenance expenses.

                                    Calculation Presented for Series F Covenants
                                                                                    Three-months ended
                                                                                    ------------------
                                                                     Sept. 30,    June 30,      Mar.31,     Dec. 31,
                                                                          2005        2005         2005         2004
                                                                          ----        ----         ----         ----
EBITDA
- ------
    Total revenues                                                    $125,775    $121,636     $118,787     $118,357
    Net operating income (loss) from discontinued operations             1,045        (343)         142        2,143
    Operating and maintenance                                          (54,161)    (53,623)    ( 57,511)     (52,227)
    General and administrative                                          (4,894)     (4,144)      (5,405)      (9,482)

    Equity in earnings (losses) of unconsolidated affiliates                 -           -            -            -
                                                                       -------     -------     --------      -------
                                                                       $67,765     $63,526     $ 56,013      $58,791
Fixed Charges
- -------------
    Interest expense                                                   $27,059     $25,173     $ 24,943      $23,891
    Interest expense on discontinued operations                            382         279           21          442
    Preferred dividends                                                  1,350       1,681        1,898        1,898
    Capitalized interest                                                   254         339          191          191
                                                                       -------     -------     --------      -------
                                                                       $29,045     $27,472     $ 27,053      $26,422

Fixed charge coverage ratio:                                              2.33        2.31         2.07         2.23

Line of Credit
- --------------

The Credit  Agreement  relating to the Company's line of credit provides for the
Company to maintain  certain  financial  ratios and  measurements.  One of these
covenants  was  that  the  Company  could  not  pay  any   distribution  to  its
shareholders  and holders of its UPREIT Units if a  distribution,  when added to
other distributions paid during the three immediately preceding fiscal quarters,
exceeded  the  greater of : (i) 90% of funds from  operations,  and 110% of cash
available  for  distribution;  and (ii) the  amount  required  to  maintain  the
Company's status as a REIT.  Historically  there were certain quarters where the
Company did not meet this specific covenant and appropriate waivers were granted
by the participating banks. The new credit agreement effective September 1, 2008
has removed this covenant  completely.  The line of credit has not been used for
long-term  financing  but adds a certain  amount of  flexibility,  especially in
meeting the Company's  acquisition goals. Many times it is easier to temporarily
finance an  acquisition or stock  repurchase in a short-term  nature through the
line of credit,  with  long-term  secured  financing or other sources of capital
replenishing the line of credit availability.

Economic Conditions
- -------------------

Substantially all of the leases at the Company's apartment communities are for a
term of one year or less, which enables the Company to seek increased rents upon
renewal of  existing  leases or  commencement  of new leases.  These  short-term
leases  minimize the  potential  adverse  effect of inflation on rental  income,
although residents may leave without penalty at the end of their lease terms and
may do so if rents are increased significantly.

Historically,  real estate has been subject to a wide range of cyclical economic
conditions, which affect various real estate sectors and geographic regions with
differing  intensities  and at different  times.  During 2001 through 2003, many
regions of the United States  experienced  varying degrees of economic recession
and  certain  recessionary  trends,  such as the  cost of  obtaining  sufficient
property and liability  insurance  coverage,  short-term  interest rates,  and a
temporary  reduction in occupancy.  Starting in 2004 and into 2005,  the economy
has shown improvement which has benefited multifamily apartments. We continue to
review our  business  strategy and given our  property  type and the  geographic
regions  in  which we are  located,  we do not  anticipate  any  changes  in our
strategy or material effects in financial performance.

Declaration of Dividend
- -----------------------

On  November  4, 2005,  the Board of  Directors  approved a dividend of $.64 per
share for the quarter  ended  September 30, 2005.  This is the  equivalent of an
annual  distribution  of $2.56 per share.  The dividend is payable  November 25,
2005 to shareholders of record on November 15, 2005.

On November 4, 2005, the Company also declared a regular  dividend of $.5625 per
share on its Series F Cumulative  Redeemable  Preferred  Stock,  for the quarter
ending  November 30, 2005.  The dividend on the  preferred  shares is payable on
November 30, 2005 to  shareholders of record on November 15, 2005. This dividend
is equivalent to an annualized rate of $2.25 per share.

Contingency
- -----------

The Company is not a party to any legal proceedings which are expected to have a
material  adverse  effect on the  Company's  liquidity,  financial  position  or
results of operations.  The Company is subject to a variety of legal actions for
personal  injury  or  property  damage  arising  in the  ordinary  course of its
business, most of which are covered by liability insurance. While the resolution
of these matters cannot be predicted with  certainty,  management  believes that
the final outcome of such legal  proceedings and claims will not have a material
adverse  effect on the  Company's  liquidity,  financial  position or results of
operations.

In 2001,  the Company  underwent a state capital stock tax audit.  The state had
assessed  taxes of $469 for the 1998 and  1999 tax  years  under  audit.  If the
state's  position is applied to all tax years  through  December 31,  2001,  the
assessment would be $1,300. At the time, the Company believed the assessment and
the state's  underlying  position were not supportable by the law nor consistent
with previously  provided  interpretative  guidance from the office of the State
Secretary of Revenue.  After two subsequent  enactments by the state legislation
during 2002  affecting  the  pertinent  tax statute,  the Company was advised by
outside tax counsel  that its filing  position  for  1998-2001  should  prevail.
During December 2003, the state's governor signed legislation which included the
REIT tax  provisions.  Based upon this,  Company's tax counsel  expects that the
outstanding  litigation should now be able to be resolved.  Effective January 1,
2003, the Company  reorganized  the ownership of Home  Properties  Trust,  which
should  subject  the  Company to a much  lower  level of tax going  forward.  In
September  2004,  the  Company  settled the 1998 year under audit for a total of
$39, including  interest.  During the first quarter of 2005, the Company filed a
protest with the Pennsylvania  State  Commonwealth Court concerning the 1999 tax
year. Settlement  discussions have occurred during the third quarter of 2005 for
the open years 1999-2001. Based on these discussions,  the Company believes that
the likelihood of settling all three open years has  increased,  and has accrued
$160.

During  April,  2004,  the Company  finalized  negotiations  with New York State
settling a sales and use tax audit  covering the period June 1, 1999 through May
31,  2002.  The total cost to the  Company as a result of the audit  amounted to
$861.  This was included in the first quarter 2004 results and allocated $448 to
expense and $413 capitalized to real estate assets for improvements.

As a result of this  audit,  during the  second  quarter  of 2004,  the  Company
examined  its sales  and use tax  compliance  in the  other  states in which the
Company operates.  Based upon its internal  analysis,  the Company estimated its
liability as of June 30, 2004 in those states where it found  non-compliance and
recorded at June 30, 2004 a liability of $1,712. This was included in the second
quarter  results  and  allocated  $761 to expense and $951  capitalized  to real
estate assets for  improvements.  The liability  recorded  relates to the period
beginning on the later of: (i) the date the Company first purchased  property in
the  applicable  state;  or (ii) January 1, 1997 and ending on June 30, 2004. In
addition,  the Company increased the liability for sales tax exposure by $68 for
the six-month  period ended  December 31,  2004. The Company has filed Voluntary
Disclosure  Agreements  ("VDAs")  with the four states where it had  significant
financial exposure. During the first six months of 2005, the Company signed VDAs
with these  states  which have  agreed to limit the VDA  filing  period  back to
January 1, 2001, and has satisfied all financial obligations under the VDAs. For
the three- and six-month  periods ended June 30, 2005,  the Company has recorded
adjustments to the liability for both the effects of signing the VDAs as well as
for the results of the  Company's  additional  testing for the first six months.
The net impact of these adjustments resulted in a decrease in real estate assets
of $175,  interest  expense  of $115 and  operating  expenses  of $108 for a net
decrease to the accrued liability of $398. During the third quarter of 2005, the
Company  finalized  negotiations  with New York State settling a sales tax audit
covering the period June 1, 2002 through  November 30, 2004.  The settlement was
not materially  different  from what had been accrued.  The result of the recent
payments on the VDAs and this New York State audit is that the sales tax accrual
which had been over  $1,712 (as  referenced  above)  has been  reduced to $16 at
September 30, 2005.

In connection with the issuance of the Series F Preferred  Stock, the Company is
required to maintain for each fiscal  quarterly  period a fixed charge  coverage
ratio, as defined in the Series F Cumulative Redeemable Preferred Stock Articles
Supplementary to the Company's  Articles of  Incorporation,  of at least 1.75 to
1.0. The fixed charge coverage ratio and the components thereof do not represent
a measure  of cash  generated  from  operating  activities  in  accordance  with
generally accepted accounting  principles and are not necessarily  indicative of
cash available to fund cash needs.  Further, this ratio should not be considered
as an  alternative  measure  to net  income as an  indication  of the  Company's
performance  or of cash flow as a measure of liquidity.  The Company has been in
compliance with the covenant since the Series F Preferred  Stock was issued.  If
the  Company  fails  to be in  compliance  with  this  covenant  for six or more
consecutive  fiscal quarters,  the holders of the Series F Preferred Stock would
be entitled to elect two directors to the board of directors of the Company.

New Accounting Standards
- ------------------------

In December 2004, the FASB issued  Statement of Financial  Accounting  Standards
No. 123R Share Based Payment ("SFAS No.  123R").  The statement is a revision of
SFAS No. 123 Accounting for  Stock-Based  Compensation.  SFAS No 123R supersedes
APB Opinion No. 25  Accounting  for Stock Issued to  Employees,  and its related
implementation guidance. SFAS 123R, requires that entities recognize the cost of
employee  services  received in exchange for awards of equity  instruments (i.e.
stock options) based on the grant-date fair value of those awards. The Statement
is effective for the first fiscal year beginning after June 15, 2005. On January
1, 2003,  the Company  adopted the  provisions  of SFAS No. 148  Accounting  for
Stock-Based  Compensation - Transition and Disclosure,  an Amendment to SFAS No.
123.  Effective on that date, the Company began  recognizing  compensation  cost
related to stock option  grants.  Based upon the Company's  adoption of SFAS No.
148,  the Company  does not expect the  application  of SFAS No. 123R  beginning
January  1,  2006  to  have a  material  impact  on  the  Company's  results  of
operations, financial position or liquidity.

                              HOME PROPERTIES, INC.

                      ITEM 3. QUANTITATIVE AND QUALITATIVE
                          DISCLOSURES ABOUT MARKET RISK

The Company's  primary  market risk exposure is interest rate risk. At September
30, 2005 and December 31,  2004, approximately 90% and 89%, respectively, of the
Company's debt bore interest at fixed rates with a weighted  average maturity of
approximately 7 and 8 years, respectively,  and a weighted average interest rate
of approximately  6.11% and 6.23%,  respectively,  including the $29 million and
$34 million,  respectively,  of debt which has been swapped to a fixed rate. The
remainder of the Company's debt bears interest at variable rates with a weighted
average maturity of approximately 12 and 8 years,  respectively,  and a weighted
average interest rate of 4.48 % and 2.98%,  respectively,  at September 30, 2005
and  December 31,  2004.  The Company  does not intend to utilize a  significant
amount of permanent  variable rate debt to acquire  properties in the future. On
occasion,  the Company may use its line of credit in connection  with a property
acquisition or stock repurchase with the intention to refinance at a later date.
The Company  believes,  however,  that in no event would  increases  in interest
expense  as  a  result  of   inflation   significantly   impact  the   Company's
distributable cash flow.

At  September  30, 2005 and December  31,  2004,  the interest  rate risk on $29
million  and $34  million,  respectively,  of such  variable  rate debt has been
mitigated  through the use of interest rate swap  agreements  (the "Swaps") with
major financial institutions. The Company is exposed to credit risk in the event
of non-performance by the  counter-parties to the Swaps. The Company believes it
mitigates  its credit  risk by entering  into these  Swaps with major  financial
institutions. The Swaps effectively convert the variable rate mortgages to fixed
rates of 5.35%, 5.39%, 8.22% and 8.40%.

At September  30, 2005 and December  31, 2004,  the fair value of the  Company's
fixed rate debt, including the $29 million and $34 million, respectively,  which
was swapped to a fixed rate,  amounted to a liability of $1.74 billion  compared
to its carrying amount of $1.66 billion.  The Company estimates that a 100 basis
point increase in market interest rates at September 30, 2005 would have changed
the fair value of the Company's fixed rate debt to a liability of $1.67 billion.

The Company intends to  continuously  monitor and actively manage interest costs
on its variable rate debt portfolio and may enter into swap positions based upon
market fluctuations.  In addition,  the Company believes that it has the ability
to obtain  funds  through  additional  equity  offerings  and/or the issuance of
UPREIT Units.  Accordingly,  the cost of obtaining such interest rate protection
agreements in relation to the Company's  access to capital markets will continue
to be  evaluated.  The  Company  has not,  and does not plan to,  enter into any
derivative  financial  instruments  for trading or speculative  purposes.  As of
September 30, 2005, the Company had no other material exposure to market risk.

                              HOME PROPERTIES, INC.

                         ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------

The Company  maintains  disclosure  controls and procedures that are designed to
ensure  that  information  required  to be  disclosed  in the  reports  filed or
submitted by the Company under the Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities and Exchange  Commission's rules and forms, and that such information
is  accumulated  and  communicated  to the  officers  who certify the  Company's
financial reports and to the other members of senior management and the Board of
Directors.

The principal executive officer and principal financial officer evaluated, as of
September 30, 2005, the effectiveness of the disclosure  controls and procedures
(as defined in Rules 13a-15(e) and 15-d-15(e) under the Securities  Exchange Act
of 1934,  as  amended  (the  "Exchange  Act"))  and have  determined  that  such
disclosure controls and procedures are effective.

There have been no changes in the internal  controls  over  financial  reporting
identified in connection with that evaluation, or that occurred during the third
quarter of the year ended December 31, 2005 that has materially affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial  reporting.  The Company has not identified any material weaknesses in
its internal controls.

