UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-10524
UNITED DOMINION REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0857512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 South Sixth Street, Richmond, Virginia 23219-3802
(Address of principal executive offices - zip code)
(804) 780-2691
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to filing requirements
for at least the past 90 days.
Yes X No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
88,143,261 shares of common stock outstanding as of August 5, 1997
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands,except for share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- ------------
<S> <C>
Assets
Real estate owned:
Real estate held for investment (Note 3) $ 2,135,654 $ 2,007,612
Less: accumulated depreciation 181,662 173,291
------------ -----------
1,953,992 1,834,321
Real estate under development 62,716 37,855
Real estate held for disposition 85,431 39,556
Cash and cash equivalents 8,296 13,452
Other assets 33,220 41,720
------------ -----------
Total assets $ 2,143,655 $ 1,966,904
============ ===========
Liabilities and shareholders' equity
Notes payable-secured (Note 4) $ 389,106 $ 376,560
Notes payable-unsecured (Note 5) 626,242 668,275
Distributions payable to common shareholders 22,037 19,699
Accounts payable, accrued expenses and other liabilities 54,511 49,962
------------ -----------
Total liabilities 1,091,896 1,114,496
Minority interest of unitholders in operating partnership 2,021 2,029
Shareholders' equity:
Preferred stock, no par value; $25 liquidation preference,
25,000,000 shares authorized;
4,200,000 shares 9.25% Series A Cumulative Redeemable 105,000 105,000
6,000,000 shares 8.60% Series B Cumulative Redeemable 150,000 --
Common stock, $1 par value; 150,000,000 shares authorized
87,274,566 shares issued and outstanding (81,982,551 in 1996) 87,275 81,983
Additional paid-in-capital 882,257 814,795
Notes receivable from officer-shareholders (9,198) (5,926)
Distributions in excess of net income (165,596) (147,529)
Unrealized gain on securities available-for-sale -- 2,056
------------ -----------
Total shareholders' equity 1,049,738 850,379
------------ -----------
Total liabilities and shareholders' equity $ 2,143,655 $ 1,966,904
============ ===========
</TABLE>
See accompanying notes.
2
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
--------- ---------- --------- -----------
<S> <C>
Revenues
Rental income $ 95,382 $ 57,197 $ 185,366 $ 112,036
Interest and other non-property income 137 445 388 795
--------- --------- --------- -----------
95,519 57,642 185,754 112,831
Expenses
Rental expenses:
Utilities 5,658 3,857 12,124 8,385
Repairs and maintenance 14,206 10,597 26,179 19,136
Real estate taxes 7,796 4,209 14,907 8,189
Property management 3,297 1,247 6,074 2,748
Other rental expenses 10,000 5,279 19,289 10,453
Real estate depreciation 19,127 10,805 35,289 21,365
Interest 19,769 11,237 38,919 21,883
General and administrative 1,820 1,549 3,653 2,932
Other depreciation and amortization 395 276 845 560
Impairment loss on real estate held for disposition -- 290 -- 290
--------- --------- --------- -----------
82,068 49,346 157,279 95,941
Income before gains (losses) on sales of investments and
minority interest of unitholders in operating partnership 13,451 8,296 28,475 16,890
Gains on sales of investments 1,254 (129) 3,374 836
Minority interest of unitholders in operating partnership (28) (1) (59) (1)
--------- --------- --------- -----------
Net income 14,677 8,166 31,790 17,725
Dividends to preferred shareholders 3,611 2,428 6,039 4,856
--------- --------- --------- -----------
Net income available to common shareholders $ 11,066 $ 5,738 $ 25,751 $ 12,869
========= ========= ========= ===========
Net income per common share $ .13 $ .10 $ .30 $ .23
========= ========= ========= ===========
Dividends declared per common share $ .2525 $ .24 $ .5050 $ .48
========= ========= ========= ===========
Weighted average number of common shares outstanding 86,877 56,666 85,967 56,566
</TABLE>
See accompanying notes.
3
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 1996
- ------------------------------------------------------------------------------------ -------------- -----------
<S> <C>
Operating Activities
Net income $ 31,790 $ 17,725
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 36,134 21,925
Minority interest of unitholders in operating partnership 59 1
Impairment loss on real estate held for disposition -- 290
Gains on sales of investments (3,374) (836)
Amortization of deferred financing costs 810 617
Changes in operating assets and liabilities:
Increase in operating liabilities 2,473 8,555
Increase in operating assets (4,572) (1,184)
---------- --------
Net cash provided by operating activities 63,320 47,093
Investing Activities
Acquisition of real estate, net of debt and liabilities assumed (150,615) (77,723)
Capital expenditures (45,966) (24,856)
Development of real estate assets (24,861) (2,955)
Net proceeds from sales of investments 27,089 15,794
Proceeds from interest rate hedge transaction 1,538 --
Payments on notes receivable 2,142 2
---------- --------
Net cash used in investing activities (190,673) (89,738)
Financing Activities
Net proceeds from the issuance of common stock 59,670 1,141
Net proceeds from the sale of preferred stock 145,275 --
Net proceeds from the sale of common stock through the dividend reinvestment
and stock purchase plan 14,538 3,733
Gross proceeds from the issuance of unsecured notes payable 125,000 111
Net borrowings (repayments) of short-term bank borrowings (104,750) 82,400
Distributions paid to preferred shareholders (4,856) (4,856)
Distributions paid to common shareholders (41,482) (26,257)
Distributions paid to minority interest unitholders (67) --
Scheduled mortgage principal payments (2,773) (1,213)
Mortgage financing proceeds released from construction funds -- 2,665
Payments on unsecured notes (63,414) (10,000)
Non-scheduled payments on secured notes payable (3,350) (77)
Payment of financing costs (1,594) (314)
---------- --------
Net cash provided by financing activities 122,197 47,333
Net increase (decrease) in cash and cash equivalents (5,156) 4,688
Cash and cash equivalents, beginning of period 13,452 2,904
---------- --------
Cash and cash equivalents, end of period $ 8,296 $ 7,592
========== ========
Supplemental Information
Interest paid during the period $ 37,628 $ 22,087
Secured debt assumed through the acquisition of properties 22,063 15,748
</TABLE>
See accompanying notes.
4
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(In thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Common Stock, $1 Par Value Preferred Stock
-------------------------- ------------------------
Number Number
of Shares Amount of Shares Amount
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1996 81,982,551 $81,983 4,200,000 $105,000
Common shares issued in public offering 4,000,000 4,000 - -
Preferred shares-Series B issued in public offering - - 6,000,000 150,000
Exercise of common share options 30,697 30 - -
Common shares purchased by officers, net of repayments 230,000 230 - -
Common shares issued through dividend reinvestment and
stock purchase plan 1,030,680 1,031 - -
Common shares issued through employee stock purchase plan 638 1 - -
Net income - - - -
Preferred stock-Series A distributions declared ($1.16 per share) - - - -
Preferred stock-Series B distributions declared ($.56 per share) - - - -
Common stock distributions declared ($.5050 per share) - - - -
Realized gain on securities available-for-sale - - - -
=========== ============ ============ =============
Balance at June 30, 1997 87,274,566 $87,275 10,200,000 $255,000
========== ============ ============ =============
</TABLE>
UNITED DOMINION REALTY TRUST, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(In thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain on
Additional Receivable Distributions Securities Total
Paid-in from Officer in Excess of Available- Shareholders'
Capital Shareholders Net Income for-Sale Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1996 $814,795 ($5,926) ($147,529) $2,056 $850,379
Common shares issued in public offering 55,420 - - - 59,420
Preferred shares-Series B issued in public offering (4,908) - - - 145,092
Exercise of common share options 284 - - - 314
Common shares purchased by officers, net of repayments 3,149 (3,272) - - 107
Common shares issued through dividend reinvestment and
stock purchase plan 13,507 - - - 14,538
Common shares issued through employee stock purchase plan 10 - - - 11
Net income - - 31,790 - 31,790
Preferred stock-Series A distributions declared ($1.16 per share) - - (4,856) - (4,856)
Preferred stock-Series B distributions declared ($.56 per share) - - (1,183) - (1,183)
Common stock distributions declared ($.5050 per share) - - (43,818) - (43,818)
Realized gain on securities available-for-sale - - - (2,056) (2,056)
========= ========== ============== ============ ==============
Balance at June 30, 1997 $882,257 ($9,198) ($165,596) $0 $1,049,738
========= ========== ============== ============ ==============
</TABLE>
See accompanying notes.
5
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The accompanying consolidated financial statements include the accounts of
United Dominion Realty Trust, Inc. and its wholly owned subsidiaries, including
United Dominion Realty, L.P., its Operating Partnership, (collectively, the
"Company"). The financial statements of the Company include the minority
interest of unitholders in the operating partnership. All significant
inter-company accounts and transactions have been eliminated in consolidation.
The consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of financial position
at June 30, 1997 and results of operations for the interim periods ended June
30, 1997 and 1996. Such adjustments are normal and recurring in nature. The
interim results presented are not necessarily indicative of results that can be
expected for a full year. The accompanying consolidated financial statements
should be read in conjunction with the audited financial statements and related
notes appearing in the Company's December 31, 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
2. Reclassifications
Certain previously reported amounts have been reclassified to conform with the
current financial statement presentation.
3. Real estate held for investment
The following table summarizes real estate held for investment:
June 30, December 31,
Dollars in thousands 1997 1996
- ----------------------------------------------------------------------
Land and land improvements $ 376,185 $ 353,092
Buildings and improvements 1,631,006 1,537,387
Furniture, fixtures and equipment 124,215 115,308
Construction in progress 4,248 1,825
----------- ------------
Real estate held for investment $ 2,135,654 $ 2,007,612
=========== ===========
4. Notes payable - secured
Notes payable-secured, which encumber $756.6 million or 33% of the Company's
real estate owned ($1.6 billion or 67% of the Company's real estate owned is
unencumbered) consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Principal Weighted Average Weighted Average No. Communities
Dollars in thousands Balance Interest Rate Years to Maturity Encumbered
- -----------------------------------------------------------------------------------------------------
<S> <C>
Fixed-Rate Mortgage Notes $ 122,132 8.3% 3.7 20
Fixed-Rate Tax-Exempt Notes 116,732 6.9% 23.8 17
Fixed-Rate REMIC Financings 90,022 7.8% 3.5 27
Fixed-Rate Secured Notes (a) 45,000 7.3% 2.1 6
-------------------------------------------------------------------
Total Fixed-Rate Notes 373,886 7.7% 10.9 70
Variable-Rate Secured Notes 13,020 6.3% 2.2 2
Variable-Rate Tax-Exempt Notes 2,200 5.4% 5.4 1
-------------------------------------------------------------------
Total Variable-Rate Notes 15,220 6.2% 2.6 3
-------------------------------------------------------------------
Total notes payable - secured $ 389,106 7.7% 9.5 73
===================================================================
</TABLE>
(a) Variable-rate secured notes payable which have been effectively swapped to a
fixed-rate at June 30, 1997 consist of a $40 million variable-rate secured
senior credit facility which encumbers six apartment communities and a $5
million variable-rate construction note payable. The interest rate swap
agreements have an aggregate notional value of $45 million under which the
Company pays a fixed-rate of interest and receives a variable-rate on the
notional amounts. The interest rate swap agreements effectively change the
Company's interest rate exposure on $45 million from a variable-rate to a
weighted average fixed-rate of approximately 7.3%.
6
<PAGE>
UNITED DOMINION REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Notes payable - unsecured
A summary of notes payable - unsecured is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in thousands 1997 1996
------------- ------------
<S> <C>
Commercial Banks
Borrowings outstanding under
revolving credit facilities and
other bank debt $ 20,500 (a) $ 125,250
Insurance Companies--Senior Unsecured Notes
7.98% due March, 1997-2003 44,571 (b) 52,000
8.72% due November, 1996-1998 (c) 4,000 4,000
--------- ---------
48,571 56,000
Other (d) 7,171 6,040
Senior Unsecured Notes - Other
7.00% Note due January 15, 1997 (e) -- 55,985
7.25% Notes due April 1, 1999 75,000 75,000
8.50% Debentures due September 15, 2024 (f) 150,000 150,000
7.95% Medium-Term Notes due July 12, 2006 125,000 125,000
7.25% Notes due January 15, 2007 125,000 --
7.07% Medium-Term Notes due November 15, 2006 25,000 25,000
7.02% Medium-Term Notes due November 15, 2005 50,000 50,000
--------- ---------
550,000 480,985
--------- ---------
Total Unsecured Notes Payable $ 626,242 $ 668,275
========= =========
</TABLE>
(a) The weighted average balance outstanding for the three months
ended June 30, 1997 was $78.9 million and carried a weighted
average daily interest rate of 6.2%. The weighted average balance
outstanding for the six months ended June 30, 1997 was $75.1
million and carried a weighted average daily interest rate of
6.2%. The weighted average interest rate at June 30, 1997 was
6.4%.
(b) Payable in six equal annual principal installments of $7.4
million.
(c) Payable in two equal annual principal installments of $2 million.
(d) Includes $6.7 million and $5.6 million at June 30, 1997 and
December 31, 1996, respectively, of deferred gain from the
termination of interest rate hedge transactions.
(e) Represents an unsecured note assumed in connection with the South
West Property Trust Inc. statutory merger (the "South West
Merger") on December 31, 1996. The note was repaid on January 3,
1997.
(f) Debentures include an investor put feature which grants a one time
option to redeem debentures in September 2004.
6. Accounting Pronouncements
During the first quarter of 1997, the Financial Accounting Standards Board
issued a new statement on the calculation of earnings per share (SFAS No. 128)
which is effective beginning in the fourth quarter of 1997. Early adoption is
prohibited. Under the new statement, primary and fully dilutive earnings per
share are replaced with basic and diluted earnings per share. The Company's
basic earnings per share and diluted earnings per share for the three month and
six month periods ended June 30, 1997 and 1996 according to the new statements
would not change from the reported amounts.
7. Subsequent Events
On August 1, 1997, the Company sold a portfolio of six apartment communities
containing 1,204 apartment homes which had a weighted average age of 26 years
for an aggregate sales price of approximately $34.7 million. For financial
reporting purposes, the Company will recognize an approximate $9.6 million gain
on the sale. The transaction was structured to qualify as a like-kind exchange
under Section 1031 of the Internal Revenue Code, so the related capital gains
can be deferred for federal income tax purposes. A seventh property included in
the portfolio is scheduled to close in September 1997.
7
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company considers portions of this information to be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved.
