<PAGE>
$75,000,000
(logo, see appendix)
7 1/4% NOTES DUE APRIL 1, 1999
Interest on the Notes is payable semi-annually on April 1 and October 1,
commencing October 1, 1994. The Notes may be redeemed at any time at the option
of the Trust, in whole or in part, at a redemption price equal to the sum of (i)
the principal amount of the Notes being redeemed plus accrued interest thereon
to the redemption date and (ii) the Make-Whole Amount (as defined herein), if
any. See "Description of Notes -- Optional Redemption".
The Notes will be represented by a single Global Note (as defined herein)
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Interests in the Global Note will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its participants. Except as
described in "Description of Notes -- Book-Entry System," Notes in definitive
form will not be issued. The Notes will trade in DTC's Same-Day Funds Settlement
System until maturity, and secondary market trading activity in the Notes will
therefore settle in immediately available funds. All payments of principal and
interest will be made by the Trust in immediately available funds. See
"Description of Notes -- Same-Day Settlement and Payment".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) DISCOUNT (2) TRUST (1)(3)
<S> <C> <C> <C>
Per Note............................ 99.833% .650% 99.183%
Total............................... $74,874,750 $487,500 $74,387,250
</TABLE>
(1) Plus accrued interest from April 1, 1994.
(2) The Trust has agreed to indemnify Goldman, Sachs & Co. against certain
liabilities under the Securities Act of 1933. See "Underwriting".
(3) Before deducting expenses payable by the Trust estimated at $200,000.
The Notes are offered by Goldman, Sachs & Co., subject to receipt and
acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the Notes will be made through the facilities of DTC in New York,
New York on or about April 7, 1994, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
The date of this Prospectus is March 30, 1994.
<PAGE>
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Trust can be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located at 500 West Madison Street (Suite 1400), Chicago,
Illinois 60661, and 7 World Trade Center, New York, New York 10048, and can also
be inspected and copied at the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Trust with the Commission under the
Exchange Act are hereby incorporated by reference in this Prospectus: (i) the
Trust's annual report on Form 10-K for the year ended December 31, 1992; (ii)
the Trust's Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30, and September 30, 1993; and (iii) the Trust's current reports on Form 8-K
dated May 20, September 28, December 22 and December 31, 1993, each as amended.
All documents filed by the Trust pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act prior to the termination of the offering made hereby shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of the filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document, as the case may be, which also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Trust will provide on request and without charge to each person to whom
this Prospectus is delivered a copy (without exhibits) of any or all documents
incorporated by reference into this Prospectus. Requests for such copies should
be directed to United Dominion Realty Trust, Inc., 10 South 6th Street, Suite
203, Richmond, Virginia 23219-3802, Attention: Secretary (telephone
804/780-2691).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE.
THE TRUST
United Dominion Realty Trust, Inc. (the "Trust"), founded in 1972, is a
self-administered equity real estate investment trust that owns and operates
primarily apartments in the Southeast from Baltimore/Washington to Florida. It
is a fully integrated real estate company that acquires, improves, operates,
manages and selectively sells properties with the primary goal of maximizing its
funds from operations, while increasing the value of its real estate through
capital improvements and intensive management.
The Trust's 95 properties include 76 apartment communities, 15 shopping
centers, two warehouse/industrial properties and two office properties. The
apartment properties consist of 18,562 apartment units, providing approximately
90% of the Trust's rental income. Commercial properties consist of approximately
2.0 million square feet of rentable space, providing approximately 10% of rental
income. All of the Trust's properties are located in the Southeast. Management
believes that the Trust has benefitted from the population and job growth within
this region and that this region will continue to provide attractive demographic
and economic patterns conducive to real estate investment in the 1990's.
The Trust seeks to employ leverage conservatively using primarily corporate
debt, which is considered more flexible and less costly than mortgage debt on
individual properties. At December 31, 1993, approximately $430 million, or 74%,
of the Trust's real estate owned at cost was unencumbered by mortgage debt.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered............ $75,000,000 aggregate principal amount of 7 1/4% Notes due April 1, 1999.
Interest Payment Dates........ April 1 and October 1, commencing October 1, 1994.
Maturity Date................. April 1, 1999.
Ranking....................... The Notes will be senior unsecured obligations of the Trust and will rank equally with the
Trust's other unsecured and unsubordinated indebtedness.
Optional Redemption........... The Notes are redeemable at any time at the option of the Trust, in whole or in part, at a
redemption price equal to the sum of (i) the principal amount of the Notes being redeemed plus
accrued interest thereon to the redemption date and (ii) the Make-Whole Amount, if any. See
"Description of Notes -- Optional Redemption".
Use of Proceeds............... To repay amounts outstanding under the Trust's bank lines of credit, and to acquire additional
apartment properties. See "Use of Proceeds".
Limitations on
Incurrence of Debt.......... Neither the Trust nor any Subsidiary (as defined herein) may incur any Debt (as defined herein)
if, after giving effect thereto, the aggregate principal amount of all outstanding Debt of the
Trust and its Subsidiaries on a consolidated basis is greater than 60% of the sum of (i) the
Trust's Total Assets (as defined herein) as of the end of the most recent calendar quarter and
(ii) the purchase price of any real estate assets or mortgages receivable acquired, and the
amount of any securities offering proceeds received (to the extent that such proceeds were not
used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the
Trust or any Subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Debt.
Neither the Trust nor any Subsidiary may incur any Debt secured by any mortgage or other lien
upon any of the property of the Trust or any Subsidiary if, after giving effect thereto, the
aggregate principal amount of all outstanding Debt of the Trust and its Subsidiaries on a
consolidated basis which is secured by any mortgage or other lien
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
on the property of the Trust or any Subsidiary is greater than 40% of the Trust's Total Assets.
Neither the Trust nor any Subsidiary may incur any Debt if, after giving effect thereto, the
ratio of Consolidated Income Available for Debt Service (as defined herein) to the Annual
Service Charge (as defined herein) for the four consecutive fiscal quarters most recently ended
prior to the date on which such additional Debt is to be incurred shall have been less than
1.5, on a pro forma basis giving effect to certain assumptions.
</TABLE>
For a more complete description of the terms of and definitions used in the
foregoing limitations, see "Description of Notes -- Certain Covenants".
4
<PAGE>
THE TRUST
The Trust, founded in 1972, is a self-administered equity real estate
investment trust that owns and operates primarily apartments in the Southeast
from Baltimore/Washington to Florida. It is a fully integrated real estate
company that acquires, improves, operates, manages and selectively sells
properties with the primary goal of maximizing its funds from operations, while
increasing the value of its real estate through capital improvements and
intensive management. The Trust operates in a manner intended to qualify it as a
real estate investment trust (a "REIT") under the Internal Revenue Code of 1986,
as amended (the "Code").
The Trust's 95 properties include 76 apartment communities, 15 shopping
centers, two warehouse/industrial properties and two office properties. The
apartment properties consist of 18,562 apartment units, providing approximately
90% of the Trust's rental income. Commercial properties consist of approximately
2.0 million square feet of rentable space, providing approximately 10% of rental
income. All of the Trust's properties are located in the Southeast. Management
believes that the Trust has benefitted from the population and job growth within
this region and that this region will continue to provide attractive demographic
and economic patterns conducive to real estate investment in the 1990's.
The Trust's investment policy has been to acquire primarily apartment
properties presenting the opportunity for higher occupancy, increased rents and
enhanced property values through a program of renovation, refurbishment and
intensive property management. Beginning in 1991, the Trust embarked on a major
expansion of its apartment portfolio involving (i) the acquisition of apartment
properties having high occupancy levels and not requiring substantial
renovation, and (ii) entry into new markets, most recently the
Baltimore/Washington area and central Florida. The properties have been acquired
generally at significant discounts from replacement cost and at attractive
current yields. The sellers were primarily financially distressed real estate
limited partnerships, the RTC, the FDIC, lenders who had foreclosed and
insurance companies seeking to reduce their real estate exposure. Since 1991,
the Trust has acquired 38 apartment properties containing 9,885 units at a total
cost of approximately $277 million.
The Trust, a Virginia corporation, has its principal office at 10 South 6th
Street, Suite 203, Richmond, Virginia 23219-3802, and its telephone number is
(804) 780-2691. Unless the context indicates otherwise, the term "Trust", as
used herein, includes the Trust and its subsidiary.
RECENT DEVELOPMENTS
1994 ACQUISITIONS
On March 4, 1994, the Trust acquired one apartment community, The Shires
(302 units), in Raleigh, North Carolina at a cash purchase price of $13.7
million, excluding closing costs.
On March 11, 1994, the Trust acquired one apartment community, Lakewood
Place (346 units), in Tampa, Florida at a cash purchase price of $11.9 million,
excluding closing costs.
The Trust also has four other apartment properties containing 1,420 units
under contract in separate transactions at a cash purchase price totalling $51.8
million, excluding closing costs. These properties are located in Tampa, Florida
(244 units), Orlando, Florida (360 units), Macon, Georgia (240 units), and
Raleigh, North Carolina (576 units). The Trust intends to refinance one property
with approximately $12 million of tax-exempt housing bonds.
The Trust is also actively negotiating to purchase a portfolio of 29
properties (6,181 units) located primarily in the Southeast at a purchase price
estimated to approach $200 million. The Trust has not entered into a formal
agreement; however, if a formal agreement is reached, numerous contingencies
will remain permitting the Trust to abandon the purchase without penalty.
There is no assurance that any of these proposed acquisitions will be
consummated.
FINANCING
During 1993, the Trust completed (i) a private placement of $52 million of
senior unsecured notes with three insurance companies, (ii) a public offering of
6,095,000 shares of Common Stock at $13.50 per share, and (iii) a
5
<PAGE>
public offering of $13.8 million of tax-exempt housing bonds. The Trust
anticipates that it will continue to finance its acquisition program using a
combination of debt, equity and equity hybrids.
USE OF PROCEEDS
The net proceeds to the Trust from the sale of the Notes are estimated at
$74.3 million. The Trust presently intends to use approximately $60.1 million of
the net proceeds to repay notes payable, representing amounts outstanding under
the Trust's bank lines of credit, having a current weighted average interest
rate of 4.2%, which are payable on demand. This debt has been incurred since
December, 1993 primarily for the acquisition of apartment properties. The
remaining net proceeds will be applied to the acquisition of additional
properties as described above in "Recent Developments". Pending such use, the
Trust will invest the net proceeds in short-term money market instruments.
CAPITALIZATION
The following table sets forth the capitalization of the Trust at December
31, 1993, and as adjusted to give effect to an increase in notes payable of
approximately $31.45 million since December 31, 1993, the issuance and sale of
the Notes offered hereby and the application of a portion of the proceeds
thereof. The table should be read in conjunction with the Trust's financial
statements included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
HISTORICAL AS ADJUSTED
<S> <C> <C>
(IN THOUSANDS)
Debt:
Mortgage notes payable.............................. $ 72,862 $ 72,862
7 1/4% Notes due April 1, 1999...................... -- 75,000
Notes payable....................................... 156,558 127,908
Total debt....................................... $ 229,420 $ 275,770
Shareholders' Equity:
Common Stock, $1 par value;
60,000,000 shares authorized
41,653,097 shares issued and outstanding......... 41,653 41,653
Additional paid-in capital.......................... 302,486 302,486
Notes receivable from officer shareholders.......... (4,384) (4,384)
Distributions in excess of net income............... (79,792) (79,792)
Total shareholders' equity....................... $ 259,963 $ 259,963
Total capitalization........................... $ 489,383 $ 535,733
</TABLE>
6
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Trust and
should be read in conjunction with the financial statements of the Trust and
related notes appearing elsewhere herein and incorporated herein by reference.
