UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-10524
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0857512
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
10 South Sixth Street, Suite 203 Richmond, Virginia 23219-3802
(Address of principal executive offices - zip code)
(804) 780-2691
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to filing requirements
for at least the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 23, 1996:
Common Stock 58,748,271
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
<S> <C>
Assets
Real estate owned:
Real estate held for investment $ 1,448,622 $ 1,131,098
Less: accumulated depreciation 159,429 129,454
------------- -------------
1,289,193 1,001,644
Real estate held for disposition 42,889 51,015
Cash and cash equivalents 7,803 2,904
Other assets 35,826 25,053
------------- -------------
$ 1,375,711 $ 1,080,616
============= ==============
Liabilities and shareholders' equity
Notes payable-secured $ 307,505 $ 180,481
7.25% Notes due April 1, 1999 75,000 75,000
8.50% Debentures due September 15, 2024 150,000 150,000
7.95% Medium Term Notes due July 12, 2006 125,000
Notes payable-unsecured 138,389 124,858
Distributions payable to common shareholders 14,099 12,695
Accounts payable, accrued expenses and other liabilities 34,992 21,193
------------- -------------
844,985 564,227
------------- -------------
Minority interest of unitholders in operating partnership 2,030 --
Shareholders' equity:
Preferred stock, no par value; 25,000,0000 shares authorized:
9 1/4% Series A Cumulative Redeemable Preferred Stock
(liquidation preference of $25 per share), 4,200,000 shares
issued and outstanding 105,000 105,000
Common stock, $1 par value; 100,000,000 shares authorized
58,744,488 shares issued and outstanding (56,375,333 in 1995) 58,744 56,375
Additional paid-in-capital 510,314 480,971
Notes receivable from officer-shareholders (5,903) (6,091)
Distributions in excess of net income (141,336) (120,314)
Unrealized gain on securities available-for-sale 1,877 448
------------- -------------
Total shareholders' equity 528,696 516,389
------------- -------------
$ 1,375,711 $ 1,080,616
============= ==============
</TABLE>
See accompanying notes.
2
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C>
Revenues
Rental income $ 63,083 $ 49,842 $ 175,119 $ 143,082
Interest and dividend income 402 496 1,197 1,031
------ ------ ------- -------
63,485 50,338 176,316 144,113
Expenses
Rental expenses:
Utilities 4,425 3,700 12,810 10,627
Repairs and maintenance 10,711 8,429 29,847 22,493
Real estate taxes 4,509 3,457 12,698 10,115
Property management 1,444 1,785 4,192 4,153
Other rental expenses 6,400 4,417 16,852 12,631
Real estate depreciation 12,346 9,996 33,711 28,545
Interest 13,530 9,974 35,413 30,563
General and administrative 1,260 989 4,192 3,771
Other depreciation and amortization 356 292 917 835
Impairment loss on real estate held for disposition -- -- 290 --
------ ------ ------- -------
54,981 43,039 150,922 123,733
Income before gains on sales of investments and minority
interest of unitholders in operating partnership 8,504 7,299 25,394 20,380
Gains on sales of investments 1,339 205 2,176 4,844
Minority interest of unitholders in operating partnership
(Note 1) (25) -- (26) --
------ ------ ------- -------
Net income 9,818 7,504 27,544 25,224
Dividends to preferred shareholders 2,428 2,428 7,284 4,209
------ ------ ------- -------
Net income available to common shareholders $ 7,390 $ 5,076 $ 20,260 $ 21,015
======= ======== ======== ========
Net income per common share $ .13 $ .10 $ .36 $ .41
======= ======== ======== ========
Dividends declared per common share $ .24 $ .225 $ .72 $ .675
======= ======== ======== ========
Weighted average number of common shares outstanding 57,793 51,883 56,978 51,597
</TABLE>
See accompanying notes.
3
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
-------------- --------------
<S> <C>
Operating Activities
Net income $ 27,544 $ 25,224
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 34,628 29,380
Minority interest of unitholders in Operating Partners 26 --
Impairment loss on real estate held for disposition 290 --
Gains on sales of investments (2,176) (4,844)
Accrual for estimated employment and other taxes -- 500
Changes in operating assets and liabilities:
Increase in operating liabilities 12,720 1,780
Increase in operating assets (432) (4,893)
-------- ---------
Net cash provided by operating activities 72,600 47,147
Investing Activities
Acquisition of real estate, net of debt and liabilties
assumed (165,927) (120,516)
Capital expenditures (43,102) (23,889)
Net proceeds from the sales of investments 18,730 20,060
Other (6) 2,156
--------- --------
Net cash used in investing activities (190,305) (122,189)
Financing Activities
Net proceeds from the issuance of common stock 31,900 18,278
Net proceeds from the issuance of preferred stock -- 101,478
Net proceeds from the issuance of unsecured notes payable 152,962 10,000
Net proceeds from the issuance of secured notes payable 5,925 15,720
Net borrowings of short-term bank borrowings 30,800 12,250
Cash distributions paid to preferred shareholders (7,284) (2,185)
Cash distributions paid to common shareholders (39,879) (33,126)
Scheduled mortgage principal payments (1,881) (1,405)
Mortgage financing proceeds released from construction
funds 2,666 --
Payments on unsecured notes and non-scheduled secured
mortgage principal payments (50,697) (45,225)
Payment of financing costs (1,908) (973)
--------- --------
Net cash provided by financing activities 122,604 74,812
Net increase (decrease) in cash and cash equivalents 4,899 (230)
Cash and cash equivalents, beginning of period 2,904 7,261
--------- --------
Cash and cash equivalents, end of period $ 7,803 $ 7,031
======== ========
Supplemental information:
Cash paid during the period for interest $ 33,699 $ 33,383
Secured debt assumed through the acquisition of
properties 129,875 12,861
Issuance of common stock in connection with acquisitions 22,678 --
Unsecured notes payable taken in connection with
acquisitions 25,000 --
Issuance of operating partnership units 2,006 --
</TABLE>
See accompanying notes.
4
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock, $1 Par Value Preferred Stock Additional Receivable
-------------------------- --------------- Paid-in- from Office-
Number Number Capital Shareholders
of Shares Amount of Shares Amount
----------------------------------------------------------------------
<S> <C>
Balance at December 31, 1995 56,375,333 $56,375 4,200,000 $105,000 $480,971 ($6,091)
Common shares issued in connection with
acquisitions 1,679,840 1,680 20,990
Exercise of common share options 104,320 104 - - 991 -
Common shares purchased by officers, net of
loan repayments (5,000) (5) - - (64) 188
Common shares issued through dividend
reinvestment and stock purchase plan 587,356 587 - - 7,388 -
Common shares issued through employee stock
purchase plan 2,639 3 - - 38 -
Preferred stock dividends declared ($1.73
per share) - - - - - -
Common stock distributions declared ($.72
per share) - - - - - -
Unrealized gain on securities available-for-
sale - - - - - -
Net income - - - - - -
---------- ------- --------- -------- -------- --------
Balance at September 30, 1996 58,744,488 $58,744 4,200,000 $105,000 $510,314 ($5,903)
========== ======= ========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain on
Distributions Securities Total
in Excess of Available Shareholders'
Net Income for-Sale Equity
----------------------------------------
<S> <C>
Balance at December 31, 1995 ($120,314) $448 $516,389
Common shares issued in connection with
acquisitions 22,670
Exercise of common share options - - 1,095
Common shares purchased by officers, net of
loan repayments - - 119
Common shares issued through dividend
reinvestment and stock purchase plan - - 7,975
Common shares issued through employee stock
purchase plan - - 41
Preferred stock dividends declared ($1.73
per share) (7,284) - (7,284)
Common stock distributions declared ($.72
per share) (41,282) - (41,282)
Unrealized gain on securities available-for-
sale - 1,429 1,429
Net income 27,544 - 27,544
---------- ------ --------
Balance at September 30, 1996 ($141,336) $1,877 $528,696
========== ====== ========
</TABLE>
See accompanying notes.
