SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 13, 2006
HOME PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 1-13136 No. 16-1455126
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
850 Clinton Square, Rochester, New York 14604
www.homeproperties.com
(Address of principal executive offices and internet site)
(585) 546-4900
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
HOME PROPERTIES, INC.
CURRENT REPORT
ON FORM 8-K
Item 2.01. Completion of Acquisition of Assets
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Home Properties, Inc. (the "Company") conducts its business through Home
Properties, L.P., a New York limited partnership (the "Operating Partnership").
During 2005, the Operating Partnership purchased the following seven apartment
communities (referred to herein as the "Acquisition Properties") in six
unrelated transactions. The aggregate purchase price of the seven apartment
communities exceeded 10% of the total assets of the registrant as of December
31, 2004. None of these acquisition transactions constitute a "significant
subsidiary", and the communities were not acquired from a related party.
Community Acquisition Date
--------- ----------------
Ridgeview at Wakefield Valley January 13, 2005
Hackensack Gardens March 1, 2005
Barrington Gardens March 1, 2005
Sayville Commons July 15, 2005
The Brooke at Peachtree Village August 15, 2005
Peppertree Farm((1)) December 28, 2005
Cinnamon Run((1)) December 28, 2005
Ridgeview at Wakefield Valley. On January 13, 2005, the Operating Partnership
acquired Ridgeview at Wakefield Valley with a total of 204 units located in
Westminster, Maryland. Consideration for the $19.4 million purchase price was
funded by the Company's line of credit.
Hackensack Gardens. On March 1, 2005, the Operating Partnership acquired
Hackensack Gardens with a total of 198 units located in Hackensack, New Jersey.
Consideration for the $13.3 million purchase price included $5.0 million of
assumed mortgage debt and $8.3 million in Operating Partnership Units in Home
Properties, L.P. The mortgage has a fixed interest rate of 5.26% and matures in
2013.
Barrington Gardens. On March 1, 2005, the Operating Partnership acquired
Barrington Gardens with a total of 148 units located in Matawan, New Jersey.
Consideration for the $7.4 million purchase price included $3.0 million of
assumed mortgage debt and $4.4 million in Operating Partnership Units in Home
Properties, L.P. The assumed mortgage was replaced with a new mortgage of $4.5
million, which has a three-year term, a variable interest rate of LIBOR plus 165
basis points and can be prepaid without penalty.
Sayville Commons. On July 15, 2005, the Operating Partnership acquired Sayville
Commons with a total of 342 units located in Sayville, New York. Consideration
for the $63.4 million purchase price was funded by $43.6 million in new mortgage
debt and $19.8 million by the Company's line of credit. The mortgage has a fixed
interest rate of 5.00% and matures in 2015.
The Brooke at Peachtree Village. On August 15, 2005, the Operating Partnership
acquired The Brooke at Peachtree Village with a total of 146 units located in
Whitehall, Pennsylvania. Consideration for the $16.1 million purchase price was
funded by the Company's line of credit.
Peppertree Farm and Cinnamon Run. On December 28, 2005, the Operating
Partnership acquired two contiguous apartment communities totaling 1,392 units
in Silver Spring, Maryland (noted with an ((1)) above). Consideration for the
$163.7 million purchase price included $120.7 million in new mortgage debt and
$43.0 million in Operating Partnership Units in Home Properties, L.P. The
mortgages have a fixed interest rate of 5.25% and mature in 2015.
Peppertree Farm and Cinnamon Run are collectively referred to herein as the
"Selected Acquisition Properties". The purchase price of the Selected
Acquisition Properties makes up 58% of the Acquisition Properties and were
selected for audit under Rule 3-14 of Regulation S-X.
In determining the price paid for the Acquisition Properties, the Company
considered the historical and expected cash flow from the properties, the nature
of the occupancy trends and terms of the leases in place, current operating
costs and taxes, the physical condition of the properties, the potential to
increase their cash flow and other factors. The Company also considered the
capitalization rates at which it believes apartment properties have recently
sold in the market, but determined the prices it was willing to pay for the
properties primarily based on the factors discussed above. No independent
appraisals were performed in connection with the acquisitions. The Company,
after investigation of the properties, is not aware of any material factors,
other than those discussed above, that would cause the financial information
reported not to be necessarily indicative of future expected operating results.
Item 9.01. Financial Statements and Exhibits.