The Company is an owner and operator of primarily middle income apartment
communities across the Sunbelt. The communities are located in 22 major markets
dispersed throughout a 15 state area extending from Delaware to Nevada where it
seeks to be a market leader by operating a sufficiently sized portfolio of
apartments within each market. The Company believes this market diversification
increases investment opportunity and decreases the risk associated with cyclical
local real estate markets and economies. The Company's investment strategy
focuses on acquiring apartment communities in its major markets where it can add
value. The following table summarizes the Company's major apartment market
information:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
As of June 30, 1997 June 30, 1997 June 30, 1997
----------------------------------------- ------------------------ ----------------------
Average Average
Number of Number of % of Monthly Monthly
Apartment Apartment Apartment Economic Rental Economic Rental
Market Communities Homes Homes Occupancy** Rates* Occupancy** Rates
- ----------------------------------------------------------- ------------------------ ----------------------
<S> <C>
Held for investment
Dallas, TX 22 8,117 14% 93.7% $ 544 93.4% $ 538
Richmond, VA 10 3,253 5% 91.5% 551 90.8% 547
Columbia, SC 11 3,234 5% 92.5% 498 90.9% 498
Raleigh, NC 10 2,951 5% 94.0% 649 94.9% 646
Charlotte, NC 13 2,915 5% 94.5% 573 93.2% 570
Tampa, FL 10 2,913 5% 93.4% 572 93.9% 568
Orlando, FL 9 2,816 5% 96.5% 570 95.3% 568
Eastern NC 10 2,530 4% 95.9% 560 95.5% 558
Greensboro, NC 9 2,222 4% 84.2% 545 84.7% 544
Nashville, TN 8 2,116 4% 91.6% 584 91.6% 581
San Antonio, TX 5 1,983 3% 92.7% 614 92.5% 614
Baltimore, MD 7 1,614 3% 92.0% 656 92.4% 653
Greenville, SC 7 1,566 3% 85.6% 526 85.5% 525
Atlanta, GA 6 1,462 2% 90.2% 600 89.2% 600
Houston, TX 4 1,450 2% 91.1% 465 90.5% 464
Hampton Roads, VA 6 1,428 2% 90.3% 556 89.8% 554
Jacksonville, FL 3 1,157 2% 85.2% 596 86.3% 595
Washington, DC 5 1,113 2% 86.3% 736 86.6% 734
Ft. Lauderdale, FL 4 960 2% 94.1% 786 94.3% 783
Memphis, TN 4 935 2% 89.3% 514 90.3% 511
Austin, TX 3 867 1% 87.7% 533 88.9% 532
Phoenix, AZ 3 712 1% 91.4% 643 90.6% 643
Other 33 7,624 13% 91.4% 559 91.1% 558
----------------------------------- ---------------------- --------------------
202 55,938 94% 91.9% 572 91.7% 570
Held for disposition 16 3,499 6% 91.4% 506 91.2% 504
--------------------------------- ---------------------- --------------------
Total 218 59,437 100% 91.9% $568 91.6% $566
================================= ====================== ====================
</TABLE>
* Average monthly rental rates represent potential rent collections
(gross potential rents less market adjustments), which approximate net
effective rents. These figures exclude 1997 acquisitions.
** Economic occupancy is defined as rental income (gross potential rent
less vacancy loss, management units, units held out of service, move-in
concessions and credit loss) divided by potential collections (gross
potential rent less management units, units held out of service and
move-in concessions) for the period, expressed as a percentage. These
figures exclude 1997 acquisitions.
8
<PAGE>
Liquidity and Capital Resources
As a qualified real estate investment trust ("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 and development activity. For the six months ended June
30, 1997, the Company's cash flow from operating activities exceeded cash
distributions paid to preferred and common shareholders by approximately $17.0
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's bank lines of credit generally have been used to
temporarily finance these expenditures and subsequently this short-term bank
debt has been replaced with longer term debt or equity.
Operating Activities
For the six months ended June 30, 1997, the Company's cash flow from operating
activities increased approximately $16.2 million over the same period last year.
This increase was primarily a result of the significant expansion of the
Company's portfolio of apartment communities as discussed below and under
"Results of Operations".
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.
Investing Activities
During the six months ended June 30, 1997, net cash used for investing
activities was approximately $190.7 million compared to approximately $89.7
million for the same period last year. The level of investing activities
primarily reflects the increased levels of the Company's acquisition, capital
expenditure and development programs.
Acquisitions
The Company expects to purchase between 7,000 and 9,000 apartment homes at an
aggregate purchase price between $300 million and $400 million during 1997. The
Company's seeks to acquire apartment communities that can provide a first year
weighted average return on average investment of approximately 9.7% which may
vary depending on market conditions.
During the first six months of 1997, the Company acquired 12 apartment
communities containing 4,106 apartment homes and the second phase of an
apartment community acquired in 1996 containing 100 apartment homes at a total
cost of approximately $176.1 million, including closing costs. All of the
apartment communities acquired were located in the Company's major markets. The
apartment communities acquired were as follows:
<TABLE>
<CAPTION>
Purchase
Purchase No. Apt. Year Price Cost
Date Name/Location Homes Built (000's) per Home
- ----------------------------------------------------------------------------------------------
<S> <C>
02/19/97 Club at Hickory Hollow/Nashville, TN 406 1987 $17,371 $42,800
02/28/97 Stoney Pointe/ Charlotte, NC* 400 1991 17,355 43,400
02/28/97 Crosswinds/Wilmington, NC 380 1990 19,326 50,900
02/28/97 Dominion Trinity Park/ Raleigh, NC* 380 1994 22,155 58,300
03/25/97 Anderson Mill/Austin, TX 350 1984 14,305 40,900
03/27/97 Oak Ridge/Dallas, TX 486 1983 17,290 35,600
03/27/97 Breckenridge/Nashville, TN 190 1986 8,480 44,600
04/22/97 Northwinds II/Greensboro, NC** 100 1997 4,765 47,700
05/09/97 Green Oaks I/Houston, TX*** 440 1985 15,260 34,700
05/09/97 Skyhawk/Houston, TX 224 1984 9,456 42,200
06/06/97 Cambridge Woods/Tampa, FL 274 1985 8,957 32,700
06/18/97 Kelly Crossing/Dallas, TX 304 1984 11,653 38,300
06/25/97 Green Oaks II/Houston, TX*** 272 1985 9,680 35,600
----------------------------------------
1997 Total/Weighted Average 4,206 1987 $176,053 $41,900
========================================
</TABLE>
9
<PAGE>
* In connection with the acquisition of Dominion Trinity Park
and Stoney Pointe, the Company assumed two mortgage notes
payable aggregating $22 million with a weighted average
interest rate of approximately 8.4%.
** This represents the second phase of an apartment community
acquired by the Company in August, 1996.
*** These two properties will be operated as one apartment
community under the name Green Oaks Apartments.
On July 1, 1997, the Company acquired a portfolio of five apartment communities
containing 934 apartment homes for an aggregate purchase price of approximately
$36.0 million, including closing costs. All of the properties are located in
Florida.
Real estate under development
At June 30, 1997, the Company had 1,234 apartment homes under development as
outlined below (dollars in thousands):
<TABLE>
<CAPTION>
Total
Development Estimated Expected
No. Apt. Completed Costs Development Cost Completion
Property Location Homes Apt. Homes to Date Cost per Home Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Apartment Communities
Providence Court Charlotte, NC 420 326 $ 27,801 $ 29,698 $ 70,700 4Q `97
Dominion Franklin Nashville, TN 360 -- 2,888 23,236 64,500 4Q `98
------------------------------------------------------------
780 326 30,689 52,934 67,900
Additional Phases
England Run II Fredericksburg, VA 168 -- 6,139 10,740 63,900 3Q `97
Brantley Pines II Ft. Myers, FL 96 96 6,637 6,755 70,400 2Q `97
Oak Park II Dallas, TX 80 80 4,332 4,581 57,300 1Q `97
Oak Forest II Dallas, TX 260 24 7,948 10,612 40,800 1Q `98
Steeplechase II Greensboro, NC 176 -- 4,325 11,616 66,000 3Q `97
Greenway Park II Phoenix, AZ 20 -- 641 1,282 64,100 4Q `97
Mill Creek II Wilmington, NC 180 -- 1,357 11,719 65,100 3Q `98
Other -- -- 648 -- --
------------------------------------------------------------
980 200 32,027 57,305 $ 58,500
------------------------------------------------------------
1,760 526 $ 62,716 $110,239 $ 62,600
=============================================================
</TABLE>
Consistent with the Company's acquisition strategy, development activity is
expected to be focused primarily in its major markets. During the first six
months of 1997, the Company invested approximately $24.9 million in nine
properties currently under development, which includes two apartment communities
and seven additional phases to existing apartment communities. The Company
expects to spend in excess of $60 million on development activity during 1997.
At various times during the first six months of 1997, 421 apartment homes were
completed and became available for occupancy, including the completion of the
additional phase at Oak Park Apartments and Brantley Pines Apartments.
Development activity is generally progressing on schedule and on budget.
Absorption at the completed apartment homes in Charlotte, North Carolina and Ft.
Myers, Florida has been slower than projected year to date, however, absorption
has been very good at the Dallas, Texas property. These additions did not have a
material impact on results of operations for the quarter or six months ended
June 30, 1997.
Capital Expenditures
During the six months ended June 30, 1997, the Company spent approximately $46.0
million on capital improvements to its apartment portfolio. The Company has a
policy of capitalizing expenditures related to acquisitions and the enhancement
of the value, or the substantial extenuation of the useful life of an existing
asset. Some of these capital expenditures relate to an upgrade program that
began in 1996 to modernize certain of the Company's older apartment communities.
These upgrades primarily involve updating kitchens and bathrooms and are
designed to enhance rent growth and add value to the apartment communities. In
addition, the Company has several initiatives in place such as: (i) submetering
of water and sewer to residents where local and state regulations allow the cost
to be passed to the resident, (ii) gating and fencing apartment communities,
(iii) installing monitoring devices such as intrusion alarms or controlled
access devices, (iv) enlarging fitness centers and (v) adding business centers.
Capital expenditures
10
<PAGE>
during 1997 are expected to be similar to 1996 levels with the Company spending
approximately $400 per mature apartment home on revenue enhancing expenditures
and $400 to $500 per unit on recurring capital expenditures.
Disposition of investments
Securities available-for-sale
During the first quarter of 1997, the Company sold its investment in the
preferred stock of First Washington Realty Trust, Inc. obtained as partial
consideration in the 1995 sale of four commercial properties. The Company
received approximately $9.9 million in cash proceeds from the sale of the stock
and recognized approximately a $2.1 million gain on the sale for financial
reporting purposes.
Real estate held for disposition
During the first quarter of 1997, the Company transferred seven apartment
communities aggregating $33.7 million, net of accumulated depreciation, from
real estate held for investment to real estate held for disposition. During the
second quarter of 1997, the Company transferred six apartment communities
aggregating $29.6 million net of accumulated depreciation, from real estate held
for investment to real estate held for disposition. These six properties are
encumbered by tax-exempt bonds and are being offered for sale in a portfolio
transaction. On August 7, 1997, the Company executed a contingent contract to
sell these communities at an aggregate sales price of $47.9 million. There is no
assurance that transaction will be consummated. The Company continually
undertakes portfolio review analyses with the objective of identifying
properties that do not meet the long-term investment objectives of the Company
which are then to be sold. The Company does not anticipate any losses from the
sales of any of these properties.
Real estate held for disposition included in the Consolidated Balance Sheet in
the aggregate amount of $85.4 million, net of accumulated depreciation and
valuation allowance includes: (i) 16 apartment communities containing 3,499
apartment homes aggregating $72.6 million, (ii) two shopping centers aggregating
$8.8 million, (iii) three other commercial properties aggregating $2.4 million
and (iv) one parcel of land in the amount of $1.6 million. Real estate held for
disposition contributed net rental income (rental income less rental expenses
and depreciation expense) in the aggregate amount of approximately $3.2 million
and $6.8 million for the three and six months ended June 30, 1997, respectively.
The Company expects to dispose of these properties within the next twelve
months.
During the second quarter of 1997, the Company sold three apartment communities
containing 822 apartment homes and one shopping center for an aggregate sales
price of $20.8 million and received net cash proceeds of approximately $17.1
million. For financial reporting purposes, the Company recognized an approximate
$1.3 million gain on the sale of investments in connection with these sales. One
of these properties was structured to qualify as a like-kind exchange under
Section 1031 of the Internal Revenue Code, so the related capital gain was
deferred for federal income tax purposes.
On August 1, 1997, the Company sold a portfolio of six apartment communities
containing 1,204 apartment homes which had a weighted average age of 26 years
for an aggregate sales price of approximately $34.7 million. For financial
reporting purposes, the Company will recognize an approximate $9.6 million gain
on the sale. The transaction was structured to qualify as a like-kind exchange
under Section 1031 of the Internal Revenue Code, so the related capital gains
can be deferred for federal income tax purposes. A seventh property included in
the portfolio is scheduled to close in September 1997.
11
<PAGE>
Financing Activities
Financial Structure
The following table outlines the Company's financial structure at June 30, 1997:
<TABLE>
<CAPTION>
Balance at Weighted Average Capitalization
June 30, 1997 Interest Rate Percentage
------------- ---------------- --------------
<S> <C>
Fixed Rate Secured Debt $ 373,886 7.7% 14.9%
Fixed Rate Unsecured Debt 605,742 7.5% 24.1%
------------- ---- -----
979,628 7.6% 39.0%
Variable Rate Secured Debt 15,220 6.2% 0.6%
Variable Rate Unsecured Debt 20,500 6.4% 0.8%
------------- ---- -----
35,720 6.3% 1.4%
------------- ---- -----
Total Debt 1,015,348 7.6% 40.4%
Preferred stock at market 260,952 8.9%* 10.3%
Common stock at market 1,238,497 n/a 49.3%
------------- -----
Equity capitalization at market 1,499,449 n/a 59.6%
------------- ---- -----
Total market capitalization
(debt & equity) $ 2,514,797 n/a 100.0%
============= ======
</TABLE>
*Represents the weighted average dividend rate.
Net cash provided by financing activities during the six months ended June 30,
1997 was approximately $122.2 million compared to $47.3 million for the same
period last year, reflecting the significant debt and equity financing
activities during the first six months of 1997.
On January 28, 1997, the Company issued 4,000,000 shares of its common stock at
$15.75 per share for an aggregate value of approximately $63 million. Net
proceeds of approximately $59.7 million were used to repay an unsecured credit
facility assumed in connection with the South West Merger.
The Company also received approximately $14.5 million under its Dividend
Reinvestment and Stock Purchase Plan (the "Plan") during the six months ended
June 30, 1997 which included approximately $10.4 million in optional cash
investments and $4.1 million of reinvested dividends. The Company expects to
generate in excess of $35 million in proceeds from the Plan during 1997.
In anticipation of the issuance of unsecured debt in early 1997, the Company
entered into a $100 million (notional amount) Treasury rate lock agreement in
November 1996. On January 27, 1997, the Company issued $125 million of 7.25%
Notes due January 15, 2007 under its $462.5 million shelf registration
statement. The Notes were priced to yield 7.31% which was 79 basis points over
the 10 year Treasury at the time of issuance. The interest rate protection
agreement was terminated simultaneously with the $125 million Note issuance and
the Company received $1.5 million in cash. This had the economic effect of
lowering the interest rate on the Notes to approximately 7.14%. Net proceeds of
approximately $124 million were used to curtail bank debt and purchase apartment
communities.