5
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
The consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of financial position
at September 30, 1996 and results of operations for the interim periods ended
September 30, 1996 and 1995. Such adjustments are of a normal and recurring
nature. The interim results presented are not necessarily indicative of results
that can be expected for a full year. The accompanying consolidated financial
statements should be read in conjunction with the audited financial statements
and related notes appearing in the Company's December 31, 1995 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries and United Dominion Realty, L.P. (the " Operating
Partnership"), formed in 1995. At September 30, 1996, 11 of the Company's
apartment communities were owned by the Operating Partnership. At September 30,
1996, the Company was the sole general partner and held a 1% interest in the
Operating Partnership. UDRT of North Carolina, L.L.C., a wholly owned
subsidiary, held a 96.9% interest. All significant inter-company accounts and
transactions have been eliminated in consolidation.
2. Reclassifications
Certain previously reported amounts have been reclassified to conform with the
current financial statement presentation.
3. Real Estate Owned
Real estate held for investment
The following summarizes real estate held for investment at September 30, 1996
and December 31, 1995 (all of which were apartment communities or land held for
future development of apartment communities) :
<TABLE>
<CAPTION>
September 30, December 31,
Dollars in thousands 1996 1995
- -------------------- ----------------- -------------
<S> <C>
Land and land improvements $ 239,159 $ 193,672
Buildings and improvements 1,126,343 864,331
Furniture, fixtures and equipment 79,934 72,576
Construction in progress 3,186 519
------------- -------------
Real estate held for investment 1,448,622 1,131,098
Accumulated depreciation (159,429) (129,454)
------------- -------------
Real estate held for investment, net $ 1,289,193 $ 1,001,644
============= ============
</TABLE>
Real estate held for disposition
Real estate held for disposition included in the September 30, 1996 Consolidated
Balance Sheet in the aggregate amount of $42.9 million includes: (i) one parcel
of land valued at $1.6 million, (ii) seven apartment communities aggregating
$23.6 million, (iii) three shopping centers aggregating $15.0 million and (iv)
four office/ industrial properties aggregating $2.7 million. These properties
contributed net rental income ( total rental income, less rental expenses, less
depreciation expense) in the aggregate amount of approximately $1.3 million and
$3.9 million for the three and nine months ended September 30, 1996,
respectively.
4. Acquisitions
During the third quarter of 1996, the Company acquired 20 apartment communities
containing 4,859 apartment homes at a total cost of $194.9 million, including
closing costs. This included an acquisition of a portfolio of 18 apartment
communities containing 4,508 apartment homes for $182.6 million, including
closing costs. The apartment communities acquired during the quarter are as
follows (in millions of dollars):
6
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
<TABLE>
<CAPTION>
No. Apartment Year Purchase
Name/Location Homes Built Price
- ------------- ------------- ----- --------
<S> <C>
Cape Harbor/Wilmington, NC 360 1996 $ 20.0
Chateau Village/Charlotte, NC 250 1974 8.0
Cumberland Trace/Fayetteville, NC 248 1973 8.5
Deerwood Crossing/Winston-Salem, NC 285 1973 9.6
Dutch Village/Winston-Salem, NC 203 1970 6.0
Kings Arms/Virginia Beach, VA 192 1966 5.9
Lake Brandt/Greensboro, NC 284 1995 15.0
Lake of the Woods/Atlanta, GA 216 1989 9.2
Morganton Place/Fayetteville, NC 280 1994 14.1
Northwinds/Greensboro, NC 232 1989 8.5
Ramsgate/Chapel Hill, NC 188 1988 7.7
Rivergate/Columbia, SC 316 1989 13.2
South Hills/Charlotte, NC 144 1984 5.5
Stonesthrow/Greenville, SC 388 1993 17.9
Village at Cliffdale/Fayetteville, NC 356 1992 16.5
Westgate/Spartanburg, SC 122 1976 1.9
Westwinds/Greensboro, NC 276 1986 8.3
Woodberry/Asheville, NC 168 1987 6.8
Park Forest/Greensboro, NC 151 1987 6.5
Heritage Place/Orlando, FL 200 1986 5.8
----- -----
4,859 $194.9
===== =====
</TABLE>
For the nine month period ended September 30, 1996, the Company acquired 28
apartment communities containing 7,096 apartment homes at a total cost of $293.9
million, including closing costs. Information regarding unaudited pro forma
results of operations for the nine months ended September 30, 1996 and 1995 is
set forth below. For the 1996 period, such information assumes the acquisition
of the 18 apartment community portfolio, as if the acquisition had occurred on
January 1, 1996. For the 1995 period, such information assumes the acquisition
of 13 apartment communities containing 2,147 apartment homes at a total cost of
$98.6 million and the acquisition of 18 apartment communities containing 4,508
apartment homes at a total cost of $182.6 million , as if the acquisitions had
occurred on January 1, 1995.
Pro Forma
Nine Months Ended
September 30,
------------------
1996 1995
----- -----
(Unaudited)
Rental income $ 191,230 $ 167,611
Net income available to common shareholders 20,108 18,214
Net income per common share $ .34 $ .34
The unaudited pro forma information is not necessarily indicative of what the
Company's results of operations would have been if the acquisitions had occurred
at the beginning of each of the periods presented nor does it purport to be
indicative of the Company's results of operations for future periods.
5. Dispositions
During the third quarter, the Company sold two shopping centers located in
Richmond, Virginia, for approximately $7.7 million, one apartment community
located in Hopewell, Virginia for approximately $1.8 million and one parcel of
undeveloped land for
7
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
$300,000. In connection with the sales, the Company recognized gains
aggregating $1.3 million for financial reporting purposes.
Earlier in 1996, the Company sold two shopping centers located in Myrtle Beach,
South Carolina for approximately $13.7 million and one apartment community
located in Newark, Delaware for approximately $3.4 million. For the nine months
ended September 30, 1996, the Company recognized an aggregate $2.2 million gain
on property sales for financial reporting purposes. All but one of the 1996
property sales were structured to qualify as like-kind exchanges under Section
1031 of the Internal Revenue Code, so the related capital gains will be deferred
for federal income tax purposes.