---------- ----------------------------------
a. Financial statements of businesses acquired:
(1) Unaudited combined statements of revenue and certain expenses for the
Selected Acquisition Properties for the period January 1, 2005 through
the latest interim period prior to the date of acquisition.
(2) Audited combined statements of revenue and certain expenses for the
year ended December 31, 2004 for the Selected Acquisition Properties.
None of the Acquisition Properties constitute a "significant subsidiary"
pursuant to the Regulation S-X rules. Audited statements of revenue and
certain expenses for the year ended December 31, 2004 and related unaudited
financial information for the period through the acquisition date or the
Company's appropriate quarterly reporting period are presented herein only
for the Selected Acquisition Properties, which represent a majority of the
Acquisition Properties.
b. Pro forma financial information:
(1) Pro forma condensed consolidated statement of operations of the
Company for the year ended December 31, 2005.
(2) Notes to the pro forma consolidated statement of operations of the
Company for the year ended December 31, 2005.
(3) Estimated twelve-month pro forma statement of taxable net operating
income and operating funds available.
c. Exhibits
Exhibit 23.0 Consent of PricewaterhouseCoopers LLP
Report of Independent Auditors
------------------------------
To the Board of Directors and Shareholders of
Home Properties, Inc.:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Peppertree Farm and Cinnamon Run, located in Silver Springs,
Maryland, (the "Properties") for the year ended December 31, 2004. This
Statement is the responsibility of the Properties' management. Our
responsibility is to express an opinion on this Statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the Statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in the Form 8-K of Home Properties, Inc.) as described in Note 2 and is not
intended to be a complete presentation of the Properties' revenue and expenses.
In our opinion, the Statement referred to above presents fairly, in all material
respects, the revenue and certain expenses described in Note 2 of Peppertree
Farm and Cinnamon Run for the year ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 12, 2006
Peppertree Farm and Cinnamon Run
Combined Statement of Revenue and Certain Expenses
(In thousands)
-------------------------------------------------------------------------------
For the Nine Months
Ended
September 30,
For the Year Ended 2005
December 31, 2004 (unaudited)
----------------- -----------
Revenue:
Rental income $16,391 $12,401
Other income 518 507
------- ------
16,909 12,908
------- ------
Expenses:
Operating and maintenance 5,285 4,054
Real estate taxes 961 684
------- ------
6,246 4,738
------- ------
Revenue in excess of expenses $10,663 $8,170
======= ======
The accompanying notes are an integral part of these financial statements.
Peppertree Farm and Cinnamon Run
Notes to Combined Statement of Revenue and Certain Expenses
For the Year Ended December 31, 2004 and the Nine Months Ended September 30,
2005 (Unaudited)
-------------------------------------------------------------------------------
1. OPERATIONS OF PROPERTIES
The accompanying combined statement of revenue and certain expenses
includes the operations (see "Basis of Presentation" below) of Peppertree
Farm and Cinnamon Run, residential properties ("Selected Acquisition
Properties") formerly owned and managed by parties not related to Home
Properties, Inc. (the "Company").
On December 28, 2005, the Company, through its subsidiary Home Properties,
L.P., acquired the Selected Acquisition Properties. The Selected
Acquisition Properties are residential communities located in Silver
Springs, Maryland.
Total consideration for the $163.7 million purchase price included $120.7
million in new mortgage debt and $43.0 million in Operating Partnership
Units in Home Properties, L.P. The mortgages have a fixed interest rate of
5.25% and mature in 2015.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying statement has been prepared on the accrual basis of
accounting.
The accompanying statement is not representative of the actual operations
of the Selected Acquisition Properties for the periods presented. As
required by the Securities and Exchange Commission, Regulation S-X, Rule
3-14, certain expenses, which may not be comparable to the proposed future
operations of the Selected Acquisition Properties have been excluded.
Expenses excluded relate to property management fees, interest expense,
depreciation and amortization expense, and other expenses unrelated to the
future operations of the Selected Acquisition Properties. The Company is
not aware of any material factors relating to the Selected Acquisition
Properties that would cause the reported financial information not to be
necessarily indicative of future operating results.
Real Estate
-----------
Expenditures for repairs and maintenance items are expensed as incurred.
Revenue Recognition
-------------------
Rental income attributable to residential leases is recorded when due from
residents, which approximates recognition on a straight-line basis over the
related lease term. Leases are generally for terms of one year.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Other Income
------------
Other income is attributable to real estate service fees and is recorded
when due from residents. The real estate service fees include late charges,
lease breakage fees, application fees, pet charges and other amenities.
