FILED PURSUANT TO RULE 424B(3)
FILE NO. 33-64275 AND 33-55159
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JANUARY 17, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 23, 1996)
3,000,000 SHARES
[UNITED DOMINION REALTY TRUST LOGO]
COMMON STOCK
------------------------
The Common Stock is listed on the New York Stock Exchange. On January 16,
1997, the last reported sale price of the Common Stock was $15 5/8 per share.
See "Price Range of Common Stock and Distributions."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total (3)............................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $100,000.
(3) The Company has granted the several Underwriters an option to purchase up to
an additional 450,000 shares to cover over-allotments. If all such shares
are purchased, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $ , $ and $ , respectively.
See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares
will be made in New York, New York on or about January , 1997.
------------------------
MERRILL LYNCH & CO. SCOTT & STRINGFELLOW, INC.
------------------------
The date of this Prospectus Supplement is January , 1997.
<PAGE>
[MAP GRAPHIC]
[GRAPHIC]
APARTMENT HOMES OWNED AT DECEMBER 31
1987 5,461
1988 6,296
1989 7,732
1990 8,672
1991 10,924
1992 13,832
1993 17,914
1994 29,282
1995 34,224
1996 56,319
[GRAPHIC]
APARTMENT HOMES OWNED BY STATE
Texas 21.2%
North Carolina 20.1%
Florida 15.8%
Virginia 13.8%
South Carolina 10.3%
Georgia 4.8%
Maryland 4.5%
Tennessee 4.3%
Arizona 1.3%
Arkansas 0.9%
Nevada 0.7%
Alabama 0.7%
Delaware 0.6%
Oklahoma 0.6%
New Mexico 0.4%
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
THE COMPANY
United Dominion Realty Trust, Inc. (together with its subsidiaries, the
"Company") is a self-administered equity real estate investment trust ("REIT"),
formed in 1972, whose business is devoted to one industry segment, the ownership
and operation of apartment communities. As a result of its merger with South
West Property Trust Inc. ("South West") on December 31, 1996 (the "South West
Merger"), the Company, which owns 56,319 apartment homes, is the largest
apartment REIT operating in the Sun Belt states from Florida to Arizona and the
second largest apartment REIT nationwide.
The Company is a fully-integrated real estate company with acquisition,
development and asset and property management capabilities. The Company
acquires, upgrades, develops and operates its properties with the goals of
growing its funds from operations and quarterly distributions to shareholders,
while building equity primarily through real estate appreciation.
Including the South West Merger, the Company completed a record number of
apartment community acquisitions in 1996, adding a total of 22,687 apartment
homes at a total cost of approximately $924.1 million. Of this total, the South
West Merger added 44 apartment communities aggregating 14,975 apartment homes
for $603 million. In addition, the Company completed a 60 apartment home
addition to an existing property during the third quarter of 1996.
In 1995, the Company organized United Dominion Realty, L.P. (the "Operating
Partnership") to assist the Company in competing for acquisition of properties
that meet the Company's investment strategies from seller partnerships, some or
all of whose partners may wish to defer taxation of gain realized on sale
through an exchange of partnership interests. The Company has acquired three
apartment communities and land to develop an additional apartment community
using the Operating Partnership and transferred seven of its Tennessee
properties into the Operating Partnership. As of January 16, 1997, the Operating
Partnership was 98% owned by the Company.
The Company has paid continuous quarterly distributions to its shareholders
since 1973 and has increased its distributions each year during the past 20
years. The distribution declared for each quarter of 1996 was $.24 per share.
The current indicated annual distribution is $.96 per share. The declared
distribution was last increased in March 1996. In past years, a portion of the
Company's distributions to its shareholders has been designated a non-taxable
return of capital for federal income tax purposes.
The Company, 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 Company, as
used herein, includes the Company and its subsidiaries.
RECENT DEVELOPMENTS
SOUTH WEST MERGER
On December 31, 1996, the Company completed its merger with South West. As
a result of the South West Merger, the Company established itself as the largest
apartment REIT operating in the Sun Belt states from Florida to Arizona. Through
the South West Merger, the Company acquired 41 apartment communities aggregating
14,079 apartment homes in Southwestern markets in Texas, Arizona, Arkansas,
Nevada, New Mexico and Oklahoma, and three apartment communities aggregating 896
apartment homes in Charlotte and Raleigh, North Carolina, where the Company
already had a presence. The South West Merger will be accounted for by the
Company as a purchase of South West by the Company for approximately $600
million. The Company believes that as well as being immediately accretive and
strengthening both the Company's Board of Directors and its management team, the
South West Merger provided a unique investment opportunity for logical
geographic expansion into growth-oriented markets throughout the Southwest. In
addition, the South West Merger added development capabilities to complement the
Company's acquisition program.
ACQUISITIONS
Since January 1, 1996, the Company has acquired 30 apartment communities
aggregating 7,712 apartment homes at a total cost of $321.1 million, including
closing costs. Eighteen of these communities, aggregating 4,508 apartment homes,
were acquired in a portfolio transaction which closed on August 15, 1996. In
addition, the Company has under contract one apartment community located in
Nashville, Tennessee, containing 406 apartment homes, at a purchase price of
$17.3 million, excluding closing costs.
There can be no assurance that this proposed acquisition will be
consummated.
DEVELOPMENT ACTIVITY
At January 16, 1997, United Dominion had two new apartment communities (780
apartment homes) under development and six additions (800 apartment homes) to
existing apartment communities under construction.
S-3
<PAGE>
The new communities are located in Nashville, Tennessee (360 apartment
homes) and Charlotte, North Carolina (420 apartment homes). The six additions
are located in Dallas/Ft. Worth, Texas (340 apartment homes), Phoenix, Arizona
(20 apartment homes), Greensboro, North Carolina (176 apartment homes),
Fredericksburg, Virginia (168 apartment homes) and Ft. Myers, Florida (96
apartment homes).
DISPOSITIONS
Since January 1, 1996, the Company has disposed of four shopping centers,
four apartment communities, one industrial building and two parcels of land at
an aggregate gain, for financial reporting purposes, of $4.3 million. At January
16, 1997, the Company had six apartment communities totaling 1,270 apartment
homes, three shopping centers, one parcel of land, one industrial property and
two office buildings classified in its balance sheet as "Real estate held for
disposition."
FINANCINGS
Since January 1, 1996, the Company has completed the sale of $200 million
of Medium-Term Notes having a weighted average maturity of 9.75 years and a
weighted average interest rate of 7.61%.
The Company benefits from having one of the lowest costs of capital in the
REIT industry.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock are estimated at $ . The Company presently intends to use the net
proceeds for repayment of secured and unsecured bank credit facilities having a
weighted average interest rate of 6.6% and the acquisition of properties.
Pending such use, the Company will invest the net proceeds in short-term
instruments bearing interest at market rates.
CAPITALIZATION
The following table sets forth the pro forma combined capitalization of the
Company and South West at September 30, 1996, and as adjusted to give effect to
(1) the issuance of 3,000,000 shares of Common Stock offered hereby and (2) the
sale by the Company of $75,000,000 of Medium-Term Notes on November 12, 1996.
The table should be read in conjunction with the unaudited pro forma combined
financial statements appearing elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Debt:
Notes payable -- secured........................................ $ 408,963 $
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 1, 2006........................ 125,000 125,000
7.07% Medium-Term Notes due November 15, 2006................... -- 25,000
7.02% Medium-Term Notes due November 15, 2005................... -- 50,000
Notes payable -- unsecured...................................... 270,186
----------- -----------
Total debt................................................... $ 1,029,149 $
Shareholders' equity:
Preferred Stock, no par value; 25,000,000 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; 150,000,000 shares authorized,
81,548,734 shares issued and outstanding (84,548,734 as
adjusted).................................................... 81,549 84,549
Additional paid-in capital...................................... 840,649
Notes receivable from officer shareholders...................... (5,903) (5,903)
Distributions in excess of net income........................... (141,336) (141,336)
Unrealized gain on securities available-for-sale................ 1,877 1,877
----------- -----------
Total shareholders' equity................................... $ 881,836 $
----------- -----------
Total capitalization....................................... $ 1,910,985 $
=========== ===========
</TABLE>
S-4
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
PRICE RANGE
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "UDR." The following table sets forth the reported high
and low sale prices of the Common Stock on the NYSE for the periods indicated
and the distributions per share paid in such periods, in each case as adjusted
for a 2-for-1 stock split effective May 5, 1993.
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW PAID
------------- ----------- -----
<S> <C> <C> <C> <C>
1993
1st Quarter................................................. $ 14 13/16 $11 7/8 $.165
2nd Quarter................................................. 14 5/8 12 1/2 .175
3rd Quarter................................................. 16 5/8 13 1/2 .175
4th Quarter................................................. 16 7/8 12 5/8 .175
-----
.690
1994
1st Quarter................................................. 15 7/8 12 3/4 .175
2nd Quarter................................................. 15 1/8 13 3/8 .195
3rd Quarter................................................. 14 1/4 13 .195
4th Quarter................................................. 14 1/2 12 1/4 .195
-----
.760
1995
1st Quarter................................................. 14 3/8 13 .195
2nd Quarter................................................. 15 3/8 13 1/2 .225
3rd Quarter................................................. 15 13 1/2 .225
4th Quarter................................................. 15 13 1/4 .225
-----
.870
1996
1st Quarter................................................. 15 5/8 14 1/8 .225
2nd Quarter................................................. 15 1/2 14 .240
3rd Quarter................................................. 14 1/2 13 1/8 .240
4th Quarter................................................. 15 13/16 13 5/8 .240
-----
.945
1997
1st Quarter (through January )
</TABLE>
On January , 1997, the Company had shareholders of record.
DISTRIBUTIONS
The Company has paid continuous quarterly distributions to its shareholders
since 1973, its first full year of operations, and has increased its
distributions each year during the past 20 years. The Company's current policy
is to make distributions in amounts approximating 75-80% of its funds from
operations, but not less than such amounts as may be necessary to continue its
qualification as a REIT under the Internal Revenue Code of 1986, as amended.
Funds from operations may not necessarily equal cash available for distribution
as the cash flow of the Company is affected by other factors not included in the
calculation of funds from operations. Distributions declared for 1996 are
expected to be approximately 77% of funds from operations for the year. The
quarterly distribution for the fourth quarter of 1996 is to be paid on February
1, 1997 to shareholders of record as of the close of business on December 30,
1996. Purchasers of the Common Stock offered hereby will not participate in this
distribution. The current indicated annual distribution is $.96 per share.
S-5
<PAGE>
For federal income tax purposes, distributions paid to shareholders may
consist of ordinary income, capital gains distributions, non-taxable return of
capital or a combination thereof. Distributions which exceed the Company's
current and accumulated earnings and profits constitute a return of capital
rather than a dividend and reduce the shareholder's basis in his shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in his shares, it will generally be treated
as gain from the sale or exchange of that shareholder's shares. The Company
annually notifies shareholders as to the taxability of distributions paid during
the preceding year. Since 1992, cash distributions per share paid to
shareholders have been taxable as set forth below.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ordinary income................................ $.418 $.493 $.629 $.715 $.638
Capital gains.................................. -- -- .004 .003 --
Return of capital.............................. .237 .197 .127 .152 .307
----- ----- ----- ----- -----
Total distributions paid....................... $.655 $.690 $.760 $.870 $.945
===== ===== ===== ===== =====
</TABLE>
HISTORICAL TOTAL RETURNS
The table below sets forth the compound annual rates of pretax total return
(increase in market value plus distributions paid) which would have been
realized by an investor who purchased the Company's Common Stock on the open
market at the beginning of the periods indicated and sold such Common Stock on
the open market at the end of the periods indicated. Distributions paid during
each year are assumed to have been reinvested on the date paid at the then
closing market price of the Common Stock. Past performance is not necessarily
indicative of the results that can be expected in the future from an investment
in the Company's Common Stock.