                           PART II - OTHER INFORMATION

                              HOME PROPERTIES, INC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES; USE OF PROCEEDS FROM REGISTERED
        ------------------------------------------------------------------------
        SECURITIES
        ----------

In 1997, the Company's Board of Directors  approved a stock  repurchase  program
under which the Company may repurchase  shares of its  outstanding  common stock
and UPREIT Units.  The  shares/units  may be repurchased  through open market or
privately negotiated  transactions at the discretion of Company management.  The
Board's  action does not  establish a specific  target stock price or a specific
timetable  for share  repurchase.  Recently,  the  Company's  Board of Directors
removed certain price restrictions,  which substantially  enhances the Company's
ability  to  repurchase   shares.   At  December  31,  2004,   the  Company  had
authorization  to repurchase  2,000,000  shares of common stock and UPREIT Units
under the stock repurchase program. On February 16, 2005, the Board of Directors
approved  a  2,000,000  share  increase  in the  stock  repurchase  program.  In
addition,  participants in the Company's Stock Benefit Plan can use common stock
of the Company  that they  already  own to pay all or a portion of the  exercise
payable to the Company upon the exercise of an option. In such event, the common
stock used to pay the  exercise  price is returned to  authorized  but  unissued
status, and for purposes of this table is deemed to have been repurchased by the
Company.  The  following  table  summarizes  the total number of shares  (units)
repurchased by the Company during the  three-month  period ending  September 30,
2005.

                                                                      Total shares (units)    Maximum shares
                                         Total shares     Average         purchased as       (units) that may
                                            (units)      price per     part of publicly-     yet be purchased
                   Period                purchased(1)   share (unit)     announced Plan       under the Plan
                   ------                ------------   ------------     --------------       --------------

Balance June 30, 2005                                                                             2,699,300

July 1, 2005 to July 31, 2005                   1,199       $45.09                  -                     -

August 1, 2005 to August 31, 2005              11,981       $40.84                  -                     -

September 1, 2005 to September 30, 2005       208,289       $38.93            205,900             2,493,400
                                              -------       ------            -------             ---------
                                              221,469       $39.07            205,900             2,493,400
                                              =======       ======            =======             =========

(1)  During the three months ended  September 30, 2005, the Company  repurchased
     15,569  shares of common stock  through  share  repurchase  by the transfer
     agent  in the  open  market  in  connection  with  the  Company's  Dividend
     Reinvestment Plan ("DRIP"), which are included in this table.

ITEM 6.  EXHIBITS

Exhibit 10.78 Amendment No. Four to Credit  Agreement  between Home  Properties,
              L.P., certain Lenders, and Manufacturers and Traders Trust Company
              and Administrative Agent
Exhibit 10.79 Agreement, dated September 30, 2005 between General Electric
              Credit Equities, Inc. and H.P. Knolls I Associates, L.P.
Exhibit 10.80 Agreement, dated September 30, 2005, between General Electric
              Credit Equities, Inc. and H.P. Knolls II Associates, L.P.
Exhibit 31.1  Section 302 Certification of Chief Executive Officer
Exhibit 31.2  Section 302 Certification of Chief Financial Officer
Exhibit 32.1  Section 906 Certification of Chief Executive Officer
Exhibit 32.2  Section 906 Certification of Chief Financial Officer

                                   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, INC.
                                ---------------------
                                (Registrant)


                                Date:    November 9, 2005
                                         -------------------------------------

                                By:      /s/ Edward J. Pettinella
                                         -------------------------------------
                                         Edward J. Pettinella
                                         President and Chief Executive Officer


                                Date:    November 9, 2005
                                         -------------------------------------

                                By:      /s/ David P. Gardner
                                         -------------------------------------
                                         David P. Gardner
                                         Executive Vice President and
                                         Chief Financial Officer

EX-10.78

                                  EXHIBIT 10.78
                                 AMENDMENT NO. 4
                               TO CREDIT AGREEMENT


     This AMENDMENT NO. 4 TO CREDIT  AGREEMENT (this  "Amendment No. 4") is made
and  entered  into  as of  the 8 day  of  September,  2005  by  and  among  HOME
PROPERTIES,  L.P., f/k/a Home Properties of New York, L.P. (the "Borrower"), the
LENDERS  party  hereto  and   MANUFACTURERS   AND  TRADERS  TRUST  COMPANY,   as
Administrative Agent (in such capacity, the "Administrative  Agent") for each of
the lenders  (the  "Lenders")  now or  hereafter  party to the Credit  Agreement
referenced below.

                                R E C I T A L S:

     A. The Borrower, the Administrative Agent,  Manufacturers and Traders Trust
Company  ("M&T") and Citizens Bank of Rhode Island  ("CBRI")  entered into a
Credit  Agreement  dated as of August 23,  1999 (the "1999  Credit  Agreement"),
pursuant  to which the  Lenders  agreed to make  certain  revolving  credit  and
letters of credit facilities available to the Borrower.

     B. On July 12, 2000,  M&T  assigned to Chevy Chase Bank,  FSB ("CCB") a
portion of its Commitment  which  constituted  15% of all  Commitments and loans
previously made pursuant thereto.

     C. The Borrower,  the Administrative  Agent,  M&T, CBRI and CCB entered
into  Amendment  No. 1 to  Credit  Agreement,  dated as of  September  6,  2000,
("Amendment  No. 1")  pursuant to which  certain  amendments  to the 1999 Credit
Agreement were made.

     D. The Borrower,  the Administrative  Agent,  M&T, CBRI and CCB entered
into  Amendment  No. 2 to  Credit  Agreement,  dated  as of  September  1,  2002
("Amendment  No. 2") pursuant to which  certain  further  amendments to the 1999
Credit Agreement as amended by Amendment No. 1 were made.

     E. On April 1, 2003,  M&T assigned to Comerica Bank ("CB") a portion of
its Commitment  which  constituted  17.39130435%  of all  Commitments  and loans
previously made pursuant thereto.

     F. The  Borrower,  the  Administrative  Agent,  M&T,  CBRI , CCB and CB
entered  into  Amendment  No. 3 to Credit  Agreement,  dated as of April 1, 2004
("Amendment  No. 3") pursuant to which  certain  further  amendments to the 1999
Credit  Agreement as amended by Amendment  No. 1 and  Amendment No. 2 were made.
The 1999  Credit  Agreement  as amended by  Amendment  No. 1,  Amendment  No. 2,
Amendment No. 3 and as hereby amended and as from time to time further  amended,
supplemented,  modified,  replaced or restated is hereinafter referred to as the
"Credit Agreement."

     F. Borrower has requested the Lenders to further amend the Credit Agreement
as provided herein and subject to the terms and conditions set forth herein, and
the  Required  Lenders  are willing to amend the Credit  Agreement  as set forth
herein.  Amendments made by Amendment No. 1, Amendment No. 2 and Amendment No. 3
are  hereinafter  restated with any further  modification  or amendments made by
this Amendment No. 4.




                              P R O V I S I O N S:

     NOW,  THEREFORE,  in  consideration of any prior extension of credit by the
Lenders to Borrower,  and/or in consideration of the Lenders having entered into
the Credit Agreement with Borrower,  and in consideration of the mutual promises
set forth below, Borrower,  Administrative Agent and the Lenders hereby agree as
follows:

     1. Definitions.  The term "Credit Agreement" as used herein and in the Loan
Documents shall mean the Credit  Agreement as hereby amended and modified.  This
Amendment  No. 4 is a cumulative  amendment  entirely  replacing  and  restating
previous amendments.  Any capitalized terms used herein without definition shall
have the meaning set forth in the Credit Agreement.

     2. Amendment Effective Date. This Amendment No. 4 shall be effective on the
later of September 8,  2005 or the first date that the  following  conditions
have been satisfied (the "Effective Date"):

     2.1  The  Administrative   Agent  shall  have  received  a  fully  executed
counterpart  of this  Amendment  No. 4 from the  Lenders,  the  Borrower and the
Company  and the  fully  executed  Notes  dated as of the date  hereof  from the
Borrower.

     2.2 The  Administrative  Agent shall have received an opinion of counsel to
the Borrower and the Company  acceptable to it in its sole  discretion  and such
other  certificates,  instruments and other writings  pertaining to the Borrower
and the Company as it shall require in connection herewith.

     2.3 The  Administrative  Agent shall have received  payment in  immediately
available  funds of any and all fees  agreed to  between  the  Borrower  and the
Administrative   Agent  and  all   out-of-pocket   expenses   incurred   by  the
Administrative  Agent  in  connection  with  the  preparation,  negotiation  and
execution of this Amendment No. 4 and related documents.

     3. Amendment of Certain Provisions of the Credit Agreement.  Subject to the
terms and conditions set forth herein, the Credit Agreement is hereby amended as
set forth below:

     3.1 Section  1.01 of the Credit  Agreement  is hereby  amended to amend and
restate in their respective entireties the definitions of "Alternate Base Rate,"
"Applicable   Eurodollar  Margin,"   "Borrower,"  "Capital  Expenditure  Reserve
Amount," "Commitment,"  "Company," "Fixed Charges," "Maturity Date," "Management
Company," "Maximum  Availability,"  "Prime Rate," "Required Lenders," "Statutory
Reserve  Rate," "Total  Property  Value,"  "Total  Value," and "Type" to read as
follows:

     "Alternate  Base Rate"  means,  for any day, a rate per annum  equal to the
greatest of (a) the Prime Rate in effect on such day and (b) the  Federal  Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds  Effective Rate
shall be effective  from and including the effective  date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.

     "Applicable Eurodollar Margin" means, as of any date of determination,  the
percentage set forth below under the  appropriate  heading  corresponding  to an
"implied" or  "corporate"  rating as rated by Fitch IBCA ("Fitch  IBCA")  and/or
S&P (the "S&P Rating") and/or Moody's (the "Moody's Rating" and, each of
the Fitch IBCA,  S&P Rating and the Moody's  Rating  referred to herein as a
"Rating").


           Rating Service Rating      Applicable Eurodollar Margin

                  BBB+                     62.5 basis points
                  BBB                      75.0 basis points
                  BBB-                     87.5 basis points

     The Administrative  Agent shall determine the Applicable  Eurodollar Margin
from time to time in accordance with the above table and notify the Borrower and
the Banks of such determination from time to time.

     In the event the  Borrower is Rated by two Rating  Services  and there is a
different Rating between the two Rating Services,  the lower Rating from the two
Rating Services shall be used to determine the Applicable  Eurodollar Margin. In
the event the  Borrower  is Rated by more than two  Rating  Services,  the lower
Rating,  of the two highest  Ratings,  shall be used to determine the Applicable
Eurodollar  Margin.  In the event the Rating by any Rating Service is not in the
BBB range,  the Applicable  Eurodollar  Margin shall be (i) 62.5 basis points if
the Rating is above BBB+ or (ii) 125 basis points if the Rating is below BBB-.

     In the event the Borrower ceases to be Rated by any Rating Service,  a Rate
equivalent to the most recent Rating of the Borrower by any Rating Service shall
be used to determine the Applicable Eurodollar Margin.

     Any necessary  adjustment in the Applicable  Eurodollar  Margin pursuant to
the terms  hereof,  shall  become  effective  immediately  upon any  change in a
Rating.

          "Borrower"   means  Home   Properties,   L.P.,   a  New  York  limited
     partnership.

          "Capital  Expenditure Reserve Amount" means, for any period, an amount
     equal to (i) $300  multiplied by the number of apartment units contained in
     all Projects multiplied by (ii) a fraction, the numerator of which is equal
     to the number of days in such period and the  denominator of which is equal
     to 365.

          "Commitment"  means,  with respect to each Lender,  the  commitment of
     such  Lender to make  Revolving  Loans  and to  acquire  participations  in
     Letters  of  Credit  hereunder,  expressed  as an amount  representing  the
     maximum  aggregate  amount  of  such  Lender's  Revolving  Credit  Exposure
     hereunder, as such commitment may be (a) reduced from time to time pursuant
     to Section 2.07 and (b) reduced or increased  from time to time pursuant to
     assignments  by or to such  lender  pursuant to Section  9.04.  The initial
     amount of each Lender's Commitment is set forth on Schedule 2.01, or in the
     Assignment and Acceptance  pursuant to which such Lender shall have assumed
     its Commitment, as applicable. The initial aggregate amount of the Lenders'
     Commitments  is  $140,000,000.  Provided that no Event of Default under the
     Credit  Agreement  has  occurred,  the  Borrower  may  request on or before
     September  1, 2007 that the Lenders  increase the  aggregate  amount of the
     Lenders' Commitments to an amount not exceeding  $190,000,000.  No increase
     will be effective unless a Lender gives its written consent to increase its
     Commitment  and a new  Note  in  the  increased  amount  of  such  Lender's
     Commitment  is  executed  in  favor  of the  Lender  and  delivered  to the
     Administrative  Agent for the  account of such  Lender.  The  decision of a
     Lender  to  increase  its  Commitment  will  be in its  sole  and  absolute
     discretion.

          "Company" means Home Properties, Inc., a Maryland corporation.

          "Fixed Charges" means,  with respect to any fiscal period,  the sum of
     (i)  Total  Interest  Expense  and  (ii)  the  aggregate  of all  scheduled
     principal  payments on Indebtedness made or required to be made during such
     fiscal  period  for the  Consolidated  Businesses  (but  excluding  balloon
     payments of principal due upon the stated maturity of an Indebtedness)  and
     (iii) the  aggregate  of all  dividends  declared and payable on any of the
     Company's, the Borrower's or any of their Subsidiaries' preferred stock, or
     preferred  partnership  units, as the case may be. The Lenders  acknowledge
     that certain  convertible  preferred  issues were previously  excluded from
     this  definition and agree to review,  at the request of the Borrower,  any
     future convertible preferred issues for similar consideration.

          "Management Company" means Home Properties  Management,  Inc. and Home
     Properties  Resident  Services,  Inc., both Maryland  corporations of which
     100% of the issued and  outstanding  capital stock is and shall continue to
     be owned, beneficially and of record, by the Borrower.

          "Maturity  Date"  means  September  1, 2008,  unless (i) the  Borrower
     advises  the  Administrative  Agent on or before June 1, 2008 in writing of
     its desire to extend the Maturity  Date and pays the  Administrative  Agent
     for the account of each Lender an extension fee (the "Extension Fee") equal
     to 0.08% of each  Lender's  Commitment  and (ii)  there  exists no Event of
     Default under the Credit  Agreement or any of the other Loan Documents,  in
     which case  "Maturity  Date" means  September 1, 2009.  Upon  payment,  the
     Extension Fee shall be fully earned and non-refundable.