6. Notes Payable-Secured
Notes payable-secured consisted of the following at September 30, 1996 and 1995
and December 31, 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
September 30,
----------------------------- December 31,
1996 1995 1995
---------- --------- --------
<S> <C>
Fixed-rate secured notes $ 95,578 $ 45,410 $ 56,368
Tax-exempt fixed-rate 117,079 103,578 112,843
------- ------- --------
Total fixed-rate 212,657 148,988 169,211
Variable-Rate 89,298 -- --
Tax-exempt variable-rate 5,550 17,744 11,270
--------- ------- --------
$ 307,505 $166,732 $ 180,481
========= ======== =========
</TABLE>
Conventional Fixed-Rate Secured Notes At September 30, 1996, conventional
fixed-rate secured notes included 24 loans encumbering 18 properties. Secured
notes are generally due in monthly installments of principal and interest and
mature at various dates through 2020. At September 30, 1996 and 1995, this debt
carried fixed rates of interest ranging from 7.00% to 9.625% (8.18% weighted
average) and 7.00% to 9.625% (8.03% weighted average), respectively.
Conventional Variable-Rate Secured Notes The Company assumed two variable-rate
secured notes payable, two variable-rate secured senior credit facilities and
five related interest rate swap agreements in connection with the acquisition of
the 18 apartment community portfolio on August 15, 1996, as outlined below.
The Company assumed two variable-rate secured notes payable from Wachovia Bank
aggregating $18.2 million and bearing interest at LIBOR + 1%, which approximated
6.4% during the period owned by the Company.
The Company also assumed a $40 million senior credit facility from Wachovia Bank
that bears interest at LIBOR (90 day) + 1% (approximated 6.4% during the period
held by the Company) and is secured by six apartment communities. There are two
related interest rate swap agreements with Wachovia Bank in the aggregate
notional amount of $15 million under which the Company pays a fixed-rate of
interest and receives a variable-rate on the notional amounts. The interest rate
swaps effectively change the Company's interest rate exposure from a
variable-rate to a fixed-rate of 7.09% (weighted average) on $15 million of the
$40 million senior credit facility. At September 30, 1996 the $40 million
Wachovia Bank secured senior credit facility had a weighted average interest
rate of 6.67% which reflects the effects of the interest rate swaps.
In addition, the Company assumed a $31.2 million senior credit facility from
First Union National Bank that bears interest of LIBOR (30 day) + 1.18%
(approximated 6.58% during the period held by the Company) and is secured by
seven apartment communities. There are three interest rate swap agreements with
First Union National Bank in the aggregate notional amount of $30 million under
which the Company pays a fixed-rate of interest and receives a variable-rate on
the notional amounts. The interest rate swaps effectively change the Company's
interest rate exposure from a variable-rate to a fixed-rate of 7.65% (weighted
average) on $30 million of the $31.2 million senior credit facility. At
September 30, 1996, the $31.2 million First Union National Bank secured senior
credit facility had a weighted average interest rate of 7.61% which reflects the
effects of the interest rate swaps.
8
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Tax-Exempt Fixed-Rate Secured Notes At September 30, 1996, 17 properties were
encumbered by fixed-rate secured notes aggregating $117.1 million which secure
related tax-exempt housing bond issues. Interest on these notes is generally
payable in semi-annual installments and the notes mature at various dates
through 2025. At September 30, 1996, tax-exempt fixed-rate mortgage notes had
interest rates ranging from 6.00% to 8.50% (weighted average 6.88%)
Tax-Exempt Variable-Rate Secured Notes At September 30, 1996, two of the
Company's properties were encumbered by variable-rate secured notes aggregating
$5.6 million which secure tax-exempt housing bond issues. Interest on these
notes is generally payable in monthly installments and the notes mature at
various dates through 2010. At September 30, 1996, tax-exempt variable-rate
notes had interest rates ranging from 5.16% to 7.30% (weighted average 6.45%).
7.Notes Payable - Unsecured
A summary of secured notes payable at September 30, 1996 and 1995 and December
31, 1995 is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------------
1996 1995 1995
---------- -------- -----------
<S> <C>
Commercial Banks
Borrowings outstanding under revolving
credit facilities (a) $ 49,200 $ 26,400 $18,400
Insurance Companies--Senior Unsecured Notes
7.98% due March, 1997-2003 (b) 52,000 52,000 52,000
9.57% due July, 1996 --- 35,000 35,000
7.89% due March, 1996 --- 10,000 10,000
8.72% due November, 1996-1998 (c) 6,000 8,000 6,000
Other (d) 31,189 3,592 3,458
-------- --------- ---------
138,389 134,992 124,858
Senior Unsecured Notes - Other
7.95% Medium Term Notes due
July 12, 2006 125,000 --- ---
7.25% Notes due April 1, 1999 75,000 75,000 75,000
8.50% Debentures due
September 15, 2024 (e) 150,000 150,000 150,000
---------- ------- -------
$ 488,389 $ 359,992 $ 349,858
========= ========= =========
</TABLE>
(a) The weighted average balance outstanding for the quarters ended
September 30, 1996 and 1995 was $8.7 million and $1.8 million,
respectively. This debt carried a weighted average daily interest
rate during the third quarter of 1996 and 1995 of 6.03% and 6.92%,
respectively. The weighted average balance outstanding for the
nine months ended September 30, 1996 and 1995 was $46.5 million
and $6.1 million, respectively. The weighted average daily
interest rate for the nine months ended September 30, 1996 and
1995 was 6.06% and 6.80%, respectively. This debt carried a
weighted average daily interest rate at September 30, 1996 of
6.22%.
(b) Payable in seven equal annual principal installments of $7.4
million.
(c) Payable in equal annual principal installments of $2 million.
(d) Includes $5.7 million at September 30, 1996 of deferred gain from
terminated interest rate hedge transactions. The September 30,
1996 balance also includes a $25 million unsecured note payable
due December 31, 1996.
(e) Debentures include an investor put feature which grants the
debenture-holder a one time option to redeem debentures in
September 2004.
On July 9, 1996, the Company issued $125 million of ten year notes under its
$200 million medium-term note program ("MTN") at an interest rate of 7.95%. Net
proceeds of approximately $124.2 million were used to (i) curtail existing bank
debt in the amount of $93.1 million, and (ii) repay a portion of the 9.57%, $35
million senior note that matured on July 15, 1996. In July, 1995 and
9
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June, 1996, the Company entered into separate interest rate protection
transactions in the aggregate notional amount of $125 million in anticipation of
this refinancing. The two interest rate hedge agreements were terminated
simultaneously with the $125 million MTN issuance and the Company received $3.0
million in cash on settlement which have been deferred and will have the
economic effect of reducing the interest rate to approximately 7.61% over the
ten year term.
8. Subsequent Events
On October 1, 1996, the Company executed a definitive agreement to acquire South
West Property Trust Inc. ("South West"), a Dallas, Texas based apartment REIT,
in a tax free merger. The merger was approved unanimously by the Board of
Directors of both companies. The merger will be accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16. Based upon the
closing stock price of the Company on September 30, 1996, ($14.00 per share)
shareholders of South West will receive approximately $312 million of the
Company's common stock. In addition, the Company will assume approximately $235
million of debt and other liabilities, making the total value of the transaction
approximately $547 million. South West owns 14,975 apartments homes, including
808 under development. The merger is subject to completion of due diligence and
the approval of the shareholders of both companies. The merger is expected to be
effective at the close of business on December 31, 1996.