Peppertree Farm and Cinnamon Run
Notes to Combined Statement of Revenue and Certain Expenses
For the Year Ended December 31, 2004 and the Nine Months Ended September
30, 2005 (Unaudited)
---------------------------------------------------------------------------
Real Estate Taxes
-----------------
Real estate taxes are expensed over the period in which the taxes relate.
3. INTERIM UNAUDITED COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
The accompanying interim combined statement of revenue and certain expenses
for the nine months ended September 30, 2005 is unaudited. However, in the
opinion of the Company, the interim statement includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim period. The results for the period
presented are not necessarily indicative of the results for the full year.
HOME PROPERTIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(Unaudited, in Thousands, Except Share and Per Share Data)
The unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 2005 is presented as if the acquisition by the Company of the
Selected Acquisition Properties had occurred on January 1, 2005.
Such pro forma information is based upon the historical consolidated results of
operations of the Company for the year ended December 31, 2005, giving effect to
the transactions described above. In management's opinion, all adjustments
necessary to reflect the above transactions have been made. The Pro Forma
Consolidated Statements of Operations should be read in conjunction with the
historical financial statements and notes thereto of the Company included in the
Home Properties, Inc. Form 10- K filed March 10, 2006 for the year ended
December 31, 2005.
The unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 2005 are not necessarily indicative of what the actual results of
operations would have been assuming the transactions had occurred as of the
beginning of the period presented, nor does it purport to represent the results
of operations for future periods.
The pro forma Balance Sheet for Home Properties, Inc. as of December 31, 2005 is
not included in this Form 8-K. This pro forma financial information is not
presented in this Form 8-K as the Selected Acquisition Properties are included
in the historical financial statements and notes thereto of the Company included
in the Home Properties, Inc. Form 10-K filed March 10, 2006 for the year ended
December 31, 2005.
HOME PROPERTIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(Unaudited, in Thousands, Except Share and Per Share Data)
Peppertree
Home Farms and Total
Properties, Inc. Cinnamon Pro Forma Pro Forma Company
Historical (A) Run (B) Adjustments Adjustments Pro Forma
-------------- ------- ----------- ----------- ---------
Revenues:
Rental Income $417,607 $16,535 $311 (H) $16,846 $434,453
Property other income 23,590 676 676 24,266
Interest income 581 - - 581
Other income 2,023 - - - 2,023
------- ----- ------ ------ -------
Total revenues 443,801 17,211 311 17,522 461,323
------- ----- ------ ------ -------
Expenses:
Operating and maintenance 198,974 6,319 - 6,319 205,293
General and administrative 19,652 - 516 (C) 516 20,168
Interest 97,898 - 6,337 (D) 6,337 104,235
Depreciation and amortization 90,232 - 3,861 (E) 3,861 94,093
Impairment of assets held as General Partner 400 - - - 400
------- ----- ------ ------ -------
Total Expenses 407,156 6,319 10,714 17,033 424,189
------- ----- ------ ------ -------
Income from operations before minority interest 36,645 10,892 (10,403) 489 37,134
Minority interest (10,015) (168) (F) (10,183)
------- ------ -------
Income from continuing operations 26,630 321 26,951
Preferred dividends (6,279) - (6,279)
------- ------ -------
Income applicable to common shareholders from
continuing operations $20,351 $ 321 $20,672
======= ====== =======
Basic earnings per share data:
Income applicable to common shareholders from
continuing operations $0.64 $0.65 (G)
===== =====
Diluted earnings per share data:
Income applicable to common shareholders from
continuing operations $0.64 $0.64 (G)
===== =====
Weighted average number of shares outstanding
Basic 31,962,082 31,962,082
========== ==========
Diluted 32,328,105 32,328,105
HOME PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(Unaudited, in Thousands)
(A) Reflects the historical audited consolidated statement of operations for
the Company for the year ended December 31, 2005.
(B) Reflects the historical revenue and certain expenses of each of the
Selected Acquisition Properties for the period January 1, 2005 through the
date of acquisition.
(C) Reflects additional general and administrative expenses relating to adding
the Selected Acquisition Properties to the Company portfolio (estimated as
3% of total revenues).