All share and per share data have been adjusted to reflect a 2 for 1 stock split
effective May 5, 1993 on shares outstanding on April 19, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT RATIO INFORMATION AND PER SHARE
DATA)
OPERATING DATA
Income:
Income from property operations:
Rental income..................................... $ 37,173 $ 44,042 $ 51,250 $ 63,202 $ 89,084
Property operating expenses....................... 14,214 17,969 20,956 26,503 37,859
Depreciation of real estate owned................. 8,762 10,464 12,845 15,732 19,764
$ 14,197 $ 15,609 $ 17,449 $ 20,967 $ 31,461
Interest and other income........................... 1,552 273 79 1,402 708
$ 15,749 $ 15,882 $ 17,528 $ 22,369 $ 32,169
Expenses:
Interest............................................ 9,934 9,435 11,859 11,697 16,938
General and administrative.......................... 1,475 1,718 1,872 2,231 3,349
Other depreciation and amortization................. 201 173 219 300 596
$ 11,610 $ 11,326 $ 13,950 $ 14,228 $ 20,883
Income before gains (losses) on investments and
extraordinary item.................................. 4,139 4,556 3,578 8,141 11,286
Gains (losses) on sales of investments................ 1,433 417 26 -- (89)
Provision for possible investment losses.............. -- -- -- (1,564) --
Income before extraordinary item...................... $ 5,572 $ 4,973 $ 3,604 $ 6,577 $ 11,197
Extraordinary item -- early
extinguishment of debt.............................. (98) (103) (35) (242) --
Net income............................................ $ 5,474 $ 4,870 $ 3,569 $ 6,335 $ 11,197
Net income per share:
Before extraordinary item........................... $ .29 $ .21 $ .14 $ .19 $ .29
Extraordinary item.................................. (.01) -- -- (.01) --
$ .28 $ .21 $ .14 $ .18 $ .29
Weighted average number of shares outstanding......... 19,329 23,238 24,642 34,604 38,202
Distributions declared................................ $ 12,156 $ 14,402 $ 15,872 $ 23,271 $ 27,988
Distributions declared per share...................... .61 .62 .63 .66 .70
OTHER DATA
Funds from operations(1).............................. $ 12,865 $ 15,231 $ 17,158 $ 24,185 $ 31,658
Ratio of earnings to fixed charges(2)(3).............. 1.45x 1.43x 1.27x 1.54x 1.64x
Ratio of funds from operations to fixed
charges(1)(3)....................................... 2.08x 2.43x 2.32x 3.00x 2.80x
<CAPTION>
DECEMBER 31,
1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate owned, at cost............................ $251,051 $294,205 $361,503 $454,115 $582,213
Total assets.......................................... 231,537 259,532 314,473 390,365 505,840
Mortgage and other notes payable...................... 80,896 117,703 168,346 181,121 229,420
Convertible subordinated debentures................... 15,808 14,987 -- -- --
Shareholders' equity.................................. 127,764 118,154 136,152 197,677 259,963
</TABLE>
(1) Funds from operations is defined as income before gains (losses) on
investments and extraordinary items adjusted for certain non-cash items,
primarily real estate depreciation. The Trust considers funds from
operations in evaluating property acquisitions and its operating
performance, and believes that funds from operations should be considered
along with, but not as an alternative to, net income and cash flows as a
measure of the Trust's operating performance and liquidity. Funds from
operations 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.
(2) For purposes of computing this ratio, earnings consist of income before
extraordinary item plus fixed charges other than capitalized interest.
(3) Fixed charges consist of interest on borrowed funds (including capitalized
interest) and amortization of debt discount and expense.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATIONS
RESULTS OF OPERATIONS
Funds from operations is defined as income before gains (losses) on
investments and extraordinary items adjusted for certain non-cash items,
primarily real estate depreciation. The Trust considers funds from operations in
evaluating property acquisitions and its operating performance, and believes
that funds from operations should be considered along with, but not as an
alternative to, net income and cash flows as a measure of the Trust's operating
performance and liquidity. Funds from operations 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.
YEAR ENDED DECEMBER 31, 1993
For 1993, the Trust reported significant increases over 1992 in rental
income, income from property operations, income before gains (losses) on
investments and extraordinary item, net income, and funds from operations. These
increases are attributable primarily to the significant portfolio expansion that
has occurred since the beginning of 1992. The performance of the Trust's mature
group of 10,924 apartment units (46 apartment communities) contributed to the
increases. The Trust considers an apartment community to be mature after it has
been owned for a full calendar (fiscal) year.
For the year, the Trust's mature apartment properties provided 60% of the
Trust's rental income. These units had average economic occupancy of 91.2%
during 1993 compared to 90.6% for 1992, an increase of 0.6%. Average rents at
these properties grew 2.6% (to $440 per month) and rental expenses increased
5.3% resulting in an increase in the operating expense ratio (the ratio of
rental expenses to rental income) of 0.8% to 47.9%. Net operating income (rental
income minus operating expenses) from these apartment units was up approximately
$500,000 or 1.8%. For the remaining 6,990 apartment units acquired by the Trust
since the beginning of 1992, occupancy averaged 92.1% and the operating expense
ratio was 43.3% for the current year. For the 17,914 apartments in the 74
communities owned on December 31, 1993, occupancy averaged 91.5% and the expense
ratio was 46.4% for the full year. In 1992, the 13,832 units then owned had
occupancy of 90.7% and an expense ratio of 46.5%.
For 1993, net operating income from commercial properties increased
$288,000 or 4.0%, primarily reflecting additional small tenant leases.
For 1993, depreciation expense increased $4.0 million with substantially
all of the increase attributable to the portfolio expansion that has occurred
during the past year.
For 1993, interest income was $708,000 compared to $1.4 million in 1992.
During each year, the Trust completed a public offering of Common Stock and
invested the proceeds temporarily in short-term money market investments. During
1992, the Trust had such temporary investments throughout much of the year at
higher rates than in 1993 when the average amount invested in the money markets
was significantly lower. Consequently, interest income declined.
Interest expense increased approximately $5.2 million reflecting the fact
that the Trust used less equity relative to debt to finance its 1993
acquisitions than it did in 1992. While interest expense increased $.105 per
share in 1993, as a percent of rental income it was virtually unchanged.
In November, 1992, SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," was issued establishing accounting standards for employers who
provide benefits to former or inactive employees after employment but before
retirement. Employers are required to recognize the obligation to provide such
benefits for fiscal years beginning after December 15, 1993. The adoption of
SFAS No. 112 will not have a material impact on the Trust's financial position
or results of operations.
YEAR ENDED DECEMBER 31, 1992
For 1992, the Trust reported significant increases over 1991 in rental
income, income from property operations, income before gains (losses) on
investments and extraordinary item, net income, and funds from operations. These
increases resulted primarily from the contributions of properties acquired since
the beginning of 1991.
8
<PAGE>
Results from properties owned throughout both years were down slightly,
reflecting the recessionary economy that characterized the Trust's region during
1992.
For 1992, the Trust's core group of mature apartments (8,677 units in 39
complexes) provided 63% of the Trust's rental income. These units had occupancy
of 90.5% in 1992 versus 89.3% for 1991. The improvement would have been more
modest except for the decrease in occupancy in 1991 caused by the troop
deployment to the Persian Gulf. Average rent at these properties grew by 2.3%
and operating expenses increased approximately 8.1%, increasing the operating
expense ratio by 2% to 48.4%. As a result, net operating income declined by 0.4%
or $78,000. The increase in operating expenses related primarily to higher
repairs and maintenance expense reflecting, in part, the expensing of certain
replacement and refixturing items that had been capitalized in prior years.
From the beginning of 1991 through the end of 1992, the Trust acquired 19
apartment properties containing 5,155 units. For 1992, these properties provided
approximately 22% of the Trust's rental income. In addition, they provided
approximately $10.6 million of the total increase in rental income and all of
the increase in income from property operations over 1991. For 1992, these
apartment units had average occupancy of 91.5% and an average expense ratio of
40.9%.
Overall, the Trust's entire apartment portfolio which provided 85% of the
Trust's rental income for 1992, had occupancy of 90.7% and an operating expense
ratio of 46.5%. The Trust has managed its apartment properties directly rather
than through outside management companies, since the beginning of 1991. During
1992, self-management resulted in savings estimated at $1 million when compared
to the fees typically charged by property management companies within the
Trust's region.
For 1992, the Trust's commercial property results continued to be
negatively affected both by the recession and overbuilt markets. For the year,
occupancy for commercial properties decreased 1% to 84% and, as a result, rental
income declined slightly and net operating income declined by approximately
$103,000 or 1.4%.
For 1992, depreciation of real estate owned increased approximately $2.9
million over 1991 with the increase resulting almost entirely from the
additional properties in service during 1992.
Proceeds from the sale of Common Stock in January, 1992 resulted in the
Trust having significant temporary investments in interest-bearing securities
until mid-December, 1992 when they were fully invested in real estate. As a
result, the Trust reported interest income of $1.4 million for 1992 versus only
$79,000 for 1991. While interest expense decreased less than $200,000 in the
aggregate during the year, on a per share basis it declined by approximately
$.14 in 1992, reflecting the fact that a large part of the Trust's growth during
1992 was equity financed. While the Trust incurred some additional debt during
1992, other debt was retired with a portion of the proceeds from the stock
offering. Additionally, certain bank lines and mortgage debt were replaced
during 1992 by intermediate term debt at somewhat higher interest rates.
Finally, in late 1991 approximately $14 million of 9% convertible subordinated
debentures outstanding for most of 1991 was converted into Common Stock. During
1992, the Trust recognized extraordinary charges totaling $242,000 representing
prepayment premiums and the write-off of previously unamortized financing costs
relating to the debt retired.
While management believes that the net realizable value of the Trust's
portfolio, taken as whole, substantially exceeds its current carrying value as
reflected on the Trust's balance sheet, during 1992 a provision for possible
investment losses of $1.56 million was established based upon management's
estimate of net realizable value of each investment property in comparison to
its individual carrying value. In determining estimated net realizable value,
many factors were considered including estimated income to be earned from each
property, estimated cost to hold the property to a hypothetical time of sale,
estimated selling price each property would bring, estimated cost of improving
the property to the condition contemplated in determining the selling price, the
estimated cost of disposing of the property and prevailing economic conditions,
including availability of credit. Management believes that the provision
adequately reflects the extent of the estimated impairment in net realizable
value of certain assets in the Trust's portfolio at December 31, 1992.
LIQUIDITY AND CAPITAL RESOURCES
As a qualified REIT, the Trust distributes a substantial portion of its
cash flow to its shareholders in the form of dividends. Over the past several
years, these distributions have exceeded 80% of the Trust's cash flow from
operating activities and its funds from operations. While the Trust seeks to
retain sufficient cash to cover its normal
9
<PAGE>
operating needs, including routine replacements, its dividend payout ratio
requires that portfolio growth, property improvements and balloon debt payments
be financed through a variety of primarily external sources. The Trust has
frequently utilized its bank lines of credit to temporarily finance these
expenditures and has subsequently replaced this short-term bank debt with longer
term debt or equity.
For 1993, the Trust's cash flow from operating activities increased
substantially as a result of the expansion of the Trust's portfolio as discussed
below and under "Results of Operations".
At the beginning of 1993, the Trust had $1.1 million of cash and cash
equivalents and $22.5 million of available and unused bank lines of credit. On
February 24, 1993, the Trust privately placed $52 million of senior unsecured
notes with three insurance companies at an interest rate of 7.98%. The notes are
due in equal annual principal installments of $7.4 million in 1997 through 2003.
The proceeds of the debt placement were utilized to repay $50 million of short
term bank debt that had been incurred in connection with certain apartment
acquisitions completed since mid-December, 1992. In early July, 1993, the Trust
sold 6,095,000 shares of Common Stock in a public offering at $13.50 per share.
The net proceeds of the offering approximated $78 million of which $35 million
was used to repay, in full, then outstanding short term bank debt. The remaining
proceeds were invested primarily in additional apartment acquisitions during the
second half of the year. Also at the beginning of July, the Trust completed the
refunding of $13.8 million of tax-exempt housing bonds encumbering two Maryland
apartment communities that had been acquired at the end of 1992. The bonds were
sold in a public offering, mature in 30 years and have a weighted average life
of 22.3 years. The bonds bear interest at a weighted average interest rate of
5.91%.