          "Maximum  Availability"  means the  aggregate  amount of the  Lenders'
     Commitments.

          "Prime Rate" means the rate of interest per annum  publicly  announced
     from time to time by  Manufacturers  and Traders Trust Company as its prime
     rate in effect at its principal office; each change in the Prime Rate shall
     be effective from and including the date such change is publicly  announced
     as being effective.

          "Required Lenders" means, at any time, Lenders having Revolving Credit
     Exposures and unused  Commitments  representing  at least 51% of the sum of
     the total Revolving Credit Exposures and unused Commitments at such time.

          "Statutory  Reserve  Rate" means a fraction  (expressed as a decimal),
     the  numerator of which is the number one and the  denominator  of which is
     the number  one minus the  aggregate  of the  maximum  reserve  percentages
     (including  any  marginal,  special,  emergency or  supplemental  reserves)
     expressed as a decimal established by the Board to which the Administrative
     Agent is subject with respect to the Adjusted LIBO Rate,  for  eurocurrency
     funding (currently referred to as "Eurocurrency  Liabilities" in Regulation
     D of the Board).  Such reserve  percentages  shall  include  those  imposed
     pursuant  to such  Regulation  D.  Eurodollar  Loans  shall  be  deemed  to
     constitute   eurocurrency  funding  and  to  be  subject  to  such  reserve
     requirements  without  benefit of or credit for  proration,  exemptions  or
     offsets  that may be  available  from time to time to any Lender under such
     Regulation D or any comparable regulation. The Statutory Reserve Rate shall
     be adjusted  automatically on and as of the effective date of any change in
     any reserve percentage.

          "Total  Property  Value"  means,  as of any date,  the sum of (i) with
     respect to all Eligible  Projects which have been owned by the Borrower for
     not less than four full consecutive calendar quarters,  as of the first day
     of each  fiscal  quarter for the  immediately  preceding  consecutive  four
     calendar  quarters,  an  amount  equal to  Adjusted  NOI  relating  to such
     Eligible  Project for such period divided by an annual  interest rate equal
     to 7.75% and (ii) with  respect to all  Eligible  Projects  which have been
     owned  by the  Borrower  for  less  than  four  full  consecutive  calendar
     quarters,  an amount equal to the cost of acquiring such Eligible  Projects
     less reasonable and customary transaction costs incurred in connection with
     such acquisition.

          "Total Value"  means,  as of any date,  the sum of (i) Total  Property
     Value  for all  Eligible  Projects;  (ii)  an  amount  equal  to 75% of all
     investments  in notes  secured by  mortgages  on the Property of any Person
     (including  Affiliates);  (iii) unrestricted  Permitted  Investments of the
     Consolidated  Businesses;  (iv) an  amount  equal  to 75% of Book  Value of
     undeveloped land and Projects on which construction is in progress, up to a
     maximum of 10% of Total Value  before  including  the amount of Total Value
     derived  from  this  clause  (iv);  and (v)  Borrower's  pro rata  share of
     investments in Real Property not constituting Eligible Projects,  valued at
     the lower of cost or the value specified in clauses (i) through (v) above.

          "Type"  when used in  reference  to any Loan or  Borrowing,  refers to
     whether the rate of interest on such Loan, or on the Loans  comprising such
     Borrowing,  is  determined  by reference  to the Adjusted  LIBO Rate or the
     Alternate Base Rate.

     3.2 Section 1.01 of the Credit  Agreement is further  amended (i) to delete
in their respective  entireties the following  definitions:  "Adjusted  EBITDA,"
"Assessment  Rate," "Base CD Rate," "Money  Market," "Money Market Loan Maturity
Date," "Money Market Rate," "Restricted  Payment" and "Three-Month  Secondary CD
Rate" and (ii) to insert the following new definitions:

          "Annual Facility Fee Rate" means, as of any date of determination, the
     percentage set forth below under the appropriate  heading  corresponding to
     the Rating Service Rating

          Rating Service Rating                Annual Facility Fee

                   BBB+                        12.5 basis points
                   BBB                         15.0 basis points
                   BBB-                        17.5 basis points

     The Administrative  Agent shall determine the Annual Facility Fee Rate from
time to time in accordance  with the above table and notify the Borrower and the
Lenders of such determination from time to time.

     In the event the  Borrower is Rated by two Rating  Services  and there is a
different Rating between the two Rating Services,  the lower Rating from the two
Rating  Services shall be used to determine the Annual Facility Fee Rate. In the
event the Borrower is Rated by more than two Rating Services,  the lower Rating,
of the two highest  Ratings,  shall be used to determine the Annual Facility Fee
Rate. In the event the Rating by any Rating Service is not in the BBB range, the
Annual  Facility  Fee Rate shall be (i) 12.5 basis points if the Rating is above
BBB+; or (ii) 25 basis points if the Rating is below BBB-.

     In the event the Borrower ceases to be Rated by any Rating Service,  a Rate
equivalent to the most recent Rating of the Borrower by any Rating Service shall
be used to determine the Annual Facility Fee Rate.

     Any necessary  adjustment  in the Annual  Facility Fee Rate pursuant to the
terms hereof, shall become effective immediately upon any change in a Rating.

          "Rating  Service"  means  Fitch  IBCA  Rating or any other  nationally
     recognized, independent, securities rating service acceptable to the Agent.

          "Total  Unencumbered Value" means, as of any measurement date, the sum
     of (i) with respect to all Unencumbered  Eligible  Projects which have been
     owned by the Borrower,  as of the measurement  date, for not less than four
     (4) full consecutive calendar quarters, an amount equal to Adjusted NOI for
     such Unencumbered  Eligible Project for the immediately  preceding four (4)
     consecutive calendar quarters as of the measurement date, divided by 7.75%;
     (ii) with respect to all  Unencumbered  Eligible  Projects  which have been
     owned by the  Borrower  for less  than four (4) full  consecutive  calendar
     quarters  as of the  measurement  date,  an  amount  equal  to the  cost of
     acquiring such Unencumbered Eligible Projects less reasonable and customary
     transaction costs incurred in connection with such acquisition and (iii) an
     amount equal to 75% of Book Value of undeveloped land and Projects on which
     construction is in progress,  up to a maximum of 10% of Total  Unencumbered
     Value before including the amount of Total  Unencumbered Value derived from
     this  clause  (iii).  The  sum of (i)  and  (ii)  shall  never  fall  below
     $100,000,000.

          "Unsecured  Indebtedness"  means, for any applicable  period,  without
     duplication,  (a) all  obligations  for  borrowed  money or advances of any
     kind, (b) all obligations evidenced by bonds, debentures,  notes or similar
     instruments,  and (c) all  obligations  upon  which  interest  charges  are
     customarily paid, that are not secured by a Lien.

     3.3  Section  2.02 and  Section  2.03 of the  Credit  Agreement  are hereby
deleted in their respective entireties and replaced with the following:

     SECTION 2.02 Loans and Borrowings.

     (a) Each Loan shall be made as part of a Borrowing consisting of Loans made
by the Lenders  ratably in accordance  with their  respective  Commitments.  The
failure  of any  Lender  to make any Loan  required  to be made by it shall  not
relieve  any  other  Lender  of its  obligations  hereunder,  provided  that the
Commitments  of the Lenders are several and no Lender shall be  responsible  for
any other Lender's failure to make Loans as required.

     (b) Subject to Section 2.12, each Borrowing shall be comprised  entirely of
ABR  Loans or  Eurodollar  Loans  as the  Borrower  may  request  in  accordance
herewith.  Each Lender at its option may make any Eurodollar Loan by causing any
domestic  or  foreign  branch or  Affiliate  of such  Lender to make such  Loan;
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.

     (c) At the  commencement of each Interest  Period for any Eurodollar  Loan,
such Loan shall be in an aggregate  amount that is not less than  $2,500,000 and
$250,000  increments in excess thereof.  At the time that each ABR Loan is made,
such Borrowing shall be in an aggregate amount that is an integral multiple of $
100,000 and not less than $  1,000,000;  provided  that an ABR Loan may be in an
aggregate  amount  that is equal  to the  entire  unused  balance  of the  total
Commitments  or  that  is  required  to  finance  the  reimbursement  of  an  LC
Disbursement  as contemplated  by Section  2.04(e).  Borrowings of more than one
Type may be outstanding  at the same time;  provided that there shall not at any
time be more than a total of ten Eurodollar Loans outstanding.

     (d) Notwithstanding  anything herein to the contrary,  at no time shall the
aggregate Revolving Credit Exposure be greater than the Maximum Availability.

     (e)  Notwithstanding  any other provision of this  Agreement,  the Borrower
shall not be  entitled  to  request,  or to elect to  convert or  continue,  any
Borrowing if the Interest Period  requested with respect thereto would end after
the Maturity Date.

     SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower
shall notify the  Administrative  Agent of such request by telephone  (a) in the
case of a Eurodollar  Borrowing,  not later than 11:00 a.m., New York City time,
three Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business
Day before the date of the proposed Borrowing;  provided that any such notice of
an  ABR  Borrowing  to  finance  the  reimbursement  of  an LC  Disbursement  as
contemplated by Section 2.04(e) may be given not later than 10:00 a.m., New York
City time, on the date of the proposed Borrowing. Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative  Agent of a written Borrowing Request in the form
of  Exhibit  D-1  attached   hereto,   or  such  other  form   approved  by  the
Administrative  Agent,  and signed by the  Borrower.  Each such  telephonic  and
written Borrowing Request shall specify the following  information in compliance
with Section 2.02:

          (i) the aggregate amount of the requested Borrowing;

          (ii) the date of such Borrowing, which shall be a Business Day;

          (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
     Borrowing;

          (iv) in the  case of a  Eurodollar  Borrowing,  the  initial  Interest
     Period to be applicable  thereto,  which shall be a period  contemplated by
     the definition of the term "Interest Period"; and

          (v) the location and number of the  Borrower's  account to which funds
     are to be disbursed,  which shall comply with the  requirements  of Section
     2.05.

If no election as to the Type of  Borrowing  is  specified,  then the  requested
Borrowing shall be a Eurodollar Borrowing with an Interest Period of one month's
duration.  If no Interest  Period is  specified  with  respect to any  requested
Eurodollar  Borrowing,  then the  Borrower  shall be deemed to have  selected an
Interest  Period  of one  month's  duration.  Promptly  following  receipt  of a
Borrowing  Request in accordance  with this Section,  the  Administrative  Agent
shall  advise  each  Lender of the  details  thereof  and of the  amount of such
Lender's Loan to be made as part of the requested Borrowing.

     3.4 Section  2.04(b)(i)  of the Credit  Agreement is hereby  deleted in its
entirety and replaced with the following:

          (i) the LC Exposure shall not exceed $20,000,000

     3.5 Section 2.06 of the Credit  Agreement is hereby deleted in its entirety
and replaced with the following:

     SECTION 2.06. Interest Elections.

     (a) Each Loan  initially  shall be of the Type  specified in the applicable
Borrowing  Request and, in the case of a Eurodollar  Loan, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Loan to a different Type or to continue such Loan and,
in the case of a Eurodollar  Loan, may elect Interest Periods  therefor,  all as
provided in this Section.  The Borrower may elect different options with respect
to different portions of the affected Borrowing, in which case each such portion
shall be allocated  ratably among the Lenders holding the Loans  comprising such
Borrowing,  and the Loans  comprising  each such portion  shall be  considered a
separate Borrowing.

     (b) To make an election pursuant to this Section, the Borrower shall notify
the  Administrative  Agent of such  election  by  telephone  by the time  that a
Borrowing  Request  would be required  under  Section 2.03 if the Borrower  were
requesting a Borrowing of the Type  resulting  from such  election to be made on
the effective  date of such election.  Each such  telephonic  Interest  Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.

     (c) Each telephonic and written Interest Election Request shall specify the
following information in compliance with Section 2.02:

          (i) the Borrowing to which such Interest Election Request applies and,
     if different  options are being elected with respect to different  portions
     thereof,  the portions thereof to be allocated to each resulting  Borrowing
     (in which case the  information  to be specified  pursuant to clauses (iii)
     and (iv) below shall be specified for each resulting Borrowing);


          (ii) the effective date of the election made pursuant to such Interest
     Election Request, which shall be a Business Day;

          (iii) whether the  resulting  Borrowing is to be an ABR Borrowing or a
     Eurodollar Borrowing; and

          (iv)if the resulting Borrowing is a Eurodollar Borrowing, the Interest
     Period to be applicable thereto after giving effect to such election, which
     shall be a period  contemplated  by the  definition  of the term  "Interest
     Period."

If any such Interest  Election Request requests a Eurodollar  Borrowing but does
not  specify  an  Interest  Period,  then the  Borrower  shall be deemed to have
selected an Interest Period of one month's duration.

     (d)  Promptly  following  receipt  of an  Interest  Election  Request,  the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.

     (e) If the Borrower  fails to deliver a timely  Interest  Election  Request
with  respect  to a  Eurodollar  Loan  prior to the end of the  Interest  Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such  Interest  Period such Loan shall be  converted  to a Eurodollar
Loan  with an  Interest  Period of one  month's  duration.  Notwithstanding  any
contrary provision hereof, if an Event of Default has occurred and is continuing
and the  Administrative  Agent,  at the  request  of the  Required  Lenders,  so
notifies the Borrower, then, so long as an Event of Default is continuing (i) no
outstanding  Loan may be converted to or continued as a Eurodollar Loan and (ii)
unless repaid, each Eurodollar Loan shall be converted to an ABR Loan at the end
of the Interest Period applicable thereto.

     3.6  Section  2.09(b)  of the  Credit  Agreement  is hereby  deleted in its
entirety and replaced with the following:

     (b) The  Borrower  shall  notify  the  Administrative  Agent  by  telephone
(confirmed  by  telecopy)  of  any  prepayment  hereunder  (i) in  the  case  of
prepayment of a Eurodollar  Loan, not later than 11:00 a.m., New York City time,
three  Business  Days  before  the  date of  prepayment  or (ii) in the  case of
prepayment of an ABR Loan,  not later than 11:00 a.m.,  New York City time,  one
Business  Day  before  the  date  of  prepayment.  Each  such  notice  shall  be
irrevocable  and shall specify the prepayment  date and the principal  amount of
each Borrowing or portion  thereof to be prepaid;  provided that, if a notice of
prepayment is given in connection  with a conditional  notice of  termination of
the  Commitments as contemplated by Section 2.07, then such notice of prepayment
may be revoked if such  notice of  termination  is  revoked in  accordance  with
Section 2.07.  Promptly following receipt of any such notice relating to a Loan,
the Administrative Agent shall advise the Lenders of the contents thereof.  Each
partial  prepayment of any Loan shall be in an amount that would be permitted in
the case of an advance of a Loan of the same Type as provided  in Section  2.02.
Each  prepayment of a Loan shall be applied ratably to the Loans included in the
prepaid  Borrowing.  Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.11.