10
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q.
A significant aspect of the Company's investment strategy has been to
concentrate its investments within the Southeast. The Company operates primarily
in 17 major markets dispersed throughout a nine state area extending from
Delaware to Florida and westward to Memphis, Tennessee. At September 30, 1996,
the Company did not own more than 9% of its apartment homes in any one market.
The following table summarizes the Company's major apartment market information
(includes real estate held for investment and real estate held for disposition):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
As of September 30, 1996 September 30, 1996 September 30, 1996
------------------------------------ ------------------------ ------------------------
Number of Number of Percentage Average Average
Apartment Apartment Apartment Economic Monthly Economic Monthly
Market Communities Homes Homes Occupancy** Rental Rates* Occupancy** Rental Rates*
- ----------------------------------------------------- -------------------------- ------------------------
<S> <C>
Richmond, VA 13 3,697 9% 94.7% $517 94.0% $ 523
Columbia, SC 12 3,534 9% 92.1% 481 92.0% 487
Charlotte, NC 14 2,728 7% 95.0% 537 94.3% 546
Orlando, FL 9 2,653 6% 91.4% 545 92.9% 549
Raleigh, NC 9 2,628 6% 98.4% 573 98.3% 583
Atlanta, GA 9 2,450 6% 94.5% 549 95.1% 566
Tampa, FL 8 2,351 6% 92.7% 543 93.8% 548
Eastern NC 9 2,150 5% 96.0% 511 95.8% 518
Greensboro, NC 9 2,122 5% 92.8% 528 93.4% 534
Baltimore, MD 8 1,746 4% 90.4% 634 92.0% 639
Greenville, SC 9 1,840 4% 91.9% 486 90.8% 494
Hampton Roads, VA 7 1,628 4% 90.9% 525 89.9% 531
Nashville, TN 6 1,520 4% 94.0% 560 94.3% 566
Washington, DC 6 1,483 4% 88.4% 650 91.7% 670
Jacksonville, FL 3 1,157 3% 93.3% 579 93.0% 581
Ft. Lauderdale, FL 4 960 2% 90.6% 774 88.6% 776
Memphis, TN 4 935 2% 93.6% 487 93.9% 494
Other 27 5,622 14% 93.3% 541 93.9% 546
-- ----- ---- ----- --- ----- ------
Total 166 41,204 100% 93.2% $ 549 93.4% $ 554
=== ====== ==== ===== ===== ===== ======
</TABLE>
* Average Monthly Rental Rates for the Quarter and Nine Months Ended September
30, 1996, represents potential rent collections (gross potential rents less
market adjustments), which approximates net effective rents.
** Economic Occupancy is defined as rental income (gross potential rent less
vacancy loss, management units and credit loss) divided by potential
collections (gross potential rent less management units) for each period
presented, expressed as a percentage.
Financial Condition
As a qualified REIT, the Company distributes a substantial portion of its cash
flow to its shareholders in the form of quarterly distributions. The Company
seeks to retain sufficient cash to cover normal operating needs, including
routine replacements and to help fund additional acquisitions. For the nine
months ended September 30, 1996, the Company's cash flow from operating
activities exceeded cash distributions paid to preferred and common shareholders
by approximately $25.4 million. The Company utilizes a variety of primarily
external financing sources to fund portfolio growth, major capital improvement
programs and balloon debt payments. The Company 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. The Company
has, from time to time, used derivative instruments to synthetically alter
on-balance sheet liabilities or to hedge anticipated financing transactions.
Derivative contracts did not have a material impact on results of operations
during the periods ended September 30, 1996 or 1995.
11
<PAGE>
At September 30, 1996, the Company's outstanding indebtedness totaled $795.9
million with a weighted average interest rate of 7.54%. This amount includes (i)
mortgage notes payable aggregating $184.9 million with a weighted average
interest rate of 7.59%, (ii) tax-exempt bond indebtedness aggregating $122.7
million with a weighted average interest rate of 6.86%, (iii) senior unsecured
notes payable aggregating $439.1 million with a weighted average interest rate
of 7.83% and (iv) bank line borrowings aggregating $49.2 million with a weighted
average interest rate of 6.22%. At September 30, 1996, total senior debt equaled
46% of the Company's total market capitalization.
At the beginning of 1996, the Company had approximately $2.9 million of cash and
cash equivalents and $85.1 million of available and unused bank lines of credit.
For the nine months ended September 30, 1996, the Company's cash flow from
operating activities increased approximately $25.5 million over the same period
last year, primarily as a result of the significant expansion of the Company's
portfolio of apartment communities as discussed below and under "Results of
Operations".
During the nine months ended September 30, 1996, net cash used for investing
activities was approximately $190.3 million which resulted primarily from the
Company's acquisition of 28 apartment communities containing 7,096 apartment
homes for a total cost, net of debt and liabilities assumed of $165.9 million
which includes $129.9 million of mortgage notes payable assumed. The Company
also funded $43.1 million of capital improvements to its properties during this
same period. The Company received net cash proceeds of $18.7 million from the
sales of real estate held for disposition during the first nine months of 1996
which included two apartment communities, four shopping centers and one parcel
of undeveloped land ($4.9 million is held in escrow in a like-kind exchange
transaction and is included in other assets).
Net cash provided by financing activities during the nine months ended September
30, 1996, was approximately $122.6 million reflecting (i) net proceeds from the
issuance of common stock in the amount of $31.9 million, which includes $8.0
million received from the issuance of common stock under the Company's dividend
reinvestment and stock purchase plan, (ii) net proceeds from the issuance of
notes payable of approximately $153.0, (iii) net short-term bank borrowings of
$30.8 million, (iv) net proceeds from the issuance of tax-exempt bonds totaling
$5.9 million and (v) mortgage financing proceeds released from construction
funds in the amount of $2.7 million. These cash inflows were partially offset by
(i) $47.2 million of cash distributions paid to common and preferred
shareholders funded with cash flows from operating activities, (ii) scheduled
mortgage principal payments of $1.9 million, (iii) payments on notes and
non-scheduled mortgage principal payments of $50.7 million, and (iv) payment of
financing costs aggregating $1.9 million.
The Company considers its cash provided by operating activities adequate to meet
its operating requirements and payments of distributions to both common and
preferred shareholders.
During 1996, the Company has completed several significant financing activities.