During the second quarter of 1993, the Trust expanded its bank lines of
credit to $61 million, an increase of $10 million. At December 31, 1993, the
Trust had $32.4 million of credit available under these lines. The Trust
anticipates increasing its bank lines of credit to as much as $100 million
during 1994. Historically, the Trust has utilized its lines only as an interim
source of funds to make new acquisitions and has subsequently replaced any such
bank borrowings with longer-term debt or equity capital when market conditions
allow.
During 1993, the Trust acquired 17 apartment communities containing 4,082
units at an aggregate cost of $118 million, including closing costs. The Trust
also made $10.4 million of capital improvements to its portfolio during the
year. This amount includes approximately $3.5 million of improvements at the
Trust's 10,924 mature apartment units that have been owned since the beginning
of 1992. Excluding English Hills (acquired December, 1991) which was still
undergoing rehabilitation in 1993, the remaining 10,348 mature units averaged
$270 per unit in capital expenditures.
The Trust's goal is to acquire 6,000 or more apartment units during 1994 at
an average cost of approximately $30,000 per unit. Assuming a sufficient level
of acquisition activity, it will be necessary for the Trust to raise additional
equity capital and possibly convertible debt or equity later in the year. In
connection with two of its 1993 acquisitions, the Trust received regulatory
approval for the issuance of approximately $12 million of tax-exempt housing
bonds. It is anticipated that these bonds will be sold during the second quarter
of 1994.
The Trust's liquidity and capital resources are believed to be more than
adequate to meet its cash requirements for the foreseeable future.
INFLATION
Management believes that the direct effects of inflation on the Trust's
operations have been inconsequential.
10
<PAGE>
BUSINESS
The Trust's principal objective is to maximize its funds from operations.
To meet this objective, the Trust has emphasized the acquisition of properties
that can be acquired at attractive initial yields and immediately enhance funds
from operations. Before 1991, the Trust sought properties that would benefit
from capital improvements and effective property management, providing the
opportunity for rent increases, occupancy gains and significant appreciation. In
addition, the Trust had opportunities to acquire properties at prices below
replacement cost, even after allowing for renovation and marketing expenditures.
More recently, changed economic conditions and the Trust's financial strength
have enabled the Trust to acquire more stable properties also at below
replacement cost from financially distressed sellers, particularly those
requiring an all cash purchase, and to expand its geographic market. These
properties are newer and/or better maintained, with high occupancy levels and no
need for significant capital improvements. Since 1991, the Trust has acquired 38
apartment properties containing 9,885 units at a total cost of approximately
$277 million.
The Trust seeks to employ leverage conservatively using primarily corporate
debt, which is considered to be more flexible and less costly than mortgage debt
on individual properties. At December 31, 1993, approximately $430 million, or
74%, of the Trust's real estate owned at cost was unencumbered by mortgage debt.
The Trust also uses tax-exempt housing bonds to finance eligible properties.
The Trust considers apartments to be its principal business and plans to
commit substantially all of its investment portfolio and all of its new
acquisitions to apartments. Over the long term, management believes that
apartments will outperform other areas of investment real estate because:
(Bullet) There has been a significant decline in apartment
construction in the Trust's target markets beginning in 1990
which has continued through 1993.
(Bullet) Only about two million apartments are projected to be built
in the 1990's. There were 600,000 completed in 1986 alone.
(Bullet) Approximately 12 million new households are expected to be
formed in the 1990's.
(Bullet) Approximately 36% of all households were renters at the start
of the decade. Despite historically low mortgage interest
rates, the proportion of renters has declined only slightly
over the past three years.
(Bullet) During this same period, approximately 85% of all residential
construction permits have been single family.
(Bullet) There are estimates that a significant majority of today's
renter households cannot afford to buy a moderately priced
home in their region because of credit problems, the lack of
a down payment or a monthly payment that is too high.
(Bullet) Other demographic characteristics favor apartment demand
including an increase in single person and single parent
households, higher growth rates among minorities, additional
immigrant households and low consumer confidence in the
economy and the outlook for jobs.
Management also believes that demand for apartments within the Southeast will
grow faster than the national average for several reasons including both
population and job growth rates that are projected to be approximately 50%
greater than the national average and expected high growth in young household
formation. In several of the markets where the Trust owns properties, the
population and job growth rates for the decade are projected to be more than
double that of the national average.
11
<PAGE>
The following chart shows the geographic distribution of the Trust's
apartment properties as of December 31, 1993. The chart excludes two apartment
properties in Raleigh, North Carolina and Tampa, Florida, acquired in March,
1994. See "Recent Developments".
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
APARTMENT NUMBER OF APARTMENT
PROPERTIES UNITS PROPERTIES AT COST
<S> <C> <C> <C>
Richmond, Virginia................................ 12 3,170 16%
Baltimore/Washington.............................. 6 1,535 11
Charlotte, North Carolina......................... 8 1,700 10
Raleigh, North Carolina........................... 6 1,562 9
Columbia, South Carolina.......................... 6 1,500 8
Tampa/Clearwater, Florida......................... 5 1,409 8
Atlanta, Georgia.................................. 4 1,123 7
Tidewater, Virginia (1)........................... 5 1,140 7
Nashville, Tennessee.............................. 3 842 4
Wilmington, North Carolina........................ 3 661 3
Greenville/Spartanburg, South Carolina............ 3 587 3
Orlando, Florida.................................. 2 461 3
Other North Carolina.............................. 6 1,288 7
Other Virginia.................................... 3 456 2
Other Florida..................................... 1 312 1
Other South Carolina.............................. 1 168 1
Total........................................... 74 17,914 100%
</TABLE>
(1) The Norfolk/Virginia Beach/Newport News/Hampton area.
APARTMENTS
The Trust's apartments consist of a mix of lower to upper income properties
with a majority being middle to moderate income. A substantial majority of the
tenants are family households. The apartments are typically suburban, garden or
townhouse style units with one, two and three bedrooms. The units are generally
individually heated and cooled, with all appliances and wall-to-wall carpet.
Amenities normally include swimming pools, tennis courts, clubhouses and, in
many cases, playgrounds. The average cost for the Trust's apartments, including
all renovations and refurbishment costs, was approximately $28,100 per unit at
December 31, 1993. During 1993, apartment occupancy averaged 91.5% overall and
91.2% for the 10,924 units which were acquired prior to 1992 and are classified
as mature.
12
<PAGE>
The following table presents information concerning the Trust's apartment
properties.
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
DATE NO. OF MORTGAGE RENT PER
NAME LOCATION ACQUIRED UNITS COST(1) DEBT(2) UNIT(3)
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Azalea Richmond, VA 12-31-84 156 $ 3.9 $ -- $483
Bay Cove Clearwater, FL 12-16-92 336 9.8 -- 528
Bayberry Commons Portsmouth, VA 4-7-88 192 4.9 -- 410
Beechwood (5) Greensboro, NC 12-22-93 208 7.5 -- 523
Braeland Commons Columbia, MD 12-29-92 172 8.8 5.1 640
Bramblewood Goldsboro, NC 12-31-84 188 4.4 0.7 396
Brynn Marr Jacksonville, NC 12-31-84 196 5.1 -- 434
Canterbury Woods Charlotte, NC 12-18-85 207 7.0 -- 430
Cedar Point Raleigh, NC 12-18-85 168 7.3 -- 482
Cinnamon Ridge Raleigh, NC 12-1-89 365 8.2 7.0 398
Colonial Villa Columbia, SC 9-16-92 296 6.9 -- 417
Colony of Stone Mountain Atlanta, GA 6-12-90 404 11.3 -- 495
Colony Village New Bern, NC 12-31-84 171 4.2 -- 380
Country Walk Columbia, SC 12-19-91 208 4.6 -- 458
Courthouse Green Richmond, VA 12-31-84 266 6.5 -- 452
Courtney Square Raleigh, NC 7-8-93 200 6.4 -- 512
Cove at Lake Lynn Raleigh, NC 12-1-92 225 7.2 -- 530
Craig Manor Salem, VA 11-6-87 108 3.2 -- 437
The Creek Wilmington, NC 6-30-92 198 3.5 1.4 411
Crescent Square Atlanta, GA 3-22-89 360 12.0 -- 434
Dover Village Orlando, FL 3-31-93 296 10.0 -- 574
Eastwind Virginia Beach, VA 4-4-88 200 6.7 -- 510
Eden Commons Columbia, MD 12-29-92 232 12.0 8.7 657
Emerald Bay Charlotte, NC 2-6-90 250 7.2 -- 469
English Hills Richmond, VA 12-6-91 576 15.9 -- 513
Forest Hills Wilmington, NC 6-30-92 279 6.8 3.2 522
Forestbrook Columbia, SC 7-1-93 180 3.6 -- 417
Foxcroft Tampa, FL 1-28-93 192 5.0 -- 488
Gable Hill Columbia, SC 12-4-89 180 6.8 -- 526
Gatewater Landing Glen Burnie, MD 12-16-92 264 8.5 -- 588
Grand Oaks Charlotte, NC 5-1-84 243 7.0 -- 429
Hampton Court Alexandria, VA 2-19-93 308 12.3 -- 711
Harbour Town (5) Nashville, TN 12-10-93 185 4.1 -- 417
Heather Lake Hampton, VA 3-1-80 252 5.9 -- 515
Heatherwood Greenville, SC 9-30-93 152 3.6 -- 426
Heritage Trace Newport News, VA 6-30-89 200 4.7 3.9 376
Highlands Charlotte, NC 1-17-84 176 4.6 -- 457
Key Pines Spartanburg, SC 9-25-92 241 4.9 -- 414
The Lakes Nashville, TN 9-15-93 256 7.3 -- 494
Lake Washington Downs Melbourne, FL 9-24-93 312 6.4 -- 424
Lakewood Place (6) Tampa, FL 3-11-94 346 11.9 -- --
Laurel Ridge Roanoke, VA 5-17-88 216 4.0 3.0 315
Laurel Village Richmond, VA 9-6-91 159 4.2 -- 543
The Ledges Winston-Salem, NC 8-13-86 239 6.6 -- 305
Liberty Crossing Jacksonville, NC 11-30-90 286 6.0 1.8 393
Meadow Run Richmond, VA 12-31-84 204 5.1 -- 440
Meadowdale Lakes Richmond, VA 12-31-84 516 10.9 1.4 413
The Melrose Dumfries, VA 12-11-85 370 8.2 5.3 434
Mill Creek Atlanta, GA 11-11-88 224 7.8 -- 467
Mill Creek Wilmington, NC 9-30-91 184 5.8 -- 532
Northview Salem, VA 9-29-78 132 1.9 -- 400
Olde West Village Richmond, VA 12-31-84 502 15.6 4.0 505
and 8-27-91
Orange Orlando Orlando, FL 1-28-93 165 4.2 -- 472
Park Green Raleigh, NC 9-27-91 200 5.6 -- 500
Parkwood Court Alexandria, VA 6-30-93 189 6.6 -- 633
Patriot Place Florence, SC 10-23-85 168 6.2 2.2 306
Peppertree (5) Charlotte, NC 12-14-93 292 9.3 -- 509
Pinebrook Clearwater, FL 9-28-93 209 4.3 -- 477
Plum Chase Columbia, SC 1-4-91 300 8.2 7.0 448
<CAPTION>
AVERAGE
NAME OCCUPANCY(4)
<S> <C>
Azalea 92%
Bay Cove 92
Bayberry Commons 93
Beechwood (5) 91
Braeland Commons 98
Bramblewood 99
Brynn Marr 98
Canterbury Woods 77
Cedar Point 98
Cinnamon Ridge 98
Colonial Villa 96
Colony of Stone Mountain 74
Colony Village 94
Country Walk 84
Courthouse Green 94
Courtney Square 97
Cove at Lake Lynn 98
Craig Manor 98
The Creek 100
Crescent Square 87
Dover Village 90
Eastwind 97
Eden Commons 93
Emerald Bay 91
English Hills 93
Forest Hills 99
Forestbrook 82
Foxcroft 91
Gable Hill 89
Gatewater Landing 80
Grand Oaks 90
Hampton Court 92
Harbour Town (5) 98
Heather Lake 98
Heatherwood 88
Heritage Trace 91
Highlands 80
Key Pines 95
The Lakes 91
Lake Washington Downs 93
Lakewood Place (6) --
Laurel Ridge 93
Laurel Village 87
The Ledges 77
Liberty Crossing 95
Meadow Run 93
Meadowdale Lakes 94
The Melrose 95
Mill Creek 93
Mill Creek 99
Northview 97
Olde West Village 86
Orange Orlando 88
Park Green 100
Parkwood Court 88
Patriot Place 98
Peppertree (5) 96
Pinebrook 82
Plum Chase 93
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
DATE NO. OF MORTGAGE RENT PER
NAME LOCATION ACQUIRED UNITS COST(1) DEBT(2) UNIT(3)
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
River Road Terrace Petersburg, VA 8-31-81 128 $ 2.6 $ -- $404
Riverwind (5) Spartanburg, SC 12-31-93 194 7.2 -- 573
Rollingwood Richmond, VA 12-31-84 278 7.6 2.7 440
St. Andrews Commons Columbia, SC 5-20-93 336 10.9 -- 513
The Shires (6) Raleigh, NC 3-4-94 302 13.7 -- --
Spring Forest Raleigh, NC 5-21-91 404 11.3 -- 480
Stanford Village Atlanta, GA 9-26-89 135 4.1 2.1 496
Summit West Tampa, FL 12-16-92 264 7.5 -- 493
Summit on Park Charlotte, NC 1-17-84 80 2.1 -- 475
Timbercreek Richmond, VA 8-31-83 160 3.5 -- 412
Towne Square Hopewell, VA 8-27-85 76 1.8 1.3 383
2131 Apartments Nashville, TN 12-16-92 401 10.2 -- 479
Twin Rivers Hopewell, VA 1-6-82 149 2.1 -- 373
Village at Old Tampa Bay (5) Oldsmar, FL 12-8-93 408 12.5 -- 544
Windsor Harbor Charlotte, NC 1-13-89 200 6.2 -- 445
Woodland Hollow Charlotte, NC 11-3-86 252 7.4 3.4 422
Woodscape Newport News, VA 12-29-87 296 9.7 -- 464
Total 18,562 $528.8 $ 64.2
<CAPTION>
AVERAGE
NAME OCCUPANCY(4)
<S> <C>
River Road Terrace 98%
Riverwind (5) 92
Rollingwood 88
St. Andrews Commons 96
The Shires (6) --
Spring Forest 99
Stanford Village 97
Summit West 96
Summit on Park 84
Timbercreek 84
Towne Square 89
2131 Apartments 97
Twin Rivers 92
Village at Old Tampa Bay
(5) 73
Windsor Harbor 80
Woodland Hollow 78
Woodscape 90
Total
</TABLE>
(1) Represents at December 31, 1993 the sum of the total acquisition cost of the
property plus the capitalized cost of improvements made subsequent to
acquisition, less allowance for possible investment losses.