     3.7  Section  2.10 and  Section  2.11 of the  Credit  Agreement  are hereby
deleted in their respective entireties and replaced with the following:

     SECTION 2.10. Fees.

     (a) On the  date  of  this  Amendment  No.  4,  Borrower  shall  pay to the
Administrative  Agent for the account of each Lender a  commitment  fee equal to
0.125%  of  each   Lender's   Commitment,   which  shall  be  fully  earned  and
non-refundable.

     (b) Borrower agrees to pay to the  Administrative  Agent for the account of
each Lender,  an annual  facility fee,  which as of the  measurement  date shall
accrue at a rate per annum  based on the Annual  Facility  Fee Rate.  The annual
facility fee shall be the product of the  Commitment  of such Lender  during the
period from and including the Effective  Date to but excluding the date on which
such Commitment  terminates and the Annual Facility Fee Rate;  provided that, if
such Lender continues to have any Revolving Credit Exposure after its Commitment
terminates,  then such annual facility fee shall continue to accrue on the daily
amount of such Lender's Revolving Credit Exposure from and including the date on
which its  Commitment  terminates to but excluding the date on which such Lender
ceases to have any Revolving Credit Exposure. Accrued annual facility fees shall
be payable in arrears on the last day of March, June,  September and December of
each year and on the date on which the Commitments terminate,  commencing on the
first  such  date to occur  after  the date  hereof,  provided  that any  annual
facility fees accruing after the date on which the  Commitments  terminate shall
be payable on demand. All annual facility fees shall be computed on the basis of
a year of three  hundred  sixty  (360) days and shall be payable  for the actual
number of days elapsed (including the first day but excluding the last day). Any
necessary  adjustment  in the annual  facility fee pursuant to the terms hereof,
shall become effective immediately upon any change in a Rating.

     (c) Upon the issuance of each Letter of Credit,  the Borrower agrees to pay
to the  Lender  an  issuance  fee.  If the  requested  Letter of Credit is for a
duration of one year,  the issuance fee shall be equal to .9% of the face amount
of the  Letter of Credit,  which  Letter of Credit fee shall also be due on each
anniversary  date of the  issuance of the Letter of Credit (or any  extension or
renewal  thereof),  so long as the Letter of Credit (or any extension or renewal
thereof),  remains  outstanding.  If the  requested  Letter  of  Credit is for a
duration  of less  than  one  year,  the  issuance  fee  shall  be equal to .9%,
pro-rated  to the  nearest  1/12 of a year,  of the face amount of the Letter of
Credit.  Notwithstanding  the above,  in no case shall the  issuance fee be less
than the  greater of $400.00  or1/2% of the face amount of the Letter of Credit.
Upon the issuance of each Letter of Credit (and upon each anniversary thereof so
long as the Letter of Credit  remains  outstanding),  the  issuance fee shall be
payable in full and shall be fully  earned and  non-refundable.  Borrower  shall
also pay to the Lender the Lender's standard fees with respect to the amendment,
renewal  or  extension  of any  Letter  of Credit  and  processing  of  drawings
thereunder.

     (d) The Borrower  agrees to pay to the  Administrative  Agent,  for its own
account,  fees  payable in the amounts and at the times  separately  agreed upon
between the Borrower and the Administrative Agent.

     (e)  All  fees  payable  hereunder  shall  be  paid on the  dates  due,  in
immediately  available  funds,  to the  Administrative  Agent (or to the Issuing
Bank,  in the  case of fees  payable  to it) for  distribution,  in the  case of
facility fees and  participation  fees,  to the Lenders.  Fees paid shall not be
refundable  under  any  circumstances.  Upon its  receipt  of fees to which  the
Lenders are entitled, the Administrative Agent shall promptly remit such fees to
the Lenders as provided herein.

     SECTION 2.11. Interest.

     (a) The Loans  comprising  each ABR  Borrowing  shall bear  interest at the
Alternate  Base Rate,  which rates are subject to change  without  notice to the
Borrower as specified in the definition of Alternate Base Rate.

     (b) The Loans  comprising each Eurodollar  Borrowing shall bear interest at
the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Eurodollar Margin.

     (c) [intentionally omitted].

     (d) Notwithstanding  the foregoing,  if any principal of or interest on any
Loan or any fee or other amount  payable by the  Borrower  hereunder is not paid
when due,  whether at stated  maturity,  upon  acceleration  or otherwise,  such
overdue amount shall bear interest,  after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise  applicable to such Loan as provided in the preceding  paragraphs
of this  Section  or (ii) in the  case of any  other  amount,  2% plus  the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.

     (e)  Accrued  interest  on each Loan  shall be  payable  in arrears on each
Interest  Payment Date for the  immediately  preceding  calendar  month and upon
termination  of the  Commitments;  provided that (i) interest on any  Eurodollar
Loan  shall be paid at the end of each  Interest  Period  but in no  event  less
frequently than every three months,  (ii) interest accrued pursuant to paragraph
(d) of this Section  2.11 shall be payable on demand,  (iii) in the event of any
repayment or prepayment of any Loan,  accrued  interest on the principal  amount
repaid or prepaid  shall be payable on the date of such  repayment or prepayment
and (iv) in the event of any conversion of any Eurodollar  Loan prior to the end
of the current Interest Period therefor,  accrued interest on such Loan shall be
payable on the effective date of such conversion.

     (f) All interest  hereunder shall be computed on the basis of a year of 360
days,  except that  interest  computed by reference to the  Alternate  Base Rate
shall  be  computed  on the  basis  of a year of 365 days (or 366 days in a leap
year),  and in each case shall be payable for the actual  number of days elapsed
(including the first day but excluding the last day).  The applicable  Alternate
Base Rate,  Adjusted  LIBO Rate and Money Market Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.

     3.8 Section 5.08(a) and Section 5.08(g) of the Credit  Agreement are hereby
deleted in their respective entireties and replaced with the following:

     (a) Acquisition of residential  housing  Projects similar to and consistent
with the  types  of  Projects  owned  and/or  operated  by the  Borrower  on the
Effective Date.

     (g) Working capital needs of the Borrower.

     3.9 Section 6.01 of the Credit  Agreement is hereby deleted in its entirety
and replaced with the following:


     SECTION 6.01.

     (a)  Indebtedness and Other Financial  Covenants.  Neither the Borrower nor
any of its Subsidiaries  shall directly or indirectly create,  incur,  assume or
otherwise  become or remain  directly or  indirectly  liable with respect to any
Indebtedness,  except  that the  Borrower  and/or its  Subsidiaries  may create,
incur,  assume or otherwise become or remain directly or indirectly  liable with
respect to any Indebtedness to the extent that Total  Outstanding  Indebtedness,
would  not  exceed  (i)  62.5% of Total  Value,  or (ii) in the case of  Secured
Indebtedness of the Consolidated Businesses, 60% of Total Value, or (iii) in the
case of Recourse  Secured  Indebtedness of the Consolidated  Businesses,  35% of
Total  Value,  or (iv) in the case of Adjusted  Recourse  Secured  Indebtedness,
12.5% of Total Value. Notwithstanding anything to the contrary herein contained,
in no event shall (x) the aggregate amount of completion guarantees with respect
to Projects at any time exceed 15% of Total Value and (y) the  aggregate  amount
of Low Income Housing Credit Program Guarantees at any time exceed $11 million.

     (b) Minimum  Equity  Value.  The Equity Value shall at no time be less than
$270,800,000.00,  plus  an  amount  equal  to 85% of all Net  Offering  Proceeds
received by the Company after July 6, 1998.

     (c) Minimum  Consolidated  Interest  Coverage Ratio. As of the first day of
each calendar quarter for the immediately  preceding four  consecutive  calendar
quarters,  the ratio of EBITDA to Total  Interest  Expense for such period shall
not be less than 2.0 to 1.0.

     (d) Minimum Unsecured  Interest Coverage Ratio. As of the first day of each
calendar  quarter  for  the  immediately  preceding  four  consecutive  calendar
quarters,  the ratio of Adjusted  Unencumbered NOI to Unsecured Interest Expense
shall not be less than 1.65 to 1.0.

     (e)  Total  Unencumbered   Value.  At  no  time  shall  (i)  the  Unsecured
Indebtedness be greater than 60% of the Total Unencumbered Value, (ii) the Total
Unencumbered Value be less than $100,000,000 or (iii) the Unencumbered  Eligible
Projects  consist of less than ten (10)  Eligible  Projects.

     (f)  Minimum  Fixed  Charge  Coverage  Ratio.  As of the  first day of each
calendar  quarter  for  the  immediately  preceding  four  consecutive  calendar
quarters,  the ratio of Adjusted NOI to Fixed Charges shall not be less than 1.6
to 1.0.

     (g) Maximum  Availability.  The Revolving  Credit Exposure shall not at any
time  exceed  the  Maximum  Availability.  If at any time the  Revolving  Credit
Exposure exceeds the Maximum Availability, the Borrower shall immediately prepay
a portion  of the Loan in an amount  equal to such  excess  as  provided  for in
Section 2.09(d).

     (h) Minimum Occupancy Level for Unencumbered  Eligible Projects.  As of the
first  day  of  each  calendar  quarter  for  the  immediately   preceding  four
consecutive  calendar  quarters,  the weighted  average  economic  occupancy for
Unencumbered  Eligible  Projects  shall not be less than 80% with the  exception
that each  individual  project  within the definition of  Unencumbered  Eligible
Projects  shall have an occupancy  level of not less than 75%. If the  occupancy
level of an  individual  project falls below 75%, a  capitalization  rate of 10%
will be used to  determine  the value of the  individual  Unencumbered  Eligible
Project.  Borrower will include a schedule of occupancy  levels of  Unencumbered
Eligible Projects within its Quarterly Compliance Certificates.

     3.10 Section 9.01 of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:

     SECTION   9.01.   Notices.   Except  in  the  case  of  notices  and  other
communications  expressly  permitted to be given by  telephone,  all notices and
other  communications  provided  for  herein  shall be in  writing  and shall be
delivered  by  hand  or  overnight  courier  service,  mailed  by  certified  or
registered mail, return receipt requested, or sent by telecopy, as follows:

     (a) if to the Borrower,  to it at 850 Clinton Square,  Rochester,  New York
14604,  Attn: David P. Gardner (Telecopy No.  585-232-3147),  with a copy to the
Borrower  at  the  same  address,   Attention:  Gerald  B.  Korn  (Telecopy  No.
585-232-3147);

     (b) if to the  Administrative  Agent,  to  Manufacturers  and Traders Trust
Company,  255 East Avenue,  Rochester,  New York 14604,  Attn: Ms. Lisa Plescia,
Vice President, Telecopy No. 585-546-5363;

     (c) if to the Issuing Bank, to Manufacturers and Traders Trust Company, 255
East Avenue,  Rochester, New York 14604, Attn: Ms. Lisa Plescia, Vice President;
Telecopy No. 585-546-5363 and

     (d) if to any other Lender,  to it at its address (or telecopy  number) set
forth in its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other
communications  hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.

     3.11  Section  9.02(b) of the  Credit  Agreement  is hereby  deleted in its
entirety and replaced with the following:

     (b) Neither this Agreement nor any provision hereof may be waived,  amended
or modified  except  pursuant to an agreement or agreements  in writing  entered
into by the  Borrower  and  the  Required  Lenders  or by the  Borrower  and the
Administrative  Agent with the prior  written  consent of the Required  Lenders;
provided that no such agreement  shall (i) increase the Commitment of any Lender
without the written  consent of such Lender or, except as is otherwise set forth
in this  Agreement,  increase the aggregate  amount of the Lenders'  Commitments
without the written consent of all Lenders,  (ii) change the principal amount of
any Loan or LC  Disbursement or reduce the rate of interest  thereon,  or reduce
any fees payable hereunder,  without the written consent of each Lender affected
thereby, (iii) postpone the scheduled date of payment of the principal amount of
any Loan or LC  Disbursement,  or any  interest  thereon,  or any  fees  payable
hereunder,  or reduce  the  amount  of,  waive or excuse  any such  payment,  or
postpone the scheduled date of expiration of any Commitment, without the written
consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a
manner  that would  alter the pro rata  sharing of  payments  required  thereby,
without the written  consent of each Lender,  (v) release any stock or any other
material  collateral  that may now or hereafter  secure amounts owing under this
Agreement or (vi) change any of the provisions of this Section or the definition
of "Required  Lenders" or any other  provision  hereof  specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
make any  determination  or grant any  consent  hereunder,  without  the written
consent of each Lender,  provided  further that no such  agreement  shall amend,
modify or otherwise affect the rights or duties of the  Administrative  Agent or
the  Issuing  Bank   hereunder   without  the  prior  written   consent  of  the
Administrative Agent or the Issuing Bank, as the case may be.

     3.12 Schedules 2.01,  3.02, 3.04, 3.07 and 3.13 of the Credit Agreement are
replaced by the  corresponding  revised  schedules  that are made a part hereof,
each such schedule being as of the Effective Date unless otherwise  specified in
such schedule.

     4.  Representations  and Warranties.  In order to induce the Administrative
Agent  and the  Lenders  to enter  into  this  Amendment  No.  4,  the  Borrower
represents and warrants to the Administrative Agent and the Lenders as follows:

     4.1 The execution,  delivery and  performance by Borrower of this Amendment
No. 4 and the consummation of the transactions  contemplated  hereby, are within
the Borrower's powers, have been duly authorized by all necessary action, and do
not (i)  contravene  Borrower's  Partnership  Agreement,  (ii)  violate  any law
(including,  without  limitation,  the Securities  Exchange Act of 1934),  rule,
regulation  (including,  without  limitation,  Regulation  X  of  the  Board  of
Governors of the Federal Reserve System),  order,  writ,  judgment,  injunction,
decree,  determination or award applicable to the Borrower,  (iii) conflict with
or result in the breach of, or constitute a default  under,  any contract,  loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting the Borrower or any of its properties other than as specified in
the Credit Agreement, or (iv) result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of Borrower.