<TABLE>
<CAPTION>
COMPOUND
ANNUAL
RATE OF
TOTAL
PERIOD RETURN
- ------- -------
<S> <C>
Ten years ended December 31, 1996.................................................. 14.14%
Five years ended December 31, 1996................................................. 15.32%
Year ended December 31, 1996....................................................... 10.37%
</TABLE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth summary historical financial data for the
Company and unaudited pro forma combined financial data for the Company and
South West as a combined entity, giving effect to the South West Merger as if it
had occurred on the dates indicated, after giving effect to the pro forma
adjustments described in the notes to the unaudited pro forma combined financial
statements appearing elsewhere in this Prospectus Supplement. The unaudited pro
forma combined operating and other data are presented as if the South West
Merger had been consummated at the beginning of each period presented and as if
the following acquisitions by the Company had occurred at the beginning of each
period presented: (i) the acquisition of 13 apartment communities during 1995
and (ii) the acquisition of 20 apartment communities, including an 18 apartment
community portfolio, since January 1, 1996, (see Note (A) to the Unaudited Pro
Forma Combined Statements of Operations). The unaudited pro forma combined
balance sheet data at September 30, 1996 are presented as if the South West
Merger had occurred on September 30, 1996. In the opinion of management, all
adjustments necessary to reflect the effects of these transactions have been
made. The South West Merger has been accounted for under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16. The
pro forma financial information should be read in conjunction with, and is
qualified in its entirety by, the respective historical audited financial
statements and notes thereto of the Company and South West incorporated by
reference into the Prospectus and the unaudited pro forma financial statements
and notes thereto appearing elsewhere in this Prospectus Supplement. The
unaudited pro forma operating data and other data are presented for comparative
purposes only and are not necessarily indicative of what the actual combined
results of operations of the Company and South West would have been for the
periods presented, nor do such data purport to represent the results of future
periods.
S-6
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------- ---------------------
PRO FORMA
1991 1992 1993 1994 1995 1995 1995 1996
-------- -------- -------- ---------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA AND APARTMENTS HOMES OWNED
OPERATING DATA:
Rental income................ $ 51,250 $ 63,202 $ 89,084 $ 139,972 $ 195,240 $301,106 $143,082 $ 175,119
Income before gains (losses)
on sales of investments,
minority interest of
unitholders in operating
partnership and
extraordinary items........ 3,578 6,577 11,286 19,118 28,037 41,932 20,380 25,394
Gains (losses) on sales of
investments................ 26 -- (89) 108 5,090 5,100 4,844 2,176
Minority interest of
unitholders in operating
partnership................ -- -- -- -- -- (8) -- (26)
Extraordinary item -- early
extinguishment of debt..... (35) (242) -- (89)
Net income................... 3,569 6,335 11,197 19,137 33,127 47,024 25,224 27,544
Dividends to preferred
shareholders............... -- -- -- -- 6,637 9,236 4,209 7,284
Net income available to
common shareholders........ 3,569 6,335 11,197 19,137 26,490 37,788 21,015 20,260
Common distributions
declared................... 15,872 23,271 27,988 37,539 48,610 69,816 35,915 41,282
Weighted average number of
common shares outstanding
(A)........................ 24,642 34,604 38,202 46,182 52,781 74,464 51,597 56,978
Per share:(A)
Net income per common
share.................... $ .14 $ .18 $ .29 $ .41 $ .50 $ .51 $ .41 $ .36
Common distributions
declared................. .63 .66 .70 .78 .90 .90 .675 .72
<CAPTION>
PRO FORMA
1996
----------
<S> <C>
IN THOUSANDS, EXCEPT PER SHARE
OPERATING DATA:
Rental income................ $ 254,162
Income before gains (losses)
on sales of investments,
minority interest of
unitholders in operating
partnership and
extraordinary items........ 37,261
Gains (losses) on sales of
investments................ 2,176
Minority interest of
unitholders in operating
partnership................ (26)
Extraordinary item -- early
extinguishment of debt..... --
Net income................... 39,411
Dividends to preferred
shareholders............... 7,284
Net income available to
common shareholders........ 32,127
Common distributions
declared................... 58,313
Weighted average number of
common shares outstanding
(A)........................ 80,700
Per share:(A)
Net income per common
share.................... $ .40
Common distributions
declared................. .72
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30, 1996
-------------------------------------------------------- ----------
1991 1992 1993 1994 1995 HISTORICAL PRO FORMA
-------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate held for investment
and construction in progress... $361,503 $454,115 $582,213 $1,007,599 $1,131,098 $1,448,622 $2,032,812
Real estate held for
disposition.................... -- -- -- -- 51,015 42,889 42,889
Accumulated depreciation......... 56,074 71,806 91,444 120,341 129,454 159,429 159,429
Total assets..................... 314,473 390,365 505,840 911,913 1,080,616 1,375,711 1,978,691
Notes payable -- secured......... 73,373 76,516 72,862 158,449 180,481 307,505 408,963
Notes payable -- unsecured....... 94,973 104,605 156,558 368,215 349,858 488,389 620,186
Shareholders' equity............. 136,152 197,677 259,963 356,968 516,389 528,696 881,836
Number of common shares
outstanding (A)................ 27,133 35,285 41,653 50,356 56,375 58,744 81,549
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- ---------------------
PRO FORMA
1991 1992 1993 1994 1995 1995 (A) 1995 1996
------- ------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
CASH FLOW DATA
Cash provided by operating
activities...................... $16,614 $24,608 $ 33,939 $ 54,544 $ 66,428 $103,265 $ 47,147 $ 72,600
Cash used in investing
activities...................... (67,321) (81,373) (130,064) (359,631) (183,930) (247,334) (122,189) (190,305)
Cash provided by financing
activities...................... 50,815 56,777 100,793 306,575 113,145 156,629 74,812 122,604
FUNDS FROM OPERATIONS (B)
Income before gains (losses) on
sales of investments, minority
interest of unitholders in
operating partnership and
extraordinary items............. $ 3,578 $ 6,577 $ 11,286 $ 19,118 $ 28,037 $ 41,932 $ 20,380 $ 25,394
Adjustments:
Real estate depreciation........ 12,732 15,557 19,516 28,729 38,939 60,992 28,545 33,711
Minority interest attributable
to depreciation............... -- -- -- -- -- (3) -- --
Non-recurring items:
Impairment loss on real estate
held for disposition....... -- -- -- -- 1,700 1,700 -- 290
Prior years' employment and
other taxes (C)............ -- -- -- -- 395 395 500 --
Adoption of SFAS No. 112
"Employers' Accounting for
Postemployment Benefits"... -- -- -- 450 -- -- -- --
Provision for possible
investment losses.......... -- 1,564 -- -- -- -- -- --
Imputed interest expense...... 530 -- -- -- -- -- -- --
Dividends to preferred
shareholders.................. -- -- -- -- (6,637) (9,236) (4,209) (7,284)
------- ------- -------- -------- -------- --------- --------- ---------
Funds from operations............. $16,840 $23,698 $ 30,802 $ 48,297 $ 62,434 $ 95,780 $ 45,216 $ 52,111
------- ------- -------- -------- -------- --------- --------- ---------
APARTMENT HOMES OWNED
Total apartment homes
owned........................... 10,924 13,832 17,914 29,282 34,224 47,585 32,662 41,204
Weighted average number of
apartment homes owned........... 9,491 11,387 15,445 23,160 31,242 43,985 30,746 36,193
<CAPTION>
PRO FORMA
1996 (A)
---------
<S> <C>
OTHER DATA:
CASH FLOW DATA
Cash provided by operating
activities...................... $102,201
Cash used in investing
activities...................... (236,237)
Cash provided by financing
activities...................... 155,988
FUNDS FROM OPERATIONS (B)
Income before gains (losses) on
sales of investments, minority
interest of unitholders in
operating partnership and
extraordinary items............. $ 37,261
Adjustments:
Real estate depreciation........ 49,802
Minority interest attributable
to depreciation............... --
Non-recurring items:
Impairment loss on real estate
held for disposition....... 290
Prior years' employment and
other taxes (C)............ --
Adoption of SFAS No. 112
"Employers' Accounting for
Postemployment Benefits"... --
Provision for possible
investment losses.......... --
Imputed interest expense...... --
Dividends to preferred
shareholders.................. (7,284)
---------
Funds from operations............. $ 80,069
---------
APARTMENT HOMES OWNED
Total apartment homes
owned........................... 55,367
Weighted average number of
apartment homes owned........... 49,937
</TABLE>
- ---------------
(A) All share and per share information has been adjusted to give effect to a
2-for-1 stock split in May 1993.
(B) Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in Operating
Partnership and extraordinary items (computed in accordance with generally
accepted 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.
(C) Prior years' payroll tax liability resulting from an Internal Revenue
Service examination for the years 1993 and 1994.
S-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS
(AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996)
The following management's discussion and analysis of financial condition
and operations includes the results of the Company prior to the South West
Merger.
LIQUIDITY AND CAPITAL RESOURCES
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 period.
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. Approximately $165.0
million was used in acquisitions of 28 apartment communities containing 7,096
apartment homes for a total cost of approximately $294.9 million. Mortgage notes
payable of approximately $129.9 million were assumed in these acquisitions. 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 included
$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 million, (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 completed several significant financing
activities. During 1996, the Company implemented a $200 million medium-term note
("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
S-9
<PAGE>
with a notional amount of $50 million which had the effect of fixing the
interest rate on a ten-year Treasury starting July 15, 1996 at 6.544%. In
anticipation of implementing the MTN 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 ten-year Treasury rate of 6.75%. The two
interest rate hedge agreements were terminated simultaneously with the issuance
of the MTNs 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
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
$3.9 million for the nine months ended September 30, 1996. 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.
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 to be accounted for using the purchase method in accordance with
Accounting Principles Board Opinion No. 16. The merger was approved by the
shareholders of both parties on December 10, 1996, and became effective on
December 31, 1996. Shareholders of South West received approximately $353
million of the Company's Common Stock. In addition, the Company assumed
approximately $237 million of debt and other liabilities and incurred
transaction expenses of $13 million, making the total value of the transaction
approximately $603 million. South West owned 14,975 apartment homes, including
760 under development, approximately 80% of which are in Texas, including 50% in
Dallas.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") is defined as income before gains (losses) on
sales of investments, minority interest of unitholders in Operating Partnership
and extraordinary items (computed in accordance with generally accepted
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 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 was principally due to the increased net rental income from the Company's
12,298 non-mature apartment homes in 50 apartment communities (those acquired
subsequent to December 31, 1994).
S-10
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
($000S)
1996 1995 % CHANGE
------- ------- --------
<S> <C> <C> <C>
Calculation of Funds from Operations:
Income before gains (losses) on sales of investments and minority interest of unitholders
in Operating Partnership............................................................... $25,394 $20,380 24.6%
Adjustments:
Real estate depreciation............................................................... 33,711 28,545 18.1%
Dividends to preferred shareholders.................................................... (7,284) (4,209) 73.1%
Prior years' payroll tax liability..................................................... -- 500 --
Impairment loss on real estate held for disposition.................................... 290 -- --
------- ------- --------
Funds from Operations....................................................................... $52,111 $45,216 15.2%
======= ======= ========
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
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.
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 50 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.
ALL COMMUNITIES
The operating performance for all of the Company's 166 apartment
communities containing 41,204 apartment homes during the first nine months of
1996 and the 122 apartment communities containing 32,662 apartment homes during
the same period in 1995 is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
($000S)
1996 1995 % CHANGE
-------- -------- --------
<S> <C> <C> <C>
Rental income............................................................................ $171,321 $137,231 24.8%
Rental expenses.......................................................................... (75,155) (58,730) 28.0%
Real estate depreciation................................................................. (33,616) (27,048) 24.3%
-------- -------- --------
Net rental income (1).................................................................... $ 62,550 $ 51,453 21.6%
======== ======== ========
Weighted average number of apartment homes............................................... 36,193 30,746 17.7%
Economic occupancy (2)................................................................... 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 increased 17.7%
to 36,193 for the 1996 period from 30,746 apartment homes for the same period
last year. 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.