(2) Represents at December 31, 1993 the outstanding principal balances of the
mortgage loans, exclusive of discounts.
(3) Represents the weighted average of rent charged during the quarter ended
December 31, 1993 for occupied apartments and rent asked for unoccupied
apartments at 100% occupancy.
(4) Represents occupancy during the quarter ended December 31, 1993 expressed as
the ratio of actual rent collected to potential rent collectible at final
occupancy.
(5) These properties were acquired during December, 1993. Average rent and
occupancy data are for the month of January, 1994.
(6) These properties were acquired in March, 1994. Average rent and occupancy
data for a full month under Trust management are not available.
14
<PAGE>
SHOPPING CENTERS AND OTHER PROPERTIES
The Trust owns approximately two million square feet of commercial property
space including 15 neighborhood and community shopping centers and four other
commercial properties. Commercial properties provide approximately 11% of the
Trust's rental income. Near the end of 1992, management of the Trust determined
that the Trust should devote substantially all of its resources to the apartment
business. Consequently, the Trust has decided not to acquire any additional
commercial properties. The Trust plans to dispose of most or all of its
commercial properties over the next few years. Although no formal plans for the
divestiture of these properties have been made, the Trust expects them to be
sold or otherwise disposed of at gains. Effective April 1, 1993, the Trust
engaged independent fee management companies to manage all but three of its
commercial properties. The use of outside commercial property management has not
resulted in any significant changes in operating costs. During 1993, net
operating income from the Trust's commercial properties was $7.4 million which
was $288,000 or 4% higher than in 1992.
MANAGEMENT
The officers and directors of the Trust are:
<TABLE>
NAME AGE OFFICE
<S> <C> <C>
John P. McCann 49 President and Chief Executive Officer; Director
James Dolphin 44 Senior Vice President and Chief Financial Officer; Director
Barry M. Kornblau 44 Senior Vice President and Director of Apartment Operations; Director
Curtis W. Carter 37 Vice President, Apartment Property Management
Richard B. Chess 40 Vice President and Director of Acquisitions
Jerry A. Davis 31 Vice President, Controller-Corporate Accounting and Assistant Secretary
Richard A. Giannotti 38 Vice President and Director of Construction
Katheryn E. Surface 35 Vice President, Secretary and General Counsel
Jeff C. Bane 63 Director; President, Blake & Bane Inc., Richmond, Virginia, real estate brokers
Robert P. Buford 67 Director; Senior Counsel, Hunton & Williams, Richmond, Virginia, attorneys
R. Toms Dalton, Jr. 60 Director; Partner, Allen & Carwile, Waynesboro, Virginia, attorneys
John C. Lanford 62 Director; President of Adams Construction Co., Roanoke, Virginia, general contractors
H. Franklin Minor 60 Director; Attorney-at-law and Real Estate Broker
C. Harmon Williams, Jr. 61 Chairman of the Board of Directors; Real Estate Broker
</TABLE>
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, dated as of April 1, 1994,
(the "Indenture"), between the Trust and NationsBank of Virginia, N.A. (the
"Trustee"). The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available for inspection at
the corporate trust office of the Trustee in Atlanta, Georgia, or as described
under "Available Information". The Indenture is subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Notes are summaries of certain
provisions thereof, do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indenture and
the Notes. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein have the respective
meanings set forth in the Indenture and the Notes.
GENERAL
The Notes will be direct, unsecured obligations of the Trust, limited to an
aggregate principal amount of $75,000,000, ranking equally with all other
unsecured and unsubordinated indebtedness of the Trust from time to time
outstanding. The Notes are effectively subordinated to mortgage indebtedness of
the Trust aggregating approximately $72.9 million at December 31, 1993. At
December 31, 1993, on a pro forma basis giving effect to issuance of the Notes
and application of a portion of the proceeds thereof, the total outstanding
indebtedness of the Trust would be approximately $275.8 million. The Trust may
incur additional indebtedness, subject to restrictions contained in the
instruments governing the rights of holders of its outstanding indebtedness,
including the
15
<PAGE>
restrictions described in "Certain Covenants -- Limitations on Incurrence of
Debt". Such additional indebtedness may consist of, but is not limited to,
indebtedness issued under the Indenture.
The Notes will only be issued in fully registered book-entry form without
coupons in denominations of $1,000 and integral multiples thereof, except under
the limited circumstances described below in "Book-Entry System".
PRINCIPAL AND INTEREST
The Notes will bear interest at 7 1/4% per annum and will mature on April
1, 1999. The Notes will bear interest from April 1, 1994 or from the immediately
preceding Interest Payment Date (as defined below) to which interest has been
paid, payable semi-annually in arrears on April 1 and October 1 of each year,
commencing on October 1, 1994 (each, an "Interest Payment Date"), to the persons
in whose names the applicable Notes are registered in the Note Register on the
preceding March 15 or September 15 (whether or not a Business Day, as defined
below), as the case may be (each, a "Regular Record Date"). Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
The Notes will not have the benefit of any sinking fund obligations.
If any Interest Payment Date or the Maturity Date falls on a day that is
not a Business Day, the required payment shall be made on the next Business Day
as if it were made on the date such payment was due and no interest shall accrue
on the amount so payable for the period from and after such Interest Payment
Date or the Maturity Date, as the case may be. "Business Day" means any day,
other than a Saturday or Sunday, on which banks in The City of New York are not
required or authorized by law or executive order to close.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Trust, in whole
or in part, at a redemption price equal to the sum of (i) the principal amount
of the Notes being redeemed plus accrued interest thereon to the redemption date
and (ii) the Make-Whole Amount, if any, with respect to such Notes (the
"Redemption Price").
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Notes called for redemption shall have been made
available on such redemption date, such Notes will cease to bear interest on the
date fixed for such redemption specified in such notice and the only right of
the Holders of the Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the Note Register, not more than 60 nor less than
30 days prior to the date fixed for redemption. The notice of redemption will
specify, among other items, the Redemption Price and the principal amount of the
Notes held by such Holder to be redeemed.
If less than all the Notes are to be redeemed at the option of the Trust,
the Trust will notify the Trustee at least 45 days prior to the redemption date
(or such shorter period as satisfactory to the Trustee) of the aggregate
principal amount of Notes to be redeemed and the redemption date. The Trustee
shall select, in such manner as it shall deem fair and appropriate, Notes to be
redeemed in whole or in part. Notes may be redeemed in part in the minimum
authorized denomination for Notes or in any integral multiple thereof.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of any interest accrued to the date of redemption or accelerated payment) that
would have been payable in respect of such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semiannual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the Notes being redeemed or paid.
"Reinvestment Rate" means .25% (one-fourth of one percent) plus the
arithmetic mean of the yields under the respective headings "This Week" and
"Last Week" published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of the
principal being redeemed or paid. If no maturity exactly corresponds to such
maturity, yields for the two published maturities most closely corresponding to
such maturity shall be calculated pursuant to
16
<PAGE>
the immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight-line basis, rounding
in each of such relevant periods to the nearest month. For the purposes of
calculating the Reinvestment Rate, the most recent Statistical Release published
prior to the date of determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Trust.
MERGER, CONSOLIDATION OR SALE
The Trust may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that (a) either the Trust shall be the continuing entity, or the
successor entity (if other than the Trust) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
is a Person organized and existing under the laws of the United States or any
State thereof and shall expressly assume payment of the principal of (and
Make-Whole Amount, if any) and interest on all of the Notes and the due and
punctual performance and observance of all of the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Trust or any Subsidiary as a result thereof as having been incurred by the Trust
or such Subsidiary at the time of such transaction, no Event of Default under
the Indenture, and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, shall have occurred and be continuing;
and (c) an Officers' Certificate and legal opinion covering such conditions
shall be delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Trust will not, and will not permit
any Subsidiary to, incur any Debt (as defined below) if, immediately after
giving effect to the incurrence of such Debt and the application of the proceeds
thereof, the aggregate principal amount of all outstanding Debt of the Trust and
its Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles is greater than 60% of the sum of (without
duplication) (i) the Trust's Total Assets as of the end of the calendar quarter
covered in the Trust's Annual Report on Form 10-K or Quarterly Report on Form
10-Q, as the case may be, most recently filed with the Commission (or, if such
filing is not permitted under the Exchange Act, with the Trustee) prior to the
incurrence of such additional Debt and (ii) the purchase price of any real
estate assets or mortgages receivable acquired, and the amount of any securities
offering proceeds received (to the extent such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Debt), by the Trust
or any Subsidiary since the end of such calendar quarter, including those
proceeds obtained in connection with the incurrence of such additional Debt
(Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, the
Trust will not, and will not permit any Subsidiary to, incur any Debt secured by
any mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon any of the property of the Trust or any Subsidiary if, immediately after
giving effect to the incurrence of such Debt and the application of the proceeds
thereof, the aggregate principal amount of all outstanding Debt of the Trust and
its Subsidiaries on a consolidated basis which is secured by any mortgage, lien,
charge, pledge, encumbrance or security interest on property of the Trust or any
Subsidiary is greater than 40% of the Trust's Total Assets (Section 1004).
