-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WXwMoPc8GR5czvZZ7g8ZtEJErftopOfWAUqCSTwVRfwWFJ5a8kHdebRCgr0SaCb2 snnrHSUL8OEm6kF32MzftA== 0000923118-99-000014.txt : 19990817 0000923118-99-000014.hdr.sgml : 19990817 ACCESSION NUMBER: 0000923118-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME PROPERTIES OF NEW YORK INC CENTRAL INDEX KEY: 0000923118 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 161455126 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13136 FILM NUMBER: 99692121 BUSINESS ADDRESS: STREET 1: 850 CLINTON SQ CITY: ROCHESTER STATE: NY ZIP: 14604 BUSINESS PHONE: 7162464105 MAIL ADDRESS: STREET 1: 850 CLINTON SQUARE CITY: ROCHESTER STATE: NY ZIP: 14604 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-13136 HOME PROPERTIES OF NEW YORK, INC. (Exact name of registrant as specified in its charter) MARYLAND 16-1455126 (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 850 CLINTON SQUARE, ROCHESTER, NEW YORK 14604 (Address of principal executive offices) (Zip Code) (716) 546-4900 (Registrant's telephone number, including area code) N/A (Former name, former address and former year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CLASS OF COMMON STOCK OUTSTANDING AT JULY 31, 1999 $.01 par value 18,970,323 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 1999 AND DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1999 1998 ---- ---- (Unaudited) (Note 1) ASSETS Real estate: Land $ 122,058 $ 119,221 Buildings, improvements and equipment 870,671 821,567 ---------- ---------- 992,729 940,788 Less: accumulated depreciation ( 81,112) ( 65,627) ---------- ---------- Real estate, net 911,617 875,161 Cash and cash equivalents 48,188 33,446 Cash in escrows 18,375 17,431 Accounts receivable 5,497 6,269 Prepaid expenses 4,639 6,155 Deposits 4,368 175 Investments in and advances to affiliates 49,643 54,229 Deferred financing costs 2,431 2,749 Other assets 7,330 16,620 ---------- ---------- Total assets $1,052,088 $1,012,235 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $ 432,852 $ 418,942 Line of credit - - Accounts payable 6,209 8,300 Accrued interest payable 2,612 1,962 Accrued expenses and other liabilities 3,391 4,962 Security deposits 11,805 11,404 ---------- ---------- Total liabilities 456,869 445,570 ---------- ---------- Minority interest 207,166 204,709 ---------- ---------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued - - Common stock, $.01 par value; 50,000,000 shares authorized; 18,893,569 and 17,635,000 shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 189 177 Excess stock, $.01 par value; 10,000,000 shares authorized; no shares issued - - Additional paid-in capital 430,793 401,814 Distributions in excess of accumulated earnings ( 33,122) ( 26,622) Unrealized loss on available-for-sale securities - ( 1,607) Treasury stock, at cost, 0 and 79,600 shares at June 30, 1999 and December 31, 1998, respectively - ( 1,863) Officer and director notes for stock purchases ( 9,807) ( 9,943) ---------- ---------- Total stockholders' equity 388,053 361,956 ---------- ---------- Total liabilities and stockholders' equity $1,052,088 $1,012,235 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW York, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1999 1998 Revenues: ---- ---- Rental income $ 89,374 $ 54,464 Property other income 2,689 1,346 Interest and dividend income 3,812 2,161 Other income 1,548 1,114 ---------- ---------- Total revenues 97,423 59,085 ---------- ---------- Expenses: Operating and maintenance 40,963 25,637 General and administrative 4,327 2,544 Interest 15,676 9,087 Depreciation and amortization 15,860 8,899 Loss on available-for-sale securities 2,123 - ---------- ---------- Total expenses 78,949 46,167 ---------- ---------- Income before gain on disposition of property, minority interest and extraordinary item 18,474 12,918 Gain on disposition of property 457 - ---------- ---------- Income before minority interest and extraordinary item 18,931 12,918 Minority interest 6,729 5,469 ---------- ---------- Income before extraordinary item 12,202 7,449 Extraordinary item, prepayment penalties, net of $205 allocated to minority interest - (290) ---------- ---------- Net income $ 12,202 $ 7,159 ========== ========== Basic earnings per share data: Income before extraordinary item $.67 $.67 Extraordinary item - (.03) ---------- ---------- Net income $.67 $.64 ========== ========== Diluted earnings per share data: Income before extraordinary item $.67 $.66 Extraordinary item - (.03) ---------- ---------- Net income $.67 $.63 ========== ========== Weighted average number of shares outstanding: Basic 18,159,499 11,108,109 ========== ========== Diluted 18,252,321 11,297,673 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW York, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1999 1998 ---- ---- Revenues: Rental income $ 45,431 $ 29,370 Property other income 1,386 844 Interest and