During 1996, the Company implemented a $200 million medium-term note program
("MTN") program under its $462.5 million shelf registration statement. On July
9, 1996, the Company issued $125 million of ten year notes under this program at
an interest rate of 7.95%. Net proceeds of approximately $124.2 million were
used to (i) curtail existing bank debt in the amount of $93.1 million, and (ii)
repay a 9.57%, $35 million senior note that matured on July 15, 1996. In July,
1995, the Company executed a forward starting interest rate swap with a notional
amount of $50 million which had the effect of fixing the interest rate on a
10-year Treasury starting July 15, 1996 at 6.544%. In anticipation of
implementing the medium-term note program, the Company entered into a second
interest rate hedge agreement for $75 million (notional amount) on June 28, 1996
which allowed the Company to lock-in a 10 year Treasury rate of 6.75%. The two
interest rate hedge agreements were terminated simultaneously with the issuance
of the MTN's and the Company received $3.0 million in cash on the settlement
which had the economic effect of reducing the interest rate to approximately
7.61% over the ten year term. Additionally, on August 15, 1996, the Company
12
<PAGE>
acquired an 18 property apartment portfolio, located primarily in North Carolina
and South Carolina, at an aggregate cost of $182.6 million, including closing
costs. The acquisition was financed with (i) additional borrowings under bank
lines of credit of $25.1 million, (ii) the assumption of secured debt
encumbering properties aggregating approximately $109.8 million, (iii) Seller
financing of $25 million, and (iv) the issuance of approximately 1.7 million
shares of the Company's common stock valued at $22.7 million.
The Company may from time to time sell apartment communities that no longer meet
the long-term investment objectives the Company has set for its apartment
portfolio. Also, the Company hopes to dispose of its remaining commercial
properties over time as suitable opportunities arise. Since January 1, 1996, the
Company has sold two apartment communities, four shopping centers and one parcel
of undeveloped land for an aggregate sales price of $26.9 million. In connection
with the sales, the Company recognized an aggregate $2.2 million financial
reporting gain. Of the $24.7 million in cash proceeds received ($4.9 million was
held in escrow at September 30, 1996, pending the completion of a like-kind
exchange transaction and is included in Other Assets ). At September 30, 1996,
the Company had one industrial building under contract for which the sale
occurred in October, 1996 for an approximate $250,000 gain for financial
reporting purposes. Included in the consolidated balance sheet at September 30,
1996, as "Real estate held for disposition" are 14 properties in the aggregate
amount of $42.9 million, net of accumulated depreciation and impairment loss
valuation allowance. Real estate held for disposition contributed net rental
income (total rental income, less rental expenses, less depreciation expense) of
approximately $1.3 million and $3.9 million for the quarter and nine months
ended September 30, 1996, respectively. The 14 properties consist of the
following: (i) seven apartment communities aggregating $23.6 million, (ii) three
shopping centers aggregating $15.0 million, (iii) four office/ industrial
properties in the amount of $2.7 million and (iv) one parcel of land aggregating
$1.6 million.
The Company's liquidity and capital resources are believed to be more than
adequate to meet its cash requirements for the next several years. The Company
expects to meet its long-term liquidity requirements, such as balloon debt
maturities, property acquisitions and significant capital improvements primarily
through the public and private sale of capital stock and the issuance of medium
and long-term unsecured notes payable. The Company may also raise capital
through (i) the assumption of mortgage indebtedness, (ii) sales of properties,
(iii) distributions reinvested and cash invested through the Company's Dividend
Reinvestment and Stock Purchase Plan, (iv) retained cash flow and (v) the
issuance of Operating Partnership Units. As a result of its investment grade
debt ratings, The Company has used and expects to continue to use unsecured debt
as a primary debt funding source. The Company also uses secured debt financings
to a much lesser extent and only when such financings take the form of
tax-exempt housing bonds or when, in connection with apartment acquisitions,
existing mortgage financings are in place that (i) are closed to prepayment,
(ii) cannot be repaid at a reasonable cost or (iii) carry an attractive interest
rate. Depending upon the volume and timing of acquisition activity, the Company
anticipates raising additional debt and equity capital during the next twelve
months.
On October 1, 1996, the Company executed a definitive agreement to acquire South
West Property Trust Inc., a Dallas, Texas based apartment REIT, in a tax free
merger. The acquisition will be accounted for using the purchase method in
accordance with Accounting Principles Board Opinion No. 16. Based upon the
closing stock price of the Company on September 30, 1996, shareholders of South
West will receive approximately $312 million of the Company's common stock. In
addition, the Company will assume approximately $235 million of debt and other
liabilities, making the total value of the transaction approximately $547
million. South West owns 14,975 apartments homes, including 808 under
development. Approximately 80% of South West's apartments are in Texas,
including 50% in Dallas. The merger is subject to completion of due diligence by
October 31, 1996, and the approval of the shareholders of both companies. It is
anticipated that the merger will be effective as of the close of business on
December 31, 1996.
Funds from operations
Funds from operations ("FFO") is defined as income before gains (losses) on
sales investments, minority interest of unitholders in Operating Partnership and
extraordinary items (computed in accordance with generally accepted
13
<PAGE>
accounting principles) plus real estate depreciation, less preferred dividends
and after adjustment for significant non-recurring items, if any. The Company
computes FFO in accordance with the recommendations set forth by the National
Association of Real Estate Investment Trusts ("NAREIT"). The Company considers
FFO in evaluating property acquisitions and its operating performance, and
believes that FFO should be considered along with, but not as an alternative to,
net income and cash flows as a measure of the Company's operating performance
and liquidity. FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs.
For the three months ended September 30, 1996, FFO increased 19.9% to $18.4
million, compared with $15.4 million for the third quarter of 1995. For the nine
months ended September 30, 1996, FFO increased 15.2% to $52.1 million, compared
to $45.2 million for the same period last year. The increase in FFO for both
periods presented was principally due to the increased net rental income from
the Company's 12,298 non-mature apartment homes in 51 apartment communities
(those acquired subsequent to December 31, 1994).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) (In thousands)
(Unaudited) (Unaudited)
--------------------------------- -------------------------------
1996 1995 % Change 1996 1995 % Change
--------------------------------- -------------------------------
<S> <C>
Calculation of Funds from Operations:
Income before gains (losses) on sales of
investments and minority interest of
unitholders in Operating Partnership $ 8,504 $ 7,299 16.5% $ 25,394 $ 20,380 24.6%
Adjustments:
Real estate depreciation 12,346 9,996 23.5% 33,711 28,545 18.1%
Dividends to preferred
shareholders (2,428) (2,428) -- (7,284) (4,209) 73.1%
Prior years' payroll tax
liability -- 500 -- -- 500 --
Impairment loss on real
estate held for disposition -- -- -- 290 -- --
-------- -------- ------- -------- -------- -------
Funds from Operations $ 18,422 $ 15,367 19.9% $ 52,111 $ 45,216 15.2%
====== ======= ======= ======== ======== =======
</TABLE>
Results of Operations
The Company's net income is primarily generated from the operations of its
apartment communities. For purposes of evaluating the Company's comparative
operating performance, the Company categorizes its apartment communities into
two categories (i) mature - those communities acquired prior to January 1, 1995
and held throughout the reporting period and (ii) non-mature - those communities
acquired subsequent to December 31, 1994 plus four apartment communities sold
during this same period.