     4.2 Other than those that have already been  obtained and are in full force
and effect,  or as would not  reasonably be expected to have a Material  Adverse
Effect,  no  authorization  or approval or other  action by, and no notice to or
filing with, any  governmental  authority or regulatory  body or any other third
party is required to be obtained by the Borrower for the due execution, delivery
or performance by Borrower of this Amendment No. 4.

     4.3 This  Amendment  No. 4 has been  duly  executed  and  delivered  by the
Borrower.  This  Amendment No. 4 is the legal,  valid and binding  obligation of
each party hereto, enforceable against the Borrower in accordance with its terms
except as may be limited by bankruptcy, insolvency,  reorganization,  moratorium
or  other  laws  relating  to or  limiting  creditors'  rights  or by  equitable
principles generally.

     4.4 All of the Borrower's  representations and warranties  contained in the
Credit  Agreement are true and correct,  the Borrower is in compliance  with all
the affirmative  covenants  contained in the Credit Agreement,  the Borrower has
not violated any of the negative covenants contained in the Credit Agreement and
no Event of Default has occurred under the terms of the Credit  Agreement and/or
any of the Loan Documents.

     4.5 There has been no material  adverse change in the condition,  financial
or  otherwise,  of the  Borrower  since  the date of the most  recent  financial
reports of the  Borrower  received by the  Administrative  Agent and each Lender
under Section 5.01 of the Credit Agreement.

     4.6 The business and properties of the Borrower are not, and since the most
recent financial report of the Borrower received by the Administrative Agent and
the  Lenders  under  Section  5.01  of the  Credit  Agreement,  have  not  been,
materially  adversely affected in any substantial way as the result of any fire,
explosion, earthquake, accident, strike, lockout, combination of workers, flood,
embargo,  riot,  activities  of armed  forces,  war or acts of God or the public
enemy, or the cancellation or loss of any major contracts.

     5.  Attorneys'  Fees  and  Expenses.  The  Borrower  shall  pay  all of the
Administrative  Agent's and the  Lenders'  attorneys'  fees,  plus  expenses and
disbursements,  incurred and to be incurred in connection with the  preparation,
negotiation and execution of this Amendment No. 4.

     6.  Entire  Agreement.  This  Amendment  No. 4 as it amends the 1999 Credit
Agreement  sets forth the entire  understanding  and  agreement  of the  parties
hereto in  relation  to the  subject  matter  hereof  and  supersedes  any prior
negotiations  and agreements  among the parties relative to such subject matter.
No promise,  condition,  representation  or  warranty,  express or implied,  not
herein set forth shall bind any party hereto,  and not one of them has relied on
any such promise,  condition,  representation or warranties. Each of the parties
hereto  acknowledges that, except as in this Amendment No. 4 otherwise expressly
stated, no representations,  warranties or commitments, express or implied, have
been made by any party to the  other.  None of the terms or  conditions  of this
Amendment  No.  4 may  be  changed,  modified,  waived  or  canceled  orally  or
otherwise,  except as provided in the Credit Agreement. Upon the Effective Date,
Amendment No. 3 shall be superceded and replaced by this Amendment No. 4.

     7. Full Force and Effect of Credit Agreement. Except as hereby specifically
amended,  modified,  waived or supplemented,  the Credit Agreement and all other
Loan  Documents  are hereby  confirmed  and  ratified in all  respects and shall
remain in full force and effect according to their respective terms. The parties
agree that each  reference in the Credit  Agreement  to "the Credit  Agreement",
"thereunder",  "thereof",  "therein"  or words of like import  referring  to the
Credit  Agreement  and each  referenced  in the Loan  Documents  to the  "Credit
Agreement" shall mean and be a reference to the Credit Agreement, as amended and
otherwise modified by this Amendment No. 4.

     8.  Counterparts.  This  Amendment  No. 4 may be  executed in any number of
counterparts,  each of which  shall be deemed an  original  as against any party
whose signature appears thereon,  and all of which shall together constitute one
and the same instrument.

     9.  Governing  Law.  This  Amendment No. 4 is governed by New York law. Any
litigation  involving this Amendment No. 4, the Credit  Agreement,  the Notes or
any other Loan Document shall,  at the  Administrative  Agent's sole option,  be
triable  only  in  a  court  located  in  Monroe  County,  New  York.  BORROWER,
ADMINISTRATIVE  AGENT AND THE  LENDERS  PARTY  HERETO  WAIVE THE RIGHT TO A JURY
TRIAL IN ANY  LITIGATION IN WHICH  BORROWER,  AND  ADMINISTRATIVE  AGENT AND THE
LENDERS PARTY HERETO ARE PARTIES.  No other Person is a third party  beneficiary
of this jury trial waiver.

     10.  Enforceability.  Should  any  one or more  of the  provisions  of this
Amendment No. 4 be determined to be illegal or  unenforceable  as to one or more
of the parties hereto, all other provisions  nevertheless shall remain effective
and binding on the parties hereto.

     11. Successors and Assigns.  This Amendment No. 4 shall be binding upon and
inure to the benefit of each of the Borrower, the Lenders and the Administrative
Agent,  and their  respective  successors,  assigns  and legal  representatives;
provided,  however,  that the Borrower,  without the prior consent of all of the
Lenders, may not assign any rights, powers, duties or obligations hereunder.

     12. Consent of Company. Home Properties, Inc., f/k/a Home Properties of New
York,  Inc., a Maryland  corporation,  by its execution and delivery  hereof (a)
consents and agrees to the  amendments to the Credit  Agreement set forth herein
and (b) reaffirms its obligations set forth in the Guaranty.

     IN WITNESS  WHEREOF,  Borrower,  Agent and the Lenders  have  executed  and
unconditionally  delivered this Amendment No. 4 all as of the day and year first
above written.


                          HOME PROPERTIES, L.P.
                          By:  Home Properties, Inc.,
                                   its General Partner

                          By:      /s/ Gerald B. Korn
                          Name:    Gerald B. Korn
                          Title:   Vice President


                          MANUFACTURERS AND TRADERS
                            TRUST COMPANY, as Lender and as
                             Administrative Agent

                          By:      /s/ Lisa A. Plescia
                          Name:    Lisa A. Plescia
                          Title:   Vice President


                          CITIZENS BANK OF RHODE ISLAND

                          By:      /s/ Craig E. Schermerhorn
                          Name:    Craig E. Schermerhorn
                          Title:   Vice President


                          CHEVY CHASE BANK, FSB

                          By:      /s/ Sadhvi K. Subramanian
                          Name:    Sadhvi K. Subramanian
                          Title:   Vice President


                          COMERICA BANK

                          By:      /s/ Jessica L. Kempf
                          Name:    Jessica L. Kempf
                          Title:   Vice President





     The  undersigned  by its  execution  and  delivery  hereof (a) consents and
agrees  to the  Amendment  No. 4 herein  and (ii)  ratifies  and  reaffirms  its
obligations set forth in the Guaranty,  (iii)  acknowledges  and agrees that the
Guaranty is, and shall  continue to be, in full force and (iv),  except that, on
and after the Amendment  Effective  Date, each reference in the Guaranty to "the
Credit Agreement",  "thereunder",  "thereof",  "therein" or words of like import
referring  to the Credit  Agreement  shall mean and be a reference to the Credit
Agreement,  as amended and  otherwise  modified by Amendment No. 4. This Consent
shall be governed by, and construed in accordance with, the laws of the State of
New York.


                            Home Properties, Inc.

                            By:      /s/ Gerald B. Korn
                            Name:    Gerald B. Korn
                            Title:   Vice President

EX-10.79

                                  EXHIBIT 10.79
                                                                 GREEN MEADOWS I
                                                       LENDER LOAN NO. 003-35219



                                    AGREEMENT


     THIS  AGREEMENT  is  dated  as of the 30th  day of  September,  2005  (this
"Agreement"),  between  GENERAL  ELECTRIC  CREDIT  EQUITIES,  INC.,  a  Delaware
corporation ("Lender"),  and H.P. KNOLLS I ASSOCIATES,  L.P., a New York limited
partnership ("Grantor").

                                R E C I T A L S:


     A. Grantor  executed that certain  Mortgage Note dated December 1, 1998, in
the stated principal amount of SEVENTEEN MILLION FIVE HUNDRED EIGHT THOUSAND AND
NO/100  DOLLARS  ($17,508,000.00)  (the "Note"),  payable to the order of Mellon
Mortgage Company, a Colorado corporation  ("Original Lender"),  bearing interest
and being payable as therein  provided,  said Note being secured by that certain
Mortgage dated December 1, 1998 to Original Lender, filed for record in Mortgage
Book Volume 18224,  Page 475 et seq. of the Real  Property  Records of Allegheny
County,  Pennsylvania  (the "Mortgage"),  and said Note additionally  secured by
that certain Security Agreement dated December 1, 1998, from Grantor to Original
Lender (the "Security Agreement").

     B. Original  Lender  assigned (i) the Note,  (ii) the  Mortgage,  (iii) the
Security  Agreement,  and (iv) all other  documents or  instruments  evidencing,
governing, or securing the loan (collectively,  the "Loan Documents") to Midland
Loan Services, Inc., who thereafter assigned the Loan Documents to the Secretary
of Housing and Urban Development of Washington, D.C. ("HUD"), and HUD thereafter
assigned  the Loan  Documents  to  Condor  One,  Inc.,  a  Delaware  corporation
("Condor") and Condor assigned the Loan Documents to Lender.

     C.  The  obligations  under  the Note and Loan  Documents  are  subject  to
satisfaction  solely by  foreclosure  against the Project and no recourse can be
had against Grantor personally for any deficiency claim following foreclosure.

     D. Grantor has failed to make  regularly  scheduled  principal and interest
payments to Lender as provided in the Note,  and to pay other  amounts  becoming
due  thereunder and under the Loan  Documents,  and a default  currently  exists
under the Loan Documents.

     E. Grantor has been notified of such  defaults and has advised  Lender that
Grantor does not intend to cure such defaults and that Grantor  instead  desires
to convey the Property (hereunder defined) to Lender as hereinafter described.

     F.  Grantor  has  proposed  to  execute  and  deliver  a Deed  in  Lieu  of
Foreclosure  transferring the Project to Lender or its designee without the need
of legal proceedings and related costs.

     G. Lender and Grantor have reached an agreement with respect to the matters
described above and desire to evidence their agreement as hereinafter provided.

                                   AGREEMENT:


     NOW, THEREFORE, the undersigned, in consideration of Ten and No/100 Dollars
($10.00),   the  premises   contained  herein,   and  other  good  and  valuable
consideration  exchanged by each to the other,  the receipt and  sufficiency  of
which are hereby acknowledged and confessed, including the conveyance by Grantor
to Lender  (acting in such  capacity as  grantee,  the  "Grantee"),  of the real
property  described in the Mortgage and all improvements  and personal  property
situated on it,  together with all personal  property  described in the Security
Agreement  (collectively,  the  "Property")  and  the  release  by  Grantor,  as
hereinafter  provided,  and the  covenant  by Lender not to sue with  respect to
certain  aspects of the financing of the Property as  hereinafter  provided,  do
hereby covenant and agree as follows, intending to be legally bound:

     1. The Recitals set forth above are hereby  incorporated  herein and made a
part of this Agreement.

     2.  Grantor  agrees  that an event of default has  occurred  under the Loan
Documents,  that Lender has the immediate  right to exercise its remedies  under
the Loan Documents,  the indebtedness evidenced by the Note has been accelerated
and is fully due and  payable,  there is no  defense  or offset to such debt and
that the outstanding amounts under the Loan Documents as of September,  2005 are
as follows:

               Principal                         $16,625,376.64
               Interest                             $490,217.70
               Late Charges                           $8,193.50
               Attorney's Fees                       $40,737.88
               Other                                       0.00
               Total:                            $17,164,525.72

The Indebtedness continues to accrue interest at the rate of $2,539.99 per day.

     3. Each of Lender and Grantee does hereby acknowledge that, as set forth in
Recital  C,  the  obligations   under  the  Note  and  the  Loan  Documents  are
non-recourse  obligations.  Nothing herein shall make Grantor  personally liable
for obligations on the Note or the Loan Documents.

     4. Grantor does hereby release, discharge, hold harmless and forever acquit
Lender,  its  managers,  officers,  directors,  shareholders,   representatives,
agents,  employees,  successors  and  assigns,  from  all  claims,  liabilities,
actions,  suits, demands,  obligations,  costs, expenses,  damages and causes of
action which Grantor has asserted or could have asserted or could ever assert in
connection with (a) the loan evidenced by the Note (the "Loan") and/or any other
indebtedness  secured by the Loan  Documents,  (b) the Note,  the Mortgage,  the
Security  Agreement  and/or any of the other Loan  Documents,  (c) the Property,
and/or (d) any transactions arising out of the financing of the Property.

     5. Lender hereby  covenants not to sue,  claim or bring any action  against
Grantor,  its successors or assigns, for any personal liability beyond Grantor's
interest in the Property for failure to make any and all further payments due to
Lender  under  the Note or for any other  matters  in  connection  with the Loan
Documents  other  than  this  Agreement  and  the  Deed  (hereinafter  defined);
provided,  however,  that the lien and security  interests of the Mortgage,  the
security interests created by the Security Agreement and all other rights in and
to the  Property  created by the Loan  Documents  shall remain in full force and
effect to secure all unpaid  amounts owing  thereunder or secured  thereby,  and
Lender  shall  continue  to have the right to  foreclose  the lien and  security
interests of the Mortgage, Security Agreement, and the other Loan Documents, and
to pursue  such  other  remedies  as it may have  under the  Mortgage,  Security
Agreement, and the other Loan Documents with respect to the Property,  including
without  limitation  to bring an action or actions  under the Note,  Mortgage or
other Loan  Documents  as well as an action  under the  Pennsylvania  Deficiency
Judgment  Act, all as may be  necessary  to perfect,  continue or realize on the
Property and the liens of the Loan  Documents;  provided,  however,  that Lender
makes clear in such actions that the  judgments  therein are  restricted  to the
Property  and do not  impose a lien on other  assets  of  Grantor,  and  further
provided that this  covenant not to sue shall  terminate and Lender may take any
and all legal action to, among other  things,  collect the  Indebtedness  if (i)
Grantor  or  any  other  person  or  entity  in  conjunction   with  or  at  the
encouragement of Grantor takes any action to hinder, delay or interfere with (a)
conveyance  of the  Property to Lender,  or (b) the  subsequent  foreclosure  by
Lender of the liens or security  interests of the Mortgage,  Security  Agreement
and other  Loan  Documents  or (ii)  Grantor  is  otherwise  in  default  of its
obligations under this Agreement.