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, 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
S-11
<PAGE>
expenses to rental income) averaged 43.9% for the 1996 period. For the 1995
period, 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 period 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 1996 period compared to the same period last year.
MATURE COMMUNITIES
The operating performance for the Company's 116 mature apartment
communities containing 28,906 apartment homes is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
($000S)
1996 1995 % CHANGE
-------- -------- --------
<S> <C> <C> <C>
Rental income............................................................................ $134,287 $128,613 4.4%
Rental expenses.......................................................................... (60,201) (55,271) 8.9%
Real estate depreciation................................................................. (26,827) (25,600) 4.8%
-------- -------- --------
Net rental income........................................................................ $ 47,259 $ 47,742 (1.0%)
Economic occupancy....................................................................... 93.1% 94.1% (1.0%)
Average monthly rental rates............................................................. $ 536 $ 512 4.7%
</TABLE>
For the 1996 period, 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. The rental rate
increases for the 1996 period were offset by a decrease in economic occupancy of
1.0% to 93.1% which resulted from a decrease in physical occupancy of 0.8% and
an increase in credit loss of 0.2%.
For the 1996 period, 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 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 and sewer expenses 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 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 decrease in net rental income from mature communities of
approximately $483,000 or 1.0% for the 1996 period. 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.
S-12
<PAGE>
NON-MATURE COMMUNITIES
The operating performance for the Company's 50 non-mature apartment
communities comprising (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>
NINE MONTHS ENDED SEPTEMBER 30,
($000S)
1996 1995 $ CHANGE
-------- ------- --------
<S> <C> <C> <C>
Rental income.............................................................. $ 37,034 $ 8,618 $ 28,416
Rental expenses............................................................ (14,954) (3,459) (11,495)
Real estate depreciation................................................... (6,789) (1,448) (5,341)
-------- ------- --------
Net rental income.......................................................... $ 15,291 $ 3,711 $ 11,580
</TABLE>
For the 1996 period, 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 50 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 1996 period.
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. The
decrease is directly attributable to the sale of eleven shopping centers since
the beginning of 1995.
OTHER INCOME AND EXPENSES
Interest expense increased $4.9 million for the first nine months of 1996
over the same period last year. The weighted average amount of debt employed for
the 1996 period 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, decreasing from
7.82% in 1995 to 7.65% in 1996. The interest rates decreased slightly for the
1996 period, primarily as a result of the fact that the weighted average
interest rate on short-term bank borrowings decreased compared to 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 $421,000 for the 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.
INFLATION
The Company believes that the direct effects of inflation on its operations
have been inconsequential.
S-13
<PAGE>
The following chart shows the geographic distribution as of January 16,
1997 of the Company's apartment properties giving effect to the South West
Merger.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
APARTMENT NUMBER OF APARTMENT
PROPERTIES HOMES HOMES
--------- --------- -------------
<S> <C> <C> <C>
Dallas/Fort Worth, Texas............................................................... 20 7,563 13%
Richmond, Virginia..................................................................... 13 3,697 6%
Columbia, South Carolina............................................................... 12 3,534 6%
Raleigh, North Carolina................................................................ 11 3,104 6%
Orlando, Florida....................................................................... 10 2,981 5%
Charlotte, North Carolina.............................................................. 14 2,896 5%
Tampa/Clearwater, Florida.............................................................. 9 2,639 5%
Atlanta, Georgia....................................................................... 8 2,226 4%
Eastern North Carolina................................................................. 9 2,150 4%
Greensboro, North Carolina............................................................. 9 2,122 4%
San Antonio, Texas..................................................................... 5 1,983 3%
Greenville/Spartanburg, South Carolina................................................. 9 1,840 3%
Baltimore, Maryland.................................................................... 8 1,746 3%
Hampton Roads, Virginia (1)............................................................ 7 1,628 3%
Nashville, Tennessee................................................................... 6 1,520 3%
Washington, D.C........................................................................ 6 1,483 3%
Jacksonville, Florida.................................................................. 3 1,157 2%
Houston, Texas......................................................................... 3 1,058 2%
Miami/Ft. Lauderdale, Florida.......................................................... 4 960 2%
Memphis, Tennessee..................................................................... 4 935 2%
Fayetteville, North Carolina........................................................... 3 884 1%
Eastern Shore, Maryland................................................................ 4 784 1%
Phoenix, Arizona....................................................................... 3 712 1%
Austin, Texas.......................................................................... 2 517 1%
Little Rock, Arkansas.................................................................. 2 512 1%
Las Vegas, Nevada...................................................................... 1 384 1%
Dover, Delaware........................................................................ 2 368 1%
Oklahoma City, Oklahoma................................................................ 1 316 1%
Albuquerque, New Mexico................................................................ 1 210 --
Other Florida.......................................................................... 5 1,172 2%
Other Virginia......................................................................... 6 988 2%
Other Texas............................................................................ 3 824 1%
Other Georgia.......................................................................... 2 468 1%
Other South Carolina................................................................... 2 408 1%
Alabama................................................................................ 2 382 1%
Other North Carolina................................................................... 1 168 --
--- --------- ------
Total................................................................................ 210 56,319 100%
=== ========= ======
</TABLE>
- ---------------
(1) Includes Newport News/Hampton/Virginia Beach Areas.
S-14
<PAGE>
MANAGEMENT
The directors and officers of the Company are:
NAME AGE OFFICE
- ------------------------ --- ---------------------------------------
John P. McCann 52 Chairman of the Board, President and
Chief Executive Officer; Director
John S. Schneider 58 Vice Chairman of the Board and
Executive Vice President; Director
James Dolphin 47 Executive Vice President and Chief
Financial Officer; Director
Barry M. Kornblau 47 Senior Vice President and Director of
Apartment Operations -- Eastern
Division; Director
Robert F. Sherman 54 Senior Vice President and Director of
Apartment Operations -- Western
Division
David L. Johnston 52 Senior Vice President and Director of
Acquisitions and Development --
Western Division
Richard A. Giannotti 41 Senior Vice President and Director of
Acquisitions and Development --
Eastern Division
Katheryn E. Surface 38 Vice President, Secretary and General
Counsel
Jeff C. Bane 67 Director; President, Blake & Bane Inc.,
real estate brokers, Richmond,
Virginia
R. Toms Dalton, Jr. 64 Director; partner, Allen & Carwile,
attorneys, Waynesboro, Virginia
John C. Lanford 66 Director; President, Adams Construction
Co., general contractors, Roanoke,
Virginia
H. Franklin Minor 63 Director; attorney-at-law and real
estate broker, Richmond, Virginia
Lynne B. Sagalyn 49 Director; Professor, Columbia
University Graduate School of
Business
Mark J. Sandler 54 Director; private investor
Robert W. Scharar 48 Director; President, FCA Corporation,
investment advisors,
Ira T. Wender 70 Director; of counsel, Patterson,
Belknap, Webb & Tyler, attorneys, New
York, New York
C. Harmon Williams, Jr. 65 Director; real estate broker,
Charlottesville, Virginia
S-15
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Scott & Stringfellow, Inc. (the
"Underwriters"), and the Underwriters have severally agreed to purchase from the
Company, an aggregate of 3,000,000 shares of Common Stock. The Underwriters are
committed to purchase all of the shares of Common Stock if any are purchased.
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus Supplement, and to certain dealers at
such price less a concession not in excess of $. per share. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $. per
share to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to 450,000 additional shares of Common Stock at the price to the public set
forth on the cover page of this Prospectus Supplement, less the underwriting
discount. If the Underwriters exercise this option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of shares to be
purchased by it bears to the 3,000,000 shares offered hereby.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company and certain of its officers, directors and principal
shareholders have agreed that for a period of 90 days from the date of this
Prospectus Supplement they will not, without the prior written consent of the
Underwriters, offer, sell or otherwise dispose of any shares of Common Stock,
except for shares issued for property acquisitions or grants of options or
issuance of shares upon exercise of options or issuance under employee benefit
plans.
LEGAL OPINIONS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Hunton & Williams, Richmond, Virginia, and for the Underwriters by
Brown & Wood LLP, New York, New York.
S-16
<PAGE>
INDEX TO PRO FORMA COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Combined Financial Information (unaudited)
United Dominion Realty Trust, Inc.
Pro Forma Combined Statements of Operations for the Nine Months Ended September 30, 1996.......................... S-19
Pro Forma Combined Statements of Operations for the Year Ended December 31, 1995.................................. S-20
Notes to Pro Forma Combined Statements of Operations.............................................................. S-21
Pro Forma Combined Balance Sheet as of September 30, 1996......................................................... S-24
Notes to Pro Forma Combined Balance Sheet......................................................................... S-25
</TABLE>
S-17
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1995 and the nine months ended September 30, 1996 are
presented as if the South West Merger had occurred at the beginning of each
period presented. The Unaudited Pro Forma Combined Statements of Operations give
effect to the South West Merger under the purchase method of accounting in
accordance with Accounting Standards Board Opinion No. 16, and the combined
entity qualifying as a REIT, distributing at least 95% of its taxable income,
and therefore,incurring no federal income tax liability for the periods
presented. In addition to the South West Merger, the Unaudited Pro Forma
Combined Statements of Operations give effect to the following acquisitions as
if they had occurred on the first day of each period presented: (i) the
acquisition of 13 apartment communities during 1995 and (ii) the acquisition of
20 apartment communities, including an 18 apartment community portfolio, since
January 1, 1996 (see Note (A) to the Unaudited Pro Forma Combined Statements of
Operations). In the opinion of management, all adjustments necessary to reflect
the effects of these transactions have been made.
The Unaudited Pro Forma Combined Statements of Operations are presented for
comparative purposes only and are not necessarily indicative of what the actual
combined results of the Company and South West would have been for the year
ended December 31, 1995 and the nine months ended September 30, 1996 if the
South West Merger and other acquisitions had occurred at the beginning of each
period presented, nor do they purport to be indicative of the results of
operations in future periods. The Unaudited Pro Forma Combined Statements of
Operations should be read in conjunction with, and are qualified in their
entirety by, the respective historical financial statements and notes thereto of
the Company and South West incorporated by reference into the Prospectus.
S-18
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA UNITED DOMINION
UNITED DOMINION SOUTH WEST MERGER PRO FORMA
PRO FORMA(A) HISTORICAL(B) ADJUSTMENTS COMBINED
--------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
INCOME
Rental income................................................ $ 192,603 $61,559 $ 254,162
Interest and dividend income................................. 1,197 439 1,636
--------------- ------------- ----------- ---------------
193,800 61,998 -- 255,798
EXPENSES
Rental expenses:
Utilities................................................. 13,963 4,037 18,000
Repairs and maintenance................................... 31,819 7,582 39,401
Real estate taxes......................................... 14,032 5,859 19,891
Property management....................................... 4,625 2,114 $ (346)(D) 6,393
Other operating expenses.................................. 18,302 8,789 27,091
Depreciation of real estate owned............................ 37,623 9,952 2,227 (C) 49,802
Interest..................................................... 42,701 9,747 (756)(E) 51,692
General and administrative................................... 4,192 1,342 (722)(F) 4,812
Other depreciation and amortization.......................... 917 248 1,165
Impairment loss on real estate held for disposition.......... 290 290
--------------- ------------- ----------- ---------------
168,464 49,670 403 218,537
Income before gains on sales of investments and minority
interest of unitholders in operating partnership............. 25,336 12,328 (403) 37,261
Gains on sales of investments.................................. 2,176 2,176
Minority interest of unitholders in operating partnership...... (26) (26)
--------------- ------------- ----------- ---------------
Net income..................................................... 27,486 12,328 (403) 39,411
Dividends to preferred shareholders............................ 7,284 -- 7,284
--------------- ------------- ----------- ---------------
Net income available to common shareholders.................... $ 20,202 $12,328 $ (403) $ 32,127
=============== ============= =========== ===============
Net income per common share.................................... $ .35 $ .40
=============== ===============
Distributions declared per common share........................ $ .72 $ .72
=============== ===============
Weighted average number of common shares outstanding........... 58,330 22,370(G) 80,700
</TABLE>
See accompanying notes.