For the quarter and nine months ended September 30, 1996, the Company reported
increases over the same period last year in rental income and income before
gains (losses) on sales of investments and minority interest of unitholders in
Operating Partnership, net income and FFO. Since the beginning of 1995, the
Company acquired and developed a total of 12,298 apartment homes in 51
communities representing a 35.9% expansion in the number of apartment homes
owned during that period. These apartment homes (the "non-mature" communities)
provided a substantial portion of the aggregate reported increases noted above.
14
<PAGE>
All Communities
The operating performance (unaudited) for all of the Company's 166 apartment
communities containing 41,204 apartment homes and the 122 apartment communities
containing 32,662 apartment homes for the three months and nine months ended
September 30, 1996 and 1995, respectively, is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) (In thousands)
--------------------------------- -------------------------------------
1996 1995 % Change 1996 1995 % Change
--------------------------------- -------------------------------------
<S> <C>
Rental income $ 62,215 $ 48,328 28.7% $171,321 $ 137,231 24.8%
Rental expenses (27,206) (21,135) 28.7% (75,155) (58,730) 28.0%
Real estate depreciation (12,346) (9,682) 27.5% (33,616) (27,048) 24.3%
-------- -------- ----- -------- ---------- -----
Net rental income (1) $ 22,663 $ 17,511 29.4% $ 62,550 $ 51,453 21.6%
========= ======== ===== ======== ========== =====
Weighted average number of
apartment homes 38,697 32,041 20.8% 36,193 30,746 17.7%
Economic occupancy (2) 93.4% 94.0% (0.6%) 93.2% 94.1% (1.0%)
</TABLE>
(1) Net rental income for an apartment community is defined as total rental
income, less rental expenses, less depreciation expense.
(2) Economic occupancy is defined as rental income (gross potential rent less
vacancy loss, management units and credit loss) divided by potential collections
(gross potential rent less management units) for the period, expressed as a
percentage.
Due to the acquisition and development of 12,298 apartment homes since January
1, 1995, the weighted average number of apartment homes has increased 20.8% and
17.7% for the three and nine month periods ended September 30, 1996,
respectively. For the nine month period, the weighted average number of
apartment homes increased to 36,193 from 30,746 apartment homes compared to the
same period last year and to 38,697 from 32,041 for the quarter ended September
30, 1996. As a result of the increase in the number of apartment homes acquired
since January 1, 1995, the Company has experienced significant increases in
rental income, rental expenses and real estate depreciation for the three and
nine month periods ended September 30, 1996.
The non-mature apartment homes (see discussion under "Non-Mature Communities")
provided the majority of the increases in rental income, rental expenses and
depreciation expense for the three and nine month periods ended September 30,
1996, however, higher average rents at the Company's mature communities also
contributed to the increases in rental income. For the 41,204 apartment homes in
the 166 apartment communities owned at September 30, 1996, economic occupancy
averaged 93.2% and the operating expense ratio (ratio of rental expenses to
rental income) averaged 43.9% for the nine months ended September 30, 1996. For
the nine months ended September 30, 1995, the 32,662 apartment homes then owned
had economic occupancy of 94.1% and the operating expense ratio averaged 42.8%.
The major markets in which the Company operates have experienced good job growth
and household formation, which has led to strong rent growth for the Company's
mature apartment communities (see discussion under "Mature Communities"). The
increase in operating expenses for the nine month period was in part
attributable to the severe winter weather experienced during the first quarter
of 1996 which resulted in an increase in gas, snow removal and repair labor
expenses. The Company's mature apartments experienced increases in most of the
operating expense categories compared to the same periods last year. Exterior
painting and other non-recurring exterior improvements, such as striping and
sealcoating parking lots, accounted for a significant amount of the increase. In
addition, real estate taxes, casualty insurance premiums and water/sewer
expenses increased for the three and nine month periods ended September 30,
1996, compared to the same periods last year.
15
<PAGE>
Mature Communities
The operating performance (unaudited) for the Company's 116 mature apartment
communities containing 28,906 apartment homes for the three months and nine
months ended September 30, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) (In thousands)
-------------------------------- ----------------------------------
1996 1995 % Change 1996 1995 % Change
-------------------------------- ----------------------------------
<S> <C>
Rental income $ 45,500 $ 43,376 4.9% $ 134,287 $ 128,613 4.4%
Rental expenses (20,557) (19,136) 7.4% (60,201) (55,271) 8.9%
Real estate depreciation (9,138) (8,825) 3.5% (26,827) (25,600) 4.8%
------- ------- ---- ----------------------- ----
Net rental income $ 15,805 $ 15,415 2.5% $ 47,259 $ 47,742 (1.0%)
Economic occupancy 93.0% 93.9% (1.0%) 93.1% 94.1% (1.0%)
Average monthly rental
rates $ 543 $ 518 4.8% $ 536 $ 512 4.7%
</TABLE>
For the nine months ended September 30, 1996, the Company's mature communities
provided approximately 78% of the Company's rental income and 76% of its net
rental income. Compared to the same nine month period last year, total rental
income from these apartment homes grew 4.4%, or $5.7 million, reflecting an
increase in average monthly rents of 4.7% to $536 per month and an increase in
other income, primarily fee income, of $932,000 or 44%. The Company expects to
maintain rent growth in the 4 1/2% range through the remainder of the year. For
the nine month period ended September 30, 1996, the rental rate increases were
offset by a decrease in economic occupancy of 1.0% to 93.1% which resulted from
a decrease in physical occupancy of .8% and an increase in credit loss of .2%.
The Company expects to be able to sustain economic occupancy in the 93% to 94%
range through the remainder of the year. These same factors led to similar
increases in rental income for the quarter ended September 30, 1996, as total
rental income from these apartment homes grew 4.9%, or $2.1 million, reflecting
an increase in average monthly rents of 4.8% to $543 per month and an increase
in other income of $391,000 or 49%, over the same period last year.
For the nine months ended September 30, 1996 rental expenses at these
communities increased 8.9%, or $4.9 million, resulting in an increase in the
operating expense ratio (the ratio of rental expenses to rental income) of 1.9%
to 44.8%. The increase in rental expenses is partly attributable to the severe
winter of 1996 compared to the relatively mild winter of 1995. Of the $4.9
million increase, approximately $450,000 was weather related which included
increases in gas, snow removal and repair labor expenses. During the first nine
months of 1996, the Company's mature apartments experienced increases in most of
its operating expense categories compared to the same period last year. Exterior
painting and other non-recurring exterior improvements, such as striping and
sealcoating parking lots, accounted for almost $1 million of the increase. In
addition, real estate taxes, casualty insurance premiums and water & sewer
expenses have increased $452,000, $319,000 and 289,000, respectively, over the
same period last year. In 1996, the Company began the process of upgrading
certain of its older apartment communities. The upgrades relate primarily to the
modernization of the kitchens and bathrooms with new appliances, cabinets, light
fixtures, ceiling fans, shelving, countertops, doors and floor coverings.