17
<PAGE>
In addition to the foregoing limitations on the incurrence of Debt, the
Trust will not, and will not permit any Subsidiary to, incur any Debt if the
ratio of Consolidated Income Available for Debt Service (as defined below) to
the Annual Service Charge (as defined below) for the four consecutive fiscal
quarters most recently ended prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5, on a pro forma basis after giving
effect thereto and to the application of the proceeds therefrom, and calculated
on the assumption that (i) such Debt and any other Debt incurred by the Trust
and its Subsidiaries since the first day of such four-quarter period and the
application of the proceeds therefrom, including to refinance other Debt, had
occurred at the beginning of such period; (ii) the repayment or retirement of
any other Debt by the Trust and its Subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period); (iii) in the case of Acquired Debt (as
defined below) or Debt incurred in connection with any acquisition since the
first day of such four-quarter period, the related acquisition had occurred as
of the first day of such period with the appropriate adjustments with respect to
such acquisition being included in such pro forma calculation; and (iv) in the
case of any acquisition or disposition by the Trust or its Subsidiaries of any
asset or group of assets since the first day of such four-quarter period,
whether by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments with respect to
such acquisition or disposition being included in such pro forma calculation
(Section 1004).
Except as described above, the Indenture does not contain any provisions
that would limit the ability of the Trust to incur indebtedness or that would
afford Holders of the Notes protection in the event of a highly leveraged or
similar transaction involving the Trust or in the event of a change of control.
However, the Articles of Incorporation of the Trust include provisions for
mandatory redemption and stopping transfer of its Common Stock designed to
preserve the Trust's status as a REIT. The Code provides that concentration of
more than 50% in value of direct or indirect ownership of Common Stock in five
or fewer individual shareholders during the last six months of any year will
result in disqualification of the Trust as a REIT. Enforcement of the provisions
of the Trust's Articles of Incorporation would prevent such concentration and,
therefore, prevent or hinder a change of control.
EXISTENCE. Except as described above under "Merger, Consolidation or Sale,"
the Trust will do or cause to be done all things necessary to preserve and keep
in full force and effect its existence, rights (charter and statutory) and
franchises; provided, however, that the Trust shall not be required to preserve
any right or franchise if it determines that the preservation thereof is no
longer desirable in the conduct of its business and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Notes (Section
1005).
MAINTENANCE OF PROPERTIES. The Trust will cause all of its properties used
or useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Trust may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Trust and its Subsidiaries shall not be prevented
from selling or otherwise disposing of for value its properties in the ordinary
course of business (Section 1006).
INSURANCE. The Trust will, and will cause each of its Subsidiaries to, keep
all of its insurable properties against loss or damage at least equal to their
then full insurable value with financially sound and reputable insurance
companies (Section 1007).
PAYMENT OF TAXES AND OTHER CLAIMS. The Trust will pay or discharge or cause
to be paid or discharged, before the same become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon it or any Subsidiary
or upon the income, profits or property of the Trust or any Subsidiary, and (ii)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Trust or any Subsidiary; provided,
however, that the Trust shall not be required to pay or discharge or cause to be
paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings (Section 1008).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Trust is subject to
Section 13 or 15(d) of the Exchange Act, the Trust will, to the extent permitted
under the Exchange Act, file with the Commission the annual reports, quarterly
reports and other documents which the Trust would have been required to file
with the Commission pursuant to such Section 13 and 15(d) (the "Financial
Statements") if the Trust were so subject, such documents to be
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<PAGE>
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Trust would have been required so to file such
documents if the Trust were so subject. The Trust will also in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all Holders
of Notes, as their names and addresses appear in the Note Register, without cost
to such Holders, copies of the annual reports and quarterly reports which the
Trust would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Trust were subject to such Sections and
(ii) file with the Trustee copies of the annual reports, quarterly reports and
other documents which the Trust would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Trust were
subject to such Sections and (y) if filing such documents by the Trust with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1009).
As used herein,
"ACQUIRED DEBT" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"ANNUAL SERVICE CHARGE" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
the Trust and its Subsidiaries and the amount of dividends which are payable in
respect of any Disqualified Stock (as defined below).
"CAPITAL STOCK" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means Funds
from Operations (as defined below) of the Trust and its Subsidiaries plus
amounts which have been deducted for interest on Debt of the Trust and its
Subsidiaries.
"DEBT" of the Trust or any Subsidiary means any indebtedness of the Trust,
or any Subsidiary, whether or not contingent, in respect of (without
duplication) (i) borrowed money or evidenced by bonds, notes, debentures or
similar instruments, (ii) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on property owned by the
Trust or any Subsidiary, (iii) the reimbursement obligations, contingent or
otherwise, in connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase price of any
property or services, except any such balance that constitutes an accrued
expense or trade payable, or all conditional sale obligations or obligations
under any title retention agreement, (iv) the principal amount of all
obligations of the Trust or any Subsidiary with respect to redemption, repayment
or other repurchase of any Disqualified Stock or (v) any lease of property by
the Trust or any Subsidiary as lessee which is reflected on the Trust's
consolidated balance sheet as a capitalized lease in accordance with generally
accepted accounting principles to the extent, in the case of items of
indebtedness under (i) through (iii) above, that any such items (other than
letter of credit) would appear as a liability on the Trust's consolidated
balance sheet in accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any obligation of the Trust
or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), Debt of another Person (other than the Trust or any Subsidiary) (it
being understood that Debt shall be deemed to be incurred by the Trust or any
Subsidiary whenever the Trust or such Subsidiary shall create, assume, guarantee
or otherwise become liable in respect thereof).
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii)
is convertible into or exchangeable or exercisable for Debt or Disqualified
Stock or (iii) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the Stated Maturity of the Notes.
"FUNDS FROM OPERATIONS" for any period means income before gains (losses)
on investments and extraordinary items plus amounts which have been deducted,
and minus amounts which have been added, for the following non-
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cash items (without duplication): (a) provision for federal income taxes of the
Trust and its Subsidiaries, (b) amortization of debt discount, (c) provision for
property depreciation and amortization, (d) the effect of any noncash charge
resulting from a change in accounting principles in determining income before
gains (losses) on investments and extraordinary items for such period and (e)
amortization of deferred charges, as reflected in the financial statements of
the Trust and its Subsidiaries for such period determined on a consolidated
basis in accordance with generally accepted accounting principles.
"TOTAL ASSETS" as of any date means the sum of (i) the Trust's
Undepreciated Real Estate Assets and (ii) all other assets of the Trust
determined in accordance with generally accepted accounting principles (but
excluding intangibles).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Trust and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with generally accepted accounting principles.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to the Notes: (a) default for 30 days in the payment of any
installment of interest on any Note; (b) default in the payment of the principal
of (or Make-Whole Amount, if any, on) any Note at its Maturity; (c) default in
the performance of any other covenant of the Trust contained in the Indenture,
continued for 60 days after written notice as provided in the Indenture; (d)
default under any bond, debenture, note, mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Trust (or by any Subsidiary, the
repayment of which the Trust has guaranteed or for which the Trust is directly
responsible or liable as obligor or guarantor) having an aggregate principal
amount outstanding of at least $10,000,000, whether such indebtedness now exists
or shall hereafter be created, which default shall have resulted in such
indebtedness being declared due and payable prior to the date on which it would
otherwise have become due and payable, without such acceleration having been
rescinded or annulled within 10 days after written notice as provided in the
Indenture; (e) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Trust or any Subsidiary in an aggregate
amount (excluding amounts fully covered by insurance) in excess of $10,000,000
and such judgments, orders or decrees remain undischarged, unstayed and
unsatisfied in an aggregate amount (excluding amounts fully covered by
insurance) in excess of $10,000,000 for a period of 30 consecutive days; and (f)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Trust or any Significant Subsidiary
or for all or substantially all of either of its property (Section 501). The
term "Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Trust.
If an Event of Default under the Indenture occurs and is continuing, then
in every such case the Trustee or the Holders of not less than 25% in principal
amount of the Notes may declare the principal amount of, and Make-Whole Amount,
if any, on, all of the Notes to be due and payable immediately by written notice
thereof to the Trust (and to the Trustee if given by the Holders). However, at
any time after such declaration of acceleration has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of not less than a majority in principal amount of the
Outstanding Notes may rescind and annul such declaration and its consequences if
(a) the Trust shall have deposited with the Trustee all required payments of the
principal of (and Make-Whole Amount, if any) and interest on the Notes, plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the nonpayment of accelerated principal (or
specified portion thereof and the Make-Whole Amount, if any) or interest, with
respect to the Notes have been cured or waived as provided in the Indenture
(Section 502). The Indenture also provides that the Holders of not less than a
majority in principal amount of the Outstanding Notes may waive any past default
with respect to such series and its consequences, except a default (x) in the
payment of the principal of (or Make-Whole Amount, if any) or interest on any
Note or (y) in respect of a covenant or provision contained in the Indenture
that cannot be modified or amended without the consent of the Holder of each
Outstanding Note (Section 513).
The Trustee is required to give notice to the Holders of the Notes within
90 days of a default under the Indenture; provided, however, that the Trustee
may withhold such notice (except a default in the payment of the principal of
(or Make-Whole Amount, if any) or interest on any Note if the Responsible
Officers of the Trustee consider such withholding to be in the interest of such
Holders (Section 601).
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The Indenture provides that no Holders of the Notes may institute any
proceedings, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event of Default from the Holders of not less than 25% in principal amount
of the Outstanding Notes, as well as an offer of reasonable indemnity (Section
507). This provision will not prevent, however, any Holder of the Notes from
instituting suit for the enforcement of payment of the principal of (and
Make-Whole Amount, if any) and interest on such Notes at the respective due
dates thereof (Section 508).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the consent
of the Holders of not less than a majority in principal amount of all
Outstanding Notes which are affected by such modification or amendment;
provided, however, that no such modification or amendment may, without the
consent of the Holder of each such Note affected thereby, (a) change the Stated
Maturity of the principal of (or Make-Whole Amount, if any), or any installment
of principal of or interest on, any such Note; (b) reduce the principal amount
of, or the rate or amount of interest on, or any Make-Whole Amount payable on
redemption of, any such Note; (c) change the Place of Payment, or the coin or
currency, for payment of principal of (and Make-Whole Amount, if any), or
interest on, any such Note; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Note; (e) reduce the
percentage of Outstanding Notes necessary to modify or amend the Indenture, to
waive compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Note (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Notes have the right to waive compliance by the Trust with certain covenants in
the Indenture (Section 1012).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Trust may discharge certain obligations to Holders of Notes that have
not already been delivered to the Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
Trustee, in trust, funds in an amount sufficient to pay the entire indebtedness
on such Notes in respect of principal (and Make-Whole Amount, if any) and
interest to the date of such deposit (if such Notes have become due and payable)
or to the Stated Maturity or Redemption Date, as the case may be (Section 401).
The Indenture provides that the Trust may elect either (a) to defease and
be discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of the Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold moneys for payment in trust
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to the Notes under provisions of the Indenture described under "Certain
Covenants", and its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event or Default with respect to the Notes ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Trust with the
Trustee, in trust, of cash or Government Obligations (as defined below), or
both, which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and Make-Whole Amount, if any) and interest on the Notes on
the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Trust has
delivered to the Trustee an Opinion of Counsel (as specified in the Indenture)
to the effect that the Holders of the Notes will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to United States federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax laws occurring after the date of the
Indenture (Section 1404).
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"GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
In the event the Trust effects covenant defeasance and the Notes are
declared due and payable because of the occurrence of any Event of Default other
than an Event of Default with respect to provisions of the Indenture which as a
result of such covenant defeasance would no longer be applicable to the Notes,
the cash and Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Trust would
remain liable to make payment of such amounts due at the time of acceleration.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of a global note (the "Global Note")
which will be deposited with, or on behalf of DTC, as Depository, and registered
in the name of DTC's Cede & Co. nominee. The Global Note will be issued in fully
registered form and may be issued in either temporary or definitive form. Unless
and until it is exchanged in whole or in part for the individual Notes
represented thereby under the circumstances described below, the Global Note may
not be transferred except as a whole by DTC to a nominee of DTC or by a nominee
of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a
successor Depository or any nominee of such successor.