S-19
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA UNITED DOMINION
UNITED DOMINION SOUTH WEST MERGER PRO FORMA
PRO FORMA(A) HISTORICAL(B) ADJUSTMENTS COMBINED
--------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
INCOME
Rental income................................................ $ 230,045 $71,061 $ 301,106
Interest and dividend income................................. 1,423 1,053 2,476
--------------- ------------- ----------- ---------------
231,468 72,114 -- 303,582
EXPENSES
Rental expenses:
Utilities................................................. 16,765 4,940 21,705
Repairs and maintenance................................... 34,940 9,980 44,920
Real estate taxes......................................... 16,660 6,499 23,159
Property management....................................... 6,229 2,464 $ (493)(D) 8,200
Other operating expenses.................................. 20,969 9,782 30,751
Depreciation of real estate owned............................ 46,132 12,304 2,556 (C) 60,992
Interest..................................................... 52,792 10,686 (614)(E) 62,864
General and administrative................................... 4,865 2,037 (1,039)(F) 5,863
Other depreciation and amortization.......................... 1,103 393 1,496
Impairment loss on real estate held for disposition.......... 1,700 -- 1,700
--------------- ------------- ----------- ---------------
202,155 59,085 410 261,650
--------------- ------------- ----------- ---------------
Income before gains on sales of investments and minority
interest of unitholders in operating partnership............. 29,313 13,029 (410) 41,932
Gains on sales of investments.................................. 5,090 10 5,100
Minority interest of unitholders in operating partnership...... (8) (8)
--------------- ------------- ----------- ---------------
Net income..................................................... 34,403 13,031 (410) 47,024
Dividends to preferred shareholders............................ 9,236 -- 9,236
--------------- ------------- ----------- ---------------
Net income available to common shareholders.................... $ 25,167 $13,031 $ (410) $ 37,788
=============== ============= =========== ===============
Net income per common share.................................... $ .46 $ .51
=============== ===============
Distributions declared per common share........................ $ .90 $ .90
=============== ===============
Weighted average number of common shares outstanding........... 54,156 20,308(G) 74,464
</TABLE>
See accompanying notes.
S-20
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) The Unaudited Pro Forma Combined Statements of Operations reflect the
historical results of the Company adjusted to reflect the operations of: (i)
18 apartment communities acquired in an August 15, 1996 portfolio
acquisition as previously reported on Form 8-K dated August 15, 1996
(subsequently updated to reflect results of operations for the nine months
ended September 30, 1996 on Form 8-K dated October 31, 1996), (ii) two
apartment communities acquired during 1996 as previously reported on Form
8-K dated October 31, 1996, (iii) nine apartment communities acquired in a
May 4, 1995 portfolio acquisition as previously reported on Form 8-K dated
June 30, 1995 and (iv) four apartment communities acquired during the second
half of 1995, as previously reported on Form 8-K dated December 28, 1995,
all incorporated by reference into the Prospectus, for the periods not owned
by the Company.
(B) Certain reclassifications have been made to South West's historical
statements of operations to conform to the Company's financial statement
presentations.
(C) Represents the net increase in depreciation of real estate owned as a result
of recording the South West real estate assets at fair value versus
historical cost. Depreciation is computed on a straight-line basis over the
estimated useful lives of the related assets which have an estimated
weighted average useful life of approximately 26.6 years. Buildings have
been depreciated over 35 years and other assets over 5, 10 or 20 years
depending on the useful life of the related asset.
Calculation of the fair value of depreciable real estate assets at September
30, 1996:
<TABLE>
<S> <C>
Purchase price (See Pro Forma Combined Balance Sheet Note (B))...................... $602,978
Less:
Purchase price allocated to cash and other assets................................. 18,788
Purchase price allocated to land.................................................. 76,589
Purchase price allocated to construction in progress**............................ 73,598
--------
Pro forma basis of South West's depreciable real estate held for investment at
fair value..................................................................... $434,003
========
</TABLE>
- ---------------
** At September 30, 1996, South West had two apartment communities containing
698 apartment homes and three additions to existing properties which will
total 392 apartment homes under construction. The historical cost of
construction in progress is assumed to be at fair value.
Calculation of depreciation of real estate owned for the year ended December 31,
1995 and the nine months ended September 30, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Depreciation expense based upon an estimated weighted average useful
life of approximately 26.6 years................................... $ 14,860 $ 12,179
Less historical South West depreciation of real estate owned......... (12,304) (9,952)
----------------- ------------------
Pro forma adjustment................................................. $ 2,556 $ 2,227
================= ==================
</TABLE>
(D) Reflects the net estimated reduction of property management costs of $493
and $346 for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively, based upon the identified historical costs
for those items which are anticipated to be eliminated or reduced as a
result of the South West Merger, as follows:
S-21
<PAGE>
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Net reduction in salary, benefits and
occupancy costs........................................ $ 285 $230
Net reduction in travel, entertainment and other......... 57 51
Net reduction in other expenses.......................... 151 65
------ ------
Pro forma adjustment..................................... $ 493 $346
====== ======
</TABLE>
(E) Represents the net adjustment to interest expense, as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
To adjust amortization of South West's deferred financing
costs which would be eliminated in connection with the
South West Merger...................................... $ (965) $ (921)
To adjust the amortization of the premium required to
record South West's mortgages and other notes payable
at fair value.......................................... (440) (428)
To reflect the additional borrowings of $13,115 of
variable-rate bank line borrowings used to fund the
South West Merger and registration costs (See Note (F)
of the Pro Forma Combined Balance Sheet) at current
market interest rates available to the Company of
6.03%.................................................. 791 593
------- -------
Pro forma adjustment..................................... $ (614) $ (756)
======= =======
</TABLE>
(F) Represents the net reduction to general and administrative expenses of
$1,039 and $722 for the year ended December 31, 1995 and the nine months
ended September 30, 1996, respectively, based upon the identified historical
costs of certain items which are anticipated to be eliminated or reduced as
a result of the South West Merger, as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Net reduction in salary, benefits and occupancy costs.......... $ 704 $471
Net reduction in duplication of public company expenses........ 181 123
Net reduction in other expenses................................ 154 128
------- ------
$ 1,039 $722
======= ======
</TABLE>
(G) The pro forma weighted average shares outstanding for the year ended
December 31, 1995 and the nine months ended September 30, 1996 are computed
as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
South West's historical weighted average common shares
outstanding.................................................. 18,627 20,659
Less: dilutive effect of South West stock options.............. (92) (220)
Plus: effect of South West vested stock options converted upon
South West Merger............................................ 211 211
------- -------
South West historical adjusted weighted average common shares
outstanding.................................................. 18,746 20,650
======= =======
Company pro forma weighted average common shares outstanding... 54,156 58,330
Issuance of Company common stock at an exchange ratio of 1.0833
for all of the South West common stock in connection with the
South West Merger **......................................... 20,308 22,370
------- -------
Pro forma shares............................................... 74,464 80,700
======= =======
</TABLE>
- ---------------
** Weighted average historical adjusted South West common shares outstanding
multiplied by the exchange ratio.
S-22
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet gives effect to the South
West Merger as if it had occurred on September 30, 1996. The Unaudited Pro Forma
Combined Balance Sheet gives effect to the South West Merger under the purchase
method of accounting in accordance with Accounting Standards Board Opinion No.
16. In the opinion of management, all significant adjustments necessary to
reflect the effects of the South West Merger have been made.
The Unaudited Pro Forma Combined Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual combined
financial position of the Company and South West would have been at September
30, 1996, nor does it purport to represent the future combined financial
position of the Company and South West. This Unaudited Pro Forma Combined
Balance Sheet should be read in conjunction with, and is qualified in its
entirety by, the respective historical financial statements and notes thereto of
the Company and South West incorporated by reference into the Prospectus.
S-23
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
UNITED DOMINION SOUTH WEST MERGER
HISTORICAL HISTORICAL (A) ADJUSTMENTS (B)
----------------- ----------------- ---------------
<S> <C>
ASSETS
Real estate owned:
Real estate held for investment................................ $ 1,448,622 $ 397,682 $ 112,910(C)
Less accumulated depreciation............................... (159,429) (79,632) 79,632(C)
----------------- ----------------- ---------------
1,289,193 318,050 192,542
Construction in progress....................................... -- 73,598 --
----------------- ----------------- ---------------
1,289,193 391,648 192,542
Real estate held for disposition............................... 42,889 -- --
Cash and cash equivalents........................................ 7,803 9,333 --
Other assets..................................................... 35,826 15,428 (5,971)(D)
----------------- ----------------- ---------------
$ 1,375,711 $ 416,409 $ 186,571
----------------- ----------------- ---------------
----------------- ----------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable -- secured......................................... $ 307,505 $ 218,124 $(116,666) (E)
7.25% Notes due April 1, 1999.................................... 75,000 -- --
8.50% Debentures due September 15, 2024.......................... 150,000 -- --
7.95% Medium Term Notes due July 1, 2006......................... 125,000 -- --
Notes payable -- unsecured....................................... 138,389 -- 131,797(F)
Distributions payable to shareholders............................ 14,099 5,375 --
Accounts payable, accrued expenses and other..................... 34,992 11,210 --
----------------- ----------------- ---------------
844,985 234,709 15,131
Minority interest of unitholders in operating partnership........ 2,030 -- --
Shareholders' equity:
Preferred stock, no par value; 25,000,000 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 -- --
Common stock................................................... 58,744 205 22,600(G)
Additional paid-in-capital..................................... 510,314 236,240 94,095(G)
Notes receivable from officer shareholders..................... (5,903) (3,095) 3,095(G)
Distributions in excess of earnings............................ (141,336) (51,650) 51,650(G)
Unrealized gain on securities available-for-sale............... 1,877 -- --
----------------- ----------------- ---------------
Total shareholders' equity....................................... 528,696 181,700 171,440
----------------- ----------------- ---------------
$ 1,375,711 $ 416,409 $ 186,571
----------------- ----------------- ---------------
----------------- ----------------- ---------------
<CAPTION>
UNITED
DOMINION
PRO FORMA
COMBINED
----------
<S> <C>
ASSETS
Real estate owned:
Real estate held for investment................................ 1,959,214
Less accumulated depreciation............................... (159,429)
----------
1,799,785
Construction in progress....................................... 73,598
----------
1,873,383
Real estate held for disposition............................... 42,889
Cash and cash equivalents........................................ 17,136
Other assets..................................................... 45,283
----------
$1,978,691
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable -- secured......................................... $ 408,963
7.25% Notes due April 1, 1999.................................... 75,000
8.50% Debentures due September 15, 2024.......................... 150,000
7.95% Medium Term Notes due July 1, 2006......................... 125,000
Notes payable -- unsecured....................................... 270,186
Distributions payable to shareholders............................ 19,474
Accounts payable, accrued expenses and other..................... 46,202
----------
1,094,825
Minority interest of unitholders in operating partnership........ 2,030
Shareholders' equity:
Preferred stock, no par value; 25,000,000 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
Common stock................................................... 81,549
Additional paid-in-capital..................................... 840,649
Notes receivable from officer shareholders..................... (5,903)
Distributions in excess of earnings............................ (141,336)
Unrealized gain on securities available-for-sale............... 1,877
----------
Total shareholders' equity....................................... 881,836
----------
$1,978,691
----------
----------
</TABLE>
See accompanying notes.
S-24
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) Certain reclassifications have been made to South West's historical
balance sheet to conform to the Company's balance sheet presentation.