(D) Reflects the increase in interest expense related to the debt obtained in
order to finance each of the Selected Acquisition Properties. The debt
obtained in acquisition, along with the respective effective interest rates
is summarized as follows:
Acquisition Properties Debt Obtained Interest rate
---------------------- ------------- -------------
Peppertree Farm $68,400,000 5.25%
Cinnamon Run $52,300,000 5.25%
(E) Reflects depreciation and amortization related to each of the Selected
Acquisition Properties, as appropriate. The appliances have an estimated
useful life of ten years and the building has an estimated useful life of
forty years. The purchase price of the Selected Acquisition Properties is
allocated $20,301,700 to land, $1,392,000 to appliances, $141,236,915 to
building, $468,029 to customer relationship intangible, $611,788 to in
place leases intangible and ($311,431) to below market leasehold interest
intangible.
(F) Reflects the adjustment to minority interest expense based upon the impact
of the above pro forma adjustments on income before minority interest and
the issuance of OP Units related to the Selected
Acquisition Properties as of January 1, 2005.
(G) Pro forma income per common share is based upon the weighted average number
of common shares outstanding during 2005.
(H) Reflects rental revenue of acquired in-place below market leases at their
fair value over the weighted average remaining lease term of 5 months.
In accordance with SFAS 128, earnings per share from income applicable to common
shareholders from continuing operations is calculated as follows (in thousands):
December 31,2005
----------------
Income from continuing operations $ 26,951
Less: Preferred dividends 6,279
----------
Basic and Diluted - Income from continuing operations applicable to common shareholders $ 20,672
==========
Basic weighted average number of shares outstanding 31,962,082
Effect of dilutive stock options
366,023
----------
Diluted weighted average number of shares outstanding 32,328,105
==========
Basic earnings per share data:
Income applicable to common shareholders from continuing operations $0.65
=====
Diluted earnings per share data:
Income applicable to common shareholders from continuing operations $0.64
=====
HOME PROPERTIES, INC.
ESTIMATED TWELVE-MONTH PRO FORMA STATEMENT
OF TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
(UNAUDITED)
The following unaudited statement is a proforma estimate for a twelve-month
period of taxable income and funds available from operations of the Company. The
unaudited pro forma statement is based on the Company's historical operating
results for the year ended December 31, 2005 adjusted as if the acquisition by
the Company of the Selected Acquisition Properties had occurred on January 1,
2005.
This statement should be read in conjunction with (i) the historical financial
statements and notes thereto of the Company included in the Home Properties,
Inc. Form 10-K filed March 10, 2006 for the year ended December 31, 2005 and
(ii) the pro forma consolidated financial statements of the Company included
herein.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
Historical earnings from operations, exclusive of
depreciation and amortization (Note 1) $126,877
Selected Acquisition Properties as adjusted,
exclusive of depreciation (Note 2) 4,350
----------
131,227
Estimated tax basis depreciation and amortization (Note 3)
Company ( 68,426)
Selected Acquisition Properties ( 5,475)
----------
Pro Forma taxable operating income before dividends deduction 57,326
Estimated dividends deduction (Note 4) 86,264
----------
Pro Forma taxable operating income (loss) ($ 28,938)
========
ESTIMATE OF PRO FORMA OPERATING FUNDS AVAILABLE (NOTE 5)
(IN THOUSANDS):
Pro Forma taxable operating income before dividends deduction $ 57,326
Add pro forma tax basis depreciation and amortization 73,901
----------
Estimate of pro forma operating funds available $131,227
========
Principle Assumptions:
Note 1 - The historical earnings from operations represents the Company's income
from continuing operations as adjusted for depreciation and amortization
for the year ended December 31, 2005 as reflected in the historical
financial statements.
Note 2 - The historical earnings from operations represents the pro forma
results of the Selected Acquisition Properties acquired since January 1,
2005 for the year ended December 31, 2005.
Note 3 - The tax basis depreciation of the Company is based upon the original
purchase price allocated to the buildings, equipment and personal property,
depreciated on a straight-line basis over a 27.5- and 5-year life,
respectively.
Note 4 - Estimated dividends deduction includes the Series F preferred dividend
of $5,400 plus the estimated dividend rate of $2.53 per common share.
Common shares outstanding, on a pro forma basis, are 31,962,082.
Note 5 - Operating funds available 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.
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: April 13, 2006
By: /s/ Edward J. Pettinella
-------------------------------------
Edward J. Pettinella
President and Chief Executive Officer
Date: April 13, 2006
By: /s/ David P. Gardner
-------------------------------------
David P. Gardner
Executive Vice President and
Chief Financial Officer