On May 29, 1997, the Company sold 6,000,000 shares of 8.60% Series B Redeemable
Preferred Stock at $25 per share. Net proceeds of approximately $145.3 million
were primarily used to repay short-term bank debt.
Derivative Instruments
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 the results
of operations during the three and six months ended June 30, 1997 and 1996.
12
<PAGE>
On May 1, 1997, the Company terminated an interest rate swap agreement with a
commercial lender with notional amounts from $79 million to $83 million which
effectively changed the Company's interest exposure from a variable rate to a
weighted average fixed rate of 6.45%. No gain or loss was recognized on this
termination.
Credit facilities
At June 30, 1997, the Company had the following credit facilities:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 Six Months Ended June 30, 1997
----------------------------------- ----------------------------------
Weighted Average Weighted Average
Weighted Average Interest Rate Weighted Average Interest Rate
Amount of Amount Three Months Amount Six Months
Credit facility facility Outstanding June 1997 Outstanding June 1997
- ----------------------------- ----------------------------------- ----------------------------------
<S> <C>
Revolving credit $ 70,000 $ 46,465 6.2% $ 52,107 6.2%
Line of credit 33,500 -- -- -- --
Interim credit 75,000 32,516 6.2% 22,954 6.2%
----------- ----------------------------------- ----------------------------------
$ 178,500 $ 78,981 6.2% $ 75,061 6.2%
=========== =================================== ==================================
</TABLE>
On August 4, 1997, the Company closed on a new $200 million three year revolving
credit facility and a $50 million one year unsecured line of credit. Under the
new facility, pricing is based upon the higher of the Company's senior unsecured
debt ratings from S & P and Moody's which are currently BBB+ and Baa1,
respectively. At these rating levels, contractual interest under the new
revolving credit facility is LIBOR plus 42 1/2 basis points. The credit facility
also includes a $100 million competitive bid option which allows the Company to
solicit bids from participating banks at rates below the contractual rate.
The Company's liquidity and capital resources are believed to be more than
adequate to meet its cash requirements for the next several years. The Company
expects to meet its short- and long-term capital requirements, such as balloon
debt maturities, property acquisitions, development activity and significant
capital improvements, primarily through the public and private sale of capital
stock and the issuance of medium and long-term unsecured notes payable. The
Company may also fund its capital requirements through (i) the assumption of
mortgage indebtedness, (ii) sales of properties, (iii) common shares sold
through the Company's Dividend Reinvestment and Stock Purchase Plan, (iv)
retained operating cash flow and (v) the issuance of operating partnership
units. The Company's senior debt is currently rated BBB+ by Standard & Poor's
and Baa1 by Moody's. As a result of its investment grade debt ratings, the
Company expects to use unsecured debt as its primary debt funding source.
Depending upon the volume and timing of acquisition activity, the Company
anticipates raising additional debt and equity capital during the next twelve
months to finance capital requirements while striving to minimize the overall
cost of capital. During the second quarter of 1997, the Company filed a shelf
registration statement for approximately $675 million of debt and preferred and
common equity securities.
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.
13
<PAGE>
For the three months ended June 30, 1997, FFO increased 70.8% to $29.0 million,
compared with $17.0 million for the same period last year. For the six months
ended June 30, 1997, FFO increased 71.3% to $57.7 million, compared with $33.7
million for the same period last year. The increase in FFO was principally due
to the increased net rental income from the Company's 26,719 non-mature
apartment homes in 86 apartment communities acquired and developed subsequent to
January 1, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) (In thousands)
1997 1996 % Change 1997 1996 % Change
-------------------------------- -------------------------------
<S> <C>
Calculation of funds from operations:
Income before gains (losses) on sales of
investments, minority interest of
unitholders in operating partnership
and extraordinary item $ 13,451 $ 8,296 62.1% $ 28,475 $ 16,890 68.6%
Adjustments:
Real estate depreciation 19,127 10,805 77.0% 35,289 21,365 65.2%
Dividends to preferred shareholders (3,611) (2,428) 48.7% (6,039) (4,856) 24.4%
Impairment loss on real estate held
for disposition -- 290 -- -- 290 --
-------------------------------- -------------------------------
Funds from operations $ 28,967 $ 16,963 70.8% $ 57,725 $ 33,689 71.3%
================================ ===============================
</TABLE>
Results of Operations
The Company's net income is primarily generated from the operations of its
apartment communities. For purposes of evaluating the Company's comparative
operating performance, the Company categorizes its apartment communities into
two categories (i) mature-those communities acquired, developed and stabilized
prior to January 1, 1996 and held throughout both 1997 and 1996 and (ii)
non-mature-those communities acquired, developed or sold subsequent January 1,
1996.
For the three and six months ended June 30, 1997, the Company reported increases
over the same period last year in rental income, income before gains (losses) on
sales of investments and minority interest of unitholders in operating
partnership and net income. For the six months ended June 30, 1997, net income
available to common shareholders increased $12.9 million, with a corresponding
increase of $.07 per share compared to the same period last year and for the
three months ended June 30, 1997, net income available to common shareholders
increased $5.3 million, with a corresponding increase of $.03 per share compared
to the same period last year . Since the beginning of 1996, the Company acquired
and developed a total of 26,719 apartment homes in 86 apartment communities
(including 14,320 completed apartment homes in 44 apartment communities acquired
in the South West Merger) and sold seven apartment communities containing 1,474
apartment homes, representing a net 73.8% expansion in the number of apartment
homes owned during that period. These non-mature apartment homes provided a
substantial portion of the aggregate reported increases.
All Apartment Communities
The operating performance for the Company's 218 apartment communities containing
59,437 completed apartment homes (and 1,474 apartment homes in seven apartment
communities sold since January 1, 1996) for the three and six months ended June
30, 1997 and 148 apartment communities containing 36,361 apartment homes for the
three and six months ended June 30, 1996, respectively, is summarized as
follows:
14
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) (In thousands)
-------------------------------- ----------------------------------
1997 1996 % Change 1997 1996 % Change
-------------------------------- ----------------------------------
<S> <C>
Rental income $ 94,632 $ 55,602 70.2% $ 183,867 $ 108,698 69.2%
Rental expenses (40,740) (24,502) 66.3% (78,134) (47,541) 64.3%
Real estate depreciation (19,127) (10,805) 77.0% (35,289) (21,271) 65.9%
-------------------------------- ----------------------------------
Net rental income (1) $ 34,765 $ 20,295 71.3% $ 70,444 $ 39,886 76.6%
================================ ==================================
Weighted average number
of apartment homes 58,678 35,423 65.6% 57,545 34,942 64.7%
Economic occupancy (2) 91.9% 93.3% (1.4%) 91.6% 93.2% (1.6%)
Average monthly rents $ 568 $ 548 3.6% $ 566 $ 545 3.9%
</TABLE>
(1) Net rental income for an apartment community is defined as total rental
income, less rental expenses, less real estate depreciation.
(2) Economic occupancy is defined as rental income (gross potential rent less
vacancy loss, management units, units held out of service, move-in
concessions and credit loss) divided by potential collections (gross
potential rent less management units, units held out of service and move-in
concessions) for the period, expressed as a percentage.
Due to the acquisition and development of 26,719 apartment homes since January
1, 1996 (the Company also sold seven apartment communities containing 1,474
apartment homes during this same period), the weighted average number of
apartment homes increased 64.7% to 57,545 for the six months ended June 30, 1997
and 65.6% to 58,678 for the three months ended June 30, 1997 . As a result of
the increase in the number of apartment homes acquired since January 1, 1996,
the Company has experienced significant increases in rental income, rental
expenses and real estate depreciation for the three and six months ended June
30, 1997.
Mature Apartment Communities
The operating performance for the Company's 135 mature apartment communities
containing 33,163 apartment homes for the three and six months ended June 30,
1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) (In thousands)
---------------------------------- --------------------------------
1997 1996 % Change 1997 1996 % Change
---------------------------------- --------------------------------
<S> <C>
Rental income $ 53,767 $ 51,946 3.5% $106,847 $103,104 3.6%
Rental expenses (23,666) (22,970) 3.0% (46,622) (45,204) 3.1%
Real estate depreciation (11,750) (10,288) 14.2% (20,699) (20,381) 1.6%
---------------------------------- --------------------------------
Net rental income $ 18,351 $ 18,688 (1.8%) $ 39,526 $ 37,519 5.3%
================================== ================================
Economic occupancy 92.4% 93.3% (0.9%) 92.1% 93.1% (1.0%)
Average monthly rents $ 567 $ 545 4.0% $ 563 $ 541 4.1%
</TABLE>
For the six months ended June 30, 1997, the Company's mature communities
provided approximately 58% of the Company's apartment rental income and 56% of
its net rental income. During the first six months of 1997, the Company's mature
apartment communities experienced good rent and other income growth. Compared to
the same period last year, total rental income from these apartment homes grew
3.6%, or approximately $3.7 million, reflecting an increase in average monthly
rents of 4.1% to $563 per month. In addition, other income, primarily fee
income, increased approximately $802,000 or 23.8%. The rental rate increase was
offset by a 1.0% decline in economic occupancy to 92.1%, which resulted from a
decrease in physical occupancy of 1.0%. The economic occupancy declined due to
the weakening of certain major southeastern markets during the last half of 1996
including Columbia and Greenville, South Carolina, Washington DC, Jacksonville,
Florida, Richmond and Hampton Roads, Virginia and Atlanta, Georgia. Overall,
economic occupancy bottomed out in January 1997 at 90.7% and has trended upward
during
15
<PAGE>
the remainder of the year to 92.2% for June 1997. The Company attributes the
market softness primarily to increased home buying, a slowdown in job growth and
an oversupply of apartment homes in certain of the southeastern markets. For the
quarter ended June 30, 1997, total rental income from these apartment homes grew
3.5%, or approximately $1.8 million, reflecting an increase in average monthly
rents of approximately $2.2 million or 4.0% to $567. Other income increased
approximately $374,000 or 21.3%, over the same period last year while economic
occupancy declined .9% to 92.4%. The Company expects to maintain rent growth in
the 4% range and economic occupancy in the 92% range during the remainder of
1997.
For the six months ended June 30, 1997, rental expenses at these communities
increased 3.1%, or $1.4 million, resulting in an improvement in the operating
expense ratio (the ratio of rental expenses to rental income) of .2% to 43.6%.
The 3.1% increase in operating expenses is attributable to higher real estate
taxes, marketing and advertising, personnel and the Company's cost of
self-management. Real estate taxes increased approximately $201,000 or 2.7% over
the same period last year as the Company has experienced continuing pressure on
this expense item over the past year due to tax reassessments in certain
markets. Marketing and advertising costs increased 46.5% or approximately
$580,000 over the same period last year as a direct result of softening in
certain major markets. Personnel costs increased 5.3% or approximately $519,000
primarily due to the fact that the Company was understaffed at some of its
properties during much of 1996. The cost of self-management increased 36.0% or
approximately $912,000 as the Company invested heavily in its personnel and
technological infrastructure during 1997 in response to the significant growth
the Company has experienced during the past year. In addition, incentive
compensation earned by the site associates increased due to the better
performance compared to budget achieved by these communities compared to the
same period last year. These rental expense increases were somewhat offset by a
decrease in repairs and maintenance expense of 4.5% or approximately $549,000
primarily as a result of less exterior painting, extraordinary repairs and
mechanical repairs during the 1997 period. For the quarter ended June 30, 1997,
rental expenses increased $696,000 or 3.0% over the same period last year for
the same reasons discussed above. The Company's objective is to maintain rental
expense growth below the 2% range during the remainder of 1997.
For the three and six months ended June 30, 1997, depreciation expense increased
partly as a result of the upgrade and improvement process in place at the
Company's mature apartment communities discussed under "Capital Expenditures" in
Liquidity and Capital Resources.
Non-Mature Communities
The operating performance for the three and six months ended June 30, 1997 for
the Company's 86 non-mature apartment communities which includes: (i) the 30
apartment communities containing 7,712 apartment homes acquired during 1996 and
a 253 home community acquired in 1995 and not stabilized due to significant
rehabilitation, (ii) the 44 apartment communities containing 14,215 apartment
homes acquired on December 31, 1996 in connection with the South West Merger
(excluding 105 newly developed apartment homes), (iii) the 12 apartment
communities containing 4,106 apartment homes and the second phase of an
apartment community acquired in 1996 containing 100 apartment homes acquired
since January 1, 1997, (iv) the seven apartment communities containing 1,474
apartment homes sold since January 1, 1996 and (v) the 586 apartment homes
developed since January 1, 1996 is summarized as follows (dollars in thousands):
Three Months Ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 Acquisitions and
Former 1997 and 1996
1996 Acquisitions South West Development & Sales Total Non-Mature
1997 1996 1997 1996 1997 1996 1997 1996
------------------- -------------------- -------------------- ---------------------
<S> <C>
Rental income $ 12,613 $ 2,503 $ 21,644 $ -- $ 6,608 $ 1,153 $ 40,865 $ 3,656
Rental expenses (5,137) (992) (9,411) -- (2,526) (540) (17,074) (1,532)
Real estate depreciation (2,527) (517) (3,316) -- (1,534) -- (7,377) (517)
------------------- -------------------- -------------------- ---------------------
Net rental income $ 4,949 $ 994 $ 8,917 $ -- $ 2,548 $ 613 $ 16,414 $ 1,607
=================== ==================== ==================== =====================
</TABLE>
16
<PAGE>
Six Months Ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 Acquisitions
Former 1997 and 1996
1996 Acquisitions South West Development & Sales Total Non-Mature
1997 1996 1997 1996 1997 1996 1997 1996
-------------------- -------------------- ------------------- ---------------------
<S> <C>
Rental income $ 25,067 $ 3,278 $ 42,894 $ -- $ 9,059 $ 2,316 $ 77,020 $ 5,594
Rental expenses (10,085) (1,259) (17,954) -- (3,473) (1,078) (31,512) (2,337)
Real estate depreciation (5,269) (859) (7,423) -- (1,898) (31) (14,590) (890)
-------------------- -------------------- ------------------- ---------------------
Net rental income $ 9,713 $ 1,160 $ 17,517 $ -- $ 3,688 $ 1,207 $ 30,918 $ 2,367
==================== ==================== =================== =====================
</TABLE>
For the six months ended June 30, 1997, the Company's non-mature apartment
communities provided approximately 42% of the Company's apartment rental income
and 44% of its net rental income. Rental income, rental expenses and real estate
depreciation increased from 1996 to 1997 directly as a result of the increase in
the weighted average number of apartment homes owned during 1997. For the 26,719
apartments homes in the 86 non-mature communities acquired and developed and the
1,474 apartment homes in seven communities sold since January 1, 1996, average
economic occupancy was 90.2% and the operating expense ratio was 40.9% during
the first six months of 1997. For the quarter ended June 30, 1997, average
economic occupancy was 90.8% and the operating expense ratio was 41.8%
1996 Acquisitions
The 30 apartment communities containing 7,712 apartment homes that were acquired
during 1996 (excluding the South West Merger) and a 253 home community acquired
in 1995 and not stabilized due to significant rehabilitation provided a
significant increase in rental income, rental expenses and depreciation expense
for the Company's apartment portfolio for the three and six months ended June
30, 1997. For the first six months of 1997, these apartment communities had
economic occupancy of 88.8% and an operating expense ratio of 40.2%. For the
quarter ended June 30, 1997, these apartment communities had economic occupancy
of 89.3% and an operating expense ratio of 40.7%. The first year return on
investment for these communities was projected at 9.5%, however, the actual
return on investment for the six months ended June 30, 1997, on an average
investment of approximately $306 million, was 9.2% (excluding two communities
under renovation). This was primarily due to the under-performance of nine
apartment communities that were acquired in August 1996, as part of a portfolio
transaction which had a concentration of communities in the
Greensboro/Winston-Salem, North Carolina market. Occupancy levels in this region
peaked in the 93% to 94% range in August 1996 when the Company acquired these
properties and has fallen to approximately 84.7% for the first six months of
1997 reflecting an oversupply of apartment product in this market.