dividend income 1,917 1,247 Other income 906 851 ---------- ---------- Total revenues 49,640 32,312 ---------- ---------- Expenses: Operating and maintenance 19,963 13,497 General and administrative 2,171 1,335 Interest 7,960 4,689 Depreciation and amortization 8,319 4,820 Loss on available-for-sale securities 2,123 - ---------- ---------- Total expenses 40,536 24,341 ---------- ---------- Income before gain on disposition of property, minority interest and extraordinary item 9,104 7,971 Gain on disposition of property 473 - ---------- ---------- Income before minority interest and extraordinary item 9,577 7,971 Minority interest 3,386 3,297 ---------- ---------- Income before extraordinary item 6,191 4,674 Extraordinary item, prepayment penalties, net of $205 allocated to minority interest - (290) ---------- ---------- Net income $ 6,191 $ 4,384 ========== ========== Basic earnings per share data: Income before extraordinary item $.34 $.37 Extraordinary item - (.02) ---------- ---------- Net income $.34 $.35 ========== ========== Diluted earnings per share data: Income before extraordinary item $.33 $.37 Extraordinary item - (.02) ---------- ---------- Net income $.33 $.35 ========== ========== Weighted average number of shares outstanding - Basic 18,444,084 12,497,802 ========== ========== - Diluted 18,548,646 12,686,401 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW York, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED, IN THOUSANDS)
1999 1998 ---- ---- Cash flows from operating activities: Net income $12,202 $ 7,159 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of HP Management and Conifer Realty ( 370) ( 20) Income allocated to minority interest 6,729 5,469 Extraordinary item allocated to minority interest - ( 205) Depreciation and amortization 16,286 9,228 Unrealized loss on available-for-sale securities ( 1,607) - Gain/loss on disposition of property ( 457) - Changes in assets and liabilities: Other assets 15,520 ( 2,557) Accounts payable and accrued liabilities ( 2,611) 269 ------- ------- Total adjustments 33,490 12,184 ------- ------- Net cash provided by operating activities 45,692 19,343 ------- ------- Cash flows used in investing activities: Purchase of properties, net of mortgage notes assumed and UPREIT Units issued (12,063) (60,875) Additions to properties (21,057) (15,636) Deposits on property ( 4,193) ( 2,930) Advances to affiliates (13,889) (13,251) Payments on advances to affiliates 18,895 18,016 Other 1,099 - ------- ------- Net cash used in investing activities (31,208) (74,676) ------- ------- Cash flows from financing activities: Proceeds from sale of common stock 33,049 156,054 Purchase of treasury stock ( 2,578) - Proceeds from mortgage notes payable - 28,600 Payments of mortgage notes payable ( 2,128) (18,209) Proceeds from line of credit - 33,000 Payments on line of credit - (41,750) Additions to deferred loan costs ( 108) ( 73) Additions to and payments received from cash escrows ( 944) ( 1,747) Dividends and distributions paid (27,033) (16,250) Net cash provided by (used in) financing activities 258 139,625 ------- ------- Net increase in cash 14,742 84,292 Cash and cash equivalents: Beginning of period 33,446 3,809 ------- ------- End of period $ 48,188 $ 88,101 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest $ 14,600 $ 9,149 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW York, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. UNAUDITED INTERIM FINANCIAL STATEMENTS The interim consolidated financial statements of Home Properties of New York, Inc. (the "Company") are prepared pursuant to the requirements for reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles are omitted. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the consolidated financial statements for the interim periods have been included. The current period's results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K, as filed with the Securities and Exchange Commission on March 17, 1999. 2. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION Home Properties of New York, Inc. (the " Company " ) was formed in November 1993, as a Maryland corporation and is engaged primarily in the ownership, management, acquisition and development of residential apartment communities in the Northeastern, Mid-Atlantic and Midwestern United States. As of June 30, 1999, the Company operated 259 apartment communities with 33,935 apartments. Of this total, the Company owned 100 communities, consisting of 24,350 apartments, managed as general partner 7,710 apartments and fee managed 1,875 apartments for affiliates and third parties. The Company also fee manages 1.7 million square feet of office and retail properties. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and its 65.2% (63.4% at June 30, 1998) general partnership interest in the Operating Partnership. The remaining 34.8% (36.6% at June 30, 1998) is reflected as Minority Interest in these consolidated financial statements. For financing purposes, the Company has formed a limited liability company (the "LLC") and a partnership (the "Financing Partnership") which beneficially own certain apartment communities encumbered by mortgage indebtedness. The LLC is wholly owned by the Operating Partnership. The Financing Partnership is owned 99.9% by the Operating Partnership and .1% by Home Properties Trust, a wholly owned qualified REIT subsidiary (QRS) of Home Properties of New York, Inc. All significant intercompany balances and transactions have been eliminated in these consolidated financial statements. 3. EARNINGS PER COMMON SHARE Basic earnings per share ("EPS") is computed as net income 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. The exchange of an Operating Partnership Unit for common stock will have no effect on diluted EPS as unitholders and stockholders effectively share equally in the net income of the Operating Partnership. HOME PROPERTIES OF NEW York, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. EARNINGS PER COMMON SHARE CONT'D Net income is the same for both the basic and diluted calculation. The reconciliation of the basic weighted average shares outstanding and diluted weighted average shares outstanding for the six and three months ended June 30, 1999 and 1998 is as follows:
SIX MONTHS THREE MONTHS ---------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Basic weighted average number of shares outstanding 18,159,499 11,108,109 18,444,084 12,497,802 Effect of dilutive stock options 92,822 189,564 104,562 188,599 ---------- ---------- ---------- ---------- Diluted weighted average number of shares outstanding 18,252,321 11,297,673 18,548,646 12,686,401 ========== ========== ========== ==========
4. COMPREHENSIVE INCOME Total comprehensive income for the six and three months ended June 30, 1999 and 1998 is as follows:
SIX MONTHS THREE MONTHS ---------------- -------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $12,202 $7,159 $6,191 $4,384 Comprehensive income: Unrealized loss on available-for-sale securities - - - - ------- ------ ------ ------ Net comprehensive income $12,202 $7,159 $6,191 $4,384 ======= ====== ====== ======
1. OTHER INCOME Other income for the six and three months ended June 30, 1999 and 1998 is summarized as follows:
SIX MONTHS THREE MONTHS -------------- ----------- 1999 1998 1999 1998 ---- ---- ---- ---- Management fees $ 734 $ 605 $360 $334 Development fees 391 387 329 216 Other 53 101 25 72 Management Companies 370 21 192 229 ------ ------ ---- ---- $1,548 $1,114 $906 $851 ====== ====== ==== ====
Certain property management, leasing and development activities are performed by Home Properties Management, Inc. and Conifer Realty Corporation (the "Management Companies"). The Operating Partnership owns non-voting common stock in the Management Companies which entitles the Operating Partnership to receive 95% (99% in 1998) of the economic interest in the Management Companies. The Company's share of income from the Management Companies for the six and three months ended June 30 1999 and 1998 is summarized as follows:
SIX MONTHS THREE MONTHS ---------------- -------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Management fees $ 1,853 $ 1,588 $ 931 $ 795 Development fees 2,645 2,169 1,343 1,215 Miscellaneous 38 49 3 23 General and administrative (3,472) (3,342) (1,718) (1,553) Interest expense ( 442) ( 297) ( 240) ( 167) Other expenses ( 233) ( 146) ( 117) ( 82) ------- ------- ------- ------- Net income $ 389 $ 21 $ 202 $ 231 ======= ======= ======= ======= Company's share $ 370 $ 21 $ 192 $ 229 ======= ======= ======= =======
HOME PROPERTIES OF NEW York, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 6. SEGMENT REPORTING Effective January 1, 1998, the Company has adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The Company has engaged in two primary business segments - the ownership and management of market rate apartment communities and the management and development of government assisted housing. Company management views each apartment community as a separate component of the operating segment. The Company's two reportable segments are managed separately as each requires different operating strategies and management expertise. There are no material intersegment sales or transfers. Non-segment revenue to reconcile total revenue consists of unconsolidated management and development fees and interest income. Non-segment assets to reconcile to total assets include cash, cash in escrows, accounts receivable, prepaid expenses, deposits, investments in and advances to affiliates, deferred charges and other assets. The Company assesses and measures segment operating results based on FFO. The revenues, profit (loss), and assets for each of the reportable segments are summarized as follows for the six and three months ended June 30, 1999 and 1998.