     6. Grantor  warrants and  represents to Lender that it owns the Property in
fee simple  and that,  to the best of its  current  knowledge  and belief  after
reasonable  investigation,   all  persons,  firms,  corporations,   materialmen,
artisans,  contractors and subcontractors who have furnished services,  labor or
materials  used in improving  the Property have been paid in full and that there
are no claims outstanding which would entitle the holder thereof to affix a lien
or security  interest  against the  Property,  all except as may be described on
Schedule 1 attached hereto and made a part hereof.

     7. Grantor  warrants  and  represents  to Lender  that,  to the best of its
current knowledge and belief (without special investigation),  there has been no
(a)  deposit,  storage,  disposal,  burial,  discharge,   spillage,  seepage  or
filtration  of  petroleum  products,   chemical  liquids  or  solids,   asbestos
containing  material or any  hazardous  wastes,  hazardous  substances  or toxic
substances or presence of any toxic mold (collectively,  "Hazardous Substances")
upon,  under or within the Property or any contiguous real estate;  (b) liens or
claims against the Property or Grantor with respect to any Hazardous Substances;
or (c)  notices of any  violation  of any  federal,  state or local  rule,  law,
regulation or ordinance regarding the Property or any Hazardous Substances,  all
except as may be described on Schedule 2 attached hereto and made a part hereof.

     8. Grantor  warrants and  represents to Lender that,  except for ad valorem
taxes in the amount of  $266,541.22  due and payable on October 31, 2005,  there
are no taxes  affecting the Property which are due,  payable or delinquent as of
the effective  date hereof (any "Taxes Owed") and Grantor  agrees to transfer to
Lender,  contemporaneously with the execution of this Agreement,  all amounts in
any escrow  accounts for the payment of Taxes Owed.  Grantee  acknowledges  that
upon the  previous  transfer of the Loan  Documents  to HUD,  HUD  applied  then
existing tax escrow amounts toward amounts owed under the Loan Documents.

     9. Grantor  covenants  that  Grantor  shall not take any actions to hinder,
delay or interfere  with (i)  conveyance of the Property to Lender,  or (ii) the
subsequent  foreclosure  by  Lender of the liens or  security  interests  of the
Mortgage, Security Agreement and other Loan Documents.

     10. This  Agreement is executed in connection and  contemporaneously  with,
and in  reliance  by Lender  upon,  the  execution  and  delivery  by Grantor to
Grantee,  of (a) that certain Deed in Lieu of  Foreclosure  in the form attached
hereto as Exhibit "A" (the "Deed"),  (b) that certain  Assignment and Assumption
of Leases  in the form  attached  hereto  as  Exhibit  "B" (the  "Assignment  of
Leases"), (c) that certain Assignment of Intangibles in the form attached hereto
as Exhibit "C" (the "Assignment of Intangibles"),  (d) that certain Bill of Sale
(the "Bill of Sale") in the form  attached  hereto as  Exhibit  "D" and (e) that
certain  Declaration of Covenants (the  "Declaration  of Covenants") in the form
attached  hereto as Exhibit "E". The Deed,  Assignment and Assumption of Leases,
Assignment  of  Intangibles,  Bill of Sale  and  Declaration  of  Covenants  are
sometimes  collectively  referred to herein as the "Closing Documents".  Grantor
shall  execute  and  deliver  the  Closing  Documents  simultaneously  with  the
execution and delivery to Grantee of this Agreement.

     11. Upon the execution and delivery of the Closing Documents, Grantor shall
deliver possession of the Property to Grantee in good condition,  including, but
not limited to, all personal property, fixtures, and furnishings, as well as all
leases,  agreements,  tenant security deposits, prepaid rents, deposit and other
accounts,  all of Grantor's  right,  title and interest in and to deposits  with
utility providers and others for goods and services related to or to be provided
at the Property, all of Grantor's right, title and interest in and to any escrow
accounts and funds,  records,  plans,  surveys, and other documents and property
relating to, affecting or utilized by Grantor (or Grantor's  employees,  agents,
and contractors) with respect to the Property,  and/or  operation,  maintenance,
repair,  or  replacement  of the Property  (or any portion  thereof) in any way.
Among other things, Grantor shall deliver to Grantee the following:

          a)   a  list  of  all  accounts  payable  along  with  copies  of  all
               outstanding bills or invoices;

          b)   a list of all outstanding purchase orders and copies of the same;

          c)   copies of any and all  contracts  or  records  pertaining  to the
               Property or the maintenance or operation thereof;

          d)   a  detailed  prior year and year end to date  income and  expense
               statement and detailed general ledger;

          e)   the leases with  original  signatures  for all  tenants  with all
               original amendments thereto;

          f)   any tenants' security deposits or prepaid rent;

          g)   lists  identifying all transferable and  nontransferable  utility
               deposits;

          h)   a list of the names and account numbers of all utility  companies
               servicing the Property;

          i)   all keys and key code books to  entrance  doors,  storage  areas,
               boiler rooms, mechanical rooms, rest rooms, etc.;

          j)   all electronic card access keys and records  pertaining  thereto,
               if applicable;

          k)   a certification of each tenant's current rental payment status;

          l)   reproducible copies of all site plans,  architectural  drawing or
               plans,  engineering  and  electrical  plans,  including  but  not
               limited to final construction as-builts, current as-builts of all
               tenant space, and original  construction  specifications  for all
               improvements   on  the   Property  to  the  extent  in  Grantor's
               possession or control;

          m)   all operating and  maintenance  manuals,  warranties  and service
               contracts for all equipment and appliances at the Property to the
               extent in Grantor's possession or control;

          n)   all marketing  materials,  brochures,  fliers,  floor plans, site
               plans,  and  advertisements,  including camera ready original art
               work for the same,  for the  Property or any part  thereof to the
               extent in Grantor's possession or control;

          o)   any art boards,  building  standard finish boards,  renderings or
               other art work  depicting or relating to the Property or any part
               thereof to the extent in Grantor's possession or control;

          p)   all original permits,  licenses,  certificates of occupancy along
               with  all  records   regarding   governmental   approvals  and/or
               compliance with zoning ordinances,  fire codes and state,  county
               or municipal  laws,  regulations  or  ordinances to the extent in
               Grantor's possession or control;

          q)   copies of any and all  notices  identified  on Schedule 2 to this
               Agreement;

          r)   all  records  relating  to  taxes or  other  municipal,  state or
               federal liens;

          s)   all leasing brokers owed or entitled to commissions and copies of
               all commission agreements;

          t)   a list of all suppliers, contractors and vendors;

          u)   all collected and unapplied  rents  received by Grantor for rents
               accruing as of April 1, 2005 or thereafter; and

          v)   certificates of title to all vehicles used in connection with the
               Property.

     12.  Grantor  represents  to Grantee  that there are  currently  no Housing
Assistance  Payment  contracts  ("HAP  Contracts") in effect with respect to the
Property or in any way binding  upon  Grantor or the Property and that Section 8
vouchers accepted from tenants on the Property are accepted  voluntarily and not
pursuant to any obligation to accept such vouchers.

     13.  Contemporaneously with the execution of this Agreement,  Grantor shall
deliver to Grantee  copies of all  documentation  relating to past or  currently
effective tax credits relating to the Property,  including,  without limitation,
any  agreements  with any current or prior  limited  partners of Grantor and any
payments made to any such limited partners with respect to tax credits.

     14.  Grantor shall  forward to Grantee any rents  received by Grantor after
September 30, 2005 within three (3) business  days of Grantor's  receipt of same
and, on October 1, 2005,  shall  deliver to Grantee  any rents or other  amounts
from or  pertaining  to the Property  which are then in Grantor's  possession or
control.

     15. All transfers made herein are made on an "AS IS, WHERE IS" basis,  with
no warranties,  express or implied,  except for warranties of title, and Grantor
makes no warranty or representation,  express or implied, of any kind, nature or
description  whatsoever as to the condition of the Property  except as expressly
provided in this Agreement.

     16. Each of Lender and Grantee  acknowledges that it has had an opportunity
to conduct any and all due diligence regarding the Property (including,  without
limitation,  a Phase I  investigation)  prior to transfer and that it is relying
solely on its own  inspection  and/or  investigation  of the  Property  and this
Agreement.  Each of Lender  and  Grantee  did not rely upon any  written or oral
statement or  representation  whatsoever by Grantor regarding the Property other
than those expressly set forth in this Agreement.

     17.  Grantor  indemnifies  and holds Lender and its  successors and assigns
harmless from and against all claims,  liens, suits,  actions,  debts,  damages,
costs,  losses,  allegations,  judgments,  charges and/or expenses of any nature
whatsoever arising as a result of (i) any of Grantor's representations contained
in this Agreement being false or materially  misleading,  and/or (ii) any breach
by Grantor of its covenants set forth in this Agreement.

     18. Except with respect to any  reasonable  and customary  costs payable to
any third  parties  not  affiliated  with or  related  to  Grantor or any of its
affiliated or related  parties,  incurred in the ordinary  course of business in
operating  the  Property  prior to  September  30, 2005 and relating to services
rendered  prior to September  30, 2005,  and which relate solely to the Property
and are typical of expenses  incurred in connection  with  operating  properties
such as the Property  ("Customary  Operating  Costs"),  Grantor  indemnifies and
holds Lender and its successors and assigns  harmless from and against any loss,
claim, damage or expense (including,  without limitation,  reasonable attorney's
fees)  related to or arising out of any claim made  against  Lender for sums due
and owing in connection with or related to the Property which arose prior to the
date of this  Agreement  as a result of  Grantor's  actions.  If a claim is made
against  Lender for which  indemnification  is sought  hereunder,  Lender  shall
notify  Grantor of the claim and Grantor  shall have the option of defending the
claim at its sole cost and expense by a law firm reasonably acceptable to Lender
provided  Grantor elects to provide such defense by notice to Lender within five
(5) days of receipt of the claim for indemnity  from Lender.  Grantee  agrees to
pay the Customary Operating Costs.

     19.  Grantor  hereby  covenants  and agrees that in the event that  Grantor
shall (a) file a petition in any court or be the subject of any  petition  filed
in any court under title 11 of the United States Code, 11 U.S.C.ss.101,  et seq.
(as such title may be amended from time to time, the "Bankruptcy  Code"), (b) be
subject to any order for relief under the  Bankruptcy  Code,  (c) file or be the
subject  of  any  petition  seeking  reorganization,  arrangement,  composition,
readjustment,  liquidation,  dissolution  or similar relief under any present or
future federal or state act or law relating to bankruptcy,  insolvency or relief
for debtors, (d) have sought or consented to or acquiesced in the appointment of
any  trustee,  receiver,  conservator  or  liquidator,  or to an  assignment  of
Grantor's  assets (or any part thereof) for the benefit of creditors,  or (e) be
the subject of an order,  judgment,  or decree entered by any court  approving a
petition filed against Grantor for any reorganization, arrangement, composition,
readjustment,  liquidation,  dissolution, or similar relief under any present or
future federal or state act or law relating to bankruptcy,  insolvency or relief
for debtors; then Lender shall be entitled to relief from any stay imposed under
the  Bankruptcy  Code  (including  but not limited to any  automatic  stay under
Section 363 thereof) or otherwise,  on or against the exercise of the rights and
remedies otherwise  available to Lender as provided in this Agreement,  the Loan
Documents, or as otherwise available at law, and Grantor hereby waives its right
to object to such relief.

     20. This Agreement is made solely for the benefit of the parties hereto and
no other person or persons shall have any rights or remedies  under or by reason
of this Agreement.

     21. No delay or omission by Lender in exercising any right or power arising
under this Agreement or the Loan Documents by reason of any default hereunder or
thereunder  shall be construed as a waiver of such default or as an acquiescence
therein,  nor shall any single or partial  exercise thereof preclude any further
exercise  thereof.  No waiver of any  default  shall be  construed  as a waiver,
acquiescence or consent to any preceding or subsequent default.

     22. Grantor covenants and agrees to execute any additional documents and to
do all other acts reasonably  required to effect the intent and purposes of this
Agreement.  In  furtherance  and not in  limitation  of the  foregoing,  Grantor
expressly  agrees,  upon receipt of Lender's  written  request,  to execute such
further  instruments  and to take such other  actions as may be  required to (i)
transfer title and possession of the Property to Grantee;  (ii) transfer utility
accounts;  (iii) collect rents related to the Property,  (iv) obtain  possession
and control of all deposits,  prepaid rent,  escrow funds,  and prepaid expenses
related to the  Property,  and (v) enable the Lender to  prosecute  an appeal of
real estate tax assessments pertaining to the Property.

     23.  Nothing herein shall be deemed or construed to create a partnership or
joint venture between any of the parties hereto.

     24. This  Agreement  shall be governed by and construed in accordance  with
the laws of the Commonwealth of Pennsylvania.

     25. Each person executing this Agreement  represents and warrants that such
person is lawfully  authorized and empowered to execute this Agreement on behalf
of the  entity  on whose  behalf  such  person  is  signing  and that  upon such
execution this Agreement will be binding upon such entity.

     26. This  Agreement,  and all  provisions,  representations,  releases  and
indemnifications  herein  contained  shall  be  binding  upon  Grantor  and  its
successors  and  assigns  and  shall  inure to the  benefit  of  Lender  and its
successors  and  assigns,   and  shall  survive  the  execution,   delivery  and
recordation of any or all of the Closing Documents.