South West Property Trust Inc. (SWP)
The acquisition of the 44 apartment communities containing 14,215 completed
apartment homes included in the SWP Merger on December 31, 1996, provided the
largest increases in rental income, rental expenses and depreciation expenses
for the Company's entire apartment portfolio for the three and six months ended
June 30, 1997. For the six months ended June 30, 1997, these apartment
communities had economic occupancy of 92.1% and an operating expense ratio of
41.9%. The first year return on investment for the SWP Portfolio was projected
to be 9.5% which approximates the 9.6% return on investment posted during the
first six months of of 1997. Included in the SWP communities are 12,361
stabilized apartment communities (those acquired, developed and stabilized prior
to January 1, 1996) which experienced rent growth of 4.9% over the amounts
reported last year by SWP, an average economic occupancy of 92.1% and an
operating expense ratio of 44.1%. For the quarter ended June 30, 1997, these
apartment communities had economic occupancy of 92.4% and an operating expense
ratio of 43.5%.
1997 Acquisitions, Development and Sales
Included in this category are the following: (i) the twelve apartment
communities containing 4,106 apartment homes and the second phase of an existing
apartment community containing 100 apartment homes acquired by the Company
during the first six months of 1997 which are projected to have a first year
return on investment of approximately 9.73%, (ii) the 586 apartment homes
developed since January 1, 1996 and (iii) the seven apartment communities
containing 1,474 apartment sold since January 1, 1996. These communities did not
have a material impact on the Company's results of operations for the three and
six month periods ended June 30, 1997.
17
<PAGE>
Commercial Properties
Rental income and rental expenses from commercial properties decreased $621,000
and $248,000, respectively during the three months ended June 30, 1997, compared
to the same period last year. For the six month period, rental income, rental
expenses and depreciation expense decreased $1.4 million, $523,000 and $94,000
compared to the same period last year. These decreases were directly
attributable to the sale of five shopping centers and one industrial park since
the beginning of 1996.
Interest Expense
Interest expense increased $8.5 million and $17.0 million for the three and six
months ended June 30, 1997 over the same periods last year. The weighted average
amount of debt employed during the first six months of 1997 was higher than it
was in 1996 ($1.1 billion in 1997 versus $563.3 million in 1996). The weighted
average interest rate on this debt was slightly lower than it was during the
same period last year, decreasing from 7.6% in 1996 to 7.5%. For the quarter
ended June 30, 1997, the weighted average debt outstanding was higher than the
same period last year ($1.1 billion in 1997 versus $600.1 million in 1996). The
weighted average interest rate on this debt was slightly lower than it was
during the same period last year, decreasing from 7.6% in 1996 to 7.5% in 1997.
For the three and six months ended June 30, 1997, total interest capitalized was
$721,000 and $1.2 million, respectively.
General and Administrative
During the three and six months ended June 30, 1997, general and administrative
expenses increased by $271,000 and $721,000 over the same periods last year. In
1997, the Company incurred increases in most of its general and administrative
expense categories which is directly attributable to the increased size of the
Company. The largest increases occurred in payroll and payroll related expenses
and investor relations expense which are directly attributable to the increased
size of the Company. General and administrative expense as a percentage of
rental revenues decreased .8% from 2.7% during the second quarter of 1996 period
to 1.9% during the second quarter of 1997 primarily due to economies of scale.
During the second quarter of 1997, general and administrative expenses grew
approximately 17% while rental income grew by approximately 67% over the same
period last year. For the six month period ended June 30, 1997, general and
administrative expense as a percentage of rental revenues decreased .6% from
2.6% to 2.0%. During this same period, general and administrative expenses grew
by approximately 25% while rental income grew by 65%.
Gains on Sales of Investments
During the six months ended June 30, 1997, the Company recognized gains on the
sales of investments aggregating $3.4 million as a result of the following
transactions: (i) the first quarter sale of the Company's investment in the
preferred stock of First Washington Realty Trust, Inc. obtained as partial
consideration in the 1995 sale of four commercial properties on which the
Company recognized a gain for financial reporting purposes of $2.1 million and
(ii) the second quarter sale of three apartment communities containing 844
apartment homes and one shopping center for an aggregate sales price of $20.8
million on which the Company recognized aggregate gains for financial reporting
purposes of $1.3 million.
Dividends to Preferred Shareholders
Dividends to preferred shareholders totaled $3.6 million and $6.0 million for
the three and six month periods ended June 30, 1997 compared to $2.4 million and
$4.9 million for the same periods last year. The increases in dividends to
preferred shareholders is a result of the issuance of six million shares of
Series B 8.60% Cumulative Redeemable Preferred Stock on May 29, 1997.
Inflation
The Company believes that the direct effects of inflation on the Company's
operations have been inconsequential.
18
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
Neither the Company nor any of its apartment communities is presently
subject to any material litigation nor, to the Company's knowledge, is any
litigation threatened against the Company or any of the communities, other than
routine actions arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the business or financial
condition or results of operations of the Company.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULT UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the accompanying index to exhibits are filed as
part of this quarterly report.
(b) A Form 8-K dated July 1, 1997 was filed with the Securities and Exchange
Commission on July 15, 1997. The filing reported the acquisition by the
Company of properties which were in the aggregate were "significant".
19
<PAGE>
EXHIBIT INDEX
Item 6 (a)
.
The exhibits listed below are filed as part of this quarterly report.
References under the caption "Location" to exhibits, forms, or other filings
indicate that the form or other filing has been filed, that the indexed exhibit
and the exhibit referred to are the same and that the exhibit referred to is
incorporated by reference.
<TABLE>
<CAPTION>
Exhibit Description Location
- ------- --------------------------------------- ---------------------------------------------------
<S> <C>
2(b) Definitive Agreement and Plan of Exhibit 2(b) to the Company's Form S-4 Registration
Merger dated as of October 1, 1996, Statement (Registration No. 333-13745) filed with
the between the Company, United Sub, Commission on October 9, 1996.
Inc. and South West Property Trust Inc.
3(a) Restated Articles of Incorporation Exhibit 4(i)(c) to the Company's Form S-3
Registration Statement (Registration No. 33-64275)
3(a)(i) Amendment of Restated Articles of Exhibit 6(a)(4) to the Company's Form 8-A
Incorporation Registration Statements dated April 19, 1990 and
April 24, 1995.
3(a)(ii) Amendment of Restated Articles of Exhibit 1(c) to the Company's Form 8-A
Incorporation Registration Statements dated June 11, 1997.
3(b) Restated By-Laws Exhibit 3(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1997.
4(i)(a) Specimen Common Stock Exhibit 4(i) to the Company's Annual Report
Certificate on Form 10-K for the year ended December
31, 1993.
4(i)(b) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 9 1/4% Series A Cumulative Registration Statement dated April 24, 1995.
Redeemable Preferred Stock
4(i)(c) Form of Certificate for Shares Exhibit 1(e) to the Company's Form 8-A
of 8.60% Series B Cumulative Registration Statement dated June 11, 1997.
Redeemable Preferred Stock
4(ii)(a) Loan Agreement dated as of Exhibit 6(c)(i) to the Company's Form 8-A
November 7, 1991, between the Registration Statement dated April 19, 1990.
Company and Aid Association for
Lutherans
4(ii)(e) Note Purchase Agreement dated Exhibit 6(c)(5) to the Company's Form 8-A
as of February 15, 1993, between Registration Statement dated April 19, 1990.
the Company and CIGNA Property
and Casualty Insurance Company,
Connecticut General Life Insurance
Company, Connecticut General Life
20
<PAGE>
Insurance Company, on behalf of
one or more separate accounts,
Insurance Company of North
America, Principal Mutual Life
Insurance Company and Aid
Association for Lutherans
4(ii)(f) Credit Agreement dated as of Exhibit 6 (c)(6) to the Company's
December 15, 1994 between the Form 8-A Registration Statement
Company and First Union National Bank dated April 19, 1990.
of Virginia
10(i) Employment Agreement between Exhibit 10(v)(i) to the Company's Annual Report on
the Company and John P. McCann Form 10-K for the year ended December 31, 1982.
dated October 29, 1982
10(ii) Employment Agreement between Exhibit 10(v)(ii) to the Company's Annual Report on
the Company and James Dolphin Form 10-K for the year ended December 31, 1982.
dated October 29, 1982.
10(iii) Employment Agreement between Exhibit 10(iii) to the Company's Annual
The Company and Barry M. Kornblau Report on Form 10-K for the year ended
dated February 1, 1991. December 31, 1990.
10(iv) Employment Agreement between Exhibit 10(iv) to the Company's Annual.
the Company and John S. Schneider Report on Form 10-K for the year ended
dated December 14, 1996. December 31, 1996.
10(v) Employment Agreement between Exhibit 10(v) to the Company's Annual.
the Company and Robert F. Sherman report on Form 10-K for the year ended
dated December 19, 1996. December 31, 1996.
10(vi) Employment Agreement between Exhibit 10(vi) to the Company's Annual
the Company and David L. Johnston Report on Form 10-K for the year ended
dated December 19, 1996. December 31, 1996.
10(vii) 1985 Stock Option Plan, Exhibit 10(vii) to the Company's Quarterly
as amended. Report on Form 10-Q for the quarter ended
March 31, 1997.
10(viii) 1991 Stock Purchase and Loan Plan, Exhibit 10(vii) to the Company's Quarterly
as amended. Report on Form 10-Q for the quarter ended
March 31, 1997.
10(ix) Amended and Restated Agreement Exhibit 10(vi) to the Company's Annual Report on
of Limited Partnership of Form 10-K for the year ended December 31, 1995.
United Dominion Realty, L.P.
Dated as of December 31, 1995.
21
<PAGE>
10(x) Underwriting Agreement with respect Filed herewith.
To 8.60% Series B Cumulative
Redeemable Preferred Stock
12 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges
</TABLE>
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Quarterly Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
United Dominion Realty Trust, Inc.
(registrant)
Date: August 14, 1997 /s/ James Dolphin
- --------------------- -----------------
James Dolphin
Executive Vice President and Chief
Financial Officer
Date: August 14, 1997 /s/ Jerry A. Davis
- --------------------- ------------------
Jerry A. Davis
Vice-President , Corporate Controller
and Principal Accounting Officer
23
EXHIBIT 10(x)
UNITED DOMINION REALTY TRUST, INC.
(a Virginia corporation)
Common Stock and Preferred Stock
UNDERWRITING AGREEMENT
May 23, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY & CO. INCORPORATED
SCOTT & STRINGFELLOW, INC.
As Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial center
North Tower
New York, New York 10281-1326
Dear Sirs:
United Dominion Realty Trust, Inc., a Virginia corporation (the "Compa
y"), proposes to issue and sell shares of common stock, par value $1.00 per
share (the "Common Stock"), and shares of preferred stock without par value (the
"Preferred Stock") from time to time, in one or more offerings on terms to be
determined at the time of sale. Each series of Preferred Stock may vary as to
the specific number of shares, title, stated value, liquidation preference,
issuance price, ranking, dividend rate or rates (or method of calculation),
dividend payment dates, any redemption or sinking fund requirements, any
conversion
<PAGE>
provisions and any other variable terms as set forth in the applicable Articles
of Amendment to the Company's Articles of Incorporation (each, the "Articles of
Amendment") relating to such series of Preferred Stock. As used herein,
"Securities" shall mean the Common Stock and the Preferred Stock. As used
herein, "you" and "your", unless the context otherwise requires, shall mean the
parties to whom this Agreement is addressed together with the other parties, if
any, identified in the applicable Terms Agreement (as hereinafter defined) as
additional co-managers with respect to Underwritten Securities (as hereinafter
defined) purchased pursuant thereto.
Whenever the Company determines to make an offering of Securities
through you or through an underwriting syndicate managed by you, the Company
will enter into an agreement (the "Terms Agreement") providing for the sale of
such Securities (the "Underwritten Securities") to, and the purchase and
offering thereof by, you and such other underwriters, if any, selected by you as
have authorized you to enter into such Terms Agreement on their behalf (the
"Underwriters", which term shall include you whether acting alone in the sale of
the Underwritten Securities or as a member of an underwriting syndicate and any
Underwriter substituted pursuant to Section 10 hereof). The Terms Agreement
relating to the offering of Underwritten Securities shall specify the number of
Underwritten Securities of each class or series to be initially issued (the
"Initial Underwritten Securities"), the names of the Underwriters participating
in such offering (subject to substitution as provided in Section 10 hereof), the
number of Initial Underwritten Securities which each such Underwriter severally
agrees to purchase, the names of such of you or such other Underwriters acting
as co-managers, if any, in connection with such offering, the price at which the
Initial Underwritten Securities are to be purchased by the Underwriters from the
Company, the initial public offering price, the time, date and place of delivery
and payment, any delayed delivery arrangements and any other variable terms of
the Initial Underwritten Securities (including, but not limited to, current
ratings (in the case of Preferred Stock only), designations, liquidation
preferences, conversion provisions, redemption provisions and sinking fund
requirements). In addition, each Terms Agreement shall specify whether the
Company has agreed to grant to the
2
<PAGE>
Underwriters an option to purchase additional Underwritten Securities to cover
over-allotments, if any, and the number of Underwritten Securities subject to
such option (the "Option Securities"). As used herein, the term "Underwritten
Securities" shall include the Initial Underwritten Securities and all or any
portion of the Option Securities agreed to be purchased by the Underwriters as
provided herein, if any. The Terms Agreement, which shall be substantially in
the form of Exhibit A hereto, may take the form of an exchange of any standard
form of written telecommunication between you and the Company. Each offering of
Underwritten Securities through you or through an underwriting syndicate managed
by you will be governed by this Agreement, as supplemented by the applicable
Terms Agreement.
The Company has filed with the Securities and Exchange Com mission (the
"Commission") a registration statement on Form S-3 (No. 333-27221) (which also
constitutes post-effective amendment No. 1 to registration statement No.