(B) Represents adjustments to record the South West Merger in accordance
with the purchase method of accounting, based upon a purchase price of
$602,978, based upon the market value at the effective time of the
South West Merger, of $15.50 per share of common stock of the Company,
as follows:
<TABLE>
<S> <C>
Issuance of 22,805 shares of common stock of the Company based on the 1.0833 exchange
ratio in exchange for 21,051 shares of South West common stock.......................... $353,465
Assumption of South West liabilities...................................................... 234,709
Adjustment to record South West mortgages, other notes payable and interest rate swap
agreement at fair value................................................................. 2,016
South West Merger costs (see calculation below)........................................... 12,788
--------
$602,978
--------
--------
</TABLE>
The following is a calculation of the estimated fees and other expenses
related to the South West Merger:
<TABLE>
<S> <C>
Advisory fees.............................................................................. $ 1,200
Legal and accounting fees.................................................................. 985
Termination, severance and relocations costs............................................... 1,887
Loan transfer fees......................................................................... 222
Payments of options and notes**............................................................ 7,684
Due diligence.............................................................................. 230
Other...................................................................................... 580
-------
$12,788
-------
-------
</TABLE>
** Represents payments for purchase of unvested options and forgiveness of
notes to South West employees and directors.
(C) Increase of $112,910 in the book value of South West's real estate
assets based upon Company's purchase price and the adjustment to
eliminate South West's historical accumulated depreciation of $79,632,
as follows:
<TABLE>
<S> <C>
Purchase price (See Note (B))................................................. $ 602,978
Less basis of South West's assets assumed:
Real estate held for investment............................................. 397,682
Construction in progress.................................................... 73,598
Cash and cash equivalents................................................... 9,333
Other assets (See Note (D))................................................. 9,455
-------
490,068
---------
Pro forma adjustment.......................................................... $ 112,910
---------
---------
South West historical accumulated depreciation................................ $ 79,632
Less basis assigned to accumulated depreciation............................... --
---------
Pro forma adjustment.......................................................... $ 79,632
---------
---------
Total pro forma adjustment to real estate held for investment................. $ 192,542
---------
---------
</TABLE>
S-25
<PAGE>
(D) To adjust the historical basis of South West's other assets to
eliminate deferred financing and similar costs in the aggregate amount
of $5,971.
(E) To reflect the refinancing of $118,682 of secured debt with unsecured
debt and to record the $2,016 premium required to adjust South West
fixed-rate mortgages, other notes payable and interest rate swap
agreement to estimated fair value using market quotations from
investment banks.
(F) To reflect the refinancing of $118,682 of secured debt with unsecured
debt and the additional borrowings of $13,115 of variable-rate bank
debt incurred by the Company to fund South West Merger costs of
$12,788 (See Note (B) and registration costs of $327. (See Note (G)).
(G) To adjust South West's shareholders' equity to reflect the issuance of
22,805 (at an exchange ratio of 1.0833) shares of common stock of the
Company at an assumed price of $15.50 per share, in exchange for all
of the 21,051 outstanding shares of South West common stock and to
record the estimated registration costs in connection with the South
West Merger of $327, as follows:
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM DISTRIBUTIONS
COMMON PAID-IN OFFICER IN EXCESS
STOCK CAPITAL SHAREHOLDERS OF EARNINGS
------- --------- ------------ -------------
<S> <C>
Issuance of common stock.......................... $22,805 $ 330,662 $ -- $ --
Registration costs incurred in connection with
the South West Merger........................... -- (327) -- --
South West's historical shareholders'
equity.......................................... (205) (236,240) 3,095 51,650
------- --------- ------------ -------------
Pro forma adjustments........................... $22,600 $ 94,095 $3,095 $51,650
------- --------- ------------ -------------
------- --------- ------------ -------------
</TABLE>
S-26
<PAGE>
PROSPECTUS
$462,312,500
[UNITED DOMINION LOGO]
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
------------------------
United Dominion Realty Trust, Inc. (the "Company") intends to issue from
time to time its (i) unsecured senior or subordinated debt securities (the "Debt
Securities"), (ii) shares of Preferred Stock, no par value ("Preferred Stock"),
and (iii) shares of Common Stock, $1 par value ("Common Stock"), having an
aggregate initial public offering price not to exceed $462,312,500 or the
equivalent thereof in one or more foreign currencies or composite currencies,
including European Currency Units, on terms to be determined at the time of
sale. The Debt Securities, the Preferred Stock and the Common Stock offered
hereby (collectively, the "Offered Securities") may be offered, separately or as
units with other Offered Securities, in separate series in amounts, at prices
and on terms to be determined at the time of sale and to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Securities will be subordinated to all existing and future Senior
Debt of the Company, as defined. See "Description of Debt Securities."
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, currency,
denominations, maturity, priority, interest rate, time of payment of interest,
terms of redemption at the option of the Company or repayment at the option of
the holder or for sinking fund payments, terms for conversion into or exchange
for other Offered Securities and the initial public offering price; (ii) in the
case of Preferred Stock, the series designation and number of shares and the
dividend, liquidation, redemption, conversion, voting and other rights and the
initial public offering price; (iii) in the case of Common Stock, the initial
public offering price; and (iv) in the case of all Offered Securities, whether
such Offered Securities will be offered separately or as a unit with other
Offered Securities. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a qualified real estate investment trust ("REIT") under the Internal
Revenue Code of 1986, as amended (the "Code").
The applicable Prospectus Supplement will also contain information, where
applicable, concerning certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered thereby.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any designated agents or any underwriters are involved in the sale of Offered
Securities, they will be identified and their compensation will be described in
the applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing such Offered Securities and the method and terms of the offering
thereof.
------------------------
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.
------------------------
THE DATE OF THIS PROSPECTUS IS MAY 23, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices at Suite 1400, 500 West Madison Street, Chicago, Illinois
60661 and Suite 1300, 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, 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. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding the Company and other registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
This Prospectus is part of a registration statement on Form S-3 (together
with all amendments and exhibits, the "Registration Statement") filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules of the Commission. For further information, reference
is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (File No. 1-10524) filed by the Company with the
Commission under the Exchange Act are hereby incorporated by reference in this
Prospectus: (i) the Company's annual report on Form 10-K for the year ended
December 31, 1995 filed on March 29, 1996, including the Company's Form 10-K/A
No. 1 to Form 10-K for the year ended December 31, 1995 filed on April 12, 1996,
the Company's Form 10-K/A No. 2 to Form 10-K for the year ended December 31,
1995 filed on May 20, 1996 and the Company's Form 10-K/A No. 3 to Form 10-K for
the year ended December 31, 1995 filed on May 20, 1996; (ii) the Company's
quarterly report on Form 10-Q for the quarter ended March 31, 1996 filed on May
15, 1996; (iii) the Company's Current Report on Form 8-K dated April 11, 1995,
including the Company's Form 8-K/A No. 1 to Form 8-K dated April 11, 1995 filed
on April 12, 1996, Form 8-K/A No. 2 to Form 8-K dated April 11, 1995 filed on
April 19, 1996 and Form 8-K/A No. 3 to Form 8-K dated April 11, 1995 filed on
May 20, 1996, the Company's Current Report on Form 8-K dated June 30, 1995 filed
on June 30, 1995, including the Company's Form 8-K/A No. 1 to Form 8-K dated
June 30, 1995 filed on January 31, 1996, the Company's Current Report on Form
8-K dated December 28, 1995 filed on January 11, 1996, including the Company's
Form 8-K/A No. 1 to Form 8-K dated December 28, 1995 filed on March 11, 1996,
Form 8-K/A No. 2 to Form 8-K dated December 28, 1995 filed on April 19, 1996,
and Form 8-K/A No. 3 to Form 8-K dated December 28, 1995 filed on May 20, 1996,
the Company's Current Report on Form 8-K dated January 31, 1996 filed on January
31, 1996 and the Company's Current Report on Form 8-K dated April 12, 1996 filed
on April 12, 1996; and (iv) the descriptions of the Common Stock and the
Preferred Stock, contained in the Company's registration statements on Form 8-A
dated April 19, 1990 and April 24, 1995, respectively, filed under the Exchange
Act, including any amendment or reports filed for the purpose of updating such
descriptions. All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of all of the Offered Securities shall be deemed to be incorporated by reference
herein.
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,
in any accompanying Prospectus Supplement relating to a specific offering of
Offered Securities or in any other subsequently filed document, as the case
maybe, 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 or any accompanying Prospectus Supplement.
The Company 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, Richmond, Virginia 23219-3802, Attention: Chief Financial Officer
(telephone 804/780-2691).
2
<PAGE>
THE COMPANY
The Company, founded in 1972, is a self-administered equity real estate
investment trust that owns and operates apartments in the Mid-Atlantic and
Southeast from Delaware to Florida and west to Tennessee. The Company is a fully
integrated real estate company with acquisition, development and asset and
property management capabilities. The Company 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 Company's 155 properties include 145 apartment communities containing
35,036 apartment units, six neighborhood shopping centers and four other
commercial properties. The Company also owns two parcels of undeveloped land for
future development. Most of the Company's properties are located in the
Southeast. Management believes that the Company 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.
In 1995, the Company organized United Dominion Realty, L.P. (the
"Partnership") to assist the Company in competing for acquisition of properties
that meet the Company's investment strategies from seller partnerships some or
all of whose partners may wish to defer taxation of gain realized on sale
through an exchange of partnership interests. The Company has acquired three
apartment communities and land to develop an additional apartment community
using the Partnership and transferred seven of its Tennessee properties into the
Partnership. As of April 19, 1996, the Partnership was 100% owned by the Company
and one of its subsidiaries.
The Company's investment policy has been to acquire two types of
apartments: newer properties that can be acquired at discounts from replacement
cost and older or under-performing properties that can be upgraded and
repositioned by capital improvements and intensive property management.
Beginning in 1991, the Company 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 Fort Lauderdale/Miami area and Memphis,
Tennessee. The properties have been acquired generally at significant discounts
from replacement cost and at attractive current yields. Since the beginning of
1991, net of resales, the Company has acquired 107 apartment properties
containing 26,359 units at a total initial cost, including closing costs, of
approximately $883 million.
Although no formal plans which would commit the Company for divestiture
have been made, the Company hopes to substantially liquidate its commercial
properties over time as suitable opportunities arise. At December 31, 1995, six
of the Company's then seven shopping centers were under contract to be sold.
Since January 1, 1996, the Company sold one 105,000 square foot shopping center
located in Myrtle Beach, South Carolina for $5.9 million and recognized a gain
for financial reporting purposes of $965,000. The five other centers were under
contract to be sold in a bulk sale. That contract was terminated on February 28,
1996. The Company subsequently contracted with the bulk purchaser for the sale
of one of the centers, in Myrtle Beach, South Carolina, for $7.8 million. There
is no assurance that this proposed sale will be consummated.
The Company has paid continuous quarterly distributions to its common
shareholders since 1973 and has increased its distributions each year during the
past 20 years. The current indicated annual Common Stock distribution is $.96
per share. In past years, a portion of the Company's distributions to
shareholders has been designated as a non-taxable return of capital for federal
income tax purposes.
The Company, a Virginia corporation, has its principal office at 10 South
6th Street, Richmond, Virginia 23219-3802, and its telephone number is (804)
780-2691. Unless the context indicates otherwise, the term "Company," as used
herein, includes the Company and its subsidiaries, all of which are
wholly-owned.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for general
corporate purposes, which may include repayment of indebtedness, making
improvements to properties and the acquisition of additional properties.
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CERTAIN RATIOS
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges and earnings to combined fixed charges and Preferred
Stock dividends for the periods shown.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C>
Ratio of earnings to fixed
charges................................... 1.27x 1.54x 1.64x 1.69x 1.81x 1.59x 1.87x
Ratio of earnings to combined fixed
charges and Preferred Stock dividends..... 1.27x 1.54x 1.64x 1.69x 1.56x 1.59x 1.53x
</TABLE>
The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and Preferred
Stock dividends was computed by dividing earnings by the total of fixed charges
and Preferred Stock dividends. For purposes of computing these ratios, earnings
consist of income before extraordinary items plus fixed charges other than
capitalized interest, and fixed charges consist of interest on borrowed funds
(including capitalized interest) and amortization of debt discount and expense.