Upon the issuance of the Global Note, the Depository or its nominee will
credit on its book-entry registration and transfer system the respective
principal amounts of the individual Notes represented by the Global Note to the
accounts of persons that have accounts with such Depository ("Participants").
Such accounts shall be designated by the Underwriter (as defined below) or
dealers with respect to the Notes. Ownership of beneficial interests in the
Global Note will be limited to Participants or persons that may hold interests
through Participants. Ownership of beneficial interests in the Global Note will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depository or its nominee (with respect to beneficial
interests of Participants) and records of Participants (with respect to
beneficial interests of persons who hold through Participants). The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and laws may impair the ability
to own, pledge or transfer beneficial interest in the Global Note.
So long as the Depository or its nominee is the registered owner of the
Global Note, such Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by the Global Note
for all purposes under the Indenture. Except as described below, owners of
beneficial interest in the Global Note will not be entitled to have any of the
individual Notes represented by the Global Note registered in their names, will
not receive or be entitled to receive physical delivery of any such Notes in
definitive form and will not be considered the owners or holders thereof under
the Indenture.
Payments of principal of, any Make-Whole Amount and any interest on
individual Notes represented by the Global Note registered in the name of a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner of the Global Note. None of the Trust, the
Trustee, any Paying Agent or the Note Registrar for the Notes will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Trust expects that the Depository or its nominee, upon receipt of any
payment of principal, Make-Whole Amount or interest in respect of the Global
Note will immediately credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown
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on the records of such Depository or its nominee. The Trust also expects that
payments by Participants to owners of beneficial interests in the Global Note
held through such Participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
If the Depository is at any time unwilling, unable or ineligible to
continue as depository and a successor depository is not appointed by the Trust
within 90 days, the Trust will issue individual Notes in exchange for the Global
Note. Individual Notes so issued will be issued in denominations of $1,000 and
integral multiples thereof.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its Participants deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers (including the Underwriter),
banks, trust companies, clearing corporations, and certain other organizations
("Direct Participants"). DTC is owned by a number of its Direct Participants and
by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly. The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriter in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Trust in immediately available funds.
Secondary trading in long term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until
individual Notes are issued, and secondary market trading activity in the Notes
will therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Notes.
TRUSTEE
NationsBank of Virginia, N.A., participates in the Trust's revolving credit
and line of credit facilities and its affiliates from time to time perform other
services for the Trust in the normal course of business.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Trust has agreed to sell to Goldman, Sachs & Co. ("Goldman Sachs"
or the "Underwriter"), and Goldman Sachs have agreed to purchase, the entire
principal amount of the Notes.
Under the terms and conditions of the Underwriting Agreement, Goldman Sachs
are committed to take and pay for all of the Notes, if any are taken.
Goldman Sachs propose to offer the Notes in part directly to the public at
the initial public offering price set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of
.40% of the principal amount of the Notes. Goldman Sachs may allow, and such
dealers may reallow, a concession not to exceed .25% of the principal amount of
the Notes to certain brokers and dealers. After the Notes are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by Goldman Sachs.
The Notes are a new issue of securities with no established trading market.
The Trust has been advised by Goldman Sachs that they intend to make a market in
the Notes but are not obligated to do so and may discontinue
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market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Trust has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The legality of the Notes offered hereby is being passed upon for the Trust
by Hunton & Williams, Richmond, Virginia. Certain legal matters in connection
with the offering of the Notes will be passed upon for Goldman Sachs by Brown &
Wood, New York, New York.
EXPERTS
The financial statements of the Trust at December 31, 1992 and 1993 and for
each of the three years in the period ended December 31, 1993 appearing in this
Prospectus have been audited by Ernst & Young, independent auditors, as set
forth in their report appearing elsewhere herein and are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The statement of rental operations of Riverwind Apartments, included in the
Trust's Current Report on Form 8-K, dated December 31, 1993, incorporated by
reference herein, has been incorporated herein in reliance upon the report dated
February 14, 1994, of L. P. Martin & Company, independent auditors, also
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing. The statement of rental operations of The Village at
Old Tampa Bay Apartments, included in the Trust's Current Report on Form 8-K,
dated December 22, 1993, incorporated by reference herein, has been incorporated
herein in reliance upon the report dated February 14, 1994 of Ahearn, Jasco &
Company, independent auditors, also incorporated by reference herein, and upon
the authority of such firm as experts in accounting and auditing. The statement
of rental operations of Peppertree Apartments, included in the Trust's Current
Report on Form 8-K, dated December 22, 1993, incorporated by reference herein,
has been incorporated herein in reliance upon the report dated January 25, 1994,
of L. P. Martin & Company, independent auditors, also incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing. The statement of rental operations of Beechwood Apartments, included
in the Trust's Current Report on Form 8-K, dated December 22, 1993, incorporated
by reference herein, has been incorporated herein in reliance upon the report
dated January 27, 1994, of L. P. Martin & Company, independent auditors, also
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing. The statement of rental operations of The Lakes
Apartments, included in the Trust's Current Report on Form 8-K, dated September
28, 1993, incorporated by reference herein, has been incorporated herein in
reliance upon the report dated October 19, 1993, of L. P. Martin & Company,
independent auditors, also incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing. The statement of
rental operations of Lake Washington Downs Apartments, included in the Trust's
Current Report on Form 8-K, dated September 28, 1993, incorporated by reference
herein, has been incorporated herein in reliance upon the report dated November
3, 1993, of L. P. Martin & Company, independent auditors, also incorporated by
reference herein, and upon the authority of such firm as experts in accounting
and auditing. The statement of rental operations of Heatherwood Apartments,
included in the Trust's Current Report on Form 8-K, dated September 28, 1993,
incorporated by reference herein, has been incorporated herein in reliance upon
the report dated October 29, 1993, of L. P. Martin & Company, independent
auditors, also incorporated by reference herein, and upon the authority of such
firm as experts in accounting and auditing. The combined historical summary of
gross income and direct operating expenses of Orange Orlando and Foxcroft
Properties, included in the Trust's Current Report on Form 8-K, dated May 20,
1993, incorporated by reference herein, has been incorporated herein in reliance
upon the report dated May 18, 1993, of Ernst & Young, independent auditors, also
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing. The statement of rental operations of Dover Village
Apartments, included in the Trust's Current Report on Form 8-K, dated May 20,
1993, incorporated by reference herein, has been incorporated herein in reliance
upon the report dated July 9, 1993, of L. P. Martin & Company, independent
auditors, also incorporated by reference herein, and upon the authority of such
firm as experts in accounting and auditing. The statement of rental operations
of St. Andrews Commons Apartments, included in the Trust's Current Report on
Form 8-K, dated May 20, 1993, incorporated by reference herein, has been
incorporated herein in reliance upon the report dated July 8, 1993, of L. P.
Martin & Company, independent auditors, also incorporated by reference herein,
and upon the authority of such firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Ernst & Young, Independent Auditors..................................................................... F-2
Balance Sheets -- December 31, 1992 and 1993...................................................................... F-3
Statements of Operations -- Years ended December 31, 1991, 1992 and 1993.......................................... F-4
Statements of Cash Flows -- Years ended December 31, 1991, 1992 and 1993.......................................... F-5
Statements of Shareholders' Equity -- Years Ended December 31, 1991, 1992 and 1993................................ F-6
Notes to Financial Statements -- December 31, 1993................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
UNITED DOMINION REALTY TRUST, INC.
We have audited the accompanying balance sheets of United Dominion Realty Trust,
Inc. as of December 31, 1993 and 1992, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Dominion Realty Trust,
Inc. at December 31, 1993 and 1992, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
Richmond, Virginia
March 3, 1994
F-2
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
BALANCE SHEETS
DECEMBER 31, 1992 AND 1993
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
ASSETS
Real estate owned (Notes 1 and 2):
Apartments........................................................................................ $374,712 $503,226
Shopping centers.................................................................................. 74,414 74,404
Office and industrial buildings................................................................... 4,989 4,583
454,115 582,213
Less accumulated depreciation..................................................................... 71,806 91,444
382,309 490,769
Cash and cash equivalents........................................................................... 1,105 5,773
Other assets........................................................................................ 6,951 9,298
$390,365 $505,840
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable (Notes 2, 3 and 5)........................................................... $ 76,516 $ 72,862
Notes payable (Notes 4 and 5)....................................................................... 104,605 156,558
Accounts payable, accrued expenses and other liabilities............................................ 3,620 6,070
Tenants' deposits and rents paid in advance......................................................... 2,124 3,099
Distributions payable to shareholders............................................................... 5,823 7,288
192,688 245,877
Shareholders' equity (Notes 9 and 10):
Common stock, $1 par value; 60,000,000 shares authorized
41,653,097 shares issued and outstanding (35,284,718 in 1992).................................. 35,285 41,653
Additional paid-in capital........................................................................ 227,935 302,486
Notes receivable from officer shareholders........................................................ (2,542) (4,384)
Distributions in excess of net income............................................................. (63,001) (79,792)
Total shareholders' equity..................................................................... 197,677 259,963
$390,365 $505,840
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
INCOME
Property operations:
Rental income........................................................................... $51,250 $63,202 $89,084
Property expenses:
Utilities............................................................................ 4,262 5,367 7,838
Repairs and maintenance.............................................................. 6,966 9,635 13,950
Real estate taxes.................................................................... 3,471 4,147 5,777
Property management.................................................................. 1,915 2,064 2,782
Other operating expenses............................................................. 4,342 5,290 7,512
Depreciation of real estate owned.................................................... 12,845 15,732 19,764
33,801 42,235 57,623
Income from property operations........................................................... 17,449 20,967 31,461
Interest and other income................................................................. 79 1,402 708
17,528 22,369 32,169
EXPENSES
Interest................................................................................ 11,859 11,697 16,938
General and administrative.............................................................. 1,872 2,231 3,349
Other depreciation and amortization..................................................... 219 300 596
13,950 14,228 20,883
Income before gains (losses) on investments and extraordinary item........................ 3,578 8,141 11,286
Gains (losses) on sales of investments (Note 7)........................................... 26 -- (89)
Provision for possible investment losses (Note 2)......................................... -- (1,564) --
Income before extraordinary item.......................................................... 3,604 6,577 11,197
Extraordinary item -- early extinguishment of debt (Note 8)............................... (35) (242) --
Net income................................................................................ $ 3,569 $ 6,335 $11,197
Net income per share:
Before extraordinary item............................................................... $ .14 $ .19 $ .29
Extraordinary item...................................................................... -- (.01) --
$ .14 $ .18 $ .29
Weighted average number of shares outstanding............................................. 24,642 34,604 38,202
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
IN THOUSANDS
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income........................................................................ $ 3,569 $ 6,335 $ 11,197
Adjustments to reconcile net income to net cash provided by operating activities:
(Gains) losses on sales of investments......................................... (26) -- 89
Provision for possible investment losses....................................... -- 1,564 --
Extraordinary item............................................................. 35 242 --
Depreciation and amortization.................................................. 13,064 16,032 20,360
Imputed interest............................................................... 516 12 12
Changes in operating assets and liabilities:
Increase in accounts payable, tenant deposits and other liabilities.......... 371 667 3,413
(Increase) decrease in rents and other receivables........................... (223) 54 127
(Increase) decrease in prepaid expenses and other assets..................... (692) 234 (570)
Net cash provided by operating activities........................................... 16,614 25,140 34,628
INVESTING ACTIVITIES
Acquisitions of real estate, net of debt assumed.................................. (50,723) (68,729) (117,886)
Capital expenditures.............................................................. (16,624) (13,161) (11,060)
Net proceeds from sales of investments............................................ 26 -- 69
Purchase of mortgage note receivable.............................................. -- -- (1,907)
Other............................................................................. -- (15) 31
Net cash used in investing activities............................................... (67,321) (81,905) (130,753)
FINANCING ACTIVITIES
Net proceeds from issuance of mortgages and notes payable......................... 60,657 31,208 65,800
Net proceeds from issuance of shares.............................................. 15,375 78,461 79,077
Net short-term bank borrowings (repayments)....................................... 12,100 (10,400) 150
Mortgage financing proceeds released from trust................................... 1,641 1,394 --
Payments on notes and non-scheduled mortgage principal payments................... (22,596) (21,292) (16,905)
Cash distributions paid to shareholders........................................... (15,122) (21,791) (26,523)
Scheduled mortgage principal payments............................................. (1,094) (767) (806)
Other............................................................................. (146) (36) --
Net cash provided by financing activities........................................... 50,815 56,777 100,793
Net increase in cash and cash equivalents........................................... 108 12 4,668
Cash and cash equivalents, beginning of year........................................ 985 1,093 1,105
Cash and cash equivalents, end of year.............................................. $ 1,093 $ 1,105 $ 5,773
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
COMMON STOCK $1 PAR NOTES
VALUE ADDITIONAL RECEIVABLE DISTRIBUTIONS TOTAL
NUMBER PAID-IN FROM OFFICER IN EXCESS OF SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL SHAREHOLDERS NET INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990, as adjusted
(Note 9)............................... 23,176,982 $23,177 $128,739 $ -- $ (33,762) $118,154
Shares issued in private placement....... 1,800,000 1,800 13,575 -- -- 15,375
Conversions of subordinated debentures... 1,910,726 1,911 13,015 -- -- 14,926
Shares purchased by officers............. 245,000 245 2,037 (2,282) -- --
Net income for the year.................. -- -- -- -- 3,569 3,569
Distributions declared ($.63 per
share)................................. -- -- -- -- (15,872) (15,872)
Balance at December 31, 1991............. 27,132,708 27,133 157,366 (2,282) (46,065) 136,152
Shares issued in public offering......... 8,050,000 8,050 69,755 -- -- 77,805
Exercise of share options................ 58,600 59 395 -- -- 454
Shares purchased by officers, net of
repayments............................. 25,000 25 235 (260) -- --
Shares issued through the dividend
reinvestment plan...................... 18,410 18 184 -- -- 202
Net income for the year.................. -- -- -- -- 6,335 6,335
Distributions declared ($.66 per
share)................................. -- -- -- -- (23,271) (23,271)
Balance at December 31, 1992............. 35,284,718 35,285 227,935 (2,542) (63,001) 197,677
Shares issued in public offering......... 6,095,000 6,095 71,573 -- -- 77,668
Exercise of share options................ 98,900 99 741 -- -- 840
Shares purchased by officers, net of
repayments............................. 135,500 135 1,712 (1,842) 5
Shares issued through the dividend
reinvestment plan...................... 38,979 39 525 -- -- 564
Net income for the year.................. -- -- -- -- 11,197 11,197
Distributions declared ($.70 per share) -- -- -- -- (27,988) (27,988)
Balance at December 31, 1993............. 41,653,097 $41,653 $302,486 $ (4,384) $ (79,792) $259,963
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS United Dominion Realty Trust, Inc. (the "Trust"), a Virginia
corporation, is an equity investor in income producing real estate properties.