33-64275) for the registration of the Securities (including the Underwritten
Securities) and certain of the Company's debt securities under the Securities
Act of 1933, as amended (the "1933 Act"), and the offering thereof from time to
time in accordance with Rule 415 of the rules and regulations of the Commission
under the 1933 Act (the "1933 Act Regulations"), and the Company has filed such
amendments thereto as may have been required prior to the execution of the
applicable Terms Agreement. Such registration statement (as amended, if
applicable) has been declared effective by the Commission. Such registration
statement (as amended, if applicable), on the one hand, and the prospectus
constituting a part thereof and each prospectus supplement relating to the
offering of Underwritten Securities provided to the Underwriters for use
(whether or not such prospectus supplement is required to be filed by the
Company pursuant to Rule 424(b) of the 1933 Act Regulations) (the "Prospectus
Supplement"), on the other hand, including in each case all documents
incorporated therein by reference and the information, if any, deemed to be a
part thereof pursuant to Rule 430A(b) or Rule 434 of the 1933 Act Regulations,
as from time to time amended or supplemented pursuant to the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are
referred to herein as the "Registration Statement" and the "Prospectus",
respectively;
3
<PAGE>
provided, however, that a Prospectus Supplement shall be deemed to have
supplemented the Prospectus only with respect to the offering of Underwritten
Securities to which it relates. All references in this Agreement to financial
statements and schedules and other information which is "contained," "included"
or "stated" in the Registration Statement or the Prospectus (and all other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is or is deemed
to be incorporated by reference in the Registration Statement or the Prospectus,
as the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement or the Prospectus shall be deemed to
mean and include, without limitation, any document filed under the 1934 Act
which is or is deemed to be incorporated by reference in the Registration
Statement or the Prospectus, as the case may be. If the Company elects to rely
on Rule 434 under the 1933 Act Regulations, all references to the Prospectus
shall be deemed to include, without limitation, the form of prospectus and the
abbreviated term sheet, taken together, provided to the Underwriters by the
Company in reliance on Rule 434 under the 1933 Act (the "Rule 434 Prospectus").
If the Company files a registration statement to register a portion of the
Securities and relies on Rule 462(b) for such registration statement to become
effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference to "Registration Statement" herein shall be
deemed to be to both the registration statement referred to above (No.
333-27221) and the Rule 462 Registration Statement, as each such registration
statement may be amended pursuant to the 1933 Act.
Section 1. Representations and Warranties.
(a) The Company represents and warrants to you, as of the date hereof,
and to you and each other Underwriter named in the applicable Terms Agreement,
as of the date thereof (such latter date being referred to herein as a
"Representation Date"), as follows:
(i) The Registration Statement and the Prospectus, at the
time the Registration Statement became effective, complied, and as of
the applicable Representation Date will
4
<PAGE>
comply, in all material respects with the requirements of the 1933 Act
and 1933 Act Regulations; the Registration Statement, at the time the
Registration Statement became effective, did not and as of the
applicable Representation Date will not, contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; the
Prospectus, as of the date hereof does not, and as of the applicable
Representation Date and at Closing Time (as hereinafter defined) will
not, include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through you expressly for use in the Registration Statement
or the Prospectus.
(ii) The documents incorporated or deemed to be incorporated by
reference in the Prospectus pursuant to Item 12 of Form S-3 under the
1933 Act, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission under the 1934 Act (the "1934 Act Regulations"), and, when
read together with the other information in the Prospectus, at the time
the Registration Statement became effective and as of the applicable
Representation Date or Closing Time or during the period specified in
Section 3(f), did not and will not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(iii) The accountants who certified the financial statements and
supporting schedules included in, or incorporated by reference into,
the Registration Statement
5
<PAGE>
and the Prospectus are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) The financial statements and supporting schedules included in,
or incorporated by reference into, the Regis tration Statement and the
Prospectus present fairly in all material respects the financial
position of the Company and its subsidiaries as of the dates indicated
and the results of their operations for the periods specified; except
as otherwise stated in the Registration Statement and the Prospectus,
said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis;
and the supporting schedules included or incorporated by reference in
the Registration Statement and the Prospectus present fairly in all
material respects the information required to be stated therein.
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse change
or development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not occurring in
the ordinary course of business, (B) there have been no transactions or
acquisitions entered into by the Company or any of its subsidiaries
other than those arising in the ordinary course of business, and (C)
except for regular quarterly dividends on the Company's shares of
common stock, or dividends declared, paid or made in accordance with
the terms of any series of the Company's preferred stock, there has
been no dividend or distribution of any kind declared, paid or made by
the Company on any series of its common stock or preferred stock.
(vi) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Virginia, with full power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus; and
the Company is
6
<PAGE>
duly qualified to transact business in all jurisdictions in which the
conduct of its business requires such qualification except where the
failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company.
(vii) Each subsidiary of the Company has been duly organized and is
validly existing as a corporation, limited liability company, limited
partnership or real estate investment trust in good standing under the
laws of the jurisdiction of its incorporation or organization, with
power and authority to own, lease and operate its properties and
conduct its business as described in the Prospectus except where the
failure to so be in good standing would not have a material adverse
effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its
subsidiaries, considered as one enterprise; each such subsidiary is
duly qualified to transact business in all jurisdictions in which the
conduct of its business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the
business of such subsidiary; all of the issued and outstanding capital
stock of each such corporate subsidiary and all of the issued and
outstanding shares of beneficial interest of each such real estate
investment trust subsidiary have been duly authorized and validly
issued, are fully paid and non-assessable and are owned by the Company
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; and the Company and one such corporate
subsidiary are the only members of the Company's limited liability
company or limited partnership subsidiaries and own the entire
membership or general partnership interest in each such subsidiary free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(viii) The authorized, issued and outstanding shares of common and
preferred stock of the Company are as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any, pursuant to
reservations,
7
<PAGE>
agreements or the conversion of convertible securities referred to in
the Registration Statement including, without limitation, the exercise
or grant of stock options pursuant to the Company's stock option plan
or the issuance of shares pursuant to the Company's dividend
reinvestment plan, stock purchase and loan plan or employees' stock
purchase plan); and such shares of common stock and preferred stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable and are not subject to preemptive or other
similar rights.
(ix) The applicable Underwritten Securities have been duly
authorized by the Company for issuance and sale pursuant to this
Agreement and, when issued and delivered pursuant to this Agreement
against payment of the consideration therefor specified in the
applicable Terms Agreement or any Delayed Delivery Contract (as
hereinafter defined), such Underwritten Securities will be duly and
validly issued, fully paid and non-assessable; the Preferred Stock, if
applicable, conforms to the provisions of the Articles of Amendment;
such Underwritten Securities conform in all material respects to all
statements relating thereto contained in the Prospectus; and the
issuance of such Underwritten Securities is not subject to preemptive
or other similar rights.
(x) If applicable, the shares of Common Stock issuable upon
conversion of any of the Preferred Stock will have been duly and
validly authorized and reserved for issuance upon such conversion or
exercise by all necessary corporate action and such shares, when issued
upon such conversion or exercise, will be duly and validly issued,
fully paid and non-assessable, and the issuance of such shares upon
such conversion or exercise will not be subject to preemptive or other
similar rights; the Common Stock so issuable conforms in all material
respects to all statements relating thereto contained in the
Prospectus.
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or By-Laws or in default in
the performance or observance of any
8
<PAGE>
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease (other than as
disclosed in the Prospectus) or other instrument to which the Company
or any of its subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or
any of its subsidiaries is subject and which default is of material
significance in respect of the business or financial condition of the
Company and its subsidiaries considered as one enterprise; and the
execution, delivery and performance of this Agreement and the
applicable Terms Agreement and the consummation of the transactions
contemplated herein and therein and compliance by the Company with its
obligations hereunder and thereunder have been duly authorized by all
necessary corporate action on the part of the Company, and will not
conflict with or constitute a breach of, or default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any
property or assets of the Company or any of its subsidiaries is
subject, or result in any violation of the Articles of Incorporation or
By-Laws of the Company or any law, administrative regulation or
administrative or court decree.
(xii) With respect to all tax periods regarding which the
Internal Revenue Service is or will be entitled to assert any claim,
the Company has met the requirements for qualification as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Company's present and
contemplated operations, assets and income continue to meet such
requirements.
(xiii) The Company is not and, after giving effect to the
offering and sale of the Underwritten Securities, will not be an
"investment company" or an entity "controlled" by
9
<PAGE>
an "investment company" within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act").
(xiv) The conditions for use of registration statements on
Form S-3 set forth in the General Instructions on Form S-3 have been
satisfied and the Company is entitled to use such form for the
transaction contemplated herein and in any applicable Terms Agreement.
(xv) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries which is required to be disclosed in the
Prospectus (other than as disclosed therein) or which might result in
any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, or which
might materially and adversely affect the properties or assets thereof
or which might materially and adversely affect the consummation of this
Agreement or the applicable Terms Agreement or the transactions
contemplated herein and therein; all pending legal or governmental
proceedings to which the Company or any of its subsidiaries is a party
or of which any of their respective property is the subject which are
not described in the Prospectus, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not
material; and there are no contracts or documents of the Company or any
of its subsidiaries which would be required to be filed as exhibits to
the Registration Statement by the 1933 Act or by the 1933 Act
Regulations which have not been filed as exhibits to the Registration
Statement.
(xvi) No authorization, approval or consent of any
governmental authority or agency is necessary in connection with the
consummation by the Company of the transactions contemplated by this
Agreement or the applicable Terms Agreement, except such as may be
required under the 1933 Act
10
<PAGE>
or the 1933 Act Regulations or state securities or Blue Sky laws.
(xvii) The Company has full right, power and authority to
enter into this Agreement, the applicable Terms Agreement and the
Delayed Delivery Contracts, if any, and this Agreement has been, and as
of the applicable Representation Date, the applicable Terms Agreement
and the Delayed Delivery Contracts, if any, will have been, duly
authorized, executed and delivered by the Company.
(xviii) The Company and its subsidiaries have good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property referred to in the Prospectus as
owned or leased by them, in each case free and clear of all liens,
encumbrances, claims, security interests and defects, other than those
referred to in the Prospectus or which are not material in amount. Each
lease of real property by the Company or any of its subsidiaries as
lessor requiring annual lease payments in excess of $100,000 is the
legal, valid and binding obligation of the lessee in accordance with
its terms (except that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and to the Bankruptcy Act) and the
rents which at present have remained due and unpaid for more than 30
days are not payable under leases such that, were no further rental
payments to be received under such leases, the financial condition or
results of operations of the Company and its subsidiaries would be
materially adversely affected thereby. The Company has no reason to
believe that the lessee under any lease (excluding leases for which
rent payments due for the remainder of such lease are less than
$500,000) calling for annual lease payments in excess of $500,000 is
not financially capable of performing its obligations thereunder.
(xix) The Company has filed all Federal, local and foreign
income tax returns which have been required to be
11
<PAGE>
filed and has paid all taxes indicated by said returns and all
assessments received by it to the extent that such taxes have become
due and are not being contested in good faith.
(xx) The Company and each of its subsidiaries hold all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their respective
businesses; and neither the Company nor any of its subsidiaries has
infringed any patents, patent rights, trade names, trademarks or
copyrights, which infringement is material to the business of the
Company or any of its subsidiaries.
(xxi) The Company has no knowledge of (a) the unlawful
presence of any hazardous substances, hazardous materials, toxic
substances or waste materials (collectively, "Hazardous Materials") on
any of the properties owned by it or any of its subsidiaries, or of (b)
any unlawful spills, releases, discharges or disposal of Hazardous
Materials that have occurred or are presently occurring off such
properties as a result of any construction on or operation and use of
such properties which presence or occurrence would materially adversely
affect the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company or any of its
subsidiaries. In connection with the construction on or operation and
use of the properties owned by the Company or any of its subsidiaries,
the Company represents that it has no knowledge of any material failure
to comply with all applicable local, state and federal environmental
laws, regulations, ordinances and administrative and judicial orders
relating to the generation, recycling, reuse, sale, storage, handling,
transport and disposal of any Hazardous Materials.
(b) Any certificate signed by any officer of the Company and delivered to you or
to counsel for the Underwriters in connection with the offering of the
Underwritten Securities shall be deemed a representation and warranty by the
Company to each Underwriter participating in such offering as to the matters
covered thereby
12
<PAGE>
on the date of such certificate and, unless subsequently amended or
supplemented, at the applicable Representation Date subsequent thereto.
Section 2. Purchase and Sale.
(a) The several commitments of the Underwriters to purchase the
Underwritten Securities pursuant to the applicable Terms Agreement shall be
deemed to have been made on the basis of the representations and warranties
herein contained and shall be subject to the terms and conditions herein set
forth.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company may grant, if so provided in the applicable Terms Agreement relating to
the Initial Underwritten Securities, an option to the Underwriters named in such
Terms Agreement, severally and not jointly, to purchase up to the number of
Option Securities set forth therein at the same price per Option Security as is
applicable to the Initial Underwritten Securities less an amount equal to any
dividend paid by the Company and payable on the Initial Underwritten Securities
and not payable on such Option Securities. Such option, if granted, will expire
30 days (or such lesser number of days as may be specified in the applicable
Terms Agreement) after the Representation Date relating to the Initial
Underwritten Securities, and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Underwritten
Securities upon notice by you to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time, date and place of delivery (a "Date of Delivery") shall be determined
by you, but shall not be later than seven full business days nor earlier than
two full business days after the exercise of said option, nor in any event prior
to Closing Time, unless otherwise agreed upon by you and the Company. If the
option is exercised as to all or any portion of the Option Securities, each of
the Underwriters, acting severally and not jointly, will purchase
13
<PAGE>
that proportion of the total number of Option Securities then being purchased
which the number of Initial Underwritten Securities each such Underwriter has
severally agreed to purchase as set forth in the applicable Terms Agreement
bears to the total number of Initial Underwritten Securities (except as
otherwise provided in the applicable Terms Agreement), subject to such
adjustments as you in your discretion shall make to eliminate any sales or
purchases of fractional Underwritten Securities.
(c) Payment of the purchase price for, and delivery of, the
Underwritten Securities to be purchased by the Underwriters shall be made at the
office of Brown & Wood LLP, 58th Floor, One World Trade Center, New York, New
York 10048-0557, or at such other place as shall be agreed upon by you and the
Company, at 10:00 A.M., New York City time, on the third business day (unless
postponed in accordance with the provisions of Section 10 herein) following the
date of the applicable Terms Agreement or, if pricing takes place after 4:30
P.M., New York City time, on the date of the applicable Terms Agreement, on the
fourth business day (unless postponed in accordance with the provisions of
Section 10) following the date of the applicable Terms Agreement or at such
other time as shall be agreed upon by you and the Company (each such time and
date of payment and delivery being referred to herein as the "Closing Time"). In
addition, in the event that any or all of the Option Securities are purchased by
the Underwriters, payment of the purchase price for, and delivery of
certificates representing, such Option Securities, shall be made at the
above-mentioned offices of Brown & Wood LLP, or at such other place as shall be
agreed upon by you and the Company on each Date of Delivery as specified in the
notice from you to the Company. Unless otherwise specified in the applicable
Terms Agreement, payment shall be made to the Company by certified or official
bank check or checks in New York Clearing House funds payable to the order of
the Company against delivery to you for the respective accounts of the
Underwriters of the certificates for the Underwritten Securities to be purchased
by them. The Underwritten Securities shall be in such authorized denominations
and registered in such names as you may request in writing at least one business
day prior to the Closing Time or Date of Delivery, as the case may be. The
Underwritten Securities, which may be in temporary form, will be made available
for examination
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and packaging by you on or before 3:00 P.M. on the first business day prior to
the Closing Time or the Date of Delivery, as the case may be.