SIX MONTHS THREE MONTHS --------------------- --------------------- 1999 1998 1999 1998 ---- ---- ---- ---- REVENUES Apartments owned $ 92,063 $ 55,810 $46,817 $ 30,214 Management & development fees 5,714 4,899 2,990 2,655 Reconciling items ( 354) ( 1,624) ( 167) ( 557) ---------- -------- ------- -------- Total Revenue 97,423 59,085 $49,640 $ 32,312 ========== ======== ======= ======== PROFIT (LOSS) Funds from operations: Apartments owned $ 51,100 $ 30,173 $26,854 $ 16,717 Management & development fees 1,548 1,114 906 851 Reconciling items 3,812 2,161 1,917 1,247 ---------- -------- -------- -------- Segment contribution to FFO 56,460 33,448 29,677 18,815 General & administrative expenses ( 4,327) ( 2,544) ( 2,171) ( 1,335) Interest expense ( 15,676) ( 9,087) ( 7,960) ( 4,689) Unconsolidated depreciation 221 268 153 72 Non-real estate depreciation/amort. ( 136) ( 91) ( 72) ( 50) ---------- -------- -------- -------- Funds from Operations 36,542 21,994 19,627 12,813 Depreciation - apartments owned ( 15,724) ( 8,808) ( 8,247) ( 4,770) Unconsolidated depreciation ( 221) ( 268) ( 153) ( 72) Gain on disposition of properties 457 - 473 - Loss on available-for-sale securities ( 2,123) - ( 2,123) - Minority interest in earnings ( 6,729) ( 5,469) ( 3,386) ( 3,297) Extraordinary items, net of minority interest - ( 290) - ( 290) ---------- -------- ------- -------- Net Income $ 12,202 $ 7,159 $ 6,191 $ 4,384 ========== ======== ======= ======== ASSETS Apartments owned $ 911,617 $628,564 Apartments managed 644 627 Reconciling items 139,827 152,444 ---------- -------- Total Assets $1,052,088 $781,635 ========== ========
HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 7. PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------- Home Properties Pro Forma Company HISTORICAL ADJUSTMENT PRO FORMA ---------- ---------- ---------- Revenue: Rental income $ 89,374 $ 1,359 $ 90,733 Property other income 2,689 40 2,729 Interest and dividend income 3,812 - 3,812 Other income 1,548 - 1,548 ---------- ---------- ---------- Total Revenues 97,423 1,399 98,822 ---------- ---------- ---------- Expenses: Operating and Maintenance 40,963 422 41,385 General and administrative 4,327 42 4,369 Interest 15,676 430 16,106 Depreciation and amortization 15,860 211 16,071 Loss on available-for-sale securities 2,123 - 2,123 ---------- ---------- ---------- Total Expenses 78,949 1,105 80,054 ---------- ---------- ---------- Income before gain on disposition of property and minority interest 18,474 294 18,768 Gain on disposition of property 457 - 457 ---------- ---------- ---------- Income before minority Interest $ 18,931 $ 294 $ 19,225 ========== ========== Minority interest 6,869 ---------- Net income $ 12,356 ========== Net income per common share - Basic $0.68 ========== - Diluted $0.68 ========== Weighted average number of shares outstanding - Basic 18,159,499 ========== - Diluted 18,252,321 ==========
The pro forma information was prepared as if the transactions related to the acquisition of the Manor Apartments (on February 18, 1999, 198 units for $7,200), Ridgeway Court Apartments (on February 22, 1999, 66 units for $2,150), Springwell Park Apartments (on April 7, 1999, 303 units for $18,200), and Sherwood Gardens Apartments (on May 27, 1999, 103 units for $4,100) had occurred on January 1, 1999. Adjustments to the pro forma combined statements of operations for the six months ended June 30, 1999, consist principally of providing net property operating activity and recording interest, depreciation and amortization from January 1, 1999 to the acquisition date. HOME PROPERTIES OF NEW YORK, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion is based primarily on the consolidated financial statements of Home Properties of New York, Inc. as of June 30, 1999 and 1998 and for the six and three month periods then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. FORWARD-LOOKING STATEMENTS This discussion contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic and local real estate conditions, other conditions that might affect operating expenses, the timely completion of repositioning and current development activities within anticipated budgets, the actual pace of future acquisitions and developments and continued access to capital to fund growth. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity demands are expected to be distributions to stockholders, capital improvements and repairs and maintenance for the properties, acquisition of additional properties, property development and scheduled debt maturities. 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 continue 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, to enable the Company to qualify as a REIT. As of June 30, 1999 the Company had an unsecured line of credit from Chase Manhattan Bank of $50 million and a $50 million supplemental unsecured revolving credit facility with M&T Bank, both with no outstanding balances. Borrowings under the line of credit bear interest at 1.25% over the one-month LIBOR rate. Accordingly, increases in interest rates will increase the Company's interest expense and as a result will effect the Company's results of operations and financial condition. The unsecured credit facilities expire on September 4, 1999, with a one year extension at the Company's option. It is anticipated that the Company will elect the one-year extension. 