The Company did not issue any shares of Preferred Stock until April of 1995;
therefore, only the ratio of earnings to combined fixed charges and Preferred
Stock dividends for the year ended December 31, 1995 includes Preferred Stock
dividends.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities are to be issued under an indenture dated as of
November 1, 1995, as supplemented from time to time (the "Senior Indenture"),
between the Company and First Union National Bank of Virginia (the "Senior
Indenture Trustee"), and the Subordinated Securities are to be issued under an
indenture dated as of August 1, 1994, as supplemented from time to time (the
"Subordinated Indenture"), between the Company and Crestar Bank (the
"Subordinated Indenture Trustee"). The term "Trustee," as used herein, shall
refer to the Senior Indenture Trustee or the Subordinated Indenture Trustee, as
appropriate. The forms of the Senior Indenture and the Subordinated Indenture
(being sometimes referred to herein collectively as the "Indentures" and
individually as an "Indenture") are filed as exhibits to the Registration
Statement and will be respectively available for inspection at the Corporate
Trust Office (as such term is defined in the Indentures) of the Senior Indenture
Trustee and the Subordinated Indenture Trustee, or as described under "Available
Information." The Indentures are subject to, and governed by, the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder
relating to the Indentures and the Debt Securities 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 Indentures
and the Debt Securities. All section references appearing herein are to sections
of the Indentures, and capitalized terms used but not defined herein have the
respective meanings set forth in the Indentures and the Debt Securities.
TERMS
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The indebtedness
represented by the Subordinated Securities will be subordinated in right of
payment to the prior payment in full of the Senior Debt of the Company, as
described under "Subordination."
Each Indenture provides that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company or as established in one or
more indentures supplemental to such Indenture. Debt Securities may be issued
with terms different from those of Debt Securities previously issued. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the Holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series (Section 301 of each Indenture).
Each Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
either Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608 of each Indenture). In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall
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<PAGE>
be a Trustee of a trust under the applicable Indenture separate and apart from
the trust administered by any other Trustee (Sections 101 and 609 of each
Indenture), and, except as otherwise indicated herein, any action described
herein to be taken by the Company may be taken by each such Trustee with respect
to, and only with respect to, the one or more series of Debt Securities for
which it is Trustee under the applicable Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities that is convertible into Capital
Stock of the Company, or the method by which any such portion will be
determined;
(4) if convertible, in connection with the preservation of the
Company's status as a REIT, any applicable limitations on the ownership or
transferability of the Capital Stock of the Company into which such Debt
Securities are convertible;
(5) the date or dates, or the method by which such date or dates will
be determined, on which the principal of such Debt Securities will be
payable and the amount of principal payable thereon;
(6) the rate or rates (which may be fixed or variable) at which such
Debt Securities will bear interest, if any, or the method by which such
rate or rates will be determined, the date or dates from which such
interest will accrue or the method by which such date or dates will be
determined, the Interest Payment Dates on which any such interest will be
payable and the Regular Record Dates for such Interest Payment Dates, or
the method by which such Dates will be determined, and the basis upon which
interest will be calculated if other than that of a 360-day year consisting
of twelve 30-day months;
(7) the place or places where the principal of (and premium or
Make-Whole Amount (as defined in each Indenture), if any), interest, if
any, on, and Additional Amounts, if any, payable in respect of, such Debt
Securities will be payable, where such Debt Securities may be surrendered
for registration of transfer or exchange and where notices or demands to or
upon the Company in respect of such Debt Securities and the applicable
Indenture may be served;
(8) the period or periods within which, the price or prices (including
premium or Make-Whole Amount, if any) at which, the currency or currencies,
currency unit or units or composite currency or currencies in which and
other terms and conditions upon which such Debt Securities may be redeemed
in whole or in part, at the option of the Company, if the Company is to
have the option;
(9) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date or dates on which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and other terms and conditions upon which such Debt
Securities will be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation;
(10) whether such Debt Securities will be in registered or bearer form
and terms and conditions relating thereto, and, if other than $1,000 and
any integral multiple thereof, the denominations in which any registered
Debt Securities will be issuable and, if other than $5,000, the
denomination or denominations in which any bearer Debt Securities will be
issuable;
(11) if other than United States dollars, the currency or currencies
in which such Debt Securities will be denominated and payable, which may be
a foreign currency or units of two or more foreign currencies or a
composite currency or currencies;
(12) whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest, if any, on such Debt Securities may
be determined with reference to an index, formula or other method (which
index, formula or method may be based, without limitation, on one or more
currencies, currency units, composite currencies, commodities, equity
indices or other indices), and the manner in which such amounts will be
determined;
5
<PAGE>
(13) whether the principal of (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts, if any, on such Debt Securities are
to be payable, at the election of the Company or a Holder thereof, in a
currency or currencies, currency unit or units or composite currency or
currencies other than that in which such Debt Securities are denominated or
stated to be payable, the period or periods within which, and the terms and
conditions upon which, such election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are denominated or stated to be payable and the currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are to be so payable;
(14) provisions, if any, granting special rights to the Holders of
such Debt Securities upon the occurrence of such events as may be
specified;
(15) any deletions from, modifications of or additions to the Events
of Default or covenants of the Company with respect to such Debt
Securities, whether or not such Events of Default or covenants are
consistent with the Events of Default or covenants set forth in the
applicable Indenture;
(16) whether such Debt Securities will be issued in certificated or
book-entry form;
(17) the applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;
(18) whether and under what circumstances the Company will pay
Additional Amounts as contemplated in the applicable Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and, if
so, whether the Company will have the option to redeem such Debt Securities
rather than pay such Additional Amounts (and the terms of any such option);
and
(19) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301 of each Indenture).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities") (Section 502 of each Indenture). Special
United States federal income tax, accounting and other considerations applicable
to Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Senior Securities will be payable at the corporate trust office of the
Senior Indenture Trustee located at 230 South Tryon Street, Charlotte, North
Carolina 28288 and the principal of (and premium or Make-Whole Amount, if any)
and interest on any series of Subordinated Securities will be payable at the
corporate trust office of the Subordinated Indenture Trustee located at 919 East
Main Street, Richmond, Virginia 23219; provided that at the option of the
Company payment of interest on any series of Debt Securities may be made by
check mailed to the address of the Person entitled thereto as it appears in the
Security Register for such series or by wire transfer of funds to such Person at
an account maintained within the United States (Sections 301, 305, 306, 307 and
1002 of each Indenture).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the applicable
Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable
6
<PAGE>
Trustee referred to above. In addition, subject to certain limitations imposed
upon Debt Securities issued in book-entry form, the Debt Securities of any
series may be surrendered for conversion or registration of transfer thereof at
the corporate trust office of the applicable Trustee referred to above. Every
Debt Security surrendered for conversion, registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration or transfer or exchange of any
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(Section 305 of each Indenture). If the applicable Prospectus Supplement refers
to any transfer agent (in addition to the applicable Trustee) initially
designated by the Company with respect to any series of Debt Securities, the
Company may at any time rescind the designation of any such transfer agent or
approve a change in the location through which such transfer agent acts, except
that the Company will be required to maintain a transfer agent in each Place of
Payment for such series. The Company may at any time designate additional
transfer agents with respect to any series of Debt Securities (Section 1002 of
each Indenture).
Neither the Company nor either Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305 of each
Indenture).
MERGER, CONSOLIDATION OR SALE
The Company 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 Company shall be the continuing entity, or the
successor entity (if other than the Company) 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
premium or Make-Whole Amount, if any) and interest on all of the Debt Securities
and the due and punctual performance and observance of all of the covenants and
conditions contained in each Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness which becomes an obligation of
the Company or any Subsidiary as a result thereof as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default
under an 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 Company (Sections 801 and 803 of each
Indenture).
CERTAIN COVENANTS
SENIOR INDENTURE LIMITATIONS ON INCURRENCE OF DEBT. The Senior Indenture
provides that the Company 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 Company 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 Company's Total Assets as of the end of the calendar
quarter covered in the Company'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 Company) 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 Company 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 of the Senior Indenture). The Subordinated
Indenture does not limit the incurrence of Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
Senior Indenture provides that the Company 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
Company or any Subsidiary if, immediately after giving effect to the 8
incurrence of such Debt and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries on a consolidated basis which is secured by any mortgage, lien,
charge, pledge, encumbrance or security interest on property of the Company or
any Subsidiary is greater than 40% of the Company's Total Assets (Section 1004
of the Senior Indenture).
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In addition to the foregoing limitations on the incurrence of Debt, the
Senior Indenture provides that the Company 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 Company 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 Company 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 Company 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 of the Senior Indenture).
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 Company 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 Company and its Subsidiaries plus
amounts which have been deducted for interest on Debt of the Company and its
Subsidiaries.
"DEBT" of the Company or any Subsidiary means any indebtedness of the
Company, 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
Company 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 Company or any Subsidiary with respect to redemption,
repayment or other repurchase of any Disqualified Stock or (v) any lease of
property by the Company or any Subsidiary as lessee which is reflected on the
Company'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
letters of credit) would appear as a liability on the Company's consolidated
balance sheet in accordance with generally accepted accounting principles, and
also includes, to the extent not otherwise included, any obligation of the
Company 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 Company or any Subsidiary) (it
being understood that Debt shall be deemed to be incurred by the Company or any
Subsidiary whenever the Company 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
8
<PAGE>
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 series of Debt Securities.
"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 items (without
duplication): (a) provision for Preferred Stock dividends, (b) provision for
property depreciation and amortization and (c) the effect of any adjustments for
significant non-recurring items, including any noncash charge resulting from a
change in accounting principles in determining income before gains (losses) on
investments and extraordinary items for such period, as reflected in the
financial statements of the Company 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 Company's
Undepreciated Real Estate Assets and (ii) all other assets of the Company
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 Company and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with generally accepted accounting principles.
Except as described above, the Indentures do not contain any provisions
that would limit the ability of the Company to incur indebtedness or that would
afford Holders of the Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. However, the Articles of Incorporation of the Company include
provisions for mandatory redemption and stopping transfer of its Common Stock
designed to preserve the Company'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 Company as a REIT.
Enforcement of the provisions of the Company's Articles of Incorporation would
prevent such concentration and, therefore, prevent or hinder a change of
control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Company that are described herein,
including any addition of a covenant or other provision providing event risk or
similar protection.
EXISTENCE. Except as described above under "-- Merger, Consolidation or
Sale," the Company will do or cause to be done all things necessary to preserve
and keep in full force and effect the existence, rights (charter and statutory)
and franchises of the Company and its Subsidiaries; provided, however, that the
Company 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 the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Debt Securities of any series (Section 1005 of each Indenture).
MAINTENANCE OF PROPERTIES. The Company 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 Company 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 Company and its Subsidiaries shall not be prevented
from selling or otherwise disposing of for value their properties in the
ordinary course of business (Section 1006 of each Indenture).
INSURANCE. The Company will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage in an amount
at least equal to their then full insurable value with financially sound and
reputable insurance companies (Section 1007 of each Indenture).
PAYMENT OF TAXES AND OTHER CLAIMS. The Company 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 Company 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 Company or any
Subsidiary; provided, however, that the Company 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 of each Indenture).
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<PAGE>
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 and 15(d) if the Company
were so subject, such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register, without cost to such Holders, copies
of the annual reports and quarterly reports which the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections and (ii) file with the
Company copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (y) if filing such documents by the Company 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 of each Indenture).
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest or Additional Amounts
payable on any Debt Security of such series; (b) default in the payment of the
principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of
such series at its Maturity; (c) default in making any sinking fund payment as
required for any Debt Security of such series; (d) default in the performance of
any other covenant of the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the Indenture; (e) 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 Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company 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; (f)
the entry by a court of competent jurisdiction of one or more judgments, orders
or decrees against the Company 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; (g) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary or for all or
substantially all of either of its property; and (h) any other Event of Default
provided with respect to such series of Debt Securities (Section 501 of each
Indenture). The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Company.