If authorized by the applicable Terms Agreement, the Underwriters named
therein may solicit offers to purchase Underwritten Securities from the Company
pursuant to delayed delivery contracts ("Delayed Delivery Contracts")
substantially in the form of Exhibit B hereto with such changes therein as the
Company may approve. As compensation for arranging Delayed Delivery Contracts,
the Company will pay to you at Closing Time, for the respective accounts of the
Underwriters, a fee specified in the applicable Terms Agreement for each of the
Underwritten Securities for which Delayed Delivery Contracts are made at the
Closing Time as is specified in the applicable Terms Agreement. Any Delayed
Delivery Contracts are to be with institutional investors of the types described
in the Prospectus. At the Closing Time, the Company will enter into Delayed
Delivery Contracts (for not less than the minimum number of Underwritten
Securities per Delayed Delivery Contract specified in the applicable Terms
Agreement) with all purchasers proposed by the Underwriters and previously
approved by the Company as provided below, but not for an aggregate number of
Underwritten Securities in excess of that specified in the applicable Terms
Agreement. The Underwriters will not have any responsibility for the validity or
performance of Delayed Delivery Contracts.
You shall submit to the Company, at least two business days prior to
the Closing Time, the names of any institutional investors with which it is
proposed that the Company will enter into Delayed Delivery Contracts and the
number of Underwritten Securities to be purchased by each of them, and the
Company will advise you, at least one business day prior to the Closing Time, of
the names of the institutions with which the making of Delayed Delivery
Contracts is approved by the Company and the number of Underwritten Securities
to be covered by each such Delayed Delivery Contract.
The number of Underwritten Securities agreed to be purchased by the
several Underwriters pursuant to the applicable Terms Agreement shall be reduced
by the number of Underwritten
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Securities covered by Delayed Delivery Contracts, as to each Underwriter as set
forth in a written notice delivered by you to the Company; provided, however,
that the total number of Underwritten Securities to be purchased by all
Underwriters shall be the total number of Underwritten Securities covered by the
applicable Terms Agreement, less the number of Underwritten Securities covered
by Delayed Delivery Contracts.
SECTION 3. Covenants of the Company. The Company covenants with you,
and with each Underwriter participating in the offering of Underwritten
Securities, as follows:
(a) If the Company does not elect to rely on Rule 434 under the 1933
Act Regulations, immediately following the execution of the applicable Terms
Agreement, the Company will prepare a Prospectus Supplement setting forth the
number of Underwritten Securities covered thereby and their terms not otherwise
specified in the Prospectus pursuant to which the Underwritten Securities are
being issued, the names of the Underwriters participating in the offering and
the number of Underwritten Securities which each severally has agreed to
purchase, the names of the Underwriters acting as co-managers in connection with
the offering, the price at which the Underwritten Securities are to be purchased
by the Underwriters from the Company, the initial public offering price, if any,
the selling concession and reallowance, if any, any delayed delivery
arrangements, and such other information as you and the Company deem appropriate
in connection with the offering of the Underwritten Securities; and the Company
will promptly transmit copies of the Prospectus Supplement to the Commission for
filing pursuant to Rule 424(b) of the 1933 Act Regulations and will furnish to
the Underwriters named therein as many copies of the Prospectus (including such
Prospectus Supplement) as you shall reasonably request. If the Company elects to
rely on Rule 434 under the 1933 Act Regulations, immediately following the
execution of the applicable Terms Agreement, the Company will prepare an
abbreviated term sheet that complies with the requirements of Rule 434 under the
1933 Act Regulations and will provide the Underwriters with copies of the form
of Rule 434 Prospectus, in such number as you shall reasonably request, and, if
necessary, promptly file or transmit for filing with the Commission the form
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of Prospectus complying with Rule 434(c)(2) of the 1933 Act Regulations in
accordance with Rule 424(b) of the 1933 Act Regulations.
(b) The Company will notify you immediately, and confirm such notice in
writing, of (i) the effectiveness of any amendment to the Registration
Statement, (ii) the transmittal to the Commission for filing of any Prospectus
Supplement or other supplement or amendment to the Prospectus to be filed
pursuant to the 1934 Act, (iii) the receipt of any comments from the Commission,
(iv) any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for additional
information, and (v) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; and the Company will make every reasonable effort
to prevent the issuance of any such stop order and, if any stop order is issued,
to obtain the lifting thereof at the earliest possible moment.
(c) At any time when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act in connection with sales of the Underwritten
Securities, the Company will give you notice of its intention to file or prepare
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus, whether pursuant to the 1933 Act, 1934 Act or otherwise
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with an offering of Underwritten Securities which
differs from the Prospectus on file at the Commission at the time the
Registration Statement first becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act
Regulations, or any abbreviated term sheet prepared in reliance on Rule 434 of
the 1933 Act Regulations), and will furnish you with copies of any such
amendment or supplement or other documents proposed to be used or filed a
reasonable amount of time prior to such proposed filing and, unless required by
law, will not file or use any such amendment or supplement or other documents in
a form to which you or counsel for the Underwriters shall reasonably object.
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(d) The Company will deliver to you a signed copy of the Registration
Statement as originally filed and of each amendment thereto (including exhibits
filed therewith and documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the 1933 Act) as you reasonably request and will also
deliver to each Underwriter a conformed copy of the Registration Statement as
originally filed and of each amendment thereto (including documents incorporated
by reference but without exhibits).
(e) The Company will furnish to each Underwriter, from time to time
during the period when the Prospectus is required to be delivered under the 1933
Act or the 1934 Act in connection with sales of the Underwritten Securities,
such number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request for the purposes contemplated by the 1933
Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations.
(f) If at any time when the Prospectus is required to be delivered
under the 1933 Act or the 1934 Act in connection with sales of the Underwritten
Securities any event shall occur or condition exist as a result of which it is
necessary, in the opinion of counsel for the Underwriters, to amend or
supplement the Prospectus in order that the Prospectus will not include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend or
supplement the Registration Statement or the Prospectus in order to comply with
the requirements of the 1933 Act or the 1933 Act Regulations, then the Company
will promptly prepare and file with the Commission such amendment or supplement,
whether by filing documents pursuant to the 1933 Act, the 1934 Act or otherwise,
as may be necessary to correct such untrue statement or omission or to make the
Registration Statement and Prospectus comply with such requirements.
(g) If applicable, the Company will endeavor, in cooperation with the
Underwriters, to qualify the Underwritten
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Securities and the Common Stock issuable upon conversion of the Preferred Stock,
if any, for offering and sale under the applicable securities laws and real
estate syndication laws of such states and other jurisdictions of the United
States as you may designate; and in each jurisdiction in which the Underwritten
Securities and the Common Stock issuable upon conversion of the Preferred Stock,
if any, have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue such
qualification in effect for so long as may be required for the distribution of
the Underwritten Securities and the Common Stock issuable upon conversion of the
Preferred Stock, if any; provided, however, that the Company shall not be
obligated to qualify as a foreign corporation in any jurisdiction where it is
not so qualified.
(h) With respect to each sale of Underwritten Securities, the Company
will make generally available to its security holders as soon as practicable,
but not later than 90 days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of Rule 158 of the
1933 Act Regulations) covering a twelve month period beginning not later than
the first day of the Company's fiscal quarter next following the "effective
date" (as defined in such Rule 158) of the Regis tration Statement.
(i) The Company will continue to elect to qualify as a "real estate
investment trust" under the Code and will use its best efforts to continue to
meet the requirements to qualify as a "real estate investment trust."
(j) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act or the 1934 Act in connection with sales of the
Underwritten Securities, will file promptly all documents required to be filed
with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the
time periods prescribed by the 1934 Act and the 1934 Act Regulations.
(k) The Company will not, during a period of 90 days from the date of
the applicable Terms Agreement, with respect to the Underwritten Securities
covered thereby, without your prior written consent, offer or sell, grant any
option for the sale of,
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or enter into any agreement to sell, any securities of the same class or series
or ranking on a parity with such Underwritten Securities (other than the
Underwritten Securities which are to be sold pursuant to such Terms Agreement),
or if such Terms Agreement relates to Preferred Stock that is convertible into
Common Stock, any Common Stock or any security convertible into Common Stock
(except for Common Stock issued pursuant to reservations, agreements, employee
benefit plans, dividend reinvestment plans, or employee and director stock
option plans), except as may otherwise be provided in the applicable Terms
Agreement.
(l) If the applicable Terms Agreement relates to Common Stock, the
Company will cause each officer of the Company who owns Common Stock to agree
not to offer for sale, sell or otherwise dispose of any shares of Common Stock
during the 90 days following the date of such Terms Agreement without your prior
written consent.
(m) If the Preferred Stock is convertible into Common Stock, the
Company will reserve and keep available at all times, free of preemptive rights
or other similar rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to satisfy any obligations to issue such shares
upon conversion of the Preferred Stock.
(n) If the Preferred Stock is convertible into Common Stock, the
Company will use its best efforts to list the shares of Common Stock issuable
upon conversion of the Preferred Stock on the New York Stock Exchange or such
other national exchange on which the Company's Common Stock is then listed.
(o) The Company will use its best efforts to list the Underwritten
Securities on the New York Stock Exchange.
(p) The Company will use the net proceeds received by it from the
sale of the Underwritten Securities in the manner specified in the Prospectus
under the caption "Use of Proceeds."
Section 4. Payment of Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement or the
applicable Terms Agreement, including (i)
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the printing and filing of the Registration Statement as originally filed and of
each amendment thereto, (ii) the cost of printing, filing and distributing to
the Underwriters copies of this Agreement and the applicable Terms Agreement,
(iii) the preparation, issuance and delivery of the Underwritten Securities to
the Underwriters, (iv) the fees and disbursements of the Company's counsel and
accountants, (v) if applicable, the qualification of the Underwritten Securities
and the Common Stock issuable upon conversion of the Preferred Stock, if any,
under securities laws and real estate syndication laws in accordance with the
provisions of Section 3(g), including filing fees and the fees and disbursements
of counsel for the Underwriters in connection therewith and in connection with
the preparation of the Blue Sky Survey, (vi) the printing and delivery to the
Under writers of copies of the Registration Statement as originally filed and of
each amendment thereto, and of the Prospectus and any amendments or supplements
thereto, including each abbreviated term sheet delivered by the Company pursuant
to Rule 434 of the 1933 Act Regulations, (vii) the cost of reproducing and
distributing to the Underwriters copies of the Blue Sky Survey, (viii) any fees
charged by nationally recognized statistical rating organizations for the rating
of the Underwritten Securities, (ix) the fees and expenses, if any, incurred
with respect to the listing of the Underwritten Securities or the Common Stock
issuable upon conversion of the Preferred Stock, if any, on any national
securities exchange, and (x) the fees and expenses, if any, incurred with
respect to any filing with the National Association of Securities Dealers, Inc.
If the applicable Terms Agreement is canceled or terminated by you in
accordance with the provisions of Section 5 or Section 9(b)(i), the Company
shall reimburse the Underwriters named in such Terms Agreement for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
Section 5. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase Underwritten Securities pursuant to
the applicable Terms Agreement are subject to the accuracy of the
representations and warranties of the Company herein contained, to the accuracy
of the statements of
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the Company's officers made in any certificate pursuant to the provisions
hereof, to the performance by the Company of all of its covenants and other
obligations hereunder, and to the following further conditions:
(a) At Closing Time, (i) no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission and (ii) if
Preferred Stock is being offered, the rating assigned by any nationally
recognized statistical rating organization to any preferred stock of the Company
as of the date of the applicable Terms Agreement shall not have been lowered
since such date nor shall any such rating organization have publicly announced
that it has placed the Company on what is commonly termed a "watch list" for
possible downgrading.
(b) At Closing Time, you shall have received:
(1) The favorable opinion, dated as of Closing Time, of Hunton
& Williams, counsel for the Company, in form and substance satisfactory
to counsel for the Underwriters, to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation and in good standing under
the laws of the Commonwealth of Virginia, with corporate power
and authority to own its properties and conduct its business
as described in the Prospectus as amended or supplemented.
(ii) The Company is duly qualified to transact business in
all jurisdictions in which the conduct of its business
requires such qualification, or in which the failure to
qualify would have a materially adverse effect upon the
business of the Company.
(iii) Each subsidiary of the Company has been duly
organized and is validly existing as a corporation, limited
liability company, limited partnership or real estate
investment trust in good standing under the laws
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of the jurisdiction of its incorporation or organization, with
power and authority to own its properties and conduct its
business as described in the Prospectus as amended or
supplemented except where the failure to so be in good
standing would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its
subsidiaries, considered as one enterprise; each such
subsidiary is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires
such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of such
subsidiary; all of the issued and outstanding capital stock of
each such corporate subsidiary and all of the issued and
outstanding shares of beneficial interest of each such real
estate investment trust subsidiary have been duly authorized
and validly issued, are fully paid and non-assessable and are
owned by the Company or a corporate subsidiary of the Company
free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; and the Company and/or one
such corporate subsidiary are the only members or general
partners of the Company's limited liability company or limited
partnership subsidiaries and own the entire membership or
general partnership interest in each such subsidiary free and
clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(iv) The Company has authorized and outstanding
capital stock as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any,
pursuant to reservations, agreements or the conversion of
convertible securities referred to in the Registration
Statement including, without limitation, the exercise or grant
of stock options pursuant to the Company's stock option plan
or the issuance of shares pursuant to the Company's dividend
reinvestment plan, stock purchase and loan plan or employees'
stock purchase plan); the authorized capital stock of the
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Company has been duly authorized; and the outstanding shares
of capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable and are
not subject to preemptive or other similar rights arising by
operation of law or, to the best of such counsel's knowledge,
otherwise.
(v) The applicable Underwritten Securities have been duly
and validly authorized by all necessary corporate action and,
when issued and delivered pursuant to this Agreement against
payment of the consideration therefor specified in the
applicable Terms Agreement or the Delayed Delivery Contracts,
the applicable Underwritten Securities will be validly issued,
fully paid and non-assessable; the Underwritten Securities are
not subject to preemptive or other similar rights arising by
operation of law or, to the best of such counsel's knowledge,
otherwise; and the Preferred Stock, if applicable, conforms to
the provisions of the Articles of Amendment.