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 facilities, it intends to satisfy such requirements through the issuance of UPREIT units, proceeds from the Dividend Reinvestment Plan ("DRIP"), long term secured or unsecured indebtedness, or the issuance of additional equity securities. As of June 30, 1999, the Company owned twenty-four properties with 3,907 apartment units, which were unencumbered by debt. In May, 1998, the Company's Form S-3 Registration Statement was declared effective relating to the issuance of up to $414 million of shares of common stock or other securities. During 1998, $125.6 million of common shares were issued from this and a previous shelf registration in various public and private offerings. There has been no activity during 1999 relative to this shelf. The available balance on the shelf at June 30, 1999 is $333.7 million. HOME PROPERTIES OF NEW YORK, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CONT'D The issuance of UPREIT Units for property acquisitions continues to be a significant source of capital. During 1998, 4,512 apartment units in eight separate transactions were acquired for a total cost of $176 million using UPREIT Units valued at approximately $71 million, with the balance paid in cash or assumed debt. From January 1, 1999 to July 31, 1999, 8,147 apartment units in four separate transactions were acquired for a total cost of $389 million using UPREIT units valued at approximately $148 million, with the balance paid in cash or assumed debt. During 1998, over $72 million of common stock was issued under the Company's DRIP, approximately twice the level of the previous year. An additional $33.2 million has been raised through the DRIP program during the first seven months of 1999. The Company's Board of Directors approved a stock repurchase program under which the Company may repurchase up to one million shares of its outstanding common stock. The Board's action did not establish a target price or a specific timetable for repurchase. During 1998, the Company repurchased 59,600 shares at a cost of $1.4 million. An additional 109,600 shares were repurchased during the first six months of 1999 at a cost of $2.6 million. During the second quarter of 1999, all shares repuchased through this program, which had been held as Treasury Stock, have been retired. As of June 30, 1999, the weighted average rate of interest on mortgage debt is 7.2% and the weighted average maturity is approximately 10 years. All 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. As of July 31, 1999, variable rate debt represents 11% of total debt outstanding. The following table sets forth information regarding the mortgage indebtedness at June 30, 1999.
Principal Interest Balance as of Rate as of Maturity June 30, 1999 COMMUNITIES LOCATION JUNE 30, 1999 DATE (000'S) - ----------- -------- ------------- -------- ------------- FIXED RATE Perinton and Riverton Rochester, NY 6.75% (1) 09/01/00 11,813 Springwood Philadelphia, PA 8.50% 11/01/01 1,463 Valley View Philadelphia, PA 8.50% 11/01/01 3,317 Royal Gardens Piscataway, NJ 7.66% 08/01/02 11,524 Brook Hill Rochester, NY 7.75% 11/01/02 4,824 Garden Village Buffalo, NY 7.75% 11/01/02 4,540 1600 Elmwood Rochester, NY 7.75% 11/01/02 5,297 Village Green Syracuse, NY 7.75% 11/01/02 4,730 Racquet Club Philadelphia, PA 7.63% 11/01/03 12,053 Curren Terrace Philadelphia, PA 8.36% 11/01/03 9,525 Rolling Park Baltimore, MD 7.88% 11/01/03 2,836 Sherry Lake Philadelphia, PA 7.88% 01/01/04 6,539 Glen Manor Philadelphia, PA 8.13% 05/01/04 3,674 Colonies Chicago, IL 8.88% 05/01/04 12,424 Springcreek/Meadows Rochester, NY 7.63% (2) 08/01/04 3,130 Idylwood Buffalo, NY 8.63% 11/01/05 9,268 Carriage Hill Dearborn, MI 7.36% 01/01/06 3,878 Carriage Park Dearborn, MI 7.48% 01/01/06 5,586 Cherry Hill Dearborn, MI 7.99% 01/01/06 4,503 Mid Island Estates Bay Shore, NY 7.50% (3) 05/01/06 6,675 Newcastle Rochester, NY 6.00% (4) 07/31/06 6,150 Country Village Baltimore, MD 8.39% 08/01/06 6,639 Raintree Island Buffalo, NY 8.50% 11/01/06 6,349 Woodgate Place Rochester, NY 7.87% 01/01/07 3,423 Strawberry Hill Baltimore, MD 8.26% 05/01/07 2,064 Valley Park South Bethlehem, PA 6.93% 01/01/08 10,024 Hamlet Court Rochester, NY 7.11% 02/01/08 1,779 Candlewood South Bend, ID 7.02% 03/01/08 7,846 Multi-property Detroit, MI 7.51% 06/01/08 48,919 Sherwood Gardens Philadelphia, PA 6.98% 07/01/08 3,074 Conifer Village Syracuse, NY 7.20% 06/01/10 2,610 Ridgeway Court Philadelphia, PA 8.38% 11/01/10 1,204 Multi-property Various 6.16% 01/01/11 58,881 Morningside and Carriage Hill Baltimore, MD 6.99% 05/01/13 20,257 Multi-property Various 6.48% 08/31/13 100,000 Springwell Park Dearborn, MI 8.00% 07/01/15 11,684 Pines of Perinton Rochester, NY 8.50% 05/01/18 8,783 Village Green (Fairways) Syracuse, NY 8.23% 10/01/19 4,395 Raintree Island Buffalo, NY 8.50% 05/01/20 1,172 ------- 432,852
Interest Balance as of Rate as of Maturity June 30, 1999 COMMUNITIES LOCATION JUNE 30, 1999 DATE (000'S) - -------------- -------- ------------- -------- ------------- LINE OF CREDIT Unsecured N/A 30 day LIBOR+1.25% On demand 0 -------- $432,852 ========