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the Company or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of, and premium or Make-Whole Amount,
if any, on, all of the Debt Securities of that series to be due and payable
immediately by written notice thereof to the Company (and to the Company if
given by the Holders). However, at any time after such declaration of
acceleration with respect to Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be)
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Company, the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of such series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Company shall have deposited with the Company all required payments of the
principal of (and premium or Make-Whole Amount, if any) and interest, and any
Additional Amounts, on the Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be),
plus certain fees, expenses, disbursements and advances of the Company and (b)
all Events of Default, other than the nonpayment of accelerated principal (or
specified portion thereof and the premium or Make-Whole Amount, if any) or
interest, with respect to the Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in the Indenture (Section 502 of
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each Indenture). Each Indenture also provides that the Holders of not less than
a majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case maybe) 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
premium or Make-Whole Amount, if any) or interest or Additional Amounts payable
on any Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513 of each Indenture).
Each Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the applicable Indenture; provided, however,
that such Trustee may withhold notice to the Holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest or Additional Amounts payable on any Debt Security of such series or in
the payment of any sinking fund installment in respect of any Debt Security of
such series) if the Responsible Officers of such Trustee consider such
withholding to be in the interest of such Holders (Section 601 of each
Indenture).
Each Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
Company, 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 Debt Securities of such
series, as well as an offer of reasonable indemnity (Section 507 of each
Indenture). This provision will not prevent, however, any Holder of Debt
Securities from instituting suit for the enforcement of payment of the principal
of (and premium or Make-Whole Amount, if any), interest on and Additional
Amounts payable with respect to, such Debt Securities at the respective due
dates thereof (Section 508 of each Indenture).
MODIFICATION OF THE INDENTURES
Modifications and amendments of either Indenture may be made with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities issued under such Indenture that 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 Debt Security
affected thereby, (a) change the Stated Maturity of the principal of (or premium
or Make-Whole Amount, if any), or any installment of principal of or interest or
Additional Amounts payable on, any such Debt Security; (b) reduce the principal
amount of, or the rate or amount of interest on, or any premium or Make-Whole
Amount payable on redemption of, or any Additional Amounts payable with respect
to, any such Debt Security, or reduce the amount of principal of an Original
Issue Discount Security or Make-Whole Amount, if any, that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of (and premium or Make-Whole Amount, if
any), or interest on, or any Additional Amounts payable with respect to, any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
percentage of Outstanding Debt Securities of any series necessary to modify or
amend the applicable 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 Debt Security
(Section 902 of each Indenture).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities issued under either Indenture have the right to waive compliance
by the Company with certain covenants in such Indenture (Section 1012 of each
Indenture).
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
the Subordinated Securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal and interest on the
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest may be made on the
Subordinated Securities at any time if a default on Senior Debt exists that
permits the holders of such Senior
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Debt to accelerate its maturity and the default is the subject of judicial
proceedings or the Company receives notice of the default (Section 1603 of the
Subordinated Indenture). After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior Debt (Section 1607
of the Subordinated Indenture). By reason of such subordination, in the event of
a distribution of assets upon insolvency, certain general creditors of the
Company may recover more, ratably, than holders of the Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (b) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other instrument, (c) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (d) indebtedness of
partnerships and joint ventures that is included in the consolidated financial
statements of the Company, (e) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (f) any binding
commitment of the Company to fund any real estate investment or to fund any
investment in any entity making such real estate investment, in each case other
than (1) any such indebtedness, obligation or liability referred to in clauses
(a) through (f) above as to which, in the instrument creating or evidencing the
same pursuant to which the same is outstanding, it is provided that such
indebtedness, obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks pari passu with the Subordinated Securities,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated, and (3) the
Subordinated Securities (Section 101 of the Subordinated Indenture). At April
30, 1996, Senior Debt aggregated approximately $581 million. There are no
restrictions in the Subordinated Indenture upon the creation of additional
Senior Debt. However, the Senior Indenture contains limitations on incurrence of
indebtedness by the Company. See "-- Certain Covenants -- Senior Indenture
Limitations on Incurrence of Debt."
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, the Company may discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not already
been delivered to the applicable 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
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium or Make-Whole Amount, if any)
and interest and any Additional Amounts payable to the date of such deposit (if
such Debt Securities have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be (Section 401 of each Indenture).
Each Indenture provides that, if the provisions of Article Fourteen thereof
are made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402 of each Indenture) or (b) to be released from its
obligations with respect to such Debt Securities under provisions of each
Indenture described under "-- Certain Covenants," or, if provided pursuant to
Section 301 of each Indenture, 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 such Debt Securities ("covenant
defeasance") (Section 1403 of each Indenture), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or currency units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities 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 premium or Make-Whole Amount, if
any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
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Such a trust may only be established if, among other things, the Company
has delivered to the applicable Trustee an Opinion of Counsel (as specified in
each Indenture) to the effect that the Holders of such Debt Securities 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
such Indenture (Section 1404 of each Indenture).
"GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, 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 or the government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, 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 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of either Indenture or the terms of such Debt Security
to receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium or Make-Whole Amount, if any) and interest on such Debt Security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market exchange
rate (Section 1405 of each Indenture). "Conversion Event" means the cessation of
use of (i) a currency, currency unit or composite currency (other than the ECU
or other currency unit) both by the government of the country that issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium or
Make-Whole Amount, if any) and interest on any Debt Security that is payable in
a Foreign Currency that ceases to be used by its government of issuance shall be
made in United States dollars (Section 101 of each Indenture).
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under " -- Events of Default, Notice and Waiver" with respect to
Sections 1004 to 1009, inclusive, of either Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (g) under
"Events of Default, Notice and Waiver" with respect to a covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the Company, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Capital Stock of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Capital Stock of the Company,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the Holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
are expected be deposited with The Depository Trust Company, as Depository.
Global Securities may be issued in fully registered form and may be issued in
either temporary or permanent form. Unless and until it is exchanged in whole or
in part for the individual Debt Securities represented thereby, a Global
Security may not be transferred except as a whole by the Depository for such
Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any nominee of such Depository to a successor Depository or any
nominee of such successor.
The specific terms of the depository arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement the following provisions will apply to
depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by the
Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depository for such Global Security 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 a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement, owners of beneficial interest in a Global Security will not be
entitled to have any of the individual Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities in definitive form and
will not be considered the owners or holders thereof under the applicable
Indenture.
Payments of principal of, any premium or Make-Whole Amount and any interest
on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security 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 Security. None of the
Company, the Company, any Paying Agent or the Security Registrar for such Debt
Securities 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 Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depository for any Debt Securities or its
nominee, upon receipt of any payment of principal, premium, Make-Whole Amount,
interest or Additional Amounts in respect of the Global Security representing
such Debt Securities will immediately credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depository or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Security
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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 a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, determine not to have any of such Debt Securities represented by one
or more Global Securities and in such event will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiples thereof.
TRUSTEES
First Union National Bank of Virginia is the Trustee under the Senior
Indenture. Crestar Bank is the Trustee under the Subordinated Indenture. Both
First Union National Bank of Virginia and Crestar Bank have lending
relationships with the Company.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 100,000,000 shares of Common Stock, $1
par value, and 25,000,000 shares of Preferred Stock, no par value. At May 6,
1996, there were outstanding 56,746,288 shares of Common Stock and 4,200,000
shares of Preferred Stock, consisting exclusively of the Company's 9 1/4% Series
A Cumulative Redeemable Preferred Stock (the "Series A Preferred").
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's Restated Articles of
Incorporation, as amended (the "Articles"), and bylaws (the "Bylaws") as
currently in effect. These statements do not purport to be complete, or to give
full effect to the terms of the provisions of statutory or common law, and are
subject to, and are qualified in their entirety by reference to, the terms of
the Articles and Bylaws, which are filed as exhibits to the Registration
Statement.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors after payment of, or provision for, full
cumulative dividends on and any required redemptions of shares of Preferred
Stock then outstanding. Holders of Common Stock have one vote per share and
non-cumulative voting rights, which means that holders of more than 50% of the
shares voting can elect all of the directors if they choose to do so, and, in
such event, the holders of the remaining shares will not be able to elect any
directors. In the event of any voluntary or involuntary liquidation or
dissolution of the Company, holders of Common Stock are entitled to share
ratably in the distributable assets of the Company remaining after satisfaction
of the prior preferential rights of the Preferred Stock and the satisfaction of
all debts and liabilities of the Company. Holders of Common Stock do not have
preemptive rights.
The dividend and liquidation rights of holders of the Common Stock are
specifically limited by the terms of the Series A Preferred as described below
in " -- Series A Preferred."
The Transfer Agent for the Common Stock is Mellon Securities Trust Company,
Pittsburgh, Pennsylvania. The Common Stock is traded on the New York Stock
Exchange (the "NYSE") under the symbol "UDR."
PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in that Prospectus
Supplement. The description set forth below is subject to and qualified in its
entirety by reference to the Articles of Amendment to the Articles fixing the
preferences, limitations and relative rights of a particular series of Preferred
Stock.
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GENERAL. Under the Articles, the Board of Directors of the Company is
authorized, without further shareholder action, to provide for the issuance of
up to 25,000,000 shares of Preferred Stock, in one or more series, with such
voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions, as the Board of Directors shall approve.
The Preferred Stock will have the dividend, liquidation, redemption,
conversion and voting rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of Preferred Stock.
Reference is made to the Prospectus Supplement relating to the particular series
of Preferred Stock offered thereby for specific terms, including: (i) the title
and liquidation preference per share of such Preferred Stock and the number of
shares offered; (ii) the price at which such series will be issued; (iii) the
dividend rate (or method of calculation), the dates on which dividends shall be
payable and the dates from which dividends shall commence to accumulate; (iv)
any redemption or sinking fund provisions of such series; (v) any conversion
provisions of such series; and (vi) any additional dividend, liquidation,
redemption, sinking fund and other rights, preferences, privileges, limitations
and restrictions of such series.
The Preferred Stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the Prospectus Supplement relating to a particular
series of Preferred Stock, each series will rank on a parity as to dividends and
distributions in the event of a liquidation with each other series of Preferred
Stock and, in all cases, will be senior to the Common Stock.
DIVIDEND RIGHTS. Holders of Preferred Stock of each series will be entitled
to receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available therefor, cash dividends at such rates and on such
dates as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock. Such rate may be fixed or variable or both and may be
cumulative, noncumulative or partially cumulative.
If the applicable Prospectus Supplement so provides, as long as any shares
of Preferred Stock are outstanding, no dividends will be declared or paid or any
distributions be made on the Common Stock, other than a dividend payable in
Common Stock, unless the accrued dividends on each series of Preferred Stock
have been fully paid or declared and set apart for payment and the Company shall
have set apart all amounts, if any, required to be set apart for all sinking
funds, if any, for each series of Preferred Stock.
If the applicable Prospectus Supplement so provides, when dividends are not
paid in full upon any series of Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends with such series of
Preferred Stock, all dividends declared upon such series of Preferred Stock and
any other series of Preferred Stock ranking on a parity as to dividends will be
declared pro rata so that the amount of dividends declared per share on such
series of Preferred Stock and such other series will in all cases bear to each
other the same ratio that accrued dividends per share on such series of
Preferred Stock and such other series bear to each other.
Each series of Preferred Stock will be entitled to dividends as described
in the Prospectus Supplement relating to such series, which may be based upon
one or more methods of determination. Different series of Preferred Stock may be
entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable Prospectus
Supplement, no series of Preferred Stock will be entitled to participate in the
earnings or assets of the Company.
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Stock will be entitled to receive out of the assets of the
Company available for distribution to shareholders the amount stated or
determined on the basis set forth in the Prospectus Supplement relating to such
series, which may include accrued dividends, if such liquidation, dissolution or
winding up is involuntary or may equal the current redemption price per share
(otherwise than for the sinking fund, if any, provided for such series) provided
for such series set forth in such Prospectus Supplement, if such liquidation,
dissolution or winding up is voluntary, and on such preferential basis as is set
forth in such Prospectus Supplement. If, upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the amounts payable with
respect to Preferred Stock of any series and any other shares of stock of the
Company ranking as to any such distribution on a parity with such series of
Preferred Stock are not paid in full, the holders of Preferred Stock of such
series and of such other shares will share ratably in any such distribution of
assets of the Company in proportion to the full respective preferential amounts
to which they are entitled or on such other basis as is set forth in the
applicable Prospectus Supplement. The rights, if any, of the holders of any
series of Preferred Stock to participate in the assets of the Company remaining
after the holders of other series of Preferred Stock have been paid their
respective specified liquidation preferences upon any liquidation, dissolution
or winding up of the Company will be described in the Prospectus Supplement
relating to such series.