(vi) If applicable, the shares of Common Stock issuable upon
conversion of any of the Preferred Stock have been duly and
validly authorized and reserved for issuance upon such
conversion or exercise by all necessary corporate action and
such shares, when issued upon such conversion or exercise,
will be duly and validly issued and will be fully paid and
non-assessable, and the issuance of such shares upon such
conversion or exercise will not be subject to preemptive or
other similar rights arising by operation of law or, to the
best of such counsel's knowledge, otherwise.
(vii) Each of this Agreement, the applicable Terms
Agreement and the Delayed Delivery Contracts, if any, has been
duly authorized, executed and delivered by the Company.
(viii) The Registration Statement is effective under the
1933 Act and, to the best of such counsel's
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knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by the
Commission.
(ix) The Registration Statement and the Prospectus,
excluding the documents incorporated by reference therein, as
of their respective effective or issue dates, comply as to
form in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations; it being understood,
however, that no opinion need be rendered with respect to the
financial statements, schedules and other financial and
statistical data included or incorporated by reference in the
Registration Statement or the Prospectus. If applicable, the
Rule 434 Prospectus conforms in all material aspects to the
requirements of Rule 434 under the 1933 Act Regulations.
(x) Each document filed pursuant to the 1934 Act (other
than the financial statements, schedules and other financial
and statistical data included therein, as to which no opinion
need be rendered) and incorporated or deemed to be
incorporated by reference in the Prospectus complied when so
filed (or as when amended prior to the Representation Date) as
to form in all material respects with the 1934 Act and the
1934 Act Regulations.
(xi) If applicable, the relative rights, preferences,
interests and powers of the Preferred Stock are as set forth
in the Articles of Amendment relating thereto, and all such
provisions are valid under applicable Virginia law; and the
form of certificate used to evidence the Preferred Stock is in
due and proper form under applicable Virginia law, and
complies in all material respects with all applicable
statutory requirements.
(xii) The Underwritten Securities and, if applicable, the
Common Stock issuable upon conversion
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of the Preferred Stock conform in all material respects to the
statements relating thereto contained in the Prospectus.
(xiii) To the best of such counsel's knowledge and
information, there are no legal or governmental proceedings
pending or threatened which are required to be disclosed in
the Prospectus, other than those dis closed therein, and all
pending legal or governmental proceedings to which the Company
or any of its subsidiaries is a party or of which any of the
property of the Company or its subsidiaries is the subject
which are not described in the Prospectus, including ordinary
routine litigation incidental to the business, are, considered
in the aggregate, not material to the business of the Company
and its subsidiaries considered as one enterprise.
(xiv) To the best of such counsel's knowledge and
information, there are no contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments required
to be described or referred to in the Registration Statement
or the Prospectus or to be filed as exhibits to the
Registration Statement other than those described or referred
to therein or filed as exhibits thereto, the descriptions
thereof or references thereto are correct, and, to the best of
such counsel's knowledge and information, no default exists in
the due performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument so described, referred to or filed which would have
a material adverse effect on the condition, financial or
otherwise, or on the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as
one enterprise.
(xv) No authorization, approval or consent of any court or
governmental authority or agency is required that has not been
obtained in connection with the
26
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consummation by the Company of the transactions contemplated
by this Agreement and the applicable Terms Agreement, except
such as may be required under the 1933 Act, the 1934 Act and
state securities laws or real estate syndication laws.
(xvi) To the best of such counsel's knowledge and
information, the execution and delivery of this Agreement and
the applicable Terms Agreement and the consummation of the
transactions contemplated herein and therein and compliance by
the Company with its obligations hereunder and thereunder will
not conflict with or constitute a breach of, or default under
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any
of its subsidiaries pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which the Company or any of its subsidiaries is a party or by
which they may be bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject,
nor will such action result in violation of the provisions of
the Articles of Incorporation or By-Laws of the Company or any
law, administrative regulation or court decree.
(xvii) The Company is not required to be registered under
the 1940 Act.
(xviii) The statements under the caption "Description of
Capital Stock" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or
matters of law, are accurate summaries and fairly and
correctly present the information called for with respect to
such documents and matters.
(2) The favorable opinion, dated as of Closing Time, of Hunton
& Williams, counsel for the Company, in form and substance satisfactory
to counsel for the Underwriters, to the effect that the Company has
qualified to be taxed as a real estate investment trust pursuant to
Sections 856 through 860 of the Code for its most recently ended fiscal
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year and for the four fiscal years immediately preceding such year, and
the Company's organization and contemplated method of operation are
such as to enable it to continue to so qualify for its current fiscal
year.
(3) The favorable opinion, dated as of the Closing Time, of Brown &
Wood LLP, counsel for the Underwriters, with respect to the due
organization of the Company and the matters set forth in (v) to (ix),
inclusive, and (xii), (xv) and (xviii) of subsection (b)(1) of this
Section. In rendering their opinion, Brown & Wood LLP may rely as to
matters of Virginia law upon the opinion of Hunton & Williams.
(4) In giving their opinions required by subsections (b)(1)
and (b)(3), respectively, of this Section, Hunton & Williams and Brown
& Wood LLP shall each additionally state that nothing has come to their
attention that would lead them to believe that the Registration
Statement or any amendment thereto (excluding the financial statements
and financial schedules included or incorporated by reference therein,
as to which such counsel need express no belief), at the time it became
effective or at the time an Annual Report on Form 10-K was filed by the
Company with the Commission (whichever is later), or at the
Representation Date, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (excluding the
financial statements and financial schedules included or incorporated
by reference therein, as to which such counsel need express no belief),
at the Representation Date or at Closing Time, included or includes an
untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) At Closing Time, there shall not have been, since the date of the applicable
Terms Agreement or since the respective dates
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as of which information is given in the Prospectus, any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business; and you
shall have received a certificate of the President, Chairman and Chief Executive
Officer and the Executive Vice President and Chief Financial Officer of the
Company, dated as of such Closing Time, to the effect that (i) there has been no
such material adverse change and (ii) the representations and warranties in
Section 1 are true and correct with the same force and effect as though such
Closing Time were a Representation Date. As used in this Section 5(c), the term
"Prospectus" means the Prospectus in the form first used to confirm sales of the
Underwritten Securities.
(d) At the time of execution of the applicable Terms Agreement, you
shall have received from Ernst & Young LLP a letter dated such date, in form and
substance satisfactory to you, to the effect that (i) they are independent
accountants with respect to the Company and its subsidiaries within the meaning
of the 1933 Act and the 1934 Act and the applicable published rules and
regulations thereunder; (ii) it is their opinion that the consolidated financial
statements and supporting schedules of the Company and its subsidiaries included
or incorporated by reference in the Registration Statement and the Prospectus
and covered by their opinions therein comply in form in all material respects
with the applicable accounting requirements of the 1933 Act and the 1934 Act and
the related published rules and regulations thereunder; (iii) based upon limited
procedures set forth in detail in such letter (which shall include, without
limitation, the procedures specified by the American Institute of Certified
Public Accountants for a review of interim financial information as described in
SAS No. 71, Interim Financial Information, with respect to the unaudited
condensed consolidated financial statements of the Company and its subsidiaries
included or incorporated by reference in the Registration Statement), nothing
came to their attention that caused them to believe that (A) any material
modifications should be made to the unaudited financial statements and financial
statement schedules of the Company and its subsidiaries included or incorporated
by
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reference in the Registration Statement and the Prospectus for them to be in
conformity with generally accepted accounting principles, (B) the unaudited
financial statements and financial statement schedules of the Company included
or incorporated by reference in the Registration Statement and the Prospectus do
not comply as to form in all material respects with the applicable accounting
requirements of the 1934 Act and the related published rules and regulations
thereunder, or (C) at a specified date not more than three days prior to the
date of the applicable Terms Agreement, there has been any change in the capital
stock of the Company or in the notes payable or mortgage notes payable of the
Company or any decrease in the total assets of the Company, as compared with the
amounts shown in the most recent consolidated balance sheet included or
incorporated by reference in the Registration Statement and the Prospectus or,
during the period from the date of the most recent consolidated statement of
operations included or incorporated by reference in the Registration Statement
and the Prospectus to a specified date not more than three days prior to the
date of the applicable Terms Agreement, there were any decreases, as compared
with the corresponding period in the preceding year, in rental income or in the
total or per share amounts of net income or income before gains (losses) on
investments and extraordinary items of the Company, except in all instances for
changes, increases or decreases which the Registration Statement and the
Prospectus disclose have occurred or may occur; (iv) they have compared the
information in the Prospectus under selected captions with the disclosure
requirements of Regulation S-K and on the basis of limited procedures specified
in such letter nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not conform in
all material respects with the disclosure requirements of Items 301, 402 and
503(d) of Regulation S-K; and (v) in addition to the audit referred to in their
opinions and the limited procedures referred to in clause (iii) above, they have
carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which are
included or incorporated by reference in the Registration Statement and the
Prospectus and which are specified by you, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other
30
<PAGE>
records of the Company and its subsidiaries identified in such letter.
(e) At Closing Time, you shall have received from Ernst & Young LLP a
letter dated as of such Closing Time to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the "specified date" referred to shall be a date not more
than three days prior to such Closing Time.
(f) At Closing Time, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the
Underwritten Securities as herein contemplated and related proceedings, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the
Underwritten Securities as herein contemplated shall be satisfactory in form and
substance to you and counsel for the Underwriters.
(g) In the event the Underwriters exercise their option provided in a
Terms Agreement as set forth in Section 2(b) hereof to purchase all or any
portion of the Option Securities, the representations and warranties of the
Company contained herein and the statements in any certificates furnished by the
Company hereunder shall be true and correct as of each Date of Delivery, and you
shall have received:
(1) A certificate, dated such Date of Delivery, of the
President, Chairman and Chief Executive Officer and the Executive Vice
President and Chief Financial Officer of the Company, in their
capacities as such, confirming that the certificate delivered at
Closing Time pursuant to Section 5(c) hereof remains true and correct
as of such Date of Delivery.
(2) The favorable opinions of Hunton & Williams, counsel for
the Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of
31
<PAGE>
Delivery, relating to the Option Securities and otherwise substantially
to the same effect as the opinions required by Sections 5(b)(1) and
5(b)(2) hereof.
(3) The favorable opinion of Brown & Wood LLP, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities and otherwise to the same effect as the opinion required by
Section 5(b)(3) hereof.
(4) A letter from Ernst & Young LLP, in form and substance
satisfactory to you and dated such Date of Delivery, substantially the
same in scope and substance as the letter furnished to you pursuant to
Section 5(e) hereof, except that the "specified date" in the letter
furnished pursuant to this Section 5(g)(4) shall be a date not more
than three days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, the applicable Terms Agreement
may be terminated by you by notice to the Company at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4 hereof.
Section 6. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act as follows:
(1) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any un true statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) or Rule 434 of the 1933 Act Regulations, if applicable,
or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact included in any preliminary
prospectus or the
32
<PAGE>
Prospectus (or any amendment or supplement thereto) or the omission, or
alleged omission therefrom, of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(2) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission
referred to in subsection (1) above, or any such alleged untrue
statement or omission, if such settlement is effected with the written
consent of the Company; and
(3) against any and all expense whatsoever, as incurred
(including, the fees and disbursements of counsel chosen by you),
reasonably incurred in investigating, preparing or defending against
any litigation, or any investigation or proceedings by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under (1) or (2) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, against any and all loss, liability, claim,
damage and
33
<PAGE>
expense described in the indemnity contained in subsection (a) of this Section,
but only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through you expressly for use in
the Registration Statement (or any amendment thereto) or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of such
action. In no event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
Section 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company and the
Underwriters with respect to the offering of the Underwritten Securities shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
one or more of the Underwriters in respect of such offering, as incurred, in
such proportions that the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the applicable Prospectus Supplement in respect of such offering
bears to the initial public offering price appearing thereon and the Company is
34
<PAGE>
responsible for the balance; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Notwithstanding the provisions of this
Section 7, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Underwritten Securities
purchased by it pursuant to the applicable Terms Agreement and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay in respect of such losses,
liabilities, claims, damages and expenses. For purposes of this Section 7, each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Company.
Section 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or the applicable Terms Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any termination of this Agreement, or
investigation made by or on behalf of any Underwriter or any controlling person,
or by or on behalf of the Company and shall survive delivery of and payment for
the Underwritten Securities to the Underwriters.
Section 9. Termination of Agreement. (a) This Agreement (excluding the
applicable Terms Agreement) may be terminated for any reason at any time by the
Company or by you upon the giving of 30 days' written notice of such termination
to the other party hereto; provided that this Agreement may not be terminated
prior to the Closing Time set forth in any applicable Terms Agreement.
(b) You may also terminate the applicable Terms Agreement, by notice to
the Company, at any time at or prior to the Closing Time (i) if there has been,
since the date of such Terms
35
<PAGE>
Agreement or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or any
outbreak of hostilities or other calamity or crisis or escalation of any
existing hostilities, the effect of which is such as to make it, in your
judgment, impracticable to market the Underwritten Securities or enforce
contracts for the sale of the Underwritten Securities, or (iii) if trading in
any of the securities of the Company has been suspended by the Commission or the
New York Stock Exchange, or if trading generally on either the New York Stock
Exchange or the American Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by Federal, New York or Virginia authorities, or (iv) if Preferred
Stock is being offered and the rating assigned by any nationally recognized
statistical rating organization to any preferred stock or debt of the Company as
of the date of the applicable Terms Agreement shall have been lowered since such
date or if any such rating organization shall have publicly announced that it
has placed any preferred stock or debt of the Company on what is commonly termed
a "watch list" for possible downgrading. As used in this Section 9(b), the term
"Prospectus" means the Prospectus in the form first used to confirm sales of the
Underwritten Securities.
(c) In the event of any such termination, (x) the covenants set forth
in Section 3 with respect to any offering of Underwritten Securities shall
remain in effect so long as any Underwriter owns any such Underwritten
Securities purchased from the Company pursuant to the applicable Terms Agreement
and (y) the covenant set forth in Section 3(h) hereof, the provisions of Section
4 hereof, the indemnity and contribution agreements set forth in Sections 6 and
7 hereof, and the provisions of Sections 8 and 13 hereof shall remain in effect.
36
<PAGE>
Section 10. Default by One or More of the Underwriters. If one or
more of the Underwriters shall fail at the Closing Time to purchase the
Underwritten Securities which it or they are obligated to purchase under the
applicable Terms Agreement (the "Defaulted Securities"), then you shall have the
right, within 48 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, you shall not have completed
such arrangements within such 48-hour period, then:
(a) if the total number of Defaulted Securities does not exceed 10% of
the total number of Underwritten Securities to be purchased pursuant to such
Terms Agreement, the non-defaulting Underwriters named in such Terms Agreement
shall be obligated to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the total number of Defaulted Securities exceeds 10% of the
total number of Underwritten Securities to be purchased pursuant to such Terms
Agreement, the applicable Terms Agreement shall terminate without liability on
the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default under this Agreement and
the applicable Terms Agreement.
In the event of any such default which does not result in a termination
of the applicable Terms Agreement, either you or the Company shall have the
right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or the
Prospectus or in any other documents or arrangements.