Although certain of these costs have been capitalized, a portion has been
expensed. The process of upgrading has also contributed to higher turnover costs
and an increase in repair labor costs. The Company expects rental expenses to
moderate during the fourth quarter of 1996, however, it expects continuing
pressure on certain expenses such as real estate taxes, insurance and
water/sewer rates. Turnover (measured by move-outs) for the first nine months of
1996, was 47.6% at the mature communities which approximates turnover for the
nine month period last year. The combination of higher rents which were offset
by a decrease in occupancy and higher rental expenses led to a
16
<PAGE>
decrease in net rental income from mature communities of approximately
$483,000 or 1.0% for the nine month period ended September 30, 1996.
Excluding the effects of the winter related expenses incurred during the
first quarter, these same factors resulted in similar increases in
operating expenses for the quarter ended September 30, 1996, as rental
expenses increased 7.4% which resulted in an increase in the operating
expense ratio of 1.1% to 45.2%. For the third quarter of 1996, casualty
insurance expense increased approximately $330,000 over the same period
last year. Over the past several years, the Company experienced a large
number of casualty insurance claims relating to hurricane and storm
damage which resulted in a significant increase in insurance rates
beginning with the July 1, 1996 policy year.
Non-Mature Communities
The operating performance (unaudited) for the three and nine months ended
September 30, 1996 and 1995 for the Company's 50 non-mature apartment
communities which includes (i) the 12,298 apartment homes acquired and developed
since January 1, 1995 and (ii) the four apartment communities containing 378
apartment homes sold since December 31, 1994, is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) (In thousands)
------------------------------ --------------------------------
1996 1995 $ Change 1996 1995 $ Change
------------------------------ --------------------------------
<S> <C>
Rental income $ 16,715 $ 4,952 $ 11,763 $ 37,034 $ 8,618 $ 28,416
Rental expenses (6,649) (1,999) (4,650) (14,954) (3,459) (11,495)
Real estate depreciation (3,208) (857) (2,351) (6,789) (1,448) (5,341)
-------- ------- -------- --------- -------- --------
Net rental income $ 6,858 $ 2,096 $ 4,762 $ 15,291 $ 3,711 $ 11,580
</TABLE>
For the nine months ended September 30, 1996, the Company's non-mature
communities provided approximately 22% of the Company's rental income and 24% of
its net rental income. Rental income, rental expenses and real estate
depreciation increased from 1995 to 1996 directly as a result of the increase in
the number of apartment homes acquired during 1995 and the first nine months of
1996. For the 12,298 apartments in the 51 non-mature communities acquired and
developed since January 1, 1995, average economic occupancy was 93.7% and the
operating expense ratio was 40.4% during the first nine months of 1996. These
communities provided increases of $28.4 million, $11.5 million and $11.6
million, respectively, in rental income, rental expenses , and net rental income
for the nine months ended September 30, 1996. For the quarter ended September
30, 1996, these communities provided increases of $11.8 million, $4.7 million
and $4.8 million, respectively in rental income, rental expenses , and net
rental income.
Commercial
Rental income, rental expenses and net rental income from commercial properties
decreased $2.9 million, $561,000 and $1.4 million, respectively during the first
nine months of 1996 compared to the same period last year. Rental income, rental
expenses and net rental income from commercial properties decreased $915,000,
$207,000 and $313,000, respectively during the quarter ended September 30, 1996
compared to the same period last year. The decreases for both periods are
directly attributable to the sale of eleven shopping centers since the beginning
of 1995.
Other Income and Expenses
Interest expense increased $3.6 million and $4.9 million for the three and nine
month periods ended September 30, 1996 over the same period last year. The
weighted average amount of debt employed for the nine months ended September 30,
1996 was higher than it was in 1995 ($619.1 million in 1996 versus $496.5
million in 1995). The weighted average interest rate on this debt was slightly
lower than it was during the same period last year,
17
<PAGE>
decreasing from 7.82% in 1995 to 7.65% in 1996. For the quarter ended September
30, 1996, the weighted average amount of debt outstanding was higher than the
same period last year ($763.9 million in 1996 versus $496.2 million in 1995).
The weighted average interest rate on this debt was slightly lower than it was
during the same period last year, decreasing from 7.82% in 1995 to 7.55% in
1996. The interest rates decreased slightly for both the three and nine
month periods ended September 30, 1996, primarily as a result of the fact
that the weighted average interest rate on short-term bank borrowings decreased
compared to both periods last year. In addition, during 1996, the Company
retired $45 million of unsecured debt which was replaced with lower
interest rate debt.
General and administrative expenses increased by $271,000 and $421,000 for the
three and nine months ended September 30, 1996 over the same period last year.
In 1996, the Company incurred increases in most of its general and
administrative expense categories with the largest increases in payroll and
payroll related expenses, investor relations expenses and office rent which are
directly related to the higher administrative costs associated with increasing
the size of the Company, however, general and administrative expense as a
percentage of rental revenues has remained relatively flat compared to last
year for both periods presented.
Inflation
The Company believes that the direct effects of inflation on the Company's
operations have been inconsequential.
18
<PAGE>
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the accompanying index to exhibits are
filed as part of this quarterly report.
(b) A Form 8-K dated August 15, 1996 was filed with the Securities and
Exchange Commission on August 30, 1996. The filing reported the
acquisition of a portfolio of 18 apartment communities which in
the aggregate were deemed to be significant. The financial
statements filed as a part of this report are the combined
statements of rental operations of the properties.
A Form 8-K dated October 1, 1996 was filed with the Securities and
Exchange Commission on October 4, 1996. The filing reported the
Agreement and Plan of Merger dated as of October 1, 1996 between
the Company, United Dominion Sub, Inc., a wholly-owned subsidiary
of the Company, and South West Property Trust Inc.
19
<PAGE>
EXHIBIT INDEX
Item 6 (a)
.
The exhibits listed below are filed as part of this quarterly report.
References under the caption "Location" to exhibits, forms, or other filings
indicate that the form or other filing has been filed, that the indexed exhibit
and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit Description Location
<S> <C>
2(a) Agreement of Purchase and Sale dated Exhibit 2 to the Company's Current Report on Form
July 1, 1996 8-K dated August 15, 1996.
2(b) Definitive Agreement and Plan of Exhibit 2(b) to the Company's Form S-4 Registration
Merger dated as of October 1, 1996, Statement (Registration No. 333-13745) filed with the
between United Dominion Sub, Inc. Commission on October 9, 1996.
And South West Property Trust Inc.
3(a) Restated Articles of Incorporation Exhibit 4(i)(c) to the Company's Form S-3 Registration
Statement (Registration No. 33-64275) filed with the
Commission on November 15, 1995.
3(b)(i) By-Laws Exhibit 4(c) to the Company's Form S-3 Registration
Statement (Registration No. 33-44743) filed with the
Commission on December 31, 1991.
3(b)(ii) Amendment of By-Laws Exhibit 3(b)(ii) to the Company's Annual Report.
On Form 10-K for the year ended December 31, 1995.
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report
Certificate on Form 10-K for the year ended December
31, 1993.
4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995.
Redeemable Preferred Stock
4(ii)(a) Loan Agreement dated as of Exhibit 6(c)(i) to the Company's Form 8-A
November 7, 1991, between the Registration Statement dated April 19, 1990.