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REDEMPTION. A series of Preferred Stock may be redeemable, in whole or in
part, at the option of the Company, and may be subject to mandatory redemption
pursuant to a sinking fund, in each case upon terms, at the times, the
redemption prices and for the types of consideration set forth in the Prospectus
Supplement relating to such series. The Prospectus Supplement relating to a
series of Preferred Stock which is subject to mandatory redemption shall specify
the number of shares of such series that shall be redeemed by the Company in
each year commencing after a date to be specified, at a redemption price per
share to be specified, together with an amount equal to any accrued and unpaid
dividends thereon to the date of redemption.
If, after giving notice of redemption to the holders of a series of
Preferred Stock, the Company deposits with a designated bank funds sufficient to
redeem such Preferred Stock, then from and after such deposit, all shares called
for redemption will no longer be outstanding for any purpose, other than the
right to receive the redemption price and the right to convert such shares into
other classes of capital stock of the Company. The redemption price will be
stated in the Prospectus Supplement relating to a particular series of Preferred
Stock.
Except as indicated in the applicable Prospectus Supplement, the Preferred
Stock is not subject to any mandatory redemption at the option of the holder.
SINKING FUND. The Prospectus Supplement for any series of Preferred Stock
will state the terms, if any, of a sinking fund for the purchase or redemption
of that series.
CONVERSION RIGHTS. The Prospectus Supplement for any series of Preferred
Stock will state the terms, if any, on which shares of that series are
convertible into shares of Common Stock or another series of Preferred Stock.
The Preferred Stock will have no preemptive rights.
VOTING RIGHTS. Except as indicated in the Prospectus Supplement relating to
a particular series of Preferred Stock, or except as expressly required by
Virginia law, a holder of Preferred Stock will not be entitled to vote. Except
as indicated in the Prospectus Supplement relating to a particular series of
Preferred Stock, in the event the Company issues full shares of any series of
Preferred Stock, each such share will be entitled to one vote on matters on
which holders of such series of Preferred Stock are entitled to vote.
Under Virginia law, the affirmative vote of the holders of a majority of
the outstanding shares of all series of Preferred Stock, voting as a separate
voting group, will be required for (i) the authorization of any class of stock
ranking prior to or on parity with Preferred Stock or the increase in the number
of authorized shares of any such stock, (ii) any increase in the number of
authorized shares of Preferred Stock and (iii) certain amendments to the
Articles that may be adverse to the rights of Preferred Stock outstanding.
TRANSFER AGENT AND REGISTRAR. The transfer agent, registrar and dividend
disbursement agent for a series of Preferred Stock will be selected by the
Company and be described in the applicable Prospectus Supplement. The registrar
for shares of Preferred Stock will send notices to shareholders of any meetings
at which holders of Preferred Stock have the right to vote on any matter.
SERIES A PREFERRED
The Board of Directors has designated 4,600,000 shares of Preferred Stock
as the "9 1/4% Series A Cumulative Redeemable Preferred Stock." At April 15,
1996, there were 4,200,000 shares of Series A Preferred outstanding. The Board
of Directors may redesignate any unissued shares of Series A Preferred as all or
a part of a different series of Preferred Stock. Holders of shares of Series A
Preferred are entitled to receive, when and as declared by the Board of
Directors, out of funds legally available for the payment of dividends,
cumulative preferential cash dividends at the rate of 9 1/4% of the liquidation
preference per annum (equivalent to $2.3125 per share). In the event of any
liquidation, dissolution or winding up of the Company, the holders of shares of
Series A Preferred are entitled to be paid out of the assets of the Company
legally available for distribution to its stockholders a liquidation preference
of $25.00 per share, plus an amount equal to any accrued and unpaid dividends to
the date of payment, before any distribution of assets is made to holders of
Common Stock or any other capital stock that ranks junior to the Series A
Preferred as to liquidation rights. The Series A Preferred is not redeemable
prior to April 24, 2000. On and after April 24, 2000, the Company, at its option
upon not less than 30 nor more than 60 days' written notice, may redeem shares
of the Series A Preferred, in whole or in part, at any time or from time to
time, for cash at a redemption price of $25.00 per share, plus accrued
dividends. The Series A Preferred has no stated maturity and will not be subject
to any sinking fund or mandatory redemption (except as provided under
"Description of Capital Stock -- Redemption and Restrictions on Transfer").
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The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred is Mellon Securities Trust Company, Pittsburgh, Pennsylvania. The
Series A Preferred is traded on the NYSE under the symbol "UDR-PRA."
DIVIDEND RESTRICTIONS
Covenants in its loan agreements with certain lenders restrict the payment
of distributions in excess of the sum of (i) current "cash flow," (ii) varying
additional amounts and (iii) the proceeds of capital stock offerings subsequent
to various dates, all as defined in the particular loan agreement. The covenants
do not prohibit the Company from paying distributions in order to continue its
qualification as a REIT under the Code.
AFFILIATED TRANSACTIONS
The Virginia Stock Corporation Act contains provisions governing
"Affiliated Transactions" designed to deter uninvited takeovers of Virginia
corporations. These provisions, with several exceptions discussed below, require
approval of material acquisition transactions between a Virginia corporation and
any holder of more than 10% of any class of its outstanding voting shares (an
"Interested Shareholder") by the holders of at least two-thirds of the remaining
voting shares. For three years following the time that the Interested
Shareholder becomes an owner of 10% of the outstanding voting shares, Virginia
corporations cannot engage in an Affiliated Transaction with such Interested
Shareholder without approval of two-thirds of the voting shares other than those
shares beneficially owned by the Interested Shareholder, and majority approval
of the "Disinterested Directors." At the expiration of the three year period,
the statute requires approval of Affiliated Transactions by two-thirds of the
voting shares other than those beneficially owned by the Interested Shareholder
absent an exception. The principal exceptions to the special voting requirement
apply to transactions proposed after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy the
fair-price requirements of the law.
The Virginia Stock Corporation Act also provides that shares acquired in a
transaction that would cause the acquiring person's voting strength to cross any
of three thresholds (20%, 33%, or 50%) have no voting rights unless granted by a
majority vote of shares not owned by the acquiring person or any officer or
employee-director of the Company. An acquiring person may require the Company to
hold a special meeting of shareholders to consider the matter within 50 days of
its request.
REDEMPTION AND RESTRICTIONS ON TRANSFER
In order to preserve the Company's status as a REIT as defined in the Code,
the Company can redeem or stop the transfer of its shares. The Articles provide
that the Company is organized to qualify as a REIT. Because the Code provides
that the concentration of more than 50% in value of the direct or indirect
ownership of its shares in five or fewer individual shareholders during the last
six months of any year would result in the disqualification of the Company as a
REIT, the Articles provide that the Company shall have the power (i) to redeem
that number of concentrated shares sufficient in the opinion of the Board of
Directors of the Company to maintain or bring the direct or indirect ownership
of shares into conformity with the requirements of the Code, and (ii) to stop
the transfer of shares to any person whose acquisition thereof would, in the
opinion of the Company's Board of Directors, result in such disqualification.
The per share redemption price of any shares redeemed by the Company pursuant to
this provision shall be the last reported sale price for the shares as of the
business day preceding the day on which notice of redemption is given. The Board
of Directors of the Company can require shareholders to disclose in writing to
the Company such information with respect to ownership of its shares as it deems
necessary to comply with the REIT provisions of the Code.
REIT QUALIFICATION
The Company operates in a manner intended to qualify for treatment as a
REIT under the Code. In general, a REIT which distributes to its shareholders at
least 95% of its taxable income (other than net capital gain) for a taxable year
and which meets certain other conditions will not be subject to federal income
taxation on income (including net capital gain) distributed for that year. If
the Company fails to qualify in any taxable year, it will be taxed for federal
income tax purposes as a corporation for that year and distributions to
shareholders will not be deductible by the Company in computing its taxable
income. Under such circumstances, the Company also will be disqualified from
being treated as a REIT under the Code for the ensuing four fiscal years.
Failure to qualify could result in the Company's incurring indebtedness and
perhaps liquidating investments in order to pay the resultant taxes.
18
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Offered Securities to or through underwriters or may
sell Offered Securities to investors directly or through designated agents. Any
such underwriter or agent involved in the offer and sale of the Offered
Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may, from time to time, authorize
underwriters acting as agents to offer and sell the Offered Securities upon the
terms and conditions set forth in any Prospectus Supplement. In connection with
the sale of Offered Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions (which may be changed from
time to time) from the underwriters and/or from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers will
be set forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Offered Securities may be deemed
to be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Offered Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the principal amount of Offered Securities sold
pursuant to Contracts shall not be less nor more than, the respective amounts
stated in such Prospectus Supplement. Institutions with which Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Offered Securities covered by its
Contract shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject and (ii)
the Company shall have sold to such underwriters the total principal amount of
the Offered Securities less the principal amount thereof covered by Contracts. A
commission indicated in the Prospectus Supplement will be paid to agents and
underwriters soliciting purchases of Offered Securities pursuant to Contracts
accepted by the Company. Agents and underwriters shall have no responsibility in
respect of the delivery or performance of Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with, and perform services for, the Company in the
ordinary course of business.
LEGAL OPINIONS
The validity of the Offered Securities will be passed upon for the Company
by Hunton & Williams, Richmond, Virginia. Brown & Wood, New York, New York, will
act as counsel to any underwriters, dealers or agents.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in its annual report on Form 10-K for the year ended December 31, 1995
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The combined statement of rental operations of Brittingham Square
Apartments, The Greens at Cedar Chase Apartments, The Greens at Cross Court
Apartments, The Greens at Falls Run Apartments, The Greens at Hilton Run
Apartments, The Greens at Hollymead Apartments, The Greens at Schumaker Pond
Apartments, The Greens of Constant Friendship Apartments and The Manor at
England Run Apartments, included in the Company's Current Report on Form 8-K,
dated
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June 30, 1995, incorporated by reference herein, has been incorporated herein in
reliance upon the report dated May 24, 1995, of L. P. Martin & Company, P.C.,
independent auditors, also incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing. The statements of
rental operations of Hunters Ridge at Walden Lake Apartments, Marble Hill
Apartments, Mallards of Wedgewood Apartments and Andover Place Apartments,
included in the Company's current report on Form 8-K, dated December 28, 1995,
incorporated by reference herein, have been incorporated herein in reliance upon
the reports respectively dated November 21, December 5, December 6 and December
7, 1995, of L.P. Martin & Company, P.C., independent auditors, also incorporated
by reference herein, and upon the authority of such firm as experts in
accounting and auditing.
20
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
The Company...................................... S-3
Recent Developments.............................. S-3
Use of Proceeds.................................. S-4
Capitalization................................... S-4
Price Range of Common Stock and Distributions.... S-5
Historical Total Returns......................... S-6
Selected Historical and Unaudited Pro Forma
Combined Financial Data........................ S-6
Management's Discussion and Analysis of
Financial Condition and Operations............. S-9
Management....................................... S-15
Underwriting..................................... S-16
Legal Opinions................................... S-16
Index to Pro Forma Combined
Financial Statements........................... S-17
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
The Company...................................... 3
Use of Proceeds.................................. 3
Certain Ratios................................... 4
Description of Debt Securities................... 4
Description of Capital Stock..................... 15
Plan of Distribution............................. 19
Legal Opinions................................... 19
Experts.......................................... 19
3,000,000 SHARES
[UNITED DOMINION LOGO]
COMMON STOCK
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
SCOTT & STRINGFELLOW, INC.
JANUARY , 1997
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