FEDERAL INCOME TAXES The Trust is operated as and annually elects to be
taxed as a real estate investment trust under the Internal Revenue Code of 1986,
as amended (the "Code"). Generally, a real estate investment trust which
complies with the provisions of the Code and distributes at least 95% of its
taxable income to its shareholders does not pay federal income taxes on its
distributed income. Accordingly, no provision has been made for federal income
taxes.
CASH AND CASH EQUIVALENTS The Trust considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
REAL ESTATE Real estate investments are carried at the lower of cost or
estimated net realizable value. In determining estimated net realizable value,
consideration is given to many factors, such as income to be earned from the
investment, the cost to hold the property to the hypothetical time of sale, the
selling price a property would bring at such a time, the cost of improving the
property to the condition contemplated in determining the selling price, the
cost of disposing of the property and prevailing economic conditions including
availability of credit.
Repairs and maintenance costs are expensed as incurred while significant
improvements, renovations, and replacements are capitalized. Certain costs,
principally payroll, directly related to real estate acquisitions and
redevelopment, are capitalized. Depreciation is computed on a straight-line
basis over the estimated useful lives of the related assets which range from 25
to 40 years for properties, 10 to 35 years for major improvements, and 3 to 15
years for fixtures, equipment and other assets. Improvements for tenants are
amortized over the lives of the related leases.
INTEREST Interest is capitalized on accumulated expenditures relating to
the acquisition and development of certain qualifying properties. During 1991,
1992 and 1993, total interest paid by the Trust was $12,748,000, $11,641,000,
and $14,927,000, respectively, which includes $291,000 and $73,000, which was
capitalized in 1991 and 1992, respectively. No interest was capitalized in 1993.
The Trust has entered into certain interest rate swap agreements with the
objective of managing its interest expense and reducing its exposure to interest
rate fluctuations. These agreements generally involve the exchange of fixed and
variable rate interest payment obligations without the exchange of the
underlying principal amounts. Net amounts paid or received under these
agreements are reflected as adjustments to interest expense. During 1993,
interest rate swap contracts with a notional amount of $10,000,000 matured. The
Trust did not terminate or enter into any new interest rate swap contracts
during 1993. Interest rate swap contracts did not have a material impact on
interest expense or results of operations.
INCOME PER SHARE Primary net income per share is calculated using the
weighted average number of shares outstanding during each year. Options
outstanding are not included since their inclusion would not be materially
dilutive. For 1991, the assumed conversion of debentures as of the beginning of
that year would have been anti-dilutive.
POSTEMPLOYMENT BENEFITS In November, 1992, SFAS No. 112, "Employers'
Accounting for Post employment Benefits," was issued establishing accounting
standards for employers who provide benefits to former or inactive employees
after employment but before retirement. Employers are required to recognize the
obligation to provide such benefits for fiscal years beginning after December
15, 1993. The adoption of SFAS No. 112 will not have a material impact on the
Trust's financial position or results of operations.
F-7
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. REAL ESTATE OWNED
The following is a summary of real estate owned at December 31, 1993 (in
thousands, except number of properties):
<TABLE>
<CAPTION>
INITIAL
NUMBER OF ACQUISITION ACCUMULATED
PROPERTIES COST COST DEPRECIATION ENCUMBRANCES(A)
<S> <C> <C> <C> <C> <C>
APARTMENTS
Virginia......................................... 23 $119,097 $147,765 $34,774 $21,552
North Carolina................................... 23 116,658 146,750 27,182 17,524
South Carolina................................... 10 50,817 62,888 5,082 9,200
Florida.......................................... 8 56,952 59,694 972 --
Georgia.......................................... 4 24,942 35,150 6,060 2,082
Maryland......................................... 3 28,480 29,332 866 13,800
Tennessee........................................ 3 21,386 21,646 403 --
SHOPPING CENTERS
Virginia......................................... 10 28,076 48,232 10,557 8,725
South Carolina................................... 2 12,565 14,628 2,019 --
North Carolina................................... 3 8,198 11,545 2,249 --
OFFICE AND INDUSTRIAL BUILDINGS
Tennessee........................................ 1 1,176 2,438 578 --
Virginia......................................... 3 1,607 2,145 702 --
93 $469,954 $582,213 $91,444 $72,883
</TABLE>
(A) EXCLUSIVE OF DISCOUNTS AGGREGATING $21.
The following is a reconciliation of the carrying amount of real estate
owned (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Balance at January 1......................... $294,205 $361,503 $454,115
Real estate purchased*....................... 50,898 81,788 118,265
Improvements................................. 16,400 12,388 10,380
Real estate sold............................. -- -- (547)
Provision for possible investment losses..... -- (1,564) --
Balance at December 31....................... $361,503 $454,115 $582,213
</TABLE>
* IN CONNECTION WITH THE PURCHASE OF CERTAIN PROPERTIES IN 1992, THE TRUST
ASSUMED APPROXIMATELY $13.8 MILLION OF MORTGAGE DEBT ENCUMBERING THE
PROPERTIES ACQUIRED.
The following is a reconciliation of accumulated depreciation (in
thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Balance at January 1......................... $43,229 $56,074 $71,806
Depreciation expense for the year............ 12,845 15,732 19,764
Real estate sold............................. -- -- (126)
Balance at December 31....................... $56,074 $71,806 $91,444
</TABLE>
F-8
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. REAL ESTATE OWNED -- Continued
During 1992, the Trust established an allowance for possible investment
losses in the amount of $1,564,000 based upon management's estimate of net
realizable value as compared to the carrying value of each investment.
The aggregate cost of real estate owned for federal income tax purposes was
approximately $435 million at December 31, 1992 and $563 million at December 31,
1993.
The Trust's properties are leased to others under operating leases. Certain
shopping center leases provide for additional rents based on a percentage of the
tenant's revenues above a predetermined level. Such percentage rents amounted to
$617,000 in 1991, $524,000 in 1992 and $525,000 in 1993. In addition,
substantially all commercial property leases provide that tenants share certain
operating costs such as real estate taxes, insurance, and maintenance by
reimbursement to the Trust. Such reimbursements amounted to $971,000 in 1991,
$895,000 in 1992 and $936,000 in 1993. The Trust has no material net lease
arrangements.
Minimum annual fixed rentals to be received, principally from commercial
property tenants, under all noncancelable leases greater than one year
subsequent to December 31, 1993 were as follows (in thousands): 1994 -- $7,791,
1995 -- $6,560, 1996 -- $5,476, 1997 -- $4,355, 1998 -- $3,452,
thereafter -- $17,509.
3. MORTGAGE NOTES PAYABLE
At December 31, 1993, certain of the Trust's properties were encumbered by
one or more mortgage notes payable which are due in installments over various
terms extending to 2023 with interest rates ranging from 5.91% to 12.5%
(weighted average rate of 7.62% at December 31, 1993). While each note is
secured by the particular property mortgaged, certain notes extend liability to
the Trust if the security is not sufficient to satisfy the mortgage note
payable.
Principal payments due on mortgage notes payable during the five years
subsequent to December 31, 1993 are as follows: 1994 -- $3,123,300,
1995 -- $3,728,745, 1996 -- $1,193,114, 1997 -- $5,928,606, 1998 -- $1,586,495.
These payments include special principal curtailments and balloon payments of
$2,070,000 in 1994, $2,441,000 in 1995 and $4,650,000 in 1997.
F-9
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE
A summary of notes payable at December 31, 1992 and 1993 is as follows (in
thousands):
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Commercial Banks
Borrowings outstanding under revolving credit facilities.......................................... $ 22,000 $ 28,650
Borrowings outstanding under bank lines of credit................................................. 6,500 --
Variable rate note due November, 1994 (a)......................................................... 10,000 10,000
Insurance Companies -- Senior Unsecured
Notes
7.98% due March, 1997-2003 (b).................................................................... -- 52,000
9.57% due July, 1996.............................................................................. 35,000 35,000
7.89% due March, 1996............................................................................. 10,000 10,000
7.57% due March, 1995............................................................................. 10,000 10,000
8.72% due November, 1994-1998 (c)................................................................. 10,000 10,000
Other............................................................................................... 1,105 908
$104,605 $156,558
</TABLE>
(A) THE NOTE BEARS INTEREST AT THREE MONTH LIBOR PLUS 100 BASIS POINTS. IN
NOVEMBER, 1991, THE TRUST ENTERED INTO AN INTEREST RATE SWAP AGREEMENT WITH
A BANK WHICH HAS THE EFFECT OF FIXING THE INTEREST RATE AT 7.57%.
(B) PAYABLE IN SEVEN EQUAL PRINCIPAL INSTALLMENTS OF $7.4 MILLION.