(1) Fixed through August 4, 1999, then prime +.5% until maturity. (2) Fixed through July 31, 2000, then prime +.5% until maturity. (3) Fixed through March 31, 2001; then 7.75% until maturity. (4) Fixed through July 31, 1999, then variable. RESULTS OF OPERATIONS COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO THE SAME PERIOD IN 1998 The Company had 62 apartment communities with 14,048 units which were owned during both of the six and three month periods being presented (the "Core Properties"). The Company has acquired an additional 38 apartment communities with 10,302 units during 1998 and 1999 (the "Acquired Communities"). The inclusion of these Acquired Communities generally accounted for the significant changes in operating results for the six and three months ended June 30, 1999. A summary of the Core Property net operating income is as follows:
SIX MONTHS THREE MONTHS ----------------------------------- ------------------------------------ 1999 1998 % CHG 1999 1998 % CHG ---- ---- ---- ---- ---- ----- Rent $52,048,000 $49,071,000 6.1% $26,094,000 $24,680,000 5.7% Property other income 1,567,000 1,360,000 15.2% 816,000 721,000 13.2% ----------- ----------- ----- ----------- ----------- ----- Total income 53,615,000 50,431,000 6.3% 26,910,000 25,401,000 5.9% Operating and Maintenance (24,699,000) (23,619,000) (4.6%) (11,840,000) (11,684,000) (1.3%) ----------- ----------- ----- ----------- ----------- ----- Net operating income $28,916,000 $26,812,000 7.8% $15,070,000 $13,717,000 9.9% =========== =========== ===== =========== =========== =====
Of the $34,910,000 increase in rental income, $31,933,000 is attributable to the Acquired Communities. The balance of this increase, which is from the Core Properties, was the result of an increase of 4.6% in weighted average rental rates, plus an increase in occupancy from 93.4% to 94.7%. Of the $1,343,000 increase in property other income, $1,007,000 is attributable to the Acquired Communities, with $207,000 representing a 15.2% increase for the Core Properties. This increase reflects increased laundry and furniture/corporate rental activity. The balance, a $129,000 increase, is from the Company's share of income/loss from various general partnership interests. Interest and dividend income increased $1,651,000, primarily attributable to an increase in construction loans and advances made to affiliated tax credit development partnerships, as well as $714,000 in dividend income from an investment in available-for-sale securities. Other income increased by $434,000 due primarily to an increased level of management and development activity. Of the $15,326,000 increase in operating and maintenance expenses, $14,246,000 is attributable to the Acquired Communities. The balance for the Core Properties represents a 4.6% increase over 1998. The major areas of increase in the Core Properties occurred in utilities, personnel and snow removal costs. All of these items were affected by a more normal winter following the unusually mild winter weather experienced in 1998. Most of the personnel increase results from the normal 26 week pay periods in 1999 compared to only 25 in 1998. This negative variance will reverse itself during the third quarter of 1999. General and administrative expense increased in 1999 by $1,783,000, or 70%. General and administrative expenses as a percentage of total revenues was 4.4% for 1999 and 4.3% for 1998. During the second quarter of 1999, the Company disposed of its only retail property at a gain. A 35,000 square foot shopping center in Columbus, Ohio was sold for approximately $1,000,000 resulting in a gain on disposition of approximately $500,000. In addition, the Company liquidated its original $11.6 million investment in the common stock of Associated Estates Realty Corporation (NYSE: AEC), recognizing a loss of $2,123,000. COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 TO THE SAME PERIOD IN 1998 Of the $16,061,000 increase in rental income, $14,647,000 is attributable to the Acquired Communities. The balance of this increase, which is from the Core Properties, was the result of an increase of 4.7% in weighted average rental rates, plus an increase in occupancy from 93.5% to 94.4%. Of the $542,000 increase in property other income, $475,000 is attributable to the Acquired Communities, with $95,000 representing a 13.2% increase for the Core Properties. This increase reflects increased laundry and furniture/corporate rental activity. The balance, a ($28,000) decrease, is from the Company's share of income/loss from various general partnership interests. Interest and dividend income increased $670,000, primarily attributable to an increase in construction loans and advances made to affiliated tax credit development partnerships, as well as $319,000 in dividend income from an investment in available-for-sale securities. Of the 6,466,000 increase in operating and maintenance expenses, $6,310,000 is attributable to the Acquired Communities. The balance for the Core Properties represents a 1.3% increase over 1998. The major areas of increase occurred in real estate taxes and snow removal costs, offset in part by reductions in advertising expenses and utility costs. FUNDS FROM OPERATIONS Management considers funds from operations ("FFO") to be an appropriate measure of performance of an equity REIT. The National Association of Real Estate Investment Trusts ("NAREIT") revised White Paper definition of FFO is income (loss) before gains (losses) from the sale of property and extraordinary items, before minority interest in the Operating Partnership, plus real estate depreciation. Management believes that in order to facilitate a clear understanding of the combined historical operating results of the Company, FFO should be considered in conjunction with net income as presented in the consolidated financial statements included elsewhere herein. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as an indication of the Company's performance or to cash flow as a measure of liquidity. The calculation of FFO for the previous six quarters are presented below:
June 30, March 31 Dec. 31 Sept. 30 June 30 March 31 1999 1999 1998 1998 1998 1998 -------- -------- ------- -------- ------- -------- Net income $ 6,191 $ 6,011 $ 5,388 $ 6,141 $ 4,384 $ 2,775 Minority interest 3,386 3,343 3,408 3,726 3,297 2,172 Extraordinary item - - 514 156 290 - Non-recurring interest amortization - - - 294 - - Depreciation from real property 8,247 7,477 8,183 5,991 4,770 4,038 Depreciation from real property from unconsolidated entities 153 84 393 72 72 196 (Gain) Loss from sale of property 1,650* - - - - - -------- -------- -------- -------- -------- -------- FFO $ 19,627 $ 16,915 $ 17,886 $ 16,380 $ 12,813 $ 9,181 ======== ======== ======== ======== ======== ======== Weighted average common shares/ units outstanding - Basic 28,530.2 27,810.1 27,129.4 25,603.7 21,312.3 17,303.6 ======== ======== ======== ======== ======== ======== - Diluted 28,634.8 27,898.4 27,245.7 25,746.9 21,500.9 17,501.1 ======== ======== ======== ======== ======== ========
*Includes the loss from disposition of property investment separately disclosed as loss on available-for-sale securities. All REITs may not be using the strict White Paper definition for new FFO. Accordingly, the above presentation may not be comparable to other similarly titled measures of FFO of other REITs. IMPACT OF THE YEAR-2000 ON SYSTEM PROCESSING The Year 2000 ("Y2K") problem concerns the inability of information systems to properly recognize and process date-sensitive information beyond January 1, 2000. As a result, the Y2K problem can affect any system that uses date data, including mainframes, PCs, and embedded microprocessors that control security systems, call-processing systems, building climate systems, elevators, office equipment and even fire alarms. All references to percent complete below are as of 8/1/99. The Company's State of Readiness The Company began addressing the Y2K issue in September 1997. As such it divided its review into two segments: business critical and mission critical systems. Business critical systems are those with the potential to affect the financial and operational infrastructure of the Company. Mission critical are those systems with a potential to affect the delivery of electricity and natural gas to our residents, commercial tenants and employees and the safety of residents, commercial tenants and employees. Recognizing that the mission critical systems rely heavily on public service vendors, the Company's focus to date has been on business critical systems under the assumption that market forces and regulatory agencies would encourage and monitor the compliance of the telecommunications, utilities and emergency service industries. The Company has set up systems to monitor the progress of mission critical service providers and will develop contingency plans, possibly in coordination with industry organizations, as needed, to minimize the possibility that the Y2K problem would disrupt the lives of its residents, commercial tenants and employees. The Company relies exclusively on micro computers (PC's). PC's exist in the corporate office, regional offices and at the communities. The Company is 95% complete with its review and modification of corporate office systems towards Y2K compliance. Outstanding projects include: upgrading the voicemail system and installing Y2K compliant modules of non-critical property management software. Specifically, the software vendors have advised the Company that the property management, accounts payable and general ledger software and payroll software is compliant. The Company will continue a dialog with all software service providers so that any additional upgrades can be completed as necessary. The Company is 85% complete with its review and modification of regional office systems and 65% complete with its review and modification of community based systems. The Company has one and one-half full-time employees dedicated to upgrading regional offices and community based systems. Additional information systems employees will assist as needed. The Company anticipates its regional office systems and its community based systems will be tested for compliance by September ,1999. Once all hardware and software components are believed to be Y2K ready, the Company plans to periodically match its systems' inventory against hardware and software component manufacturer upgrade releases to assure that its systems have the most current Y2K upgrades (including any properties acquired). The ability of the Company to successfully transact monetary exchanges is key to continued successful operation. For this reason, all financial institutions which the Company has a relationship were identified and queried for Y2K readiness status during the second quarter of 1999. The Company's significant relationships are with regional and national financial institutions which are also subject to the oversight of various federal regulatory agencies for their Y2K compliance. The Company anticipates full compliance based on the responses received to date. Delivery