     27. This Agreement,  together with the Closing  Documents,  (i) constitutes
the entire  understanding  between the parties hereto, (ii) without limiting the
generality of the foregoing,  supersedes  all letters,  agreements in principle,
outlines  of terms or other oral or written  communications  between  any of the
parties hereto, and (iii) may not be modified, amended or terminated,  except by
a written  agreement which is signed by each of the parties hereto.  Each of the
parties  hereto  stipulates  and agrees  that such party has not relied upon any
representations,  statements,  covenants  or  warranties  in entering  into this
Agreement other than those actually set forth in this Agreement, incorporated by
reference by this Agreement, or specifically referred to in this Agreement.  All
representations and warranties  contained herein shall be true and correct as of
the date of execution of this Agreement.  Subject to Grantor's  obligations with
respect to indemnification  contained herein, each party represents that he, she
or it has  received  independent  advice from legal  counsel with respect to the
advisability   of  entering  into  this   Agreement  and  with  respect  to  the
advisability  of making the agreements  and providing the releases,  waivers and
expressions  of  intent  contained  in  this  Agreement.  Each  party  shall  be
responsible to pay its own legal fees and costs.  Each party represents that he,
she or it has read this Agreement and understands the contents hereof.

     28. This Agreement may be executed by each party in identical counterparts,
each of  which  shall  be  deemed  to be an  original  and all of  which,  taken
together,  shall constitute one agreement  binding upon all parties.  [Signature
Page Follows]

         EXECUTED to be effective as of the date and year first recited above.

                 "LENDER"

                 GENERAL ELECTRIC CREDIT EQUITIES, INC.,
                 a Delaware corporation

                 By:  /s/ Constantine Lallas
                          Constantine Lallas
                          Authorized Signatory


                 "BORROWER"

                 H.P. KNOLLS I ASSOCIATES, L.P.,
                 a New York limited partnership

                 By:   HP-BC Limited Partnership,
                       a New York limited partnership,
                       its sole general partner

                      By:      Green Meadows I, LLC,
                               a New York limited liability company,
                               its sole general partner

                               By:  Home Properties, L.P.,
                                    a New York limited partnership,
                                    its managing member

                                    By:    Home Properties, Inc.,
                                           a Maryland corporation,
                                           its sole general partner

                                           By:  /s/ Robert J. Luken
                                                Robert J. Luken,
                                                Senior Vice President

EX-10.80

                                  EXHIBIT 10.80
                                                              GREEN MEADOWS II
                                                     LENDER LOAN NO. 003-35223



                                    AGREEMENT


     THIS  AGREEMENT  is  dated  as of the 30th  day of  September,  2005  (this
"Agreement"),  between  GENERAL  ELECTRIC  CREDIT  EQUITIES,  INC.,  a  Delaware
corporation ("Lender"), and H.P. KNOLLS II ASSOCIATES,  L.P., a New York limited
partnership ("Grantor").

                                R E C I T A L S:


     A. Grantor  executed that certain  Mortgage Note dated November 1, 1999, in
the  stated   principal   amount  of  FOURTEEN   MILLION   AND  NO/100   DOLLARS
($14,000,000.00)  (the "Note"),  payable to the order of Midland Loan  Services,
Inc., a Delaware  corporation  ("Original  Lender"),  bearing interest and being
payable as therein  provided,  said Note being secured by that certain  Mortgage
dated  November 1, 1999 to Original  Lender,  filed for record in Mortgage  Book
Volume 19270,  Page 94 et seq. of the Real Property Records of Allegheny County,
Pennsylvania  (the  "Mortgage"),  and said  Note  additionally  secured  by that
certain  Security  Agreement  dated  November 1, 1999,  from Grantor to Original
Lender (the "Security Agreement").

     B. Original  Lender  assigned (i) the Note,  (ii) the  Mortgage,  (iii) the
Security  Agreement,  and (iv) all other  documents or  instruments  evidencing,
governing,  or securing the loan  (collectively,  the "Loan  Documents")  to the
Secretary of Housing and Urban Development of Washington,  D.C. ("HUD"), and HUD
thereafter  assigned  the  Loan  Documents  to  Condor  One,  Inc.,  a  Delaware
corporation ("Condor") and Condor assigned the Loan Documents to Lender.

     C.  The  obligations  under  the Note and Loan  Documents  are  subject  to
satisfaction  solely by  foreclosure  against the Project and no recourse can be
had against Grantor personally for any deficiency claim following foreclosure.

     D. Grantor has failed to make  regularly  scheduled  principal and interest
payments to Lender as provided in the Note,  and to pay other  amounts  becoming
due  thereunder and under the Loan  Documents,  and a default  currently  exists
under the Loan Documents.

     E. Grantor has been notified of such  defaults and has advised  Lender that
Grantor does not intend to cure such defaults and that Grantor  instead  desires
to convey the Property (hereunder defined) to Lender as hereinafter described.

     F.  Grantor  has  proposed  to  execute  and  deliver  a Deed  in  Lieu  of
Foreclosure  transferring the Project to Lender or its designee without the need
of legal proceedings and related costs.

     G. Lender and Grantor have reached an agreement with respect to the matters
described above and desire to evidence their agreement as hereinafter provided.

                                   AGREEMENT:


     NOW, THEREFORE, the undersigned, in consideration of Ten and No/100 Dollars
($10.00),   the  premises   contained  herein,   and  other  good  and  valuable
consideration  exchanged by each to the other,  the receipt and  sufficiency  of
which are hereby acknowledged and confessed, including the conveyance by Grantor
to Lender  (acting in such  capacity as  grantee,  the  "Grantee"),  of the real
property  described in the Mortgage and all improvements  and personal  property
situated on it,  together with all personal  property  described in the Security
Agreement  (collectively,  the  "Property")  and  the  release  by  Grantor,  as
hereinafter  provided,  and the  covenant  by Lender not to sue with  respect to
certain  aspects of the financing of the Property as  hereinafter  provided,  do
hereby covenant and agree as follows, intending to be legally bound:

     1. The Recitals set forth above are hereby  incorporated  herein and made a
part of this Agreement.

     2.  Grantor  agrees  that an event of default has  occurred  under the Loan
Documents,  that Lender has the immediate  right to exercise its remedies  under
the Loan Documents,  the indebtedness evidenced by the Note has been accelerated
and is fully due and  payable,  there is no  defense  or offset to such debt and
that the outstanding amounts under the Loan Documents as of September,  2005 are
as follows:

            Principal                         $13,761,963.31
            Interest                             $476,615.02
            Late Charges                           $8,913.16
            Attorney's Fees                       $40,900.00
            Other                                       0.00
            Total:                            $14,288,391.49

The Indebtedness continues to accrue interest at the rate of $2,469.51 per day.

     3. Each of Lender and Grantee does hereby acknowledge that, as set forth in
Recital  C,  the  obligations   under  the  Note  and  the  Loan  Documents  are
non-recourse  obligations.  Nothing herein shall make Grantor  personally liable
for obligations on the Note or the Loan Documents.

     4. Grantor does hereby release, discharge, hold harmless and forever acquit
Lender,  its  managers,  officers,  directors,  shareholders,   representatives,
agents,  employees,  successors  and  assigns,  from  all  claims,  liabilities,
actions,  suits, demands,  obligations,  costs, expenses,  damages and causes of
action which Grantor has asserted or could have asserted or could ever assert in
connection with (a) the loan evidenced by the Note (the "Loan") and/or any other
indebtedness  secured by the Loan  Documents,  (b) the Note,  the Mortgage,  the
Security  Agreement  and/or any of the other Loan  Documents,  (c) the Property,
and/or (d) any transactions arising out of the financing of the Property.

     5. Lender hereby  covenants not to sue,  claim or bring any action  against
Grantor,  its successors or assigns, for any personal liability beyond Grantor's
interest in the Property for failure to make any and all further payments due to
Lender  under  the Note or for any other  matters  in  connection  with the Loan
Documents  other  than  this  Agreement  and  the  Deed  (hereinafter  defined);
provided,  however,  that the lien and security  interests of the Mortgage,  the
security interests created by the Security Agreement and all other rights in and
to the  Property  created by the Loan  Documents  shall remain in full force and
effect to secure all unpaid  amounts owing  thereunder or secured  thereby,  and
Lender  shall  continue  to have the right to  foreclose  the lien and  security
interests of the Mortgage, Security Agreement, and the other Loan Documents, and
to pursue  such  other  remedies  as it may have  under the  Mortgage,  Security
Agreement, and the other Loan Documents with respect to the Property,  including
without  limitation  to bring an action or actions  under the Note,  Mortgage or
other Loan  Documents  as well as an action  under the  Pennsylvania  Deficiency
Judgment  Act, all as may be  necessary  to perfect,  continue or realize on the
Property and the liens of the Loan  Documents;  provided,  however,  that Lender
makes clear in such actions that the  judgments  therein are  restricted  to the
Property  and do not  impose a lien on other  assets  of  Grantor,  and  further
provided that this  covenant not to sue shall  terminate and Lender may take any
and all legal action to, among other  things,  collect the  Indebtedness  if (i)
Grantor  or  any  other  person  or  entity  in  conjunction   with  or  at  the
encouragement of Grantor takes any action to hinder, delay or interfere with (a)
conveyance  of the  Property to Lender,  or (b) the  subsequent  foreclosure  by
Lender of the liens or security  interests of the Mortgage,  Security  Agreement
and other  Loan  Documents  or (ii)  Grantor  is  otherwise  in  default  of its
obligations under this Agreement.

     6. Grantor  warrants and  represents to Lender that it owns the Property in
fee simple  and that,  to the best of its  current  knowledge  and belief  after
reasonable  investigation,   all  persons,  firms,  corporations,   materialmen,
artisans,  contractors and subcontractors who have furnished services,  labor or
materials  used in improving  the Property have been paid in full and that there
are no claims outstanding which would entitle the holder thereof to affix a lien
or security  interest  against the  Property,  all except as may be described on
Schedule 1 attached hereto and made a part hereof.

     7. Grantor  warrants  and  represents  to Lender  that,  to the best of its
current knowledge and belief (without special investigation),  there has been no
(a)  deposit,  storage,  disposal,  burial,  discharge,   spillage,  seepage  or
filtration  of  petroleum  products,   chemical  liquids  or  solids,   asbestos
containing  material or any  hazardous  wastes,  hazardous  substances  or toxic
substances or presence of any toxic mold (collectively,  "Hazardous Substances")
upon,  under or within the Property or any contiguous real estate;  (b) liens or
claims against the Property or Grantor with respect to any Hazardous Substances;
or (c)  notices of any  violation  of any  federal,  state or local  rule,  law,
regulation or ordinance regarding the Property or any Hazardous Substances,  all
except as may be described on Schedule 2 attached hereto and made a part hereof.

     8. Grantor  warrants and  represents to Lender that,  except for ad valorem
taxes in the amount of  $239,226.68  due and payable on October 31, 2005,  there
are no taxes  affecting the Property which are due,  payable or delinquent as of
the effective  date hereof (any "Taxes Owed") and Grantor  agrees to transfer to
Lender,  contemporaneously with the execution of this Agreement,  all amounts in
any escrow  accounts for the payment of Taxes Owed.  Grantee  acknowledges  that
upon the  previous  transfer of the Loan  Documents  to HUD,  HUD  applied  then
existing tax escrow amounts toward amounts owed under the Loan Documents.

     9. Grantor  covenants  that  Grantor  shall not take any actions to hinder,
delay or interfere  with (i)  conveyance of the Property to Lender,  or (ii) the
subsequent  foreclosure  by  Lender of the liens or  security  interests  of the
Mortgage, Security Agreement and other Loan Documents.

     10. This  Agreement is executed in connection and  contemporaneously  with,
and in  reliance  by Lender  upon,  the  execution  and  delivery  by Grantor to
Grantee,  of (a) that certain Deed in Lieu of  Foreclosure  in the form attached
hereto as Exhibit "A" (the "Deed"),  (b) that certain  Assignment and Assumption
of Leases  in the form  attached  hereto  as  Exhibit  "B" (the  "Assignment  of
Leases"), (c) that certain Assignment of Intangibles in the form attached hereto
as Exhibit "C" (the "Assignment of Intangibles"),  (d) that certain Bill of Sale
(the "Bill of Sale") in the form  attached  hereto as  Exhibit  "D" and (e) that
certain  Declaration of Covenants (the  "Declaration  of Covenants") in the form
attached  hereto as Exhibit "E". The Deed,  Assignment and Assumption of Leases,
Assignment  of  Intangibles,  Bill of Sale  and  Declaration  of  Covenants  are
sometimes  collectively  referred to herein as the "Closing Documents".  Grantor
shall  execute  and  deliver  the  Closing  Documents  simultaneously  with  the
execution and delivery to Grantee of this Agreement.

     11. Upon the execution and delivery of the Closing Documents, Grantor shall
deliver possession of the Property to Grantee in good condition,  including, but
not limited to, all personal property, fixtures, and furnishings, as well as all
leases,  agreements,  tenant security deposits, prepaid rents, deposit and other
accounts,  all of Grantor's  right,  title and interest in and to deposits  with
utility providers and others for goods and services related to or to be provided
at the Property, all of Grantor's right, title and interest in and to any escrow
accounts and funds,  records,  plans,  surveys, and other documents and property
relating to, affecting or utilized by Grantor (or Grantor's  employees,  agents,
and contractors) with respect to the Property,  and/or  operation,  maintenance,
repair,  or  replacement  of the Property  (or any portion  thereof) in any way.
Among other things, Grantor shall deliver to Grantee the following:

          a)   a  list  of  all  accounts  payable  along  with  copies  of  all
               outstanding bills or invoices;

          b)   a list of all outstanding purchase orders and copies of the same;

          c)   copies of any and all  contracts  or  records  pertaining  to the
               Property or the maintenance or operation thereof;

          d)   a  detailed  prior year and year end to date  income and  expense
               statement and detailed general ledger;

          e)   the leases with  original  signatures  for all  tenants  with all
               original amendments thereto;

          f)   any tenants' security deposits or prepaid rent;

          g)   lists  identifying all transferable and  nontransferable  utility
               deposits;

          h)   a list of the names and account numbers of all utility  companies
               servicing the Property;

          i)   all keys and key code books to  entrance  doors,  storage  areas,
               boiler rooms, mechanical rooms, rest rooms, etc.;

          j)   all electronic card access keys and records  pertaining  thereto,
               if applicable;

          k)   a certification of each tenant's current rental payment status;

          l)   reproducible copies of all site plans,  architectural  drawing or
               plans,  engineering  and  electrical  plans,  including  but  not
               limited to final construction as-builts, current as-builts of all
               tenant space, and original  construction  specifications  for all
               improvements   on  the   Property  to  the  extent  in  Grantor's
               possession or control;

          m)   all operating and  maintenance  manuals,  warranties  and service
               contracts for all equipment and appliances at the Property to the
               extent in Grantor's possession or control;

          n)   all marketing  materials,  brochures,  fliers,  floor plans, site
               plans,  and  advertisements,  including camera ready original art
               work for the same,  for the  Property or any part  thereof to the
               extent in Grantor's possession or control;

          o)   any art boards,  building  standard finish boards,  renderings or
               other art work  depicting or relating to the Property or any part
               thereof to the extent in Grantor's possession or control;

          p)   all original permits,  licenses,  certificates of occupancy along
               with  all  records   regarding   governmental   approvals  and/or
               compliance with zoning ordinances,  fire codes and state,  county
               or municipal  laws,  regulations  or  ordinances to the extent in
               Grantor's possession or control;

          q)   copies of any and all  notices  identified  on Schedule 2 to this
               Agreement;

          r)   all  records  relating  to  taxes or  other  municipal,  state or
               federal liens;

          s)   all leasing brokers owed or entitled to commissions and copies of
               all commission agreements;

          t)   a list of all suppliers, contractors and vendors;

          u)   all collected and unapplied  rents  received by Grantor for rents
               accruing as of April 1, 2005 or thereafter; and

          v)   certificates of title to all vehicles used in connection with the
               Property.