(C) PAYABLE IN FIVE EQUAL ANNUAL PRINCIPAL INSTALLMENTS OF $2 MILLION.
Certain of the loan agreements contain covenants which require the Trust,
among other things, to maintain minimum tangible net worth, as defined, and to
maintain certain financial ratios.
In December 1992 the Trust entered into revolving credit agreements with
three commercial banks for a total of $40 million which was subsequently
increased to $45 million in July, 1993. These credit facilities currently expire
in June, 1994, but are renewable annually by mutual agreement between the Trust
and each bank. Borrowings bear interest from LIBOR + 5/8% to the respective
bank's prime rate, depending on the level of the Trust's debt, as defined. At
December 31, 1993, there were borrowings of $28.65 million under these credit
facilities.
At December 31, 1993, the Trust had lines of credit with three commercial
banks for a total of $16 million. At December 31, 1993, there were no borrowings
outstanding under these lines of credit. Each line is subject to periodic bank
review and requires the Trust to maintain a depository relationship with the
respective bank. Borrowings bear interest at or below the respective bank's
prime rate.
Information concerning short-term bank borrowings is summarized in the
table that follows (dollars in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Total revolving credit facilities and lines of credit at December 31...................... $39,500 $51,000 $61,000
Borrowings outstanding at December 31..................................................... 38,900 28,500 28,650
Weighted average daily borrowings during the year......................................... 31,156 4,059 11,313
Maximum daily borrowings during the year.................................................. 44,920 38,900 43,200
Weighted average daily interest rate during the year...................................... 7.2% 5.4% 4.0%
</TABLE>
F-10
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair value of the Trust's financial
instruments at December 31, 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
<S> <C> <C>
Cash and cash equivalents..................................................................... $ 5,773 $ 5,773
Mortgage notes payable........................................................................ 72,862 78,600
Notes payable................................................................................. 156,558 165,020
Interest rate swap agreements................................................................. -- (228)
</TABLE>
The following methods and assumptions were used by the Trust in estimating
the fair values set forth above.
CASH AND CASH EQUIVALENTS The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
NOTES PAYABLE AND MORTGAGE NOTES PAYABLE The carrying amounts of the
Trust's borrowings under its short term revolving credit agreements and lines of
credit approximate their fair value. The fair values of the Trust's fixed rate
term debt and fixed rate mortgage notes are estimated using discounted cash flow
analysis, based on the Trust's current incremental borrowing rates for similar
types of borrowing arrangements.
INTEREST RATE SWAP AGREEMENTS Fair value for the Trust's interest rate swap
agreements represents the estimated amount that the Trust would receive or (pay)
to terminate the swaps, taking into account current interest rates and the
credit worthiness of the swap counterparties.
6. INCOME TAXES
The differences between net income for financial reporting purposes and
taxable income before dividend deductions relate primarily to timing
differences, depreciation adjustments resulting from book-tax basis differences
of certain properties and the deferral for tax purposes of certain gains on
property sales. Since 1980, certain property dispositions have been structured
as like-kind exchanges pursuant to Section 1031 of the Code so that, for tax
purposes, recognition of a substantial portion of the related gains has been
deferred. Deferred income taxes associated with these deferred gains have not
been provided since the Trust intends to ultimately distribute such gains as
they are recognized for federal income tax purposes. The Trust has approximately
$628,000 of net operating loss carry forwards, expiring through 1998, available
to offset future REIT taxable income, if any.
For income tax purposes, distributions paid to shareholders consist of
ordinary income, capital gains, return of capital or a combination thereof. For
the three years ended December 31, 1993, distributions paid per share were as
follows:
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Ordinary income.................................................................................... $.368 $.418 $.493
Capital gains...................................................................................... -- -- --
Return of capital.................................................................................. .257 .237 .197
$.625 $.655 $.690
</TABLE>
7. REALIZED GAINS (LOSSES) ON SALES OF INVESTMENTS
All realized gains (losses) on sales of investments are distributed to
shareholders if and when recognized for income tax purposes. Since 1980, gains
aggregating approximately $7.6 million have been deferred for income tax
purposes and are undistributed at December 31, 1993.
F-11
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REALIZED GAINS (LOSSES) ON SALES OF INVESTMENTS -- Continued
The following is a summary of realized gains (losses) on sales of
investments for the three years ended December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
Proceeds from sales of investments.................................................................... $ 26 $ -- $ 458
Carrying value of investments......................................................................... -- -- 547
Realized gains (losses) on sales of investments....................................................... $ 26 $ -- $ (89)
</TABLE>
8. EXTRAORDINARY ITEM -- EARLY EXTINGUISHMENT OF DEBT
During 1991 and 1992, the Trust repaid certain debt prior to maturity and
recognized extraordinary losses of $35,000 and $242,000 respectively. These
losses represent prepayment fees and, in certain cases, unamortized financing
costs relating to the debt retired.
9. COMMON STOCK
On April 2, 1993, the Trust's Board of Directors declared a two-for-one
split of the Trust's common stock, effective May 5, 1993 to shareholders of
record as of April 19, 1993. All share and per share information in the
financial statements have been adjusted to retroactively reflect the stock
split. Stock options, and all other agreements payable in shares of the Trust's
common stock were amended to provide for issuance of two shares of common stock
for every one share issuable prior to declaration of the stock split. An amount
equal to the par value of the common shares issued was transferred from
additional paid-in capital to the common stock account. This transfer has been
reflected in the statement of shareholders' equity at December 31, 1990.
In July, 1993, the Trust completed a public offering of 6,095,000 shares at
$13.50 per share. Net proceeds of the offering after deducting underwriting
commissions and direct offering costs, aggregated approximately $78 million of
which approximately $35 million was used to curtail existing bank debt. The
remaining net proceeds were invested in short term money market instruments and
were used primarily for the acquisition of additional properties. Pro forma net
income per share for 1993, which assumes the issuance of 2,738,333 shares and
the retirement of $35 million of debt at the beginning of the year would have
been $.29.
In January, 1992, the Trust completed a public offering of 8,050,000 shares
at $10.25 per share. Net proceeds of the offering after deducting underwriting
commissions and direct offering costs, aggregated approximately $78 million of
which approximately $38 million was used to curtail then existing bank debt and
approximately $14.5 million was used to retire certain mortgage debt. The
remaining net proceeds were temporarily invested in short term money market
instruments and were used primarily for the acquisition of additional
properties. Pro forma net income per share for 1992, which assumes the issuance
of 5,433,692 shares and the retirement of $52.5 million of debt at the beginning
of the year, would have been $.21.
In May, 1991, the Trust completed a 1,800,000 share private placement of
common stock to a limited number of institutional investors at $8.875 per share.
Net proceeds of $15.4 million were used to retire then outstanding short term
bank debt. Pro forma net income per share for 1991, which assumes the issuance
of 3,710,726 shares, the conversion of $14.8 million of subordinated debentures,
and the retirement of $15.4 million of debt at the beginning of the year, would
have been $.22 per share.
In 1991, 1992 and 1993, the Trust entered into stock purchase agreements
whereby certain officers purchased common stock at the then current market
price. The Trust provides 100% financing for the purchase of the shares with
interest payable quarterly at rates escalating from 7% to 8 1/2%. The underlying
notes mature beginning in November, 1998. At December 31, 1993, shares
outstanding under stock purchase agreements aggregated 405,500. Shares available
for future issuance under this plan total 194,500.
F-12
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK -- Continued
During 1990, the Trust implemented a dividend reinvestment plan. Shares in
the amount of 942,611 are reserved for future issuance under this plan.
10. SHARE OPTIONS
In May, 1986, the shareholders of the Trust approved, and in 1989 and 1992
amended, the 1985 share option plan effective December 31, 1985, whereby a
maximum of 2,400,000 options could be granted, at the discretion of the Board,
to certain officers, directors and key employees of the Trust, through 1997. On
December 14, 1993, the Board granted 67,100 incentive stock options (ISOs) to
key employees of the Trust at $13.63 per share which expire on or before
December 31, 1998.
Of the options outstanding at December, 1991, 1992, and 1993, 187,018
options, 603,436 options, and 438,380 options, respectively, were not then
exercisable under the provisions of the plan.
The plan generally provides, among other things, that options be granted at
exercise prices not lower than the market value of the shares on the date of
grant. The optionee generally has up to five years from the date on which the
options first become exercisable during which to exercise the options. Activity
in the Trust's share option plan during the three years ended December 31, 1993
is summarized below (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
SHARES
AVAILABLE
FOR
FUTURE OPTIONS OUTSTANDING
OPTION PRICE PER AGGREGATE
GRANT SHARES SHARE VALUE
<S> <C> <C> <C> <C>
Balance, December 31, 1990...................... 499,000 301,000 $ 7.44-$9.06 $2,339
Options cancelled or expired.................... 45,000 (45,000) $ 8.57-$9.06 (403)
Options granted................................. (170,000) 170,000 $ 7.44-$9.19 1,492
Balance, December 31, 1991...................... 374,000 426,000 $ 7.44-$9.19 3,428
Authorization of additional options............. 1,600,000 -- -- --
Options granted................................. (615,000) 615,000 $ 11.56 7,111
Options exercised............................... -- (58,600) $ 7.44-$9.19 (458)
Options expired................................. 12,000 (12,000) $ 8.31-$9.06 (105)
Balance, December 31, 1992...................... 1,371,000 970,400 $7.44-$11.56 9,976
Options granted................................. (67,100) 67,100 $ 13.63 914
Options exercised............................... -- (98,900) $7.44-$11.56 (840)
Options expired................................. 4,000 (4,000) $9.09-$11.56 (55)
Balance, December 31, 1993...................... 1,307,900 934,600 $7.44-$13.63 $9,995
</TABLE>
F-13
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for 1992 and
1993 (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1992:
Rental income................................................................. $14,868 $15,171 $16,095 $17,067
Income from property operations............................................... 5,140 4,805 5,052 5,970
Income before extraordinary item.............................................. 1,962 1,758 1,891 966(a)
Net income.................................................................... 1,991 1,758 1,891 695(a)
Per share:
Income before extraordinary item............................................ $ .06 $ .05 $ .05 $ .03(a)
Net income.................................................................. .06 .05 .05 .02(a)
</TABLE>
(A) INCLUDES PROVISION FOR POSSIBLE INVESTMENT LOSSES OF $1,564 ($.04 PER SHARE)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1993:
Rental income................................................................. $20,182 $21,736 $22,683 $24,483
Income from property operations............................................... 7,400 7,790 7,829 8,442
Income before extraordinary item.............................................. 2,589 2,250 2,933 3,425
Net income.................................................................... 2,589 2,250 2,933 3,425
Per share:
Income before extraordinary item............................................ $ .07 $ .06 $ .07 $ .08
Net income.................................................................. .07 .06 .07 .08
</TABLE>
12. SUBSEQUENT EVENTS
At December 31, 1993, the Trust had a commitment to purchase an apartment
complex for a cost of $14 million. Subsequent to December 31, 1993, the Trust
entered into additional contracts to purchase four apartment complexes for $39
million.
The Trust is in the process of preparing a Registration Statement for the
purpose of selling $75 million of Notes. The proceeds will be used to curtail
bank debt and fund acquisition of additional properties.
F-14
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
Prospectus Summary............................... 3
The Trust........................................ 5
Recent Developments.............................. 5
Use of Proceeds.................................. 6
Capitalization................................... 6
Selected Financial Data.......................... 7
Management's Discussion and Analysis of Financial
Condition and Operations....................... 8
Business......................................... 11
Management....................................... 15
Description of Notes............................. 15
Underwriting..................................... 23
Legal Matters.................................... 24
Experts.......................................... 24
Index to Financial Statements.................... F-1
</TABLE>
$75,000,000
(logo, see appendix)
7 1/4% NOTES DUE
APRIL 1, 1999
PROSPECTUS
GOLDMAN, SACHS & CO.
*************************** APPENDIX *********************************
On Prospectus cover, United Dominion logo appears where indicated.
On Back cover, United Dominion logo appears where indicated.