Company and Aid Association for
Lutherans
4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A
as of February 15, 1993, between Registration Statement dated April 19, 1990.
the Company and CIGNA Property
and Casualty Insurance Company,
Connecticut General Life Insurance
Company, Connecticut General Life
Insurance Company, on behalf of
one or more separate accounts,
Insurance Company of North
20
<PAGE>
America, Principal Mutual Life
Insurance Company and Aid
Association for Lutherans
4(ii)(f) Credit Agreement dated as of Exhibit 6 (c)(6) to the Company's
December 15, 1994 between the Form 8-A Registration Statement
Company and First Union National Bank dated April 19, 1990.
of Virginia
4(ii)(g)(1) Indenture dated as of April 1, 1994, Exhibit 4(ii)(f)(1) to the Company's
between the Company and First Union Quarterly Report on Form 10-Q for
National Bank of Virginia, N.A., the quarter ended March 31, 1994.
as Trustee.
4(ii)(g)(2) Resolution of the Board of Directors Exhibit 4(ii)(f)(2) to the Company's
of the Company establishing terms of Quarterly Report on Form 10-Q for
7 1/4% Notes due April 1, 1999 the quarter ended March 31, 1994.
4(ii)(g)(3) Form of 7 1/4% Notes due April 1, Exhibit 4(ii)(f)(3) to the Company's
1999 Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994.
4(ii)(g)(4) Resolution of the Board of Directors Exhibit 4 (ii)(f)(4) to the Company's
of the Company establishing terms of Quarterly Report on Form 10-Q for
the 8 1/2% Debentures due quarter ended September 30, 1994.
September 15, 2024
4(ii)(g)(5) Form of 8 1/2% Debentures Exhibit 4 (ii)(f)(5) to the Company's
due September 15, 2024 Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994.
4(ii)(h)(1) Indenture dated November 1, Exhibit 4(ii)(h)(1) to the Company's
1995, between the Company Quarterly Report on Form 10-Q for
And First Union National Bank the quarter ended June 30, 1996.
of Virginia, N.A., as Trustee
4(ii)(h)(2) Resolution of the Board of the Exhibit 4(ii)(h)(2) to the Company's
Company establishing the terms Quarterly Report on Form 10-Q for
of the Medium-Term Notes the quarter ended June 30, 1996.
4(ii)(h)(3) Form of Note for Medium-Term Exhibit 4(ii)(h)(3) to the Company's
Notes due nine months or more Quarterly Report on Form 10-Q for
from the date of issue the quarter ended June 30, 1996.
</TABLE>
The Company agrees to furnish to the Commission on request a copy of
any instrument with respect to long-term debt of the Company or its subsidiaries
the total amount of securities authorized under which does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
<TABLE>
<CAPTION>
<S> <C>
10(i) Employment Agreement between Exhibit 10(v)(i) to the Company's Annual Report on
the Company and John P. McCann Form 10-K for the year ended December 31, 1982.
dated October 29, 1982
21
<PAGE>
10(ii) Employment Agreement between Exhibit 10(v)(ii) to the Comapny's Annual Report on
the Company and James Dolphin Form 10-K for the year ended December 31, 1982.
dated October 29, 1982.
10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual
The Company and Barry M. Kornblau, Report on Form 10-K for the year December
dated February 1, 1991. 31, 1990.
10(iv) 1985 Stock Option Plan, Exhibit A to the Company's definitive proxy
as amended statement dated March 28, 1996.
10(v) 1991 Stock Purchase and Loan Exhibit 10(v) to the Company's Annual Report on Form
Plan 10-K for the year ended December 31, 1991.
10(vi) Amended and Restated Agreement Exhibit 10(vi) to the Company's Annual Report on
of Limited Partnership of Form 10-K for the year ended December 31, 1995.
United Dominion Realty, L.P.
Dated as of December 31, 1995
10(vii) Distribution Agreement dated as of Exhibit 10(vii) to the Company's Quarterly Report
July 8, 1996, between the Company on Form 10-Q for the quarter ended June 30, 1996.
And Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith
Incorporated, Alex Brown & Sons
Incorporated, Goldman Sachs & Co.,
J. P. Morgan Securities, Inc. and
NationsBanc Capital Markets, Inc.
relating to Medium-Term Notes
due nine months or more from the
date of issue.
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges
21 The Company has the following subsidiaries, all of which but
United Dominion Realty, L.P. are wholly owned. The Company
owns general and limited partnership interests in United
Dominion Realty, L.P., constituting 97.9% of the aggregate
partnership interest.
The Commons of Columbia, a Virginia corporation
UDRT of North Carolina, L.L.C., a North Carolina limited
liability company UDRT of Alabama, Inc., an Alabama
corporation UDR of Marble Hill, L.L.C., a Virginia limited
liability company United Dominion Realty, L.P., a Virginia
limited partnership United Dominion Residential, Inc., a
Virginia corporation UDRT of Virginia, Inc., a Virginia
corporation United Dominion, Sub, Inc., a Virginia corporation
</TABLE>
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Quarterly Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Trust, Inc.
----------------------------------
(registrant)
Date: October 31, 1996 /s/ James Dolphin
- ---------------------- -----------------
James Dolphin
Senior Vice President,
and Chief Financial Officer
Date: October 31, 1996 /s/ Jerry A. Davis
- ---------------------- ------------------
Jerry A. Davis
Vice President, Controller-Corporate
Accounting and Chief Accounting Officer
23
<PAGE>
EXHIBIT 12
United Dominion Realty Trust, Inc.
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
---------------------------- ----------------------------
<S> <C>
Net income $7,504 $9,818 $25,244 $27,544
Add:
Portion of rents representative
of the interest factor 53 62 143 177
Interest on indebtedness 9,974 13,530 30,563 35,413
------- ------- ------- -------
Earnings $17,531 $23,410 $55,950 $63,134
======= ======= ======= =======
Fixed charges and preferred stock dividend:
Interest on indebtedness $9,974 $13,530 $30,563 $35,413
Capitalized interest -- 143 -- 397
Portion of rents representative
of the interest factor 53 62 143 177
------ ------ ------ ------
Fixed charges 10,027 13,735 30,706 35,987
====== ====== ====== ======
Add:
Preferred stock dividend 2,428 2,428 4,209 7,284
----- ----- ----- -----
Combined fixed charges and preferred stock
dividend $12,455 $16,163 $34,915 $43,271
======= ======= ======= =======
Ratio of earnings to fixed charges 1.75 x 1.70 x 1.82 x 1.75 x
Ratio of earnings to combined fixed charges
and preferred stock dividend 1.41 1.45 1.60 1.46
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,803
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,826
<PP&E> 1,491,511
<DEPRECIATION> 159,429
<TOTAL-ASSETS> 1,375,711
<CURRENT-LIABILITIES> 49,091
<BONDS> 795,894
0
105,000
<COMMON> 58,744
<OTHER-SE> 364,952
<TOTAL-LIABILITY-AND-EQUITY> 1,375,711
<SALES> 175,119
<TOTAL-REVENUES> 176,316
<CGS> 0
<TOTAL-COSTS> 76,399
<OTHER-EXPENSES> 39,110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,413
<INCOME-PRETAX> 20,260
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,260
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