of goods and services (i.e., building and elevator access, security systems, HVAC, life safety, etc.) to the Company's communities and offices must continue to be provided without interruption. The Company mailed surveys to all critical suppliers in July, 1999 and expects to know their Y2K readiness status by September, 1999. Contingency Plans Testing will begin in August 1999 to determine the Company's business critical system readiness. Based on testing results, contingency plans may be put in place. Risks Since the Company's major source of income is rental payments under term leases at communities located in different municipalities, the failure of business critical systems at any one community is not expected to have a material adverse effect on the Company's financial condition, results of operations and liquidity. Given the complexity and general uncertainty of the Y2K issues in the gas, electric, telecommunications, banking and related industries, even the most comprehensive program, however, cannot assure that unforeseen problems will not occur. The Company therefore is unable at this time to determine whether any unforeseen impacts could have a material effect on the Company's financial condition. The Company believes that upon the full implementation of our upgraded business system and assuming Y2K compliance of our public service vendors, the possibility of significant interruptions of normal operations should not be material. Costs The total cost of the Company's Y2K activities, which is estimated at $675,000, is not expected to have a material effect on the Company's financial position. Approximately $500,000 has been expended as of August 1, 1999. The remaining expenditures to be incurred will be funded from operations. A majority of these costs are an acceleration of the amounts the Company would anticipate incurring to upgrade business systems, regardless of the Y2K problem, considering the evolution of technology and the requirements for running newly acquired and improved system applications. INFLATION Substantially all of the leases at the communities are for a term of one year or less, which enables the Company to seek increased rents upon renewal of existing leases or commencement of new leases. These short-term leases minimize the potential adverse effect of inflation on rental income, although residents may leave without penalty at the end of their lease terms and may do so if rents are increased significantly. DECLARATION OF DIVIDEND On August 3, 1999, the Board of Directors approved a dividend of $.48 per share for the period from April 1, 1999 to June 30, 1999. This is the equivalent of an annual distribution of $1.92 per share. The dividend is payable August 26, 1999 to shareholders of record on August 17, 1999. SUBSEQUENT EVENTS On July 1, 1999, the Company acquired seven properties with 3,722 apartment units in suburban markets surrounding Washington, D.C., Baltimore, Maryland and Richmond, Virginia. The total purchase price and closing costs of $180.6 million included the assumption of existing debt of approximately $57 million, issuance of UPREIT units valued at $106 million, plus cash of $17.6 million. On July 9, 1999 the Company acquired 396 apartment units in one community located in South Bend, Indiana. The total purchase price and closing costs of $17.4 million included the assumption of existing debt of approximately $12.4 million plus cash of $5 million. On July 15, 1999, the Company acquired twelve properties with 3,297 apartment units in suburban markets surrounding Baltimore, Maryland and Wilmington, Delaware. The total purchase price and closing costs of $157.5 million included the assumption of existing debt of $85.9 million, issuance of UPREIT units valued at $29.2 million, plus cash of $42.4 million. On July 28, 1999, the Company acquired four properties with 825 apartment units in Philadelphia, Pennsylvania. The total purchase price and closing costs of $32.3 million included the issuance of UPREIT units valued at $7.9 million, seller financing of $15.8 million, plus cash of $8.6 million. On July 30, 1999, the Company acquired substantially all of the development business of Community Investment Strategies, Inc. (CIS), an affordable housing development company located in New Brunswick, New Jersey for $1.7 million - paid entirely with UPREIT units. PART II - OTHER INFORMATION HOME PROPERTIES OF NEW YORK, INC. ITEM 6. EXHIBITS AND REPORTS OR FORM 8-K (a) Exhibits: There are no exhibits which are filed with, or incorporated by reference, to this report. (b) Reports or Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOME PROPERTIES OF NEW YORK, INC. (Registrant) Date: AUGUST 16, 1999 --------------------------- By: /S/ DAVID P. GARDNER --------------------------- David P. Gardner Vice President Chief Financial Officer and Treasurer Date: AUGUST 16, 1999 --------------------------- By: /S/ DAVID P. GARDNER --------------------------- David P. Gardner Vice President Chief Financial Officer and Treasurer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HOME PROPERTIES OF NEW YORK, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS JUNE 30, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 48,188 0 5,497 0 0 0 992,729 81,112 1,052,088 0 432,852 0 0 189 387,864 1,052,088 0 97,423 0 63,273 0 0 15,676 18,931 0 12,202 0 0 0 12,202 .67 .67
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