     12.  Grantor  represents  to Grantee  that there are  currently  no Housing
Assistance  Payment  contracts  ("HAP  Contracts") in effect with respect to the
Property or in any way binding  upon  Grantor or the Property and that Section 8
vouchers accepted from tenants on the Property are accepted  voluntarily and not
pursuant to any obligation to accept such vouchers.

     13.  Contemporaneously with the execution of this Agreement,  Grantor shall
deliver to Grantee  copies of all  documentation  relating to past or  currently
effective tax credits relating to the Property,  including,  without limitation,
any  agreements  with any current or prior  limited  partners of Grantor and any
payments made to any such limited partners with respect to tax credits.

     14.  Grantor shall  forward to Grantee any rents  received by Grantor after
September 30, 2005 within three (3) business  days of Grantor's  receipt of same
and, on October 1, 2005,  shall  deliver to Grantee  any rents or other  amounts
from or  pertaining  to the Property  which are then in Grantor's  possession or
control.

     15. All transfers made herein are made on an "AS IS, WHERE IS" basis,  with
no warranties,  express or implied,  except for warranties of title, and Grantor
makes no warranty or representation,  express or implied, of any kind, nature or
description  whatsoever as to the condition of the Property  except as expressly
provided in this Agreement.

     16. Each of Lender and Grantee  acknowledges that it has had an opportunity
to conduct any and all due diligence regarding the Property (including,  without
limitation,  a Phase I  investigation)  prior to transfer and that it is relying
solely on its own  inspection  and/or  investigation  of the  Property  and this
Agreement.  Each of Lender  and  Grantee  did not rely upon any  written or oral
statement or  representation  whatsoever by Grantor regarding the Property other
than those expressly set forth in this Agreement.

     17.  Grantor  indemnifies  and holds Lender and its  successors and assigns
harmless from and against all claims,  liens, suits,  actions,  debts,  damages,
costs,  losses,  allegations,  judgments,  charges and/or expenses of any nature
whatsoever arising as a result of (i) any of Grantor's representations contained
in this Agreement being false or materially  misleading,  and/or (ii) any breach
by Grantor of its covenants set forth in this Agreement.

     18. Except with respect to any  reasonable  and customary  costs payable to
any third  parties  not  affiliated  with or  related  to  Grantor or any of its
affiliated or related  parties,  incurred in the ordinary  course of business in
operating  the  Property  prior to  September  30, 2005 and relating to services
rendered  prior to September  30, 2005,  and which relate solely to the Property
and are typical of expenses  incurred in connection  with  operating  properties
such as the Property  ("Customary  Operating  Costs"),  Grantor  indemnifies and
holds Lender and its successors and assigns  harmless from and against any loss,
claim, damage or expense (including,  without limitation,  reasonable attorney's
fees)  related to or arising out of any claim made  against  Lender for sums due
and owing in connection with or related to the Property which arose prior to the
date of this  Agreement  as a result of  Grantor's  actions.  If a claim is made
against  Lender for which  indemnification  is sought  hereunder,  Lender  shall
notify  Grantor of the claim and Grantor  shall have the option of defending the
claim at its sole cost and expense by a law firm reasonably acceptable to Lender
provided  Grantor elects to provide such defense by notice to Lender within five
(5) days of receipt of the claim for indemnity  from Lender.  Grantee  agrees to
pay the Customary Operating Costs.

     19.  Grantor  hereby  covenants  and agrees that in the event that  Grantor
shall (a) file a petition in any court or be the subject of any  petition  filed
in any court under title 11 of the United States Code, 11 U.S.C.ss.101,  et seq.
(as such title may be amended from time to time, the "Bankruptcy  Code"), (b) be
subject to any order for relief under the  Bankruptcy  Code,  (c) file or be the
subject  of  any  petition  seeking  reorganization,  arrangement,  composition,
readjustment,  liquidation,  dissolution  or similar relief under any present or
future federal or state act or law relating to bankruptcy,  insolvency or relief
for debtors, (d) have sought or consented to or acquiesced in the appointment of
any  trustee,  receiver,  conservator  or  liquidator,  or to an  assignment  of
Grantor's  assets (or any part thereof) for the benefit of creditors,  or (e) be
the subject of an order,  judgment,  or decree entered by any court  approving a
petition filed against Grantor for any reorganization, arrangement, composition,
readjustment,  liquidation,  dissolution, or similar relief under any present or
future federal or state act or law relating to bankruptcy,  insolvency or relief
for debtors; then Lender shall be entitled to relief from any stay imposed under
the  Bankruptcy  Code  (including  but not limited to any  automatic  stay under
Section 363 thereof) or otherwise,  on or against the exercise of the rights and
remedies otherwise  available to Lender as provided in this Agreement,  the Loan
Documents, or as otherwise available at law, and Grantor hereby waives its right
to object to such relief.

     20. This Agreement is made solely for the benefit of the parties hereto and
no other person or persons shall have any rights or remedies  under or by reason
of this Agreement.

     21. No delay or omission by Lender in exercising any right or power arising
under this Agreement or the Loan Documents by reason of any default hereunder or
thereunder  shall be construed as a waiver of such default or as an acquiescence
therein,  nor shall any single or partial  exercise thereof preclude any further
exercise  thereof.  No waiver of any  default  shall be  construed  as a waiver,
acquiescence or consent to any preceding or subsequent default.

     22. Grantor covenants and agrees to execute any additional documents and to
do all other acts reasonably  required to effect the intent and purposes of this
Agreement.  In  furtherance  and not in  limitation  of the  foregoing,  Grantor
expressly  agrees,  upon receipt of Lender's  written  request,  to execute such
further  instruments  and to take such other  actions as may be  required to (i)
transfer title and possession of the Property to Grantee;  (ii) transfer utility
accounts;  (iii) collect rents related to the Property,  (iv) obtain  possession
and control of all deposits,  prepaid rent,  escrow funds,  and prepaid expenses
related to the  Property,  and (v) enable the Lender to  prosecute  an appeal of
real estate tax assessments pertaining to the Property.

     23.  Nothing herein shall be deemed or construed to create a partnership or
joint venture between any of the parties hereto.

     24. This  Agreement  shall be governed by and construed in accordance  with
the laws of the Commonwealth of Pennsylvania.

     25. Each person executing this Agreement  represents and warrants that such
person is lawfully  authorized and empowered to execute this Agreement on behalf
of the  entity  on whose  behalf  such  person  is  signing  and that  upon such
execution this Agreement will be binding upon such entity.

     26. This  Agreement,  and all  provisions,  representations,  releases  and
indemnifications  herein  contained  shall  be  binding  upon  Grantor  and  its
successors  and  assigns  and  shall  inure to the  benefit  of  Lender  and its
successors  and  assigns,   and  shall  survive  the  execution,   delivery  and
recordation of any or all of the Closing Documents.

     27. This Agreement,  together with the Closing  Documents,  (i) constitutes
the entire  understanding  between the parties hereto, (ii) without limiting the
generality of the foregoing,  supersedes  all letters,  agreements in principle,
outlines  of terms or other oral or written  communications  between  any of the
parties hereto, and (iii) may not be modified, amended or terminated,  except by
a written  agreement which is signed by each of the parties hereto.  Each of the
parties  hereto  stipulates  and agrees  that such party has not relied upon any
representations,  statements,  covenants  or  warranties  in entering  into this
Agreement other than those actually set forth in this Agreement, incorporated by
reference by this Agreement, or specifically referred to in this Agreement.  All
representations and warranties  contained herein shall be true and correct as of
the date of execution of this Agreement.  Subject to Grantor's  obligations with
respect to indemnification  contained herein, each party represents that he, she
or it has  received  independent  advice from legal  counsel with respect to the
advisability   of  entering  into  this   Agreement  and  with  respect  to  the
advisability  of making the agreements  and providing the releases,  waivers and
expressions  of  intent  contained  in  this  Agreement.  Each  party  shall  be
responsible to pay its own legal fees and costs.  Each party represents that he,
she or it has read this Agreement and understands the contents hereof.

     28. This Agreement may be executed by each party in identical counterparts,
each of  which  shall  be  deemed  to be an  original  and all of  which,  taken
together, shall constitute one agreement binding upon all parties.

          EXECUTED to be effective as of the date and year first recited above.

                 "LENDER"

                 GENERAL ELECTRIC CREDIT EQUITIES, INC.,
                 a Delaware corporation

                 By:  /s/ Constantine Lallas
                          Constantine Lallas
                          Authorized Signatory


                 "BORROWER"

                 H.P. KNOLLS II ASSOCIATES, L.P.,
                 a New York limited partnership

                 By:   HP-BC Limited Partnership,
                       a New York limited partnership,
                       its sole general partner

                      By:      Green Meadows I, LLC,
                               a New York limited liability company,
                               its sole general partner

                               By:  Home Properties, L.P.,
                                    a New York limited partnership,
                                    its managing member

                                    By:    Home Properties, Inc.,
                                           a Maryland corporation,
                                           its sole general partner

                                           By: /s/ Robert J. Luken
                                                Robert J. Luken,
                                                Senior Vice President

EX-31

                                                                    Exhibit 31.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                     PURSUANT TO RULE 13a-14 PROMULGATED BY
                     THE SECURITIES AND EXCHANGE COMMISSION
           (Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)

I, Edward J Pettinella, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Home  Properties,
     Inc. for the period ended September 30, 2005;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     (b)  designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's  auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     (a)  all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


                           /s/ Edward J. Pettinella
                           ----------------------------------------------------
                           Edward J. Pettinella
                           President and Chief Executive Officer
                           November 9, 2005

EX-31

                                                                    Exhibit 31.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                     PURSUANT TO RULE 13a-14 PROMULGATED BY
                     THE SECURITIES AND EXCHANGE COMMISSION
           (Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)

I, David P. Gardner, certify that:

1.   I have  reviewed  this  quarterly  report on Form 10-Q of Home  Properties,
     Inc. for the period ended September 30, 2005;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made,  not  misleading  with  respect  to the  period  covered by this
     report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in  this  report,  fairly  present  in all  material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     15d-15(f)) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this report is being prepared;

     (b)  designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness of the disclosure controls and procedures, as of the end
          of the period covered by this report based on such evaluation; and

     (d)  disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's  fourth fiscal quarter in
          the case of an annual  report)  that has  materially  affected,  or is
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting; and

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's  auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

     (a)  all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


                           /s/ David P. Gardner
                           ----------------------------------------------------
                           David P. Gardner
                           Executive Vice President and Chief Financial Officer
                           November 9, 2005

EX-32

                                                                    Exhibit 32.1

The  following   certification  is  furnished  as  provided  by  Rule  13a-14(b)
promulgated  under  the  Securities  Act of  1934  and  Item  601(b)(32)(ii)  of
Regulation 5-K.

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Home Properties, Inc. (the "Company")
on Form 10-Q for the  quarterly  period ended  September 30, 2005, as filed with
the Securities and Exchange  Commission on November 9, 2005 (the  "Report"),  I,
Edward J.  Pettinella,  President  and Chief  Executive  Officer of the Company,
certify,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the  requirements  of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934, as amended; and

2.   The information  contained in the Report fairly  presents,  in all material
     respects, the financial condition and results of operations of the Company.

                      By:  /s/ Edward J. Pettinella
                           ----------------------------------------------------
                           Edward J. Pettinella
                           President and Chief Executive Officer
                           November 9, 2005

A signed  original of this  written  statement  required by Section 906 has been
provided to Home Properties,  Inc. and will be retained by Home Properties, Inc.
and  furnished  to  the  Securities   and  Exchange   Commission  or  its  staff
upon request.

EX-32

                                                                    Exhibit 32.2

The  following   certification  is  furnished  as  provided  by  Rule  13a-14(b)
promulgated  under  the  Securities  Act of  1934  and  Item  601(b)(32)(ii)  of
Regulation 5-K.

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Home Properties, Inc. (the "Company")
on Form 10-Q for the  quarterly  period ended  September 30, 2005, as filed with
the Securities and Exchange  Commission on November 9, 2005 (the  "Report"),  I,
David P. Gardner,  Executive Vice President and Chief  Financial  Officer of the
Company,  certify,  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the  requirements  of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934, as amended; and

2.   The information  contained in the Report fairly  presents,  in all material
     respects, the financial condition and results of operations of the Company.


                      By:  /s/ David P. Gardner
                           ----------------------------------------------------
                           David P. Gardner
                           Executive Vice President and Chief Financial Officer
                           November 9, 2005

A signed  original of this  written  statement  required by Section 906 has been
provided to Home Properties,  Inc. and will be retained by Home Properties, Inc.
and  furnished  to  the  Securities   and  Exchange   Commission  or  its  staff
upon request.