Section 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed
37
<PAGE>
c/o Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
North Tower, World Financial Center, New York, New York 10281, attention of
Tjarda van S. Clagett, Director; and notices to the Company shall be directed to
it at 10 South 6th Street, Richmond, Virginia 23219, attention of John P.
McCann, President, Chairman and Chief Executive Officer.
Section 12. Parties. This Agreement and the applicable Terms Agreement
shall inure to the benefit of and be binding upon you and the Company and any
Underwriter who becomes a party to such Terms Agreement, and their respective
successors. Nothing expressed or mentioned in this Agreement or the applicable
Terms Agreement is intended or shall be construed to give any person, firm or
corporation, other than those referred to in Sections 6 and 7 and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or such Terms Agreement or any provision herein
or therein contained. This Agreement and the applicable Terms Agreement and all
conditions and provisions hereof and thereof are intended to be for the sole and
exclusive benefit of the parties hereto and thereto and their respective
successors and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Underwritten Securities from any Underwriter shall
be deemed to be a successor by reason merely of such purchase.
Section 13. Governing Law and Time. This Agreement and the applicable
Terms Agreement shall be governed by and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed in
said State. Specified times of day refer to New York City time.
Section 14. Counterparts. This Agreement and the applicable Terms
Agreement may be executed in one or more counterparts, and if executed in more
than one counterpart the executed counterparts shall constitute a single
instrument.
38
<PAGE>
2 If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counter part hereof, whereupon this
instrument along with all counter parts will become a binding agreement between
you and the Company in accordance with its terms.
Very truly yours,
UNITED DOMINION REALTY TRUST, INC.
By:
--------------------------------
Name: James Dolphin
Title: Executive Vice President
and Chief Financial Officer
CONFIRMED AND ACCEPTED,
as of the date first
above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY & CO. INCORPORATED
SCOTT & STRINGFELLOW, INC.
For themselves and as Representatives
of the several Underwriters named in
the Terms Agreement
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
------------------------------------------
39
<PAGE>
Name: Tjarda van S. Clagett
Title: Director
40
<PAGE>
Exhibit A
_______ Shares
UNITED DOMINION REALTY TRUST, INC.
(a Virginia corporation)
[Title of Securities]
TERMS AGREEMENT
Dated: _____________, 199__
To: United Dominion Realty Trust, Inc.
10 South 6th Street
Richmond, Virginia 23219
Attention: President, Chairman and
Chief Executive Officer
Dear Sirs:
We (the "Representative[s]") understand that United Dominion Realty
Trust, Inc., a Virginia corporation (the "Company"), proposes to issue and sell
the number of its [shares of common stock (the "Common Stock")] [shares of
preferred stock (the "Preferred Stock")] (such [Common Stock]) [Preferred Stock]
being collectively hereinafter [also] referred to as the "Underwritten
Securities"). Subject to the terms and conditions set forth or incorporated by
reference herein, the underwriters named below (the "Underwriters") offer to
purchase, severally and not jointly, the respective numbers of [Initial
Underwritten Securities (as defined in the Underwriting Agreement referred to
below)] set forth below opposite their respective names, and a proportionate
share of Option Securities (as defined in the Underwriting Agreement referred to
below) to the extent any are purchased, at the purchase price set forth below.
A-1
<PAGE>
Number of Shares
of Initial
Underwriter Underwritten Securities
----------
Total $
==========
<TABLE>
<CAPTION>
The Underwritten Securities shall have the following terms:
[Common Stock] [Preferred Stock]
<S> <C>
Title of Securities:
Number of Shares:
[Current Ratings:]
[Dividend Rate: [$ ] [ %], Payable:]
[Stated Value:]
[Liquidation Preference:]
[Ranking:]
Public Offering Price Per Share: $ [, plus accumulated dividends, if any, from , 19 .]
Purchase Price Per Share: $ [, plus accumulated dividends, if any, from , 19 .]
[Conversion Provisions:]
[Redemption Provisions:]
[Sinking Fund Requirements:]
Number of Option Securities, if any, that may be purchased by the Underwriters:
Delayed Delivery Contracts: [authorized] [not authorized]
[Date of Delivery:
Minimum Contract:
Maximum Number of Shares:
Fee:] Additional co-managers, if any:
Other terms:
Closing time, date and location:
</TABLE>
All the provisions contained in the document attached as Annex A hereto
entitled "United Dominion Realty Trust, Inc.- Common Stock and Preferred
Stock-Underwriting Agreement" are hereby incorporated by reference in their
entirety herein and shall be deemed to be a part of this Terms Agreement to the
same extent as if such provisions had been set forth in full herein. Terms
defined in such document are used herein as therein defined.
A-2
<PAGE>
Please accept this offer no later than o'clock P.M. (New York City
time) on by signing a copy of this Terms Agreement in the space set
forth below and returning the signed copy to us.
Very truly yours,
[NAME[S] OF REPRESENTATIVE[S]
By:_________________________
Acting on behalf of
[itself] [themselves] and
the other named
Underwriters.
Accepted:
UNITED DOMINION REALTY TRUST, INC.
By:_________________________
Name:
Title:
A-3
<PAGE>
Exhibit B
UNITED DOMINION REALTY TRUST, INC.
(a Virginia corporation)
[Title of Securities]
DELAYED DELIVERY CONTRACT
_____________, 19__
United Dominion Realty Trust, Inc.
10 South 6th Street
Richmond, Virginia 23219
Attention: President, Chairman and
Chief Executive Officer
Dear Sirs:
The undersigned hereby agrees to purchase from United Dominion Realty
Trust, Inc. (the "Company"), and the Company agrees to sell to the undersigned
on __________, 19__ (the "Delivery Date"),
of the Company's [insert title of security] (the "Securities"), offered by the
Company's Prospectus dated __________, 19__, as supplemented by its Prospectus
Supplement dated ___________, 19__, receipt of which is hereby acknowledged, at
a purchase price of [$__________], on the Delivery Date, and on the further
terms and conditions set forth in this contract.
Payment for the Securities which the undersigned has agreed to purchase
on the Delivery Date shall be made to the Company or its order by certified or
official bank check in New York Clearing House funds at the office of
B-1
<PAGE>
, on the Delivery Date, upon delivery to the
undersigned of the Securities to be purchased by the undersigned in definitive
form and in such denominations and registered in such names as the undersigned
may designate by written or telegraphic communication addressed to the Company
not less than five full business days prior to the Delivery Date.
The obligation of the undersigned to take delivery of and make payment
for Securities on the Delivery Date shall be subject only to the conditions that
(1) the purchase of Securities to be made by the undersigned shall not on the
Delivery Date be prohibited under the laws of the jurisdiction to which the
undersigned is subject and (2) the Company, on or before __________, 199_, shall
have sold to the Underwriters of the Securities (the "Underwriters") such
principal amount of the Securities as is to be sold to them pursuant to the
Terms Agreement dated __________, 199_ between the Company and the Underwriters.
The obligation of the undersigned to take delivery of and make payment for
Securities shall not be affected by the failure of any purchaser to take
delivery of and make payments for Securities pursuant to other contracts similar
to this contract. The undersigned represents and warrants to you that its
investment in the Securities is not, as of the date hereof, prohibited under the
laws of any jurisdiction to which the undersigned is subject and which govern
such investment.
Promptly after completion of the sale to the Underwriters, the Company
will mail or deliver to the undersigned at its address set forth below notice to
such effect, accompanied by a copy of the opinion of counsel for the Company
delivered to the Underwriters in connection therewith.
By the execution hereof, the undersigned represents and warrants to the
Company that all necessary action for the due execution and delivery of this
contract and the payment for and purchase of the Securities has been taken by it
and no further authorization or approval of any governmental or other regulatory
authority is required for such execution, delivery, payment or purchase, and
that, upon acceptance hereof by the Company and mailing or delivery of a copy as
provided below, this contract
B-2
<PAGE>
will constitute a valid and binding agreement of the undersigned in accordance
with its terms.
This contract will inure to the benefit of and be binding upon the
parties hereto and their respective successors, but will not be assignable by
either party hereto without the written consent of the other.
It is understood that the Company will not accept Delayed Delivery
Contracts for a number of Securities in excess of ________ and that the
acceptance of any Delayed Delivery Contract is in the Company's sole discretion
and, without limiting the foregoing, need not be on a first-come, first-served
basis. If this contract is acceptable to the Company, it is requested that the
Company sign the form of acceptance on a copy hereof and mail or deliver a
signed copy hereof to the undersigned at its address set forth below. This will
become a binding contract between the Company and the undersigned when such copy
is so mailed or delivered.
This Agreement shall be governed by the laws of the State of New York.
Yours very truly,
-----------------------------
(Name of Purchaser)
By:__________________________
(Title)
-----------------------------
-----------------------------
(Address)
Accepted as of the date first above written.
UNITED DOMINION REALTY TRUST, INC.
B-3
<PAGE>
By:__________________________
(Title)
PURCHASER-PLEASE COMPLETE AT TIME OF SIGNING
The name and telephone number of the representative of the Purchaser
with whom details of delivery on the Delivery Date may be discussed are as
follows: (Please print.)
Telephone No.
(including
Name Area Code)
B-4
<PAGE>
6,000,000 Shares
UNITED DOMINION REALTY TRUST, INC.
(a Virginia corporation)
8.60% Series B Cumulative
Redeemable Preferred Stock
(No Par Value)
(Liquidation Preference $25.00 Per Share
TERMS AGREEMENT
Dated: May 23, 1997
To: United Dominion Realty Trust, Inc.
10 South 6th Street
Richmond, Virginia 23219
Attention: President, Chairman
and Chief Executive Officer
Ladies and Gentlemen:
We (the "Representatives") understand that United Dominion Realty
Trust, Inc., a Virginia corporation (the "Company"), proposes to issue and sell
shares of its Series B Cumulative Redeemable Preferred Stock, no par value (the
"Preferred Stock") (such Preferred Stock being hereinafter referred to as the
"Underwritten Securities"). Subject to the terms and conditions set forth or
incorporated by reference herein, the underwriters named below (the
"Underwriters") offer to purchase, severally and not jointly, the respective
numbers of Initial Underwritten Securities (as defined in the Underwriting
Agreement dated May 23, 1997 (the "Underwriting Agreement")) set forth below
opposite their respective names, and a proportionate share of Option Securities
(as defined in the Underwriting Agreement) to the extent any are purchased, at
the purchase price set forth below.
<PAGE>
Number of Shares
of Initial
Underwriter Underwritten Securities
- ----------- -----------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated 1,320,000
A.G. Edwards & Sons, Inc. 1,320,000
Morgan Stanley & Co. Incorporated 1,320,000
Scott & Stringfellow, Inc. 1,320,000
Alex. Brown & Sons Incorporated 60,000
Cowen & Company 60,000
Dain Bosworth Incorporated 60,000
Davenport & Company LLC 60,000
Dean Witter Reynolds Inc. 60,000
EVEREN Securities, Inc. 60,000
The Ohio Company 60,000
Oppenheimer & Co., Inc. 60,000
Piper Jaffray Inc. 60,000
Raymond James & Associates, Inc. 60,000
Tucker Anthony Incorporated 60,000
Wheat, First Securities, Inc. 60,000
---------
6,000,000
=========
The Underwritten Securities shall have the following terms:
Title of Securities: 8.60% Series B Cumulative Redeemable Preferred Stock
Number of Shares: 6,000,000
Current Ratings: Standard & Poor's Ratings Services - BBB; Moody's Investors
Service, Inc. - Baa2.
Dividend Rate: 8.60% per annum
Dividend Payment Dates: The last day of February, May, August, and November of
each year, commencing August 31, 1997.
Liquidation Preference: $25.00 per share
Public Offering Price Per Share: $25.00, plus accrued dividends, if any, from
May 23, 1997.
2
<PAGE>
Purchase Price Per Share: $24.2125, plus accrued dividends, if any, from May
23, 1997.
Conversion Provisions: Not convertible into any other securities of the
Company.
Optional Redemption Provisions: The Preferred Stock is not redeemable prior to
May 29, 2007. On and after May 29, 2007, the Preferred Stock may be redeemed
for cash at the option of the Company, in whole or in part, at a redemption
price of $25.00 per share plus accrued and unpaid dividends, if any, thereon.
The redemption price (other than the portion thereof consisting of accrued and
unpaid dividends) is payable solely out of the sale proceeds of other capital
stock of the Company.
Mandatory Redemption Provisions: None, except in connection with a violation of
certain ownership restrictions.
Sinking Fund Requirements: None
Number of Option Securities, if any, that may be purchased by the Underwriters:
900,000
Delayed Delivery Contracts: Not authorized
Closing time, date and location: 9:00 a.m. New York City time on May 29, 1997 at
the offices of Brown & Wood LLP, One World Trade Center, New York, New York
10048.
All the provisions contained in the document attached as Annex A hereto
entitled "United Dominion Realty Trust, Inc. Common Stock and Preferred Stock -
Underwriting Agreement" are hereby incorporated by reference in their entirety
herein and shall be deemed to be a part of this Terms Agreement to the same
extent as if such provisions had been set forth in full herein. Terms defined in
such document are used herein as therein defined.
3
<PAGE>
Please accept this offer no later than five o'clock P.M. (New York City
time) on May 23, 1997 by signing a copy of this Terms Agreement in the space set
forth below and returning the signed copy to us.
Very truly yours,
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
A.G. EDWARDS & SONS, INC.
MORGAN STANLEY & CO. INCORPORATED
SCOTT & STRINGFELLOW, INC.
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: _____________________________
Name: Tjarda van S. Clagett
Title: Director
Acting on behalf of themselves and
the other named Underwriters.
Accepted:
UNITED DOMINION REALTY TRUST, INC.
By:_________________________
Name: James Dolphin
Title: Executive Vice President
and Chief Financial Officer
4
Exhibit 12
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
---------- --------- -------- --------
<S> <C>
Income before extraordinary item $14,677 $8,166 $31,790 $17,725
Add:
Portion of rents representative
of the interest factor 105 88 194 176
Interest on indebtedness 19,769 11,237 38,919 21,883
--------- --------- -------- -------
Earnings $34,551 $19,491 $70,903 $39,784
========== ========= ======== ========
Fixed charges and preferred stock dividend:
Interest on indebtedness $19,769 $11,237 $38,919 $21,883
Capitalized interest 721 124 1,230 254
Portion of rents representative
of the interest factor 105 88 194 176
---------- --------- -------- --------
Fixed charges 20,595 11,449 40,343 22,313
---------- --------- -------- --------
Add:
Preferred stock dividend 3,611 2,428 6,039 4,856
---------- --------- -------- --------
Combined fixed charges and preferred stock dividend $24,206 $13,877 $46,382 $27,169
========== ========= ======== ========
Ratio of earnings to fixed charges 1.68x 1.70x 1.76x 1.78x
Ratio of earnings to combined fixed charges
and preferred stock dividend 1.43 1.40 1.53 1.46
</TABLE>
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